UNITED STATES – LAWS, REGULATIONS AND METHODOLOGY FOR CALCULATING DUMPING MARGINS ("ZEROING")
Document: Communication from the United States
Date: 19 June 2006
Document codes: WT/DS294/18
Complainant: EU
Respondent: U.S.
Third parties: Argentina, Brazil, China, Taiwan, Hong Kong, India, Japan, South Korea, Mexico, Norway, Thailand, Turkey
Dispute stage: Implementation & Compliance
Agreements cited: Art. 1, 2.1, 2.4, 5.8, 9.1, 9.3, 9.5, 11  Anti-dumpingArt. VI  GATT 1994Art. 18.4  Anti-dumpingArt. XVI:4  Agreement Establishing the World Trade OrganizationArt. 3  Anti-dumping

UNITED STATES – LAWS, REGULATIONS AND METHODOLOGY FOR
CALCULATING DUMPING MARGINS ("ZEROING")

Communication from the United States

 The following communication, dated 12 June 200 6, is circulated at the request of the
delegation of the United States.

Appellate Body's conclusions for other provisions of the Agreement on Implementation of Article VI
of the General Agreement on Tariffs and Trade 1994 ("Anti-Dumping Agreement"). The United
States also described the disturbing failure of the Appellate Body's analysis to address significant
arguments that were presented.

3. However, an even more significant defect in the Appellate Body report is that the Appellate
Body's reasoning is fatally flawed. In brief, th e Appellate Body erroneously concluded that Members
must provide offsets for non-dumped transactions whenever "multiple comparisons" are made, and
that only by aggregating the results of those multip le comparisons will a Member determine a margin
of dumping for the "product as a whole". This conclusion finds no basis in the text of the
Anti-Dumping Agreement. This conclusion also fail s to take into account important context for the
terms that are
 in the text of the Anti-Dumping Agreement and the General Agreement on Tariffs and
Trade 1994 ("GATT 1994").

4. Obligations under the covered agreements fl ow from the text of those agreements, and the
text of those agreements alone. As the Appellate Body has noted: "The legitimate expectations of the
parties to a treaty are reflected in the language of the treaty itself."
3 Unfortunately, in US – Zeroing
(EC), the Appellate Body did not base its findings on a reasoned analysis of the text of the applicable

1 ;
Communication from the United States, WT/DS294/16 (17 May 2006) (hereinafter "First US Communication").
2 Appellate Body Report, , WT/DS294/AB/R, adopted 9 May 2006 (hereinafter "US – Zeroing (EC) (AB)").
3 Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical
Products, WT/DS50/AB/R, adopted 16 January 1998, para. 45.

agreements. Instead, it relied primarily on prior Appellate Body reports (and a misapprehension of
those reports, at that). While Appellate Body reports can provide valuable clarification of the covered
agreements, Appellate Body reports are not themselv es agreed text nor are they a substitute for the
text that was actually negotiated and agreed. In re lying on prior Appellate Body reports rather than
the text of the covered agreements, the Appella te Body took findings from one set of factual
circumstances and applied them inappropriately to another, different set of factual circumstances
without making allowances for tho se differences. Specifically, the A ppellate Body declared that its
findings of an obligation to provide offsets when aggregating comparisons in the context of multiple
averaging
4 necessarily led to a finding that there is an obligation to provide offsets whenever multiple
comparisons of any kind are made, whether averaged or not.5

5. Furthermore, the Appellate Body, as noted in the First US Communication, failed to consider
contextual arguments demonstrating that the approach it ultimately chose would create severe
problems of interpretation not only with respect to the Anti-Dumping Agreement, but also with
respect to the GATT 1994.
6 The meager analysis found in US – Zeroing (EC) (AB) stands in stark

4 Previously, the Appellate Body defined multiple averaging as "the practice of investigating authorities
of sub-dividing the product under investigation into sub-groups of comparable transactions and determining a
weighted average normal value and a weighted average export price for the transactions in each sub-group."
Appellate Body Report, United States – Final Dumping Determination on Softwood Lumber from Canada ,
WT/DS264/AB/R, adopted 31 August 2004, para. 68 (hereinafter "US – Softwood Lumber V (AB)").
5 US – Zeroing (EC) (AB), para. 127 ("Therefore, if the investigating authority establishes the margin of
dumping on the basis of multiple comparisons made at an intermediate stage, it is required to aggregate the
results of all of the multiple comparisons, including those where the export price exceeds the normal value.").
The Appellate Body may have been confusing "model zeroing" with "simple zeroing," to use the
terminology employed by Members that have challenged the use of zeroing, such as the European Communities
("EC") and Japan. According to these Members, "model zeroing" refers to a method whereby an authority
makes average-to-average comparisons of export price and normal value within individual "averaging groups"
established on the basis of physical or other characteristics ("models") and disregards any amounts by which
average export prices for particular models exceed norm al value in aggregating the results of these multiple
comparisons to calculate a weighted average margin of dumping. Under "model zeroing," when an authority
aggregates the results of model-specifi c, average-to-average comparisons of normal value and export price into
a weighted average margin of dumping, the numerator of that margin of dumping only includes the results of
models for which the average export price is less than the normal value.
On the other hand, "simple zeroing," in the parlance of Members such as the EC and Japan, refers to a
method whereby an authority determines a weighted average margin of dumping or an assessment rate based on
average-to-transaction or transacti on-to-transaction comparisons between export price and normal value and
disregards any amounts by which export prices of individual transactions exceed normal value in aggregating
the results of these multiple comparisons. Under "simple zeroing," when an authority aggregates the results of
comparisons of normal value and export price made on an average-to-transaction basis or on a transaction-to-
transaction basis, the numerator of th e weighted average margin of dumping only includes the results of those
comparisons in which individual export prices are less than the normal value.
Previous Appellate Body reports involving zeroing dealt with "model zeroing." See US – Softwood
Lumber V (AB) ; and Appellate Body Report, European Communities – Anti-Dumping Duties on Imports of
Cotton-Type Bed Linen from India, WT/DS141/AB/R, adopted 12 March 2001. In US – Zeroing (EC) (AB), the
Appellate Body appeared to simply assume that because "model zeroing" has been found to be prohibited,
"simple zeroing" also is prohibited. Of course, if these types of "zeroing" could be presumed to be the same,
there would have been no need for complaining parties to label them differently. In addition, the Appellate
Body's apparent assumption overlooks the fact that "simple zeroing" occurs in the context of transaction-specific
comparisons, whereas "model zeroing" occurs in the context of comparisons involving averages.
6 In this regard, the United States notes that the Appellate Body has in other disputes recognized the
value and importance of considering the impact of a proposed interpretation for other agreement provisions. For
example, in the US – Softwood Lumber CVD dispute, the Appellate Body disagreed with the Panel's
understanding that the term "in relation to" meant "i n comparison with". To support its conclusion, the
Appellate Body went through the SCM Agreement and showed how such an interpretation would not make
sense in other parts of the SCM Agreement where "in relation to" was used:

