| Introduction | | | | comparisons be aggregated to represent what EC |
| It is seldom that US antidumping law is not under | | | | would consider as 'product as a whole'. US further in |
| public glare. Few trade policies engender more | | | | wake of US-Softwood Lumber V case argued that |
| bitterness and international ill will than the US | | | | the obligation of calculating the margin of dumping for |
| Antidumping law. For many years the law has been a | | | | the product as a whole is limited to use of average |
| weapon in the hands of the domestic producers | | | | to average comparison method during the |
| seeking to control import competition. Principally, the | | | | investigation stage. |
| purpose of antidumping law is to ensure competition | | | | US also argued that by virtue of its text Article 2.4.2 |
| by punishing the foreign firms that sell their products | | | | applies only to investigations and that the panel rightly |
| at 'unfair' price in other markets. In practice, the | | | | concluded that the reference to Article 2 in Article 9.3 |
| administration of antidumping law is entirely separate | | | | does not override any limitation contended in Article |
| from the theoretical justification of means to redress | | | | 2.4.2. US also appealed before the Appellate Body |
| the unfair competition. Time and again there have | | | | mainly on arguing that the panel erred in finding that |
| been several cases before WTO in respect of | | | | zeroing methodology is a measure that can be |
| antidumping duties. One such case is US 'zeroing | | | | challenged, as such, in the dispute settlement |
| methodology' in antidumping duties investigation. On | | | | proceedings. Further United States was of the view |
| 18th April 2006, the Appellate Body at WTO released | | | | that Panel erred in finding that the zeroing |
| its decision on the Zeroing antidumping case initiated | | | | methodology is a 'norm' and thus a 'measure' although |
| by EU against US. The Appellate body uphold the | | | | it did not identify any Act or instrument creating or |
| finding of panel that the zeroing methodology | | | | containing this 'norm' The U.S., in its appeal, had |
| adopted in antidumping investigations is inconsistent | | | | challenged the panel's aforementioned finding under |
| with the provision of fair comparison under Article | | | | Article 11 of Dispute Settlement Understanding (DSU). |
| 2.4.2 of WTO Antidumping Agreement. It also | | | | The U.S. contended that the zeroing methodology |
| reverse the panel's finding that application of the | | | | itself could not be challenged "as such" because it did |
| methodology in certain cases of administrative review | | | | not "mandate" a WTO violation or "preclude" a |
| process is inconsistent with Article 9.3 of Antidumping | | | | WTO-consistent action. Thus, the U.S. argued that |
| Agreement. | | | | the panel failed to make an objective assessment |
| What is Zeroing? | | | | required under DSU Article 11.Lastly the United States |
| The "zeroing" methodology, generally speaking, | | | | in its appeal alleged that the panel erred in allocating |
| involves treating specific price comparisons, which do | | | | the burden of proof and in finding that the European |
| not show dumping as zero values in the calculation of | | | | Communities had established the prima facie case. |
| a weighted average dumping margin. | | | | Article 9.3 of Anti Dumping Agreement: The amount |
| To appreciate the impact of zeroing, it is important | | | | of the anti-dumping duty shall not exceed the margin |
| to understand how the U.S. Department of | | | | of dumping as established under Article 2.Article 9.3 |
| Commerce calculates dumping margins. In a typical | | | | establishes that anti-dumping duties may not exceed |
| antidumping investigation, DOC calculates | | | | the dumping margin calculated during the investigation. |
| weighted-average net prices for each product sold in | | | | In order to ensure that anti-dumping duties in excess |
| the United States. It then compares each of those | | | | of the margin of dumping are not collected, Article |
| U.S. prices to the product's normal value, which can | | | | 9.3 requires procedures for determination of the |
| be calculated a number of different ways but is | | | | actual amount of duty owed, or refund of excess |
| ideally the weighted-average net price of the most | | | | duties paid, depending on the duty assessment |
| similar product sold in the home market. Zeroing is | | | | system of a Member, normally within 12 months of a |
| introduced after the comparison of the U.S. price and | | | | request, and in no case more than 18 |
| normal value. When normal value is higher than the | | | | months.· |
| U.S. price, the difference is treated as the dumping | | | | Article 2.4.2 of Anti Dumping Agreement: Subject to |
| amount for that sale or that comparison. When, | | | | the provisions governing fair comparison in paragraph |
| however, the U.S. price is higher, the dumping amount | | | | 4, the existence of margins of dumping during the |
| is set to zero rather than its calculated negative | | | | investigation phase shall normally be established on |
| value. All dumping amounts are then added and | | | | the basis of a comparison of a weighted average |
| divided by the aggregate export sales amount to | | | | normal value with a weighted average of prices of all |
