WORLD TRADE
ORGANIZATIONTN/RL/W/119
16 June 2003
(03-3154)
Negotiating Group on Rules Original:  English
PROPOSAL ON LESSER DUTY
Paper from Brazil;  Chile;  Colombia;  Costa Rica;  Hong Kong, China;  Israel;
Japan;  Korea; Mexico;  Norway;  Singapore;  Switzerland;  the Separate Customs
Territory of Taiwan, Penghu, Kinmen and Matsu;  Thailand and Turkey
The following communication, dated 13 June 2003, has been received from the delegations of
Brazil;  Chile;  Colombia;  Costa Rica;  Hong Kong, China;  Israel;  Japan;  Korea; Mexico;  Norway;
Singapore;  Switzerland;  the Separate Custom s Territory of Taiwan, Penghu, Kinmen and Matsu;
Thailand and Turkey.
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This proposal concerns the lesser duty rule of Anti-Dumping measures.  This issue has been
identified in document TN/RL/W/6.  Other Members ha ve also referred to this issue in documents
TN/RL/W/4, TN/RL/W/7, TN/RL/W/ 13, TN/RL/W/47 and TN/RL/W/86.
This proposal indicates one way to clarify a mandatory application of the lesser duty rule and
to solve the problem of certain anti-dumping duties which are imposed in excess of what is adequate
to remove the injury caused by dumping.  The discussions in the Negotiating Group may assist in
improving this proposal.  Consequently, we reserve our right to modify or complement the proposal as
appropriate.
In preparing and/or analyzing specific provisions, it is clear that amendment of the existing
text may have an impact on other Articles of the AD Agreement, which have so far not been explicitly
addressed.  These links cannot be fully addressed until we have seen a comprehensive overview of
proposed amendments.  Consequently, we also reserve the right to make proposals on provisionswhich may not have been explicitly addressed so far for clarification or improvement.
Issue: Lesser Duty
Relevant Provisions: Articles 3 and 9
Description of Problems:
Anti-dumping measures are not intended to provide open ended protection to industries in
importing countries.  Rather, they are intended to be used for the limited purpose of protecting thedomestic industry from the injurious effects of dumping.  In order to limit the effect of anti-dumping
measures to the elimination of the injurious effects of dumping, there must be a mechanism that
ensures the amount of the anti-dumping duty does not exceed the amount necessary to offset the
injurious effect caused by dumped imports.TN/RL/W/119
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Article 9.1 of the AD Agreement, as well as Article 8(a) of the Kennedy Round Code sets
forth this basic principle.  Subsequently, Members have had to rely on the good faith implementation
of this principle by the authorities in the importing country.  While many Members have adopted the
lesser duty rule, it appears that there is divergence in the methodology of applying this rule.  In
addition, the simple non-mandatory statement of the principle without any guidelines on how toestablish the level of lesser duty is clearly unsatisfactory.
We, therefore, submit the following proposals.
Illustrative Example of Problem:
A textile company in country A exports its products to country B, and the products are
determined to be dumped, with a 40 per cent margin of dumping.  However, the prices of domestically
produced like textile products in country B are not significantly different from the prices of the
dumped imports -- only 5 per cent higher -- a nd the relative price gap between domestic and import
prices has never exceeded 10 per cent over the entire period of investigation. The imposition of a 40
percent anti-dumping duty would require the import ed textile products to be priced 30% to 35%
higher than the domestic like product, in all likelihood eliminating these import s from the market.  A
duty of 5% to 10% would eliminate any price suppression or depression and, therefore, the injurious
effects of the dumping.  What is the rationale for imposing an anti-dumping of 40 per cent when the
imposition of a duty of 5% to 10% would remove the injury caused by the dumping?
Elements of a Solution:
1. Improve the AD Agreement by ensuring that anti-dumping duties are not imposed in excess
of what is required to remove the injury caused by dumping.
Proposal:
Amend Articles 9.1, 9.3 and 9.4 to provide for the mandatory application of the lesser
duty rule.
