Document: WT/DS264/RW Page E-1 ANNEX E QUESTIONS AND ANSWERS Contents Page E-1 Responses of Canada to Questions to  the Parties following the Substantive Meeting of the Panel
Document codes: WT/DS264/RW
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, India, Japan, New Zealand, Thailand
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 1, 2, 4, 5, 9  Anti-dumpingArt. VI  GATT 1994Art. 18  Anti-dumping

ANNEX E

QUESTIONS AND ANSWERS

Contents Page
E-1 Responses of Canada to Questions to the Parties following the Substantive
 Meeting of the Panel
E-2
E-2 Answers of the United States to the Panel's Questions of 18 November E-19
E-3 Answers to Questions for parties and Third Parties of the People's Republic
 of China
E-41
E-4 European Communities Responses to the Panel's Questions E-43
E-5 Replies of Japan to the Questions from the Panel E-63
E-6 New Zealand's Responses to Questions by the Panel to the Third Parties E-78
E-7 Thailand's Responses to the Panel's Ques tions for Parties and Third Parties E-82
E-8 Canada's Comments on the United States ' Answers to the Panel's Questions E-90
E-9 Comments of the United States on Canada's and the third Parties Responses
 to the Panel's Questions
E-95

ANNEX E-1

RESPONSES OF CANADA TO QUESTIONS
TO THE PARTIES FOLLOWING THE
SUBSTANTIVE MEETING OF THE PANEL

QUESTIONS TO CANADA

1. In para. 9 of its closing statement, Canada asserts that "an investigating authority has
an obligation to determine a "margin of dumping" for the product as a whole". Does the
concept of "margin of dumping" have the same meaning throughout Article 2.4.2? Canada
indicates in para. 15 of its closing statement that "the meaning of the term "margin of
dumping" – and that of – "dumping" – cannot change in this single sentence" – presumably the
first sentence of Article 2.4.2. Does Canada co nsider that the meaning of the term "margin of
dumping" might differ between the first and seco nd sentences of Article 2.4.2? Is the second
sentence of Article 2.4.2 an exception to the re quirement to determine a margin of dumping for
a product as a whole? Please explain. Do es Canada consider that the term "margin of
dumping" has the same meaning throughout the whole AD Agreement?

1. Yes. The concept of "margin of dumping" has the same meaning throughout Article 2.4.2.
The term "margins of dumping" appears only once in Article 2.4.2; and the Appellate Body has
interpreted this term for the purpose of this provi sion. Although Article 2.4.2, second sentence, does
not use the term "margins of dumping", an investig ating authority that uses the weighted-average-to-
transaction methodology calculates a margin of dumpi ng within the meaning of this term in this
provision.

2. The Appellate Body observed that Article VI:2 of GATT 1994 defines a "margin of dumping"
as "… the price difference determin ed in accordance with the provisions of paragraph 1 [of Article VI
of the GATT 1994]."
1 It then concluded on that basis that "‘margins of dumping’ can be found only
for the product under investigation as a whole, and ca nnot be found to exist for a product type, model,
or category of the product." 2 The Appellate Body also found that Article 2.4.2 applies to the
aggregation of the results of intermediate values.3 Therefore, a margin of dumping under Article 2.4.2
must represent the aggregation of all intermedia te values performed for the product as a whole,
regardless of the calculation methodology chosen.

3. This definition of "margins of dumping", th erefore, applies to both calculation methodologies
set out in the first sentence of Article 2.4.2. The grammatical construction of the first sentence also
confirms this interpretation.
4

1 United States – Final Dumping Determination on Softwood Lumber from Canada, Report of the
Appellate Body, WT/DS264/AB/R, adopted 31 August 2004, at para. 95. [“Appellate Body Report”]
2 Ibid., at para. 96.
3 Ibid., at para. 98.
4 Canada observes that both the majority and the dissenting Member of the original panel indicated that
the same rule should be applicable to the weighted-a verage-to-weighted-average and transaction-to-transaction
methodologies. See United States – Final Dumping Determination on Softwood Lumber from Canada, Report
of the Panel, WT/DS264/R, adopted 31 August 2004, at paras. 7.119, footnote 361; and 9.10. [“Panel Report”]
Canada also recalls that in the original proceeding the Unit ed States argued that “there is no basis for finding a

4. Canada does not consider that the meaning of the term "margins of dumping" might differ
between the first and second sentence of Article 2.4.2. Although the term "margins of dumping" does
not actually appear in the second sentence of Article 2.4.2, Canada sees nothing in the context of the
second sentence that would change the meaning of th e term for the purposes of this provision. The
provision is an exception but that "exception" does not equate to an exception from the requirement to
determine a margin of dumping for the product as a whole.

5. It is unclear whether the term "margins of dumping" has the same meaning throughout the
Anti-Dumping Agreement . Moreover, this Panel does not need to address the interpretation of
"margins of dumping" in every of the many instances in which it is used to resolve Canada’s claims
concerning the use of zeroing under the transaction- to transaction methodology. The Appellate Body
has made clear that this term has the same meaning in Articles 2.4.2, 6.10 and 9.4 of the Anti-
Dumping Agreement. Canada is of the view that the Appella te Body’s interpretation of "margins of
dumping" in these provisions will necessarily inform the interpretation of this term in other provisions
of the Anti-Dumping Agreement.

2. Does it necessarily follow from the argume nt that a margin of dumping must be found
for a product as a whole that any export prices above the normal value must be fully reflected in
the numerator of the dumping margin? Does not th e inclusion of those export prices in the
denominator, but not in the numerator, result in a margin of dumping for the product as a
whole, given that the product as a whole is presumably the imported product whose prices are
in question? Please explain?

6. Yes, it follows from the argument ( i.e., that "margins of dumping" in Article 2.4.2 must be
calculated for a product as a whole) that export prices above normal value must be fully reflected in
the numerator of the dumping margin calculation. The Appellate Body has already explained in this
dispute that zeroing violates Article 2.4.2 precisely because it "… does not take into account the
entirety of the prices of some export transactions".
5

7. The inclusion of "export prices" (here Canada reads "export prices" to mean the "sales value"
of the relevant export transactions), in the denominator of an ad valorem margin of dumping
calculation does nothing to cure the distortion that zeroing causes in the numerator of the calculation,
and therefore does not result in a margin of dumping for the product as a whole. It is for this reason
that the Appellate Body disagreed with the United St ates "that the results of the comparisons in which
the weighted average normal value is less than the weighted average export price could be excluded in
calculating a margin of dumping for the product under investigation as a whole."
6

8. By "zeroing" ( i.e., not taking the actual export price fully into account in the numerator), the
United States failed in this case to calculate a margin of dumping for the product as a whole as
required under Article 2.4.2. Instead, it calculated a margin of dumping that only partially reflects the
actual sales of that product. A margin of dumping for a product as a whole is calculated on the basis
of the investigated facts for a given period of tim e with the actual results of any comparisons left
unchanged. The United States changed the facts under i nvestigation by manipulating the results of its
transaction-to-transaction comparisons before a ggregating them. It changed the outcome of
comparisons to certain export transactions (those transactions resulting in negative values) to a
fictitious "zero". The United States therefore created a margin of dumping that did not reflect actual
dumping represented in the investigated transactions for the product as a whole.

different rule applicable to the two principal methodologies under Article 2.4.2” See Appellant’s Submission of
the United States, at para. 48 (Exhibit CDA 4).
5 Appellate Body Report, at para. 101. (Emphasis in original.)
6 Ibid., at para. 103.

3. Please comment on the US assertion that "it is not the case that a margin of dumping is
established only when the price differences result ing from multiple transaction-to-transaction
comparisons for a given product are aggregated" (US oral statement, para. 25).

9. This US assertion concerning the transaction- to-transaction methodology and Article VI:2 of
the GATT 1994 ignores the Appellate Body’s reasoning in US – Softwood Lumber V . In
paragraphs 93-96 of its report, th e Appellate Body already relied on Article VI:2, which includes a
reference to price difference, as useful context in finding that: "[a]s with dumping, ‘margins of
dumping’ can be found only for the product under i nvestigation as a whole, and cannot be found to
exist for a product type, model, or category of that product."
7 As the first sentence of Article VI:2
indicates, the provision concerns "dumping" and "t he margin of dumping" for the product as a whole
("in respect of such product"). The Appellate Body went on to confirm that aggregation of
intermediate values was required to calculate a margin for the product as a whole:

[T]he results of the multiple comparisons at the sub-group level are, however, not
‘margins of dumping’ within the meaning of Article 2.4.2. Rather, those results
reflect only intermediate calculations made by an investigating authority in the
context of establishing margins of dumpi ng for the product under investigation.
Thus, 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.
 8
4. During the meeting with the parties, th e United States suggested that if the term
"margins of dumping" is understood to have the same meaning throughout the AD Agreement,
including the Article 9 provisions concerning duty collection, this would result in non-dumped
imports being set off against dumped imports at the duty collection phase. The United States
noted that importers pay anti-dumping duties, no t exporters. The United States argued that it
would be unfair for an importer of dumped product, who has already benefited from a low
export price, to further benefit from a credit determined on the basis of non-dumped imports by
another importer. Please comment on this US argument, with particular focus on the
prospective normal value duty collection system applied by Canada. In particular, how would
Canada interpret the term "margins of dum ping" at the duty collection phase, and would
Canada provide offsets at that phase?

10. Canada has explained its position on the mean ing of the term "margins of dumping" in
response to Question 1 above. Canada has two add itional general comments to make in response to
the US argument.

11. First, this Panel does not need to determin e the meaning of "margins of dumping" throughout
the Anti-Dumping Agreement in order to resolve Canada’s clai ms, set out in the Panel’s terms of
reference, concerning the consistency of zeroing und er the transaction-to-transaction methodology in
an original investigation.

12. Canada’s arguments in this compliance proceedi ng relate to the interpretation of "margins of
dumping" in the first sentence of Article 2.4.2 of the Anti-Dumping Agreement. The Appellate Body
has found that the ordinary meaning of "margins of dumping" in this sentence relates to the product as
a whole.
9 Article 2.4.2, therefore, requires the aggr egation of intermediate values to arrive at
"margins of dumping" for each exporter or producer. The grammatical construction of this provision

7 Ibid., at para. 96.
8 Ibid., at para. 97.
9 Ibid., at para. 96.

also confirms that "margins of dumping" cannot car ry more than one meaning in the first sentence of
Article 2.4.2.10

13. Second, Canada observes that a prospective normal value system does not employ the
practice of zeroing. An investigating authority zeros when it changes intermediate values resulting
from sub-group or transaction-to-transaction comparisons to zero before aggregating these values into
a margin. A prospective normal value assessmen t system, however, assesses anti-dumping duties as
imports occur through a comparison between the expor t price and the prospective normal value. An
investigating authority assesses anti-dumping duties when the export price is lower than the weighted-
average normal value, but applies no anti-dumping duties to non-dumped transactions when the
opposite is true. It is not the same as the practice of zeroing, i.e., the changing of the results of
intermediate values prior to their aggregation into a margin of dumping. Moreover, Article 9.4(ii) of
the Anti-Dumping Agreement specifically contemplates the use of such an assessment system. There
is no language in Article 2.4.2 that allows an i nvestigating authority to disregard the results of
intermediate values. The prospective normal value assessment system is not the same as zeroing and
the operation of such an assessment system cannot be relied on to support zeroing.

5. Please explain Canada's understanding (oral statement, para. 30) of how the targeted
dumping methodology might operate in practice, without zeroing. For example, assume there is
evidence of targeted dumping by a specific exporter into a specific region of a Member. Further
assume that the relevant exporter also sells in to other regions of the same Member, without
dumping. How might the targeted dumping methodology apply in this case? How might any
margins of dumping be calculated? What ro le would the non-dumped imports play in this
process? Would anti-dumping duties only be ap plied on imports destined for the region for
which there was evidence of targeted dumping? How would any resultant anti-dumping duties
differ from those applicable as a result of a weighted average–to–weighted average comparison
in respect of the totality of imports into the Member's territory? How would the resulting anti-
dumping duties comport with the first sentence of Article 6.10 in the case in which the exporter
had sales outside the targeted region?

14. Canada observes that the first sentence of th is question implies that the targeted dumping
methodology requires or depends on the use of zeroing fo r its meaning. There is no basis in the text
of the Anti-Dumping Agreement for such an assumption.

15. It is the United States who asserts that zero ing is permitted because a broad prohibition on its
use would render the targeted dumping methodology inutile. Therefore , the United States, and not
Canada, has the burden of establishing this argum ent and it has not done so. Canada notes that:
(1) the United States has offered no textual basis in Article 2.4.2 first sentence for its argument that
the use of zeroing is permitted under the transac tion-to transaction methodology; and (2) the
United States has not responded to, let alone tried to refute, Canada’s argument, that there is no
language in this provision that permits an inves tigating authority to disregard the results of
intermediate values – something it must do to zero.

16. Canada has never applied the targeted dumping methodology. A WTO Member could
approach such an analysis in the manner outlined below – or by other possible means –depending on
the facts of a given case.

17. After examining the export transactions, an inv estigating authority might identify a pattern of
lower export prices for the particular region in question. If the targeted dumping was significant or
the non-dumped transactions "masked" the targeted dumping, the investigating authority might
conclude that the weighted-average-to-weight ed-average and the transaction-to-transaction

10 Oral Statement of Canada, at para. 14.

methodologies were not suitable to address the situa tion. It could then commence a targeted dumping
analysis through the application of the weighted-average-to-transaction methodology.

18. Canada considers that an investigating author ity would then have a choice. It could either
continue its anti-dumping investigation into export transactions to other parts of the country or it
could terminate the investigation outside the targeted region. As the example in the question provides
that transactions to other regions were not dumped , Canada assumes that the investigating authority
would terminate its investigation into the non-target ed regions and continue the investigation with
respect to transactions to the targeted region only.

19. The investigating authority could then calculat e the amount of dumping to the targeted region
and place this value in the numerator. Canada is of the view that zeroing would not be permitted in
the aggregation of any intermediate comparisons , just as it is not permitted in the two other
methodologies found in the first sentence of Article 2. 4.2. Similarly, the denominator would consist
of the total value of dumped and non-dumped expor t transactions to the targeted region. The
necessary injury analysis would also consider the same series or group of export transactions.

20. As this example resulted in the termination of the investigation outside the targeted region,
anti-dumping duties would only be applied to imports in to the targeted region. Were an investigating
authority to use the targeted dumping methodology in this example, it necessarily would produce a
different margin of dumping than the weighted -average-to-weighted average methodology which
would be applied to all imports into a country because the latter methodology would necessarily
examine a different data set ( i.e., all export transactions, rather than the subset of export transactions
that make up transaction involving the targeted region).

21. Article 6.10 establishes the right of producers and exporters to obtain a margin of dumping
that reflects their actual pricing behaviour. In the example at hand there would be only one duty
applied – the duty applied to transactions into the targeted region as the investigation was terminated
in the rest of the country or territory.

22. Having offered this hypothetical , which is consistent with the Anti-Dumping Agreement ,
Canada notes that the text of Article 6.10 does not necessarily restrict an investigating authority to
calculating only a single margin of dumping.

23. Prior to the implementation of the Urugua y Round Agreements, investigating authorities
frequently calculated and applied a single margin of dumping to all exports of the product from a
particular country – without regard to whether one exporter dumped and another did not. Article 6.10
was intended to provide producers a nd exporters with the right to obtain a company-specific margin
of dumping that reflects their actual pricing behaviour, rather than a margin of dumping that reflects
the average pricing behaviour of several other expor ters. As a consequence, this provision should not
be interpreted to prevent investigating au thorities from providing an exporter with more than one
margin of dumping when this result would more accurately reflect the pricing behaviour of the
exporter.

24. In US – Softwood Lumber V , the Appellate Body found that Article 6.10 refers to the
"product" to mean the "product under investigation".
11 The Appellate Body’s interpretation suggests
that the term "margins of dumping" in this provi sion would apply to the product as a whole. As
explained in the answer to Question 6, the "product as a whole" can refer to two different margins of
dumping for the same exporter.

6. The application of targeted dumping comprises at least three elements (a) the
identification of a pattern of pricing indicati ng targeted dumping, (b) the calculation of a

margin of dumping and (c) the translation of that calculated margin to the application of an
anti-dumping measure. Please explain how each of these three elements would operate in the
circumstances of the three types of targeted dumping identified in the second sentence of Article
2.4.2.

25. As was discussed at the oral hearing, Canada agrees that these three elements do not
necessarily constitute all of the elements involved in the application of the weighted-average-to-
transaction methodology in the second sentence of Article 2.4.2. Neither Canada nor the
United States has practical experience with the appli cation of this provision. As a consequence, the
examples Canada has provided are hypothetical ex amples of how a WTO Member might apply the
weighted-average-to-transaction methodology in these situations.

26. Take the purchaser situation first. An inves tigating authority would first examine the export
transactions to determine whether a pattern of targ eted dumping exists for a particular purchaser. If
the investigating authority were to identify a patte rn, it would have to provide an explanation as to
why the targeted dumping could not be addressed through the use of the normal calculation
methodologies ( e.g., the non-dumped transactions outside the targeted transactions would mask the
targeted dumping to a purchaser using the other me thodologies). An investigating authority could
then conduct a weighted-average-to-transaction calcu lation and could apply that margin of dumping
to the transactions involving that purchaser.

27. This procedure would result in two margins of dumping being applied to an exporter or
producer who has some sales to the purchaser to which the targeted dumping methodology was
applied and other sales to other purchasers that were not subject to the targeted dumping
methodology.

28. As explained in Question 5, Canada is of the view that there is nothing in Article 6.10 that
prevents the application of more than one margin of dumping to an exporter. Moreover, the
calculation of more than one margin of dumping is also consistent with the Appellate Body’s
reasoning in US – Softwood Lumber V , which used the phrase "product as a whole" to refer to the
universe of transactions that would be aggregated to arrive at a margin of dumping. The Appellate
Body’s decision does not limit an importer to one margin of dumping. Rather it requires that
whenever a margin of dumping is established it mu st include the full amount of all intermediate
values that are aggregated to calculate a margin of dumping.

29. Turning to the regional "type" of targeted dumping, the answers would be similar. The
necessary pattern presumably would result from an i nvestigating authority re viewing all transactions
for the product in question and noticing (or having brought to its attention) something about sales into
a particular region within the country or territory that leads it to enquire further into transactions
involving that region. Assuming that enquiry leads to discovery of the pattern and the investigating
authority coming to a view that it can provide sufficient explanation for its use of Article 2.4.2 second
sentence, the investigating authority would then calcu late a margin for the transactions that apply to
the pattern. The investigating authority would then apply that margin of dumping to those
transactions.

30. The final "type" of targeted dumping o ccurs during a particular time period ( e.g., seasonal
dumping). An investigating au thority would presumably iden tify the necessary pattern after
reviewing all transactions for the product in questi on and noticing (or having br ought to its attention)
something about sales within a partic ular timeframe within the period of investigation that leads it to
enquire further into transactions involving that time period. Assuming that the investigating authority
discovers a pattern of export prices and that it can provide sufficient explanation for its use of
Article 2.4.2 second sentence, the investigating au thority would then calculate a margin for the
transactions that fall within the pattern. The inves tigating authority would then apply that margin of
dumping to those transactions.

31. This would not lead to the application of two margins of dumping as in the other two cases
discussed above. This is because only one margin of dumping would be applied at any particular
point in time. If an import occurred within the peri od of time of the year in which targeted dumping
was found, then the targeted dumping rate would be a pplied. If the import occurred at a point in time
that was outside the targeted dumping time period, then the rate calculated for the balance of the year
would be applied. Thus this example shows just as the other two show, but in a different way, how
the targeted dumping provision can work without the use of zeroing.

7. Exhibit CDA-8 contains two hypothetical examples purporting to demonstrate how the
second sentence of Article 2.4.2 might be applie d without zeroing. With reference to those
hypotheticals:

 (a) Please comment on whether or not th e calculation of separate rates for (1)
transactions relating to the largest purcha ser and (2) transactions in the three month
period might be treated as a form of zeroing, in the sense that the focus is on dumped (or
more dumped) imports, without any offset for non-dumped (or less dumped) imports
(occurring during the remainder of the period of investigation or outside the region).

32. Canada considers that any "non-dumped" tran sactions that related to the purchaser (the
example in CDA-8 provided that all of the sales were dumped) or within the three month period could
not be ignored (i.e., zeroed). Instead, Article 2.4.2 requires an investigating authority to aggregate the
non-dumped and dumped transactions that fall within th e "pattern of export prices" to arrive at a
margin of dumping. Article 2.4.2, second sentence, does not concern zeroing. Instead it is meant to
allow an investigating authority to examine target ed dumping that could be masked under one of the
normal calculation methodologies.

33. An investigating authority could also con tinue its anti-dumping investigation into export
transactions outside the targeted purchaser or time pe riod. As Canada has explained, an investigating
authority could use one of the normal calcula tion methodologies to determine whether dumping
occurs outside the targeted subset of transactions. As a consequence, the export transactions that fell
outside the weighted-average-to-transaction calcula tion would be taken into consideration in these
calculations.

 (b) What legal / textual justification might permit such "zeroing"?

34. As explained in (a), the examples provided by Canada do not contemplate the "form of
zeroing" mentioned in the question. There is no le gal or textual justification for zeroing under any of
the calculation methodologies set out in Article 2.4.2.

 (c) The EC argued that this would not constitute zeroing, as no adjustment is made
to the export prices. Does Canada agree with this argument? Please explain.

35. Canada considers that use of a "pattern of export prices" in the calculation of the weighted-
average-to-transaction methodology would not constitu te a form of "zeroing" because intermediate
results are not changed to zero in the calculation of the margin of dumping.

 (d) The EC also argued that, even if there could be deemed to be an adjustment of
export prices, such adjustment would consti tute a "due allowance" under Article 2.4.
Does Canada agree with this argument? Please explain, with particular reference to the
concept of "differences which affect price comparability" as set out in Article 2.4.

36. Canada reiterates that focusing on the "pattern of export prices" is not equivalent to zeroing.

 (e) The EC also stated (in respect of th e seasonal product hypothetical) that the
margin of dumping would be the actual amount of dumping (for the three-month
period) expressed as a percentage of export pr ice. Does Canada agree? Please explain.
If Canada does agree, what export price would be used as the denominator? If it would
be the total of all export sales, does this constitute a form of zeroing?

37. Canada agrees that the margin of dumping could constitute the amount of dumping for that
period expressed as a percentage of the export price. Canada does not have experience applying the
targeted dumping provision. Consequently, Canada would like to consider the response provided by
the EC before deciding whether to comment further on this question.

 (f) Please show the operation of both hypothetical examples using numbers.

38. In Exhibit CDA-8, Canada provided two hypot hetical examples, the first of which involved
the largest US purchaser of softwood lumber receiving a special deal ( i.e., targeted dumping) for the
product under investigation. In this hypothetical example exporters also sell lumber to other
purchasers at prices that are higher (though still at dumped prices).

39. Canada considers that an investigating aut hority could establish a margin of dumping for the
targeted dumping to the largest US purchaser using the weighted-average-to-transaction methodology.
Canada, to provide the simplest explanation, will limit its discussion to the calculation of the margin
of dumping for a single exporter. Assume an investigating authority would examine all export
transactions (dumped and non-dumped) within the targ eted pattern (sales to the largest US purchaser)
to arrive at a separate margin of dumping of 21 per cent. At the same time, the investigating authority
could examine the sales from this exporter to all other purchasers using the weighted-average-to-
weighted-average methodology, which hypothetically might yield a separate margin of dumping of
6 per cent. The investigating authority would have calculated a much different margin of dumping
(e.g., perhaps 10 per cent) had the weighted-average -to-weighted-average methodology been applied
to all export transactions. The margin of dumpi ng for sales to the "targeted" purchaser would be
21 per cent. In contrast the margin of dumping for sales to all other purchasers would be 6 per cent.

40. The second hypothetical example of a seasonal pr oduct would operate in a similar manner.
An investigating authority would first identify a pa ttern of lower export prices for an exporter for the
three month period with the seasonal dumping. Assume the investigating authority established such a
pattern for this exporter and then calculated a marg in of dumping of 25 per cent for this three-month
period. It could then use the weighted-average -to-weighted-average methodology or transaction-to-
transaction methodology to analyze the sales for the remainder of the year and to calculate a margin of
dumping for the exporter for the remaining nine months of the year ( e.g., again perhaps 10 per cent).
The margin of dumping for the three month period of targeted dumping would be 25 per cent.
Similarly, the margin of dumping would be 10 per cent for sales in the balance of the year.

 (g) Assume that during the period of targeted dumping, or in the region of targeted
dumping, not all export sales are made at a price below normal value, but that the
finding of a pattern of export prices is not vitiated by the existence of these sales. Would
the calculation of a dumping margin for the sales during the period for which the
pattern was found, or to the region for wh ich the pattern was found have to take
account of these transactions? How?

41. Canada considers that investigating aut horities would use all export transactions from the
"pattern of export prices" in the calculation, regard less of whether these transactions were dumped or
non-dumped. See Canada’s answer to Questions 5 and 6.

8. The EC has stated that, in its view, the price at which a transaction in the exporting
market is concluded, considered in isolation, is not equivalent to a "normal value" (EC Written

Submission at para. 6). Does Canada agree. Co uld Canada explain what, in its view, is a
normal value for purposes of a transaction-to-tr ansaction analysis? How would Canada expect
that an investigating authority would determine the appropriate normal values for comparison
purposes in the context of such an analysis?

42. Canada does not share the EC’s view. Canada understands that "normal value" is a synonym
for home-market prices of the "like product" in the WTO Member exporting the product under
investigation. Canada considers that a "normal value" can consist of individual home market sales for
the purpose of the transaction-to-transaction methodology which envisages comparisons of individual
normal values to export prices. Article 2.4.2 woul d then require the aggregation of these transaction-
to-transaction comparisons to arrive at the ma rgin of dumping for the product as a whole for each
exporter or producer under investigation. An investigating authority may not zero when aggregating
these intermediate values.

43. In this compliance proceeding, Canada did not challenge the US Department of Commerce’s
(USDOC) method of selecting normal value transactions ( i.e., home market sales) for comparison to
individual export prices in its Section 129 Determination. As selection in the abstract is not at issue in
this dispute, Canada has nothing further to add on this point.

9. Is the "weighted average normal value" referred to in the first sentence of Article 2.4.2
the same as the "normal value established on a weighted average basis" referred to in the
second sentence of that provision?

44. Yes. Canada understands th ese terms to both refer to an aggregate weighted-average normal
value for the "like product".

10. Under the approach proposed by New Zeal and (para. 3.09 of New Zealand's written
submission), a higher margin of dumping would be attributed to a lower volume of dumped
imports, with the remaining imports being t reated as non-dumped. Could this reduce the
likelihood of dumped imports being shown to cause of material injury? If so, might this bring
into question the assumption that failure to offset will necessarily lead to a less favourable result
for exporters?

45. No. Although New Zealand’s proposed a pplication of the transaction-to-transaction
methodology would reduce the "volume of dumped impor ts", it would also inflate the "magnitude of
the margin of dumping" which contributes to material injury under Article 3.4 of the Anti-Dumping
Agreement. As a consequence, the proposed application of this methodology might or might not
produce more favourable results for exporters in an injury analysis depending on the facts of a given
investigation.

11. Please explain the precise textual basis for the proposition that "product" in Article VI
of GATT 1994 must be equated with "product as a whole". How would Canada reconcile the
concept of "product as a whole" with the defi nition of dumping in Article VI:2 of GATT 1994
in terms of a "price difference".

46. Canada considers that this question is no longer a "proposition" and there is nothing to
"reconcile" given that the Appellate Body found that "[i]t is clear from the texts of [Article VI:1 of the
GATT 1994 and Article 2.1 of the Anti-Dumping Agreement] that dumping is defined in relation to a
product as a whole as defined by an investigating authority."
12 The Appellate Body determined that
the term "product" is used to refer to the "produ ct under investigation" in a consistent manner in
several provisions including Article VI:2 of the GATT 1994 and Article 6.10 and 9.2 of the Anti-

12 Ibid., at para. 93.

Dumping Agreement .13 The Appellate Body properly conclu ded that "product under investigation"
referred to the "product" defined at the outset of an investigation.

47. The Appellate Body also relied on the Article VI:2 definition of a "margin of dumping" as the
"price difference" to conclude that dumping margin s must be calculated for the product as a whole.
The Appellate Body observed that Article VI:2 defi ned "margin of dumping" quoting the text of this
provision that provides that the "margin of dumping is the price difference".
14 It then determined that
"‘margins of dumping’ refers to the magnitude of dumping … [and] can be found only for the product
under investigation as a whole." 15 The Appellate Body has thus also connected the "price difference"
to the "magnitude of dumping" for the entire product under investigation.

48. As a final matter, the Appellate Body uses the phrase "product as a whole" to refer to all of
the exports of the product under investigation made by a particular exporter or producer ( i.e., the
"universe" transactions that are aggregat ed to arrive at a margin of dumping) . An exporter or
producer may not sell all of the product-types of th e product under investigation. A softwood lumber
producer, for example, might not produce or export "finger-jointed flangestock". If the USDOC
investigates that particular exporter, its export tr ansactions might consist of all of the other product-
types except "finger-jointed flangestock". It fo llows that as a practical matter the "product as a
whole" for that exporter or producer will consist of the "universe" of the product-types it exports in
the ordinary course of trade (except in the excepti onal case of a targeted dumping investigation where
it is further limited to a specific pattern of expor t transactions). It is these transactions and the
comparisons developed on the basis of these transacti ons that have to be treated in a consistent
manner or as a "whole" in the calculation of a margin of dumping.

QUESTIONS TO BOTH PARTIES

21. Would the parties please describe, in deta il, how, under their respective anti-dumping
systems, the processes of duty assessment and duty collection are carried out by their
authorities.

49. Anti-dumping duties in Canada are assessed under the authority of the Special Import
Measures Act (SIMA).

50. The Canada Border Services Agency (CBSA) is responsible for the assessment and collection
of anti-dumping duties. The CBSA establishes prospective normal values for goods that are subject to
an anti-dumping finding. Generally, all known export ers of subject goods are advised of the normal
values applicable to their goods in advance of importation.

51. When goods are imported into Canada, the CBSA determines whether the goods are subject
to an anti-dumping finding. If they are, the CBSA then determines whether the goods are priced at or
above the applicable prospective normal value at the time of importation. If so, no anti-dumping
duties are levied. However, when the export pri ce is below the normal value, anti-dumping duties
equal to the difference by which the normal value exceeds the export price are levied. When there are
no prospective normal values in place at the time of importation for a particul ar exporter or product,
the amount of anti-dumping duty payable will be based on a rate reflecting the use of facts available.

52. The initial assessment of anti-dumping duties is made within thirty days after the goods are
imported into Canada. This assessment is cons idered final and conclusive unless the importer
requests a re-determination of the anti-dumping dutie s, which may result in a refund of duties that
were paid in excess of the correct amount paya ble. As well, the CBSA can undertake a re-

13 Ibid., at para. 94.
14 Ibid., 95.
15 Ibid., at para. 96.

determination on its own initiative to adjust the amount of anti-dumping duties payable on the
importation which can result in a request to the impor ter for the payment of additional duties or in a
refund of duties paid.

53. Assessment reviews (also known as "re-inves tigations") are normally conducted by the CBSA
on an annual basis in order to establish or update prospective normal values. Exporters may also
request assessment reviews because of changes in market conditions that impact on normal values or
for purposes of establishing normal values for new products. The new prospective normal values are
made known to exporters at the conclusion of th e review and are then applied to subsequent
importations. Exporters are advised to notify the CBSA of substantial cha nges in domestic prices,
market conditions and production costs that may a ffect the accuracy of their prospective normal
values.

22. If zeroing would be considered unfair as such and thus prohibited, what would be the
practical consequences of such a concept? Would it presuppose aggregation of different
transactions into a single margin or would this concept, if applied in all its logic, oblige
administrations practising transaction by tran saction duty assessment to compensate importers
for negative margins underlying certain of these assessment operations?

54. Canada considers that this panel does not need to resolve this question in order to determine
whether Article 2.4.2 prohibits zeroing under the transaction-to-transaction methodology. However,
Canada would like to make the following gene ral comments concerning the "fair comparison"
requirement.

55. Article 2.4 establishes a "fair comparison" requi rement that prohibits zeroing under all of the
calculation methodologies under Article 2.4.2 of the Anti-Dumping Agreement . The "fair
comparison" requirement prohibits the practice of "zeroing" because it is inconsistent with the
substantive rules and concepts concerning the calculation of "margins of dumping" under Article 2.4.2
of the Anti-Dumping Agreement . Although the recent panel in US – Zeroing did not determine
whether the "fair comparison" requirement prohibits zeroing in investigations, it did find that:

[T]o determine what is ‘fair’ under the AD Agreement in relation to the calculation of
margins of dumping, we must take into account substantive rules and concepts in the
AD Agreement relevant to the issue of the determination of margins of dumping. In
particular, our analysis must take into account Article 2.4.2 of the AD Agreement ,
which is the only provision of the AD Agreement that specifically addresses the
subject methods of determining margins of dumping.
16
56. It follows that the concept of "fairness" relates to the substantive rules concerning the
calculation of margins of dumping under the methodologies found in Article 2.4.2 – rules which
prohibit zeroing when aggregating intermediate comp arisons. Canada also believes that the practice
of zeroing creates an "inherent bias" that is inconsistent with this provision.

23. The first sentence of Article 2.4.2 provides:

"Subject to the provisions governing fair comparison in paragraph 4, the
existence of margins of dumping during the investigation phase shall normally
be established on the basis of a comparison of a weighted average normal value
with a weighted average of prices of all comparable export transactions or by a
comparison of normal value and export prices on a transaction to transaction
basis."

16 United States – Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing) ,
Report of the Panel, WT/DS294/R, circulated 31 October 2005, at para. 7.262.

 (a) Would the parties agree that what is referred to as the WA to WA methodology
is set out in the phrase "on the basis of a comparison of a weighted average normal
value with a weighted average of prices of all comparable export transactions" and what
is referred to at the T to T methodology is set out in the phrase "by a comparison of
normal value and export prices on a transaction to transaction basis"?

57. Canada agrees, and notes that the word "b asis" is used in the descriptions of both
methodologies.

 (b) Could the parties comment on the significance, if any, of the difference between
the use of the phrase "on the basis of a comparison" and "by a comparison".

58. There is no significance in the difference be tween the use of the phrase "on the basis of a
comparison" and the phrase "by a comparison". As not ed in the response to the first part of this
question, Article 2.4.2 describes both methodologies using the word "basis". Both phrases therefore
provide that a margin of dumping is to be establis hed using either of the described methodologies.
The original panel confirmed this interpretation: "Article 2.4.2 establishes that, subject to the
requirement of a fair comparison, dumping margin s should normally be established on the basis of a
comparison between a weighted-average export price to a weighted-average normal value, or on the
basis of a transaction-to-transaction comparison."
17 It also interpreted the term "basis", in this
context, to refer to the "underlying support for a process" or using, as in "using" the weighted-
average-to-weighted-average methodology or "using" the transaction-to-transaction methodology.18

24. It can be argued that a methodology cannot be designated as "fair" or "unfair" within
the meaning of Article 2.4 solely on the basis of whether it makes dumping margins go up or
down. In this respect, what are the comments of the parties on the observations of the Appellate
Body in EC –Bed Linen and in US - Corrosion -Resistant Steel Sunset Review that a zeroing
methodology is "inherently biased towards inflating the margin of dumping"?

59. Canada agrees with the Appe llate Body that the use of zeroing is "inherently biased towards
inflating the margin of dumping" because it chan ges negative intermediate comparison results to
"zero". A "zeroed" result does not reflect the actual comparison made. The margin of dumping is
therefore changed without justification, and inflat ed in relation to the calculation that would be
performed under an unbiased comparison. Such an arbitrary inflation of the margin of dumping is not
"fair" under any meaning of that term in Article 2.4.

25. Could the parties explain the meaning of the phrase "subject to the provisions governing
fair comparison in paragraph 4" in Article 2.4.2? In particular, what exactly is the meaning of
"the provisions governing fair comparison in pa ragraph 4" and of "subject to"? Is the "fair
comparison" requirement limited in scope to what is addressed in paragraph 4? Please explain.

60- Article 2.4.2 begins with the introductory cl ause "[s]ubject to the provisions governing a fair
comparison in paragraph 4". The ordinary mean ing of "[s]ubject to" in this context is "… 2. Foll. By
to: under the control or influence of, subordinate to… ".
19 In addition, the plural of "provisions"
indicates that the balance of this clause refers not ju st to the "fair comparison" requirement in the first
sentence, but also to all the requirements found in this provision ( e.g., the requirement to ensure price
comparability).

17 Panel Report, at para. 7.199.
18 Ibid., at para. 7.210, footnote 355.
19 L. Brown, Ed., The New Shorter Oxford English Dictionary , Vol. II (Oxford: The Clarendon Press,
1993), at 3118. (Exhibit CDA-9)

61. The phrase "subject to the provisions governing fair comparison in paragraph 4" modifies the
first sentence of Article 2.4.2 setting out the re lationship between these two provisions. As a
consequence, the first sentence of Article 2.4.2 cannot be interpreted to impose a limitation on the
scope of Article 2.4 of the Anti-Dumping Agreement.

26. In the second sentence of Article 5.8, does the term "margin of dumping" relate to the
margin of dumping calculated for each exporter, or to a margin of dumping calculated for the
country as a whole?

62. As explained in Canada's response to Ques tion 1, these compliance proceedings concern the
interpretation of the term "margi ns of dumping" in the first sentence of Article 2.4.2 of the Anti-
Dumping Agreement. Therefore, the Panel need not address the interpretation of the second sentence
of Article 5.8 to resolve the issue that is before it. Canada implemented the provisions of Article 5.8 in
Canadian law to mean "margin of dumping" for a country. However, Canada notes that the Appellate
Body has recently found that "margin of dumping" within the meaning of Article 5.8 refers to the
margins of dumping of an individual exporter.
20 Canada is reviewing th e Appellate Body report in
question, in the context of the fact s of that case, and will be reflecting on its implications, if any, for
Canadian anti-dumping duty law.

