RESTRICTEDWORLD TRADE
ORGANIZATIONG/ADP/IG/W/9
30 April 1998
(98-1757)
Committee on Anti-Dumping Practices
Informal Group on Anti-CircumventionOriginal:  English
TOPIC 1 - WHAT CONSTITUTES CIRCUMVENTION?
Paper by Japan
The following communication was received on 28 April 1998 from the Permanent Mission of
Japan.
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1. The Ministerial Decision on Anti-Circumvention
The Ministerial Decision on Anti-Circumvention, adopted by the Trade Negotiations
Committee on 15 December 1993, refers to "the desirability of the applicability of uniform rules" with
respect to anti-circumvention measures.  Based on the positions of the parties during the Uruguay
Round negotiations, it is evident that the "uniform ru les" refer to the establishment of rules governing
whether anti-circumvention measures may be applied by Members and if so in what circumstances.The "uniform rules" could include a rule that proh ibits the application of anti-dumping duties beyond
existing Anti-Dumping Agreement disciplines and pr ocedures.  In studying this issue, the Informal
Group on Anti-Circumvention should not  mix its mandate with a suggestion that the Group is charged
with establishing uniform rules to "prevent the ev asion of anti-dumping measures."  This suggestion
incorrectly presumes that anti-circumvention measures are necessary and consistent with the GATT1994 and the Anti-Dumping Agreement.  This incorrect presumption prematurely focuses the Group
on developing a new rule that would impose legal control on what is claimed to be circumvention by
some Members.  The Group should rather address initially the threshold issue of what constitutes
circumvention.
2. Increased Globalization and Inappropriateness of Expanding the Reach of the Anti-Dumping
Agreement
Trade restrictive border measures are principally prohibited and can be permitted only in
specific cases, i.e., where the provisions of WTO Agreements are applicable as a temporary exception
from other WTO rules.  As we discussed in the Working Group on Trade and Competition Policy, the
extensive application of trade restrictive border measures such as anti-dumping duties inevitably
distort competition between imports and domestic products through the elimination or reduction of
imports from domestic market.  Such measures could nullify the fruit of our efforts for decades to
reduce tariff and non-tariff barriers.  Therefore, the Group should approach any suggestion with fullcaution to expand the scope of the Anti-Dumping Agreement.
Expanding the scope of the Anti-Dumping Agreement to restrict normal commercial
activities, potentially subject to unilateral anti-circumvention measures by some Members, is against
the general trend towards increased market access and increased globalization of production and
trade, as a Member has precisely noted at the last meeting.  The situation, where anti-dumpingmeasures may be applied to the exports with high profit realized in a market, is decreasing as
globalization of production and trade increases, with more open markets and more borderless
activities of enterprises resulting in more competition in all markets.  As a result, anti-dumpingG/ADP/IG/W/9
Page 2
measures, imposing different conditions of competition on imports from domestic products, are
increasingly unwarranted as a trade remedy.  Expanding the scope of the Anti-Dumping Agreement
would be an inappropriate response to globalization.
3. Analytical Framework for Developing Rules to Govern the Application of Anti-
Circumvention Measures
The discussion whether there should be rules governing the application of anti-circumvention
measures should be based on an analytical framew ork.  The following analytical factors should be
considered in examining any proposed definitions and examples of "circumvention" and "anti-
circumvention measures(s)":
- Whether existing definitions, rules and procedures within the existing Anti-Dumping
Agreement address the "circumventing" exports;
- Whether the application of an anti-circumvention measure to the "circumventing"
exports may violate procedural provisions of the Anti-Dumping Agreement;
- Whether there is a potential of applying anti-circumvention measures to legitimate
commercial activities;  and
- Whether it is improper to presume, without due finding of dumping and injury, that
the "circumvention" exports also result in a dumped sale and it injures the domestic
industry.
Anti-circumvention measures should not be applied if one of these factors is affirmative in
evaluating definitions and examples.
4. Definition of Circumvention through Examples
Examples of circumvention are useful if they assist the Group in deciding whether anti-
circumvention measures should be allowed, and if s o, in what circumstances.  However, the examples
provided by other Members so far have not indicated any need for additional rules for circumvention.
Those examples can be addressed adequately under the existing WTO rules, including the Anti-
Dumping Agreement, which do not allow Members to apply additional rules unilaterally.
(i) Minor Alterations
One category of examples presented by Members relates to minor alterations of
merchandise within the scope of a product.  Ho wever, those examples do not demonstrate that
it is appropriate to develop and apply special anti-circumvention measures.  A product with
98.5 per cent nickel may, or may not, be similar to a product with 99 per cent nickel.  This is a
factual determination which depends on factors such as whether the 98.5 per cent nickel can
be used interchangeably with 99 per cent nickel.  In a case where two products are similar, itis always possible to define the product coverage precisely to include products with minor
alterations in the original investigation.
In fact, 98.5 per cent nickel and 99 per cent nickel (less than 1.5 per cent cobalt) are
classified in the different HS lines, regardless of small purity difference.  99 per cent nickel is
necessary to make stainless steel, while 98.5 per cent nickel is mainly used as valve.  Separate
dumping investigations are necessary in this case.G/ADP/IG/W/9
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There are other examples as well, where slight difference in purity makes different
products with different producers, users, and markets.  Bars of iron steel with 0.25 per cent
carbon are used usually as bolt or nut, while those with between 0.25 per cent and 0.6 per cent
carbon as shaft, and those with 0.6 per cent carbon as industrial tools.  99 per cent propylene
is used as material for plastic, while 95 per cent propylene is used as general chemical
material.