contrast to the reports in US – Zeroing (EC) (Panel) and US – Softwood Lumber V (Article 21.5) .7
These two reports, which were drafted by panelists w ith extensive experience in the trade remedies
area, came to the conclusion that with the ex ception of average-to-average comparisons in
investigations, the GATT 1994 and the Anti-Dumping Agreement do not preclude zeroing. In
reaching a different conclusion, the Appellate Body simply erred, both as a matter of interpretation
and as a matter of the applicable standard of review.

A. The Appellate Body's Erroneous Conclusion that Authorities Must Provide Offsets
Whenever They Conduct Multiple Comparisons

6. In US – Zeroing (EC), the Appellate Body based its analysis in key respects not on the text of
the Anti-Dumping Agreement but on its own pr ior reports, particularly its report in US – Softwood
Lumber V (AB) . As just one example, the Appellate Body relied heavily on its interpretation of the
term "product as a whole". However, "product as a whol e" is a term that is not found anywhere in the
Anti-Dumping Agreement nor in Article VI of th e GATT 1994. In using its prior reports as a key
starting point for its analysis rather than the text of the covered agreements, the Appellate Body came
to the erroneous conclusion that any kind of aggregated comparison requires an offset, regardless of
context.

1. The Appellate Body's Mistaken Expansion of Softwood Lumber V

7. Contrary to the Appellate Body's suggestion, US – Softwood Lumber V (AB) was limited to
the first sentence of Article 2.4.2 of the Anti- Dumping Agreement and the question of whether
zeroing is permissible when using the average-to -average comparison method in an anti-dumping
investigation. The Appellate Body's analysis in that dispute is simply inapplicable in other contexts,
such as assessment proceedings.

8. More specifically, the issue in US – Softwood Lumber V (AB) was whether Article 2.4.2 of the
Anti-Dumping Agreement proscribes zeroing in the context of "multiple averaging"; i.e., a method
whereby an authority divides a product under investigation into product types or models, calculates a
weighted average normal value and a weighted aver age export price for each product type or model,
and then aggregates the results of these comparisons to derive an overall margin of dumping. The

We observe that the phrase "in relation to" is used in other provisions of the SCM Agreement
in a manner that does not connote "in comparison with". For instance, Article 15.6 of the
SCM Agreement states that "[t]he effect of the subsidized imports shall be assessed in
relation to the domestic production of the like pro duct". Article 15.6 cannot properly be read
as requiring a comparison between "[t]he effect of the subsidized imports" and "the domestic
production of the like product". Similarly, Article 15.3 of that Agreement provides that, in
order to assess cumulatively the effects of imports of a product from more than one country
that are simultaneously subject to countervaili ng duty investigations, investigating authorities
must determine that, inter alia, "the amount of subsidization established in relation to the
imports from each country is more than de minimis". In this provision, the phrase "in relation
to" is not used in the sense of "in comparison with" but rather in the sense of "in proportion
to". Therefore, the pr ecise meaning of the phrase "in relation to" will vary depending on the
specific context in which it is used.

Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to
Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004, para. 89, note 107.
7 Panel Report, , WT/DS294/R, adopted 9 May 2006, as modified by the Appellate Body (hereinafter " US – Zeroing
(EC) (Panel)"); and Panel Report, United States – Final Dumping Determination on Softwood Lumber from
Canada: Recourse to Article 21.5 of the DSU by Canada , WT/DS264/RW, circulated 3 April 2006 (hereinafter
"US – Softwood Lumber V (Article 21.5)").

