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This paper examines issues that came before the Appellate Body in two disputes, US–Zeroing (EC) and the US–Zeroing (Japan). The core issue in both the disputes involves the US Department of Commerce's practice of zeroing. The scope of the claims in both cases was considerably broader than in the previous WTO disputes involving zeroing. The two arguments in support of the practice were that (a) the practice of zeroing has been a standard administrative practice for many years and (b) the Antidumping Agreement does not clearly prohibit it and hence deference must be given to national authorities. While, the Appellate Body was arguably correct in prohibiting the use of zeroing under the main methods of Article 2.4.2 AD Agreement as well as in various reviews, we consider that it overreached in considering zeroing to be in violation of Article 2.4 AD Agreement and possibly as inconsistent with Article 2.4.2, exceptional method. Finally, while the AB found zeroing in reviews violated Article 2.4.2 AD Agreement, we believe it would have been preferable for the AB to have limited its findings of inconsistency to Article 9.3 AD Agreement.
1 US–Zeroing (Japan), WT/DS322/R 20 September 2006 and WT/DS322AB 9 January 2007.
2 Previous cases in which the AB ruled concerning zeroing are: European Communities – Anti-dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/AB/R of 1 March 2001 [EC–Bed Linen]; United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/R of 11 August 2004 [United States–Softwood Lumber V]; United States – Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing), WT/DS294/AB/R of 18 April 2006 [United States–Zeroing (EC)]; United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/RW of 15 August 2006 [United States–Softwood Lumber V (Compliance)]; United States – Measures Relating to Zeroing and Sunset Reviews, WT/DS322/AB/R of 9 January 2007 [United States–Zeroing (Japan)]. A sixth AB report on zeroing came out on 30 April 2008, United States – Final Anti-Dumping Measures on Stainless Steel from Mexico. In addition to these AB reports, zeroing was discussed by the Panels in EC – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R of 7 March 2003, United States – Anti-Dumping Measure on Shrimp from Ecuador, WT/DS335/R of 30 January 2007, and United States – Measures Relating to Shrimp from Thailand, WT/DS343/R of 29 February 2008. See also Edwin Vermulst, The WTO Anti-Dumping Agreement, in Oxford Commentaries on International Law: Oxford Commentaries on the GATT/WTO Agreements (Oxford: Oxford University Press, 2005), pp. 51–62; Edwin Vermulst and Daniel Ikenson, ‘Zeroing Under the WTO Anti-Dumping Agreement: Where Do We Stand?’, Global Trade and Customs Journal, 2(6), 2007, Kluwer Law International, pp. 231–242.
3 US–Zeroing (EC), WT/DS294/AB/R 18 April 2006 and WT/DS294/AB/Corr.1 20 August 2007; WT/DS294/R 31 October 2005.
4 Formally known as the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994.
5 US–Zeroing (EC), Panel, paras. 2.2, 2.4–2.5.
6 Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade 1994.
7 US–Zeroing (EC), Panel, para. 2.6.
8 US–Zeroing (Japan), Panel, para. 2.1.
9 Administrative reviews in this context refer to the ‘periodic review of the amount of Anti-dumping duty’ pursuant to Section 751(a)(1) of the Tariff Act, which requires the administering authority to review and determine the amount of any antidumping duty at least once during each 12-month period beginning on the anniversary of the date of publication of an antidumping duty order if a request for such a review has been received.
10 European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/AB/R of 1 March 2001 [EC–Bed Linen].
11 United States – Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing), WT/DS294/AB/R of 18 April 2006 [United States–Softwood Lumber V].
12 US–Zeroing (EC), Panel, para. 4.121.
13 US–Zeroing (EC), Panel, para. 7.46.
14 Ibid., para. 7.142.
15 The textual arguments raised by Japan concerned inter alia: (1) the fact that the term margin of dumping in Article 9 must be interpreted in light of Article 2 AD Agreement; (2) that the phrase ‘during the investigation’ in Article 2.4.2 does not limit the applicability of this provision to original investigations; and (3) that the AD Agreement does not exclude the application of the comparison bases provided for in Article 2.4.2 AD Agreement to Articles 9 and 11 AD Agreement.
