RESTRICTEDWORLD TRADE
ORGANIZATIONG/ADP/IG/W/18
27 May 1999
(99-2135)
Committee on Anti-Dumping Practices
Informal Group on Anti-CircumventionOriginal:  English
TOPIC 1 – WHAT CONSTITUTES CIRCUMVENTION?
Replies to Questions Posed by the UNITED STATES1 to
HONG KONG, CHINA
The following communication, dated 23 April 1999, has been received from the Hong Kong
Economic and Trade Office.
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This paper responds to those questions raised by the United States in G/ADP/IG/W/16.
Hong Kong, China notes that the examples under consideration are hypothetical cases.  While it is
difficult to provide detailed and meaningful responses regarding hypothetical cases, we have
nevertheless attempted to do so.  We hope that our views will help contribute to a better commonunderstanding of "what constitutes circumvention".
Nickel and salt examples
The key question arising from these examples centres on whether the export of a "new
product" or a "modified product", which is a perfect substitute of the product subject to Anti-Dumping
measures, constitutes circumvention.
New products
We believe that new products, which did not exist at the time of the A-D petition, should not
be automatically subject to A-D measures without proper investigations.  Later-developed productswhich were not yet available at the time of the A-D petition should be treated the same.  For example,
conventional 3.5" microdisks and high density microdisks with a storage capacity of over 100 MB
may look alike physically but the latter is clearly a new or later-developed product in terms of
production technology, capacity, functions and end-uses.
Modified products
We also believe that modified products not specifically caught under the scope of any A-D
orders should be accorded similar treatment as new products, and should not be automatically subject
to any A-D measures without a full investigation.  Whether the modification is slight  or not is
irrelevant.  Instead of a discretionary decision afterwards, it is necessary to determine clearly in the
very beginning the scope of an A-D investigation and to define clearly the scope of an A-D order.
The petitioning domestic industry should specify clearly the product that is being dumped and the
product for which they request relief.  A-D users should not, on the ground of circumvention, seek to
                                                     
1 G/ADP/IG/W/16G/ADP/IG/W/18
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expand the scope of an A-D order to cover products that have been left out for whatever
considerations.
We also cannot take it for granted that a slight  alteration in a product makes no difference to
its uses, production and transportation costs, etc.  What appears slight  at first may not be slight  when
examined more closely.
Uses of modified products
A slight modification can affect end-uses.  For instance, the change made to cling wrap (e.g.
Saran wrap) making it thicker or thinner or microwave safe may appear to be slight but is significant
for its use in microwave heating, freezing or merely preserving.
The hypothetical case of saline syrup is another example.  Saline syrup is a different form of
granular salt and some would consider that the modification involved is not substantive.  We
understand that the hypothetical case is built on the assumptions that "there is no commercial market
for saline syrup", "there is no special advantage to be derived from importing salt in that form", and
that "all of the imported syrup will be dried out and sold in the United States as salt".  Withoutprejudice to our views on whether these premises are sound and valid, we are not sure how all these
can be assumed.  Would it be possible that there are wider end-uses for saline syrup which attract a
wider client base in the US and elsewhere, which prompts the traders to make the additional
investment to produce saline syrup?
Even the same end-uses and same end-users  would not be reliable factors to justify the
existence of circumvention.  Let us look at today's personal computers versus their predecessors five
years ago.  Their prices may not have changed much (or even declined) over the years.  The same
users are using these machines for the same applications such as word processing, data base and
spreadsheets.  It is however not reasonable to ignore the series of improvements made to personalcomputers over the years and treat a new generation of products as slightly modified  products on the
ground of circumvention because the same end use and same end-users  are involved.  It makes no
business sense for a producer to abandon his existing clients simply because he has a better product.
Production and transportation costs of modified products
Having carefully studied the replies given to our previous questions, we are still unsure how
one could conclude without proper investigations that changes in production or transportation costs
for modified products are insignificant.  For example, on what basis could one decide that a
modification has only insignificant impact on the production cost (not to mention the physical or
chemical characteristics, and hence the end-uses )?  How can one be sure that the production and
transportation cost of, say, saline syrup is only 5 per cent different?  And how can one be sure thatthese would have no bearing on the dumping and inju ry determinations?  All these questions point to
the need for a full and proper investigation.
Other considerations
We do not believe that users of A-D measures should be permitted to deviate from the
original scope of any measures at will.  Otherwise, the implications will be far-reaching and normal
business activities could be adversely affected.  Some more examples for general reflection:
(a) If a raw material is under an A-D measure (e.g. apples), can it be exported in a
processed form (e.g. canned or preserved apples, or apple sauce)?  Conversely, does
the exportation of raw materials constitute circumvention if they are key componentsG/ADP/IG/W/18
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of goods that are currently under A-D measures (e.g. orange in the case of orange
juice)?