Appellate Body agreed with the participants in th at dispute that Article 2.4.2 permits such multiple
averaging, and noted that the participants disagr eed on the proper interpretation of the terms "all
comparable export transactions" and "margins of dum ping" in Article 2.4.2. With respect to the
interpretation of the term "margins of dumping", th e Appellate Body stated that the "disagreement
turns on the question of whether that term applies to the product under investigation as a whole, or, at
the sub-group level, when multiple averaging is undertaken ".
8 In its analysis of this question, the
Appellate Body consistently characterized the issue before it in terms of whether the terms "dumping"
and "margins of dumping" apply at the produc t or "sub-group" or "sub-product" level9 and concluded,
in light of, inter alia, Article 2.1 of the Anti-Dumping Agreement and Article VI:2 of the GATT
1994, that, for purposes of Article 2.4.2, dumping a nd margins of dumping can be found to exist only
for a product as a whole and not for "a type, model or category of that product". 10 In other words, the
Appellate Body developed the notion of "the produc t [under investigation] as a whole" to make a
distinction between the "product," on the one hand, and "sub-group", "sub-product", "type", "model"
or "category" on the other.

9. Thus, the terminology used by the Appellate B ody in this respect was closely connected to the
multiple averaging method and the Appellate Body's analysis thereof. Indeed, the Appellate Body
itself indicated in Softwood Lumber V that it was interpreting the phrases "margins of dumping" and
"all comparable export transactions" as they appear in Article 2.4.2 "in an integrated manner".
11

10. In addition, in Softwood Lumber V the Appellate Body specifically declined to consider
contextual arguments regarding the denial of o ffsets when an investigating authority uses the
transaction-to-transaction or average-to-transaction comparison methods.
12 The Appellate Body
stated:

We fail to see how we could find th at the transaction-to-transaction and
average-to-individual methodologies could provide contextual support for the United
States' interpretation of Article 2.4.2 w ithout examining first whether zeroing is
permitted under those methodologies.
13
If the Appellate Body's finding in US – Softwood Lumber V (AB) had been based on an interpretation
of Article 2.1 and some general obligation to find margins of dumping for the "product as a whole,"
then there would have been no need for the Appella te Body to consider separately whether the denial
of offsets was permitted under the transaction-to-tra nsaction and average-to-transaction comparison
methods. In other words, it would have been misl eading for the Appellate Body to claim that its
finding left open the question of whether offsets were required under these other methods.

11. In US – Zeroing (EC) , the Appellate Body inexplicably divorced the phrase "product as a
whole" from the original context in which it was coined
14 – the use of average-to-average
comparisons in an investigation. In so doing, the Appellate Body also divorced the concept embodied
in the phrase from its limited applicability in the contex t of Article 2.4.2. The Appellate Body simply
decided that the concept "product as a whole" is not limited to the interpretation of obligations
relating to multiple averaging. It did so by asserting that in Softwood Lumber V the requirement to
calculate margins of dumping for the "product as a whole" meant that offsets must be provided not

8 US – Softwood Lumber V (AB), para. 84 (emphasis added).
9 US – Softwood Lumber V (AB), paras. 90-91, 97, 99, 101-103 and 115.
10 US – Softwood Lumber V (AB), paras. 93, 96.
11 US – Softwood Lumber V (AB), para. 85.
12 US – Softwood Lumber V (AB), para. 105.
13 US – Softwood Lumber V (AB), para. 105.
14 It bears repeating that the phrase "product as a whole" was invented and is not a phrase found in the
text of either the Anti-Dumping Agreement or Article VI of the GATT 1994.

only when aggregating intermediate values in the context of multiple averaging , but when
undertaking " multiple comparisons " more generally. 15 That statement is simply wrong. 16 T h e
reasoning in US – Softwood Lumber V (AB) was expressly limited to comparisons in connection with
multiple averaging, not all so-called "multiple comparisons" more generally.

12. The Appellate Body's assumption that the analysis in US – Softwood Lumber V (AB) is
applicable to all instances when there are multiple comparisons, rather than just multiple averaging, is
not just unfounded but also leads to further errors . The Appellate Body appears to view "multiple
comparisons" as including any situation in which th ere is more than a single export transaction.
Although the Appellate Body has suggested that Members have a choice as to whether to use
"multiple comparisons" in calculating the margin of dumping, the inevitable consequence of the
Appellate Body's reasoning would be that Members must, in fact, aggregate transactions in order to
calculate a margin of dumping whenever ther e is more than a single export transaction; i.e., in
virtually all situations.
17 Thus, as discussed below, not only is the Appellate Body's assertion that "an
investigating authority may choose to undertake multiple comparisons" 18 simply wrong, but it means
that the Appellate Body, based on a phrase it created a nd that is not in the text of the Anti-Dumping
Agreement, has prohibited zeroing in every circumst ance in which a Member calculates a margin of
dumping.

2. The Correct Analysis of "Product as a Whole" and "Margins of Dumping"

 "Product as a whole"

13. In US – Softwood Lumber V (Article 21.5) , the panel properly rejected Canada's attempt to
take the phrase "product as a whole" – not found anywhere in the Anti-Dumping Agreement or the
GATT 1994 – that the Appellate Body used in US – Softwood Lumber V (AB) and apply it outside of
the context of Article 2.4.2 of the Anti-Dumping Agreement. The panel correctly noted that in the
context of the average-to-average method where comparisons are made for each of several sub-
groups, "it was entirely logical for the Appellate Body to have concluded that the margin of dumping
for the 'product as a whole' must fully reflect tho se instances where, for a particular sub-group, the
weighted average export price was greater than the weighted average normal value".
19 The panel then
explained why it would be wrong to extend the Appe llate Body's "product-as-a-whole" concept to
other comparison methods:

