RESTRICTEDWORLD TRADE
ORGANIZATIONG/ADP/IG/W/17
28 May 1999
(99-2179)
Committee on Anti-Dumping Practices
Informal Group on Anti-CircumventionOriginal:  English
TOPIC 1 – WHAT CONSTITUTES CIRCUMVENTION?
Paper by the Republic of Korea
The following communication, dated 22 April 1999, has been received from the Permanent
Mission of Korea.
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1. Introduction:  Problems in Pinpointing Circumvention
1. When does the relocation of production and assembly to a third-country constitute
circumvention of an anti-dumping duty?  To answer  this question, an anti-dumping authority must be
able to distinguish legitimate commercial activities from activities that should be deemed ascircumvention.  Even if an anti-dumping duty may sometimes induce a firm to relocate to a third
country, other factors besides an anti-dumping duty usually trigger the decision to relocate.  These
factors include, inter alia , rising costs, changes in consumer taste, and exchange rate fluctuations.
2. Consider the following.  A firm faces rising labour or input costs in the country where its
product is subject to an anti-dumping duty.  Rising costs make it more difficult for the firm to
maintain a profit margin, as the firm competes with other producers from countries with lower labour
costs.  To remedy this situation, the firm relocates to a third country so that it may take advantage ofthe third country's geographical proximity to the export destination, thereby reducing transportation
costs.  Also, by moving to a third country, the firm benefits from preferential access because the third
country concerned has signed a free trade agreement with the importing country and the country of
origin of the product concerned – determined by preferential rules of origin – is now this third
country.
3. Therefore, drawing a line between circumvention of an anti-dumping duty and a natural
relocation based on managerial and economic considerations involve nuances that do not make it a
simple task.  The case analysis below illustrates how relocation of production and assemblies can be
mistaken for evasion from anti-dumping duties rather than seen as a sound business decision unrelated
to the imposition of such duties.  By referring to  this case, Korea hopes to stimulate discussions on
what constitutes circumvention.
2. Case Analysis:  Circumvention Investigation on Imports of Colour Television Receivers
(CTVs)
4. On 11 August 1995, labour unions in the United States, including the International
Brotherhood of Electrical Workers, filed an ap plication requesting that the US Department of
Commerce conduct an anti-circumvention enquiry of the anti-dumping duty order on CTVs from the
Republic of Korea.  The investigation was initiated on 19 January 1996 by the US Department ofG/ADP/IG/W/17
Page 2
Commerce to determine whether Samsung Electronics Co. Ltd., and other Korean television
producers were circumventing the anti-dumping duty order on CTVs from Korea by using their
production facilities in Mexico.
5. Prior to the initiation of the anti-circumventi on investigation, the United States had been
levying anti-dumping duties on imports of Korean CTVs since April 1984.  These duties wereabolished on 2 September 1998, when the US Department of Commerce revoked the anti-dumping
duty order on CTVs from Korea, as it applied to Samsung.  Starting in 1984, Korean CTV
manufacturers began moving much of their production abroad, and in 1991, exports of Korea-made
CTVs to the US ceased altogether.  A de minimis  dumping margin of less than 0.5 per cent, as defined
in the US Tariff Act, was assessed on CTVs made in Korea by Samsung from April 1985 until the
time when the product ceased to be imported into the United States in early 1991.
6. The petitioners of the anti-circumvention investigation alleged that Korean producers of
CTVs were circumventing the anti-dumping order by shipping Korean-origin colour picture tubes
(CPTs) and other CTV parts to Mexican assembly plants operated by a related party in Mexico for
assembly into complete CTVs prior to exportation to the United States.  Before relocating production
to third countries, Korean producers had responded to the anti-dumping duty by shipping the
components of the CTVs to the US for final assembly.  However, the US Department of Commercedetermined that CPTs and printed circuit boards (PCBs) were within the scope of the anti-dumping
duty order on CTVs from Korea.
1  Following this determination by the US Department of Commerce,
Korean producers allegedly relocated the assembly operation to third countries to circumvent the anti-
dumping duty.
