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Guilt by association: US – Measures Relating to Shrimp from Thailand and US – Customs Bond Directive for Merchandise Subject to Anti-Dumping/Countervailing Duties

  • THOMAS J. PRUSA (a1) and EDWIN VERMULST (a2)
Abstract
Abstract

The United States's enhanced continuous bond requirement [EBR] for goods subject to anti-dumping and countervailing duties was the focus of this dispute. Because of perceived problems with its ability to collect anti-dumping duties, the US amended its bonding requirements in 2004. Under the new rules, importers were required to secure a bond for an amount equal to the cash-deposit rate in effect on the date of entry of the merchandise multiplied by the importer's value of imports from the previous year, as well as pay cash deposits equal to the amount of anti-dumping duties per entry. The US claimed the additional deposit was reasonable and necessary to guarantee duty payment in case the anti-dumping duty increased during the administrative review. Thailand and India claimed that the additional deposit was unreasonable and an additional action against dumping and was therefore impermissible under GATT 1994 and the Anti-Dumping Agreement. The Appellate Body upheld the Panel's findings that while the Ad Note to Article VI:2 and 3 GATT 1994 authorizes the imposition of security requirements during the period following the imposition of an anti-dumping duty order, the additional security requirement resulting from the application of the EBR to shrimp was not ‘reasonable’ within the meaning of the Ad Note. The Appellate Body reversed the legal interpretation by the Panel that there is no obligation under the Ad Note to assess the risk of default by individual importers; however, the AB upheld the Panel's finding that the EBR is not ‘necessary’ within the meaning of Article XX(d) of the GATT 1994. As a result, the AB upheld the Panel's conclusion that the application of the EBR to shrimp was inconsistent with Article 18(1) of the Anti-Dumping Agreement because it was inconsistent with the Ad Note to Article VI:2 and 3 of the GATT 1994 and not justified by Article XX(d). We consider the AB's legal and economic reasoning to be largely correct. The US employed a sledgehammer to kill a mosquito and the AB used the concepts of ‘reasonableness’ in the Ad Note and ‘necessity’ in Article XX(d) to reject what fundamentally was a lack of proportionality, while leaving the door open for more reasonable application of bonding requirements.

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*Email: prusa@econ.rutgers.edu
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1 If no review is requested, the entries are liquidated at the rate in effect at the time of entry.

2 Notwithstanding that importer B did not owe any ADD for past entries, importer B will still have to pay the cash-deposit rate levied on exporter X for future entries. Importer B could then get a refund after conclusion of the next administrative review if the same pricing facts continue to exist.

3 United States – Measures Relating to Shrimp from Thailand [hereinafter: US–Shrimp (Thailand)] (WT/DS343/AB/R, 16 July 2008) AB, footnote 194. According to the United States, while historically annual uncollected anti-dumping duties from importers had been relatively low (rarely exceeding US$10 million a year), outstanding anti-dumping liability for 2004 alone reached an unprecedented US$225 million for agriculture and aquaculture cases, that is for merchandise similar to shrimp.

4 Importers also were required to post the standard continuous bond requirement. The standard continuous bond amount is $50,000 or 10% of the total taxes and fees paid in the previous 12-month period whichever is greater.

5 United States Government Accountability Office, Antidumping and Countervailing Duties: Congress and Agencies Should Take Additional Steps to Reduce Substantial Shortfalls in Duty Collection, GAO-08-391, March 2008 [hereinafter GAO (2008)], p. 9.

6 US–Shrimp (Thailand) AB, para. 190.

7 United States Government Accountability Office, International Trade: Customs' Revised Bonding Policy Reduces Risk of Uncollected Duties, but Concerns about Uneven Implementation and Effects Remain, GAO-07-50, October, 2006 [hereinafter GAO (2006)], p. 1.

8 US – Shrimp (Thailand) AB, footnote 194.

9 See Henrik Horn and Petros C. Mavroidis (2006), ‘United States – Continued Dumping and Subsidy Offset Act of 2000’, in Henrik Horn and Petros C. Mavroidis (eds.), The WTO Case Law of 2003 – The American Law Institute Reporters' Studies, Cambridge: Cambridge University Press.