15 The Appellate Body in US – Zeroing (EC) states that the "Appellate Body specified that, while an
investigating authority may choose to undertake multiple comparisons or multiple averaging at an intermediate
stage to establish margins of dumping, 'it is only on the basis of aggregating all these 'intermediate values' that
an investigating authority can establish margins of dumping for the product under investigation as a whole."
Para. 126, citing US – Softwood Lumber V (AB) , para. 97 (emphasis in original). To the contrary, however, in
paragraph 97 of US – Softwood Lumber V (AB) , the Appellate Body expressly referenced "multiple averaging"
and "multiple comparisons at the sub-group level" (emphasis added).
16 The Appellate Body now considers zeroing to be prohibited whenever a Member engages in
"multiple comparisons," but it declin ed to address whether zeroing is also prohibited in transaction-to-
transaction comparisons in investigations. Notwithstanding the logical flaw in that view, to the extent the
Appellate Body may consider zeroing to be prohibited only where "multiple comparison s" occur, it should be
noted that, as discussed below, the US assessment syst em results in the same assessment of anti-dumping duties
as a transaction-by-transaction, prospective normal va lue system, but only if zeroing is permitted under the US
system. Otherwise, to equalize the two systems, zeroing would have to be also prohibited in transaction-by-
transaction assessment systems, which is akin to requiring authorities to compensate an importer for individual
importations for which normal value is less than the export price.
17 Based on the experience of the United States, it is exceedingly rare for an anti-dumping investigation
or review to involve only a single export transaction for an exporter.
18 US – Zeroing (EC) (AB), para. 126 (emphasis added).
19 US – Softwood Lumber V (Article 21.5), para. 5.22.

[A]lthough there is little doubt that a margin of dumping is established for each
exporter/producer with respect to the product under investigation, further examination
indicates that "product" need not necessarily be interpreted as "product as a whole",
in the sense that Canada posits, that is, the summed results, fully reflecting negative
and positive results, of all comparisons con cerning the product under investigation.
There are also good reasons why "margins of dumping" need not necessarily relate to
"the product as a whole" in all circumstances in the AD Agreement.
 The Appellate Body drew its conclusion th at dumping is to be found for the "product as a
whole" from its consideration of Article VI of GATT 1994 and Article 2.1 of the AD Agreement,
which both define the concept of "dumping", in the case of the latter, by its own terms for the entire
AD Agreement. To extend the Appellate Body's referen ce to the concept of "product as a whole" in
the sense that Canada proposes to the [transaction-to-transaction] methodology would entail accepting
that it applies throughout Article VI of GATT 1994, and the AD Agreement , wherever the term
"product" or "products" appears. A review of the use of these terms does not support the proposition
that "product" must always mean the entire universe of exported product subject to an anti-dumping
investigation. For instance, Article VI:2 states that a contracting party "may levy on any dumped
product" an anti-dumping duty. Article VI:3 provid es that "no countervailing duty shall be levied on
any product". Article VI:6(a) provides that ["] no contracting party shall levy any anti-dumping or
countervailing duty on the importation of any product ..." . Similarly, Article VI:6(b) provides that a
contracting party may be authorized "to le vy an anti-dumping or countervailing duty on the
importation of any product". Taken together, these provisions suggest that "to levy a duty on a
product" has the same meaning as "to levy a duty on the importation of that product". Canada's
position, if applied to these provisions, would mean that the phrase "importation of a product" cannot
refer to a single import transaction. In many places where the words product and products are used in
Article VI of the GATT 1994, an interpretation of these words as necessarily referring to the entire
universe of investigated export transactions is not compelling.
20

14. The United States agrees with the panel's an alysis, and makes the following observations in
support thereof. In its report, the Appellate Body refers several times to the concept of the "product as
a whole" and states that this concept is "clear" from the text of Article 2.1 of the Anti-Dumping
Agreement and Article VI of the GATT 1994.
21 It is very unclear what the Appellate Body means by
"product as a whole" or why that concept derives from the terms of Article 2.1 of the Anti-Dumping
Agreement and Article VI of the GATT 1994. Neither of those provisions contains the term "product
as a whole". In fact, those provisions both refer si mply to "product". The term "product" does not in
and of itself convey the meaning the Appellate Body assigns to it: "if the investigating authority
establishes the margin of dumping on the basis of multiple comparisons made at an intermediate
stage, it is required to aggregate the results of all of the multiple comparisons, including those where
the export price exceeds the normal value. If the investigating authority chooses to undertake

20 US – Softwood Lumber V (Article 21.5), paras. 5.22-5.23. The panel added that:

[W]e consider that there is nothing inherent in the word "product[]" (as used in Article VI:1 of
the GATT 1994 and Article 2.1 of the AD Agreement ) to suggest that this word should
preclude the possibility of establishing margins of dumping on a transaction-specific basis,
although this should not imply that a margin of dumping established with respect to a
particular transaction is sufficient to impose an anti-dumping measure on all subsequent
imports of the product. The notion that "a product is introduced into the commerce of another
country" (Article 2.1) clearly can meaningfully apply to a particular export sale and does not
require consideration of different export sales taken together.

Id., note 32.

multiple comparisons at an intermediate stage, it is not allowed to take into account the results of only
some multiple comparisons, while disregarding others."22

15. In other words, for the Appellate Body, the term "product" means that Members are required

to average the entries of all of the particular pr oduct from a particular exporter or producer, at least
where the investigating authority "chooses" to u ndertake multiple comparisons at an intermediate
stage. As the United States has explained, the Appellate Body interprets Article 6.10 as prohibiting
the calculation of a margin on transaction-specific b asis, and there is therefore no real "choice" for
investigating authorities. Such a reading of the term "product" would have significant implications
for other places where "product" is used. It would me an for example that the treatment of a "product"
is to be determined not with respect to the entry of that product, but with respect to an average of all
particular entries of that product.