| yield the company's overall dumping margin. Zeroing | | | | comparable export transactions or by a comparison |
| thus eliminates "negative dumping margins" from the | | | | of normal value and export prices on a transaction to |
| dumping calculation. In so doing, it can create dumping | | | | transaction basis. A normal value established on a |
| margins out of thin air. | | | | weighted average basis may be compared to prices |
| The amount of antidumping duties corresponds to | | | | of individual export transactions if the authorities find |
| the magnitude of dumping (dumping margin) which is | | | | a pattern of export prices which differ significantly |
| a difference between export price and domestic | | | | among different purchasers, regions or time periods, |
| price (or normal value). Dumping margins are | | | | and if an explanation is provided as to why such |
| calculated in two different stages. First, in the "original | | | | differences cannot be taken into account |
| investigation," an antidumping authority, such as the | | | | appropriately by the use of a weighted average to |
| Department of Commerce (DOC) in the U.S., | | | | weighted average or transaction to transaction |
| determines a general dumping margin over a particular | | | | comparison. |
| product in question by summing up each individual | | | | Appellate Body's Verdict |
| dumping margin (normal value minus export price) | | | | On 18 April 2006, the Appellate Body report was |
| computed in a group (an "averaging group") of | | | | circulated to Members. The panel had in its report |
| identical products. In doing so, the DOC disregards | | | | originally slayed "as such" the U.S.' zeroing |
| any "negative" dumping margin (any excess of | | | | methodology contained in the "Standard Zeroing |
| export price over normal value) in the group by | | | | Procedures" in the original investigation under Article 5 |
| simply "zeroing" it. Consequently, a general dumping | | | | of the Anti Dumping Agreement. The panel held that |
| margin, which is a total sum of these individual | | | | the methodology ignored negative margins and thus |
| dumping margins, tends to be inflated because the | | | | violated the "fair comparison" requirement under |
| zeroing methodology precludes any offsetting effect | | | | Article 2.4.2 of Anti Dumping Agreement. The |
| of negative individual dumping margins. The DOC | | | | Appellate Body rejected the argument under Article |
| employs the same methodology when it finally | | | | 11 of DSU and upheld the panel's ruling as it refused |
| assesses a company-specific dumping margin to | | | | to make any "general" mandatory/discretionary |
| impose actual antidumping duties in the annual | | | | distinction in deciding the admissibility of a measure as |
| "administrative review" process. | | | | such. |
| The zeroing methodology has been contested | | | | In addition, the Appellate Body reversed the panel's |
| several times under the GATT/WTO. An unadopted | | | | original finding on the EU's "as applied" claims as to |
| panel report under the GATT (Committee on | | | | the DOC's applications of the zeroing methodology in |
| Antidumping Practices) once upheld the European | | | | the administrative review. The panel had ruled in |
| Union's (EU) zeroing methodology. However, the | | | | favour of the U.S. that the zeroing applications in the |
| WTO Appellate Body struck down certain applications | | | | administrative review were not inconsistent with the |
| of such methodology both by the EU and the U.S. A | | | | AD Agreement. |
| recent NAFTA Chapter 19 panel (NAFTA Softwood | | | | The Appellate Body focused on the violative |
| Lumber) condemned this practice, invoking the | | | | structure of the zeroing methodology itself. The |
| celebrated Charming Betsy doctrine (a U.S. Supreme | | | | uncompromising ruling leaves the DOC nearly no |
| Court decision holding that U.S. statutes should be | | | | alternative but to repeal the zeroing methodology on |
| interpreted, if possible, in such a way as to avoid | | | | the whole in the administrative review also, even |
| placing the United States in violation of international | | | | though the EU's claim here was "as applied" to the |
| law), and expressing the view that the U.S. should | | | | facts of the particular case. The Appellate Body ruled |
| follow the AB decision against it in WTO Softwood | | | | on each of the point, brought in by the parties to |
| Lumber V. It may be no coincidence that the EU | | | | dispute. Following are the important findings in the |
| challenged the U.S. zeroing methodology after the | | | | present case amongst other: |
| EU's own applications of the same methodology were | | | | The Appellate Body |
| invalidated by the WTO. | | | | 1. Reversed the finding that the United States did not |
| Facts of the Case | | | | act inconsistently with Article 9.3 of the anti Dumping |
| The United States and European Communities each | | | | Agreement and Article VI 2 of the GATT, 1994 and |
| appealed on certain issues of law and legal | | | | found United States to be acting consistently with |
| interpretations in the panel report before the | | | | those provisions of law. |
| Appellate Body at WTO. The panel was established | | | | 2. Found it is not necessary to rule on whether the |
| to consider the complaint by European Communities | | | | United States acted inconsistently with the obligation |