(b) When a medium of containment is specified, e.g. "canned ham", does an item
constitute a circumvention of A-D measures if it is contained in a different medium,
e.g. plastic wrap or vacuum-sealed cardboard boxes?
(c) What if the product is a different form of, or in the case of food and other organic
exports, a different type or subspecies of the product under A-D measures?  For
example, if the item subject to an A-D measure is a type of apple (e.g. red delicious),
does the exportation of another type of apple (e.g. Granny Smith) constitute
circumvention?  If refined sugar is subject to an A-D duty, is it circumvention to
export raw sugar, molasses or cane sugar?
(d) Can an item be exported in a "mixed" or "combination" form?  For example, suppose
the item under an A-D measure is iceberg lettuce.  Can iceberg lettuce be included in
a vacuum-sealed, pre-packaged mix of salad materials?  In the case of chemicals,
what if the chemicals are combined with other chemicals to form a differentcompound?
Economic realities should be relevant in Members' consideration of the above in relation to
what constitutes circumvention.
Hinge Example
The US's submission G/ADP/IG/W/2 de fines circumvention as follows:
"(the) evasion of anti-dumping or countervailing duty measures by modifying or
altering marginally the physical nature, production or shipment of merchandise
otherwise subject to an anti-dumping or countervailing duty measure in a manner
which ultimately undermines the purpose and effectiveness of remedies provided for
under the WTO Anti-Dumping Agreement and the Agreement on Subsidies andCountervailing Measures (SCM Agreement), and which WTO Members have
implemented into national law" (emphasis added).
To better understand the US's hinge example, at the second meeting of the Informal Group,
we asked whether the assembly of the hinges merely constituted a marginal alteration.  The US's
response was that they were not certain exactly what was meant by "marginal alteration"
(G/ADP/IG/W/14).  At the third meeting of the Informal Group, the US in turn asked us whether
stipulating that the assembly of the hinges constituted a "marginal alteration" would strengthen thecase for finding circumvention.
Without a clear idea on what alterations are to be regarded as "marginal", we find it difficult
to reply meaningfully the foregoing hypothetical question.  It is quite clear that there exist no simple
criteria for defining "marginal alteration", despite the fact that its consideration may hold one of thekeys to the proposed definition of circumvention.  In pondering over the question, we have observed
that "simple operations" may involve not so simple operations or considerations.
The assembly of hinge halves may require more than just inserting the pins.  Sorting (due to
different part sizes, different designs, different tolerance or fitting, etc.), polishing, lubricating, finalquality checks and packaging, for example, are likely to be required as well.  The processes may be
highly automated or labour intensive, depending on possibly, among other things, the level ofG/ADP/IG/W/18
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development of the economies concerned and the comparative cost of labour.  All these processes,
when taken in combination, will be more complicated  than what the initial term "assembly" may have
suggested.
Similarly, many other operations that are simple in concept can be very complex and costly in
practice.  Take mixing for example.  Mixing of chemicals can require expensive plant and equipment,
exacting mixing conditions and procedures, or strict environmental and hazard controls.  Even
transporting the end products could call for specifically designed flasks, truckers, and contingency
procedures.  All these add to the production and transportation costs.
On the other hand, shifting the location for assembly can also be driven by many legitimate
business considerations.  Factors such as labour cost, exchange rates, delivery time, distribution and
warehousing needs, quality control, strategic supports to other product lines (including those upstreamor downstream), etc., could all be relevant.  A hypothetical presumption that the shift in location is
commercially disadvantageous, when not backed by facts and figures, would unfortunately leave out
many of these valid and legitimate considerations which are crucial factors in real life situations.
Lastly, we are not sure what is the significance of the hypothetical scenario in which the
producer admits himself that the sole purpose in shifting the assembly operation has been to
circumvent the A-D order.  Is this suggesting that admission of intent is a necessary pre-condition for
the establishment of circumvention?  What if the producer denies any intention of circumvention?
Would that weaken the argument that the hi nge components are circumventing the A-D order?
Concluding remarks
When considering the question of "what constitutes circumvention", one should avoid over-
simplification or over-generalization which would lead to profound implications to trade and
investment.  A crude approach will lead to the extension of A-D measures in situations where freshinvestigations are merited.
Also, from what has been discussed so far, it has become increasingly clear that even simple
hypothetical examples purposely designed to illustrate the existence of straightforward circumvention
cases are themselves complex.  This underscores the importance of looking into empirical cases togain a better understanding of the extent of the problem in real life, as well as the economic and
commercial realities in which businesses operate.
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