16. However, there is nothing in the Anti-Du mping Agreement nor the GATT 1994 that requires
such a constrained reading of the term "product". Nothing prevents the term "product" from meaning
the single entry of a particular product. The Appella te Body's own report demonstrates that this is a
correct meaning of the term "product". In paragr aph 109, the Appellate Body states: "Under this
system, the United States collects security in the fo rm of a cash deposit at the time a product enters
the United States, and determines the amount of dut y due on the entry at a later date". Here, the
Appellate Body is clearly using "product" to refer to a single entry.

17. Furthermore, a reading of the term "produc t" in Article VI of the GATT 1994 as requiring the
aggregation of multiple transactions does not reflect th e ordinary meaning of the term in context. For
example, that reading does not work in the context of Article VII of the GATT 1994. The panel in US
– Softwood Lumber V (Article 21.5) observed that: "[A]n analysis of the use of the words product
and products throughout the GATT 1994, indicates that there is no ba sis to equate product with
'product as a whole' in the sense in which Canada uses that term in this proceeding. Thus, for
example, when Article VII:3 of the GATT refers to 'the value for customs purposes of any
imported product', this can only be interpreted to refer to the value of a product in a particular
import transaction."
23 Similarly, that reading does not work in the context of Article II of the GATT
1994. Article II:2(b) specifically uses the term "product" in relation to "any anti-dumping or
countervailing duty applied consistently with the provisions of Artic le VI". If, as the Appellate Body
found, the term "product" for purposes of Article VI "clearly" means "product as a whole," then the
term "product" for purposes of Article II would also m ean "product as a whole". Yet that reading, if
product as a whole in fact requires an examination of multiple transactions, simply does not work.
"Product" is used several places in Article II. The Appellate Body's reading would mean, for
example, that for purposes of the other two items listed in paragraph 2 of Article II – "a charge
equivalent to an internal tax" and "fees or othe r charges commensurate with the cost of services
rendered" – each Member would need to consider the "product as a whole". In other words, a
Member would average the charges or fees applied to all the entries of a product to determine if the
charge was equivalent to an internal tax or comme nsurate with the cost of services rendered. The
result would be even more striking for the tariff trea tment of a "product". Again, since the Appellate
Body finds that "product" means "product as a whole," and if "product as a whole" requires
consideration of multiple transactions, then in de termining if a Member has abided by its tariff
bindings, it would be necessary to consider the "p roduct as a whole". It would be permissible to
impose a tariff in excess of the bound rate of duty on particular entries so long as it was "offset" by
the tariff on other entries such that the tariff fo r the "product as a whole" does not exceed the bound
rate. The United States suspects that Members ma y have some difficulty with this reading of
"product".

23 US – Softwood Lumber V (Article 21.5), note 36.

 "Margins of dumping"

18. With respect to the phrase "margins of dumping," the panel in US – Softwood Lumber V
(Article 21.5) noted that, pursuant to the text of Article VI, dumping is essentially a price difference. 24
Pursuant to Article VI:1 and VI:2 of the GATT 1994, a margin of dumping exists when the price of a
product is less than its normal value. 25 The panel found that this definition of the margin of dumping
as a price difference could be applied to individual transactions and does not require an examination
of export transactions at an aggregate level:

In the absence of any definition of the phrase "margins of dumping" in Article 2.4.2,
and in the absence of any obligation un der the [transaction-to-transaction]
methodology to ensure that "all comparable export transactions" are represented in a
weighted average export price, we se e no reason why a Member may not, when
applying the transaction-to-transaction comparison methodology, establish the
"margin of dumping" on the basis of the total amount by which transaction-specific
export prices are less
 than the transaction-specific nor mal values. In such cases, the
margin of dumping clearly would reflect the price difference for dumped , rather than
non-dumped, exports of the product by a particular exporter. In our view, this would
be a permissible interpretation of the re levant part of the first sentence of
Article 2.4.2, even though it does not reflect the full results of all comparisons. In
other words, when establishing the amount of dumping for the purpose of calculating
a margin of dumping under the [transaction-to-transaction] comparison methodology,
an investigating authority need not incl ude in its calculations the results of
comparisons where export price exceeds normal value.
26
19. Thus, the analysis of the panel in US – Softwood Lumber V (Article 21.5) was based firmly on
the text of the Anti-Dumping Agreement and the GATT 1994. By contrast, in US – Zeroing (EC), the
Appellate Body failed to address fully the terms of th e covered agreements, in light of their context,
and in light of the object and purpose of the agre ements. Instead, the Appella te Body interpreted its
own report language, removed from the context of the agreement provisions with respect to which the
language was first coined, in order to achieve the result of requiring offsets in all contexts.