27. Could the parties address the proposition that a dumping margin can be calculated for a
single export transaction? Pl ease consider specifically cases co ncerning (a) the import of large
capital goods, (b) the import of specially designed/manufactured goods) and (c) the import of
few shipments to small economies. If your view is that a dumping margin cannot be calculated
for a single export transaction in any of these contexts, please explain how a margin of dumping
could be established in such a case. If in any of these contexts, a single export transaction can
generate a dumping margin, why is it not permis sible to conclude that each comparison in a
transaction-to-transaction analysis generates a dumping margin?

63. Yes. Canada considers that a margin of dumping can be calculated for a single export
transaction when an investigation involves only one transaction ( i.e., the "universe" of all export
transactions during the period of investigation is this one transaction). The "cases" described above
are situations where this might occur. Canada submits that in these rare circumstances, a lone
transaction may represent the only comparison that w ill produce an intermediate value and thus the
comparison derived from this transaction will represe nt the product as a whole upon which a margin
of dumping can be calculated. Article 2.4.2 makes clear, however, that where there is more than a
single export transaction, all the export transactions mu st be aggregated to arrive at "margins of
dumping" for an exporter or producer.

28. Could the parties indicate whether, in their view, in a targeted dumping analysis under
the second sentence of Article 2.4.2, an investigating authority may utilize a comparison method
other than one in which "a normal value established on a weighted average basis may be
compared to prices of individual export transactions".

64. Article 2.4.2 permits an investigating authorit y to apply a targeted dumping analysis against a
pattern of export transactions that relate to a particular region, time period or purchaser. Although
Canada has never applied this calculation methodology , Canada submits that investigating authorities
might also be able to examine the remaining non-targeted export transactions ( i.e., the transactions
that are not part of the "pattern") using one of the two normal calculation methodologies ( i.e.,
weighted-average-to-weighted-average or transaction-to-transaction).

20 Mexico - Definitive Anti-Dumping Measures on Beef and Rice, Complaint with Respect to Rice ,”
WT/DS295/AB/R, circulated 29 November 2005, at in particular, paras. 216-218.

29. Could the parties address the argument of the EC that if there is one hypothetical
situation in which a general prohibition on zeroing does not render the targeted dumping
methodology redundant, this is sufficient to demo nstrate that the United States' argument in
this regard is without merit? Specifically, is it enough to posit that such a methodology could be
applied by some Members in some circumstan ces, or would it be necessary that such a
methodology would be generally susceptible of application by all Members?

65. Canada understands the United States’ "mathe matical equivalence" argument to be that
"zeroing" must be permitted under the targeted dumping methodology, otherwise the methodology is
redundant due to its mathematical equivalence in th e example provided by the United States. Canada
notes that any use or implementation of the targeted dumping methodology is not at issue in this
proceeding and is only relevant to Canada’s claim under Article 2.4 of the Anti-Dumping Agreement.

66. Canada agrees with the EC that the US "mat hematical equivalence" argument fails if the
targeted dumping methodology can be applied in a different manner than that suggested by the
United States in its written submissions (something that US regulations achieve in and of themselves).

67. Canada observes that the second question seems to ask whether the municipal practice of
some Members should be used to interpret the provisions of the Anti-Dumping Agreement . As
Canada explained in oral argumen t, Article 18.4 provides that Members are required to ensure the
conformity of their "laws, regulations and admini strative procedures" with the provisions of the Anti-
Dumping Agreement – not the other way around.

30. Article 2.1 refers to "the export price of the product exported" and "the comparable
price ... for the like product" in the home market of the exporting Member. Do these references
to "price" relate to the price of the product as a whole, i.e. an aggregated or average price?
Please explain. Do the references to "prices" in the transaction-to-transaction and weighted
average-to-transaction provisions of Article 2.4.2 relate to the product as a whole? Please
explain.

68. Yes, the references in Article 2.1 to "price" s hould be interpreted to rela te to the price of the
product as a whole because the references are used in a description of the concept of "dumping",
which is defined in relation to a product as a whole.
21 In contrast, the references to "prices" in
Article 2.4.2, first sentence, do not relate to th e price of the product as a whole because the weighted-
average-to-weighted-average and transaction-to -transaction methodologies contemplate multiple
comparisons of export prices to "normal value". A Member, however, must still aggregate the results
of such multiple comparisons to establish "margins of dumping" within the meaning of Article 2.4.2,
first sentence, which is for the product as a whole.22

TO ALL PARTIES AND THIRD PARTIES

46. Would the parties, and third parties, plea se describe how their investigating authorities
would apply the provisions of Article 2.2 in a ca se involving multiple allegedly dumped models
of a product under consideration, where there are no sales in the home market of some of those
models? Specifically, would the parties consid er it obligatory, under that provision, to
determine normal value on one single basis for all models, or would the parties consider that
Article 2.2 permits the determination of normal value on, for instance, the basis of home market
sales for some models, and constructed normal value for others?

21 Appellate Body Report, at para. 93 (“It is clear from the texts of these provisions that dumping is
defined in relation to a product as a whole as defined by the investigating authority.”).
22 Ibid., at para. 96 (“As with dumping, ‘margins of dumping’ can be found only for the product under
investigation as a whole, and cannot be found to exist for a product type, model, or category of that product.”).

69. Article 2.2 provides that investigating aut horities calculate a "margin of dumping" through a
comparison to either a constructed normal value or sales to a third country where there are few or no
home-market sales of the "like product" in the ordina ry course of trade. If an investigating authority
established that there were few or no sales in the or dinary course of trade then this provision would
permit it to replace all of these sales with a constructed normal value or sales of a "like product" from
a third country.

70. Canada understands that most investigating authorities, including CBSA, examine whether
there are sufficient "like product" sales in the ordina ry course of trade for a particular sub-group or
model when these authorities conduct a weighted-avera ge-to-weighted-average calculation. Canada
does not believe that this practice is problematic – investigating authorities are simply conducting a
more detailed analysis to ensure that the "mar gin of dumping" is calculated in a more accurate
manner. If investigating authorities failed to conduct such an analysis it could lead to less accurate
sub-group calculations with the weighted-average e xport price being compared to a weighted-average
normal value that is comprised of a handful of nor mal value transactions. The Appellate Body found
that the general language of Article 2.4.2 permitt ed the use of "multiple averaging" or "model
matching" provided that the intermediate values are properly aggregated. Article 2.2 also uses general
language that should be interpreted in a permissi ve manner. Article 2.2 provides a conceptual
description of the practice of using constructed norma l values or third country sales. It should not be
interpreted to prohibit a more detailed form of this analysis that in creases the accuracy of the
calculation methodology.

47. The EC suggested, in its answer to a question put by the Panel, that in undertaking a
comparison under the methodology of the second sentence of Article 2.4.2, a Member can not
determine whether there is a "pattern of export prices which differ significantly among
different purchasers, regions or time periods" wi thout conducting what the EC referred to as a
disaggregated analysis. The EC then asserted that having found such a pattern on the basis of
a disaggregated analysis the Member should th en compare weighted average normal values for
the transactions forming the "pattern" with weighted average export prices for those
transactions. In the EC's view, this would be an application of the targeted dumping
methodology that would not involve zeroing. Wi th reference to each of the three types of
targeted dumping identified in Article 2.4.2 – (significantly different export prices to different
purchasers, regions, or time periods), could the parties, and third parties, please comment on
the EC's argument:

 (a) with specific reference to its consistency with the first sentence of Article 6.10
("an individual margin of dumping for each know exporter or producer")

71. To the extent that the EC has argued that an exporter could be given one margin of dumping
for transactions covered by the targeted dumpi ng analysis and another margin of dumping for
transactions not subject to this analysis; Canada ag rees that this is one potential method of applying
the targeted dumping methodology.

72. As Canada explained in its response to Questi on 5, Article 6.10 does not restrict investigating
authorities to calculating only one margin of dumping.

 (b) with specific reference to its implicat ions for duty collection under the first
sentence of Article 9.2 (duty shall be collected in the appropriate amounts, on a non-
discriminatory basis on imports).

73. Article 9.2 provides that the "… anti-dumping duty shall be collected in the appropriate
amounts in each case, on a non-discriminatory basis on imports of such product from all sources …".
Article 9.2 prohibits investigating authorities from discrimination in the collection of anti-dumping
duties – whether between exporters or exporters from different countries (or "sources"). An

investigating authority, for ex ample, that calculates identical margins of dumping for several
exporters is not permitted to discriminate between these exporters and collect a greater amount from
some of them.

74. The EC’s application of a disaggregated analysis relates to the calculation of the margin of
dumping, which occurs before the collection of these anti-dumping duties. If an investigating
authority calculates a margin of dumping under the targeted dumping methodology for a specific
region, time period, or purchaser(s), the coll ection of these amounts would not constitute
discrimination – whether or not these amounts differed from other margins of dumping. An
investigating authority does not discriminate in the collection of anti-dumping duties if it applies the
properly calculated amount of a margin of dumping.

75. As the EC may clarify what it said in answer to the question put to it at the hearing, Canada
would like to consider the response provided by th e EC before deciding whether to comment further
on this question.

48. Could the parties, and third parties, exp ress their views regarding the proposition that
the most "fair" methodology of establishing the existence of margins of dumping is that which
produces the most accurate results? (see New Zeal and's written submission at para. 3.12) In
this case, how can one determine which methodology generates the most accurate results?

76. Article 2.4.2 expressly contemplates differen t degrees of accuracy resulting from the use of
either the weighted-average-to-weighted-average or transaction-to-transaction methodology.
However, contrary to what New Zealand argues, the difference in "accuracy" between the two
methodologies resides in the comparisons made (comparisons of weighted averages versus
comparisons of transaction-specific values) rather than in a so-called "targeting of dumped goods".
Zeroing is prohibited under either methodology because it manipulates interm ediate results in a
manner which violates Article 2.4.2.

77. Moreover, the "fair comparison" obligation un der Article 2.4 stands on its own regardless of
the methodology employed under Article 2.4.2. A "f air" comparison is one that is "just, unbiased,
equitable, impartial, legitimate, in accordance with the rules or standards".
23 Either methodology may
produce results to a different degree of accuracy (again , in terms of the comparisons made), but either
methodology must involve a "fair comparison". A co mparison is not "fair" when it is inaccurate and
the inaccuracy is the result of an arbitrary manipul ation of intermediate va lues or results. Zeroing
under even the most "accurate" of methodologies violates the obligation to make a "fair comparison"
under Article 2.4.

78. In this case, therefore, it is irrelevant whic h methodology generates the most accurate results.
What is relevant is that, prior to aggregating the intermediate results of its multiple comparisons, the
United States once again impermissibly changed so me of those results from their actual negative
value to a fictitious "zero".

49. Could the parties, and third parties, ex press their views concerning the proposition set
out in the EC's argument that, in the EC's view, the price at which a transaction in the
exporting market is concluded, considered in isolation, is not equivalent to a "normal value"

79. See Canada’s answer to Question 8.

50. Do the parties, and third parties, consid er that there are any limitations on the freedom
of a Member to choose between the two methodologies set out in the first sentence of Article

23 See Second Written Submission of Canada, at para. 30; Exhibit CDA-5.

2.4.2 in establishing margins of dumping? If so , could you please indica te with precision the
textual basis for this view, and further indicate what criteria are to be applied by a Member in
choosing between the two methodologies in a given case.

80. Canada has not contested the USDOC’s selection of the transaction-to-transaction
methodology in the Section 129 Determination.
24 Canada considers that Article 2.4.2 normally
provides investigating authorities calculating "margins of dumping" with the discretion to choose the
weighted-average-to-weighted-average or tran saction-to-transaction calculation methodologies,
subject to the "fair comparison" requirement.

51. Could the parties, and third parties, exp ress their views on the proposition that the
determination of dumping and establishment of margins of dumping on the one hand, and the
assessment and collection of anti-dumping duties on other hand, are different, and address the
implications of this proposition for the int erpretation of "margin of dumping" in the AD
Agreement?

81. The issue before the Panel in this case concerns the US determination of dumping and
establishment of margins of dumping using the tr ansaction-to-transaction methodology and "zeroing"
the intermediate results of transaction-to-transacti on comparisons. The Appellate Body in this case
has interpreted the term "margins of dumping" in Ar ticle 2.4.2 as relating to the "product as a whole".
In doing so, it referred to Article 9.2 concerning the imposition and collection of anti-dumping duties.
The Appellate Body also upheld the original pa nel’s conclusion that the determination of the
existence of margins of dumping "on the basis of a methodology incorporating the practice of
‘zeroing’" violates Article 2.4.2. The propos ition that the determination of dumping and
establishment of margins of dumping on the one hand, and the assessment and collection of anti-
dumping duties on other hand, are different has no imp lications for the interpretation of "margins of
dumping" in Article 2.4.2 for the purpose of resolving the dispute in this case.

24 As US law expresses a clear preference for the use of the weighted-average-to-weighted-average
calculation methodology, the Canadian respondents have challenged the selection of the transaction-to-
transaction methodology under US law.

ANNEX E-2

ANSWERS OF THE UNITED STATES TO
THE PANEL'S QUESTIONS OF 18 NOVEMBER

2 December 2005

Table of Reports

Short Form

Full Citation

EC – Cotton Yarn

Committee on Anti-Dumping Practices, Panel Report, EC – Anti-
Dumping Duties on Imports of Cotton Yarn from Brazil , ADP/137,
adopted 30 October 1995

EC – Bed Linen
(AB)

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

Mexico – Rice (AB)

Appellate Body Report, Mexico – Definite Anti-Dumping Measures on
Beef and Rice, WT/DS295/AB/R (circulated 29 November 2005)
US – Atlantic Salmon GATT Panel Report, United States – Imposition of Anti-Dumping
Duties on Imports of Fresh and Chilled Atlantic Salmon From
Norway, ADP/87, adopted 27 April 1994

US – Corrosion-Resistant
Steel AD Sunset Review
(Panel)

Panel Report, United States – Sunset Review of Anti-Dumping Duties
on Corrosion-Resistant Carbon Steel Flat Products from Japan ,
WT/DS244/R, adopted 9 January 2004, as modified by the Appellate
Body Report, WTDS244/AB/R

US – "Zeroing" (Panel) (EC
Complainant)

Panel Report, United States – Laws, Regulations and Methodology for
Calculating Dumping Margins ("Zeroing"),
WT/DS294/R, (circulated 31 October 2005)

US – Gasoline (AB)

Appellate Body Report, United States – Standards for Reformulated
and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996

US – Softwood Lumber
(Panel)

Panel Report, United States – Final Dumping Determination on
Softwood Lumber from Canada , WT/DS264/R, adopted 31 August
2004, as modified by the Appellate Body Report, WT/DS264/AB/R
US – Softwood Lumber (AB) Appellate Body Report, United States - Final Dumping Determination
on Softwood Lumber from Canada , WT/DS264/AB/R, adopted 31
August 2004

Questions For Parties and Third Parties

To the United States

12. Is it the view of the US that the first sentence of Article 2.4 means something over and
above what is set out in the second sentence and what comes thereafter, or does the remainder
of Article 2.4 exhaust the meaning of the word "f air" used in the first sentence? If not, why
does the first sentence of Article 2.4 exist?

1. The first sentence of Article 2.4 does not m ean something over and above taking into account
differences in comparability, as set out in the second sentence and what comes thereafter. The first
sentence of Article 2.4 states a general obligation for Members to make appropriate adjustments to
ensure that export prices and normal values are comparable before margin calculations are
undertaken. The first sentence cannot be read sepa rately from the remainder of Article 2.4, as the
remainder of Article 2.4 illustrates the types of adju stments that a Member must make in pursuit of
price comparability. This list, however, is not e xhaustive. The language of the second through fifth
sentences of Article 2.4 does not preclude additional ad justments outside of those described. This is
evident, for example, from the u se of the word "including" in the third sentence. The word
"including" signals that the list of "differences" that follows is not an exhaustive list of all conceivable
"differences which affect price comparability" for which due allowance must be made.

2. Article 2.4 of the AD Agreement is mandato ry. It requires Members to make a fair
comparison and instructs them on how to do it. Thus it begins with the following statements:

A fair comparison shall be made between the export price and the normal value. This
comparison shall be made at the same level of trade. . . ." (Emphasis added).

The phrase "this comparison" in the second sentence of Article 2.4 establishes a link to the first
sentence. It makes clear that the criteria defi ned in the second and subsequent sentences are an
elaboration on what constitutes a "fair comparison," as initially identified in the first sentence. It is
clear from the use of the term "this comparison" that the second through fifth sentences illustrate what
makes the comparison referred to in the first sentence a "fair" one.

3. Further support for this reading of Article 2. 4 is found in the first sentence of Article 2.4.2,
which refers to "the provisions governing fair comparison in paragraph 4". The plural term
"provisions," as well as the reference to "paragraph 4," rather than "the first sentence of paragraph 4",
make clear that "the provisions governing fair co mparison" are the provisions set forth in the entirety
of Article 2.4.

4. In sum, there is no basis for reading the fi rst sentence in Article 2.4 as meaning something
over and above taking into account differences in comparability, as set forth in the second and
subsequent sentences. In accordance with Article 2.1, a dumping analysis is based on a comparison of
prices for sales in the export market to prices for sales in the home market. By requiring due
allowance for all factors affecting price comparabil ity, Article 2.4 assures that the prices used to
establish dumping in Article 2.1 are "comparable".

5. With respect to the second part of the Panel’s question, the first sentence in Article 2.4 need
not mean something over and above the second and subsequent sentenc es for it to be meaningful.
This is evident from the illustrative nature of the second and subsequent sentences. Article 2.4
recognizes that a Member may make due allowan ce for differences other than those expressly
identified. The first sentence mak es clear that any such due allowances should be made to the end of
achieving a fair comparison between export price and normal value. It thus provides context for the
rest of the paragraph.

13. Please comment on Canada's argument (oral statement, para. 16) that, if transaction-to-
transaction comparisons were to constitute "m argins of dumping", DOC would have had to
assess whether each transaction-specific "margin of dumping" was de minimis in accordance
with Article 5.8 of the AD Agreement.

6. Canada’s argument rests on the assumption that the term "margin of dumping" must have the
same meaning throughout the AD Agreement. Th e United States has pointed out that the term
"margin of dumping" must be interpreted in light of its context.
1 The term "margin of dumping"
occurs at various places throughout the AD Agreement and the context (and therefore the
interpretation) is not uniform across all of the various uses.

7. The term "margin of dumping" as used in Ar ticle 5.8 has a different context from the term
"margins of dumping" as used in the part of Artic le 2.4.2 that refers to transaction-to-transaction
comparisons. Article 5.8 requires a Member to determine an overall margin of dumping for each
exporter or producer subject to an anti-dumping dut y investigation. A Member must determine
whether the overall margin of dumping for an exporter or producer is de minimis. If the margin is
de minimis, the Member must terminate the anti-dumping duty investigation with respect to that
exporter or producer. Because investigations occur wi th respect to exporters’ and producers’ sales of
the product under consideration collectively, and not simply with respect to individual transactions,
Article 5.8 properly applies to a single, overall margin of dumping for each exporter or producer.

8. This interpretation has been confirmed by the Appellate Body in Mexico – Rice.2 There, in a
final anti-dumping duty determination, Mexico dete rmined that the margin of dumping for each of
two US producers was zero per cent. However, after that final determination, Mexico issued an order
establishing the anti-dumping duties that included the two US producers. As Mexico had failed to
terminate the investigation with respect to these two producers, the Appellate Body found that it acted
inconsistently with Article 5.8.
3

9. The Appellate Body specifically rejected Mexico’s argument that the use of the term "margin
of dumping" in Article 3.3 provide d relevant context for interpreting the same term in Article 5.8.
4
Article 3.3 allows for the cumulation of imports from countries simultaneously subject to an anti-
dumping duty investigation to assess injury, if "the margin of dumping established in relation to the
imports from each country" is greater than de minimis . The Appellate Body noted that the phrase
"margin of dumping established in relation to the imports from each country" is missing from
Article 5.8.
5 In rejecting Mexico’s contextual argumen t based on Article 3.3, the Appellate Body
implicitly accepted that "margin of dumping" need no t be interpreted in the same way throughout the
AD Agreement and that the context in which the term "margin of dumping" is used is relevant to
determine its meaning.

14. The US argues that an interpretation of Article 2.4 that requires a general offset
obligation would render the distinctions betw een the average-to-average and the average-to-
transaction methodologies in Article 2.4.2 a nullity (US second written submission, para. 24).
Would a generalized application of Canada's interpretation of the phrase "margins of
dumping" in Article 2.4.2 also render the av erage-to-transaction methodology redundant? Is
the US argument confined to Canada's Article 2.4 claim, or does it also apply in the context of
Canada's Article 2.4.2 claim? Please explain.

1 United States – Final Dumping Determination on Softwood Lumber from Canada, recourse to
Article 21.5 of the DSU by Canada (WT/DS264), Second Written Submission of the United States, paras. 27-28
(25 July 2005) (“United States Second Written Submission (21.5)”).
2 Mexico – Rice (AB), paras. 216, 217, 221.
3 Mexico – Rice (AB), para. 219.
4 Mexico – Rice (AB), para. 220.
5 Mexico – Rice (AB), para. 220.

10. A generalized application of Canada’s interpretation of the phrase "margins of dumping" in
Article 2.4.2 would render the average-to-tran saction methodology redundant with the average-to-
average methodology. For this reason, in addition to the other reasons set forth in the US submissions
and statements, Canada’s interpretation of Article 2.4.2 is incorrect.

11. Canada understands the phrase "margins of dumping" to have the same meaning throughout
Article 2.4.2, regardless of context. In Canada’s view, "margins of dumping" as used in Article 2.4.2
always refers to margins of dumping for the produ ct under consideration as a whole. Therefore,
according to this view, in establishing a margin of dumping, an investigating authority must always
aggregate the results of all export-price-to-normal-value comparisons, even to the extent that the
results of particular comparisons indicate an ab sence of dumping. Canada’s argument makes no
distinctions according to whether those compar isons were made on an average-to-average,
transaction-to-transaction, or average-to-transaction basis.

12. Since Canada’s understanding of the phrase "m argins of dumping" does not differentiate
according to comparison methodology, its Article 2.4.2 argument leads to the same result as its
Article 2.4 argument. Under both arguments, the a ggregation of comparison results must include
offsets regardless of the comparison methodology used. Thus, as with Canada’s Article 2.4 argument,
its Article 2.4.2 argument would impermissibl y render the average-to-transaction methodology
redundant with the average-to-average methodology.

13. Moreover, as discussed in response to Ques tions 18 and 47, Canada also has failed to
establish any reasonable interpretation of the second sentence of Article 2.4.2 under which "margins
of dumping" has the same meaning as it has in the context of the average-to-average provision in the
first sentence, and the result is distinct from that achieved using the average-to-average comparison
methodology. For this reason, too, the US argument regarding Canada’s effective nullification of the
second sentence of Article 2.4.2 is not limited to Ca nada’s Article 2.4 claim, but also applies to
Canada’s Article 2.4.2 claim.

15. At para. 64 of its written submission, the EC suggests that zeroing might be permissible
in certain circumstances in the context of a targeted dumping analysis. In particular, the EC
argues that the zeroing could take the form of an allowance for a difference affecting price
comparability. Please comment on this EC argument.

14. The EC’s reading of Article 2.4.2 finds no support in the text of that provision or in the "fair
comparison" requirement of Article 2.4. The EC essentially confuses two concepts that have nothing
to do with one another: (1) differences in prices in the export market between regions, purchasers and
time-periods; and (2) difference s which affect price comparability between export price and normal
value.

15. The EC starts with the proposition that the AD Agreement does not say that Members cannot
"zero" when using the targeted dumping comparison methodology. It then contends that it is
appropriate to make an adjustment to export pri ce in a targeted dumping situation because whatever
difference exists in the export market that justif ies the targeted dumping methodology also affects the
price comparability between the export market a nd the home market. In other words, the EC
theorizes, without any basis, that differences within the export market among purchasers, regions, or
time periods equate to differences between export prices and normal values that affect price
comparability within the meaning of Article 2.4.

16. The EC’s theory simply cannot be reconc iled with the terms of the second sentence of
Article 2.4.2. As stated therein, the targeted dumping methodology may be applicable when there is
"a pattern of export prices which differ signifi cantly among different purchasers, regions or time
periods . . . ". It has nothing to do with differences between export prices and normal values. To get

around the inconvenient fact that the second sentence of Article 2.4.2 refers to differences within a
single importing country market rather than to differences between two markets (the exporting and
importing countries), the EC avoids reference to "d ifferent purchasers, regions or time periods" and
refers instead to hypothe tical different "markets".
6 In other words, to establish a link to the fair
comparison in Article 2.4, the EC discusses targeted dumping in terms of differences between
markets, even though that is not the language actually used in the second sentence of Article 2.4.2.

17. If, instead of referring to different "markets," the EC’s argument referred to the actual text in
the second sentence of Article 2.4.2, it could be paraphrased as follows:

Assume that export sales only occurred at the very beginning and the very end of the
time period and, therefore, the targeted dumping methodology is justified because of
time period differences. Because the dumped sales that occurred at the end of the
period cannot be averaged with the non-dumped sales that occurred at the beginning
of the period, there is a difference that affects price comparability between those
beginning-of-the-period-export-sales and the normal value sales (made throughout
the period), that justifies an adjustment to those export prices to "zero" any negative
dumping amount.

18. Alternatively, the EC’s argument could be framed in terms of export prices which differ
significantly among different regions. In that case, instead of "beginning-of-the-period-export-sales"
one could substitute "non-dumped sales to Germany, " and instead of "end-of-the-period-export-sales"
one could substitute "dumped sales to Spain". Ag ain, the EC would argue that the differences
between regions of the export market that jus tify the use of the targeting methodology somehow
create a difference that affects price comparability between the export sales and the normal value
sales.

19. This analysis makes little sense and finds no support in the text of Article 2.4.2 or Article 2.4.
The targeted dumping methodology is an exception to the comparison methodologies in the first
sentence of Article 2.4.2, but is not an exception to the fair comparison requirement of Article 2.4.
Therefore, if "zeroing" is considered "unfai r," without language in the AD Agreement actually
permitting what the EC argues, it would be "unfair" and equally impermissible to "zero" when using
the targeted dumping methodology.

20. The EC provided much the same argument before the Panel in US – Zeroing (EC
Complainant) and the panel, in its recently circulated report, found that the argument "reflects a
misinterpretation of the very concept of price comparability as used in Article 2.4 of the AD
Agreement".
7 The panel rejected the EC’s argument, stating that "the existence of differences in
prices in the export market between regions, purch asers and time-periods is conceptually wholly
irrelevant to, and outside the scope of, Article 2. 4 because such differences have nothing to do with
whether or not export sales and domestic sales are comp arable with regard to f actors such as level of
trade, taxation, quantities, etc.".8

16. Please comment on Canada's argument th at "[t]he targeted dumping methodology, ...
by definition, would not be applied to all export transactions" (oral statement, para. 29). Is this
statement true in the context of US law?

6 United States – Final Dumping Determination on Softwood Lumber from Canada, Recourse to
Article 21.5 of the DSU by Canada (WT/DS264), Third Party Submission by the European Communities, paras.
64-67 (14 July 2005) (“EC Third Party Submission”).
7 US – “Zeroing” (Panel) (EC Complainant), para. 7.279.
8 US – “Zeroing” (Panel) (EC Complainant), paras. 7.279 and 7.280.

21. Commerce’s regulation implementing the targeted dumping methodology provides that if
targeted dumping is found, Commerce will normally "limit the application of the average-to-
transaction method" to those sales that make up the pricing pattern.
9 This does not, however, mean
that other export sales are ignored. As Commerc e explained in the Preamble to its proposed
regulations, "the average-to-average method would [still] be applied to the remaining sales". 10 (There
were no changes relevant to this discussion in Commerce’s final regulations.)

22. By applying the average-to-transaction methodology to the sales that make up the targeted
dumping pattern, and the average-to-average methodol ogy to all other sales, all of the sales made
during the period of investigation would be included in the dumping analysis. Moreover, even with
this combination of comparison methodologies, if offsets were required for non-dumped comparisons,
the result would be the same as if all comparisons were made using the average-to-average
comparison methodology with offsets for non-dumped sales. Thus, regardless of whether the
average-to-transaction methodology is applied to some or all export transactions, if Canada’s
interpretation of "margins of dumping" in Article 2.4.2 is accepted as requiring a margin of dumping
for the product as a whole, with offsets for non- dumped comparisons, then the second sentence of
Article 2.4.2 would be rendered without effect.

23. In this regard it should be noted that the second sentence of Article 2.4.2 merely describes the
situation in which an average-to-transaction methodol ogy may be used. It does not establish a set of
circumstances under which a Member may select a s ubset of export transactions that indicate the
greatest amount of dumping and base the entire anti-dumping investigation on that subset. There are
other provisions of the AD Agreement that explicitl y provide for Members to consider only a subset
of export transactions.

24. Article 6.10, for example, addresses the circ umstances in which a Member may so limit its
examination. Article 6.10 provides that "where the number of exporters, producers, importers or
types of products involved is so large" a Member may limit its examination based on a statistically
valid sample, or the largest percentage of volume of exports that can be reasonably investigated.
Nothing in the text of the second sentence of Artic le 2.4.2 indicates that a Member may conduct an
entire anti-dumping investigation based on only a s ubset of export transactions, as Canada’s argument
seems to suggest.

17. The application of targeted dumping comprises at least three elements (a) the
identification of a pattern of pricing indicati ng targeted dumping, (b) the calculation of a
margin of dumping and (c) the translation of that calculated margin to the application of an
anti-dumping measure. Please explain how each of these three elements would operate in the
circumstances of the three types of targeted dumping identified in the second sentence of
Article 2.4.2.

25. To date, the United States has not applied the targeted dumping methodology and cannot
speak from actual experience. Nonetheless, the s econd sentence of Article 2.4.2 merely establishes a
condition precedent that, if met, would lead to the application of the average-to-transaction
comparison methodology. That is, if the investiga ting authorities find a pattern of export prices that
differ significantly with respect to purchasers, regions or time periods, and if such differences cannot
be taken into account by using the comparison met hodologies of the first sentence of Article 2.4.2,
then the investigating authorities may use the average-to-transaction comparison methodology.

26. With respect to Commerce’s potential app lication of the targeted dumping methodology,
Commerce’s regulations require it to analyze the evidence submitted during the course of the

9 19 CFR _ 351.414(f)(2).
10 Anti-Dumping Duties; Countervailing Duties , 61 Fed. Reg. 7308, 7350 (27 February 1996) (Notice
of Proposed Rulemaking and Request for Public Comments) (Exhibit US-5).

investigation, and determine whether a targeted pattern of export prices exists.11 As anticipated by the
text of the AD Agreement, Commerce might find that prices have differed significantly over a certain
period of time, that the price of certain products exported to a particular region differ significantly
from other regions, or that certain purchasers pay prices that differ significantly from other
purchasers. In the preamble to the regulations, Commerce states, "We do not believe that targeted
dumping exists where the price differences are simply random or spurious price fluctuations. In our
view, targeting means that, within the industry un der consideration, the price differences suggest a
meaningful pattern."
12 Accordingly, Commerce’s regulations presently require the use of standard
and appropriate statistical techniques to determine the existence of targeted dumping.13

27. Next, having found a pattern, Commerce would de termine whether that pattern could be taken
into account using either the average-to-ave rage or transaction-to-transaction methodologies. 14 If
Commerce determined that the pattern could not be taken into account using either of those
comparison methodologies, it would explain the basis for that determination.15 Commerce would then
apply the average-to-transaction comparison methodol ogy to those transactions that constitute the
targeted dumping.16 Commerce would apply the average-to-average comparison methodology to all
other transactions occurring during the period of inv estigation, and aggregate all of the results to
determine a single weighted average margin of dumping for each exporter or producer.17

28. If offsets were required for non-dumped comp arisons under this combination of comparison
methodologies, the result would be the same as if all comparisons were made using the
average-to-average comparison methodology with off sets. Thus, the second sentence of Article 2.4.2
would still be rendered without effect, as the averag e-to-transaction methodology provided for in that
sentence would be redundant with the average-to -average methodology provided for in the first
sentence.

29. Moreover, the result would be the same even if the second sentence of Article 2.4.2 were read
as requiring application of the average-to-tra nsaction comparison methodology to all export
transactions occurring during the period of investiga tion if targeted dumping exists. In that case, if
offsets were required, all of the sales made duri ng the period of investigation would ultimately be
included in the final calculation of the margin of du mping, and the results of the application of the
average-to-transaction comparison methodology woul d still be the same as the results of the
application of the average-to-average comparison methodology.

30. With respect to the application of an anti-dumping measure resulting from an investigation
involving targeted dumping, there would be no diffe rence from any other anti-dumping measure. The
single weighted average margin of dumping for each exporter or producer would be applied as the
cash deposit rate for all imports from that exporter or producer going forward.

18. Exhibit CDA-8 contains two hypothetical examples purporting to demonstrate how the
second sentence of Article 2.4.2 might be applie d without zeroing. With reference to those
hypotheticals:

11 See 19 C.F.R. _ 351.414(f)(1)(i).
12 Anti-Dumping Duties; Countervailing Duties, 61 Fed. Reg. 7308, 7350 (17 February 1996) (Exhibit
US-5).
13 19 C.F.R. _ 351.414(f)(1)(i).
14 19 C.F.R. _ 351.414(f)(1)(ii).
15 19 C.F.R. _ 351.414(f)(1)(ii).
16 19 C.F.R. _ 351.414(f)(2).
17 Anti-Dumping Duties; Countervailing Duties, 61 Fed. Reg. 7308, 7350 (17 February 1996) (Exhibit
US-5).

31. In order to address the Panel’s sub-questions in the most efficient manner, the United States
addresses sub-questions (a) and (c) together and sub-questions (b) and (d) together.

(a) Please comment on whether or not th e calculation of separate rates for (1)
transactions relating to the largest purcha ser and (2) transactions in the three month
period might be treated as a form of zeroing, in the sense that the focus is on dumped (or
more dumped) imports, without any offset for non-dumped (or less dumped) imports.

(c) The EC argued that this would not constitute zeroing, as no adjustment is made
to the export prices. Does the United States agree with this argument? Please explain.

32. Canada has argued that Article 2.4.2 requires a Member to establish the existence of margins
of dumping for the product as a whole and that, in so doing, it is necessary to reduce the total amount
of dumping found based on non-dumped transactions. Nevertheless, Canada’s hypothetical examples
meet neither of these supposed AD Agreement obligations.

33. In its hypothetical examples in Exhibit CDA- 8, Canada proposed subdividing the "product as
a whole" and establishing multiple margins of dum ping for any given producer/exporter. Canada
failed to explain how it would combine these multiple ma rgins so as to establish an individual margin
of dumping for each producer/exporter that could be tested against the de minimis standard, for
purposes of Article 5.8. To the extent that Cana da would not combine them and, instead, treat the
margin based on the subset of target ed sales as the relevant margin for purposes of Article 5.8, this
approach does not seem to differ significantly from the so-called "zeroing" methodology about which
Canada complains. "Zeroing", under Canada’s argument, entails the aggregation of multiple
transaction-to-transaction comparison results, with results involving no dumping not offsetting results
involving dumping. That is precisely what occurs in both of the hypotheticals set out in Exhibit
CDA-8.

34. The EC’s argument that this would not cons titute zeroing, as no adjustment is made to the
export prices is not consistent with the EC’s ow n logic. In the EC’s view, "zeroing" may be
characterized as "an ‘allowance’ or ‘adjustment’ within the meaning of Article 2.4", the effect of
which is "to reduce the value of certain [ i.e., non-dumped] export transactions".
18 Not providing an
offset in the course of aggregation, according to the EC, amounts to reducing the export price in each
non-dumped transaction-to-transaction comparison such that export price is made to equal normal
value. If one were to accept that characterization (which the United States does not), then one could
conclude that Canada’s hypothetical examples en tail zeroing. There is no principled basis for
asserting that aggregation of multiple comparisons with "zeroing" effectively constitutes an
adjustment to non-dumped export prices in some cases, but not in those cases in which the dumped
exports manifest a targeted pattern. In other words, the EC fails to explain its basis for asserting that
the characterization of aggregation without offset s for non-dumped transactions depends on whether
dumped transactions exhibit a targeted pattern.

(b) What legal / textual justification might permit such zeroing?

(d) The EC also argued that, even if there could be deemed to be an adjustment of
export prices, such adjustment would consti tute a "due allowance" under Article 2.4.
Does the United States agree with this argument? Please explain, with particular
reference to the concept of "differences whic h affect price comparability" as set out in
Article 2.4.

35. There is no legal or textual support for Canada ’s and the EC’s arguments that a Member may
calculate multiple margins of dumping for a par ticular exporter/producer under the targeted dumping

provision as posited in their hypothetical examples. For a further discussion of the US position in this
regard, please refer to the answers to Questions 16 and 47.

36. With regard to the EC’s argument that the "due allowance" provision of Article 2.4 might
provide a legal or textual basis for its hypothetical example, please refer to the answer to Question 15.

(e) The EC also stated (in respect of th e seasonal product hypothetical) that the
margin of dumping would be the actual amount of dumping (for the three-month
period) expressed as a percentage of export pr ice. Does the United States agree? Please
explain. If the United States does agree, what export price would be used as the
denominator? If it would be the total of all export sales, does this constitute a form of
zeroing?

37. The United States is uncertain as to what th e EC means when it stat es that the actual amount
of dumping for a three-month period would be expressed as a percentage of export price. Canada has
argued that the term "margin of dumping" must be applied to a "product as a whole". The "product as
a whole" would cover imports for the entire year, not just three months. It is not clear whether the EC
accepts Canada’s hypothesis, in which case, the expo rt price used as the denominator would be the
total of export prices for the entire year, or whethe r the EC takes a different view, in which case, the
export price used as the denominator would be the total of export prices for the three-month
"targeting" period only.

