Source: https://worldtradelaw.typepad.com/ielpblog/zeroing/
Timestamp: 2019-04-21 05:02:57+00:00

Document:
How will all the previous WTO jurisprudence apply here? Keep in mind that we are dealing with a new provision (the second sentence of Article 2.4.2).
We have long held that Commerce’s practice of zeroing is a reasonable statutory interpretation entitled to deference. See, e.g., Timken Co. v. United States, 354 F.3d 1334, 1342 (Fed. Cir. 2004). Zeroing is the practice whereby the values of positive dumping margins are used in calculating the overall margin, but negative dumping margins are included in the sum of margins as zeroes. Dongbu Steel Co. Ltd. v. United States, 635 F.3d 1363, 1366 (Fed. Cir. 2011). Historically, Commerce used zeroing in both the initial investigation to determine whether dumping occurred, and in the subsequent administrative reviews of its dumping determination. But this practice has changed. In response to pressure from the World Trade Organization (WTO), Commerce changed its practice with respect to investigations and no longer zeroes in that phase. Id. at 1367.
We addressed Commerce’s conflicting treatment of zeroing in investigations and administrative reviews in Dongbu. Due to the procedural posture in Dongbu, Commerce had provided no justification for using zeroing in administrative reviews and not in investigations. In that case, we vacated and remanded in order for Commerce to explain its reasoning for such disparate treatment. Id. at 1373.
NTN argues that Dongbu requires that we vacate and remand this case in order for Commerce to provide reasoning for its current practice. Appellee Timken argues that NTN failed to properly raise this issue on appeal. Further, appellees argue that Dongbu does not require vacatur because Commerce, unlike in Dongbu, provided reasons for its zeroing practice in this case.
As an initial matter, NTN did not waive this argument. NTN focuses a significant portion of its brief to challenging Commerce’s use of zeroing. Although NTN acknowledges that we have consistently upheld the practice, NTN nonetheless raised the issue and specifically pointed out the contradiction of using zeroing in administrative reviews, but not in investigations. NTN Appellant’s Br. 34. NTN did not have the benefit of the Dongbu opinion before filing its briefs and thus could not have argued that the case requires us to vacate, but it nonetheless preserved the issue on appeal by arguing that Commerce’s continuing practice of zeroing in administrative reviews, but not in investigations, is unreasonable.
Antidumping investigations and administrative reviews are different proceedings with different purposes. Specifically, in antidumping investigations, the Act specifies particular types of comparisons . . . . In antidumping investigations, the Department generally uses average-to-average comparisons whereas in administrative reviews the Department generally uses average-totransaction comparisons.
J.A. 173-74 (citations omitted). While Commerce did point to differences between investigations and administrative reviews, it failed to address the relevant question—why is it a reasonable interpretation of the statute to zero in administrative reviews, but not in investigations? It is not illuminating to the continued practice of zeroing to know that one phase uses average-to-average comparisons while the other uses average-to-transaction comparisons. In order to satisfy the requirement set out in Dongbu, Commerce must explain why these (or other) differences between the two phases make it reasonable to continue zeroing in one phase, but not the other. Thus, we vacate and remand in order for Commerce to provide its reasoning.
Zeroing at the Supreme Court?
Whether the Tariff Act of 1930—which defines “dumping” as “the sale or likely sale of goods at less than fair value” and “dumping margin” as “the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise”—unambiguously excludes above-fair-value sales (i.e., those sales that do not constitute “dumping”) from the statutory formula for “weighted average dumping margin.
The basic issue: Under the relevant statute, is the Department of Commerce permitted to calculate dumping margins without using zeroing? Here's more from the petition.
For decades, Commerce excluded above-fair-value sales from its calculation of “weighted average dumping margin” under Section 1677(35). Its change of course and recalculation of “weighted average dumping margin” in this case marks the ﬁrst time that Commerce has offset dumping with above-fair-value sales in calculating an antidumping duty margin.
The exclusion of these sales—sales that do not constitute “dumping”—from the calculation of “weighted average dumping margin” is sometimes referred to as “zeroing.” See Timken Co. v. United States, 354 F.3d 1334, 1338-39 (Fed. Cir. 2004). The Court of International Trade ﬁrst considered the exclusion of above-fair-value sales in Serampore Industries Pvt. Ltd. v. United States Department of Commerce, 675 F. Supp. 1354 (Ct. Int’l Trade 1987). That court upheld Commerce’s construction of the Act, emphasizing that “[a] plain reading of the statute discloses no provision for Commerce to offset sales made at [less than fair value] with sales made at [or above] fair value.” Id. at 1360.