B. The Appellate Body's Erroneous Conclusi on that the Margin of Dumping Cannot be
Transaction-Specific

1. The Appellate Body Misinterpreted Article 6.10 of the Anti-Dumping Agreement

20. The Appellate Body compounded its error by fi nding that the margin of dumping cannot be
calculated on a transaction-specific basis. 27 The Appellate Body relied on Article 6.10 of the
Anti-Dumping Agreement to find that margins of dumping must invariably be established on an
exporter- or producer-specific basis, which it assumed was inconsistent with calculating a margin of
dumping on a transaction-specific basis.
28

24 US – Softwood Lumber V (Article 21.5) , para. 5.27 ("While 'margins of dumping' is not defined by
the AD Agreement, Article VI:2 of the GATT 1994 provides that, for the purposes of Article VI, 'the margin of
dumping is the price difference determined in accordance with the provisions of paragraph 1' of Article VI.").
25 US – Softwood Lumber V (Article 21.5) , para. 5.27 ("In other words, there is dumping when the
export 'price' is less than the normal value. Given this definition of dumping, and the express linkage between
this definition and the phrase 'price difference', it would be permissible for a Member to interpret the 'price
difference' referred to in Article VI:2 as the amount by which the export price is less than normal value, and to
refer to that 'price difference' as the 'margin of dumping'.") (footnote omitted; underscoring in original).
26 US – Softwood Lumber V (Article 21.5), para. 5.28 (footnote omitted; underscoring in original).
27 US – Zeroing (EC) (AB), paras. 128-30.

21. The assumption is a non sequitur because the Appellate Body proceeds on the false premise
that a margin of dumping cannot be both exporter-specific and transaction-specific. However,
Article 6.10 simply provides that a Member must calculate a margin for each individual exporter or
producer – as opposed to one margin for all expor ters or producers (or, as it was described in Mexico
– Rice (AB), "company-specific" versus "country-wide").
29 This understanding of Article 6.10 is
confirmed by the Spanish text of that article, wh ich provides that the investigating authority must
determine a margin of dumping "que corresponda a cada exportador" or "that corresponds to each
exporter". A margin may correspond to an exporter while being based on one transaction – as long as
that transaction is the exporter's. Article 6.10 says nothing about whether the margin must be based
on more than one transaction, and it does not prohibit the calculation of a margin of dumping on a
transaction-specific basis.

22. Indeed, in its 1960 report, the Group of Expert s considered that the ideal method for imposing
an anti-dumping duty is to make a dete rmination of dumping with respect to each single importation
of the product.
30 Therefore, under Article VI, a margin of dumping ideally would be both transaction-
specific and calculated on an exporter-specific basis, and Article 6.10 of the Anti-Dumping
Agreement does not provide to the contrary. The Appellate Body's conclusion that the margin of
dumping cannot be transaction-specific because Article 6.10 requires the margin of dumping to be
calculated for each exporter is without basis.

23. It should also be noted that a consequence of the Appellate Body's assertion that the margin of
dumping cannot be calculated on a transaction-specific basis is that an investigating authority must
calculate the margin of dumping based on all of the exporter's transactions. However, it is difficult to
see how this can be done without aggregating multip le comparisons. In this sense, the Appellate
Body's interpretation of Article 6.10 as precluding transaction-specific margins of dumping renders
hollow its suggestion that authorities undertake multiple comparisons as a matter of choice.
31 In fact,
the Appellate Body is effectively requiring the ve ry aggregation of comparisons it insists must be
accompanied by offsets. The difficulty w ith the Appellate Body's reference to " if a margin of
dumping is calculated on the basis of multiple co mparisons made at an intermediate stage" 32 is
underscored by the fact that the Appellate Body neve r indicates what the alternative could be to using
multiple comparisons.

29 Appellate Body Report, Mexico – Definitive Anti-Dumping Measur es on Beef and Rice; Complaint
with Respect to Rice, WT/DS295/AB/R, adopted 20 December 2005, paras. 208, 217 ("Mexico – Rice (AB)").
30 The Second Report of the Group of Experts on Anti-Dumping and Countervailing Duties, adopted on
27 May 1960, BISD 9S/194, para. 8.
31 See US – Zeroing (EC) (AB) , para. 127. Further, even on its own terms, the Appellate Body's
statement that Members "choose" to engage in "multip le comparisons" is simply incorrect, because, as a
practical matter, it is difficult for authorities to avoid ha ving to undertake multiple comparisons, whether in the
form of multiple averaging of sub-gr oups or transaction-specific calculations. Here again, perhaps due to its
lack of familiarity with the manner in which anti-dumping systems are actually administered, the Appellate
Body removes from its original context a statement it made in an earlier re port and applies that statement more
broadly in a manner that makes no sense. Specifically, the Appellate Body's discussion of "choosing" multiple
comparisons in the Lumber report was related to the choice of multiple averaging; i.e., "multiple comparisons at
the subgroup level." US – Softwood Lumber V (AB), paras. 97-98 (emphasis added). However, in US – Zeroing
(EC), the Appellate Body characterizes its statement regard ing "choosing" as applying to multiple comparisons,
and not multiple averaging.

2. The Appellate Body Appears to Have Exagg erated the Differences Between a Retrospective
Assessment System and a Prospective Normal Value System

24. In its report, the Appellate Body states th at a prohibition on zeroing would not "mean that
liability for payment of anti-dumping duties may not be based on a prospective normal value as
contemplated by Article 9.4(ii) of the Anti-Dumping Agreement".
33 In so stating, the Appellate Body
appears to have been of the view that there are significant differences between prospective normal
value systems and retrospective assessment systems, su ch as the system used by the United States. In
fact, the differences that exist are largely ones of form.