38. If the EC is suggesting that the export price would be the aggregate of all export sales for the
entire year, then, assuming that other "non-seasonal" export sales would be excluded from the
numerator, the EC’s hypothetical would indeed be comparable to the so-called "zeroing"
methodology, because non-dumped sales would not be f actored into the calculation of the numerator.
Alternatively, if the EC is suggesting limiti ng the denominator to export sales during the seasonal
period, it would not be establishing the existence of a margin of dumping with regard to all
transactions. Such an approach would suffer from the problems identified in response to sub-
questions (a) and (c) above.

(f) Assume that during the period of targeted dumping, or in the region of targeted
dumping, not all export sales are made at a price below normal value, but that the
finding of a pattern of export prices is not vitiated by the existence of these sales. Would
the calculation of a dumping margin for the sales during the period for which the
pattern was found, or to the region for wh ich the pattern was found have to take
account of these transactions? How?

39. There is no obligation in the AD Agreement to offset dumped export transactions with non-
dumped sales when applying the targeted dumping provision. However, a Member must nonetheless
"take account" of these sales in the denominator of its calculations when calculating an overall margin
of dumping for a producer/exporter, consistent w ith Article 6.10 and for purposes of applying the
de minimis provision of Article 5.8.

19. New Zealand suggests that the transaction-to-transaction methodology should be
symmetrical, in the sense that the margin of dumping should be based only on dumped
transactions, with non-dumped transactions be ing included in the analysis of the volume and
prices of "imports not sold at dumping prices" (Article 3.5). Would the US treat imports where
export price is not less than normal value as "imports not sold at dumping prices" in the
meaning of Article 3.5 of the AD Agreement?

40. In calculating an overall margin of dumping, the United States fairly reflects the total quantity
of all imports of the product under consider ation by including both dumped and non-dumped
transactions in the denominator of its calculations. In this ma nner, the amount of dumping found is

diluted by the inclusion of the non-dumped sales in the denominator. It is this fully diluted margin of
dumping that the United States tests against the de minimis standard for the purposes of the injury
analysis. For any producer/exporter found not to have engaged in dumping, the United States treats
all imports from such producer/exporter as "imports not sold at dumping prices" for purposes of
Article 3.5. On the other hand, if the United St ates determines that a producer/exporter has engaged
in dumping, it will treat all of that producer/exporter’s imports as dumped in its injury determination.

41. Were the United States to further adjust its calculations to account for non-dumped sales in its
injury determination, the result would be "doubl e counting" of these non-dumped transactions. There
is nothing in the text of Article 3.5 of the AD Agreement, or any other provision of the AD
Agreement or GATT 1994, that would require the United States to double count non-dumped sales in
any of its calculations.

20. Could the US comment on the argument that "product" in Article VI of GATT 1994
must be equated with "product as a whole", in particular the question of reconciling the
concept of "product as a whole" with the definition of dumping in Article VI:2 of GATT 1994 in
terms of a "price difference".

42. In its second submission, the United States di scussed its views with respect to the terms
"product" and "price difference" in Article VI of the GATT 1994.
19 Notably, the phrase "product as a
whole" appears nowhere in Article VI, nor, for that matter, does the phrase appear in the AD
Agreement.

43. In US – Softwood Lumber (AB), the Appellate Body considered the use of the word "product"
with reference to the term "dumping" in Article 2.1 of the AD Agreement.
20 The Appellate Body
found that when an investigating authority uses th e average-to-average comparison methodology, the
results of any comparisons involving subgroups of export transactions were not themselves "margins
of dumping", but intermediate results. 21 According to the Appellate Bo dy, the investigating authority
must aggregate all of these intermediate results in order to determine a margin of dumping for "the
product as a whole" ( i.e., reflecting all comparable export transactions). 22 This finding of the
Appellate Body, however, was made in a particular c ontext that was different from the context of the
present dispute. It does not support the conclusion that every use of the term "margin of dumping" in
the AD Agreement must refer to "the product as a whole".

44. Article VI of the GATT 1947 permitted Contrac ting Parties to establish margins of dumping
by comparing weighted average normal values with transaction-specific export prices.
23 It was only
with the adoption of the AD Agreement and, in part icular, Article 2.4.2, that Members accepted more
precise obligations as to how the prices (whether for normal value or export price) would be
established for comparison purposes ( i.e., whether on a transaction-specific or weighted-average
basis). In Article 2.4.2, the Members agreed th at, during the investigation phase of an anti-dumping
proceeding, they normally would establish price differ ences, as referred to in Article VI of the GATT
1994, on either an average-to-average or transaction-to-transaction basis. 24 By permitting
transaction-to-transaction comparisons and, in certain circumstances, average-to-transaction

19 United States Second Written Submission, paras. 30-39.
20 See US – Softwood Lumber (AB), paras 92-93.
23 See US – Atlantic Salmon , para. 486; see also EC – Cotton Yarn , paras. 499, 501 (finding EC was
under no obligation to make due allowances for the effects of its zeroing methodology which involved the
comparison of an average normal value to individual export transactions).
24 In interpreting the extent of that agreement w ith respect to the average-to-average basis, the
Appellate Body found that while multiple comparisons were permitted, only an aggregation of the results of
those multiple comparisons would reflect all comparable ex port transactions and, theref ore, be consistent with
Article 2.4.2. Once again, however, this finding cannot be separated from the context in which it was made.

comparisons of prices, the drafters preserved th e ability to establish transaction-specific price
differences and, thereby, transaction-specific marg ins of dumping for purposes of Article VI of the
GATT 1994 and Article 2.4.2 of the AD Agreement.

To both parties

21. Would the parties please describe, in deta il, how, under their respective anti-dumping
systems, the processes of duty assessment and duty collection are carried out by their
authorities.

45. The United States employs a retrospective dut y assessment system. Under this system, the
United States first determines, through an inves tigation, whether margins of dumping exist, and
whether dumped imports cause or threaten to cause material injury to a domestic industry. If injurious
dumping is found, Commerce issues an anti-dumping me asure, called an anti-dumping duty order. In
this order, Commerce indicates an ad valorem cash deposit rate for producers/exporters individually
investigated, as well as an "all-others" rate applicable to any other producers/exporters.

46. Pursuant to the anti-dumping duty order, impor ters must post a cash deposit of estimated anti-
dumping duties for each import transaction. This cash deposit is based on the overall margin of
dumping found for the exporter or producer during the investigation phase.

47. Every twelve months, during the anniversary month of the anti-dumping duty order,
importers, exporters, producers, and domestic interested parties have the opportunity to request that
Commerce undertake an assessment review (often referred to as an "administrative review" or "annual
review") of the import transactions that occurred in the prior year.

48. During that review, Commerce analyzes all of th e import transactions for the period of review
(i.e., the prior 12 months) to determine the actual di fference between the export price and the normal
value for each import transaction. Where export price is greater than normal value, Commerce
determines that there is no dumping with respect to that transaction. Where export price is less than
normal value, Commerce determines that the tran saction was dumped and includes that difference in
the amount to be finally assessed. For each importer, there may well be transactions involving
multiple producers and exporters. A separate calcula tion is performed for a given importer’s imports
from each producer/exporter. In each such calcu lation, Commerce sums the amount of dumping
duties to be assessed and divides this amount by th e total value of all import transactions by that
importer from that producer/exporter to establish an ad valorem assessment rate. As explained during
the meeting with the Panel, this approach to assessment minimizes the burden on all parties
(producers/exporters, importers, Commerce and Cu stoms) as contrasted to linking each import
transaction to each customs entry, as had previo usly been the case. Under either assessment
methodology, the total amount of duties collected from an importer will be the same; only the
administrative burden differs.

49. The final levying (or collection) of duties is performed by customs authorities pursuant to the
assessment rates provided by Comme rce. The customs authorities apply the assessment rate to the
value of each import to determine the amount of final liability. The cash deposit made with respect to
each entry is compared with the amount of fina l liability. If the cash deposit exceed the duties, a
refund, with interest, is made. Alternatively, any liability not met by the cash deposit is collected
from the importer, with interest.

50. In addition to establishing the assessment rate s for each combination of producer/exporter and
importer, Commerce also aggregates the results on a producer/exporter basis for purposes of updating
the cash deposit rate for each producer/exporter. This new ad valorem cash deposit rate will be
applied to future imports from the producer/exporter. Commerce analyzes all of the import
transactions of each producer/exporter subject to the review to calculate a new margin of dumping for

those producers/exporters and applies that margin of dumping as the new cash deposit rate going
forward.

22. If zeroing would be considered unfair as such and thus prohibited, what would be the
practical consequences of such a concept? Would it presuppose aggregation of different
transactions into a single margin or would this concept, if applied in all its logic, oblige
administrations practising transaction by tran saction duty assessment to compensate importers
for negative margins underlying certain of these assessment operations?

51. It is difficult to anticipate all the practical consequences associated with a determination that
"zeroing" is unfair and thus prohibited. Howeve r, the United States makes the following observations
concerning the most significant consequences.

52. First, if "zeroing" were considered per se unfair, the ramifications would reach beyond Article
2.4 of the AD Agreement and, indeed, beyond Article 2.4.2. Implicit in such a finding would be an
assumption that the "fair comparison" requirement in Article 2.4 has a broader application than simply
providing for proper comparisons between export pr ice and normal value, with adjustments as
appropriate pursuant to the provisions of Article 2.4. That is, since "zeroing" has no relevance to the
adjustments provided for in Article 2.4 itself, a fi nding that "zeroing" is inherently "unfair" assumes
that there is a generic fairness obligation that a pplies to other aspects of an anti-dumping proceeding
in which "zeroing" might be relevant. The ques tion then is where this hypothetical generic
requirement ends. Canada’s argument does not suggest an answer to that question.

53. In particular, Canada’s argument suggests no principled reason why a generic finding that
"zeroing" is unfair would not apply to assessment proceedings provided for in Article 9.3 of the AD
Agreement. In that context, such a generic findi ng would have truly anom alous consequences. For
example, a finding that "zeroing" is unfair in all circumstances would be tantamount to a recognition
that where export price exceeds normal value, the re sult constitutes a "negative margin". Article 9.3
provides that an anti-dumping duty may not exceed the margin of dumping. As a duty of zero would
exceed the "negative margin" where export pric e exceeds normal value, it would seem to be
impermissible where "zeroing" is considered per se unfair. In that case, Article 9.3 would seem to
require that a Member actually compensate importers for non-dumped imports.
25

54. The foregoing anomalous consequence would occur if duties were assessed on an import-by-
import basis. But, the consequences would be eq ually anomalous if duties were assessed on an
aggregated basis. Here, it should be recalled that Article 9.3 contains no aggregation requirement.
Nor does it contain any provision concerning the ti me period to be covered in an assessment
proceeding. A Member may conduct an assessmen t proceeding on an import-specific basis, on the
basis of imports over a six-month period, a one-year period, or a multi-year period (or some other
time period).

55. Under the zeroing-is-unfair hypothesis, the results of an assessment proceeding would vary
according to the degree of aggregation. Consider , for example, a case in which there is more non-
dumping than dumping in the first six months of the year, and more dumping than non-dumping in the
second six months of the year. Assume that a Member is under no obligation to compensate an
importer for the amount by which export price exceeds normal value on each non-dumped
transaction.
26 In this case, if the Member conducts assessment on the basis of imports over a six-

25 Cf. US – Zeroing (Panel) (EC Complainant), paras. 7.286 to 7.288 (finding that the United States did
not act inconsistently with Article 9.3 of the AD Agreement through its use of the “zeroing method used in the
calculation of margins of dumping”).
26 In this scenario, it also is assumed that there is no “carry-over” requirement. That is, if non-dumping
exceeded dumping in a given assessment period, there w ould be no requirement to carry the excess “negative
dumping” margin into the next assessment period. Canada has not argued for such a carry-over requirement.

month period, it may collect no anti-dumping duties for the first six months of the year, but it may
collect anti-dumping duties for the second six months of the year. On the other hand, if it conducts
assessments on the basis of imports over the entire year, the hypothesized requirement to offset ( i.e.,
to not "zero") may result in the collection of no anti-dumping duties at all.

56. In sum, under the zeroing-is-unfair hypothesis, a Member’s obligations would differ in a
significant, substantive fashion depending solely upon whether and how the Member aggregates
imports for assessment purposes. However, there is no legal basis for such differentiation.

23. The first sentence of Article 2.4.2 provides:

"Subject to the provisions governing fair comp arison in paragraph 4, the existence of
margins of dumping during the investigation phase shall normally be established on the
basis of a comparison of a weighted average normal value with a weighted average of
prices of all comparable export transactions or by a comparison of normal value and
export prices on a transaction-to-transaction basis."

(a) Would the parties agree that what is referred to as the WA to WA methodology
is set out in the phrase "on the basis of a comparison of a weighted average normal
value with a weighted average of prices of all comparable export transactions" and what
is referred to at the T to T methodology is set out in the phrase "by a comparison of
normal value and export prices on a transaction-to-transaction basis"?

(b) Could the parties comment on the significance, if any, of the difference between
the use of the phrase "on the basis of a comparison" and "by a comparison".

57. With respect to part (a) of the Panel’s ques tion, the United States agrees that the weighted-
average-to-weighted-average comparison methodology is set out in Article 2.4.2 in the phrase "on the
basis of a comparison of a weighted average normal value with a weighted average of prices for all
comparable export transactions". The United States also agrees that the transaction-to-transaction
comparison methodology is set out in Article 2.4. 2 in the phrase "by a comparison of normal value
and export prices on a transaction-to-transaction basis".

58. With respect to part (b) of the Panel’s ques tion, the terms "on the basis of a comparison" and
"by a comparison" are not the same. Under customar y rules of interpretation of public international
law, this difference in drafting should be accorded significance.
27 The ordinary meaning of the phrase
"on the basis of a comparison" indicates that the comparis on at issue is an intermediate step – i.e., a
"basis" – for establishing something else – i.e., "the existence of margins of dumping". By contrast,
the ordinary meaning of the phrase " by a comparison" indicates that the comparison at issue is not an
intermediate step but, rather, the instrument fo r obtaining a result that is itself the thing being
established – i.e., "the existence of margins of dumping".

59. In the underlying proceeding, the panel explained that the ordinary meaning of "basis" in the
term "on the basis of a comparison" in Article 2.4.2 means "the underlying support for a process".
28
The panel stated, "This suggests to us that, while the determination of the existence of margins of
dumping must be based on weighted average-to-weighted average comparisons, Article 2.4.2 was not
intended to spell out in detail a ll elements of that calculation."
29 The United States understands that,
consistent with the Appellate Body’s interp retation of the average-to-average comparison
methodology in Article 2.4.2 in the underlying proceeding, the term "on the basis of a comparison"

27 See US – Gasoline (AB), p. 23.
28 US – Softwood Lumber (Panel) at n. 355 (citing The Concise Oxford Dictionary of Current English
(Clarendon Press, 1995), p. 113).
29 Id. at n. 355.

denotes that an investigating authority must u se the results of the multiple comparisons as the
foundation for the calculated margins, but that the re sults of those average-to-average comparisons, in
and of themselves, may not be considered margins of dumping.

60. On the other hand, the term "by" is defined (as relevant here) to mean "[i]ndicating agency,
means, cause, attendant circumstance, conditions, manner, effects".
30 Accordingly, where the
"existence of margins of dumping" is established "by" a particular type of comparison, that
comparison is the "agency" or "means" for establishing the existence of margins of dumping. In other
words, the comparison is an operation that yields a result that may itself constitute a margin of
dumping.

61. In sum, the different phrases that preced e the two different comparison methodologies
referred to in the first sentence of Article 2. 4.2 should be understood to have the following
significance: Where an investigating authority pe rforms average-to-average comparisons, the results
amount to a foundation; it is the performance of a dditional operations following the establishment of
that foundation that leads to th e establishment of the existence of margins of dumping. Where an
investigating authority performs transaction-to-t ransaction comparisons, the results of those
comparisons themselves may establish the existence of margins of dumping.

24. It can be argued that a methodology cannot be designated as "fair" or "unfair" within
the meaning of Article 2.4 solely on the basis of whether it makes dumping margins go up or
down. In this respect, what are the comments of the parties on the observations of the Appellate
Body in EC – Bed Linen and in US – Corrosion-Resistant Steel Sunset Review that a zeroing
methodology is "inherently biased towards inflating the margin of dumping"?

62. In EC – Bed Linen , the Appellate Body based its finding w ith respect to the EC’s application
of the average-to-average comparison methodology on Article 2.4.2.
31 The Appellate Body made no
finding concerning Article 2.4. Indeed, while th e Appellate Body report contains a conclusory
sentence regarding the "fair comparison" requirement , the report contains no textual analysis of the
"fair comparison" requirement nor any explana tion as to how or why the EC’s methodology was
unfair.32 The basis for the Appellate Body’s finding was limited to the need for the EC’s investigating
authority to use "all comparable export transactions " in the application of the average-to-average
comparison methodology.33

63. In US – Corrosion-Resistant Steel AD Sunset Review , first, the Appellate Body expressly
stated that it was "unable to rule" on whether the United States acted inconsis tently with Article 2.4
and Article 11.3 in the context of the sunset review before it.
34 Thus, the Appellate Body’s statement
that a methodology that included "zeroing" would "tend to inflate the margins calculated" 35 was not
necessary to resolve the issue in that dispute and is mere obiter dictum. Second, the Appellate Body
did not provide any textual analysis of the AD Agreem ent, let alone of Article 2.4, to support that
statement. Third, it should be noted that all the Appellate Body said was that the denial of offsets
would tend to inflate margins; it drew no conclusion as to whether that effect itself (if accurate) would
render the denial of an offset impermissible under the AD Agreement.

64. Finally, in US – Corrosion-Resistant Steel AD Sunset Review , the Appellate Body made a
specific reference to "a zeroing method ology such as that examined in EC – Bed Linen ".36 In EC –

30 The New Shorter Oxford Dictionary, Vol. I, p. 310 (definition 5) (1993).
31 EC – Bed Linen (AB), paras. 66, 86(1).
33 EC – Bed Linen (AB), paras. 55-60.
34 US – Corrosion-Resistant Steel AD Sunset Review, para. 138.
35 US – Corrosion-Resistant Steel AD Sunset Review, para. 135.
36 US – Corrosion-Resistant Steel AD Sunset Review, para. 135.

Bed Linen, the Appellate Body examined the European Communities’ use of the average-to-average
comparison methodology to determine the existence of margins of dumping during the investigation
phase, pursuant to Article 2.4.2. Thus, this statemen t by the Appellate Body refers only to the use of
the average-to-average comparison methodology duri ng the investigation phase. It does not address
the use of any other comparison methodology, in any other phases of an anti-dumping proceeding,
such as the use of transaction-to -transaction comparison methodology, or the use of an average-to-
transaction comparison methodology during an Article 9.3 assessment proceeding.

65. In order to give meaning to the obligation to make a "fair comparison" in Article 2.4, it is
necessary to consider the context in which the term is used. The panel in the recently circulated report
in US – "Zeroing" (Panel) (EC Complaint) agreed.
37 That panel stated, "The fairness of the
methodology logically cannot be divorced from the underlying conception of what dumping means."38
Thus, the standard for determining whether a par ticular comparison methodology is fair must be
found within the text of the AD Agreement. A finding that a particular comparison methodology
yields a higher margin of dumping than another methodology is in and of itself insufficient to
determine whether that first comparison methodol ogy involves a "fair comparison". Rather, the
analysis must focus on whether the text of the AD Agreement prohibits that comparison
methodology.
39

66. Put another way, the proposition that a me thodology is "unfair" because it is "inherently
biased towards inflating the margin of dumping" is logically flawed because it assumes its own
conclusion. That is, it assumes without basis that there is some notionally "correct" margin of
dumping that must be obtained without "zeroing" and that, therefore, "zeroing" is "unfair" inasmuch
as it causes that notionally correct margin of dumping to go up. This argument fails to explain why
the notionally correct margin of dumping is the one obtained without "zeroing".

25. Could the parties explain the meaning of the phrase "subject to the provisions governing
fair comparison in paragraph 4" in Article 2.4.2? In particular, what exactly is the meaning of
"the provisions governing fair comparison in pa ragraph 4" and of "subject to"? Is the "fair
comparison" requirement limited in scope to what is addressed in paragraph 4? Please explain.

67. Please see the US response to Question 12 wh erein the United States addresses the meaning
of these phrases.

26. In the second sentence of Article 5.8, does the term "margin of dumping" relate to the
margin of dumping calculated for each exporter, or to a margin of dumping calculated for the
country as a whole?

68. The term "margin of dumping" in the second sente nce of Article 5.8 relates to the margin of
dumping calculated for each exporter or producer. Article 5.8 does not create an obligation to
calculate an overall margin of dumping for a country ( i.e., combining the results for all exporters and
producers). As relevant here, th e determination required by the sec ond sentence of Article 5.8 is a
determination as to whether the margin of dumping is de minimis. If an investigating authority makes
such a determination, it must terminate its inves tigation immediately. Because investigations occur
with respect to exporters’ and producers’ sales of the product under consideration, Article 5.8
properly applies to a single, overall margin of dumping for each exporter or producer.

69. In another context – Article 3.3 – the AD Ag reement does make reference to a margin of
dumping for a country as a whole. Article 3.3 est ablishes the conditions under which the effect of
dumped imports from multiple countries may be cumulated for injury purposes. Specifically, the

37 US – “Zeroing” (Panel) (EC Complaint), para. 7.260.
38 US – “Zeroing” (Panel) (EC Complaint), para. 7.260.
39 US – “Zeroing” (Panel) (EC Complaint), para. 7.260.

effects of dumped imports from multiple countries may be cumulated where, inter alia, "the margin of
dumping established in relation to the imports from each country is more than de minimis as defined
in paragraph 8 of Article 5." While Article 3.3 appears to speak to a margin of dumping "from each
country", the reference to the de minimis standard in Article 5.8 indicates that Article 3.3 may
properly be understood to be applicable when, fo r each country, there is at least one exporter or
producer with a non-de minimis single, overall margin of dumping.

70. As discussed in response to Question 13, this understanding of the use of the term "margin of
dumping" and the relevance of the context in which the term is used was recently addressed by the
Appellate Body in Mexico – Rice.
40

27. Could the parties address the proposition that a dumping margin can be calculated for a
single export transaction? Pl ease consider specifically cases co ncerning (a) the import of large
capital goods, (b) the import of specially designed/manufactured goods) and (c) the import of
few shipments to small economies. If your view is that a dumping margin cannot be calculated
for a single export transaction in any of these contexts, please explain how a margin of dumping
could be established in such a case. If in any of these contexts, a single export transaction can
generate a dumping margin, why is it not permis sible to conclude that each comparison in a
transaction-to-transaction analysis generates a dumping margin?

71. As the United States has previously explained, Article VI of the GATT 1994 and the AD
Agreement envision that a margin of dumping can be calculated for a single export transaction.
41
Accordingly, when a Member investigates the importation of large capital goods, or specially
designed/manufactured goods, should there be onl y one import transaction during the period of
investigation, that Member may properly calcu late a margin of dumping based on that single
transaction. Similarly, if the Member is a small economy, and there is but one import of subject
merchandise during the period of investigation, that Member may calculate the margin of dumping
based on that single transaction. In each of th ese examples, a transaction-to-transaction analysis
generates a margin of dumping.

72. By logical extension, in other cases in which an investigating authority performs a
transaction-to-transaction analysis, where export price is less than normal value, the result is a margin
of dumping. There is no distinction between the cases posited in this question and other cases in
which a transaction-to-transaction analysis may be used.

28. Could the parties indicate whether, in their view, in a targeted dumping analysis under
the second sentence of Article 2.4.2, an investigating authority may utilize a comparison method
other than one in which "a normal value established on a weighted average basis may be
compared to prices of individual export transactions".

73. The second sentence of Article 2.4.2 provides the criteria pursuant to which the "targeted
dumping" methodology may be used and specifies the methodology that may be applied. If the
relevant criteria are met, Article 2.4.2 states that "normal value established on a weighted average
basis may be compared to prices of individual expo rt transactions". The text provides for no other
alternative comparison methodologies. The use of this targeted dumping methodology is, however,
permissive. Even if the criteria for the use of the methodology are met, a Member need not use the
average-to-transaction comparison methodology. The alternative, however, would be to utilize one of
the two comparison methodologies provided in the first sentence of Article 2.4.2.

29. Could the parties address the argument of the EC that if there is one hypothetical
situation in which a general prohibition on zeroing does not render the targeted dumping

40 Mexico – Rice (AB), paras. 216, 217, 220, 221.
41 See United States Second Written Submission, paras. 29-39.

methodology redundant, this is sufficient to demo nstrate that the United States' argument in
this regard is without merit? Specifically, is it enough to posit that such a methodology could be
applied by some Members in some circumstan ces, or would it be necessary that such a
methodology would be generally susceptible of application by all Members?

74. As a preliminary matter, it is telling that neither Canada, nor the EC, has been able to come up
with a single hypothetical situation that would not render the targeted dumping methodology
redundant, if the language of Article 2.4 or 2.4.2 requires offsets for non-dumped transactions. On
this point, the United States refers the Panel to its answers to Questions 18.

75. Beyond this point, it is difficult to approach the issues in dispute on the basis of non-existent
hypothetical examples, as was illustrated by Cana da’s inability to come up with a plausible
hypothetical during the Panel meeting. In this case, for a hypothetical to demonstrate that a general
prohibition on zeroing does not render the targeted dumping methodology redundant, it would have to
reflect a reasonable interpretation of the second sentence of Article 2.4.2 in context, and in light of the
object and purpose of the AD Agreement. In other words, it is not appropriate to posit an obscure
hypothetical and then construe the second sentence of Article 2.4.2 in an unreasonable manner to
meet the demands of that hypothetical. An appropr iate hypothetical would have to address all three
types of targeted dumping referred to in Article 2.4.2 ( i.e., purchasers, regions, and time periods),
take account of the ordinary meaning of the term s of the second sentence of Article 2.4.2, and be
compatible with other relevant provisions of the AD Agreement. Canada has not even come close to
positing such a hypothetical, as discussed in the US responses to Question 18 and (with regard to the
EC hypotheticals) Question 15.

76. As explained in the US response to Ques tion 23, the second sentence of Article 2.4.2
establishes the criteria under which a Member may apply the average-to-transaction comparison
methodology. That sentence provides no exception to any other provision of the AD Agreement, nor
does any other provision of the AD Agreement s uggest that, when the conditions of the second
sentence of Article 2.4.2 exist, the requirements of that other provision do not apply. As discussed in
response to Questions 18, the hypothetical situations th at Canada posits suffer from the fatal flaw that
each gives rise to an incompatibility with some other provision of the AD Agreement.

30. Article 2.1 refers to "the export price of the product exported" and "the comparable
price ... for the like product" in the home market of the exporting Member. Do these references
to "price" relate to the price of the product as a whole, i.e. an aggregated or average price?
Please explain. Do the references to "prices" in the transaction-to-transaction and weighted
average-to-transaction provisions of Article 2.4.2 relate to the product as a whole? Please
explain.

77. As discussed in response to Question 20, Ar ticle 2.4.2 provides the bases on which prices can
be determined for purposes of comparing normal values and export prices during the investigation
phase of an anti-dumping proceeding. The references in Article 2.1 to "the export price of the product
exported" and "the comparable price . . . for the like product" must be interpreted in the context of the
particular Article 2.4.2 comparison methodolo gy being used. Depending on the comparison
methodology used, the price may be either a transacti on-specific price or a weighted average price.
The Appellate Body developed the phrase "product as a whole" and applied it only with respect to the
use of weighted average prices in the context of the average-to-average comparison methodology.

To all parties and third parties

46. Would the parties, and third parties, plea se describe how their investigating authorities
would apply the provisions of Article 2.2 in a ca se involving multiple allegedly dumped models
of a product under consideration, where there are no sales in the home mark et of some of those
models? Specifically, would the parties consid er it obligatory, under that provision, to

determine normal value on one single basis for all models, or would the parties consider that
Article 2.2.permits the determination of normal value on, for instance, the basis of home market
sales for some models, and constructed normal value for others?

78. The United States considers that Article 2.2 pe rmits Members, in the situation described in
the question, to determine normal value on, for in stance, the basis of home market sales for some
models, and constructed normal value for others. The text of Article 2.2 does not require Members to
establish normal value on one and only one basis for a ll export transactions that are being examined.
In fact, as a practical matter, such a reading of Article 2.2 would mean that in most cases home market
sales could not form the basis for normal value. Howe ver, such a result clearly would be inconsistent
with Article VI:1 of the GATT 1994, which provides a preference for using sales in the exporting
country as the basis for normal value.

47. The EC suggested, in its answer to a question put by the Panel, that in undertaking a
comparison under the methodology of the second sentence of Article 2.4.2, a Member can not
determine whether there is a "pattern of export prices which differ significantly among
different purchasers, regions or time periods" wi thout conducting what the EC referred to as a
disaggregated analysis. The EC then asserted that having found such a pattern on the basis of
a disaggregated analysis the Member should th en compare weighted average normal values for
the transactions forming the "pattern" with weighted average export prices for those
transactions. In the EC's view, this would be an application of the targeted dumping
methodology that would not involve zeroing. Wi th reference to each of the three types of
targeted dumping identified in Article 2.4.2 – (significantly different export prices to different
purchasers, regions, or time periods), could the parties, and third parties, please comment on
the EC's argument:

(a) with specific reference to its consistency with the first sentence of Article 6.10
("an individual margin of dumping for each know exporter or producer")

(b) with specific reference to its implicat ions for duty collection under the first
sentence of Article 9.2 (duty shall be collected in the appropriate amounts, on a non-
discriminatory basis on imports).

79. First, we would refer the Panel to our res ponse to Questions 15 and 18, in which we address
the EC’s arguments with respect to targeted dumpi ng. As explained in that response, there is no
textual support in Article 2.4.2 for the EC’s ar gument that a Member may calculate an anti-dumping
duty margin to apply to a subset of an exporter or producer’s export transactions, and then a second
margin to apply to all other export transactions. Moreover, Article 6.10 of the AD Agreement states
that "authorities shall, as a rule, determine an individual margin of dumping for each known exporter
or producer concerned of the product under investiga tion". By contrast, where the drafters of the AD
Agreement intended to permit an investigating authority to consider a subset of transactions
separately, they made that intention explicit. This is illustrated by the "respondent selection"
language of the remaining text of Article 6.10, as well as Articles 4.1(ii) and 4.2, which deal with
regional industries and dumping.

80. The EC also did not explain how its approach could be reconciled with Article 9.2 of the AD
Agreement. Article 9.2 states that an "anti-dump ing duty shall be collected in the appropriate
amounts in each case, on a non-discriminatory basis on imports . . . from all sources found to be
dumped and causing injury . . . ". The EC’s ap proach would require a Member to discriminate
between imports of a particular product on the basis of time, purchaser, or region and, to this end, the
EC has failed to address this apparent inconsistency with Article 9.2.

81. On a practical note, the EC has not addressed the very real implications for duty collection
that would arise in the case of export sales to and th rough affiliated parties. If the drafters intended

the second sentence of Article 2.4.2 to be applied as suggested by the EC, what would prevent an
affiliated importer in the future from importing pr oduct to a warehouse in another region, thereby
avoiding the payment of the "regional" anti-dumping duty? With respect to targeted dumping during
a time period, a measure put in place that applied only to imports during that time period would be
largely ineffective if an exporter shipped to an affiliated importer large quantities of the product
outside the time period, for storage until the rele vant period commenced. Finally, with regard to a
purchaser-specific anti-dumping margin, in order to avoid the payment of duties, an exporter might
avoid direct sales to a customer, but instead sell its product through an affiliated party without
identifying any particular import to any particular customer until after commingling it in a warehouse.

82. The EC’s interpretation of Article 2.4.2 leads to impractical results. More fundamentally, the
text of Article 2.4.2 does not support that interpre tation, and that interpretation cannot be reconciled
with other Agreement provisions. Therefore, the EC’s proposed interpretation of the second sentence
of Article 2.4.2 should be rejected.

48. Could the parties, and third parties, exp ress their views regarding the proposition that
the most "fair" methodology of establishing the existence of margins of dumping is that which
produces the most accurate results? (see New Zeal and's written submission at para. 3.12) In
this case, how can one determine which methodology generates the most accurate results?

83. As explained in our response to Question 24, to the extent that the AD Agreement is
interpreted as requiring that any particular aspect of an anti-dumping proceeding be conducted in a
manner that is fair, a determination of what is fa ir in that context must be made pursuant to a
discernible standard of appropriateness or rightness w ithin the four corners of the Agreement, which
would provide a basis for reliably judging whethe r there has been an unfair departure from that
standard.
42 Thus, for example, the second through fifth sen tences of Article 2.4 clearly provide for
price adjustments which could be applied to price comparisons in order for those comparisons to be
considered "fair."

84. The same observation can be made with respect to determining whether results are "accurate".
Like a determination of what is fair, a determinati on of what is accurate must be made pursuant to a
discernible standard. However, unlike the concept of what is fair – for which there is a discernible
standard in the context of Article 2.4 – the AD Agreement does not provide a discernible standard for
determining when results are accurate. Absent a discernible standard in the AD Agreement, it is
unclear how the accuracy of results could be objec tively determined. For example, Article 2.4.2
provides for two comparison methodologies and does not state a preference for either. It stands to
reason, however, that in making average-to-ave rage comparisons and transaction-to-transaction
comparisons, based on the same facts, a Member could establish the existence of different margins of
dumping. This does not mean, however, that only one of these comparison methodologies can be
considered "accurate" or "fair". It is simply a recognition that, in allowing Members the flexibility to
deal with the many different factual situations with which they may be presented, the drafters of the
AD Agreement did not envision that an analysis of any given set of data could yield only one
"correct" result.

49. Could the parties, and third parties, ex press their views concerning the proposition set
out in the EC's argument that, in the EC's view, the price at which a transaction in the
exporting market is concluded, considered in isolation, is not equivalent to a "normal value"

85. Within the context of the AD Agreement and GATT 1994, a "normal value", is established
relative to a particular export transaction or weight ed average group of export transactions. In other
words, the purpose of determining a "normal valu e" is to derive a comparison with the export

42 US – “Zeroing” (Panel) (EC Complaint), para. 7.260 (footnotes omitted).

transaction(s) being examined. Thus, the "normal value" selected, whether based on a transaction in
the exporting country, a third country transaction, or constructed value, is de pendent on the nature of
the export transaction(s) at issue. To state it another way, a particular transaction within the exporting
country, when considered in isolation , would not be considered a "normal value" until it is selected
for comparison with an export price.
43

86. However, the EC’s argument extends beyond this basic notion. First, the EC asserts that the
value selected for comparison to a single export transaction cannot be considered a "normal value". 44
Next, the EC appears to suggest that while a Member may make a number of transaction-to-
transaction comparisons, after making those comparisons there must be "a subsequent step of the
calculation" that involves "‘a comparison’ (that is, a single comparison) of ‘normal value’ (also in the
singular) and export prices. . . ."45 This argument takes terms out of the contexts in which they appear
but makes no link to the text of Article 2.4.2.

87. The error in the EC’s contention that a value selected for comparison to a single export
transaction cannot be considered a "normal value" is explained in the US response to Question 27. As
noted there, the text of the AD Agreement clearly anticipates that a "margin of dumping" may be
calculated for a single export transaction pursuant to a comparison with normal value on a transaction-
to-transaction basis. This mean s that for purposes of each co mparison, the value selected for
comparison purposes is, by definition, a "normal value". Thus, the United States disagrees with the
EC’s assertion that a single, exporting country transaction, when selected for comparison to an export
price transaction, cannot be considered a "normal value".

88. The EC’s contention that only when "interme diate results are finally combined, in a second
stage of the calculation," can a margin of dumpi ng, and therefore a normal value, be determined
46 is
equally flawed. In particular, this proposition begs the questions of (1) how the process of
aggregating the results of multiple transaction-to-transaction comparisons converts the individual
exporting country transactions into "normal value" under the EC’s theory, and (2) when, exactly, the
comparison between normal value and export price occurred. If a value becomes recognizable as a
"normal value" only at the aggregation stage, as th e EC posits, then what were the values that were
being compared at the initial, pre-aggregation st age of the process? The EC’s reasoning gives no
answer. The EC also provides no textual support fo r its claim that a "normal value" can only be
defined as an aggregate of values that have, individually, already been compared to export
transactions.

89. In short, as the EC’s assertions as to the mean ing of "normal value" find no support in text or
logic, they should be rejected.

50. Do the parties, and third parties, consid er that there are any limitations on the freedom
of a Member to choose between the two methodologies set out in the first sentence of Article
2.4.2 in establishing margins of dumping? If so , could you please indica te with precision the
textual basis for this view, and further indicate what criteria are to be applied by a Member in
choosing between the two methodologies in a given case.

43 In any given case, there may be sales in the exporting country of the product under consideration that
are not used as the normal value for an y export transaction. (A simple example would be a situation in which a
producer/exporter sold model A and model B widgets in the exporting country, but only made sales of model A
widgets in the export market. All other things being equal, the sales of model B widgets in the exporting
country market would not be used as the normal value.)
45 EC Written Submission, para. 6.
46 EC Written Submission, para. 15 (footnote omitted).

90. There is no textual basis for concluding th at there is any limitation on Members to choose
between the average-to-average or the tran saction-to-transaction comparison methodology in
Article 2.4.2. As we stated at the meeting with the Panel, pursuant to Article 12.2.1(iii), Members are
required to provide "a full explanation of the r easons for the methodology used in the establishment
and comparison of the export price and the normal value under Article 2" in their preliminary and
final determinations. However, this duty to expl ain the basis for selecting a particular methodology
does not include any substantive standards for evalua ting the selection. In any case, the United States
also notes that Canada has not challenged the basi s for the US use of the transaction-to-transaction
comparison methodology and confirmed this during the meeting with the Panel.

51. Could the parties, and third parties, exp ress their views on the proposition that the
determination of dumping and establishment of margins of dumping on the one hand, and the
assessment and collection of anti-dumping duties on other hand, are different, and address the
implications of this proposition for the int erpretation of "margin of dumping" in the AD
Agreement?