Commerce employed this construction of the Act in the initial investigation underlying this case. ... Consistent with its longstanding practice, Commerce excluded Tata Steel’s above-fair-value sales when calculating the weighted average dumping margin, which resulted in a duty margin of 2.59%. See Certain Hot-Rolled Carbon Steel Flat Products from the Netherlands, 66 Fed. Reg. 55,637 (Nov. 2, 2001) (amended ﬁnal determination of sales at less than fair value).
Notably, Commerce had taken the position that its construction of “weighted average dumping margin” was compelled by the unambiguous terms of the Act. ... Before the Federal Circuit, the United States argued that “[t]he antidumping statute unambiguously requires Commerce to consider only transactions where the price falls below [normal value] in calculating dumping margins.” Brief for United States, Timken Co. v. United States, No. 03-1098, -1238, 2003 WL 24305310, at *18 (Fed. Cir. ﬁled May 19, 2003) (emphasis added). Expanding on this point, the United States argued that, “[c]onsidering the deﬁnitions [of “dumping margin” and “weighted-average dumping margin”] together, the statute plainly directs Commerce to aggregate the entries where NV exceeds U.S. price in determining the ‘weighted average dumping margin.’ The statute neither provides nor suggests that this amount may be reduced or offset by other EP or CEP transactions that exceed NV.” Id. at *19 (emphasis in original). The Timkencourt considered this a “close question,” ultimately ruling that Commerce’s construction of the Act was a permissible one. Timken, 354 F.3d at 1341.
Nucor appealed to the Federal Circuit. Like the CIT, the Federal Circuit held that the Tariff Act was not “‘so clear as to compel a ﬁnding that Congress expressly intended to require zeroing.’” U.S. Steel Corp., 621 F.3d at 1361 (quoting Timken, 354 F.3d at 1341). The court thus concluded that it was bound by circuit precedent and, in any event, the court agreed with Timken. Id.
The Federal Circuit’s fundamental error was confusing the question of whether dumping is occurring with the question of how much dumping is occurring. Whether dumping is occurring is determined by answering a straightforward question: is a particular imported good being sold in the United States for less than it is being sold in the importer’s home market? If it is, Commerce is then charged with identifying how much dumping is occurring—i.e., evaluating a broader set of importation data to determine by how much the “normal value exceeds the export price or constructed export price.” 19 U.S.C. § 1677(35)(A). Per the text of the statute, Commerce may not use a formula for calculating the “dumping margin” that negates its determination that imported merchandise has been “dumped” in the United States. Once Commerce has determined that “dumping” is occurring, by deﬁnition the answer to how much dumping is occurring cannot be “none” under this statutory scheme.
9.19 ... One school of thought is that "dumping" relates to the average pricing behaviour of an exporter/producer over time. For those who hold this view, the fact that a particular export transaction is made at a price that is below the price of a comparable transaction in the home market of the exporting country (or is below cost) does not necessarily mean that dumping has occurred, if another export transaction is made at a price which is higher than the home market price. They believe that exporters should be given "credit" for selling above normal value, and consider zeroing to be illogical. Others consider that any time a particular export transaction occurs at a price that is below the price of a comparable transaction in the home market of the exporting country (or is below cost), dumping has occurred. From this perspective, overall margins of dumping are calculated simply because it is impractical to calculate and impose anti-dumping duties with respect to each export transaction, and the idea that such a transaction should not be viewed as dumped merely because another export transaction occurs at a higher price makes no sense.
9.20 The difference between these two approaches can be understood on the basis of a simple example. Assume there are two home market sales and two export sales of a product during the period of investigation. Both home market sales are made at a price of 100. One of the export sales is made at a price of 50, the other at a price of 150. Under one school of thought, what is relevant is average pricing behaviour. Since the average normal value and average export price are both 100, there is no dumping and no duties should be imposed. Under the second school of thought, one of the two sales was at a dumped price while the other was not. Duties should therefore be collected on the dumped sale. However, a dumping margin should be calculated that would reflect that only some sales were dumped. Using zeroing, the total amount of dumping (50) would be divided by total export sales (200), resulting in a 25 per cent margin. Imposition of a 25 per cent duty on the two export transactions would result in the collection of duties in the amount of 50, the same amount of duties as would have been collected had dumping been determined and duties assessed for each transaction.
9.21 Arguments may be advanced for each of the conceptual approaches identified above. For the "average pricing behaviour" advocates, it is simply not consistent with commercial reality to expect that exporters will be able to fine-tune their pricing on a transaction by transaction basis to avoid dumping. Advocates of the alternative approach argue that the harm caused to domestic producers by a dumped transaction – e.g., the loss of a sale or sale at a lower price than would have otherwise occurred – is not undone simply because another export transaction is made at greater than normal value, nor is the damage caused by dumping of a particular type or model undone simply because another model is sold at greater than normal value. Both approaches have strengths and weaknesses.