| in respect of methodology used by US, among | | | | contained in the first sentence of Article 2.4 of the |
| others, in calculating dumping margins called "zeroing". | | | | Anti Dumping Agreement to make a fair comparison |
| Before the Panel the European Communities | | | | between export value and normal value. |
| challenged, under the Articles 1, 2.4, 3, 5.8, 9.3, 9.5, 11, | | | | 3. Upholds the Panel's finding that the zeroing |
| 18.3 and 18.4 of Antidumping Agreement, Articles VI:1 | | | | methodology, as it relates to original investigations, is |
| and VI:2 of the General Agreement on Tariffs and | | | | inconsistent, as such, with Article 2.4.2 of the |
| Trade, 1994 (GATT 1994);Article XVI:4 of the WTO | | | | Anti-Dumping Agreement. |
| Agreement. On 31st October 2005, the panel made | | | | Ramification of the Ruling |
| following findings: | | | | The prohibition of zeroing now applies to original |
| 1. The Panel unanimously upheld the claims of the | | | | investigations (leading to the imposition of the |
| European Communities as they relate to the specific | | | | anti-dumping duty) as well as to investigations |
| determinations of dumping made by the United | | | | conducted after the imposition of the duty to revise |
| States Department of Commerce in the 15 original | | | | its level, the so-called administrative reviews. As a |
| investigations at issue. The Panel also unanimously | | | | consequence of this ruling, US will have to abandon |
| upheld the claims of the European Communities in | | | | its methodology of calculating dumping margins in |
| respect of what was described by the Panel as the | | | | initial antidumping investigations. In view of Appellate |
| United States "methodology" of zeroing in original | | | | Body's emphasis on the systematic flaws of the |
| investigations. In doing so, the Panel found that the | | | | methodology, US will further find it hard to justify |
| United States "methodology" of zeroing was a | | | | such methodology in other stages of antidumping |
| "norm" capable of being challenged in WTO dispute | | | | proceeding. |
| settlement proceedings. | | | | This ruling would prove beneficial to all the member |
| 2. The Panel unanimously rejected the claims of the | | | | countries, particularly the developing countries and |
| European Communities with respect to United States | | | | consumers and consuming industries, which have |
| law, finding that the provisions in question did not | | | | been forced, to pay higher prices for imported |
| speak to the issue of zeroing. | | | | products due to antidumping duties generated by the |
| 3. The Panel rejected all of the claims of the | | | | zeroing methodology |
| European Communities in the context of reviews of | | | | From the international trade law viewpoint and legally |
| existing measures. However, one member of the | | | | speaking, the ruling has attracted most diverse views |
| Panel dissented from this aspect of the Panel's | | | | in the sense that few term the decision as judicial |
| findings. The dissenting member of the Panel would | | | | activism while others criticise it for exceeding the |
| have upheld the claims of the European Communities | | | | limits of law. One may argue it as judicial activism |
| as they relate to the 16 specific determinations of | | | | that goes beyond the limited standard of review |
| dumping in reviews as well as the United States | | | | under Article 17.6 of Anti Dumping Agreement. The |
| "methodology" of zeroing in the context of reviews. | | | | Appellate Body in this case foresaw such potential |
| The dissenting member of the Panel would also have | | | | criticism when it noted that its interpretation was still |
| found one provision of a United States regulation to | | | | consistent with Article 17.6 (ii) because the U.S. |
| be WTO-inconsistent in respect of reviews. | | | | zeroing methodology clearly violated the text of |
| 4. The Panel recommended that the DSB request the | | | | Article 9.3 of Anti Dumping Agreement. Yet those |
| United States to bring its measures into conformity | | | | who regard WTO more of a contract among its |
| with its obligations under the AD Agreement | | | | member, the Appellate Body ruling threatens to |
| Arguments and Counter Arguments | | | | undermine the member states original terms of |
| The European Communities requested the Appellate | | | | bargain under Uruguay round, and that the bargain |
| Body to reverse the findings of the panel that the | | | | resembles very much to the doctrine of Chevron |
| United States did not act consistently with article 9.4 | | | | (doctrine of U.S. law that gives considerable |
| of the Anti Dumping Agreement and article VI(2) of | | | | reverence to decisions by administrative agencies). |
| the GATT 1994. The European Communities argued | | | | On the other hand, the ruling attracts clear criticism |
| that a per Article 9.3 and Article 2.4.2, the United | | | | highlighting the systematic problems with the |
| States did not correctly establish the anti-dumping | | | | Appellate Body decision-making process and its failure |
| duty amount or the margin of dumping, as United | | | | to abide by the negotiated procedural norms |
| States did not comply with its obligation to ensure | | | | reviewing Member State action. This ruling is |
| that the amount of antidumping duty collected did | | | | unprecedented in the sense that the Appellate Body |