91. The determination of dumping and establishmen t of margins of dumping are distinct from the
assessment and collection of anti-dumping duties.
47 Generally speaking, the determination of
dumping and the establishment of margins of dumping occur during the investigation phase, while the
assessment and collection of anti-dumping duties occu r subsequent to the investigation phase. The
United States notes that the Appellate Body, in EC – Bed Linen (AB) , agreed, finding that the
determination of the existence of dumping and injury caused by dumped imports is distinct from the
collection of the anti-dumping duty.48

92. This difference confirms the importance of c onsidering the context in which the term "margin
of dumping" is being used in order to properly unders tand its meaning. In certain contexts in the AD
Agreement, such as Article 5.8 (applicable to the investigation phase), the term "margin of dumping"
refers to an overall margin of dumping determined for an exporter or producer. From context, it is
plain that whether a "margin of dumping" is de minimis and the investigation must therefore be
immediately terminated is a determination that focuses on all transactions involving a particular
exporter or producer. On the other hand, in the cont ext of Article 9.3 (applicable with respect to the
collection and assessment of anti-dumping duties), the term cannot be similarly limited to a single
overall margin for an exporter or producer. Here, the focus is on the importer and its liability for an
anti-dumping duty, which may not exceed the "margin of dumping."

93. There are practical reasons for such distincti ons. When it comes to investigations, practices
among users of the anti-dumping instrument ar e relatively similar. All Members conduct
investigations by examining a prior period in orde r to establish the existence of margins of dumping
and material injury caused by dumped imports. By contrast, there is much less similarity among
Members with respect to the collection and assessme nt of duties. Members maintain diverse duty
assessment systems, generally referred to as (but not limited to) prospective ad valorem, prospective
normal value, and retrospective systems.

94. While Article 9.3 contains the term "margin of dumping", the applicability of that term to the
diverse duty assessment systems cannot be reconciled w ith an interpretation of that term as referring
only to "the product as a whole". Because anti-dum ping duties are paid by importers and largely
depend on the prices paid by importers, many Members logically and reasonably provide for
importer-specific assessment proceedings. As was discussed during the meeting with the Panel,
Members did not agree to adopt an exporter-oriented approach to assessment proceedings. In fact, the
implication of an exporter-oriented focus on the "p roduct as a whole" could be that an importer would
be required to pay anti-dumping duties in an amount gr eater than the difference between its particular

47 See generally US – “Zeroing” (Panel) (EC Complaint), paras. 7.142 to 7.213.
48 EC – Bed Linen (AB), para. 62, fn. 30.

imports and their corresponding normal values, a proposition that makes no sense under the AD
Agreement.
49

49 Article 9.1 permits a Member to impose an anti-dumping duty equal to the full margin of dumping.
Article 9.3 requires that an anti-dumping duty not exceed the margin of dumping. If “margin of dumping” were
construed as requiring an exporter-oriented focus to reflect “the product as a whole,” an anomalous consequence
could be that an importer would have to pay anti-dumping duties greater than the difference between the prices
it paid for exports and normal values. This would occur in the following scenario: Assume that Exporter’s
exports are split between two importers (A and B) and, on average, Importer A paid 5 per cent less than normal
value and Importer B paid 15 per cent less than normal value. If “margin of dumping” refers only to a margin of
dumping for the product as a whole, the Member in this example would be entitled to collect (pursuant to
Article 9.1) and be limited to collecting (pursuant to Ar ticle 9.3) anti-dumping duties of 10 per cent from both
importers. Thus, Importer A could be required to pay 10 per cent anti-dumping duties even though its imports
were priced only 5 per cent below normal value.

ANNEX E-3

ANSWERS TO QUESTIONS FOR PARTIES
AND THIRD PARTIES OF THE
PEOPLE'S REPUBLIC OF CHINA

2 December 2005

To China

 Could China indicate the textual basis for th e view, expressed in para. 10 of its written
submission, that taking into account "all comp arable export transactions" in the process of
determining the existing of dumping of the produc t should not be limited only to the weighted
average to weighted average comparison methodology?

Answer

 China believes that Article 2.4.2 supports this conclusion.

 China thinks that "margins of dumping" acts as textual basis in analyz ing whether the T-to-T
methodology should be subject to the requirement of considering all comparable export transactions.
China recalls that in the appeal process of the orig inal proceeding of this case, the disputing parties
are in disagreement as to the proper interpretati on of the term "margins of dumping" as used in
Article 2.4.2. The disagreement lies on whether that term applies to the product under investigation as
a whole, or, at the sub-group level, when multiple averaging is undertaken. On this issue, the
Appellate Body stated that: "Our view that "dumping" and "margins of dumping" can only be
established for the product under investigation as a whole is in consonance with the need for
consistent treatment of a product in an anti-dumpi ng investigation. Thus, having defined the product
under investigation, the investigating authority must treat that product as a whole for, inter alia , the
following purposes: determination of the volume of dumped imports, injury determination, causal link
between dumped imports and injury to domestic industry, and calculation of the margin of dumping."
1
(Emphasis added).

 The clarification of the term of margins of dumping does not apply only to the first method of
comparison, but through the Agreement. Therefore, exclusion of certain export transactions in T-T
method can by no means be regarded as estab lishing margins of dumping for the product under
investigation as a whole

 Article 2.4.2 continues with "the existence of margins of dumping during the investigation
phase shall normally be established……by a comparison of normal value and export prices on a
transaction-to-transaction basis". (emphasis added) . China thinks that a si ngular form for the word
"comparison" may tell us that simply transaction-to -transaction comparisons can not be regarded as
establishing the margins of dumping for the subject product as a whole. For the purpose of
establishing the margins of dumping for a product as a whole through T-T methodology, two steps
may be needed: the first one is creating intermedia te results of a series of transaction-to-transaction
juxtapositions, the second one is combining the inte rmediate results and ca lculate the margin of

1 US- Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/R, Para. 99

dumping through the comparison of normal value and ex port prices for a specific exporter. At the
aggregation stage, an investigating authority should not disregard any intermediate results.

 Further, China notes that article 2.4.2 starts with the phrase "Subject to the provisions
governing fair comparison in paragr aph 4...", which indicates that the requirement of fair comparison
covers all the methodologies of establishing margins of dumping and none of them can be rule out of
this discipline. Zeroing in either W-W method or T-T method by ignoring certain comparable export
transactions is of "inherent bias" against the fair comparison requirement., which "may distort not
only the magnitude of a dumping margin, but also a finding of the very existence of dumping".
2

2 US – Corrosion-Resistant Steel Sunset Review, WT/DS244/AB/R, Para. 135.

ANNEX E-4

EUROPEAN COMMUNITIES RESPONSES
TO THE PANEL'S QUESTIONS

2 December 2005

Introduction

 The following questions should not be taken to reflect any views of the Panel. Either
party may respond to or comment on any questio n addressed to the other party or any third
party. Each third party may respond to or co mment on any question addressed to either party
or any other third party.

General comment by the EC . The EC refers first to its responses to the questions addressed to it and
to the third parties generally. The EC has also commented on the other questions, particularly where
those other questions relate to additional matters , including matters covered in the written and oral
pleadings of the EC.

 The EC believes that many of the questions posed go beyond what is strictly required for this
Panel to make the findings necessary to settle the dis pute. In particular, for example, the EC does not
believe that this Panel needs to write a general theory of the targeted dumping provisions for the
purposes of this case. However, the EC generally recognises and applauds the Panel’s desire to reach
a balanced view, which reasonably takes into account the text, context, object and purpose and intent
of all the Members – in short, to take a sensible and balanced view of the system as a whole – and this
is reflected in the EC’s endeavours to respond to the Panel’s questions.

To Canada

1. In para. 9 of its closing statement, Canada asserts that "an investigating authority has
an obligation to determine a "margin of dumping" for the product as a whole". Does the
concept of "margin of dumping" have the same meaning throughout Article 2.4.2? Canada
indicates in para. 15 of its closing statement that "the meaning of the term "margin of
dumping" – and that of – "dumping" – cannot change in this single sentence" – presumably the
first sentence of Article 2.4.2. Does Canada consider that the meaning of the term "margin of
dumping" might differ between the first and seco nd sentences of Article 2.4.2? Is the second
sentence of Article 2.4.2 an exception to the re quirement to determine a margin of dumping for
a product as a whole? Please explain. Do es Canada consider that the term "margin of
dumping" has the same meaning throughout the whole AD Agreement?

 The EC refers to its response to question 32. Article VI:2 of the GATT 1994 and the ADA are
an inseparable package of rights and obligations. The term "margin of dumping" is defined in
Article VI:2 of the GATT 1994 and implemented in the whole of Article 2 of the ADA. In principle,
it has the same meaning throughout Article VI:2 of the GATT 1994 and the ADA, subject to the
targeted dumping provisions. We agree with Canada that if there is targeted dumping by purchaser,
region or time, an investigating authority is en titled – for example - to calculate the dumped amount
relating to a purchaser, region or time so identifie d. The second sentence of Article 2.4.2 is an
exception to the first sentence of Article 2.4.2; th us, similarly, the targeted dumped amount may,
subject to the conditions provided for in the second sentence of Article 2.4.2, be expressed as a

percentage of export price, or characterized as a "margin of dumping". Rather than expressing this in
terms of the second sentence of Article 2.4.2 constitu ting an exception to the general requirement to
calculate a margin of dumping for the product as a whole, the EC would say that the targeted dumping
provisions provide for a specific methodology to determine such margin in exceptional circumstances.

2. Does it necessarily follow from the argume nt that a margin of dumping must be found
for a product as a whole that any export prices above the normal value must be fully reflected in
the numerator of the dumping margin? Does not th e inclusion of those export prices in the
denominator, but not in the numerator, result in a margin of dumping for the product as a
whole, given that the product as a whole is presumably the imported product whose prices are
in question? Please explain?

 Within the relevant data set, it necessarily fo llows that all the export prices must be fully
reflected in the numerator. The inclusion of export prices in the denominator, but at the same time the
omission of part of the export prices from the numerator, means that the export prices are not fully
included. Anything less than all the relevant expor t prices in full in the numerator does not result in
the calculation of a margin of dumping for the product as a whole. This is confirmed, notably, by the
Appellate Body Reports in EC-Bed Linen and US-Softwood Lumber V.

3. Please comment on the US assertion that "it is not the case that a margin of dumping is
established only when the price differences result ing from multiple transaction-to-transaction
comparisons for a given product are aggregated" (US oral statement, para. 25).

 This argument is inconsistent with the general requirement to calculate a margin of dumping
for the product as a whole; inconsistent with th e fact that an investigating authority may not assume
that a single transaction, taken in isolation, is always a normal value, in particular where other
domestic transactions are also used in the comparison ; and inconsistent with the term "basis" as twice
used in the first sentence of Article 2.4.2. The utility of the transaction-to-transaction method is that,
if justified by all the circumstances of the case, it effectively reduces the need to make adjustments for
differences in, for example, physical characteristics (because transactions can be directly matched).
Because it effectively permits the use of a represe ntative sample, it may lead to a result that is
different from, although similar to, the result arrive d at by the use of the weighted average-to-
weighted average method.

4. During the meeting with the parties, th e United States suggested that if the term
"margins of dumping" is understood to h ave the same meaning throughout the AD Agreement,
including the Article 9 provisions concerning duty collection, this would result in non-dumped
imports being set off against dumped imports at the duty collection phase. The United States
noted that importers pay anti-dumping duties, no t exporters. The United States argued that it
would be unfair for an importer of dumped product, who has already benefited from a low
export price, to further benefit from a credit determined on the basis of non-dumped imports by
another importer. Please comment on this US argument, with particular focus on the
prospective normal value duty collection system applied by Canada. In particular, how would
Canada interpret the term "margins of dum ping" at the duty collection phase, and would
Canada provide offsets at that phase?

 The EC would like to stress that the Anti-Dumping Agreement contains specific obligations
that determine the manner in which an investigati ng authority must establish the margin of dumping
and the total dumped amount, and th at determination must be fair towards the exporter concerned.
When it comes to the distribution of that total dumped amount among importers , Article 9.3 makes it
clear that the dumped amount must not exceed the margin of dumping, as established under Article 2.
Whatever municipal law may or may not provide w ith respect to such matters, an investigating
authority is still required to ensure that the dumped amount and the margin of dumping are established

in accordance with Article 2, in a manner that is fair to the exporter. In any event, the EC considers
that there are methodologies available to allocate to importers in a "fair" manner the total dumped
amount found to exist for the exporter concerned. Contrary to what the US suggests, there is no
conflict between the two requirements.

 If there is no significant pattern of export prices among different purchasers (or importers),
that is, if low and high priced transactions are more or less equally distributed between different
importers, then each importer will be treated equa lly. If there is one exporter and two importers, and
no significant pattern, high and lo w priced transactions being roughly equally distributed in equal
measure between the two importers , each importer will pay about half of the dumped amount. The
total dumped amount will correspond to the dumped am ount associated with the margin of dumping
of the exporter. If, on the other hand, there is a significant pattern of high priced imports to one
importer, and low priced imports to the other, then, consistent with the second sentence of
Article 2.4.2 the investigating authority is entitle d to conduct a targeted dumping analysis and to
distribute the dumped amount between the two importers in order to reflect that. The assessment rate
associated with the importer that purchased at a high price will be low and the dumped amount will be
low. The assessment rate associat ed with the importer that purchased at a low price will be high and
the dumped amount will also be high. However, cons istent with Article 9.3, the total dumped amount
collected from both importers will not exceed the margin of dumping of the exporter.

 An amount collected under Article 9.4(ii) (or any similar amount) is not an actual margin of
dumping or an actual dumped amount. It is not a ma rgin of dumping because it does not relate to the
product as a whole, as required by Article 2.1; and it does not result from the application of the
exceptional provisions relating to targeted dumping. Furthermore, it is not actual, because it is based
on a prospective normal value (that is, one derived from historical data, particularly the data collected
during the original proceeding). Article 9.4(ii) does not detract from an investigating authority’s
obligation under Article 9.3.2, in the prospectiv e system, to investigate and calculate the actual

margin of dumping (once the relevant period is cl osed) at the request of an importer. An actual
margin of dumping is based on a contemporaneous normal value and export price. It must be
calculated in a manner consistent with all of Article 2.4.

 A variable duty is possible in the prospectiv e system because in a prospective system final
liability under Article 9.3.2 can only go down, at the request of an importer. In the retrospective
system, by contrast, final liability can go up, at the request of any interested party, including the
domestic industry. The initial use of a variable duty in the prospective system allows an investigating
authority fearful of targeted dumping to initially collect an amount that will cover any targeted
dumping that might occur. If there is no targeted dumping, and some exports above normal value, the
importer will get a refund, on request. It is an error to transpose this provision from the initial part of
the prospective system, to final assessment under the retrospective system.

5. Please explain Canada's understanding (oral statement, para. 30) of how the targeted
dumping methodology might operate in practice, without zeroing. For example, assume there is
evidence of targeted dumping by a specific exporter into a specific region of a Member. Further
assume that the relevant exporter also sells in to other regions of the same Member, without
dumping. How might the targeted dumping methodology apply in this case? How might any
margins of dumping be calculated? What ro le would the non-dumped imports play in this
process? Would anti-dumping duties only be ap plied on imports destined for the region for
which there was evidence of targeted dumping? How would any resultant anti-dumping duties
differ from those applicable as a result of a weighted average–to–weighted average comparison
in respect of the totality of imports into the Member's territory? How would the resulting anti-
dumping duties comport with the first sentence of Article 6.10 in the case in which the exporter
had sales outside the targeted region?

 The EC refers to its responses to question 33 and 35(a).

6. The application of targeted dumping comprises at least three elements (a) the
identification of a pattern of pricing indicati ng targeted dumping, (b) the calculation of a
margin of dumping and (c) the translation of that calculated margin to the application of an
anti-dumping measure. Please explain how each of these three elements would operate in the
circumstances of the three types of targeted dumping identified in the second sentence of
Article 2.4.2.

 The EC refers to its response to question 33.

7. Exhibit CDA-8 contains two hypothetical examples purporting to demonstrate how the
second sentence of Article 2.4.2 might be applie d without zeroing. With reference to those
hypotheticals:

(a) Please comment on whether or not the calcul ation of separate rates for (1) transactions
relating to the largest purchaser and (2) transactions in the three month period might be
treated as a form of zeroing, in the sense that the focus is on dumped (or more dumped)
imports, without any offset for non-dumped (or less dumped) imports (occurring during
the remainder of the period of investigation or outside the region).

(b) What legal / textual justification might permit such "zeroing"?

(c) The EC argued that this would not constitute zeroing, as no adjustment is made to the
export prices. Does Canada agree with this argument? Please explain.

(d) The EC also argued that, even if there coul d be deemed to be an adjustment of export
prices, such adjustment would constitute a "due allowance" under Article 2.4. Does
Canada agree with this argument? Please explain, with particular reference to the
concept of "differences which affect price comparability" as set out in Article 2.4.

(e) The EC also stated (in respect of the seaso nal product hypothetical) that the margin of
dumping would be the actual amount of dumping (for the three-month period)
expressed as a percentage of export price. Does Canada agree? Please explain. If
Canada does agree, what export price would be used as the denominator? If it would be
the total of all export sales, does this constitute a form of zeroing?

(f) Please show the operation of both hypothetical examples using numbers.

(g) Assume that during the period of target ed dumping, or in the region of targeted
dumping, not all export sales are made at a price below normal value, but that the
finding of a pattern of export prices is not vitiated by the existence of these sales. Would
the calculation of a dumping margin for the sales during the period for which the
pattern was found, or to the region for wh ich the pattern was found have to take
account of these transactions? How?

 The EC refers to its response to question 35.

8. The EC has stated that, in its view, the price at which a transaction in the exporting
market is concluded, considered in isolation, is not equivalent to a "normal value" (EC Written
Submission at para. 6). Does Canada agree. Could Canada explain what, in its view, is a
normal value for purposes of a transaction-to-tr ansaction analysis? How would Canada expect

that an investigating authority would determine the appropriate normal values for comparison
purposes in the context of such an analysis?

 The EC refers to its response to question 37.

9. Is the "weighted average normal value" referred to in the first sentence of Article 2.4.2
the same as the "normal value established on a weighted average basis" referred to in the
second sentence of that provision?

 Yes, except that in the second sentence it may also refer to a normal value calculated by
reference to the sub-set of transactions within the pa ttern identified by the investigating authority, as
indicated by Canada.

10. Under the approach proposed by New Zeal and (para. 3.09 of New Zealand's written
submission), a higher margin of dumping would be attributed to a lower volume of dumped
imports, with the remaining imports being t reated as non-dumped. Could this reduce the
likelihood of dumped imports being shown to cause of material injury? If so, might this bring
into question the assumption that failure to offset will necessarily lead to a less favourable result
for exporters?

 The EC agrees that a targeting dumping analysis is likely to have implications for the injury
analysis. However, we fail to see the relevance of this question to the specific legal question of how a
margin of dumping must be calculated. In any event, we do not see that reducing the volume of
dumped imports, but inflating the margin of dumping, would necessarily make an injury finding less
likely. Nor do we see that the objective quantitative requirements of how to calculate a margin of
dumping and a volume of dumped imports should be displaced by the more qualitative requirements
of a causation and non-attribution analysis.

11. Please explain the precise textual basis for the proposition that "product" in Article VI
of GATT 1994 must be equated with "product as a whole". How would Canada reconcile the
concept of "product as a whole" with the definition of dumping in Article VI:2 of GATT 1994
in terms of a "price difference".

 The EC refers to its response to question 32.

To the United States

12. Is it the view of the US that the first sentence of Article 2.4 means something over and
above what is set out in the second sentence and what comes thereafter, or does the remainder
of Article 2.4 exhaust the meaning of the word "f air" used in the first sentence? If not, why
does the first sentence of Article 2.4 exist?

 The EC considers that the fair comparison re quirement is overarching and independent : it is
not exhausted by the remaining provisions of Article 2.4.

13. Please comment on Canada's argument (oral statement, para. 16) that, if transaction-to-
transaction comparisons were to constitute "m argins of dumping", DOC would have had to
assess whether each transaction-specific "margin of dumping" was de minimis in accordance
with Article 5.8 of the AD Agreement.

 The Appellate Body has recently indicated that the term "margin of dumping" in Article 5.8 is
exporter-specific rather than country -specific (Appellate Body Report, Mexico-Beef and Rice , paras
215 to 221), also referring in the process to the term "margins of dumping" in Article 2.4.2. This is

consistent with the view that an investigating au thority must determine a margin of dumping for the
exporter; which is in turn consistent with the view that the results of intermediate comparisons are not
margins of dumping. If they would be, the implicati on would be that suggested by Canada. See, in
similar vein, Appellate Body Report, EC-Bed Linen, para 125.

14. The US argues that an interpretation of Article 2.4 that requires a general offset
obligation would render the distinctions betw een the average-to-average and the average-to-
transaction methodologies in Article 2.4.2 a nu llity (US second written submission, para. 24).
Would a generalized application of Canada's interpretation of the phrase "margins of
dumping" in Article 2.4.2 also render the average-to-transaction methodology redundant? Is
the US argument confined to Canada's Article 2.4 claim, or does it also apply in the context of
Canada's Article 2.4.2 claim? Please explain.

 The EC refers to its response to question 33. It does not agree with the US argument based on
alleged necessary mathematical equivalence.

15. At para. 64 of its written submission, the EC suggests that zeroing might be permissible
in certain circumstances in the context of a targeted dumping analysis. In particular, the EC
argues that the zeroing could take the form of an allowance for a difference affecting price
comparability. Please comment on this EC argument.

 The EC refers to its response to questions 35(a) and (c).

16. Please comment on Canada's argument th at "[t]he targeted dumping methodology, ...
by definition, would not be applied to all export transactions" (oral statement, para. 29). Is this
statement true in the context of US law?

 The EC believes that to be the case.

17. The application of targeted dumping comprises at least three elements (a) the
identification of a pattern of pricing indicati ng targeted dumping, (b) the calculation of a
margin of dumping and (c) the translation of that calculated margin to the application of an
anti-dumping measure. Please explain how each of these three elements would operate in the
circumstances of the three types of targeted dumping identified in the second sentence of
Article 2.4.2.

 The EC refers to its response to question 33.

18. Exhibit CDA-8 contains two hypothetical examples purporting to demonstrate how the
second sentence of Article 2.4.2 might be applie d without zeroing. With reference to those
hypotheticals:

(a) Please comment on whether or not the calcul ation of separate rates for (1) transactions
relating to the largest purchaser and (2) transactions in the three month period might be
treated as a form of zeroing, in the sense that the focus is on dumped (or more dumped)
imports, without any offset for non-dumped (or less dumped) imports.

(b) What legal / textual justification might permit such zeroing?

(c) The EC argued that this would not constitute zeroing, as no adjustment is made to the
export prices. Does the United States agree with this argument? Please explain.

(d) The EC also argued that, even if there coul d be deemed to be an adjustment of export
prices, such adjustment would constitute a "due allowance" under Article 2.4. Does the
United States agree with this argument? Please explain, with particular reference to the
concept of "differences which affect price comparability" as set out in Article 2.4.

(e) The EC also stated (in respect of the seaso nal product hypothetical) that the margin of
dumping would be the actual amount of dumping (for the three-month period)
expressed as a percentage of export price. Does the United States agree? Please explain.
If the United States does agree, what export pr ice would be used as the denominator? If
it would be the total of all export sales, does this constitute a form of zeroing?

(f) Assume that during the period of target ed dumping, or in the region of targeted
dumping, not all export sales are made at a price below normal value, but that the
finding of a pattern of export prices is not vitiated by the existence of these sales. Would
the calculation of a dumping margin for the sales during the period for which the
pattern was found, or to the region for wh ich the pattern was found have to take
account of these transactions? How?

 The EC refers to its response to question 35.

19. New Zealand suggests that the transaction-to-transaction methodology should be
symmetrical, in the sense that the margin of dumping should be based only on dumped
transactions, with non-dumped transactions be ing included in the analysis of the volume and
prices of "imports not sold at dumping prices" (Article 3.5). Would the US treat imports where
export price is not less than normal value as "imports not sold at dumping prices" in the
meaning of Article 3.5 of the AD Agreement?

 The EC refers to its response to question 10.

20. Could the US comment on the argument that "product" in Article VI of GATT 1994
must be equated with "product as a whole", in particular the question of reconciling the
concept of "product as a whole" with the definition of dumping in Article VI:2 of GATT 1994
in terms of a "price difference".

 The EC refers to its response to question 32.

To both parties

21. Would the parties please describe, in deta il, how, under their respective anti-dumping
systems, the processes of duty assessment and duty collection are carried out by their
authorities.

 This question requires no further comment from the EC.

22. If zeroing would be considered unfair as such and thus prohibited, what would be the
practical consequences of such a concept? Would it presuppose aggregation of different
transactions into a single margin or would this concept, if applied in all its logic, oblige
administrations practising transaction by tran saction duty assessment to compensate importers
for negative margins underlying certain of these assessment operations?

 The EC refers to its response to question 35(a) : it may help to resolve the dispute if there is
precision about what exactly is meant by "zeroing" in different circumstances. We also refer to our
response to question 33. It is not a question of compensation. It just means that, once a representative

sample has been used as the basis for the calculation, duties are collected in conformity with the
margin calculated on the basis of the representative sample.

23. The first sentence of Article 2.4.2 provides:

"Subject to the provisions governing fair comparison in paragraph 4, the
existence of margins of dumping during the investigation phase shall normally
be established on the basis of a comparison of a weighted average normal value
with a weighted average of prices of all comparable export transactions or by a
comparison of normal value and export prices on a transaction-to-transaction
basis."
 (a) Would the parties agree that what is ref erred to as the WA to WA methodology is
set out in the phrase "on the basis of a comparison of a weighted average normal
value with a weighted average of prices of all comparable export transactions" and
what is referred to at the T to T methodology is set out in the phrase "by a
comparison of normal value and export prices on a transaction-to-transaction
basis"?

 Yes, subject to the provisions of Article 2.4.

 (b) Could the parties comment on the significance, if any, of the difference between the
use of the phrase "on the basis of a comparison" and "by a comparison".

 Given the word "basis" at the end of the senten ce, and the repeated use of "normal value" in
the singular, there is no significance.

24. It can be argued that a methodology cannot be designated as "fair" or "unfair" within
the meaning of Article 2.4 solely on the basis of whether it makes dumping margins go up or
down. In this respect, what are the comments of the parties on the observations of the Appellate
Body in EC –Bed Linen and in US - Corrosion-Resistant Steel Sunset Review that a zeroing
methodology is "inherently biased towards inflating the margin of dumping"?

 The zeroing methodology systematically has this effect, and is not therefore consistent with
the obligation to make an objective and even-hande d analysis. See also Appellate Body Report, US-
Hot-Rolled Steel, paras 144, 145, 148, 154 and 158.

25. Could the parties explain the meaning of the phrase "subject to the provisions governing
fair comparison in paragraph 4" in Article 2.4.2? In particular, what exactly is the meaning of
"the provisions governing fair comparison in pa ragraph 4" and of "subject to"? Is the "fair
comparison" requirement limited in scope to what is addressed in paragraph 4? Please explain.

 The provisions governing fair comparison include th e third to fifth sentences of Article 2.4.
In case of conflict between these provisions and the pr ovisions of Article 2.4.2, the former provisions
prevail. Article 2.4.2 cannot be interpreted in a mann er that conflicts with the third to fifth sentences
of Article 2.4.

26. In the second sentence of Article 5.8, does the term "margin of dumping" relate to the
margin of dumping calculated for each exporter, or to a margin of dumping calculated for the
country as a whole?

 The EC refers to its response to question 13.

27. Could the parties address the proposition that a dumping margin can be calculated for a
single export transaction? Pl ease consider specifically cases co ncerning (a) the import of large
capital goods, (b) the import of specially designed/manufactured goods) and (c) the import of
few shipments to small economies. If your view is that a dumping margin cannot be calculated
for a single export transaction in any of these contexts, please explain how a margin of dumping
could be established in such a case. If in any of these contexts, a single export transaction can
generate a dumping margin, why is it not permis sible to conclude that each comparison in a
transaction-to-transaction analysis generates a dumping margin?

 The EC refers to its response to question 38 as regards use of the transaction-to-transaction
method. Similar reasoning might apply to case (c). It would all depend on the parameters of the
investigation and the circumstances of the case. If, during the investigation period, one single export
transaction had been made, then it might be legitima te to calculate the margin of dumping on that
basis, if that export transaction is representative, fo r instance in respect of volume. If, however, the
investigation period contains several export transactions, then the export price during the investigation
period consists of the aggregati on of all the representative export transactions. The requirement to
respect the parameters of the investigation has been clearly stated by the Appellate Body in EC-Bed
Linen and US-Softwood Lumber. Thus, it may be permissible to conduct intermediate comparisons
(per model or per transaction). However, what would not be possible would be to zero when
aggregating the intermediate results.

28. Could the parties indicate whether, in their view, in a targeted dumping analysis under
the second sentence of Article 2.4.2, an investigating authority may utilize a comparison method
other than one in which "a normal value established on a weighted average basis may be
compared to prices of individual export transactions".

 The EC refers to its response to question 33.

29. Could the parties address the argument of the EC that if there is one hypothetical
situation in which a general prohibition on zeroing does not render the targeted dumping
methodology redundant, this is sufficient to demo nstrate that the United States' argument in
this regard is without merit? Specifically, is it enough to posit that such a methodology could be
applied by some Members in some circumstan ces, or would it be necessary that such a
methodology would be generally susceptible of application by all Members?

 One hypothetical or example in which there is not necessarily mathematical equivalence is
sufficient to rebut the US argument. It is no t necessary that Canada’s method would be generally
susceptible of application by all Members. The EC refers in this respect to its response to
question 33.

30. Article 2.1 refers to "the export price of the product exported" and "the comparable
price ... for the like product" in the home market of the exporting Member. Do these references
to "price" relate to the price of the product as a whole, i.e. an aggregated or average price?
Please explain. Do the references to "prices" in the transaction-to-transaction and weighted
average-to-transaction provisions of Article 2.4.2 relate to the product as a whole? Please
explain.

 The EC refers to its response to question 32.

To China

31. Could China indicate the textual basis for the view, expressed in para. 10 of its written
submission, that taking into account "all comp arable export transactions" in the process of

determining the existing of dumping of the produc t should not be limited only to the weighted
average to weighted average comparison methodology?

 The obligation to which China refers is deri ved from the basic requirement to calculate a
margin of dumping for the product as a whole. The EC refers to its response to question 32.

To the EC

32. Please explain the precise textual basis for the proposition that "product" in Article VI
of GATT 1994 must be equated with "product as a whole". How would the EC reconcile the
concept of "product as a whole" with the definition of dumping in Article VI:2 of GATT 1994
in terms of a "price difference".

 The words "as a whole", for example in para 93 of the Appellate Body Report in US-Softwood
Lumber V , simply serve to emphasise that "the produc t" is "the product" as defined by the
investigating authority at the outset of the original proceeding, and not some type, model or category
of that product. Thus, if the investigating authority has itself, at the outset of its investigation,
selected a product with certain physical characteristics – that is, if it has identified the "market" within
the meaning of Article 2.2 in terms of physical ch aracteristics – then it is at least bound to follow a
consistent analysis. It cannot subsequently br eak-down that product definition into separate product
types and opine that these are no longer comparable within the meaning of Article 2.4.2 simply
because the results of certain intermediate comparis ons are negative. Precisely the same is true with
respect to any other parameters of the investigation.

 This is confirmed by Article II.2(b) of the GATT 1994, according to which nothing in
Article II shall prevent any contracting party from imposing anti-dumping duti es consistent with the
provisions of Article VI. Article II of the GATT 1994 concerns schedules of concessions, which
relate in abstract terms to products, as opposed to a specific incidence of importation of a specific
product by a particular company. Consequently, the concept of "product" in the context of Article VI
of the GATT 1994 and the Anti-Dumping Agreement must, in principle, be understood in these same
abstract terms.

 As indicated in its oral statement, the EC do es not consider that "price" is necessarily always
a transaction-specific concept; rather it is a market specific concept. Article VI of the GATT 1994
and the Anti-Dumping Agreement constitute an inseparable package of rights and obligations. The
introduction of the targeted dumping provisions in the Uruguay Round Anti-Dumping Agreement
reflects a recognition by the Members that, in a market economy, permanent dumping becomes
increasingly difficult to sustain and unlikely if import duties are reduced; subsidies disciplines
introduced; and anti-trust laws deve loped (see generally, Jacob Viner, A Memorandum on Dumping ,
1926). Hence the weighted average-to-weighted average comparison rule. At the same time, targeted
dumping may still occur, and may still require reme dial action. Hence the targeted dumping
provisions, if certain conditions are met. To appl y the transaction-to-transaction method as the US has
done in the measure taken to comply deprives the ta rgeted dumping provisions of all utility. The
utility of the transaction-to-transaction method, without zeroing, has been explained by the EC in its
written and oral submissions to the panel, and in th e response to these questions. It permits the use of
a representative sample; and avoids the need to quantify adjustments for differences affecting price
comparability, if sufficient comparable transactions can be directly matched.

33. The application of targeted dumping comprises at least three elements (a) the
identification of a pattern of pricing indicati ng targeted dumping, (b) the calculation of a
margin of dumping and (c) the translation of that calculated margin to the application of an
anti-dumping measure. Please explain how each of these three elements would operate in the

circumstances of the three types of targeted dumping identified in the second sentence of
Article 2.4.2.

 For example, during a one year period used as the investigation period in an original
proceeding we assume: one country, exporter and im porter; 1 domestic transaction per week at a
value of 100; and 1 export transaction per week. In region A there are 25 export transactions at 90
and 1 at 110; in region B, 25 export transactions at 110 and 1 at 90.

 A single weighted average-to-weighted average comparison would result in a dumped
amount and margin of dumping of zero. Proceeding directly to the unjustified use of " simple
zeroing", that is, comparing a weighted average normal value of 100 with each export transaction
during the period, "zeroing" any negative intermediate results, but including all export prices in full in
the denominator, would result in a dumped amount of (26 x 10) = 260 and a dumping margin of
(260/(26 x 90) + (26 x 110)) x 100 = 5 %.

 In cases in which domestic prices would vary, the result of using the transaction-to-
transaction method would depend on which transactions we re included in the representative sample,
and which were matched. If the sample is representa tive, and no zeroing is used, the result should be
close to that obtained using the weighted average- to-weighted average method. If zeroing is used, the
result might be close to the result achieved using the simple zeroing method.

 However, an analysis of the export transactions, in the light of domestic prices, would reveal
a significant pattern of targeted dumping to region A. Having identified such a pattern, and having
provided the required explanation, an investigating authority would be entitled to proceed with a
targeted dumping analysis. Article 2.4.2 does not identify in every detail how investigating
authorities may address targeted dumping.

 For example , the investigating authority could focus on the set of transactions in region A.
Within region A, it could make a weighted aver age-to-weighted average comparison, resulting in a
dumped amount of (25 x 10) – (1 x 10) = 240. This dumped amount could be expressed as a dumping
margin (for example, (240/(25 x 90) + (1 x 110)) x 100 = 10.17%. That anti-dumping duty of 10.17%
could, for example, be imposed on the products co nsigned for final consumption to region A, when
the domestic industry has been interpreted as referri ng to the producers in region A consistent with
Article 4.2. Consistent with Articles 9.3 and 2.4, the same approach would then apply at the stage of
final assessment or refund proceedings. We assu me the exporter’s behaviour is unchanged during a
subsequent annual period. Once that period is cl osed, final assessment under Article 9.3.1 would lead
to the assessment of a dumped amount of 240 (cons istent with a dumping margin of 10.17 %) – cash
deposits would simply be liquidated. A refund proceeding under Artic le 9.3.2 would not result in any
refund. The panel may note that this result is not mathematically equivalent to the result of using
simple zeroing : the targeted margin of dumping is higher; but the dumped amount is lower.

 In cases in which domestic prices would vary, the result of using the transaction-to-
transaction method within the sub-group would depend on which transactions were included in the
representative sample, and which were matched. If the sample is representative, and no zeroing is
used, the result could be close to 10.17%. Even wi th zeroing, given the pattern, the result may not be
significantly different.

 Alternatively
, having identified targeting dumping by region, the investigating authority could
calculate, for both regions together, a dumped amount of 260 and a dumping margin of 5%, using the
same method at that outlined in the second paragraph of this response. An anti-dumping duty of 5%
could then be imposed on all products entering the country (both region A and region B). If targeting
dumping continues, the same method could be used during final assessment or refund proceedings,
leading, if the exporter’s behaviour is unchanged, to the collection of the same dumped amount (260).

This could, for example, be the case if the domestic industry has not been interpreted as referring to
the producers in a certain area (see Article 4.2) or if the constitutional law of the importing Member
does not permit the anti-dumping duty to be levied on ly on the products consigned to region A. The
panel may note that this result is mathematically eq uivalent to the result of using "simple zeroing".
However, the two methodologies are not the same or comparable, because the second is justified by
the targeted dumping provisions, whilst the first is not.

 The analysis is analogous with respect to both time and purchasers, if we replace region A
with the final six months of the year, or with purchaser A (as opposed to purchaser B). Duties could
be similarly collected either with respect to the ta rgeted period or targeted purchaser, or collected at
an ad valorem rate applied to all purchasers or with respect to the period as a whole.

 For the purposes of deciding on the claims befo re it in this case the panel does not need to
decide all the interpretative issues that might aris e in the context of the operation of the targeted
dumping provisions. It is sufficient to make two ob servations. First, it is not necessarily the case that
there is always mathematical equivalence betwee n the result obtained by directly using "simple
zeroing" or transaction-to-transaction with zeroing and the targeted dumping provisions. Thus,
finding that zeroing as applied by the US in this case is unfair does not nullify the targeted dumping
provisions. Second, the possible operation of the targeted dumping provisions described above
cannot, even in the case of mathematical equivalence, be considered the same as or comparable to
simple zeroing, because the former is justified by the identification of a pattern of targeted dumping,
whilst the latter is not.