The terms “dumped” and “dumping” refer to the sale or likely sale of goods at less than fair value.
So what is "dumping" under U.S. law? Can the existence of dumping be established based on an individual "sale or likely sale" of a particular good at a certain price? Or must all the sales or likely sales of all the "goods" at issue be taken into account to determine whether there is dumping?
U.S. engineered wood flooring manufacturers have alleged certain producers in China are performing "targeted dumping," or selling a product in the U.S. at a lower price to certain customers or in certain regions than they do to other customers. The Coalition for American Hardwood Parity (CAHP) made the allegations in a petition to the U.S. Department of Commerce (DOC) on Tuesday.
The new allegation comes in anticipation of a preliminary ruling from DOC in its ongoing antidumping investigation of engineered wood flooring from China. The allegation could result in DOC using a different methodology to determine its antidumping duty, according to a CAHP release.
Jonathan Train, president of the Alliance for Free Choice & Jobs in Flooring (AFCJF), a group opposed to the implementation of antidumping duties, says CAHP's petition is an attempt to "find a backdoor loophole" to permit DOC to use an antidumping duty methodology known as "zeroing." With zeroing, Train said, DOC bases its antidumping duty determination "only on the dumped sales, ignoring the non-dumped sales and excluding non-dumped sales from its averages." In turn, zeroing artificially and inaccurately increases antidumping duties, Train said. He added that zeroing has been largely discredited by the World Trade Organization (WTO), of which the U.S. is a founding member.
Jeff Levin is counsel for CAHP and, citing the attorney-client privilege, would not say whether his organization is pursuing DOC to use zeroing in its antidumping duty determination; however, he did say his group's latest allegations "were filed in full accord with the controlling statute and regulations." He added, "… We trust that the Department of Commerce will employ appropriate and applicable methodologies in its calculations of estimated dumping margins."
Is "targeted dumping" just another way to use "zeroing," by excluding various non-dumped sales? Is it legitimate in some cases, but in need of oversight to make sure it is not abused as a "zeroing" substitute? What will U.S. courts and the WTO dispute settlement process say about the specific implementation of targeted dumping?
Last Thursday, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued its decision in Dongbu Steel, saying, in essence, that the Department of Commerce can't take an inconsistent approach to zeroing -- no zeroing in investigations, but zeroing in administrative reviews -- without a good reason. Here are some key excerpts.
Commerce has previously argued that the relevant statutory provision compels zeroing. This court has opined that the statutory text applicable to both investigations and administrative reviews—namely the term “exceeds” in 19 U.S.C. § 1677(35)(A)—is sufficiently ambiguous to defer to Commerce’s decision of whether or not to use zeroing in both stages of its antidumping procedures.
Commerce has now decided to stop using zeroing in investigations to comply with international treaty obligations while continuing to use it in administrative reviews. Surely, under appropriate circumstances, Commerce may change its position as to whether to apply zeroing. ... The circumstances here, however, present a unique twist because Commerce’s compliance with international treaty obligations has lead it to interpret a single ambiguous statutory term inconsistently during different phases of an antidumping duty assessment, i.e., using zeroing for administrative reviews but no longer using zeroing for investigations. The issue presented in this case is whether Commerce is entitled to deference when it interprets 19 U.S.C. § 1677(35) inconsistently.
In a nutshell, the CAFC has made clear in the past the Commerce has the discretion to use zeroing, but is not required to. But now Commerce has stopped using zeroing in one situation, yet still uses it another.
it is unreasonable under Chevron for Commerce to construe the identical statutory provision—19 U.S.C. § 1677(35)—to have opposite meanings in investigations and administrative reviews where (1) nothing in the statutory language indicates that different interpretations were intended and (2) this court has rejected the claim that the meaning of § 1677(35) depends on the stage of the antidumping proceeding.
In this regard, during the proceedings before Commerce, the appellant had "submitted a letter to Commerce on January 11, 2007 challenging Commerce’s decision to continue using zeroing in administrative reviews after abandoning its use in investigations. Commerce rejected the letter as untimely."
The Court of International Trade "sustained Commerce’s final results" and held that "Timken and Corus I did not foreclose Commerce’s inconsistent use of zeroing in administrative reviews and investigations."
See Roger Alford's post here for more.
The US trade representative’s office said it would seek to negotiate a reinstatement of the practice of zeroing within the so-called “Doha round” of trade talks, part of which address antidumping rules. But with those talks having been stalled for some years and many other WTO members implacably opposed to zeroing, Washington is likely to face an uphill struggle.