7. Further, the petitioners claimed that the value of Korean parts incorporated in colour
televisions assembled in Mexico and Thailand was significant and that operations in Mexico and
Thailand were of a limited nature;  besides the simple assembly operation, petitioners argued, little
value was added to the final product through the processing done in Mexico and Thailand.  The
petitioners also asserted that patterns of trade in CTVs and CTV parts in recent years between Korea,
the United States, Mexico and Thailand suggested that Korean producers were circumventing the1984 anti-dumping duty order covering CTVs from Korea, given that US imports of CTVs from
Korea had declined since 1985, immediately follow ing the imposition of the anti-dumping duty on
imports of CTVs.  They also pointed out that Korean exports of CPTs and PCBs to Mexico and
Thailand increased and that the assembly operations in Mexico resulted in fast increases in exports of
CTVs containing Korean CTPs and other Korean components to the US.
8. From an economic viewpoint, an exporter has no incentive to circumvent an anti-dumping
duty order unless the anti-dumping duty involved is significant.  To claim that a producer hascircumvented an anti-dumping order, it must therefore be shown that the mere existence of the anti-
dumping duty order, whether it is de minimis  or not, poses a significant export barrier which needs to
be circumvented.  But in the particular case of Samsung, from April 1985 until the time when the
product ceased to be imported into the United States in early 1991, the producer did not pay any anti-
dumping duty for its exports to the United States.
9. What has prompted the producer's decision to relocate to Mexico were relative advantages in
terms of production as well as shipping costs.  In addition, NAFTA tariff preference provisions which
resulted in duty-free exports to the US of CTVs produced in Samsung's Mexican plant also helped to
trigger the producer's relocation decision.  Unlike what was claimed by the petitioners of the anti-
circumvention investigation, shifts in trade patterns are not good indications to establish a causal linkbetween an anti-dumping duty and a relocation of production.  Indeed, increased exports of CTVs
                                                     
1 See the petition before the International Trade Administration of the US Department of Commerce,
Inv. No. A-580-008, Public Document.G/ADP/IG/W/17
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containing Korean CPTs and other Korean component s from Mexico to the US were the outcome of a
business decision based on cost assessments and the possibility of preferential access rather than the
desire to circumvent AD duties.  This is all the more true when we take into account that Samsung
had not paid any AD duties on CTVs exported from Korea between 1985 and 1991.
10. Samsung's relocation of production to a third country was accompanied by the relocations of
unrelated Korean suppliers of Samsung.  These facilities included a CTV assembly plant, parts and
component plants, a CPT plant, a glass plant, and several feeder plants established and operated by
unrelated Korean suppliers of Samsung.  From these facilities, Samsung produced CTVs that were
sold throughout North, Central and South America.
11. The fact that relocation of production to Mexico occurred immediately following the
imposition of the anti-dumping duties was presented by the US Department of Commerce as evidence
of circumvention of anti-dumping duties.  This is, however, a coincidence;  the anti-dumping duty
order was in place, but there was no anti-dumping duty to circumvent.
12. In sum, given the above case analysis, Korea believes that anti-dumping authorities ought to
carefully look at the extent to which the production cost, shipping cost, and RTA-related tariff
advantages contribute to the relocation of a given producer to third countries before reaching
conclusions about the occurrence of circumvention.
3. Conclusion:  Necessity of Creating Rules to Deal with Circumvention?
13. Our ultimate question is whether we need to draft new rules to deal with the circumvention of
anti-dumping duties or whether we can apply the existing anti-dumping rules stipulated by the UR
Anti-Dumping Agreement.  In Korea's view, a multilateral anti-circumvention agreement is
unnecessary because a so called anti-circumvention case is essentially an anti-dumping case, whichcan be dealt with more effectively by existing anti-dumping rules or, if necessary, by improving the
existing Anti-Dumping Agreement.  When a case in volves the possibility of circumvention of anti-
dumping duties, it should be treated as a separate dumping case for which a new investigation of
dumping and injury determination should be conducted.  Dumping as defined in Article VI:1 of
GATT 1994 is the introduction of the products of one country into the commerce of another countryat less than the normal value.  Therefore, if a third country becomes the exporting country, the two
basic parameters for determination of dumping margin, that is, the export price and the normal value,
change accordingly, thereby calling for a new investigation.
14. In most cases, the extent to which the relocation of production to another country is due to the
imposition of an anti-dumping duty is, as argued above, difficult to ascertain.  Even if the relocation
to a third country is due to an imposition of an anti-dumping duty, the export from the third country
circumventing the original duty may not constitute  dumping since the export price and the normal
value have changed, possibly resulting in the disappearance of the dumping margin.
15. Although the discussion above deals with a relocation of production to a third country, a
similar analysis can be done with regard to other types of circumvention, such as the alteration or the
trans-shipment of goods via another country.  Most of these can be dealt with under the current rules
as laid out in various WTO agreements.
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