| not exceed the margin of dumping. For the European | | | | particularised the standard of review by going into |
| Communities, the disagreement lies in the way the | | | | undesirable job of appellate fact-finding. In short, the |
| terms 'dumping' and 'margin of dumping' is interpreted | | | | ruling defies the notion that WTO dispute resolution |
| and whether these terms apply to the level of | | | | embraces an approach of judicial restraint. However, |
| product as whole or at the level of a comparison | | | | one thing is certain that such a ruling will have |
| between a weighted average normal value and an | | | | significant impact on the member countries and that |
| individual export transaction. According to the | | | | such judicial activism could precipitate political |
| European Communities the terms are defined to be | | | | backlashes from some (developed) Members and |
| applied to the product as whole. Further the EC | | | | might deter them from making further concessions in |
| argued that there is no basis, which can justify the | | | | future trade talks |
| taking into account the results of some multiple | | | | Conclusion |
| comparisons, in the process of calculating margins of | | | | This decision appears to benefit the hitherto main |
| dumping, while disregarding the others. | | | | targets of antidumping investigations, in particular |
| The European Community contended that the | | | | developing countries, as well as consumers and |
| methodology employed by the USDOC in the | | | | consuming industries which have been forced to pay |
| administrative review at the issue is inconsistent with | | | | higher prices for imported products due to |
| Article 2.4 as it inflates the margin of dumping and | | | | antidumping duties generated by the zeroing |
| therefore, is intrinsically biased. The European | | | | methodology. The Appellate Body's report in |
| Community further alleged that Article 2.4 does not | | | | US-Zeroing crystallizes some of the vital issues like |
| only impose obligation on the member to adjust the | | | | the administration of antidumping law is entirely |
| differences that affect price comparability, but also | | | | different from the presumed theoretical justification |
| entail not to make an adjustment where there is no | | | | put forward by its defenders. However, it is possibly |
| such difference. On more technical ground European | | | | the most egregious distortion is the practice known |
| Community argued that there is no basis on which it | | | | as "zeroing." Its application is a significant cause of |
| can be justified that zeroing, which is prohibited in the | | | | the systemic overestimation of dumping margins and |
| original investigation, could somehow become | | | | subsequent application of inflated antidumping duties. |
| permissible in the administrative review. Aforesaid | | | | The US should bring its law in conformity with its |
| mentioned claims are the few important arguments | | | | obligation under WTO. Interestingly, the growing list |
| put forward by the European Communities among | | | | of adverse WTO rulings with which US has failed to |
| other claims, before the Appellate Body. | | | | comply, is serving to undermine the integrity of the |
| The United States on the other hand called for | | | | WTO dispute settlement system. Congressional |
| dismissal of the appeal of European Communities on | | | | resistance to repeal or revise the Continued Dumping |
| the following main grounds that, the Anti Dumping | | | | and Subsidy Offset Act (or Byrd Amendment), which |
| agreement and Article 9.3 does not require the | | | | was ruled a violation of both the Antidumping |
| offset of prices when assessing the antidumping | | | | Agreement and the Agreement on Subsidies and |
| duties in respect of particular exporter. The U.S. | | | | Countervailing Measures by a panel and the Appellate |
| argued that a dumping margin could be computed on | | | | Body, is fostering doubts among U.S. trade partners |
| a "transaction-specific" basis so that a certain | | | | about U.S. commitment to the WTO. |
| comparison in a certain averaging group might | | | | Ironically, it is the United States who pushed hard for |
| produce a zeroed margin. In other words, for the | | | | the creation of dispute settlement system whose |
| purpose of calculating dumping margins the DOC | | | | decisions would be respected by all member states, it |
| might rely selectively on a comparison between an | | | | is the United States which has been dismissive of |
| averaged normal value (average domestic price) and | | | | dispute settlement body;s findings. To quote the U.S. |
| a particular export price (which is less than the normal | | | | Trade Representative Robert Zoellick explanation to |
| value), not an averaged export price. Further US | | | | a congressional subcommittee "Our ability to demand |
| argued that in either case, i.e. in comparison | | | | that others follow the trade rules is strengthened |
| methodology and in the average to average | | | | when the United States addresses cases we lose" |
| methodology, the 'price' is the price of the individual | | | | goes on to show that US is required to respect the |
| export transaction and hence as per Article 2.4.2, it is | | | | dispute settlement system at WTO and bring in |
| not required that results of those multiple | | | | conformity its laws with its WTO obligation. |