10 Details on the rules governing CDSOA duty disbursement can be found on the US Customs website, http://www.cbp.gov/xp/cgov/trade/priority_trade/add_cvd/cont_dump/.

11 According to GAO, more than $1 billion in CDSOA payments were made during the 2001–2004 period. See United States Government Accountability Office, International Trade: Issues and Effects of Implementing the Continued Dumping and Subsidy Offset Act, GAO-05-979, September 2005.

12 US–Shrimp (Thailand) AB, para. 59.

13 United States – Customs Bond Directive for Merchandise Subject to Anti-Dumping/Countervailing Duties [hereinafter: US–Customs Bond (India)] (WT/DS345/AB/R, 16 July 2008) Panel, para. 2.2.

14 GAO (2008), p. 27.

15 US Department of Commerce investigations A-351-838, A-570-893, A-331-802, A-533-840, A-549-822, and A-552-802; US International Trade Commission investigations 731-TA-1063-731-TA-1068.

16 GAO (2006), p. 4.

17 See Edwin Vermulst (2005), ‘The WTO Anti-Dumping Agreement’, Oxford Commentaries on International Law: Oxford Commentaries on the GATT/WTO Agreements, Oxford: Oxford University Press, pp. 51–62; Vermulst Edwin and Daniel Ikenson (2007), ‘Zeroing under the WTO Anti-Dumping Agreement: Where Do We Stand?’, Global Trade and Customs Journal, 2(6): 231242; Merit E. Janow and Robert W. Staiger (2003), ‘European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India’, in Henrik Horn and Petros C. Mavroidis (eds.), The WTO Case Law of 2001 – The American Law Institute Reporters' Studies, Cambridge: Cambridge University Press; Bown Chad and Alan Sykes (2008), ‘The Zeroing Issue: A Critical Analysis of Softwood V’, World Trade Review, 7(1): 121142; Thomas J. Prusa and Edwin Vermulst, ‘United States – Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing) and United States – Measures Relating to Zeroing and Sunset Reviews?’, forthcoming World Trade Review, 2009.

18 US–Shrimp (Thailand) Panel, paras. 7.77–7.79; US–Customs Bond (India) Panel, paras. 7.51–7.53.

19 US–Shrimp (Thailand) Panel, paras. 7.150–7.151; US–Customs Bond (India) Panel, paras. 7.128–7.129.

20 US–Customs Bond (India) Panel, paras. 7.143–7.146.

21 US–Customs Bond (India) Panel, para. 7.227.

22 US–Customs Bond (India) and US–Shrimp (Thailand) Panel, para. 1.5.

23 US–Customs Bond (India), Panel Report, WT/DS345/R, 29 February 2008 and US–Shrimp (Thailand), Panel Report, WT/DS343/R, 29 February 2008.