25. Under the US retrospective assessment system, the export price for an individual export
transaction is compared to a contemporaneous monthl y average normal value. If the export price is
lower than the monthly average normal value, a dumping margin exists. The understanding of the
United States is that prospective normal valu e systems work on the same basic principles; i.e., the
export price of an individual export transaction is compared to a contemporaneous normal value, and
if the export price is lower, a dumping margin exis ts. Under both systems, duties can be assessed in
absolute amounts on specific transactions.
34

26. Thus, both types of systems are essentially transaction-specific. The two major differences
between the systems are entirely ones of form. Firs t, in a retrospective system, the normal value and
export price are determined after the transaction has taken place, whereas in a prospective normal
value system, normal value and export price are determined at or around the time of importation.
However, a normal value for the month of October 2 004, should be the same regardless of whether it
is determined in October 2005 (as might happen unde r a retrospective system), or in September 2004
(as might happen under a prospective normal value system).

27. Second, in a retrospective system, authorities may convert absolute duty amounts into
ad valorem percentages. In the United States, approximately fifteen years ago the US Department of
Commerce decided to cease assessing duties in the fo rm of absolute amounts and to begin issuing
assessment instructions in the form of ad valorem percentages. This was done with the objective of
easing the burden on both administrators and private entities. However, as a matter of mathematics,
the use of an ad valorem percentage results in exactly the same amount of anti-dumping duty liability
as would be due if absolute amounts were used.

28. Therefore, given the fact that retrospective systems and prospective normal value systems are
both essentially transaction-specific, it is difficult to understand the Appell ate Body's apparent
distinction between the two types of systems. If zeroing is prohibited in the case of a retrospective
system, then it must also be prohibited in the case of a prospective normal value system. However,
notwithstanding the Appellate Body's apparent asserti on to the contrary in footnote 234 of its report,
the United States fails to see how a prospective normal value system can operate if authorities do not
use zeroing.
35

33 US – Zeroing (EC) (AB), note 234.
34 In other words, if the differen ce between the normal value and the export price is $5, authorities can
assess $5 on the transaction, as opposed to applying some ad valorem percentage.
35 The Appellate Body states that the disallowance of zeroing "does [not] mean that liability for
payment of anti-dumping duties may not be based on a prospective normal value as contemplated by
Article 9.4.(ii) of the Anti-Dumping Agreement." US – Zeroing (EC), note 234. However, as the United States
explained in the First US Communication, prospective normal value assessment systems operate on a
transaction-specific basis. If, as the Appellate Body posits, margins of dumping must be calculated for "the
product as a whole," it would seem impossible for an authority to legitimately assess anti-dumping duties on a
transaction-specific basis using a pros pective normal value. The panel in US – Softwood Lumber V
(Article 21.5), para. 5.57, reached a similar conclusion, finding that the Appellate Body's interpretation of
"margins of dumping" "makes no sense in the context of a prospective normal value duty assessment system,

3. The Consequences of the Appellate Body's Conclusion for Article 2.4.2

29. Further, this approach cannot be reconciled with the Appellate Body's assertion that it makes
no finding with respect to the other two methodologies under Article 2.4.2. 36 The Appellate Body
notes that Article 6.10 applies in investigations. However, the transaction-to-transaction and targeted
dumping methodologies under Article 2.4.2 will, unless there is only one export transaction, always
result in multiple comparisons. If, as the Appellate Body contends, Article 6.10 requires not simply
the calculation of a margin of dumping for an individual exporter but rather a margin of dumping for
an individual exporter based on all of that exporter' s transactions, then it is impossible for a Member
to calculate a margin of dumping without aggregating multiple comparisons.

30. The Appellate Body's reasoning has other pe rverse consequences for Article 2.4.2. For
example, it renders the phrase "all comparable export transactions," as the Appellate Body has
understood it, redundant. The Appellate Body has ar gued that Article 6.10 requires not just margins
of dumping for individual exporters, but margin s of dumping based on all of the exporter's
transactions. If that is true, then it calls into qu estion the meaning the Appellate Body ascribed to the
phrase "all comparable export transactions" in US – Softwood Lumber V (AB). If Article 6.10 requires
consideration of all export tr ansactions, and Article 2.1 requires offsets when making multiple
comparisons of those transactions, then it is unclear why the Appellate Body in US – Softwood
Lumber V (AB) considered the phrase "all comparable expor t transactions," in conjunction with the
phrase "margins of dumping," to require the very sam e outcome. Indeed, it appears that the only way
to escape the conclusion that the Appellate Body's analysis in US – Zeroing (EC) renders the phrase
"all comparable export transactions" redundant or "i nutile" (a result which the Appellate Body has
otherwise indicated is to be disfavored) is to c onclude that the US interpretation of the phrase "all
comparable export transactions" in US – Softwood Lumber V (AB) was correct.
37

31. The more logical interpretation of the Anti-Du mping Agreement is the one that panels have
followed: that the requirement to provide offsets articulated in US – Softwood Lumber V (AB) is
limited to the average-to-average comparison met hod in investigations based on the phrases "margins
of dumping" and "all comparable export transactions" in the first sentence of Article 2.4.2; that no
provision in the Anti-Dumping Agreement precludes the calculation of margins of dumping on a
transaction-specific basis, consistent with Article VI of the GATT 1994 and the common
understanding of that Article as expressed over forty-fi ve years ago by the Group of Experts; and that
Members are not obliged to give refunds on non-dumped transactions.