16 US–Zeroing (Japan), Panel, para. 4.198.
17 United States – Sunset Review of Anti-dumping Duties in Corrosion-Resistant Carbon Steel Flat Products from Japan, WT/DS244/AB/R 9 January 2004 [US–Corrosion-Resistant Steel Sunset Reviews].
18 US–Zeroing (Japan), Panel, para. 7.230.
19 US–Zeroing (EC), Panel, para. 7.15.
21 Ibid., para. 7.132.
22 US–Zeroing (Japan), Panel, para. 7.28.
23 Ibid., para. 7.147.
24 Ibid., para. 7.163.
25 Ibid., para. 7.168.
26 Ibid., para. 7.231.
27 US–Zeroing (EC), Panel, paras. 7.30–7.31.
28 Ibid., para. 7.32. Furthermore, having adjudicated the claims of the EC under Article 2.4.2 AD Agreement, the Panel considered it unnecessary to rule on its claims under Article 2.4 AD Agreement.
29 Ibid., para. 7.69.
30 Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R, of 17 December 2004.
31 Ibid., para. 7.106.
32 US–Zeroing (EC), Panel, para. 7.253.
33 US–Zeroing (EC), AB, paras. 158–159.
34 The Panel reviewed US–Corrosion-Resistant Steel from Japan; US–OCTG Sunset Reviews; and US–Zeroing (EC). US–Zeroing (Japan), Panel, paras. 7.37–7.42.
35 Ibid., para. 7.53.
36 United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/R of 13 April 2004 [US–Softwood Lumber V (Article 21.5)].
37 US–Zeroing (Japan), Panel, para. 7.112.
38 United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/R of 11 August 2004 [United States–Softwood Lumber V (21.5)].
39 US–Zeroing (Japan), AB, para. 137.
40 A related discussion is found in Edwin Vermulst and Daniel Ikenson, ‘Zeroing Under the WTO Anti-Dumping Agreement: Where Do We Stand?’, Global Trade and Customs Journal, 2(6), 2007, Kluwer Law International, pp. 231–242 and Edwin Vermulst, The WTO Anti-Dumping Agreement, in Oxford Commentaries on International Law: Oxford Commentaries on the GATT/WTO Agreements (Oxford: Oxford University Press, 2005), pp. 51–62.
41 Net prices are the exporter's prices following a series of adjustments. For example, all expenses incurred to promote, sell, store, and transport the products are deducted from both export price and domestic price. In addition, various other adjustments, such as level of trade and accounting for physical differences are made.
42 See US–Softwood Lumber V (21.5), AB.
43 See US–Zeroing (EC), Panel, para. 2.5; US–Zeroing (EC), AB, para. 2.
44 We note that this approach, as adopted by the USDOC, does however include all comparable transactions in the denominator (even though it zeroes many transactions in the numerator).
45 It should be noted that the prices of the nondumped export sales would be included in the calculation of the total export price, used as the denominator in the calculation of the dumping margin.
46 The margin is computed by dividing the dumping amount (55) by the total export sales value (900).
47 In practice, each model is given a product-control number. The product-code numbers are normally established by the administering authorities to distinguish different models or types of the product under investigation. Typically, each feature or characteristic of the product under investigation that has a significant impact on the price or the cost of the product will then be given a unique code number. Before a weighted-average dumping margin per producer is calculated, dumping amounts will first be calculated for each product-code number exported by the producer concerned. While beyond the scope of this paper, it is noted that product-code comparisons are used for the calculation of injury margins, too, and in this context, zeroing may occur also.
48 We note that, in almost all cases, the authorities assess injury because of dumped imports by cumulating the HS codes. Authorities do not generally evaluate the impact of subsets of HS codes separately let alone the impact of specific subcategories of a single HS code, except when they calculate injury margins.
49 The margin is computed by dividing the dumping amount (30) by the total export sales value (900).
50 OI=original Article 5 investigation; AR=Article 9.3.1 review; SR=Article 11.3 sunset review; NSR=Article 9.5 new-shipper review.