34. Could the EC please explain its understanding of the meaning of the term "price
comparability" as used in Article 2.4.

 Price comparability refers to the question of wh ether or not prices are comparable. Prices are
comparable if due adjustment has been made for all differences affecting price comparability. Prices
may not be comparable if, for example, there are di fferences in conditions and terms of sale, taxation,
levels of trade, quantities, physical characteristics, and so forth. In other words, dumping may be
masked or created if, for example, a normal value wo uld be compared with export prices at a different
level of trade : such prices are not comparable a nd a level of trade adjustment may be necessary.
Similarly, a normal value may not be comparable wi th a global export price if that global export price
masks targeted dumping by purchaser, region or ti me. In such circumstances, there may be a
difference that affects "price comparability".

35. Exhibit CDA-8 contains two hypothetical examples purporting to demonstrate how the
second sentence of Article 2.4.2 might be applie d without zeroing. With reference to those
hypotheticals:

(a) Please comment on whether or not the calcul ation of separate rates for (1) transactions
relating to the largest purchaser and (2) transactions in the three month period might be
treated as a form of zeroing, in the sense that the focus is on dumped (or more dumped)
imports, without any offset for non-dumped (or less dumped) imports.

 The EC considers that clarification of the term "a form of zeroing" may help to resolve the
dispute. The word "zeroing" is not used in the ADA, and it appears that there may not always be
complete precision about what exactly is meant when that term is used. The EC observes that what
the US did in the measure taken to comply (transaction-to-transaction zeroing) is not the same as what
may be done in a targeted dumping analysis, as outlined in CDA-8. In the opinion of the EC,
focusing on a pattern of transactions, which may be viewed as a whole precisely because the
identification of the pattern, in terms of purchaser , region or time, establishes a link between those
transactions, is one thing. And selecting certain transactions because they are made at a relatively low

price is something entirely different. The target ed dumping provisions do not permit an investigating
authority to identify a pattern of export prices just because they happen to differ significantly – they
must differ significantly among different purchasers, regions or time periods. Low priced export
transactions, in themselves, are not a relevant pattern for the purposes of a targeted dumping analysis.
In short, even if a targeted dumping analysis woul d be considered to necessarily involve a "form of
zeroing" (which the EC would contest), that "for m of zeroing" is not the same as the "form of
zeroing" before the panel in this case. The "form of zeroing" before the panel in this case is unfair
and involves an adjustment other than for a differe nce affecting price comparability. The "form of
zeroing" that might arise in a targeted dumping analys is is justified by the circumstances; and fair;
and, to the extent it involves any "adjustment", su ch adjustment is due or warranted. A semantic
identity of these two different things under the common heading "zeroing", without distinguishing
between them, would constitute a legal error.

(b) What legal / textual justification might permit such zeroing?

 The EC believes that it results clearly from th e text of the second sentence of Article 2.4.2
that, if there is a pattern, and the necessary explan ation is given, a targeted dumping analysis is
possible. The EC agrees that a reference to th e weighted average-to-transaction method reflects the
fact that a completely disaggregated comparison is a means of identifying whether or not there is a
pattern. The EC further agrees that the possibility to be fully asymmetrical contains within it the
possibility to be partially asymmetrical, as outlined in our response to question 33, just as the
possibility to make either a weighted average-to -weighted average or a tr ansaction-to-transaction
comparison contains within it the possibility to make comparisons by averaging groups.

(c) The EC argued that this would not constitute zeroing, as no adjustment is made to the
export prices. Please explain.

 The EC refers to our response to question 35 (a ). Our position is that what is described in
CDA-8 is not the same as what the US did in the m easure taken to comply. Either it is not to be
characterized as an "adjustment" to export price at all, because what cha nges when the targeted
dumping pattern has been identified is simply the pa rameter by reference to which an investigating
authority is entitled to calculate the margin of dumpi ng. Or, even if that would be construed as an
adjustment, it is due or warranted, since made for a difference affecting price comparability.

(d) The EC also argued that, even if there coul d be deemed to be an adjustment of export
prices, such adjustment would constitute a "due allowance" under Article 2.4. Please
explain, with particular reference to the concept of "differences which affect price
comparability" as set out in Article 2.4.

 If, as in our example in response to question 33, a targeted dumping analysis has identified a
pattern of dumped prices to region A, but not region B, then there is a difference between regions A
and B. This difference has affected the comparability of all the data – if a single weighted average-to-
weighted average comparison is made, the dumping am ount and margin will be zero. But this would
mask the targeted dumping in region A. There is therefore a difference affecting price comparability;
so the investigating authority is entitled to make an adjustment. That adjustment could consist of
calculating a margin of dumping for region A, as outlined in CDA-8.

(d) The EC also stated (in respect of the seaso nal product hypothetical) that the margin of
dumping would be the actual amount of dumping (for the three-month period)
expressed as a percentage of export price. Please explain. What export price would be
used as the denominator? If it would be the total of all export sales, does this constitute
a form of zeroing?

 We refer to our response to question 33. In a targeted dumping analysis, either approach
would be possible. If the investigating authority fo llows the first approach, the denominator would be
the total export price during the three month period. If all export prices would be included in the
denominator, the result would be that a lower margin of dumping would be calculated. In either case,
if what is described would be a "form of zeroing", it is not the same as what the US did in the measure
at issue, and it would be justified by the fact that the investigating authority had identified a relevant
pattern of exports and provided the necessary explanation.

(f) Please show the operation of both hypothetical examples using numbers.

 We refer to our response to question 33.

(g) Assume that during the period of target ed dumping, or in the region of targeted
dumping, not all export sales are made at a price below normal value, but that the
finding of a pattern of export prices is not vitiated by the existence of these sales. Would
the calculation of a dumping margin for the sales during the period for which the
pattern was found, or to the region for wh ich the pattern was found have to take
account of these transactions? How?

 We refer to our response to question 33. We agree with Canada that the investigating
authority could make a weighted average-to-weight ed average comparison for the entire sub-set, thus
taking the above normal value export prices into account. This is not, however, the only possibility.

36. The EC suggested, in its answer to a question put by the Panel, that in undertaking a
comparison under the methodology of the second sentence of Article 2.4.2, a Member can not
determine whether there is a "pattern of export prices which differ significantly among different
purchasers, regions or time periods" without conducting what the EC referred to as a
disaggregated analysis. The EC then asserted that having found such a pattern on the basis of a
disaggregated analysis the Member should then compare weighted average normal values for the
transactions forming the "pattern" with weighted average export prices for those transactions. In
the EC's view, this would be an application of the targeted dumping methodology that would not
involve zeroing. Could the EC explain how such an analysis comports with the second sentence
of Article 2.4.2, which provides that "if the authorities find a pattern of export prices which differ
significantly among different purchasers, regions or time periods", "a normal value established
on a weighted average basis may be compared to prices of individual export transactions"

 The EC’s position is that it might be possible, simply by looking at export prices, to discern a
"pattern", but this would necessarily have to be done in a disaggregated wa y – that is, each export
transaction would have to be considered individually. Viewing a single weighted average export price
would not, by definition, reveal any pattern in the export prices incorporated within that single weighted
average. Furthermore, what is really of interest to the investigating authority is a pattern of "dumped"
export prices. Thus, in practice, what an investig ating authority will typically do is to compare a
weighed average normal value with each export transaction, looking for patterns of export transactions,
by purchaser, region or time, at prices less than normal value.

 The EC’s position is that an investigating authority could
 so proceed, not that it should. We
refer to our response to questions 33 and 35(b).

 The EC’s position is that this does not involve "the form of zeroing" before the panel in this
case (please see our response to que stion 35(a)); and that even if it would be considered to involve "a
form of zeroing", it would be fair, and a due or warranted adjustment.

 The EC agrees that the possibility to be fully asymmetrical contains within it the possibility to
be partially asymmetrical, as outlined in our respon se to question 33, just as the possibility to make
either a weighted average-to-weighted average or a transaction-to-transaction comparison contains
within it the possibility to make comparisons by averaging groups.

37. The EC has stated that, in its view, the price at which a transaction in the exporting
market is concluded, considered in isolation, is not equivalent to a "normal value" (EC Written
Submission at para 6). Could the EC explain what, in its view, is a normal value for purposes of
a transaction-to-transaction analysis? How would the EC expect that an investigating authority
determine the appropriate normal values for co mparison purposes in the context of such an
analysis?

 Our position is that the investigating authority may not assume that each individual domestic
transaction is a normal value. As outlined in our written and oral statements to the panel, in effect, we
consider that the investigating authority must ensure that the domestic transactions it uses to constitute
normal value are representative. It is unnecessary fo r the purposes of this panel to review all the
issues arising from the selection of the domestic transactions to be compared to the export
transactions. It is sufficient to observe that zeroi ng negative intermediate amounts that result when a
specific export price is subtracted from a specific lower domestic price is not permitted.

38. Assuming the EC is correct that it is in appropriate for an investigating authority to
assume that the price at which a single domestic transaction is concluded is always equivalent to
a normal value, (EC written submission at para . 11) would the EC consider that the price at
which a single domestic transaction is concluded can ever be equivalent to a normal value? If
so, could the EC indicate what criteria might be relevant to distinguish such a case from those
where the price at which a single domestic transaction is concluded is not equivalent to a normal
value?

 It would depend on all the circumstances of the case. However, the EC could envisage that,
for example, in the case of large capital goods, especially if made to order, the fact that there would be
only one domestic sale during the period of in vestigation would not necessarily preclude the
investigating authority from determining a normal value on the basis of that one transaction.

39. Para. 15 of the EC's written submission seems to suggest that the transaction to
transaction juxtapositions do not involve comparis ons of normal values. The EC then indicates
that when the results of these juxtapositions are combined, a dumping margin can be calculated.
Could the EC indicate where, in this analysis, normal value is determined and compared with
export price?

 One of the utilities of the transaction-to-transaction method is precisely that it may eliminate
the need to make adjustments fo r differences affecting price comp arability, adjustments that may be
difficult to quantify, because it allows the matchi ng of directly comparable domestic and export
transactions. Thus, at the second aggregation stage, a margin of dumping is calculated, which, as a
matter of law, economics and mathematics, is based on a comparison between (representative) normal
value and export price, even if an investigating au thority does not consider it necessary to isolate and
give precise numerical expression to the underlying normal value for the product as a whole. That
would be possible. But it is unnecessary.

 To assist the Panel further on this point, the EC offers the following examples. In order to
avoid unnecessary complications, it is assumed that the product under investigation is homogeneous
(i.e. one single model). In the first example, th e transaction-to-transaction method is applied without
expressing the overall normal value and export price as two single figures. In the second example,
both normal value and export price are expressed as two single figures.

 In the first example, export transactions ar e compared with the comparable domestic
transactions. The intermediate results are then aggregated into the total amount of dumping, i.e. 80.

Domestic Export Comparison
Quantity Price Price Quantity
1 130 (not
used)
1 100 90 1 10
2 110 115 2 -10
3 120 120 3 0
4 130 110 4 80
 Dumping 80

 In the second example, the normal value and th e export price are determined as follows. The
individual domestic and export transaction prices are weighted by the quantity of the relevant export
transaction. Then, the two values ar e compared in order to produce the total dumped amount, i.e. 80.
The comparison is still made on a transaction-to-tran saction basis, since each export transaction is
matched with a comparable export transaction - but no intermediate result is produced. Instead, the
final dumping amount is determined immediately.

- normal value 1200 = (100*1)+(110*2)+(120*3)+(130*4)
- export price 1120 = (90*1)+(115*2)+(120*3)+(110*4)

 This is not equivalent to a weighted averag e-to-weighted average calculation since (1) not all
domestic sales are used and (2) no weighted averag e normal value within the meaning of the first
sentence of Article 2.4.2 is expressed (i.e. by multiplying the domestic price by the domestic
quantity). Instead, the domestic transaction used for the comparison is wei ghted against the quantity
of the matching export transaction in order to give each export transaction (and intermediate result) its
actual weight in the calculation. The same operation is performed in the first example above, but at a
later stage of the calculation.

Domestic Export
Normal
value
Export
price Dumping
Quantity Price Price Quantity
1 130 (not
used)
1 100 90 1 1200 1120 80
2 110 115 2
3 120 120 3
4 130 110 4

 A weighted average-to-weighted average co mparison would have produced a total dumped
amount of 90 (weighted average normal value of 121 minus weighted average export price of 112
equals 9 multiplied by the total export quantity of 10, equals 90).

40. At para. 11 of the EC's written submission, the EC asserts that an isolated, transaction-
specific home market value is not necessarily equivalent to normal value. The EC asserts that
one could only establish a normal value using "a fair and balanced consideration that takes into
account the appropriate data populating the rele vant set" (rather than relying on an individual
home market transaction price). Please give an example of how such "consideration" might

work in practice. Is the EC suggesting that some form of weighted average normal value might
need to be determined? If so, what would be the difference between this methodology and the
comparison methodology provided for in the second sentence of Article 2.4.2?

 What would be used would, for example, have to be representative. Thus, if an investigating
authority matches each export transaction to a domes tic transaction, but observes that it has used a
very small percentage of total dom estic transactions, or that in so me way the domestic transactions it
has used are not representative (perhaps they a ll relate to one small re gion within the domestic
market), then it might conclude that the transac tions used were not representative, and that the
transaction-to-transaction method was therefore inappropriate.

To Japan

41. Please explain the precise textual basi s for the proposition that "product" in
Article VI of GATT 1994 must be equated with "product as a whole". How would Japan
reconcile the concept of "product as a whole" with the definition of dumping in Article VI:2 of
GATT 1994 in terms of a "price difference".

 The EC refers to its answer to question 32.

42. Japan argues, at para 8 of its writte n submission, that the terms "dumping" and
"margin of dumping" have uniform meanings throughout the AD agreement. Could Japan
address the implications of this view in the context of duty assessment procedures under an
prospective normal value system? Specifically , could Japan address the proposition that, in
such a system, in the face of a prohibition on zeroing, duties may be assessed on entries of
product at a price below the established minimum normal value, and that rebates must be given
on entries of product at a price above the established minimum normal value?

 The EC refers to its response to question 4. The prohibition of zeroing does not require
giving rebates on entries of products at a price above the established minimum normal value because
the variable duty that might be initially applied under the prospective system is subject always to a
refund request under Article 9.3.2. In that refund request, the actual margin of dumping for the
relevant period will be established and must be consistent with all of Article 2.4. If collection of
duties on entries at a price below the establishe d minimum normal value and non-collection of duties
on entries at a price above the established minimum normal value has led to collecting a total amount
of duty higher than the actual margin of dumping, the difference will be refunded.

 This also allows an investigating authority to initially collect an amount that will cover any
targeted dumping that might take place. This reflect s the fact that in the prospective system only a
refund is possible – liability cannot increase; and only an importer can request a refund – as opposed
to the domestic industry under the retrospective syst em. It is legally erroneous to transpose these
provisions from the initial part of the prospective system to the final step in the retrospective system.

43. Could Japan address the proposition that, in conducting a "targeted dumping" analysis
under the second sentence of Article 2.4.2, the investigating authority may establish dumping
margins on the basis of a comparison involving only the subset of entries that form the
"pattern" leading to the need for such analysis? In the context of such an analysis, could Japan
indicate how the assessment of duty would be carried out, and the level of duty that would be
applied.

 The EC refers to its response to question 33.

44. Japan argues, at para. 30 of its oral statem ent, that the argument that, in mathematical
terms, the WA-to-WA and WA-to-T comparison s would produce identical results, absent
zeroing, assumes wrongly that all other things are treated equally. Does Japan acknowledge
that if all other things are treated equally, these two comparison methodologies would
necessarily produce the same results, absent zeroing? Does Japan mean to suggest that a WA to
T comparison must entail some other method of calculating normal value than the calculation
of a weighed average of all normal values? Co uld Japan explain the textual basis for such a
view, given that Article 2.4.2 does not address the calculation of normal value, but the
comparison of normal value and export price in the establishment of margins of dumping.

 The EC refers to its response to questions 33 and 35(a). There are at least two alternatives.
However, even in the case of "mathematical equi valence", one "form of zeroing" cannot be compared
to the other : what happens under a targeted dumpi ng analysis being justified, fair and due or
warranted.

To Thailand

45. Thailand suggested that there is a wide range of practical ways in which an investigating
authority might conduct a targeted dumping marg in calculation without recourse to zeroing.
Please provide examples.

 The EC understood Thailand’s remarks to rela te to the manner in which anti-dumping duties
might possibly be imposed and finally assessed in relation to a specific region in which targeted
dumping had been identified. The EC refers in this respect to its response to question 33 and
Article 4.2, which in its view clearly envisages that such an approach is practicable or feasible.

To all parties and third parties

46. Would the parties, and third parties, plea se describe how their investigating authorities
would apply the provisions of Article 2.2 in a case involving multiple allegedly dumped models
of a product under consideration, where there are no sales in the home mark et of some of those
models? Specifically, would the parties consid er it obligatory, under that provision, to
determine normal value on one single basis for all models, or would the parties consider that
Article 2.2.permits the determination of normal value on, for instance, the basis of home market
sales for some models, and constructed normal value for others?

 If an investigating authority would determine "normal values" by model, for the purposes of
multiple comparisons at the first stage, it woul d still not be allowed to "zero" at the second
aggregation stage. Even if the normal value for the product as whole is never precisely calculated and
stated by the investigating authority, it could in th eory be calculated, and is reflected, as a matter of
law, economics and mathematics, in the calculation of the margin of dumping for the product as a
whole.

 The EC considers that it is permissible to use a mix of domestic pr ices and constructed
normal values on a model by model basis. This mi ght be an efficient means of making intermediate
comparisons between various model types. Howe ver, the normal value for the product as a whole
would be the average of all the actual domestic pr ices and constructed domestic prices of the models
concerned, in the same manner that the normal value for the product as a whole in the case where
there are reliable domestic sales for all models cons ists of the average of all the model weighted
average values.

47. The EC suggested, in its answer to a question put by the Panel, that in undertaking a
comparison under the methodology of the second sentence of Article 2.4.2, a Member can not

determine whether there is a "pattern of export prices which differ significantly among different
purchasers, regions or time periods" without conducting what the EC referred to as a
disaggregated analysis. The EC then asserted that having found such a pattern on the basis of a
disaggregated analysis the Member should then compare weighted average normal values for the
transactions forming the "pattern" with weighted average export prices for those transactions. In
the EC's view, this would be an application of the targeted dumping methodology that would not
involve zeroing. With reference to each of the three types of targeted dumping identified in
Article 2.4.2 – (significantly different export pr ices to different purchasers, regions, or time
periods), could the parties, and third parties, please comment on the EC's argument:

 The EC refers to its response to question 36.

(a) with specific reference to its consistency with the first sentence of Article 6.10 ("an
individual margin of dumping for each known exporter or producer")

 This approach is consistent with the first sentence of Article 6.10, for the reasons set out
above. In the case of targeted dumping, an investig ating authority would be entitled to proceed in the
manner outlined in CDA-8. Thus, there will al ways be one overall margin of dumping for each
exporter, which corresponds to a given dumped amount. In the case of targeted dumping, this dumped
amount could, for example, be distributed over the tr ansactions in the targeted sub-set, and could also
be expressed as an ad valorem rate, such as the assessment rate used by the US in retrospective final
assessments. Such an assessment rate is not, however, the margin of dumping of the exporter.

(b) with specific reference to its implications for duty collection under the first sentence of
Article 9.2 (duty shall be collected in the appropriate amounts, on a non-discriminatory
basis on imports).

 Article 9.2 refers to imposition and collecti on on a non-discriminatory basis on imports of
such product from all sources found to be dump ed and causing injury, except where price
undertakings have been accepted. The EC refers to its response to question 33, which is consistent
with this proposition. If the set of dumped impor ts is identified as those made in respect of a
particular purchaser, region or time, then duties could be imposed and finally assessed on the same
basis, without that constituting unjustified discrimination.

48. Could the parties, and third parties, exp ress their views regarding the proposition that
the most "fair" methodology of establishing the existence of margins of dumping is that which
produces the most accurate results? (see New Zeal and's written submission at para. 3.12) In
this case, how can one determine which methodology generates the most accurate results?

 The word "accurate" begs the question. Ab sent targeted dumping, the use of a weighted
average-to-weighted average comparison accurately measures whether or not there is, in truth,
international price discrimination between differe nt markets. Myopically focussing on individual
transactions, without any reason, and zeroing, does not accurately measure what is really happening in
the market place. It simply ignores the fact that the forces of supply and demand are operating across
the whole of the defined market to affect all prices, that being the very essence of a market definition.

49. Could the parties, and third parties, ex press their views concerning the proposition set
out in the EC's argument that, in the EC's view, the price at which a transaction in the
exporting market is concluded, considered in isolation, is not equivalent to a "normal value"

 This question does not require any further comment by the EC at this stage, other than to
specify that the EC’s position is that the investigating authority may not assume this to be the case.

50. Do the parties, and third parties, consid er that there are any limitations on the freedom
of a Member to choose between the two methodologies set out in the first sentence of
Article 2.4.2 in establishing margins of dumping? If so, could you please indicate with precision
the textual basis for this view, and further indica te what criteria are to be applied by a Member
in choosing between the two methodologies in a given case.

 Just because the Anti-Dumping Agreement is silent on some specific detail, it is well
established that that does not mean that an inves tigating authority is entirely free to do as it pleases.
Members may have a certain latitude when it comes to deciding what approach they will follow, but
once they have made their choice, they must appl y the rule in an objective, even-handed and non-
discriminatory way, and explain all the reasons for th eir determinations, consis tent with Article 12.
For example, if there are two exporters with identi cal behaviour and data, an investigating authority
would not be entitled to apply the weighted averag e-to-weighted average method to one of them, and
the transaction-to-transaction method to the other, arriving at significantly different conclusions,
unless it provided a valid explanation for its determinations.

51. Could the parties, and third parties, exp ress their views on the proposition that the
determination of dumping and establishment of margins of dumping on the one hand, and the
assessment and collection of ant-dumping duties on other hand, are different, and address the
implications of this proposition for the int erpretation of "margin of dumping" in the AD
Agreement?

 It is correct that there are five different types of anti-dumping proceeding expressly referred
to in the text of the Anti-Dumping Agreement : original proceedings (see, for example, Article 5.9);
changed circumstances proceedings (see, for example, Article 9.5 "normal … review proceedings");
sunset proceedings (see, for example, Article 9.5 "normal … review proceedings"); and assessment
or refund proceedings (see, for example, Article 9.5 "normal … review proceedings"). Assessment
proceedings under Article 9.3.1 or refund proceed ings under Article 9.3.2 are therefore to be
distinguished from original proceedings under Article 5. These different types of proceeding have
different purposes and are not all subject to all the provisions of the Anti-Dumping Agreement .
However, all of these proceedings generally involve an investigation into something. In the case of
Article 5, an investigation into the existence, degr ee an effect of any alleged dumping; in the case of
Article 9.5 an investigation into the new comer’s ma rgin of dumping; in the case of Article 11.2, an
investigation into whether or not changed circumstances warrant a variation of the duty; in the case of
Article 11.3, an investigation into whether or not expiry of the duty would be likely to lead to
continuation or recurrence of dumping and injury; and in the case of Article 9.3, an investigation into
the actual (contemporaneous) margin of dumping and fi nal liability for payment of duties. Consistent
with the definition of the term "margin of dumping" in Article VI:2 of the GATT 1994, as
implemented in all of Article 2, and the cross-referen ce in Article 9.3 to all of Article 2, whenever an
authority investigates or relies on a "margin of dumping" in any of these anti-dumping proceedings,
that margin of dumping must be calculated in a manner consistent with Article 2, that is, for the
product as a whole.

ANNEX E-5

REPLIES OF JAPAN TO THE
QUESTIONS FROM THE PANEL

2 December 2005

To both parties

Q22. If zeroing would be considered unfair as such and thus prohibited, what would be the
practical consequences of such a concept? Would it presuppose aggregation of different
transactions into a single margin or would this concept, if applied in all its logic, oblige
administrations practising transaction by tran saction duty assessment to compensate importers
for negative margins underlying certain of these assessment operations?

1. The latter part of this question suggests that the prohibition of zeroing in a T-to-T situation
gives rise to a choice of either recognizing that the Anti-Dumping Agreement requires the aggregation
of the comparisons for individual export transactions "into a single margin", or, alternatively, obliging
administrators to "compensate" importers for "n egative margins" on individual transactions. Japan
submits that the first of these two options is based on a correct reading of the text of the Agreement,
while the second is not.

2. The second option confuses two fundamentally di stinct concepts – "margins of dumping" and
"intermediate comparison results" (or "intermediate values")
1 – that must be considered separately to
obtain a proper understanding of the obligations established by the Agreement. The "intermediate
results" are the mathematical output of the indivi dual comparisons of export price and normal value
under the comparison methodology used in any par ticular anti-dumping proceeding. Those results
can be either positive (for those individual comparisons in which export price is less than normal
value), negative (for those individual comparisons in which export price exceeds normal value) or
zero (where the two values are equal). But those intermediate results are not "margins of dumping".

3. Japan recalls that the measure at issue involves an original investigation in which, pursuant to
Article 6.10, an individual margin is calculated for each producer and exporter. As explained more
fully in reply to Question 41, a margin of dumping must be established for the product under
investigation, not for individual transactions relati ng to the product. To calculate a margin for the
product, the comparison must involve a volume of home and export market transactions that is
representative of the product. Accordingly, the ma thematical result of a single T-to-T comparison
does not constitute a "margin of dumping" but merely an intermediate value. Intermediate values for
comparisons between home and export market sales must be aggregated to produce a margin of
dumping for the product.

4. There is, therefore, no question of "compens ating" producers, expor ters or importers for
"negative margins". Instead, under Article 2.4.2, the negative intermediate values form an integral
part of the data-set that must be taken into acco unt in determining "the existence of margins of
dumping" for producers and exporters.

1 Appellate Body Report, US – Softwood Lumber V, para. 97.

Q24. It can be argued that a methodology cannot be designated as "fair" or "unfair" within
the meaning of Article 2.4 solely on the basis of whether it makes dumping margins go up or
down. In this respect, what are the comments of the parties on the observations of the Appellate
Body in EC –Bed Linen and in US - Corrosion-Resistant Steel Sunset Review that a zeroing
methodology is "inherently biased towards inflating the margin of dumping"?

5. Although Article 2.4.2 provides for three basic methods of comparison, Members enjoy a
degree of discretion in designing the details of th e precise comparison methodology to be used to
determine the existence of dumping margins in individual cases. For example, they can determine the
relevant types or models of the product under i nvestigation; they can determine the time base on
which they compare the types or models; they can sp ecify the methods used to identify "similarity" of
non-identical comparison models of the product; th ey can determine the methods of assigning or
allocating costs and expenses to individual transac tions; and, they can determine whether sampling is
necessary, and if so, how it should be undertaken. Each of these choices will likely have an impact on
the magnitude of dumping, if any, that is found to exist.

6. Article 2.4, among others, limits the authorities’ discretion in these matters by requiring a fair
comparison. Given that the structure of the methodology bears directly on the magnitude of dumping
that may be found to exist, the impact of the au thorities’ choices on the existence or magnitude of
dumping is a relevant consideration in assessing the fairness of a given comparison methodology.
This is entirely appropriate because the existence an d magnitude of dumping is a decisive factor in a
Member’s right to impose anti-dumping duties, an d also in fixing the maximum amount of those
duties. The significance of the magnitude of du mping in determining the fairness of margin
calculation methodology is illustrated by the proce dural disciplines set out in Article 5.8, which
requires that the authorities immediately terminate investigations if they find the magnitude of
dumping to be de minimis . Thus by determining that the magnitude of dumping is greater than
de minimis, the authorities are entitled to continue the i nvestigation and may, eventually, impose anti-
dumping duties.

7. This conclusion is also confirmed by the Appellate Body’s statements in EC – Bed Linen and
US – Corrosion-Resistant Steel Sunset Review . In these Reports, the Appellate Body noted that the
zeroing methodology was not fair because, among ot hers, it makes a dumping determination more
likely; it inflates any margin of dumping found to exist; and, it distorts the prices subject to
comparison. Such a methodology is unfair because the comparison methodology is so designed and
structured that exporters inevitably and systematically suffer prejudice. In other words, the lack of
fairness does not stem from a possibility that the methodology might produce a higher margin in some
circumstances; rather, the methodology is unfair because it necessarily produces such an outcome in
all circumstances.

8. In this regard, an analogy may be dr awn with the Appellate Body’s findings in US – Hot-
Rolled Steel . Under the measure at issue in that dispute, the United States selected among home
market transactions to include in the determination of normal value, and hence in the comparison with
export price. Specifically,
to determine normal value, the United States applied a "99.5 percent test"
that excluded a "great range" of low-priced sales, and an "aberrationally high price" test that excluded
a "far smaller range" of high-priced sales.2

9. The Appellate Body held that the combination of these two tests "operated systematically to
raise normal value " which "disadvantaged exporters". 3 The Appellate Body noted that these tests
"would make a finding of dumping more likely and would also raise the amount of any margin of

2 Appellate Body Report, US – Hot-Rolled Steel, paras. 144, 150 and 151.
3 Appellate Body Report, US – Hot-Rolled Steel, paras. 155. Emphasis added.

dumping, all to the disadvantage of the exporter". 4 It explained that, although Members enjoy
discretion in establishing a methodology for determining normal value, " the discretion must be
exercised in an even-handed way that is fair to all parties affected by an anti-dumping
investigation".5 The Appellate Body concluded that the c onsequences of the United States’ two tests
deprived the United States’ approach of the even-handedness and fairness required by the Agreement.

10. In the same way, the United States’ zer oing methodology involves a selection from among the
universe of export transactions that are deemed by th e United States to be comparable. In short, after
conducting an initial T-to-T comparison, the United States excludes all of the relatively higher-priced
export transactions that produce a negative price diffe rence. In sharp contrast, the United States
includes all of the relatively lower-priced export transactions. Like the methodologies in US – Hot-
Rolled Steel , the combination of these approaches "operat es systematically" to "make a finding of
dumping more likely and also […] raise[s] the amount of any margin of dumping, all to the
disadvantage of the exporter."
6 This is not even-handed or "fair" within the meaning of Article 2.4.

Q27. Could the parties address the proposition that a dumping margin can be calculated for a
single export transaction? Pl ease consider specifically cases co ncerning (a) the import of large
capital goods, (b) the import of specially designed/manufactured goods) and (c) the import of
few shipments to small economies. If your view is that a dumping margin cannot be calculated
for a single export transaction in any of these contexts, please explain how a margin of dumping
could be established in such a case. If in any of these contexts, a single export transaction can
generate a dumping margin, why is it not permis sible to conclude that each comparison in a
transaction-to-transaction analysis generates a dumping margin?

11. As explained in reply to Question 41, a margin of dumping must be established for the
product under investigation, not for individual transactions relating to the product. It is, of course, for
the investigating authorities to determine the scope of the subject and like products at issue. In
consequence, under the T-to-T comparison method, the margin of dumping must be established on the
basis of the entire universe of home and export market transactions during the time period covered by
the investigation, or a representative sample of t hose transactions. These rules apply to all WTO
Members in the same way, whether the Member is large or small; developing or developed.

12. Depending on the product determination made by the authorities, in th e case of large capital
goods or specially designed/manufactured goods, there may only be a single export transaction for the
product under investigation during the time period cove red by the investigation. In that event, a
margin of dumping for the product can be established on the basis of that transaction.

To Japan

Q41. Please explain the precise textual basis for the proposition that "product" in Article VI
of GATT 1994 must be equated with "product as a whole". How would Japan reconcile the
concept of "product as a whole" with the definition of dumping in Article VI:2 of GATT 1994 in
terms of a "price difference".

13. The textual basis for the Appellate Body’s conclusion that "dumping" and "margins of
dumping" are determined for the "product" as a whole is Article VI of the GATT 1994 and Article 2.1
of the Anti-Dumping Agreement. According to the definition of "margin of dumping" in Article VI:2
of the GATT 1994, and the definition of "dumping" in Article VI:1 of the GATT 1994 and Article 2.1

4 Appellate Body Report, US – Hot-Rolled Steel, paras. 144.
5 Appellate Body Report, US – Hot-Rolled Steel, paras. 148. Underlining added.
6 Appellate Body Report, US – Hot-Rolled Steel, paras. 144 and 155.

of the Anti-Dumping Agreement , the existence and magnitude of dumping are determined for the
product as a whole.

14. The second sentence of Article VI:2 states that the margin of dumping is "the price
difference" determined in accordan ce with Article VI:1. Although this sentence refers to a "price
difference", it does not state what the price differe nce in question measures. To ascertain the price
difference being measured, the context provided by Article VI:1, as well as by the first sentence of
Article VI:2, must be examined. These provisions de monstrate that "the price difference" in question
is the price difference for the "product", not for individual transactions.

15. Article VI:1 sets forth a de finition of dumping. Significantly, it defines dumping by reference
to "a product". It states that "a product" is dumpe d "if the [export] price of the product" is less than
the comparable domestic price "for the like product", or less than "the cost of production of the
product". Each one of these textual indications in Article VI:1 shows that dumping is determined for
the product as a whole and that the determination is based on a comparison of prices for the product.
There is nothing in the text to suggest that dump ing is determined for individual transactions or
groups of transactions.

16. The text of Article VI:1 is reflected, of course, in the text of Article 2.1 of the Anti-Dumping
Agreement, which also refers to the dumping of "a pr oduct" and also provides that the determination
is based on a comparison of "the export price of the product" and "the comparable price … for the like
product". The Appellate Body interpreted the term "product" to mean the entire product under
investigation. The Appellate Body found that "[i] t is clear from the texts of [Article VI:1 of the
GATT 1994 and Article 2.1 of the Anti-Dumping Agreement] that dumping is defined in relation to a
product as a whole as defined by the investigating authority."
7

17. The interpretation of the term "price differe nce" in the second sentence of Article VI:2 as
referring to the "product" is further confirmed by th e immediate context provided in the first sentence
of that provision. The first sentence states that "an anti-dumping duty" levied on "any dumped
product" shall not exceed "the margin of dumping in respect of such product".

18. Thus, the text of Article VI:2 explicitly refe rs both to a dumped "product" and to the margin
of dumping determined "in respect of such product". The text also refers to a single margin of
dumping – "the margin" – that is determined for the product. Like Articles 6.10, 6.10.2 and 9.5 of the
Anti-Dumping Agreement , this sentence provides strong textual support for the view that a single,
"individual margin of dumping" is determined for th e product. Further contextual support is provided
by Articles 7.2, 8.1, 9.1 and 9.3. Each of these pr ovisions contains obligations in connection with the
maximum level of the remedy that can be imposed on imports of the dumped product. In each case,
the remedy is limited by "the margin of dumping".

19. Thus, the Agreement consistently envisages a single margin of dumping that is established for
the product. This means that there cannot be multiple margins of dumping, one for each transaction
or each group of transactions. In fact, it is difficult to see how the drafters of the text could have been
any more explicit that dumping and the margin of dumping are determined for the product.

20. The requirement to determine a margin of dumpi ng for the product is consistent with the fact
that the existence of "an individual margin of dumping" has several product-wide consequences, in
particular: for the determination of the volume of dumped imports; the pursuit of the investigation;
and the imposition and collection of duties.
8 If the price difference for an individual transaction were
considered to constitute a margin, the result would be that product-wide consequences – including the

7 Appellate Body report, US – Softwood Lumber V, para. 92-93.
8 Japan’s Opening Statement at the Second Meeting with the Panel, paras. 34-39.

imposition of duties on the product in excess of bound tariff rates – could be derived from the
uncertain foundation of the price of a single export transaction.

21. The text of Article VI of the GATT 1994, as well as various provisions of the Anti-Dumping
Agreement therefore, confirm that both dumping and margins of dumping are determined for the
product as a whole, not for particular transactions.

Q42. Japan argues, at para 8 of its writte n submission, that the terms "dumping" and
"margin of dumping" have uniform meanings throughout the AD agreement. Could Japan
address the implications of this view in the context of duty assessment procedures under an
prospective normal value system? Specifically , could Japan address the proposition that, in
such a system, in the face of a prohibition on zeroing, duties may be assessed on entries of
product at a price below the established minimum normal value, and that rebates must be given
on entries of product at a price above the established minimum normal value?

22. The "proposition" the Panel describes in questi on 42 seems to confuse the distinct concepts of
the " amount of anti-dumping duty" and the " margin of dumping" under Article 9.3 of the Anti-
Dumping Agreement . In EC – Bed Linen (Article 21.5) , the Appellate Body found that "the
imposition and collection of anti-dumping duties
 under Article 9 is a separate and distinct phase of an
anti-dumping action that necessarily occurs after the determination of dumping , injury, and causation
under Articles 2 and 3 has been made. In other words, the right to impose anti-dumping duties under
Article 9 is a consequence of the prior determination of the existence of dumping margins , injury, and
a causal link." 9 The Appellate Body added that "the ru les on the determination of the margin of
dumping are distinct and separate from the rul es on the imposition and collection of anti-dumping
duties."10 Accordingly, when the customs aut horities impose and collect anti-dumping duties on
individual entries, in either a prospective or a retrospective system, they are not calculating margins of
dumping within the meaning of Article 2. Rather, the margins of dumping determined in original
investigations or reviews constitute a ceiling on the amount of duties that can be imposed and
collected by the customs authorities on individual entries.

23. The proposition in the Panel’s question also assu mes that in a prospective normal value, or
PNV, system, the amount of duties imposed by cu stoms authorities on each entry constitutes a margin
of dumping, and that a "rebate" must be provide d for the transactions with "negative" dumping
margins. This assumption is erroneous. In a PNV system, to assess the amount of duties due, a
comparison of prices is undertaken for each individual entry and, on the basis of that comparison, a
variable duty is imposed on the individual expo rt transaction concerned. The calculation and
imposition of variable anti-dumping duties in this way – although permissible – does not involve the
establishment of margins of dumping within the meaning of Article 2 of the Anti-Dumping
Agreement. Instead, the customs authorities mechanica lly compare import prices with a reference
price; they do not, and can not, undertake a co mparison that respects the detailed procedural and
substantive rules set forth in Article 2, for example, in Article 2.4.