C. The Appellate Body's Conclusion that Article VI of the GATT 1994 and Article 2.1 of
the Anti-Dumping Agreement Prohibit Zeroing

32. In the First US Communication, the United States noted the problematic nature of the
Appellate Body's reliance in US – Zeroing (EC) on Article VI of the GATT 1994 and Article 2.1 of
the Anti-Dumping Agreement.
38 Upon further reflection, our concern with this aspect of the
Appellate Body's analysis has only increased.

because . . . the 'margin of dumping' at issue is a tran saction-specific price differen ce calculated for a specific
import transaction." See also First US Communication, paras. 9-12.
37 In this regard, the US interpretation of Article 2.4.2 was as follows: "[A]rticle 2.4.2 provides no
guidance as to how results of multiple comparisons are to be aggregated in order to calculate an overall margin
of dumping for the product under consideration. . . . [I]n fact, 'Article 2.4.2 itself does not require that the results
of those multiple comparisons be aggregated at all.'" US – Softwood Lumber V (AB), para. 11.
38 First US Communication, paras. 18-20.

33. As the United States noted previously, the text of Article VI did not change as a result of the
Uruguay Round agreements, and the text of Article 2.1 of the Anti-Dumping Agreement mirrors the
text of the Tokyo Round Anti-Dumping Code. However, while the pre-WTO incarnations of
Article VI and Article 2.1 were in effect, two panels rejected challenges to zeroing. In EC – Cotton
Yarn, the panel rejected an argument by Brazil that the EC's failure to make due allowances for
negative margins was inconsistent with the Anti-Dumping Code.
39 In EC – Audio Tapes , the panel
rejected a claim by Japan that the EC's "zeroing of negative margins" was inconsistent with
Article 2.1 of the Anti-Dumping Code. 40 Consistent with these findings, the Uruguay Round
negotiators actively discussed whether the use of "zeroing" should be restricted in what would become
the WTO agreements.41

34. However, assuming for purposes of argument that the negotiators did agree to prohibit
zeroing, it simply is not reasonable to conclude, as did the Appellate Body, that the negotiators chose
to implement such an agreement sub silentio by leaving Article VI and Article 2.1 unchanged. First
of all, such a conclusion is contrary to the norma l inference one draws from the absence of a change
in language, which is that the draf ters intended no change in meaning. 42 Moreover, given that the
negotiators elsewhere covered in great detail various aspects of dumping margin calculations, it is
telling that they made no reference to the topic of "zeroing" in Article VI or Article 2.1.43

35. Second, the conclusion that the drafters secretly agreed to a reinterpretation of Article VI and
Article 2.1 would imply that, through their use of zeroing, the EC, the United States, and Canada,
among others, knowingly breached the GATT 1994 and the Anti-Dumping Agreement as soon as the
WTO Agreement entered into force. However, absent an assumption of bad faith – which the
Appellate Body has said is impermissible
44 – it cannot be credibly main tained that these Members,
each of which was an active user of anti-dumpi ng measures under the Anti-Dumping Code and an
active participant in the Uruguay Round anti-dumping negotiations, agreed to a prohibition on zeroing
in Article VI and Article 2.1 without any change in language to either provision – and then continued
to use zeroing anyway. Nor can it cr edibly be maintained, in light of EC – Cotton Yarn and EC –
Audio Tapes, that Article VI and Article 2.1 "clearly" s upport the notion that "dumping" is defined in
relation to "the product as a whole".

36. In this vein, the United States recalls that Article 17.6(ii) of the Anti-Dumping Agreement
provides that where a "relevant provision of the Ag reement admits of more than one permissible

39 Panel Report, EC – Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil ,
ADP/137, adopted 30 October 1995, para. 502.
40 Panel Report, EC – Anti-Dumping Duties on Audio Tapes in Audiocassettes Originating in Japan ,
41 See, e.g., Communication from Japan , MTN.GNG/NG8/W/30 (20 June 1988), item I.4(3), in which
Japan expressed concern about a methodology wherein "negative dumping margins, i.e., the amount be which
export price exceeds normal value, are ignored."
42 Instructive in this regard is US – Underwear , in which the Appellate Body found that the
disappearance in the Agreement on Textiles and Clothing of the earlier Multi-Fibre Agreement provision for
backdating the operative effect of a restraint measure, "strongly reinforced the presumption that such retroactive
application is no longer permissable [sic]." Appellate Body Report, United States – Restrictions on Imports of
Cotton and Man-Made Fibre Underwear, WT/DS24/AB/R, adopted 25 February 1997, page 15. The corollary,
however, is that where a provision is not changed, there is a presumption that behaviour that previously was
permissible remains permissible.
43 See Appellate Body Report, European Communities – Anti-Dumping Duties on Malleable Cast Iron
Tube or Pipe Fittings from Brazil, WT/DS219/AB/R, adopted 18 August 2003, para. 99 (noting that the fact that
"the treaty negotiators covered in great detail various aspects of the constructed value calculation, the omission
of any reference to low-volume sales in the chapeau of Article 2.2.2 is telling" (footnote omitted)).
44 Appellate Body Report, Chile – Taxes on Alcoholic Beverages, WT/DS87/AB/R, WT/DS110/AB/R,
adopted 12 January 2000, para. 74.

interpretation, the panel shall find the authorities' me asure to be in conformity with the Agreement if
it rests upon one of those permissible interpreta tions". Two separate WTO panels composed of
independent, impartial revi ewers (many of whom have extensive experience in the trade remedies
area) have found, with the exception of investig ations using the average-to-average methodology 45,
that the use of zeroing reflects a permissible inte rpretation of the Anti-Dumping Agreement. The
Appellate Body's perfunctory conclusion that ther e is only one permissible interpretation simply has
no persuasive force and cannot be reconciled with the appropriate standard of review.