51 WW=Weighted-average-to-weighted-average comparison; TT=Transaction-to-transaction comparison; WT=Weighted-average-to-transaction comparison.
52 See also Merit E. Janow and Robert W. Staiger, ‘European Communities – Anti-dumping Duties on Imports of Cotton-Type Bed Linen from India’, in The WTO Case Law of 2001 – The American Law Institute Reporters' Studies (Henrik Horn and Petros C. Mavroidis eds., Cambridge: Cambridge University Press 2003), pp. 115–139.
53 EC–Bed Linen, AB, para. 55.
54 EC–Bed Linen, AB, para. 62.
55 EC–Bed Linen, AB, para. 51.
56 EC–Bed Linen, AB, para. 53.
57 See also Chad P. Bown and Alan O. Sykes, ‘The Zeroing Issue: a critical analysis of Softwood V’, in The American Law Institute – The WTO Case Law of 2004–2005: Legal and Economic Analysis (Henrik Horn and Petros C. Mavroidis eds., Cambridge: Cambridge University Press 2008), pp. 121–142.
58 US–Softwood Lumber V, AB, para. 98. See also US–Zeroing (EC), Panel, paras. 7.31–7.32.
59 US–Softwood Lumber V (21.5), AB.
60 US–Softwood Lumber V (21.5), AB, paras. 87–88.
61 US–Softwood Lumber V (21.5), AB, paras. 122–124.
62 US–Zeroing (EC), AB, para. 192.
63 The evidence included the DOC determinations in the 16 administrative reviews, the standard USDOC computer program used to calculate dumping margins, expert opinions, and the US's recognition that it had been unable to identify any instances in which the USDOC had given credit for negative dumping.
64 Transparency, as expressed via the Sunset Policy Bulletin, is a key reason why the US previously lost several AB challenges to its sunset-review practice.
65 US–Zeroing (Japan), AB, para. 162.
66 For example, in the EU.
67 EC–Bed Linen, Panel, para. 6.96; Thailand–H-Beams from Poland, Panel, para. 7.121.
68 Bown and Sykes, page 129.
69 Janow and Staiger, page 118 (footnotes omitted).
70 Given the apparent desire to particularly identify the transactions with low prices, it is unclear whether authorities would actually compute the margins using this method.
71 The only remaining issue would appear to be whether some form of zeroing (although the AB would presumably not call it so) is still possible under the exceptional method of Article 2.4.2. This is explored in more detail below.
72 Bown, Sykes, op. cit., at 132–133.
73 The transaction-to-transaction method is rarely used by the EC and the US (and most other countries). Indeed, the US arguably only used it, for example, in Softwood Lumber, to see whether it might offer an alternative to the prohibition of model zeroing under the weighted-average-to-weighted-average method.
74 Indeed, in United States–Stainless Steel Plate in Coils and Stainless Steel Sheet and Strip from Korea, Panel, paras. 6.121–6.123, the Panel ruled that use of multiple averaging periods could be appropriate in order to insure that comparability is not affected by differences in the timing of sales within the averaging periods in the home and export markets. This might be the case, for example, where changes in normal value or export price during the course of the investigation period are combined with differences in the relative weights by volume within the investigation period of sales in the home market as compared to the export market. The use of weighted averages for the entire investigation period might then indicate the existence of a margin of dumping that did not reflect the situation at any given moment within the investigation period.
75 US–Zeroing (Japan), AB, para. 135.
76 The three customers' total transaction value is 750; given the seven transactions the weighted average is 107.
77 With zeroing, the margin would be 5.6% (50/900).
* United States – Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing) [hereinafter: US–Zeroing (EC)] (WT/DS294/AB/R 18 April 2006 and WT/DS294/AB/Corr.1 20 August 2007; WT/DS294/R 31 October 2005).
** United States – Measures Relating to Zeroing and Sunset Reviews [hereinafter: US–Zeroing (Japan)] (WT/DS322/AB/R 9 January 2007; WT/DS322/R 20 September 2006).
The views expressed in this paper are those of the authors and all omissions and errors are also of the authors. The authors would like to thank the participants at the ALI meeting in Geneva and Juhi Sud for their helpful comments.
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