2. In order to properly implement a mandatory lesser duty rule, specify the methods for
determining the duty level which will be adequate  to remove the injury caused by dumping (referred
to in this paper as “lesser duty level”).
Proposal:
• Add a new sub-article after the current Article 9.1 to explain that :  (i) the calculation
of the lesser duty level must be based on a methodology which will be provided in
Annex III; and (ii) the lesser duty level shall only apply if it is lower than the margin
of dumping; and
• Add a new Annex III which provides that the lesser duty level shall be calculated in
accordance with the following methods and that the calculation of the lesser dutylevel shall take full account of the obligation set out in Article 3.5 to separate the
injurious effects of other factors than the dumped imports, so as not to attribute theseeffects to the lesser duty level:
1. Price Undercutting Method:  the lesser duty level is calculated as the difference
between the price, normally at the ex-factory level, of the domestic like product and
the CIF landed price of the dumped imports; with appropriate adjustment based ondifferences affecting the price comparability between the domestic like product andTN/RL/W/119
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the imported product including market characteristics affecting customers’ purchase
decision between them in the market of the importing Member;
2. Representative Cost Plus Profit Method:  the lesser duty level is calculated as the
difference between the representative per unit cost of production, selling, general and
administrative costs (“SG&A”), and profit of the domestic like product; and the CIF
landed price of the dumped imports; with appropriate adjustment based on differences
affecting the price comparability between the domestic like product and the imported
product including market characteristics affecting customers’ purchase decision
between them in the market of the importing Member;
3. Non-dumped Import Price Method:  the lesser duty level is calculated as the
difference between the CIF landed price of the non-dumped imports of the like
products and the CIF landed price of the dumped imports.
• Ensure in Annex III that Article 2.4, including the prohibition of zeroing, applies
mutatis mutandis  to the calculation of the lesser duty level.
Explanation:
1. The price undercutting method
This method has been normally used in cases where the dumped imports are gaining market
share by underselling the domestic product, but have not generally affected domestic price levels.  It
could be effectively used to complete the calculation of the lesser duty level under such situation.
The lesser duty level is calculated under this method as the price, normally at the ex-factory
level, of the domestic like product less the CIF landed price of dumped imports.  Those prices wouldbe adjusted to make due allowance for differences affecting price comparability.  Article 2.4 would
apply mutatis mutandis  to this adjustment.  Those prices would further be adjusted to, if necessary,
reflect differences affecting customers’ purchase decision between the domestic like product and
dumped imports, such as, quality, availability of supply, reliability of suppliers, brand royalty, and
other market characteristics.
2. The representative cost plus profit method
This method could be normally used in situations where dumped imports have caused price
suppression or depression.
This method constructs the non-injurious price of the domestic like product in a similar
manner to the calculation of normal value based on constructed value method. Article 2.2.1.1 would
apply mutadis mutandis  to the calculation of the non-injurious price of the domestic like product.  The
non-injurious price of the domestic like product would then be compared with the CIF landed price of
dumped imports, to obtain the lesser duty level.  Those prices would be the adjusted price to make due
allowance, applying Article 2.4 mutatis mutandis  to the adjustment.  Those prices would also be
adjusted to, if necessary, reflect differences in market characteristics, as is the case of the price
undercutting method.
Due to the potential for abuse, the methods to determine the representative profit, cost of
production, and SG&A of the domestic like product should be strictly disciplined by elaborating clear,comprehensive and representative criteria for choosing and using the data.TN/RL/W/119
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3. The non-dumped import price method
This method has been normally applied in situations where non-dumped imports account for a
significant share of the market such that they have a significant effect on prices in the market.  It
could be normally used to complete the calculation of the lesser duty level under such situation.  Insuch case, by imposing anti-dumping duty on the dumped import to the level of the non-dumped
import price, non-dumped imports would compete with the dumped imports, and consequently,
injurious effects of dumped imports would disappear.
As proposed in a separate paper in the context of dumping margin calculations, zeroing shall
be prohibited when applying any of the above methods.
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