[A Commerce Department] official said the U.S. would continue to push for its right to use the criticized practice of "zeroing" when calculating duties on dumped goods during the ongoing Doha round of trade talks.
"The U.S. proposal to come into compliance with the WTO rulings in no way signals a change in the U.S. position in the Doha Rules negotiations with regard to zeroing," the official said.
I have a hard time imagining that the U.S. will get zeroing back through the Doha negotiations. But I can imagine that the U.S. will argue that by ending zeroing, it has made a significant trade liberalizing concession, and that others should take on some extra trade liberalization as a result.
ADDED: Further thoughts from Scott Lincicome here.
modification'' in the Federal Register.
\7\ US-Zeroing (Japan), WT/DS322/AB/R, para. 190(b).
Zeroing (EC), WT/DS350/R, para. 8.1(f), WT/DS350/AB/R, para. 395(f).
dumping,\11\ the Department proposes to withdraw any such practice.
investigations and is proposing herein to make with respect to reviews.
Modification, 71 FR 77,722 (December 27, 2006).
\11\ US-Zeroing (Japan), WT/DS322/AB/R, paras. 88, 138.
ensure Sec.  351.414(d)(3) and (e) do not contain redundant language.
Comments are due January 27, 2011. I'm sure there will be many!
14. The United States has provided evidence that demonstrates how prospective normal value systems operate and that the refund mechanism under a prospective normal value system normally addresses specific individual transactions. In contrast, there is no evidence to support the assertions that a refund mechanism must recalculate a margin of dumping based on an aggregation of all comparisons. Indeed, Brazil acknowledged that it has never granted a single refund when collecting antidumping duties on the basis of a prospective normal value.
15. Brazil nonetheless argues that an obligation to calculate the margin of dumping with respect to “product as a whole” is consistent with prospective normal value systems. In its answers to the Panel’s Questions, Brazil asserts that when it has applied prospective normal value, “the collection of the duty was limited to a dumping margin determined in accordance with Article 2 of the Anti-Dumping Agreement”. A review of the facts, however, raises questions about how this assessment comports with Brazil’s proposed interpretation of the Antidumping Agreement.
16. Brazil has used prospective normal value to collect antidumping duties on products from at least seven countries: the United States, Mexico, Romania, Germany, France, Spain, and the United Kingdom. In each case, Brazil calculated the antidumping duty as the absolute difference between the normal value (or reference price) and the adjusted export price of a specific transaction. Brazil assessed the antidumping duty in instances where the price of the imported product (an entry) was lower than the established normal value. However, Brazil assessed no duty if the result of the comparison was less than or equal to zero. And, Brazil has never provided a refund or an offset based on non-dumped transactions.
18. There is no reason why liability for payment of antidumping duties in the retrospective system applied by the United States may not be similarly assessed on the basis of transaction-specific export prices. Accepting the interpretation that a Member must aggregate the results of “all” comparisons on an exporter-specific basis would require that retrospective reviews be conducted even in a prospective normal value system. This result is contrary to the very concept of a prospective normal value system.
As I understand it, the basic point, which the U.S. has made in other proceedings as well, is that in a prospective normal value system, the duty collections are undertaken in a way that involves zeroing. Furthermore, in practice these systems operate so that refunds are not provided on the basis of the product "as a whole," and thus final assessment of duties also involves zeroing.
The U.S. wants to use this point to argue that if prospective systems can use zeroing, retrospective systems should be able to do so as well. But is another conclusion possible? If the U.S. is right about how prospective systems work, does WTO zeroing jurisprudence mean that all or most prospective systems would be found in violation of the AD Agreement on this basis? Even if that were the case, though, given that most countries use such systems, would anyone bring a claim? The U.S. doesn't use a prospective system, of course, but would it ever bring a case that tries to rein in zeroing?
Does U.S. Law Require Zeroing?
The U.S. Court of Appeals for the Federal Circuit says no (yesterday). Some brief snippets of the decision follow.
Commerce responded to the adverse WTO ruling that zeroing is inconsistent with United States obligations under the Antidumping Duty Agreement according to two administrative procedures, laid out in the Uruguay Round Agreements Act ("URAA").