Such examples of minor alteration indicate the importance of defining the product
coverage accurately prior to any injury determination.  If a Member expands the scope of
definition of a product by conducting anti-circumvention measures well after an originalinjury determination, it means that the injury determination was based on incomplete
information regarding imports and domestic production of the product of expanded definition.
Such initial decision based on incomplete information would be inconsistent with the
provisions of Article 3 of the Anti-Dumping Ag reement.  Even in case of a product newly
developed after the initial decision, there is no reason to believe that it is subject to the samepricing constraints and injury factors as the product investigated.  For example, such new
product might be produced at a lower price due to an improvement of productivity by
innovation.  Therefore, a produ ct newly developed after the initial decision should not be
presumed to be subject to the same dumping and injury findings.
Another example in the first category relates to further processed product (e.g. salt to
saline solution).  However, these examples do not demonstrate that it is appropriate to
develop and apply special anti-circumvention measures, but it would violate existing
provisions of the Anti-Dumping Agreement.  A further processed product, such as salinesolution, would often be different from the inputs, such as salt.  The different uses (e.g. food
flavouring versus contact lens solution), different customers, and different channels of
distribution of salt and saline solution confirm this distinction.  It would violate core
provisions of the Anti-Dumping Agreement if anti-dumping duties were imposed on saline
solution imports without the requisite dumping examination and injury determination, evenafter examination and determination on salt.  The existing provisions in the Anti-Dumping
Agreement allow a separate investigation of saline imports.  There is no reason to develop
additional procedures and authority in the Anti-Dumping Agreement for addressing such
products.
(ii) Third Country Assembly or Importing Country Assembly
The second category of examples relates to what some Members describe as "third
country assembly" or "importing country assembly".  Given the trend towards globalization of
manufacturing, a producer would shift production process to another country for a variety of
commercial reasons unrelated to an anti-dumping proceeding, including changes in relativelabour costs, exchange rate fluctuations, and growing sales in a particular region of the world
(e.g. the third country now assembles the product).  It is not considered in the examples
whether there were factors, independent of the anti-dumping proceeding, that may motivate
manufacturers to alter the configuration of their global production operations.
In addition, the second category of examples may tempt Members to "circumvent"
procedural provisions of the Anti-Dumping Agreement.  Where imports of parts increase asan assembly industry arises, there must be an injury determination with respect to these parts
prior to the imposition of anti-dumping duties, because the import activity and the "domestic
industry", to be examined for injury purposes, could change drastically.G/ADP/IG/W/9
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For example, the stamping industry, making parts of steel door hinge, is usually quite
different from industries that assemble, paint and sell finished door hinges.  Parts of steel door
hinge could have an independent, original market from finished door hinges in the importing
country.  Therefore, there is no reason to presume that the part imports are being dumped
even if finished products are being dumped.  The dumping enquiry on the parts involves a
comparison of the selling prices in the home market and for export.  The existing provisionsin the Anti-Dumping Agreement allow a separate investigation of the part imports.  There is
no reason to develop additional procedures and authority for addressing imports of parts,
since the existing Anti-Dumping Agreement already allows it.
If assembly is placed in a third country, the imported product could and should be
subject to a separate anti-dumping investigation.  There is no prohibition under the Anti-
Dumping Agreement to an investigation of the imports from the third country and thus no
special procedures for circumvention would be necessary.
(iii) Third Country Transshipment
The third category of examples is the transshipment of the finished products through
a third country.  Transshipment here means only "drop-in" stopping at a third country for rest
or oiling, etc.  Such cases are within the scope of existing WTO rules including the Anti-
Dumping Agreement because the country of original export will remain unchanged ifproducts are merely transshipped through a third country.  Therefore, it is not necessary to
develop additional procedures in the Anti-Dump ing Agreement to address the transshipment
since any dumping finding involving the country of original export will apply to the imports
transshipped through a third country.  If the transshipment is done with a false declaration of
the third country as the country of original export it would correspond to the fourth categoryof examples as below.
(iv) Customs Fraud
The fourth category of examples relates to customs fraud based on incorrect
declarations of origin or tariff classification.  Japan agrees this constitutes circumvention, as
stated in its submission on 24 October 1997 and such cases can be addressed by the otherprovisions of the WTO Agreements.
5. Conclusion
The examples above are not persuasive in terms of providing examples of circumvention or
the need for special anti-circumvention rules.  Besides fraudulent declarations of origin, which
presumably would be dealt with similarly, regardless of whether a product is subject to anti-dumpingduties, the examples do not address circumvention of the imposition of anti-dumping duties.  The
Anti-Dumping Agreement provides a basis for determining whether the products should be subject to
anti-dumping duties in all examples above.  Considering these examples as circumvention and
suggesting special rules to apply to such expo rts would be nothing more than an attempt to
circumvent the procedures required by the Anti-Dumping Agreement before the proper application of
anti-dumping measures is permitted.
In addition, efforts to define circumvention based on specified criteria, rather than through the
examples, seem to be difficult.  It is very difficult to establish the criteria which are applicable in
virtually all cases and which adequately distinguish any alleged circumvention activity from normal
and legitimate commercial activity.
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