24. In particular, because the PNV is established in an original investigation on the basis of
transactions from the period of investigation, the comparison between the PNV and the price of
imports is not contemporaneous. Also, the customs authorities do not inform the interested parties of
the information they require to make a fair comp arison because they do not make adjustments to the
respective prices. The difference between a PNV and the import price cannot, therefore, constitute
"the actual margin of dumping" within the mean ing of Article 9.3.2 because the price comparison
does not respect the rules in Article 2.4.

9 Appellate Body Report, EC – Bed Linen (Article 21.5), para. 123 (underlining added).
10 Appellate Body Report, EC – Bed Linen (Article 21.5), para. 124.

25. Moreover, in a PNV system, at the request of an importer, the final liability for duties must be
assessed in a review under Article 9.3.2. In that ev ent, authorities conduct a review of past entries to
establish whether duties were paid "in excess of the [ actual] margin of dumping" to be calculated for
the review period. In this setting, the word "actual" refers to the margin that is determined for the
product on the basis of the transactions in the specified review period. The word "actual" is used to
contrast the margin determined for the review pe riod with the original margin calculated in the
investigation, which formed the basis for the impos ition of the duties subject to review. Thus, the
duties paid on the basis of the orig inal margin must be reviewed in light of "the actual margin" for the
review period. If a refund is due, it is because the amount of duties initially paid on entries of the
product are greater than the actual margin of dumping for the product for the review period. Further,
there is no question of offsetting, compensating or rebating between positive and negative margins for
individual entries because the results of individual W-to-T comparisons are not "margins of dumping"
within the meaning of Articles 2 and 9.

26. If, as assumed by the Panel’s proposition, under the PNV system, the difference between the
transaction price and the reference price were itsel f the margin of dumping for the transaction, the
amount of the variable duties imposed would equal the margin of dumping for the transaction. Yet,
Article 9.3.2 presupposes that, in the prospective system, the amount of duties initially imposed and
the margin of dumping are not necessarily equal. In deed, if the price difference for each transaction
were "the actual margin" for that transaction, there could be no refund and the refund procedure
would, therefore, be redundant. The existence of a refund procedure for the prospective system
demonstrates that the amount of variab le duties initially imposed on each entry is not the margin of
dumping for that entry.

27. In any event, the Panel must focus on the specif ic issues raised in this case and the particular
features of the zeroing measures that are at issue. In the measure at issue, the USDOC used a zeroing
method in calculating the overall margin of dumping on a T-to-T basis in an original investigation.
The issue is whether that particular measure invol ves a "margin of dumping" calculated consistently
with the first sentence of Article 2.4.2. As expl ained by Japan, "margins of dumping" within the
meaning of that provision must be established for the product as a whole
11. Therefore, Japan submits
that an examination of the meaning of "margin of dumping" in the context of prospective or
retrospective duty assessment is irrelevant for the purpose of resolving this dispute.

Q43. Could Japan address the proposition that, in conducting a "targeted dumping" analysis
under the second sentence of Article 2.4.2, the investigating authority may establish dumping
margins on the basis of a comparison involving only the subset of entries that form the
"pattern" leading to the need for such analysis? In the context of such an analysis, could Japan
indicate how the assessment of duty would be carried out, and the level of duty that would be
applied.

28. The second sentence of Article 2.4.2 of the Anti-Dumping Agreement sets forth an exceptional
method of comparison. The Appellate Body explained in EC – Bed Linen that the second sentence of
Article 2.4.2:

allows Members, in structuring their anti-dumping investigations, to address three
types of "targeted" dumping, namely dumping that is targeted to certain purchasers,
targeted to certain regions, or targeted to certain time periods.
12

11 Appellate Body Report, US – Softwood Lumber V, paras. 91-96.
12 Appellate Body Report, EC – Bed Linen, para. 62.

The particular purpose of the second sentence of this provision, therefore, is to allow Members to
combat targeted dumping that might be indicated through pricing patterns among different purchasers,
regions or time periods.

29. This raises the issue of how an authority s hould structure the method of comparison to take
"appropriate account" of those pricing patterns in calculating the dumping margin. By explicitly
requiring the authorities to explain why a W-to-W or T-to-T comparisons will not take "appropriate
account" of the prices differences, the second sentence of Article 2.4.2 presupposes that the W-to-T
comparison methodology will enable the authorities to take appropr iate account of those differences.
Conversely, a comparison that compares the entir e universe of export tran sactions cannot address
pricing patterns, or the possibility of targeted dum ping, confined to a certain group of transactions.
Thus, as explained by Japan in its Opening Statement, the W-to-T comparison methodology permitted
by the second sentence of Article 2.4.2 allows an aut hority that finds a pricing pattern to establish the
existence of the margin of dumping on the basis of the specific transactions within the pricing
pattern.
13

30. Japan notes that its interpretation is cons istent with the USDOC’s "targeted dumping"
regulation. This regulation provides that where:

there is targeted dumping in the form of export prices . . . that differ significantly
among purchasers, regions, or periods of time . . . the Secretary will normally limit
the application of the average-to-transacti on method to those sales that constitute
targeted dumping.
14
31. Thus, under the United States’ own system, the application of the W-to-T method of
comparison, in a targeted dumping situation, is confined to the transactions making up the pricing
pattern. The transactions outside the pattern are not subject to the W-to-T comparison. In other
words, the USDOC’s own regulations are consistent with Japan’s position that, pursuant to the second
sentence of Article 2.4.2, the transactions included in the W-to-T comparison should be confined to
those export transactions making up the pricing patte rn, and does not extend to the entire universe of
export transactions. Therefore, the existence of a dumping margin can be determined on the basis of
those transactions.

32. Japan notes that the liability for duties imposed on the basis of a dumping determination
under the second sentence of Article 2.4.2 of the Anti-Dumping Agreement is subject to review under
either Article 9.3.1 or 9.3.2. In such circumst ances, a question may arise whether authorities would
be permitted to use the W-to-T method in review proceedings in the exceptional manner set forth in
Article 2.4.2 (i.e. confined to a limited group of transactions). The answer to this question depends on
the applicability of Article 2.4.2 to review proceedings.

33. Japan does not take, and need not take, any position on this issue in the present dispute.
However, supposing for the sake of argument th at Article 2.4.2 applies solely to original
investigations, there would be no basis for Members to use the W-to-T method in the exceptional
manner in reviews (i.e. according to which the comp arison is limited to export transactions within the
pricing pattern). The final liability for the pa yment of anti-dumping duties would have to be
determined on the basis of a product-wide dumping ma rgin determination, even if the third method in
Article 2.4.2 had been used in the initial investig ation to justify the imposition of duties on the basis
of a comparison of a limited group of export transactions.

13 Japan’s Opening Statement at the Third Party Meeting, paras. 31-38.
14 19 C.F.R. § 351.414(f)(2).

34. On the other hand, if Article 2.4.2 is appli cable to review proceedings, and assuming that the
conditions in the second sentence of that provision are met, the margin of dumping could also be
determined in review proceedings on the basis of a comparison of a limited group of export
transactions within a pricing pattern. In such case s, higher margins would likely result from the
limited W-to-T comparison. However, these cases woul d be limited to the exceptional situations that
meet the strict conditions set forth in the second sente nce of Article 2.4.2. The confined comparison
would be deemed to be a permissible response by Members to an attempt to hide dumping through a
targeted pricing practice.

Q44. Japan argues, at para. 30 of its oral statem ent, that the argument that, in mathematical
terms, the WA-to-WA and WA-to-T comparison s would produce identical results, absent
zeroing, assumes wrongly that all other things are treated equally. Does Japan acknowledge
that if all other things are treated equa lly, these two comparison methodologies would
necessarily produce the same results, absent zeroing? Does Japan mean to suggest that a WA to
T comparison must entail some other method of calculating normal value than the calculation
of a weighed average of all normal values? Co uld Japan explain the textual basis for such a
view, given that Article 2.4.2 does not addres s the calculation of normal value, but the
comparison of normal value and export price in the establishment of margins of dumping.

35. The United States’ argument of nullity places a very high burden on the United States. To
show that the prohibition of zeroing "nullifies" the second sentence of Article 2.4.2, the United States
must demonstrate, as a matter of law, that, without zeroing, Members are required to calculate
margins in a manner that will always result in the same outcome for the two comparison methods.
There is no nullity just because the two methods may produce the same outcome in some
circumstances.

36. Japan is not suggesting that the W-to-T comparison must entail "some other method of
calculating normal value than the calculation of a weighed average of all normal values". Conversely,
however, the Agreement text does not suggest that a single or same method for calculating the
weighted average normal value must be used under Article 2.4.2. The significant point is that the text
of the Article itself does not prohibit a Member from using different methods for calculating the
weighted average normal value in the two situations. In other words, Article 2.4.2 was crafted on the
assumption that Members could choose to use different bases, or methods, for calculating the
weighted average in the W-to-W and W-to-T co mparisons. So long as Members are not prohibited
from using different bases or methods (including different time periods) to calculate the "W" in the
W-to-W and W-to-T comparisons, the outcomes of the comparisons will almost inevitably differ
because the groups of transactions making up the weighted average normal value will differ.

37. This entirely undermines the United States’ argument that the prohibition of zeroing would
render the second sentence of Article 2.4.2 "superflu ous" or a "nullity" because, without zeroing, the
W-to-W and W-to-T comparisons will lead to the same results.

38. Simple examples demonstrate that, contrary to the United States’ argument, the W-to-T
methodology is not rendered a nullity – i.e., even without zeroing, the results of that comparison
methodology are not necessarily the same as the outcomes yielded by the T-to-T or W-to-W
methodologies. First, the T-to-T methodology will al most certainly never yield the same results as a
W-to-T methodology, whether or not zeroing is empl oyed. The reason for the difference in results is
that the individual transactions that comprise normal value in a T-to-T comparison will almost
certainly differ, in at least some instances, from th e weighted average of the transactions that would
function as the basis for normal value (the "W") in the W-to-T methodology. Thus, the overall
comparison result will differ depending on whether the normal value is based on individual
transactions (T) or a weighted average of transactions (W).

39. The following is a simple example, involving five home market transactions that form the
basis of normal value, with three export transac tions, and assuming that each transaction involves an
equal quantity of merchandise.

Home market transactions Export transactions
100 95
90 92
110 –
100 102
105 –

40. In a W-to-T comparison, the weighted average normal value of the five home market sales is
101. Comparison of the three export prices to this weighted average normal value leads to
intermediate results of 6 + 9 + (-1) for the three individual export transactions. This produces a total
margin of dumping of 14 which, divided by th e total value of the export sales (289), produces a
percentage margin of 4.84%, if zeroing is not used. If zeroing is used, it results in a total margin of
dumping of 15 (because the -1 is converted to a zero) and a percentage margin of 5.19%.

41. In a T-to-T methodology, assuming that the appropriate home market and export transactions
are listed adjacent to one another in the table above, the outcome is 5 + (-2) + (-2) for the three export
transactions. Without zeroing, this results in a to tal margin of dumping of 1 which, divided by the
total value of the export sales (289), produces a perc entage margin of 0.35%. With zeroing, the total
margin of dumping is 5 and the percentage margin equals 1.73%. As shown in the following table,
both of these results, of course, are different from those derived from the W-to-T comparisons.

Comparison Method Percentage Result
W-to-T without Zeroing 4.84%
W-to-T with Zeroing 5.19%
T-to-T without Zeroing 0.35%
T-to-T with Zeroing 1.73%

42. These different results are to be expected, ex cept in the highly unusual situation in which the
individual transactions in the home market used in the T-to-T methodology happen to have the same
normal value as the weighted average normal value th at is used in the W-to-T methodology. Thus,
because the T-to-T and W-to-T methodologies produce different results, neither method is redundant.

43. Turning to the W-to-W methodology, again a si mple example can show that it need not yield
the same results as the W-to-T comparison methodolo gy. In doing so, it is important to recall that
authorities may calculate the "W" over different time periods in the W-to-W and W-to-T comparisons,
thereby using different pools of home market transacti ons. Indeed, this difference is reflected in the
United States’ own anti-dumping statute, which provides that in original investigations, the weighted
average normal values is generally to be calculated over the entire period of investigation (typically a
full year); whereas for periodic reviews, the statut e provides for the calculation of weighed average
normal values over "a period not exceeding the calendar month that corresponds most closely to the
calendar month of the individual export sale."15

44. Because of the calculation of different wei ghted average normal values, the outcome of the
W-to-W and W-to-T comparisons using those diffe rent "W’s" will necessarily differ, even if the
export prices are identical in both cases. This c onclusion would always hold, except in the highly

15 Compare Section 777A(d)(1)(A) of the Tariff Act of 1930, as amended, with Section 777A(d)(2).

unusual situation in which the weighted average normal values in each month happen to equal the
weighted average normal value over the entire period of investigation.

45. The following is a simple example, assuming a three month period of investigation, with two
export transactions, and assuming that each transaction involves an equal quantity of merchandise.

Month Home Market
Transactions
Export Transactions
1 100
 101 96
 98
Month 1 Average 99.67
2 104
 104
 102
Month 2 Average 103.33
3 96 102
 98
 100
Month 3 Average 98.0
Overall Average 100.33 99

46. Using the W-to-T comparison methodology, and calculating the "W" as the United States
does in investigations (i.e. over the entire period of investigation), the intermediate comparison results
for the two individual export transactions are 100.33 – 96, i.e. 4.33, and 100.33 – 102, i.e. (-1.67).
Without zeroing, the total margin of dumping is 4.33 + (-1.67), i.e. 2.66, and the percentage margin is
1.34%. If zeroing is used, the total margin of dumping is 4.33 and the percentage margin is 2.18%.

47. Using the W-to-T comparison methodology, and calculating the "W" as the United States
does in periodic reviews (i.e. on a monthly basis) , the intermediate comparison results for the two
individual export transactions are 99.67 – 96, i.e. 3.67, and 98 – 102, i.e. (-4.00). Without zeroing, the
final result is 3.67 + (-4.00), i.e. (-0.33), which is negative, and the overall dumping margin is zero. If
zeroing is used, the total margin of dumping is 3.67 and the percentage margin is 1.86%.

48. Finally, using the W-to-W comparison methodology, and calculating the "W" as the
United States does in original investigations (i.e., over the entire period of investigation), the total
margin of dumping is 100.33 – 99, i.e. 1.33, and the percentage margin is 1.34%.
16

Comparison Method Percentage Result
W-to-T (Yearly without Zeroing) 1.34%
W-to-T (Yearly with Zeroing) 2.18%
W-to-T (Monthly without Zeroing) 0
W-to-T (Monthly with Zeroing) 1.86%
W-to-W (Yearly) 1.34%

49. Thus, the W-to-W (yearly) and W-to-T (year ly without zeroing) outcomes are the same, as
the United States has noted. But the significant point for the Panel’s question is that the outcomes are
different between the two methodologies, when th e W-to-T methodology is based on a monthly

16 Zeroing is irrelevant in this instance because there is a single co mparison for the product as a whole
and no “models” for sub-groupings of the product.

calculation of normal value, whether or not zeroing is used in aggregating the intermediate results to
calculate the overall margins of dumping. Thus, the United States’ own statutory structure establishes
a system of W-to-W and W-to-T comparisons that do not yield identical results (or render the third
methodology a "nullity", as the United States asserts) in the absence of zeroing. Therefore, applying a
W-to-T comparison without regard to a pricing "pattern ", the United States is incorrect to assert that a
W-to-W and a W-to-T comparison necessarily yield the same results.17

50. Finally, it is possible, of course, that a Member may choose to use the same time bases to
calculate the "W" in the two comparisons, in which case the same outcome might well arise (as seen
in the example above, where the "W" is calculated on a yearly basis for both the W-to-W and W-to-T
comparisons). But the fact that methods overlap in those circumstances does not nullify the third
method because a Member may also choose to do otherwise, as the United States itself has done.

51. Accordingly, the United States cannot demonstrate that the W-to-W and W-to-T comparison
methodologies result in the same outcome in all situations; indeed, the United States itself has adopted
a system in which the different comparison methodologies will not generate the same outcomes. The
United States, therefore, has failed to meet the demanding requirement imposed by its argument that
Japan’s interpretation of the Agreement renders the second sentence of Article 2.4.2 a nullity.

To all parties and third parties

Q46. Would the parties, and third parties, pl ease describe how their investigating authorities
would apply the provisions of Article 2.2 in a case involving multiple allegedly dumped models
of a product under consideration, where there are no sales in the home mark et of some of those
models? Specifically, would the parties consid er it obligatory, under that provision, to
determine normal value on one single basis for all models, or would the parties consider that
Article 2.2.permits the determination of normal value on, for instance, the basis of home market
sales for some models, and constructed normal value for others?

52. Article 2.2 of the Anti-Dumping Agreement requires that:

When there are no sales of the like product in the ordinary course of trade in the
domestic market of the exporting country …, the margin of dumping shall be
determined by comparison with a comparable price of the like product when exported
to an appropriate third country, provided that this price is representative, or with the
cost of production in the country of origin plus a reasonable amount for
administrative, selling and general costs and for profits.

17 The outcomes will also differ as between W-to- W and W-to-T comparisons for yet another reason –
namely, fluctuations in currency exchange rates over the period of investigation. That is, in calculating margins
of dumping, the authorities generally convert the prices and expenses incurred in the currency of the exporting
country into their corresponding values in the currency of the importing Member. In a W-to-T situation, the
currency conversion generally is performed at the exchange rate in effect on the date of the export transaction
(i.e., the date of the “T”). In a W-to-W situation, on the other hand, an average exchange rate is calculated over
all the dates of export transactions in the period of investigation of the relevant model (i.e., the period over
which the export price “W” is determined). As a result, even if (contrary to US pr actice) the normal value
“W’s” are calculated over the same time period , the conversion of the data reported in the currency of the
exporting country into the currency of the importing Member would almost certainly result in different normal
values in the W-to-W and W-to-T situations, except in the unusual circumstance in which the average currency
exchange rate over the period of investigation is identical to the rate in effect on the individual dates on which
the export transactions occurred. The different normal values, in turn, would lead to different intermediate
results when those normal values are compared to the export prices, and hence, different dumping margins.

53. In Japan’s view, when there are multiple m odels of the product under investigation (e.g.
Model A, B), and there are sales in the ordinary c ourse for some of those models (e.g. Model A), but
not for others (e.g. Model B), investigating aut horities can determine normal value on the basis of
home market sales for models with sales in the ordinary course (Model A), and can construct normal
value for other models (Model B), in order to determine a margin of dumping for the product as a
whole.

54. This interpretation does not conflict with th e Appellate Body’s ruling that the margin of
dumping must be established for product as a whole. The results of the comparisons for each model
are not "margins of dumping" within the meaning of Article 2.4.2. As the Appellate Body notes,
"those results reflect only intermediate calculations made by an investigating authority in the context
of establishing margins of dumping for the product under investigation".
18 Accordingly, the
difference between export price a nd constructed normal value for, for example, Model B does not
constitute a "margin of dumping".

Q47. The EC suggested, in its answer to a question put by the Panel, that in undertaking a
comparison under the methodology of the second sentence of Article 2.4.2, a Member can not
determine whether there is a "pattern of export prices which differ significantly among different
purchasers, regions or time periods" without conducting what the EC referred to as a
disaggregated analysis. The EC then asserted that having found such a pattern on the basis of a
disaggregated analysis the Member should then compare weighted average normal values for the
transactions forming the "pattern" with weighted average export prices for those transactions. In
the EC's view, this would be an application of the targeted dumping methodology that would not
involve zeroing. With reference to each of the three types of targeted dumping identified in
Article 2.4.2 – (significantly different export pr ices to different purchasers, regions, or time
periods), could the parties, and third parties, please comment on the EC's argument:

 (a) with specific reference to its consistency with the first sentence of Article 6.10
("an individual margin of dumping for each know exporter or producer")

 (b) with specific reference to its implicat ions for duty collection under the first
sentence of Article 9.2 (duty shall be collected in the appropriate amounts, on a
non-discriminatory basis on imports).

55. As explained in its Opening Statement and in reply to Questions 43 and 44, Japan also
considers that, under the second sentence of Article 2.4.2 of the Anti-Dumping Agreement , when
investigating authorities find a pricing pattern based on purchasers, regions or time periods, they may
confine the W-to-T comparison under that sentence to the transactions making up pattern. This
enables the authorities to take appropriate account of the pricing differences disclosed by the pattern
and to determine the existence and margin of targeted dumping. In support of that argument, Japan
notes that the USDOC’s Regulations provide that, wh ere such a pricing pattern is found, the W-to-T
comparison addressed in the second sentence of Artic le 2.4.2 is, indeed, confined to the export
transactions making up the pricing pattern.

56. According to the text of Article 2.4.2, each of the three methods of comparison constitutes, on
its own, a sufficient basis for determining "the existence of margins of dumping". Thus, the
"individual margin of dumping"
19 established for an exporter or producer under any one of the three
comparison methods 20, including the W-to-T comparison method, confined to the subset of

18 Appellate Body report, US – Softwood Lumber V, para. 97.
19 Article 6.10 of the Anti-Dumping Agreement.
20 This assumes that, for the third methodology, the prerequisites in the second sentence of Article 2.4.2
have been satisfied.

transactions making up the pricing pattern (wheth er it is the pricing pattern among different
purchasers, regions or time periods), constitu tes a valid dumping determination on its own. 21 T h e
imposition of duties based on an individual margin for a given producer or exporter to all imports
from that producer or exporter does not give rise to any discrimination under Article 9.2.

57. With respect to duty assessment, Japan notes that , according to the Appellate Body, "the rules
on the determination of the margin of dumping are distinct and separate from the rules on the
imposition and collection of anti-dumping duties."
22 In order to impose anti-dumping duties,
Article 9.1 of the Anti-Dumping Agreement requires that Members first ma ke "the determination of
dumping, injury, and causation under Articles 2 and 3". 23 For purposes of the dumping determination
in an investigation, Article 2.4.2 prescribes the comparison methodologies that are to be used. The
prior determination of the existence of a (more than de minimis) dumping margin, using any one of
these methodologies, pursuant to Article 2, permits the imposition of duties under Article 9 on all
entries of the product into the territory of the importing Member, provided that the authorities also
make affirmative injury and causation determinations under Article 3. In other words, where all the
prerequisites relating to "the existence of a dum ping margin, injury, and a causal link" "have been
fulfilled", the Members are consequently confe rred "the rights to impose anti-dumping duties under
Article 9" on all imports of the product.
24 The amount of duties initially collected under Articles 9.1
and 9.2 is subject to review under Article 9.3.

Q48. Could the parties, and third parties, ex press their views regarding the proposition that
the most "fair" methodology of establishing the existence of margins of dumping is that which
produces the most accurate results? (see New Zeal and's written submission at para. 3.12) In
this case, how can one determine which methodology generates the most accurate results?

58. Nothing in the text of the GATT 1994 or the Anti-Dumping Agreement supports the view that
a supposed concept of "accuracy" is the determina tive element in deciding whether a particular
comparison methodology is "fair" under Article 2.4 in establishing the existence of margins of
dumping. New Zealand assumes that the T-to-T comparison is "the most accurate approach".
25
However, the text of the Anti-Dumping Agreement does not suggest that one of the symmetrical
comparison methods is more accurate or "fairer" than the other; nor is there any hierarchy between the
W-to-W and T-to-T comparison methods. Authorities have discretion to use either one of the
methods. Furthermore, there is no basis in the Agreement for assessing the "accuracy" of a
comparison method because each constitutes a valid and sufficient basis for determining "the
existence of margins of dumping".

59. To support its view, New Zealand refers th e negotiating history. However, the terms
"accurate" or "accuracy" are not used in the docum ent referred to by New Zealand. The document
refers to "a more direct method of establishing the normal domestic price"
26, but it does not mention
"a more accurate method". The reference in this document to a perceived "more direct" comparison
does not inject into the Anti-Dumping Agreement a legal hierarchy between the W-to-W and T-to-T
comparison methods. Moreover, as Japan noted in its Oral Statement, "[b]ecause the ordinary

21 Japan believes that, in situations in which the W-to-T methodology is used to calculate the margin of
dumping on the export sales that comprise the “pricing pattern”, the Anti-Dumping Agreement does not preclude
Members from conducting a separate symmetrical comparison for the export transactions that do not form part
of the pattern (although it does not compel the Member to do so).
22 Appellate Body Report, EC – Bed Linen (Article 21.5), para. 124.
23 Id., para. 123.
24 Id.
25 New Zealand’s Third Party Submission, paras. 3.12

meaning of the Agreement under Article 31 of the Vienna C onvention is neither ambiguous nor
absurd, it is not necessary for the Panel to examine the negotiating history".
27

60. New Zealand suggests a "fair" methodology is one that produces most "accurate" results by
targeting the "dumped goods" through the exclusion of negative comparison results.
28 New Zealand’s
approach is predicated on the assumption that th e margin of dumping can be established for each
individual export transaction. However, this approach overlooks that the result of the individual price
comparison for each transaction is merely an intermed iate value that must be aggregated with other
intermediate values to establish the "margin of dumping" for the product as a whole. Thus, the
purpose of the comparison is to ascertain whether or not there is dumping for the product, not for each
transaction. Yet, because only the positive comparison results are aggregated on New Zealand’s
approach, dumping will almost certainly be found. As a result, as shown by New Zealand’s goal of
selecting a methodology that targets "dumped goods", an objective inquiry becomes a self-fulfilling
prophecy. But as the Appellate Body said in EC – Bed Linen (Article 21.5 – India) , the "result" of the
authorities’ investigation cannot be "predetermined by the methodology itself".
29

Q49. Could the parties, and third parties, ex press their views concerning the proposition set
out in the EC's argument that, in the EC's view, the price at which a transaction in the
exporting market is concluded, considered in isolation, is not equivalent to a "normal value"

61. Japan agrees with the EC’s statement that "the price at which a transaction in the home
market of the exporting country is c oncluded, considered in isolation" is not "equivalent to a ‘normal
value’" because Article 2.1 of the Anti-Dumping Agreement and Article VI of the GATT 1994 define
the "margin of dumping" in terms of the price difference between "the export price of the product"
and "the comparable price … for the like product" , i.e. normal value for the product. Japan has
elaborated fully on this issue in response to Question 41.

62. Therefore, in terms of the definiti on of the term "margin of dumping" under Anti-Dumping
Agreement and Article VI of the GATT 1994, a "normal value" is determined for the product, not
each transaction in the home market of the exporting country.

Q50. Do the parties, and third parties, consid er that there are any limitations on the freedom
of a Member to choose between the two methodologies set out in the first sentence of
Article 2.4.2 in establishing margins of dumping? If so, could you please indicate with precision
the textual basis for this view, and further indica te what criteria are to be applied by a Member
in choosing between the two methodologies in a given case.

63. Nothing in the text of Article 2.4.2 suggests that there is a hierarchy between the W-to-W and
T-to-T comparison methodologies. Accordingly, a Member has freedom to choose between these two
methodologies, "subject to the provisions governing fair comparison in paragraph 4". See the reply to
Question 48.

Q51. Could the parties, and third parties, ex press their views on the proposition that the
determination of dumping and establishment of margins of dumping on the one hand, and the
assessment and collection of ant-dumping duties on other hand, are different, and address the
implications of this proposition for the int erpretation of "margin of dumping" in the AD
Agreement?

28 New Zealand’s Third Party Submission, paras. 3.12 and 3.14.
29 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 132.

64. As Japan stated in response to Question 47, the Appellate Body has held that "the rules on the
determination of the margin of dumping are distinct and separate from the rules on the imposition and
collection of anti-dumping duties"
30, and where all prerequisites to determine "the existence of
dumping margin, injury, and a causal link" "have been fulfilled", the Members are consequently
conferred "the rights to impose anti-dumping duties under Article 9".31

65. Accordingly, when a Member’s customs authorities assess and collect anti-dumping duties,
they are not calculating "margins of dumping" within the meaning of Article VI of the GATT 1994
and Article 2 of the Anti-Dumping Agreement . Rather, the margins of dumping have already been
determined by the investigating authorities, on the basi s of Article 2, in investigations or reviews. In
terms of Articles 9.1 and 9.3 of the Anti-Dumping Agreement, these margins constitute a ceiling on
the amount of duties that can be imposed and collected by the customs authorities.

66. Thus, under Articles 9.1 and 9.2, in both th e retrospective and prospective systems, the
authorities impose anti-dumping duties on imports of a product in appropriate amounts that cannot
exceed the margin of dumping previously determined for the product. Under both Articles 9.3.1 and
9.3.2, the authorities may conduct a review to assess whether the total amount of duties initially paid
on imports exceed the margin of dumping for the product for the review period. Additionally, in the
case of Article 9.3.1, the review may assess whether the amount of duty (or duty deposit) initially paid
was less than this margin of dumping. Thus, in light of the determination of the dumping margin for
the product conducted in the Article 9.3 review, definitive duties are levied on the product.

30 Appellate Body Report, EC – Bed Linen (Article 21.5), para. 124.
31 Id.

ANNEX E-6

NEW ZEALAND'S RESPONSES TO QUESTIONS
BY THE PANEL TO THE THIRD PARTIES

2 December 2005

To Third Parties

Question 46:

 Would the parties, and third parties, plea se describe how their investigating authorities
would apply the provisions of Article 2.2 in a ca se involving multiple allegedly dumped models
of a product under consideration, where there are no sales in the home mark et of some of those
models? Specifically, would the parties consid er it obligatory, under that provision, to
determine normal value on one single basis for all models, or would the parties consider that
Article 2.2 permits the determination of normal value on, for instance, the basis of home market
sales for some models, and constructed normal value for others?

 Under Article 2.1 of the Anti-Dumping Agreem ent a product is to be considered as being
dumped "if the export price … is less than the comparable price, in the ordinary course of trade, for
the like product when destined for consumption in the exporting country". Article 2.2 provides for the
situation where there are no sales of the like product in the ordinary course of trade in the domestic
market of the exporting country or when such sales do not permit a proper comparison. In such
circumstances the margin of dumping may be determ ined by a comparison of the export price with a
comparable and representative price of the "like product" when exported to an appropriate third
country, or with the constructed normal value.

 Article 2.2 contains an element of flexibilit y to allow an investigating authority some
discretion in the method it selects to determine normal value. It provides that an investigating
authority may use an alternative method to usi ng the home market sales "…when, because of the
particular market situation or the low volume of the sales in the domestic market of the exporting
country, such sales do not permit a proper comparison". The focus of investigating authorities will
generally be home market sales. However, New Z ealand considers that in appropriate situations
Article 2.2 allows some scope for determining normal value based on home market sales for some
models, and constructe d normal value for others. An example of this could be the situation that the
Panel refers to, i.e. where there are no sales in the home market of some models.

 Consideration must also be given in this regard to Article 2.4, which provides that "[a] fair
comparison shall be made between the export price and the normal value". The Appellate Body has
indicated that this is a general obligation that informs all of Article 2.
1 New Zealand considers that in
certain situations, a fair comparison may only be possible if the normal value for a product is assessed
on the basis of home market sales for some models, and an alternative method for other models.

1 Appellate Body Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type
Bed Linen from India, WT/DS/41/AB/R, paragraph 59.

Question 47:

 The EC suggested, in its answer to a question put by the Panel, that in undertaking a
comparison under the methodology of the second sentence of Article 2.4.2, a Member can not
determine whether there is a "pattern of export prices which differ significantly among
different purchasers, regions or time periods" wi thout conducting what the EC referred to as a
disaggregated analysis. The EC then asserted that having found such a pattern on the basis of
a disaggregated analysis the Member should th en compare weighted average normal values for
the transactions forming the "pattern" with weighted average export prices for those
transactions. In the EC's view, this would be an application of the targeted dumping
methodology that would not involve zeroing. Wi th reference to each of the three types of
targeted dumping identified in Article 2.4.2 – (s ignificantly different export prices to different
purchasers, regions, or time periods), could the parties, and third parties, please comment on
the EC's argument:

 (a) with specific reference to its consistency with the first sentence of Article 6.10
("an individual margin of dumping for each know exporter or producer")

 (b) with specific reference to its implicat ions for duty collection under the first
sentence of Article 9.2 (duty shall be collected in the appropriate amounts, on a
non-discriminatory basis on imports).

 While this question does not engage New Zealand’s systemic interest in this dispute,
New Zealand nonetheless considers that the EC is inco rrectly distorting the operation of the weighted
average-to-transaction methodology. The EC is, in effect, attempting to transform this methodology
into a form of weighted average-to-weighted aver age methodology by suggesting that there is a need
to compare weighted average normal values for th e transactions forming the "pattern". This
interpretation of Article 2.4.2 adds a requirement to this provision that simply is not in the text, and is
not there for good reason. The purpose of this method is to allow comparisons of a normal value
established on the basis of a weighted average wi th individual export transactions in appropriate
circumstances, and not an average of a number of transactions. The EC’s interpretation would
substantially alter the operation of the weighted av erage-to-transaction methodology, an outcome that
cannot have been the intention of drafters.

 Articles 6.10 and 9.2 do not affect this interp retation. The first sentence of Article 6.10 is
simply a requirement that, as a rule, an individual margin of dumping be determined for each known
exporter or producer. Article 9.2 concerns the co llection of duties. Neither provision impacts on the
actual determination of the margin of dumping under Article 2.

Question 48:

 Could the parties, and third parties, exp ress their views regarding the proposition that
the most "fair" methodology of establishing the existence of margins of dumping is that which
produces the most accurate results? (see New Zeal and's written submission at para. 3.12) In
this case, how can one determine which methodology generates the most accurate results?

 As New Zealand noted in its Third Party Submission (paras 3.12 and 3.14) a "fair"
methodology is one which targets or addresses the dumped imports that are causing injury.
2 Non-

2 New Zealand notes the observations of the EC in relation to “targeted” dumping in paras 14-16 of its
Third Party Oral Statement. The EC appears to misinterpret the New Zeala nd submission. The core aspect of
any dumping investigation must be that it addresses or “tar gets” the dumping that is occurring. This is not the
same as “targeted dumping” which is provided for in the second sentence of Article 2.4.2.

dumped imports should be considered in the injury analysis as one of the "known factors other than
the dumped imports". Imports that are not dumped cannot cause injury. It is this approach to each
individual transaction that New Zealand believes means the transaction-to-transaction methodology
only addresses or targets the dumped imports and therefore produces a fair and accurate result.

Question 49:

 Could the parties, and third parties, exp ress their views concerning the proposition set
out in the EC's argument that, in the EC's view, the price at which a transaction in the
exporting market is concluded, considered in isolation, is not equivalent to a "normal value"

 New Zealand does not support the EC argument that the price at which a transaction in the
exporting market is concluded, considered in isolation, is not equivalent to a "normal value". The EC
argument is illogical. It appears to be arguing that the transaction-to-transaction methodology is a
comparison of an aggregated normal value in the home market of the exporting country with export
prices for individual transactions. This is incons istent with the EC’s own interpretation of the
meaning of "transaction" as a "deal".
3 Rather, the transaction-to-transaction methodology requires in
normal circumstances the comparison of a "deal" in th e export market with a comparable "deal" in the
home market of the export country.

 By requiring a comparison of the aggregated normal value with export prices for individual
transactions, the EC interpretation would equate the transaction-to-transaction methodology with the
methodology set out in the second sentence of Article 2.4.2 – the comparison of the normal value
established on a weighted average basis with prices of individual export transactions. The text of
Article 2.4.2 clearly sets out three methodologies wh ich may be used to establish the existence of
margins of dumping – not two methodologies, with one being in the guise of another.

Question 50:

 Do the parties, and third parties, consider that there are any limitations on the freedom
of a Member to choose between the two methodologies set out in the first sentence of
Article 2.4.2 in establishing margins of dumping? If so, could you please indicate with precision
the textual basis for this view, and further indica te what criteria are to be applied by a Member
in choosing between the two methodologies in a given case.

 Article 2.4.2 of the Anti-Dumping Agreement in its first sentence, provides:

Subject to the provisions governing fair comparison in paragraph 4, the existence of
margins of dumping during the investiga tion phase shall normally be established
 on
the basis of a comparison of a weighted average normal value with a weighted
average of prices of all comparable export transactions or by a comparison of normal
value and export prices on a transaction-to-transaction basis. (Emphasis added)
In New Zealand’s view, the use of the term "shall normally be established" in the first sentence of
Article 2.4.2 means that one of the two methodologies provided for in that sentence should normally
be the methodology used. There is no limitation placed on the freedom of a Member to choose
between the two methodologies in establishing the existence of margins of dumping. Both
methodologies are "subject to the provisions governing fair comparison in paragraph 4" of Article 2.

3 EC Third Party Written Submission, paragraph 3.

Question 51:

 Could the parties, and third parties, exp ress their views on the proposition that the
determination of dumping and establishment of margins of dumping on the one hand, and the
assessment and collection of ant-dumping duties on other hand, are different, and address the
implications of this proposition for the int erpretation of "margin of dumping" in the AD
Agreement?

 The determination of dumping and a margin of dumping is different to the assessment and
collection of anti-dumping duties. They are linked to the extent that the provisions of Article 9
restrict the amount of duty that may be collected to no more than the margin of dumping. However,
authorities have a discretion within that parameter to collect duties at a lesser rate.

ANNEX E-7

THAILAND'S RESPONSES TO THE PANEL'S QUESTION
FOR PARTIES AND THIRD PARTIES

2 December 2005

1. Thailand hereby responds to the questions posed by the Panel to parties and third parties
following the Panel's meeting with the third par ties on 16 November 2005. Thailand has reproduced
below the Panel's questions for it and the other third parties, followed by Thailand's response, if any.
Thailand appreciates this opportunity to present its views and trusts that these views will assist the
Panel in its deliberations.

To Thailand

45. Thailand suggested that there is a wide range of practical ways in which an investigating
authority might conduct a targeted dumping marg in calculation without recourse to zeroing.
Please provide examples.

