RESTRICTEDWORLD TRADE
ORGANIZATIONG/ADP/IG/W/8
28 April 1998
(98-1717)
Committee on Anti-Dumping Practices
Informal Group on Anti-CircumventionOriginal:  English
TOPIC 1 - WHAT CONSTITUTES CIRCUMVENTION?
Paper by Hong Kong, China
The following communication was received on 27 April 1998 from the Hong Kong Economic
and Trade Office.
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Introduction
1. The Committee on Anti-dumping Practices at its meeting held on 28-29 April 1997 took note
of the framework in document G/ADP/W/404 for informal consultations on anti-circumvention.  It
requires, among other things, that informal consultations be conducted without any preconditions or
prejudgment on the outcome, and that a logical, objective and analytical approach to the issue should
be adopted.
2. Before considering what constitutes circumvention, it would be useful to recall that the
multilateral trading system under the WTO aims at the reduction of trade barriers on a
non-discriminatory basis.  While GATT Article VI as an exception to this basic principle recognizes
the legitimacy of measures to offset injurious dumping, such measures are subject to the procedures
and disciplines set out in the Agreement on Implementation of Article VI of the GATT 1994 (theWTO Anti-Dumping Agreement), i.e., anti-dumping duties cannot be imposed without a finding of
dumping, injury and causation.  It is essential that discussion on the issue of anti-circumvention
should not lead to any erosion of the existing disciplines under the WTO Anti-Dumping Agreement.
What Constitutes Circumvention?
3. Against the above background, this submission contributes to the discussion on what
constitutes circumvention of anti-dumping measures.
4. In the view of Hong Kong, China, circumven tion occurs where, following a lawful imposition
of anti-dumping duties in accordance with th e WTO Anti-Dumping Agreement, dumped imports
evade the scope of application of the anti-dumping  order.  This includes evasion of anti-dumping
measures through fraudulent practices, e.g., false declaration of origin of goods, misdescription of
goods or transhipment.
5. At the first meeting of the Informal Group, Members have put forth various views and
examples on "what constitutes circumvention".  Voices of concern relating to circumvention seem to
appear in two broad categories:  (i) claims concerning slightly modified products in order to avoid
anti-dumping duties; and (ii) claims concerning assembly operations in a third country or the
importing country initiating the anti-dumping proceeding.  We believe a more detailed examination of
the subject, including the examples put forward, would help Members better understand the issue.G/ADP/IG/W/8
Page 2
Claims Concerning Slightly Modified Products
6. The first category of concern (slightly modified products) demonstrates the need to identify
clearly the exact product coverage in anti-dumping proceedings and to define clearly the scope of the
anti-dumping order.  By bringing in products outs ide the original scope of an anti-dumping order
through anti-circumvention measures, one runs the risk of expanding the scope of the original
anti-dumping order arbitrarily to include products  which are neither found to have been dumped, nor
caused any injury.  This begs the questions of whether and how the outcome of the original dumping
and injury investigations would be affected if these excluded products had been included in the
investigation in the very beginning.
7. Product modification can occur for a variety of good business reasons:  to respond to new
consumer preferences, to take advantage of technological advances, to increase value-added, to lower
production cost, or simply to maintain one’s competitive edge in the market.  Mere product
modification should not be considered "circumvention".
Claims Concerning Assembly Operations
8. The second category of concern (assembly operations in a third or importing country) does
not seem to recognize that the production proce ss nowadays is becoming increasingly mobile and
global, irrespective of whether anti-dumping duties are in place.
9. In a globalizing economy today, it is natural and legitimate for businessmen, for genuine
commercial reasons, to trade and invest across borders and make the most of the comparative
advantages in different countries.  Whenever a selective trade measure is applied (anti-dumping is
merely one of the examples) and in which there is a significant difference in duty treatment between
imports of parts as compared to imports of the finished products, exporters may naturally choose to
export the product in a form of parts and set up assembly operations in a third country or in theimporting country.  Reaction of this kind should be regarded as genuine market operations to take
advantage of more favourable conditions overseas.  An exporter who reacts under such circumstances
is similar to a developed country producer who moves its operation to a developing country to take
advantage of GSP benefits.  Changes in trade pattern could not automatically be regarded as
circumvention and brought within the scope of existing anti-dumping measures.
10. The market operations mentioned in paragraph 9 above are already subject to international
rules and, therefore, are not likely to pose "circumvention" problems.  For example:
- rules of origin requiring substantial transformation - a product would be deemed to be the
same article to which an anti-dumping duty applies if assembly operations in another country
are too minor to be origin-conferring.  Therefore, origin rules based on the principle ofsubstantial transformation should be able to address minor assembly operations in third
countries or cases of  transhipment.  This should be so, particularly when harmonized rules of
origin being developed under the WTO Agreement on Rules of Origin are implemented;  and
- the customs classification rules of the Harmonized System - the importation of CKD kits or
sets of parts into the importing country for minor assembly will come within the scope of
General Rule 2(a) of the Harmonized System which states that "Any reference in a heading to
an article shall be taken to include a referen ce to that article incomplete or unfinished,
provided that, as presented, the incomplete or unfinished article has the essential character of
the complete or finished article.  It shall also be taken to include a reference to that article
complete or finished (or failing to be classified as complete or finished by virtue of this Rule),
presented unassembled or disassembled."  In such a case, parts having the essential characterG/APD/IG/W/8
Page 3
of the complete or finished product subject to an anti-dumping duty should already be liable
to the same anti-dumping duty.  It is by no means true that anti-dumping duties can be evaded
simply by importing the affected goods in a form of parts.
Concluding Remarks
11. In the view of Hong Kong, China, the pr oblems raised so far are not demonstrably
circumvention of anti-dumping duties.  They can be dealt with by one or more of the following:
(a) clear identification of the exact product coverage in anti-dumping proceedings;
(b) rules of origin;
(c) customs classification rules of the Harmonized System.
12. Notwithstanding paragraph 11 above, Hong Kong , China has no intention to belittle the issue
of anti-circumvention as raised by other Members.  Indeed, the issue is very complex with
far-reaching implications on trade and investment.  It merits thorough and comprehensive studies
using a logical and objective approach.  As a first step, it is essential to identify where the realproblems lie.  Perhaps the Informal Group should go through some empirical cases in greater detail
for the purpose of gaining a better common understanding on the nature and the scope of the problem.
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