24 US–Shrimp (Thailand) Panel, para. 7.41.

25 US–Shrimp (Thailand) AB, paras. 196–201.

26 Ibid., paras. 203–204.

27 Ibid., para. 219.

28 Ibid., para. 220.

29 Ibid., para. 221.

30 Ibid., para. 221.

31 Ibid., para. 225.

32 Ibid., para. 230.

33 Ibid., para. 231.

34 Ibid., para. 231.

35 Ibid., para. 232.

36 Ibid., para. 232.

37 Ibid., para. 233.

38 Ibid., para. 233.

39 Ibid., para. 249.

40 Ibid., para. 253.

41 Ibid., para. 258.

42 Ibid., para. 258.

43 Ibid., para. 258.

44 Ibid., para. 259.

45 Ibid., para. 260.

46 Ibid., para. 263.

47 Ibid., para. 264.

48 Ibid., para. 266.

49 Ibid., para. 267.

50 Ibid., para. 269.

51 Ibid., para. 276.

52 Ibid., para. 276.

53 Ibid., para. 281.

54 Ibid., para. 304.

55 Ibid., para. 313.

56 Ibid., para. 314.

57 Ibid., para. 316.

58 Ibid., para. 316.

59 Ibid., para. 317.

60 Ibid., para. 317.

61 Anti-dumping duties are typically imposed in the form of ad valorem – percentage – duties. If, for example, in the original investigation period the normal value was $100, while the export price was $80, the dumping duty normally imposed would be [($100-$80)/$80=] 25%. Suppose that the exporter raises his export price to the non-dumped level of $100, the importer will have to pay a deposit of $25. If, on the other hand, the exporter continues to sell at $80, the importer will have to pay a deposit of only $20. Suppose that the exporter decides to sell at an export price of $60, e.g. dump even more, the importer would pay a deposit of only $15.

62 Some users with a prospective system, such as the EU, have enacted special provisions in their anti-dumping law to act against ‘absorption’ of anti-dumping duties by the exporter. However, empirical evidence indicates that anti-absorption investigations are relatively rare.

63 Suppose, for example, that an investigation is initiated on 14 March 2009; the investigation period would then typically be the calendar year 2008. The final results of the investigation would probably be published around 13 June 2010. Thus, by that time, the original dumping findings would be based on data of a year and a half ago.

64 Unless interested parties request an interim review.

65 US–Shrimp (Thailand) AB, paras. 184–185.

66 Ibid., paras. 186–189.

67 Ibid., para. 195.

68 Although WTO law does not recognize the principle of proportionality as such, it seems to us that certain concepts implicitly incorporate this principle.

69 US – Shrimp (Thailand) AB, paras. 221–222.

70 Ibid., para. 317.

71 US–Shrimp (Thailand) Panel, para. 7.143; US–Customs Bond (India) Panel, para. 7.120.

72 US–Shrimp (Thailand) Panel, para. 6.40.

73 US–Shrimp (Thailand) Panel, para. 7.143; US–Customs Bond (India) Panel, para. 7.121.

74 US–Shrimp (Thailand) Panel, para. 7.144; US–Customs Bond (India) Panel, para. 7.122.

75 GAO (2008), p. 17.

76 Ibid., p. 16.

77 Ibid., pp. 13–16.

78 Legislation was put forth in July 2005 to close the ‘new shipper’ loophole. See Vivian C. Jones, ‘New Shipper Reviews’, CRS Report for Congress, 5 October 2005.

79 Only three countries were mentioned in GAO (2008) as being major exporters with significant payment default, China ($550 m), Argentina ($11 m), and Vietnam ($12 m). All other countries accounted for just $40 m in defaults (page 15).

80 US–Shrimp (Thailand) AB, para. 59.

81 See Thomas J. Prusa (1997), ‘The trade effects of US antidumping actions’, in Robert C. Feenstra (ed.), Effects of US Trade Protection and Promotion Policies, Chicago: University of Chicago Press; Prusa Thomas J. (2001), ‘On the Spread and Impact of Antidumping’, Canadian Journal of Economics 34(3): 591611. For an analysis focusing solely on agricultural products, see Colin A. Carter and Caroline Gunning-Trant (2009), ‘US Trade Remedy Law and Agriculture: Trade Diversion and Investigation Effects’, University of California, Davis Agricultural & Resource Economics working paper, January 2009.

82 Chad P. Bown (2007) ‘Global Antidumping Database’ (Version 3.0), June, available online at www.brandeis.edu/~cbown/global_ad/.

83 US–Shrimp (Thailand) AB, para. 263.

84 See Annex C, Executive Summaries of the First Written Submission of the Third Parties, WT/DS345/R, (18 May 2007), p. C-21.

85 GAO (2006), p. 6.

86 Ibid., p. 6.

87 GAO (2008), p. 23.

The views expressed in this paper are those of the authors and all omissions and errors are also of the authors. We would like to thank Ken Pierce and Daniel Porter for their very helpful comments and suggestions.

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