2. Thailand considers that there are a number of practical ways in which an investigating
authority could conduct a targeted dumping margin calculation without recourse to zeroing. Before
discussing these, and providing examples, Thailand cons iders it important to point out that there is
nothing inherent in the zeroing methodology that su ggests that zeroing is necessary, or even relevant,
to an analysis of targeted dumping. For example, the United States uses zeroing in exactly the same
manner with each type of comparison, including we ighted average to weighted average ("W to W")
(as in the measure before this Panel in the origin al proceeding), transaction to transaction ("T to T")
(as in the measure now before the Panel), or wei ghted average to transaction ("W to T") (as in the
United States' practice in annual reviews). In each instance, the purpose and effect of the zeroing
methodology is to reduce the export price used in determining the overall margin of dumping for the
product under investigation. Since the methodolog y is used with all comparison methodologies, it
cannot be argued that this methodology plays a special role in making effective the targeted dumping
margin calculation under the targeted dumping provision of the second sentence of Article 2.4.2 of the
Anti-Dumping Agreement.

3. Similarly, nothing in the language of the targeted dumping provision suggests that zeroing is
either necessary to make the provision effective or even permitted at all. The second sentence of
Article 2.4.2 states that "A normal value established on a weighted-average basis may be compared to
prices of individual export transactions" in certa in circumstances. Nothing in this language
contemplates a downward adjustment to the "prices of individual export transactions" that happen to
exceed normal value as is done under the zeroing me thodology. The targeted dumping provision may
be used in circumstances where export prices differ significantly among different "purchasers,
regions, or time periods." As used by the Unite d States, the zeroing methodology is applied to all
comparisons and does not differentiate among purch asers, regions, or time periods. In Thailand's
view, therefore, there is no basis to suppose that the targeted dumping provision is in any way
dependent for its effectiveness on the use of the zeroing methodology.

4. Turning to the practical application of the targeted dumping provision, Thailand notes that the
investigating authority must first establish a "pattern of export prices" that differ significantly
according to purchaser, region or time period. It is im portant to note that the reference to a pattern of

export prices, rather than a pattern of dumping, suggests that the process of identifying a pattern of
export prices is a precursor to the process of ac tually determining the dumping margins. Once the
investigating authority has properly identified a pattern of export prices that differ significantly among
purchasers, regions, or time periods, the practical wa ys in which this provisi on could be implemented
differ according to each circumstance.

5. Starting with significant differences among ex port prices for different time periods, Thailand
notes that the investigating authority could implement the targeted dumping provision simply by
splitting the period of investigation into two portio ns representing the different patterns of export
prices. The investigating authority could then use the W to T methodology for sales within the
portion of the period of investigation in which targeted dumping is suspected ( i.e. the portion of the
period of investigation with a pattern of significan tly lower export prices), while continuing to use
either the W to W or T to T comparison methodology for export sales during the other portion of the
period of investigation. The investigating authorit y may then calculate an overall margin of dumping
for the product and exporter under investigation based on the results of these two intermediate steps.
This margin of dumping gives practical effect to th e targeted dumping provision in that it enables the
investigating authority to isolate the transactions that may reflect "targeted dumping" and to analyse
these transactions differently in the process of determining overall dumping margins.

6. Thailand notes that in US – Stainless Steel , the panel concluded that the use of multiple
averaging periods to address variations in nor mal value caused by currency depreciations was
inconsistent with Article 2.4.2.
1 The panel's finding was based on an analysis of the first, rather than
the second, sentence of Article 2.4.2, and, accordin gly, the second sentence of Article 2.4.2 may be
read as an exception to the prohibition on the use of multiple averaging periods identified by the panel
in the first sentence of that Article.

7. Thailand also notes that the use of transacti on-specific export prices, and different average
normal values, for a portion of the period of in vestigation will necessarily result in different
intermediate outcomes than the W to W or T to T methods, unless variables such as the prices and
quantities of domestic sales used to determine av erage normal values and currency conversion rates
remain constant throughout the entire peri od of investigation. Thus, the panel in US – Stainless Steel
noted that the mere use of multiple comparison peri ods could affect the outcome of the calculation of
dumping margins.
2

8. This effect would be increased where di fferent comparison methodologies were used for
transactions within the different comparison periods. If a W to T methodology is used for one period,
and a W to W or T to T methodology for another, export sales prices in the different periods will be
compared to different normal values, with di fferent quantities and perhaps different currency
conversion rates.
3

9. Even without the use of the zeroing methodology , therefore, an investigating authority can
readily give practical effect to the targeted dumping provision where patterns of export prices differ
significantly among time periods. Accordingly, the sole purpose and effect of the use of the zeroing
methodology in these situations is to further affect the outcome by failing to take fully into account
the results of individual intermediate comparisons in determining the overall margin of dumping.

1 Panel Report, US – Stainless Steel, para. 6.125.
2 Panel Report, US – Stainless Steel, para. 6.123 and n. 126.
3 The W to W methodology would rely on average curr ency conversion rates; whereas the W to T or T
to T methodologies would use currency rates in effect on the date of the export transaction. Depending how
currency rates fluctuate, this may have a significant e ffect on the comparison between export price and normal
value under the different approaches.

10. Similar considerations apply to patterns of export prices that differ significantly among
purchasers or regions. Thailand notes that the inves tigating authority could readily address this by
using different comparison methodologies for an expor ter's sales either to particular importers or
indeed to particular customers (and thereby also cap turing targeted dumping by region). In situations
in which there is no relationship between the ex porter and the importer within the meaning of
Article 2.3 of the Anti-Dumping Agreement, the impor ter and purchaser will be the same entity. If
exporter A sells to importers B, C, D, and E, and the investigating authority finds a significantly
different pattern of export prices to importer E, the investigating authority may use the W to T
methodology for sales to importer E while using th e W to W or T to T methodologies for the other
importers. Similarly, if there is a significant differe nce in the pattern of export prices for importers D
and E in the same region, the investigating aut hority may use the W to T methodology for sales to
importers D and E in that region while using the W to W or T to T methodologies for the other
importers.

11. The same approach is also possible in situa tions in which there is a relationship between the
exporter and importer within the meaning of Article 2.3. For example, exporter/producer A may
export to importer B, who re-sells to purchasers C, D, and E, and to importer F, who re-sells to
purchasers G, H, and I. If the investigating author ity considers that there is targeted dumping to
purchasers G, H, and I, the investigating authority could conduct a separate comparison for all sales to
importer F using the W to T methodology. Again, this can also be applied to purchasers or importers
in different regions.

12. In response to the Panel's question, theref ore, Thailand sees no practical impediment to
implementing the targeted dumping provision without recourse to zeroing. The investigating
authority may use the W to T methodology for sal es within the identified pattern of significantly
different prices while continuing to use the W to W or T to T methodology for other sales. This is
consistent with the United States' anti-dumping re gulations, which provide that the investigating
authority will "normally limit the application of the average-to-transaction method to those sales that
constitute targeted dumping".
4 The results of the comparisons for the sales within the identified
pattern "are, however, not 'margins of dumping' within the meaning of Article 2.4.2. Rather, those
results reflect only intermediate calculations made by an investigating authority in the context of
establishing margins of dumping for the product under investigation".5

13. Thailand also notes that since the zeroing methodology is applied after the investigating
authority has identified the sales within the pattern and after it has made its W to T comparisons, the
zeroing methodology does not serve any practical purpose of giving effect to the targeted dumping
provision. Instead, it simply changes the outcome of the determination of overall dumping margins.
6

14. Any dumping margin for a product that is based on the use of the W to T comparison for sales
within the identified pattern will give sufficient effect to the targeted dumping provision without
requiring a further downward adjustment to export pr ices for so-called zeroing. Thailand also notes

4 See 19 CFR §351.414(f)(2).
5 Appellate Body Report, US – Softwood Lumber V, para. 97.
6 Thailand notes that if a W to T comparison is being used because a significantly different pattern of
export prices by purchaser, region, or time period has been identified, the export prices to that purchaser, region,
or period are likely to be lower than export prices to other purchasers, regions, or periods (the investigating
authority would otherwise have little incentive to use th e targeted dumping provisions for those purchasers,
regions, or periods). If the investigating authority has properly identified the significantly different pattern of
price differences, therefore, it may be assumed that the investigating authority is much more likely to find that
the sales within the export pattern are dumped than sales outside the pattern. For this reason also, Thailand
questions how it can be consistent with the fair compar ison requirement to permit the investigating authority to
apply an additional adjustment – in the form of zeroing – after the initial W to T comparison that has the effect
of increasing the overall margin of dumping for the product.

that many Members may have discretion to collect duties at the point of importation on a regional,
time, or purchaser-specific basis.7 Since final liability for anti-dumping duties is normally determined
on an importer-specific basis, any targeted dumping to a particular purchaser or region is also likely to
be reflected in the determination of an importer' s final liability for duties on imports during a given
period.

15. As discussed above, there is no inherent r eason why the W to T methodology cannot be used
without zeroing. Moreover, to the extent that the purpose of the targeted dumping provision is to
permit the use of an exceptional comparison met hodology in analysing transactions that may fall
within the definition of targeted dumping, the text of Article 2.4.2 provides only that that purpose may
be achieved by the use of the W to T comparis on methodology in analysing those transactions.
Nothing in the text of that provision further addresses or permits the use of zeroing as part of that
analysis. Thus, while the targeted dumping provi sion permits an "asymmetrical" comparison, that
comparison remains subject to the fair comparison requirement of Article 2.4. The mere fact that this
asymmetrical comparison is permitted does not, however, further mean that the investigating authority
may introduce additional asymmetry into the determ ination of margins of dumping by subsequently
adjusting the results of W to T comparisons using the zeroing methodology.

16. Finally, Thailand notes that to prevail on its argument that the zeroing methodology is
necessary because W to T and W to W comparisons w ould otherwise lead to the same results, the
United States would have to prove this mathematical equivalence would result in every instance. To
the contrary, the evidence before the panel is that the W to W and T to W methodologies do not result
in the same outcomes even without zeroing.

To all parties and third parties

46. Would the parties, and third parties, plea se describe how their investigating authorities
would apply the provisions of Article 2.2 in a case involving multiple allegedly dumped models
of a product under consideration, where there are no sales in the home market of some of those
models? Specifically, would the parties consid er it obligatory, under that provision, to
determine normal value on one single basis for all models, or would the parties consider that
Article 2.2.permits the determination of normal value on, for instance, the basis of home market
sales for some models, and constructed normal value for others?

17. In these situations, Thailand would normally calculate a constructed normal value for the
models for which there were no home market sales, while using home markets sales as the basis of
normal value for any models for which such comparable sales existed.

18. In other words, Thailand does not consider it obligatory to determine normal value on a single
basis for all models. Thailand notes that in an inve stigation involving export sales of many models of
a product, there may be various reasons why normal value may have to be de termined on a different
basis for different models. For example, some models may be sold above cost and others below in the
domestic market. In that case, the investigating authority may have to u se constructed normal value
for the models sold below cost, while using the sales price as the basis for normal value for the
models sold above cost.

7 The United States is prohibited by its domestic laws from establishing different import duties on a
regional basis. Nevertheless, the United States may, and does, collect different rates of anti-dumping duty on an
importer by importer basis. As a practical matter, this will normally permit the United States to give effect to
regional targeted dumping findings: an importer of cement from Mexico into the southwest United States is
unlikely to ship those goods by land to the northeast United States.

19. Thailand notes that the results of the compar isons on a model by model basis do not constitute
"margin[s] of dumping" with the meaning of Ar ticles 2 and 9 of the Anti-Dumping Agreement.
Instead, these results are, in the words of the Appellate Body, "only intermediate calculations made by
an investigating authority in the context of establishing margins of dumping for the product under
investigation."
8

47. The EC suggested, in its answer to a question put by the Panel, that in undertaking a
comparison under the methodology of the second sentence of Article 2.4.2, a Member can not
determine whether there is a "pattern of export prices which differ significantly among different
purchasers, regions or time periods" without conducting what the EC referred to as a
disaggregated analysis. The EC then asserted that having found such a pattern on the basis of a
disaggregated analysis the Member should then compare weighted average normal values for the
transactions forming the "pattern" with weighted average export prices for those transactions. In
the EC's view, this would be an application of the targeted dumping methodology that would not
involve zeroing. With reference to each of the three types of targeted dumping identified in
Article 2.4.2 – (significantly different export pr ices to different purchasers, regions, or time
periods), could the parties, and third parties, please comment on the EC's argument:

 (a) with specific reference to its consistency with the first sentence of Article 6.10
("an individual margin of dumping for each know exporter or producer")

 (b) with specific reference to its implicat ions for duty collection under the first
sentence of Article 9.2 (duty shall be collected in the appropriate amounts, on a
non-discriminatory basis on imports).

20. Please refer to Thailand's response to ques tion 45 above and to question 51 below.

48. Could the parties, and third parties, exp ress their views regarding the proposition that
the most "fair" methodology of establishing the existence of margins of dumping is that which
produces the most accurate results? (see New Zeal and's written submission at para. 3.12) In
this case, how can one determine which methodology generates the most accurate results?

21. Thailand does not consider that the Anti-Du mping Agreement imposes a standard of the
"most fair" methodology. Instead, the Anti-Dumping Agreement sets out, in Article 2, certain
methodologies that may be used to determine dumping margins. For example, Article 2.4.2 refers to
both W to W and T to T comparison methodologies. Both are therefore permissible under the Anti-
Dumping Agreement. However, both methodologies must be used in a manner that results in a fair
comparison between normal value and export price with in the meaning of the first sentence of Article
2.4. Thus, even where the Anti-Dumping Agreem ent does not specify a hierarchy among permissible
methodologies, it nevertheless requires that any pe rmitted methodology that is used to determine
dumping margins must be used in a manner that results in a fair comparison. Thailand notes that the
panel in US – Stainless Steel stated that the Anti-Dumping Agreement expresses no preference
between the W to W or T to T methodologies.
9

22. In Thailand's view, the question is not of the "most fair" methodology. It is that in every
instance, under either a W to W or T to T comparis on, the addition of the zeroing step in the process
results in an unfair comparison whereby not all relevant export prices are taken into account.
Paraphrasing the Appellate Body, the result of the comparison thereby becomes "predetermined by
the methodology itself."10 This is not a fair comparison.

8 Appellate Body Report, US – Softwood Lumber V, para. 97.
9 Panel Report, US – Stainless Steel Plate, para. 6.122, n. 124.
10 Appellate Body Report, EC – Bed Linen (Article 21.5—India) , para. 132.

49. Could the parties, and third parties, ex press their views concerning the proposition set
out in the EC's argument that, in the EC's view, the price at which a transaction in the
exporting market is concluded, considered in isolation, is not equivalent to a "normal value"

23. Thailand agrees that the price at which a tran saction in the exporting market is concluded is
not per se a "normal value" within the meaning of Article 2 of the Anti-Dumping Agreement.
Instead, it is simply a starting point in the determin ation of normal value for that product. It may be
discarded for the reasons contemplated in Article 2.2, or it may be adjusted for the reasons
contemplated in Article 2.4, or it may be averag ed together with prices for other transactions to
determine the "comparable price, in the ordinary course of trade, for the like product when destined
for consumption in the exporting country"
11 within the meaning of Article 2.1.other prices in
accordance with Article 2.4.2. Bu t the price for an individual transaction is not, in isolation, the
"normal value," i.e., the "comparable price, in the ordinary course of trade, for the like product when
destined for consumption in the exporting country".

50. Do the parties, and third parties, consid er that there are any limitations on the freedom
of a Member to choose between the two methodologies set out in the first sentence of
Article 2.4.2 in establishing margins of dumping? If so, could you please indicate with precision
the textual basis for this view, and further indica te what criteria are to be applied by a Member
in choosing between the two methodologies in a given case.

24. As noted in the response to question 48 above, the panel in US – Stainless Steel stated that the
Anti-Dumping Agreement expresses no preference between the W to W or T to T methodologies.
12
Thailand notes that there may be circumstances in which one methodology is more suitable than the
other. For example, the United States' authorities have stated that the T to T methodology "would be
appropriate in situations where there are very fe w sales and the merchandise sold in each market is
identical or very similar or is custom-made". 13 In any event, both methodologies must be applied in a
manner that results in a fair comparison within the meaning of Article 2.4.

51. Could the parties, and third parties, exp ress their views on the proposition that the
determination of dumping and establishment of margins of dumping on the one hand, and the
assessment and collection of anti-dumping duties on other hand, are different, and address the
implications of this proposition for the int erpretation of "margin of dumping" in the AD
Agreement?

25. Thailand considers that there are significant differences between (i) the determination of the
margin of dumping, on the one hand, and (ii) the rules on the imposition and collection of duties on
the other hand. This has been confirmed by the Appellate Body.
14

26. In Thailand's view, there is some potential for confusion in the conflation of the terms
"assessment and collection" of anti-dumping duties in how the Panel has stated the proposition in its
question. To the extent that the term "assessment" refers to the process of collecting duties at the time

11 Emphasis added.
12 Panel Report, US – Stainless Steel, para. 6.122, n. 124.
13 See Statement of Administrative Action Accompan ying the Uruguay Round Agreements Act, 103d
Cong. 2d Sess., House Document 103-316, Vol. 1, page 172. The US Administration went on to explain that
"given past experience with this methodology and the difficulty in selecting appropriate comparison
transactions, the Administration expects that [the Department of] Commerce will use this methodology far less
frequently than the average-to-average methodology." Ibid., pages 172-173.
14 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 124.

of importation, Thailand agrees with the propositi on. However, to the extent that the term
"assessment" may be interpreted to refer to any determination subsequent to importation – whether
under a prospective or retrospective system – of the final liability for anti-dumping duties, Thailand
disagrees with the proposition.

27. Thailand considers that there are three step s in the determination of anti-dumping duties on
any importation of goods subject to an anti-dumping me asure. First, there is the investigation, in
which dumping is established for the product under i nvestigation and the margin of dumping for that
product is determined. This determination must be made in accordance with Article 2. Second, when
the goods are imported, an anti-dumping duty is collected. Under Article 9.2, the amount of the duty
to be collected must be "appropriate". However, this amount is not "the margin of dumping as
established under Article 2" with respect to any partic ular importation. This is for practical reasons.
No matter what system is used to collect anti-dumpi ng duties, it is not practicable to establish, at the
time of importation, the actual margin of dumping for the product being imported.

28. Accordingly, the Anti-Dumping Agreement pe rmits that an "appropriate amount" of duty may
be collected at the time of importation. However, Article 9.1 limits the amount of any duty to the
margin of dumping. Article 9.3 likewise provid es that amount "shall not exceed "the margin of
dumping as established under Article 2". Because it is not possible at the time of importation to
ensure that the amount collected at the time of importation does not exceed the margin of dumping
established under Article 2, Articles 9.3.1-9.3.3 provid e for a subsequent determination of the margin
of dumping, done in accordance with Article 2, to ensure compliance with Article 9.1 and the chapeau
of Article 9.3.

29. In this respect, there is no material differen ce between the collection of duties and subsequent
review of margins of dumping under a prospective or retrospective system. In a retrospective system,
such as the United States', an estimated duty amount , generally taken as a percentage of the import
value, is collected at the time of importation. This amount is not a "margin of dumping" for that
transaction. It has not been determined by calculating an export price or a normal value for the
product. It is just an estimate, based on the margin of dumping for that product for the historical
period of investigation and the actual value of th e imported goods. The actual margin of dumping for
that product is determined later, in the course of a review in which a margin of dumping is established
based on all export sales and all comparable domes tic sales of the product during the period under
review. This determination must be made in acco rdance with Article 2 and, specifically, the fair
comparison requirement of Article 2.4.

30. Similarly, under a prospective system such as that practiced by the EC, an estimated duty
amount is also collected at the time of importation. In this system, the estimated duty amount is based
on the difference between a prospective normal valu e (PNV) established during the investigation and
the import price for each import transaction. Again, this amount is not a "margin of dumping" within
the meaning of Article 9.3 or Article 2. It has not been determined by calculating an export price or a
normal value for the product. As with the retros pective system, the difference between the PNV and
the import price is just an estimate, also based on the margin of dumping for that product for the
historical period of investigation and the actual value of the imported goods. And, once again, the
actual margin of dumping for that product is determin ed later, in the course of a refund review in
which a margin of dumping is established based on all export sales and all comparable domestic sales
of the product during the period under review. This determination must also be made in accordance
with Article 2 and Article 2.4.

31. Under both the prospective and retrospective system, the ultimate determination of the margin
of dumping with respect to imports during a given pe riod is made in a review that takes place after
that period. Thus, under the EC's PNV system, th e final margin of dumping is not the difference
between the PNV and the value of the imported goods , but is determined based on "evidence, for a

representative period, of normal values and export prices to the Community for the exporter or
producer to which the duty applies." 15 Similarly, under the United States' retrospective system, the
final margin of dumping is based on the normal values and export prices for all relevant export
transactions during the twelve-month period followi ng each anniversary month of the imposition of
the measure.
16 These determinations, not the amount coll ected on importation, constitute the margins
of dumping within the meaning of Article 9.3. Th ese margins must be calcu lated in accordance with
Article 2. In doing so, under either a prospective or retrospective system, it is inconsistent with the
fair comparison requirement of Article 2.4 to u se the zeroing methodology to effectively reduce the
export price for certain transactions.

Table of Cases:

Short Title Full Case Title and Citation
EC – Bed Linen
(Article 21.5 – India)
Appellate Body Report, European Communities – Anti-Dumping Duties
on Imports of Cotton-Type Bed Linen from India – Recourse to Article
21.5 of the DSU by India, WT/DS141/AB/RW, adopted 24 April 2003
US – Softwood Lumber V Appellate Body Report, United States – Final Dumping Determination
on Softwood Lumber from Canada , WT/DS264/AB/R, adopted 31
August 2004
US – Stainless Steel Panel Report, United States – Anti-Dumping Measures on Stainless Steel Plate
in Coils and Stainless Steel Sheet and Strip from Korea , WT/DS179/R,
adopted 1 February 2001, DSR 2001:IV, 1295

15 EC Regulation No. 384/96, Article 11(8).
16 See section 751(a) of the Tariff Act of 1930, as amended, 19 U.S.C. 1675(a).

ANNEX E-8

CANADA'S COMMENTS ON THE UNITED STATES'
ANSWERS TO THE PANEL'S QUESTIONS

13 December 2005

(i) The Text of Article 2.4.2, First Sentence

 (a) "Margins of Dumping"

 In paragraph 6 of its answers, the United St ates now argues that "Canada’s argument rests on
the assumption that the term ‘margins of dumping’ must have the same meaning throughout the Anti-
dumping Agreement."
1 As is clear from all of Canada’s s ubmissions to the Panel, Canada has not
argued that the term "margins of dumping" must have the same meaning throughout the Agreement. 2
More importantly, the question before this panel is not whether the phrase "margins of dumping" has
the same meaning throughout the Agreement but, ra ther, whether that phrase can have a different
meaning when used only once within the same sentence, as the United States argues. The US defence
of its "zeroing" practice in the Section 129 Determin ation is rooted entirely in the rejection of the
meaning that the Appellate Body has already ascribed to "margins of dumping" in the first sentence of
Article 2.4.2. Up until this Article 21.5 proceed ing, the disputing parties and the original panel
(including the dissenting panel Member) all agreed that the first sentence of Article 2.4.2 sets out a
rule that is applicable to both the weighted-a verage-to-weighted-average and transaction-to-
transaction methodologies without distinction. 3 The grammatical construction of the first sentence
confirms this interpretation.

 The consistent meaning of the phrase "margi ns of dumping" within Article 2.4.2 warrants
emphasis. In paragraph 11 of its answers, the Un ited States now argues that Canada "understands the
phrase ‘margins of dumping’ to have the same me aning throughout Article 2.4.2, regardless of
context." If by "context", the United States mean s regardless of which calculation methodology set
out in Article 2.4.2 is being used, then Canada agrees.
4

 Canada has certain additional observations on US answers regarding the phrase "margins of
dumping" and the Appellate Body’s interpretation of this term as being for the "product as a whole".

 In paragraph 7 of its answers,
5 the United States attempts to reconcile with the text of
Article 5.8 its argument that "margins of dumping" are established for each transaction-to-transaction
comparison. It states: "Because investigations occur with respect to exporters’ and producers sales of
the product under consideration collectively, and not simply with respect to individual transactions,
Article 5.8 properly applies to a single, overall margin of dumping for each exporter or producer."
(Emphases added.) Thus, as the United States’ own argument makes clear, "margins of dumping",

1 The US arguments in paragraph 9 regarding the cumulation requirements of Article 3.3 are irrelevant
to anything at issue in this dispute. Aggregation of intermediate comparison results for a producer within a
single country is wholly unrelated to cumulation of margins from more than one country.
2 See, e.g., Responses of Canada to Questions from the Panel, 2 December 2005, at para. 5.
3 Ibid., at para. 3, footnote 4.
4 Ibid., at paras. 10-12.
5 Responses of the United States to Questions from the Panel, 2 December 2005, Question 13.

such as those at issue in this compliance proceeding, are calculated for individual exporters based on
the numerous transactions involving a particular expor ter, and do not exist for individual transaction-
to-transaction comparisons.

 In addition, in paragraphs 42-44, the United Stat es attempts to evade the clear implications for
this case of the Appellate Body’s reasoning in Softwood Lumber V . In attempting to show how the
words "price difference" in GATT Article VI:2 s upport its position, the United States ignores the fact
that the Appellate Body specifically relied on this provision in defining the terms "dumping" and
"margins of dumping."
6 It is not tenable to defend a positio n counter to the Appellate Body’s clear
findings when the Appellate Body has used the exact same provision and words to come to a
conclusion that is exactly opposite of that urged on this Panel by the United States.7

 (b) Aggregation Under the Transaction-to-Transaction Methodology

 As is clear from its statements in paragraphs 58 and 71-72 of its answers,
8 the United States
takes a position in this case that ignores the fact that the results of transaction-to-transaction
comparisons are merely an intermediate step in the calculation of the margin of dumping. The
Appellate Body found that Article 2.4.2 applies to the aggregation of the results of intermediate values
and that the results of intermediate comparisons are not margins of dumping. 9 No US argument can
change these findings. A margin of dumping under Artic le 2.4.2 must represent the aggregation of all
intermediate values performed for the product as a whole, regardless of the calculation methodology
chosen.

 Moreover, the US argument by its own l ogic would mean that Commerce calculated a
separate margin of dumping for every export transaction in this case. Such an argument is not
credible because it would mean that Commerce would be applying tens of thousands of margins rather
than the seven margins it established for the six mandatory respondents and an "all others rate" for the
rest of Canadian exporters. If nothing else, Co mmerce’s own application of margins in this case
shows that this US argument must fail.

 Finally, the argument of the United States, in pa ragraph 72 of its answers, that "[t]here is no
distinction between cases [involving a single transact ion] and other cases in which a transaction-to-
transaction analysis may be used"
10 again flies in the face of the Appellate Body reasoning in this
case. As the Appellate Body has found, "‘margin s of dumping’ can be found only for the product
under investigation as a whole, and cannot be found to exist for a product type, model, or category of
the product." 11 The margin of dumping is to be calculated for the universe of investigated
transactions. Where there is more than a single transaction to investigate – the "other cases" the
United States is referring to in paragraph 72 – there will be multiple intermediate comparison results
that will require aggregation to arrive at a marg in of dumping within the meaning of Article 2.4.2. 12
Such intermediate results are not, in and of themselves, margins of dumping.

6 Appellate Body Report, at para. 93-99. See in particular paras. 94-95 and 99.
7 Canada has discussed this issue more fully in its submissions and in its answers to the Panel’s
Questions 1 and 11.
8 Responses of the United States to Questions from the Panel, 2 D ecember 2005, Questions 23(b) and
27, respectively.
9 Appellate Body Report, at paras. 96 and 98.
10 Responses of the United States to Questions from the Panel, 2 December 2005, at para. 72.
12 Notice of Determination Under Section 129 of the Uruguay Round Agreements Act; Anti-Dumping
Measures Concerning Certain Softwood Lumber Products From Canada, 70 Fed. Reg. 22,636, at 22,645 (Dep’t
Commerce 2 May 2005) (Exhibit CDA-1). See also Canada’s Second Written Submission, at para. 23.

(c) "on the basis of a comparison"/"by a comparison of…on a transaction-to-transaction
basis"

 Turning to the new arguments of the United Stat es in paragraphs 57-61 of its answers, it is
clear that the use of the word "b asis" in the description of both methodologies in the first sentence of
Article 2.4.2 indicates that margins of dumping are normally to be established "using" either of the
described methodologies.
13 The United States’ arguments ignore entirely the existence of the second
"basis" in the description of the transaction-to-transaction methodology.

 The word "by" is defined as indicating a "mean s" or "manner" through which something is
done.
14 The text of Article 2.4.2 c onfirms Canada’s position that the use of either two methodologies
must not involve zeroing. If Article 2.4.2 prohibits zeroing under one methodology, then it prohibits
zeroing under the other methodology. Again, as Canada has consistently pointed out throughout this
dispute, the United States has failed to address the fact that there is no language in Article 2.4.2, first
sentence, that permits an investigating authority to disregard the results of intermediate values –
something it must do to defend its use of zeroing in this case.
15

(ii) Article 2.4

In paragraphs 1-3 of its answers, the United Stat es offers new attempts at an interpretation of
the first sentence of Article 2.4 that would tie it exclusively to the price comparability issues identified
in the second through fifth sentences. 16 In the words of the United States, "[t]he first sentence of
Article 2.4 does not mean something over and above taking into account differences in comparability,
as set out in the second sentence and what comes thereafter." In other words, the United States argues
that the first sentence is redundant.

However, as the United States itself argues elsew here, "[a] provision of the AD Agreement
should not be construed in a manner that w ould render another provision without effect". 17 Canada
agrees, and the application of this principle of tr eaty interpretation alone is grounds for rejecting the
US defence under Article 2.4.18 Furthermore, US arguments ignore the numerous Appellate Body and
panel findings that the first sentence of Ar ticle 2.4 goes beyond mere price comparability. 19 For these
reasons, and for the reasons Canada has set out in its submissions, the Panel should decline the US
invitation to interpret Article 2.4, first sentence, out of the text of the Agreement.

13 Responses of the United States to Questions from the Panel, 2 December 2005, Question 23.
14 New Shorter Oxford English Dictionary (Oxford: Clarendon Press, 2002) at 317 “indicating . . .
means . . . conditions, manner . . . ” (Exhibit CDA-10). See also, The American Heritage Dictionary of the
English Language , Fourth Edition 2000 by Houghton Mifflin Company, online: Dictionary.com
<http://dictionary.reference.com/search?q=by> (“with the use of, or help of; through”).
16 Responses of the United States to Questions from the Panel, 2 December 2005, Question 12.
17 Oral Statement of the United States, at para. 34.
18 The US argument that the “fair comparison” requirement of the fi rst sentence is limited to price
comparability adjustments would, in particular, make th at sentence redundant to the third sentence, which
imposes the obligation to make adjustments – termed “due allowance” – including a ll adjustments needed for
price comparability, not just those specifically enumerated in that sentence. The terms of a treaty must not be
interpreted so as to make any of its provisions redundant.
19 European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India ,
Report of the Appellate Body, WT/DS141/AB/R, adopted 12 March 2001, at para. 55; United States – Sunset
Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan , Report of the
Appellate Body, WT/DS244/AB/R, adopted 9 January 2004, at para. 134; Egypt – Definitive Anti-Dumping
Measures on Steel Rebar from Turkey , Report of the Panel, WT/DS211/R, adopted 1 October 2002, at paras.
7.333-7.334; United States – Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing) ,
Report of the Panel, WT/DS294/R, circulated 31 October 2005, at paras. 7.256, 7.262.

(iii) Article 2.4.2 Second Sentence

Canada concludes its comments by addressing the argument the United States has made
concerning the targeted dumping methodology provided for under the second sentence of
Article 2.4.2. The issue this Panel has been asked to resolve – whether the US use of zeroing under
the transaction-to-transaction methodology in the Sec tion 129 Determination is inconsistent with US
WTO obligations – raises issues of interpretation regarding the first sentence of Article 2.4.2 and
Article 2.4. Resolution of these issues does not require the Panel to opine on whether zeroing is
required under the second sentence of Article 2.4.2 to make that separate provision effective. That
said, Canada notes that the United States has itself now demonstrated the flaw in its own argument.

In paragraphs 25-27 of its answers, the United States undermines its own "mathematical
equivalence" argument when it explains, for the fi rst time, how US regulations implement the second
sentence of Article 2.4.2.
20 The explanation given by the United States highlights the fact that the
"preamble" to the US regulations contemplated no other way to properly implement the targeted
dumping provision other than by: (1) using the targeted dumping provision for those sales fitting one
of the three "types" of patterns set out in Article 2.4.2, second sentence; and (2) using a weighted-
average-to-weighted-average comparison for sales outside the pattern.
21 The "preamble"
contemplates only one way to use the targeted dum ping provision notwithstanding: (a) the numerous
examples to the contrary provided by Canada, the EC, Japan, and Thailand in submissions and
answers to the panel’s questions that show how the targeted dumping provision can work in any
number of hypothetical scenarios 22, (b) that the "preamble" ignores the possibility of using the
transaction-to-transaction methodology for addr essing the remainder of non-targeted export
transactions, which, in and of itself, would undoubt edly produce a different result than the mandated
use of the weighted-average-to-transaction methodology 23, and (c) that the "preamble" seems to
contemplate the application of only a single margin of dumping (by combining the margins calculated
under the targeted and non-targeted analyses), even t hough the text of Article 6.10 does not restrict an
investigating authority to calculating only a single ma rgin of dumping. The US explanation therefore
simply confirms that the "mathematical equivalence" argument is premised on a single – and to this
point theoretical – way in which the targeted dumping provision might be implemented.24

20 Responses of the United States to Questions from the Panel, 2 December 2005, Question 17.
21 The statement in paragraph 21 of the US answers that “the average-to-average method would [still]
be applied to the remaining sales” is not contained in the text of Commerce’s regulations. The statement comes
solely from Commerce’s “preamble” to its “proposed re gulations.” Commerce’s regulations merely provide
that Commerce “will limit the application of the average-to-transactio n method to those sales that constitute
targeted dumping”. Those regulations say nothing about aggregating those results with results under the
average-to-average method to calculate a single weighted-average margin. The citation at the end of paragraph
27 also is to the “preamble”, and not to Commerce’s re gulations. The United States admits that it has no
experience with the targeted dumping provision and provides no explanation as to why no approach other than
the one it proposes in its answers, in any given case, would not meet the requirements of the Agreement.
22 Canada notes that at paragraphs 37 and 38 of its answers, the United States in correctly states that in
Canada’s hypothetical example involving a seasonal product the denominator in such a case would be exports
for the entire year. Rather, as Canada has explained, the denominator for the margin calculated for the 3-month
seasonal period would be composed of exports in that 3-month period, while the separate denominator for the
margin calculated for the balance of the year would be exports in that 9-month period.
23 In this regard, see in particular answer by Japan to the Panel’s Question 44, which highlights
differing results when the weighted-average-to-weighted-average methodology is replaced with a transaction-to-
transaction methodology. The United States does not dispute that its “mathematical equivalence” argument
must fail if there is a single situation in which th e results without zeroing would not be mathematically
equivalent.
24 Canada notes that the United States’ own regulations indicate that even the United States would not
calculate targeted dumping margins in the manner indicated in its mathematical equi valence example. The US
regulations state that in a targeted dumping investig ation, Commerce “may apply the average-to-transaction

Canada, the Third Parties, and US regulations themselves, have all demonstrated that the
premise to the US "mathematical equivalence" argument fails. So too, therefore, does the US
argument itself.

We again thank the Panel for its efforts in contributing to the resolution of this dispute.

methodology, as described in paragraph (e) of this s ection” and paragraph (e) states that Commerce “will limit
the averaging of such prices [normal values] to sales incurred during the contemporaneous month.” 19 C.F.R.
section 351.414 (Exhibit CDA-6). Canada notes that paragraphs 45-48 of Japan's answers demonstrate that if
monthly weight-averages of normal values are used, the resulting dumping calculation is not equivalent to the
result calculated under the weight-average-to-weight-average methodology.

ANNEX E-9

COMMENTS OF THE UNITED STATES ON
CANADA'S AND THE THIRD PARTIES RESPONSES
TO THE PANEL'S QUESTIONS

13 December 2005

Table of Reports

Short Form

Full Citation

US – Zeroing (Panel) (EC
Complainant)

Panel Report, United States – Laws, Regulations and Methodology for
Calculating Dumping Margins ("Zeroing"),
WT/DS294/R, circulated 31 October 2005
US – Softwood Lumber (AB) Appellate Body Report, United States - Final Dumping Determination
on Softwood Lumber from Canada , WT/DS264/AB/R, adopted
31 August 2004

1. The United States appreciates the opportunity to comment on the responses of Canada and the
third parties to the questions of the Panel. In order to provide the most comprehensive set of
comments in the most efficient manner possibl e, the United States has organized its comments
according to the major themes that have been deve loped in this dispute. Within each theme, the
United States addresses various new or different points made by Canada and the third parties in their
responses to questions.

I. MARGINS OF DUMPING

2. Canada’s theory of the case is premised on its understanding of th e term "margins of
dumping" as it is used in Article 2.4.2 of the Agreement on Implementation of Article VI of the
General Agreement on Tariffs and Trade 1994 ("AD Agreement"). That understanding is based, in
turn, on an understanding of the references to ce rtain "price" differences in Article VI:2 of the
General Agreement on Tariffs and Trade 1994 ("GATT 1994") and Article 2.1 of the AD Agreement.
Canada’s responses to a number of the Panel’s ques tions reflect both internal inconsistencies in
Canada’s argumentation and inconsistencies between its construction of Articles 2.4.2 and 2.1 of the
AD Agreement and Article VI:2 of the GATT 1994, on the one hand, and other AD Agreement
articles, on the other hand.
1 In these comments, the United States will explore certain of the more
glaring examples of these inconsistencies.

3. A central issue in this dispute is whether the term "margins of dumping" in Article 2.4.2 may
be interpreted, in context, to refer to the results of transaction-to-transaction comparisons, or whether
it can refer only to a single margin of dumping for a producer/exporter for the product as a whole. A
number of the Panel’s questions explored various aspects of this issue and, as discussed below,
Canada was unable to reconcile its arguments with th e ordinary meaning to be given to the terms of
the AD Agreement in their context and in light of its object and purpose.

1 Similar inconsistencies are evident in the response of third parties.

4. In its responses dealing with the issue of what constitutes a margin of dumping, Canada’s
general approach is to suggest that the meaning of the term "margins of dumping" may vary with
context outside of Article 2.4.2 but may not do so within Article 2.4.2.
2 Canada offers no principled
basis for this distinction. In response to Questi ons 3 and 11, Canada does explain why it believes that
the term "margins of dumping" may only have one, unvarying meaning within Article 2.4.2. There,
Canada seeks to rely on the Appella te Body’s reasoning in the underlying dispute, (in the context of
an analysis of the average-to-average methodology provided for in Article 2.4.2), which lead to the
Appellate Body’s conclusion that GATT 1994 Article VI:2 defines "margin of dumping" as relating to
"the product as a whole".3

5. Canada denies the relevance of the fact that the Appellate Body’s analysis there was in a
context not at issue here. In other words, it dism isses entirely the "integrated manner" in which the
Appellate Body analyzed the terms "margins of dumping" and "all comparable export transactions". 4
If Canada were correct – if the Appellate Body’s analysis of the term "margins of dumping" was
simply an abstract analysis with no connection to the context of the dispute – then Canada’s argument
that the Appellate Body’s reasoning can be transposed to other contexts should apply without limit. In
that case, the Appellate Body’s interpretation of the term "margins of dumping" seemingly would
apply throughout the AD Agreement, every single time that term is used. Not only would that
extension of the Appellate Body’s reasoning lead to absurd results in other contexts,
5 but it also would
be inconsistent with a number of Canada’s other responses. 6 Given the anomalies that would result
from extending the Appellate Body’s reasoning beyond the context in which it was developed, and the
internal inconsistencies that would result in Cana da’s own argument, it must be concluded that the
Appellate Body’s analysis took into account the particular context in which it occurred, as the
United States has argued.

6. The inconsistency between Cana da’s assertion that the reasoning of the Appellate Body in the
underlying dispute should be exte nded without regard to context, on the one hand, and arguments
Canada makes elsewhere in its submissions, on the other, is evident in its discussions of its own
prospective normal value system. For example, in response to Question 4, Canada notes that in a
prospective normal value system, the investiga ting authority assesses anti-dumping duties when the
export price is less than the relevant normal value, "but applies no anti-dumping duties to non-dumped
transactions when the opposite is true."
7 In response to Question 21, Canada makes similar assertions
in explaining the operation of its own prospective normal value system.

7. Canada’s statements about the assessment of anti-dumping duties in a prospective normal
value system (including its own) amount to an acknowledgment that, in the assessment context, a
margin of dumping may be determined with respect to an individual export transaction. It follows
from this acknowledgment that the term "margin of dumping" as used in Article 9.3 of the AD
Agreement (which concerns assessment) does not refe r to a margin of dumping for the product as a
whole. Here is an instance in which the Appella te Body’s understanding of the term margin of
dumping in the underlying dispute plainly cannot be extended from one context (the portion of

2 Compare Responses of Canada to Questions to the Parties Following the Substantive Meeting of the
Panel (“Canada Responses”), paras. 1-3 (same meaning in Article 2.4.2) with id., paras. 5 (“unclear” whether it
has the same meaning throughout), 10-13, and 62 (Canad a implemented Article 5.8 interpreting that use of
“margin of dumping” as related to a country) (2 Dec. 2005).
3 Canada Responses, paras. 9 and 47.
4 See US – Softwood Lumber (AB), para. 85.
5 See Answers of the United States to the Panel’s 18 November 2005, Questions (“US Answers”),
paras. 51-56 (2 Dec. 2005).
6 See, e.g., Canada Responses, paras. 13, 18-20, 23, 28, 51-52, 62, 69-72, and 81.
7 Canada Responses, para. 13.

Article 2.4.2 concerning the application of the av erage-to-average methodology) to another context
(assessments as addressed in Article 9.3). Accordin gly, even Canada’s own statements demonstrate
that context is, in fact, relevant in interpreting the term "margin of dumping". But, once it is shown
that context is relevant to the interpretation of th is term, Canada’s theory that the Appellate Body’s
interpretation of "margin of dumping" in one cont ext can be extended without regard to context
necessarily falls apart.

8. The EC also posits an erroneous interpretati on of the term margin of dumping, which gives
rise to internal inconsistencies in its own argumen tation. The problems in the EC’s argument are
evident from the EC’s manipulation of key terms in the relevant AD Agreement articles. For
example, in its response to Question 4, the EC addr esses the US argument that an interpretation of the
term margin of dumping as referri ng consistently to a margin for the product as a whole throughout
the AD Agreement, without regard to context, wo uld result in absurd results when it comes to
assessments, as addressed in Article 9.3. In particular, the EC addresses the United States’ argument
that this interpretation would result in an impor ter paying anti-dumping duties bearing no relationship
to the difference between export prices paid by the importer and normal values.

9. In attempting to counter the US argument, the EC ignores the term "anti-dumping duty" as
used in Article 9.3. Instead, the EC develops its argument by referring to the concept of "the total
dumped amount collected from both importers", a term not used in Article 9.3 or anywhere else in the
AD Agreement.
8 By referring to "the total dumped amount " rather than the actual anti-dumping duty
paid by either importer, the EC avoids reconcili ng its proposition that the term "margin of dumping"
always means margin of dumping for the product as a whole (and, in that sense, is an exporter-
oriented concept) with the reality that anti- dumping duties are paid by individual importers.
Moreover, by focusing its discussion on "the total dumped amount", the EC glosses over the fact that
in a situation involving purchaser-specific targe ting, where a margin of dumping is established for the
product as a whole , an importer that paid relatively high prices could also be required to pay
relatively high anti-dumping duties if other importers paid relatively low prices.9

10. By taking an exporter-oriente d approach to the subject of assessment, the EC ignores the
terms of Article 9.3 of the AD Agreement. The point of an assessment proceeding is to determine the
appropriate amount of anti-dumping duty to be paid by an importer. Article 9.3.2 requires an
assessment proceeding when a request, "duly supported by evidence, has been made by an importer of
the product subject to the anti-dumping duty".
10 Consistent with this language, Members with
prospective normal value systems commonly limit the focus of any assessment proceeding to a
particular importer, rather than expanding the fo cus to all importers of the product from a given
producer/exporter.11 Like Canada, the EC is unable to reconcile its position that "margin of dumping"
can have only one, unvarying meaning throughout the AD Agreement (i.e., that it must always refer to
a margin for the product as a whole) with the conseq uences of that interpretation for Article 9 of the
AD Agreement.

11. A second internal inconsiste ncy in Canada’s argumentati on may be found in Canada’s
understanding of the "prices" to be compared in order to determine whether margins of dumping exist.
The term "price" is central to Canada’s argument with respect to "margin of dumping" because the
definitions of both "dumping" in Article 2.1 and "margin of dumping" in Article VI:2 of the GATT
1994 use the term "price." Canada relies on the proposition that under the AD Agreement, "price"
unvaryingly refers to the price of the product as a w hole (as distinct from the price of a particular
transaction). It follows from that premise, accord ing to Canada, that a product is dumped only when

8 EC Responses to Panel Questions (“EC Responses”), p. 3 (response to Question 4) (2 Dec. 2005).
10 See also EC Responses, p. 19 (response to Question 42).
11 See, e.g., Canada Responses, para. 52.

the export price for the product as a whole is less th an the comparable normal value for the product as
a whole. If Canada’s premise is wrong – if a "price" in fact can be associated with a single transaction
– then the rest of Canada’s argument does not hold up. Once it is established that a price may be
transaction-specific, it follows, under the terms of the AD Agreement, that a margin of dumping may
be transaction-specific. In fact, despite an initia l assertion that "price" in the AD Agreement always
refers to the price of a product as a whole, Cana da goes on to contradict itself in a way that
undermines its own argument.

12. According to Article 2.1 of the AD Agreemen t, "a product is to be considered as being
dumped, i.e.[,] introduced into the commerce of another country at less than its normal value, if the
export price of the product exported from one country to another is less than the comparable price, in
the ordinary course of trade, for the like produc t when destined for consumption in the exporting
country." In response to Question 30, Canada stated that the term "price" as used in that article
"should be interpreted to relate to the price of the product as a whole."
12 In Canada’s view, it does not
matter whether normal value and export price are co mpared on an average-to-average basis or a
transaction-to-transaction basis. In either case, "p rice" as used in Article 2.1 means price for the
product as a whole, according to Canada.

13. When it comes to Article 2.2, however, Canada abandons the proposition that "price"
necessarily means price for the product as a whole. Article 2.2 concerns situations in which a normal
value may not be established based on sales in the home market. In such situations, Article 2.2
permits the use of "a comparable price of the li ke product when exported to an appropriate third
country" as the normal value. Alternatively, it permits the use of a constructed normal value ( i.e.,
"cost of production in the country of origin plus a reasonable amount for administrative, selling and
general costs and for profits").

14. In Question 46, the Panel posited the circum stance in which a product under consideration
consists of several models, some of which are not sold in the domestic market. In its response,
Canada acknowledged that for models not sold in the domestic market, a third-country or constructed
normal value may be used pursuant to Article 2.2, whereas normal value must be based on domestic
market sales for other models.
13 In other words, in this situati on, Canada concedes, Article 2.2 may
be read to permit more than one "comparable pric e" for the product as a whole. In Canada’s view,
this is not "problematic", because the use of multip le "comparable prices" permits "the ‘margin of
dumping’ [to be] calculated in a more accurate manner".14

15. With that concession, however, the logic of Canada’s argument falls apart. Once it is
admitted that there is not necessarily one single pric e for a product as a whole, and that there may be
distinct prices associated with different models or sub-groups of a product, then there is no logical
basis for asserting that a price cannot be a transaction-sp ecific concept. If that is true for Article 2.2,
then it must also be true for Article 2.1. Those two provisions are closely inter-related. Article 2.1
establishes the basic proposition that a product is to be considered dumped "if the export price of the
product exported from one country to another is less than the comparable price, in the ordinary course

12 Canada Responses, para. 68; see also Replies of Japan to the Questions from the Panel (“Japan
Responses”), para. 14 (2 Dec. 2005).
13 Canada Responses, paras. 69-70.
14 Canada Responses, para. 70. Similarly, the EC simply asserts that a mix of normal value
“comparable price[s]” is permissibl e as “an efficient means of making intermediate comparisons”. EC
Responses, p. 20 (response to Question 46). Thailand does not consider the language of Article 2.2 to be
obligatory to the extent that it is inconsistent with its views as to the term “margin of dumping” for purposes of
this dispute. Thailand Responses to Panel Questions (“Thailand Responses”), paras. 17-18 (2 Dec. 2005). Like
Thailand, Japan simply asserts that normal values may be established on different bases, but, without regard to
the language of Article 2.2, asserts that comparisons using such normal values cannot constitute margins of
dumping because they do not represent the product as a whole. Japan Responses, paras. 53-54.

of trade, for the like product when destined for consumption in the exporting country". Article 2.2
then establishes how the "comparable price of th e like product" may be established in certain
specified circumstances.

16. Since the "comparable price" may be a price associated with a single transaction then, under
Article 2.1, a product may be considered to be dumped if the export price in a particular transaction is
less than the comparable price for the like product in a particular transaction. Likewise, pursuant to
Article VI:2 of the GATT 1994, the "margin of dumping" (i.e., the difference between the export price
and the comparable price for the like product) can be based on a transaction-to-transaction
comparison.
15 Thus, consistent with the United States’ understanding of Article 2.4.2, transaction-to-
transaction comparisons of normal value and export price can yield results that are themselves
margins of dumping. Since it is not the case that a margin of dumping can exist only for the product
as a whole (and, therefore, only an aggregation of transaction-to-transaction comparisons can yield a
margin of dumping), the argument that an offset for non-dumped transactions must be provided in the
course of developing a margin of dumping when the transaction-to-transaction comparison
methodology has been used must fail.

17. A third argument in the attempt to show th at a margin of dumping may not be established on
a transaction-specific basis is suggested by the EC. It contends that th e price to which an export price
is compared in a transaction-to-transaction comparison is not itself a normal value.
16 The EC’s theory
appears to be that since a margin of dumping is the result of a comparison between export price and
normal value, if a single transaction cannot constitute a normal value, then a comparison with a single
transaction cannot yield a margin of dumping. An insurmountable obstacle to that theory is the
ordinary meaning of the terms of Article 2.4.2. That article permits a Member to establish the
existence of margins of dumping "by a comparison of normal value and export prices on a
transaction-to-transaction basis". As discussed in the US response to Question 23, the ordinary
meaning of this language is that a transaction-to-tra nsaction comparison is an operation that yields a
result that may itself constitute a margin of dumping.

18. Nevertheless, the EC attempts to explain its theory by prov iding an example in response to
Question 39.
17 As the United States understands it, this example tries to show how "the underlying
normal value for the product as a whole" (in the EC’s terms) can be discerned if, as the EC asserts, the
individual transactions to which export prices are compared are not themselves normal values.

19. The EC’s example assigns each home market tr ansaction a weight based on the volume of the
corresponding export transactions. It then totals the export-weighted home market transactions and
compares that aggregate number to an aggregate of export prices. The principal flaw in this
illustration is that it does not actually involve a tran saction-to-transaction comparison. Rather, it is a
comparison of aggregated home market prices with aggregated export transactions.

20. Weighted comparisons between normal value and export price are expressly provided for in
the first comparison methodology described in Article 2. 4.2. Similarly, in the second sentence of
Article 2.4.2, the description of the targeted dumpi ng methodology refers explicitly to weighting ("[a]
normal value established on a weighted average basis"). Clearly, where the drafters of the AD
Agreement intended a comparison to involve weighti ng, they understood how to indicate that in the
text of Article 2.4.2.

21. As the transaction-to-transaction methodology set forth in Article 2.4.2 does not involve
weighting, the EC’s illustration is inapposite. It fa ils to overcome a critical flaw in the EC’s theory –

15 US Second Written Submission, paras. 29-39.
17 EC Responses, p. 18 (response to Question 39).

i.e., the inability to identify the normal value component of a comparison that would yield a margin of
dumping under the application of the transaction-to-transaction methodology.

22. For the foregoing reasons, as well as the reasons set forth in the prior US submissions and
statements, the Panel should reject Canada’s ar gument that the Appellate Body’s reasoning in the
underlying dispute should be extended without regard to context and that, therefore, the term "margins
of dumping" should be interpreted everywhere it appears in the AD Agreement as referring to margins
of dumping for the product as a whole.

II. NULLIFICATION OF THE TARGETED DUMPING COMPARISON
METHODOLOGY

23. Canada claims that the comparison methodology used by the United States in the Section 129
Determination is inconsistent with Articles 2. 4.2 and 2.4 of the AD Agreement because, when
determining the overall margin of dumping, the United States did not apply an offset to the amount of
dumping found. According to Canada, the United Stat es should have applied such an offset, equal to
the amount by which individual non-dumped transac tions exceeded normal value. The United States
responded that, among other flaws in this argument, if the Panel were to construe either Article 2.4.2
or Article 2.4 as Canada proposes, it would have the effect of nullifying the targeted dumping
comparison methodology provided for in the second sen tence of Article 2.4.2. That comparison
methodology permits Members to make average-to -transaction comparisons when a pattern of
differences in export prices exists among purchasers, regions, or time periods and such differences
cannot be taken into account under either the av erage-to-average or transaction-to-transaction
comparison methodology. If an investigating authority were required to make the offset that Canada
proposes, the results of average-to-transaction comparisons would be mathematically
indistinguishable from the results of average-to-ave rage comparisons. It is in this sense that the
second sentence of Article 2.4.2 would be rendered null.
18

24. One panel has already found that if the "fair comparison" provision of Article 2.4 is construed
to require an investigating authority to apply non-dumped amounts as an offset to dumped amounts,
the effect will be nullification of the targeted dumping comparison methodology.
19 Evidently aware
of this dilemma, Canada and certain third parti es have sought to identify hypothetical scenarios in
which the application of an offset under the targeted dumping comparison methodology would lead to
results different from results under the average-to-average comparison methodology.

25. In considering these hypothetical scenarios, it is important to keep in mind Canada’s
argument (discussed above) that a "margin of dumpi ng" necessarily, and without regard to context,
relates to the "product as a whole". By Canada ’s reasoning, that conclusion is compelled by
Article VI:2 of the GATT 1994 and does not depe nd on which comparison methodology is used to
establish the existence of margins of dumping.
20

26. As the United States discussed at the meeting with the Panel, the hypothetical scenarios that
Canada posits in response to the US demonstration that an off set requirement would render the
targeted dumping comparison methodology null are at odds with Canada’s assertion that the term
"margin of dumping" necessarily refers to a margin of dumping for the "product as a whole".
Canada’s responses to the Panel’s questions have only confirmed this in consistency. For example, in
response to Question 5, Canada indicated that in a regional targeted dumping analysis, the
investigating authority could simply choose to disregard non-dumped transactions outside of the

18 US Second Written Submission, paras. 20-23.
20 See, e.g., Canada Responses, para. 6; see also Japan Responses, paras. 11 and 13.

targeted region.21 That statement plainly is irreconcilable with Canada’s statement (also in reply to
the Panel’s questions) that a margin of dumping must be determined for "all of the exports of the
product under investigation made by a particular exporter or producer".22

27. Moreover, if Canada accepts that "margin of dumping" does not always refer to a margin of
dumping for the product as a whole – as it must in order for its hypothetical scenario to show what
Canada wants it to show – then there is no principl ed basis for concluding that a margin of dumping
can never be the result of a transaction-to-transaction comparison. Canada’s argument relies critically
on the absolute proposition that "margin of dumping" always and without exception means a margin
of dumping for the product as a whole. Once it admits exceptions, it cannot defend the proposition
that a transaction-to-transaction comparison may ne ver be a margin of dumping. However, as just
shown, Canada must admit exceptions in order to po sit a hypothetical scenario in which the targeted
dumping comparison methodology with offsets is not redundant with the average-to-average
comparison methodology with offsets.

28. In short, either "margin of dumping" always refers to the product as a whole (in which case
Canada cannot posit a hypothetical in which, under its asserted offset requirement, the targeted
dumping methodology would not be rendered null), or "margin of dumping" may sometimes refer to a
universe other than the product as a whole (in which c ase, there is no principled basis for finding that
a transaction-to-transaction comparison may not be a margin of dumping). In either case, Canada’s
argument must fail.

29. A further problem with Canada’s sugges tion that when applying the targeted dumping
methodology it is permissible to establish a margin of dumping for a mere subset of the product as a
whole is that this argument ignores Article 6.10 of the AD Agreement. Article 6.10 addresses
explicitly the circumstances in which less than all export transactions may be examined in an
investigation. The existence of a case of target ed dumping is not one of those circumstances. Nor
does Article 2.4.2 itself permit an investigating authority to examine less than all export transactions.

30. The EC, too, simply disregards the inconsiste ncy within its own arguments. Like Canada, the
EC tries to identify a hypothetical scenario in which the targeted dumping comparison methodology
could be applied, with offsets for non-dumped amounts, but without yielding a result indistinguishable
from application of the average-to-average comparison methodology with offsets.
23 Also like Canada,
the EC argues that "margins of dumping" must refer to margins of dumping for the product as a
whole, where "‘the product’ is ‘the product’ as defined by the investigating authority at the outset of
the original proceeding".
24 According to the EC, determining a margin of dumping for the product as
a whole requires applying non-dumped amounts as o ffsets to dumped amounts when aggregating
comparison results. For the reasons just explaine d, the EC’s "product as a whole" argument cannot
logically co-exist with the EC’s attempt to demons trate a hypothetical scenario in which application
of the targeted dumping comparison methodology with offsets is not redundant with the average-to-
average comparison methodology.

21 See, e.g., Canada Responses, paras. 18-20; see also EC Responses, p. 2 (response to Question 1);
Japan Responses, para. 29.
22 Canada Responses, para. 48. Canada parentheti cally attempts to redefine this statement by
suggesting that the “product under investigation” refers to the “‘universe’ of transactions that are aggregated to
arrive at a margin of dumping”. Id. Canada’s self-serving redefinition, however, finds no support in the AD
Agreement. See also EC Responses, p. 2 (response to Question 2), (attempting to redefine the “product as a
whole” as the subset that is composed of “the relevant data set”); Japan Responses, para. 56 (asserting that a
calculation limited to a subset of export transactions can constitute a valid dumping determination on its own).
23 See EC Responses, pp. 12-13 (response to Question 33).
24 EC Responses, p. 11 (response to Question 32).

31. In an effort to reconcile these two irr econcilable positions, the EC makes reference to
Article 4.2 of the AD Agreement.
25 Article 4.2 concerns the special situation in which "the domestic
industry has been interpreted as referring to the producers in a certain ar ea" within a Member’s
territory. In that case, absent a constitutional impe diment to doing so, anti-dumping duties are to be
levied "only on the products in question consigned for final consumption to that area".

32. The EC reasons that since a particular region within the territory of a Member may be treated
as a distinct market within the territory of a Memb er for purposes of Article 4.2, it also could be
treated in that same distinct way for purposes of application of the targeted dumping methodology
under Article 2.4.2. Thus, according to the EC, wher e the targeted region also is the region identified
as a distinct market under Article 4.2, anti-dumpi ng duties determined pursuant to the targeted
dumping comparison methodology could be imposed exclusively on products consigned for final
consumption to that region. The EC argues that th is would be an instance in which the provision of
offsets under the targeted dumping comparison methodology would not cause application of that
methodology to be redundant with application of the average-to-average methodology.

33. The EC’s argument relies on conflating a c oncept from Article 4.2 with a concept from
Article 2.4.2 based on a superficial similarity ( i.e., the reference to "a certain area" in the former and
to "regions" in the latter). The concept of a distinct "market" as referred to in Article 4.2 (and defined
in Article 4.1(ii)), is not the same as the concept of a targeted "region" in Article 2.4.2. But the EC
simply ignores that difference. Having done so, it then argues that the "product as a whole" may be
considered to be the product as a whole with respect to that distinct market, which the EC equates
with the regional targeted dumping. Following this line of reasoning, according to the EC, a Member
could establish a separate margin of dumping for a ta rgeted region (a result that would be different
from the result under the average-to-average methodolo gy), and this approach would not violate the
principle that a margin of dumping may be established only for a product as a whole.

34. The basic premise of the EC’s argument – that "market" as used in Article 4.2 equates to
"region" as used in Article 2.4.2 and that, accord ingly, a margin of dumping for a product as a whole
may be a margin of dumping restricted to a particular region – is fatally flawed. In fact, Article 4.2 is
relevant to the present analysis precisely in the way that it differs from Article 2.4.2.

35. Article 4.2 of the AD Agreement deals expressly with a situation in which a certain
geographical area within a Member’s territory constit utes a distinct market. If that situation exists,
and if the injury determination was based on an examination of producers within that market, the
Member ordinarily is required to focus anti-dumping duties on goods consigned to the geographical
area at issue. However, in setting forth this requirement, the drafters of the AD Agreement
recognized that for certain Members, as a matter of their constitutional law, it may be impossible to
limit the imposition of anti-dumping duties to partic ular geographical regions within their territory.
For these Members, therefore, Article 4.2 perm its the imposition of anti-dumping duties without
limitation, even though the determination of injury was focused on a distinct geographical market,
provided that specified conditions are met.

36. In sum, what Article 4.2 shows is that when the drafters of the AD Agreement intended that a
Member ordinarily treat a particular geographical area as a discrete market for certain purposes in the
application of its anti-dumping law, they took in to account the possible constitutional impediments to
doing this facing some Members. They made special allowances to deal with those impediments.
The fact that they did so strongly indicates that they would not have authorized Members to treat a
particular geographical area as a discrete market without also providing for these special allowances.

25 See EC Responses, p. 12 (response to Question 33).

37. Unlike Article 4.2, Article 2.4.2 does not make special allowances to deal with constitutional
impediments to treating a particular geographical area as a discrete market . The absence of such
allowances supports the conclusion that, contrary to the EC’s argument, the drafters of the AD
Agreement did not intend a Member to treat a part icular geographical area within its territory as a
distinct market for purposes of establishing a margin of dumping through application of the targeted
dumping comparison methodology. Accordingly, the contrast between Article 4.2 and Article 2.4.2
further demonstrates that the EC’s argument is wrong, and that in establishing a margin of dumping
using the targeted dumping comparison methodology (or, for that matter, either of the other
methodologies in Article 2.4.2) a Member may not focus exclusively on exports consigned to a
particular region.

38. Alternatively, the EC argues that under the targeted dumping comparison methodology,
margins of dumping may be established for the targeted region without applying non-dumped
amounts from outside the targeted region as offsets, a nd that this is not the same as what it calls
"simple zeroing".26 In fact, what the EC is doing in this alternative argument is changing the label
attached to the act of aggregating dumped amounts while not applying an offset for non-dumped
amounts. Since it believes that refraining from applyi ng an offset in this case is "justified by the
identification of a pattern of targeted dumping", it ar gues, in essence, that the fact of not providing an
offset should not bear the label "simple zeroing".27

39. This alternative argument defies logic. If, as the EC argues, so-called "zeroing" is always
impermissible, it cannot become permissible simply by changing its name in a setting in which the EC
believes it should be permissible. In sum, like Cana da, the EC fails to reconcile its argument that a
margin of dumping must always refer to a margin of dumping for the product as a whole (in which
case "zeroing" must be impermissible) with its argument that the targeted dumping comparison
methodology can be applied without "zeroing" in a way that would yield results different from the
results of application of the average-to-average methodology. The two arguments cannot logically
coexist.

40. In addition to its hypothetical scenario invol ving regional targeted dum ping, Canada posits a
second hypothetical scenario in which an investiga ting authority determines not one, but multiple
margins of dumping for producers/exporters that have demonstrated the requisite pattern of targeted
dumping.
28 Canada appears to recognize the need to r econcile this hypothetical with Article 6.10 of
the AD Agreement, which states that "authorities sha ll, as a rule, determine an individual margin of
dumping for each known exporter or producer con cerned of the product under investigation".
However, its argument amounts to nothing more than a rejection of the terms of Article 6.10.

41. Canada simply asserts that Article 6.10 "shoul d not be interpreted to prevent investigating
authorities from providing an exporter with more than one margin of dumping". 29 It argues that
Article 6.10 should be read as a requirement to provide each producer/exporter with a company-
specific margin, instead of a country-wide margin. Thus, according to this view, multiple margins of
dumping could be determined for a single producer/exporter, as long as those margins were company-
specific. The obligation in Article 6.10, however, is more precise. It refers to an individual margin of
dumping for each producer/exporter concerned "of the product under investigation". The latter phrase

26 EC Responses, p. 12-13, (response to Question 33).
27 EC Responses, p. 13; id., p. 19 (response to Question 44); see also id. , p. 14 (response to Question
35(a)), where the EC seeks to rely on its theory that the targeted dumping comparison methodology, justified by
a pattern of export prices, constitutes a basis for a due allowance for a difference affecting price comparability
between the export price and the normal value . The United States respectfully refers the Panel to the US
Responses at paras. 14-20 for the US response to this theory.
28 Canada Responses, paras. 22-23, 27.

indicates that "margin of dumping" as used in the context of Article 6.10 refers to an overall margin
of dumping for each producer/exporter.

42. The United States has explained that the term "margin of dumping" must be interpreted in its
context and that in some contexts (as, for example, that part of Article 2.4.2 that provides for the
transaction-to-transaction comparison methodology) it ma y be interpreted as referring to a margin of
dumping with respect to individual transactions. In the particular context of Article 6.10, the
United States recognizes that the reference to an "individual" margin of dumping for a
producer/exporter "of the product under investigation" refers to a single, overall margin of dumping
reflecting all of the exports of the product.
30 Interestingly, it is Canada – the party arguing that,
pursuant to Article VI:2 of the GATT 1994, a "mar gin of dumping" may only be determined for the
"product as a whole" – that would ignore the text of Article 6.10, asserting instead that the product as
a whole may be sub-divided, such that multiple margins of dumping may be established for any
particular producer/exporter.
31

43. In discussing its multiple margin theory, Canada also ignores Article 5.8 of the AD
Agreement. That provision requires immediate term ination of an investigation where the authorities
determine, inter alia, that "the margin of dumping is de minimis". Canada provides no indication of
how the multiple margins of dumping would be combined to test " the margin of dumping" against the
de minimis standard.32 If Canada would provide offsets for the non-dumped transactions outside the
pattern, it would arrive at a margin of dumping identi cal to that achieved using the average-to-average
comparison methodology and thereby deny effect to the targeted dumping comparison methodology.
Alternatively, Canada could deny an offset for such transactions. But, in doing so, it would have to
identify a principled reason for refraining from an offset in that case while insisting that it is
impermissible for the United States to refrain from offsetting when applying the transaction-to-
transaction comparison methodology. It has thus far offered no such principled distinction.

30 The word “individual” is defined as: “1 One in substance or essence; indivisible. . . . 2 That cannot
be separated; inseparable. . . . 3 Existing as a separate indivisible identity; numerically one; single, as distinct
from others of the same kind; particular.” New Shorter Oxford English Dictionary, p. 1352 (1993).
31 In paragraph 24 of Canada’s Responses, Canada indicates that it explains that “product as a whole”
can refer to multiple margins of dumping for a producer/exporter in its response to Question 6. Presumably,
Canada refers to paragraph 28, which provides no such explanation. There, without analysis, Canada simply
asserts that “[t]he Appellate Body’s decision does not limit an importer to one margin of dumping. Rather it
requires that whenever a margin of dumping is establis hed it must include the full amount of all intermediate
values that are aggregated to calcula te a margin of dumping.” Canada’s theory for why, in this context, a
margin of dumping need not include all of the export sales of the product under investigation remains elusive.
32 For example, in paragraphs 30-31 of its responses, Canada suggests that targeted dumping by time
period might be addressed by using two distinct margins of dumping, each applicable to the respective time
period for which it was calculated during the period of investigation. Notably, Canada presumes that non-
de minimis dumping occurred throughout the year, but at different rates. If dumping did not occur outside the
targeted period, or only occurred at a de minimis level, absent an aggregate analysis leading to termination of the
investigation, Canada would be suggesting that the second sentence of Article 2.4.2 permits Members to
construct anti-dumping measures that turn on and off with the seasons – a novel interpretation devoid of any
support in the AD Agreement.
The United States also notes that th is approach to time period targe ting presumes that the comparison
methodology was only intended to apply in a seasonal pr icing context (such as the EC’s example of “holiday
turkeys”). Time period targeting could also be considered when a significant change in exchange rates would
permit dumping after (or before) the change to be masked by “non-dumping” prior (or after) the change in rates,
in which case, Canada’s hypothetical would be inapposite.
Similarly, in paragraphs 39-40, Canada provides numerical examples in which all of the multiple
margins of dumping are non- de minimis in order to avoid addressing the true implications of its hypothetical
examples.

44. The responses of Canada and the third parties to Question 9 also are relevant to the question
of whether application of the targeted dumping comparison methodology will necessarily achieve a
result that is redundant with the result from app lication of the average-to-average comparison
methodology. In its response, Canada accepts that the "weighted average normal value" referred to in
the first sentence of Article 2.4.2 is the same as the "normal value established on a weighted average
basis" referred to in the second sentence of that provision. 33 Having admitted that the two terms mean
the same thing, Canada cannot escap e the mathematical reality that, if all export prices are compared
and offsets granted, it does not matter whether the export prices are compared on a transaction-to-
transaction or average-to-average basis. The resu lt will necessarily be the same. Some of the third
parties, however, suggest that the different re ferences to normal value in the first and second
sentences of Article 2.4.2 may have different mean ings, thus suggesting another way to achieve a
result from application of the targeted dumping comparison methodology that differs from the result
from application of the average-to-average comparison methodology.

45. In particular, the EC suggests that a pattern of export prices that varies according to
purchaser, region, or time period might somehow be a basis for subdividing normal value transactions
occurring within the exporting country .
34 However, nothing in the text of Article 2.4.2 supports such
a leap from the treatment of prices in the export market to the treatment of prices in the normal value
market. Moreover, there is no logic to the proposition that targeting in the export market according to
purchaser, region, or time, which might justify special treatment of export prices, would also justify
corresponding special treatment of normal value pr ices. That proposition assumes without any basis
that the events that justify special treatment of pr ices in the export market also are occurring in the
normal value market. Just because prices in the expo rt market exhibit a targeted pattern with respect
to purchaser, region or time does not mean that a co rresponding targeted pattern is being exhibited in
the normal value market.
35 Nor does the EC give any explanation to support the view that there
should be such a corresponding pattern. In any event, as noted above, the text of Article 2.4.2
addresses how to deal with export prices in cases of targeted dumping and is entirely silent on the
question of normal value in such situations. Therefore, the EC’s argument on this point is
unfounded.36

46. As a final comment with respect to this issue, the United States refers to Canada’s response to
the Panel’s Question 29. There, the Panel asked about the EC’s suggestion that "if there is one
hypothetical situation in which a general prohib ition on zeroing does not render the targeted dumping
methodology redundant, that is sufficient to demons trate that the United States’ argument in this
regard is without merit". Without elaboration, Cana da replies that it is sufficient to show that "the

33 Canada Responses, para. 44.
34 EC Responses, p. 5 (response to question 9).
35 For example, patterns in export pr ices by time period could be the result of a change in exchange
rates, which may have no relevance to prices within th e exporting country. Or, if the product is considered a
seasonal product, the seasonal demand for the produc t could differ significantly between the exporting and
importing countries. For example, if the seasonal demand is based on warm or cold weather, the seasonal
demand would differ substantially if the exporting country is in the southern hemisphere and the importing
country is in the northern hemisphere (or vice versa). That is, the time period in which demand is high in the
exporting country would not be the same as the time period in which demand is high in the importing country.
Transactions from the period of high demand in the exporting country could not be compared to transactions
from the period of high demand in the importing count ry because that would be inconsistent with the
requirement in Article 2.4 of the AD Agreement that comparisons be made “in respect of sales made at as nearly
as possible the same time.”
36 Thailand and Japan make comments similar to the EC’s regarding the subdivision of normal value
transactions, and their comments suffer from the same errors as the EC’s approach. See Thailand Responses,
paras. 5-9; Japan Responses, paras. 36-51.

targeted dumping methodology can be applied in a different manner than that suggested by the
United States".
37

47. However, the issue identified in Question 29 w as more specific. The Panel asked whether it
was "enough to posit that such a methodology can be applied by some Members in some
circumstances, or would it be necessary that such a methodology would be generally susceptible of
application by all Members." Canada failed entirely to address this aspect of the question. Instead, it
treated the Panel’s question as asking "whether th e municipal practice of some Members should be
used to interpret the provisions of the Anti-Dumping Agreement," and answered that it should not.
38
However, as the United States understands it (especia lly in light of the discussion during the Panel
meeting), this was not the thrust of the Panel’s question. Rather, the United States understands the
Panel to have been examining the issue of whether the hypothetical situations Canada posits must be
realistic situations in order to support Canada’s argument, or whet her it is irrelevant that such
hypothetical situations bear no relation to what act ual investigating authorities of actual Members are
able to do. As discussed in the US response to the same question, an appropriate hypothetical would
have to address all three types of target ed dumping referred to in Article 2.4.2 ( i.e., purchasers,
regions, and time periods), take account of the or dinary meaning of the terms of the second sentence
of Article 2.4.2, and be compatible with other relevant provisions of the AD Agreement. 39 T h e
hypothetical situations that Canada has posited do not come close to meeting that standard.

III. FAIR COMPARISON

48. Many of the points discussed above, particular ly with respect to the nullification of the
targeted dumping comparison methodology, are releva nt to both Canada’s Ar ticle 2.4 argument and
its Article 2.4.2 argument. As the argumentati on in this dispute has evolved, it has become
increasingly difficult to distinguish the former ar gument from the latter. At the outset, Canada
devoted a total of six short paragraphs to its Article 2.4 argument in its two written submissions
combined. In its interventions at the Panel meeti ng and its responses to the Panel’s questions, Canada
has failed to articulate how that argument is distinct from its Article 2.4.2 claim. The United States
calls attention to this aspect of Canada’s case b ecause it now appears, in response to the Panel’s
Questions, that Canada has merged its Article 2.4 argument into its Article 2.4.2 argument.

49. Specifically, Canada’s response to Question 22 indicates that Canada may now regard its
claim pursuant to Article 2.4 as dependent upon its cl aim pursuant to Article 2.4.2. In response to
Question 22, regarding the practical consequences of a finding that "zeroing would be considered
unfair as such," Canada states that "[t]he ‘fair comparison’ requirement prohibits the practice of
‘zeroing’ because it is inconsistent with the substantive rules and concepts concerning the calculation
of ‘margins of dumping’ under Article 2.4.2 of the Anti-dumping Agreement".
40 Canada then goes on
to quote, favourably, a passage from the recently circulated report in US – Zeroing (EC Complainant),
where the panel indicated that a standard of fairn ess must take into account the "substantive rules and
concepts in the AD Agreement relevant to the i ssue of the determination of margins of dumping". 41
In other words, the legal rationale that Canada ha s offered for its assertion that the United States has
acted in a manner inconsistent with Article 2.4 is that the methodology employed is inconsistent with
Article 2.4.2.42 As discussed above and in prior US subm issions, Canada has failed to establish that
the United States’ denial of offsets pursuant to the transaction-to-transaction comparison methodology

37 Canada Responses, para. 66.
38 Canada Responses, para. 67.
39 US Answers, para. 75.
40 Canada Responses, para. 55.
42 The only other support that Canada now offers for its Article 2.4 argument is statements by the
Appellate Body in disputes that did not raise the issue now before this Panel. See Canada Responses, para. 59.

is inconsistent with Article 2.4.2. Accordingly, by the terms of Canada’s own argument with respect
to Article 2.4, its claim under that provision must fail as well.