Section 123 describes how Commerce and the United States Trade Representative are to implement an adverse report from the WTO. Pursuant to Section 123, the United States Trade Representative consulted with appropriate Congressional committees and private sector committees, and Commerce provided for public comment before determining whether and how to change its practice. Following those consultations, Commerce determined that it would cease its zeroing practice in new and pending investigations using average-to-average comparison methodology. …. Instead, Commerce determined to use a methodology of "offsetting," pursuant to which sales made at less than fair value are offset by those made above fair value. This means that some of the dumping margins used to calculate a weighted-average dumping margin will be negative.
pursuant to Section 129, Commerce applied its new methodology to the investigation of hot-rolled steel from the Netherlands. Under its offsetting methodology, Commerce found that the resulting dumping margin was de minimis. As a result, Commerce announced that it would revoke the antidumping duty order in that investigation.
Four separate actions were filed at the Court of International Trade, challenging Commerce's determinations.
… In its analysis of the consolidated challenge to the § 129 determinations, the Court of International Trade upheld Commerce's determinations, concluding that they were in accordance with law. U.S. Steel, 637 F. Supp. 2d at 1214. In so holding, the court first stated that settled precedent established that Congress had not clearly spoken to the question of zeroing in the antidumping statute, either by requiring Commerce to make a "fair comparison . . . between the export price or constructed export price and normal value" under 19 U.S.C. § 1677b(a), or by its definitions of dumping margins as "the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise" and weighted average dumping margins as a calculation "dividing the aggregate dumping margins . . . by the aggregate export prices and constructed export prices," under § 1677(35)(A) and (B). Id. at 1210-11 (citing Timken,354 F.3d at 1341-43, inter alia). The court found that "the language in §§ 1673c(b)(2), 1673c(c), and 1677f-1(d) does not clarify Congress's intent on the issue." Id. Therefore, the court proceeded to an analysis of whether Commerce's methodology encompassed a reasonable interpretation of the statute, pursuant to Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).
The Court of International Trade upheld as reasonable Commerce's interpretation of the statute to use offsetting in average-to-average comparisons of original investigations. U.S. Steel, 637 F. Supp. 2d at 1212-13.
We turn to the language of the statute to begin our analysis, according to which "[t]he terms `dumped' and 'dumping' refer to the sale or likely sale of goods at less than fair value." 19 U.S.C. § 1677(34). Commerce calculates a dumping margin for a particular product subject to review, defined as "the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise." Id. at § 1677(35)(A). A "weighted average dumping margin" across the products is "the percentage determined by dividing the aggregate dumping margins determined for a specific exporter or producer by the aggregate export prices and constructed export prices of such exporter or producer." Id. at § 1677(35)(B). The issue Appellants ask us to revisit, both generally and in light of § 1677f-1(d), is whether a weighted average dumping margin may include negative numbers in its aggregation of dumping margins.
We agree with the government that the Section 129 Determination reflects Commerce's reasonable interpretation of an ambiguous statute. Our analysis proceeds under the two-part test explained in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). At issue here is the first step of Chevron, which requires a court to determine "whether Congress has directly spoken to the precise question at issue." Id. at 842. If so, that would be the end of the inquiry; however, "if the statute is silent or ambiguous with respect to the specific issue," the court determines if the agency's construction of the statute is permissible. Id. at 843. As explained below, we conclude that none of the cited statutory provisions speaks to the precise issue of zeroing—or offsetting— methodology. Rather, the statute is silent as to the methodology to be employed in situations of negative dumping margins.
We are bound by our previous decisions in Timken and Corus, which held that § 1677(35)(A) does not unambiguously preclude—or require—Commerce to use zeroing methodology. See Texas Am. Oil Corp. v. U.S. Dep't of Energy, 44 F.3d 1557, 1561 (Fed. Cir. 1995) (en banc) ("This court applies the rule that earlier decisions prevail unless overruled by the court en banc, or by other controlling authority such as intervening statutory change or Supreme Court decision."). Moreover, we agree with those decisions. The statute defines a dumping margin as "the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise," 19 U.S.C. § 1677(35)(A), and subsequently requires Commerce to use this amount in calculating a weighted-average dumping margin, id. § 1677(35)(B). However, the statute is silent as to what to do when the "amount" calculated by Commerce pursuant to § 1677(35)(A) is negative. Congress has given Commerce discretion in forming its methodology in antidumping investigations, and where the statutory language does not address the methodology at issue, we decline to conclude that Congress has manifested its unambiguous intent. We find it important to note that although the processes undertaken pursuant to Sections 123 and 129 included input from Congressional committees, this later involvement in Commerce's methodology cannot constitute an indication of Congressional intent, nunc pro tunc. Were we to find a clear Congressional intent in the language of the statute to mandate zeroing methodology, the acquiescence of Congressional committees now to the new determinations would not serve to negate it. Nevertheless, we have found no such clear intent.
Zeroing in "Targeted Dumping" Situations: The Next Battleground?
Foreign exporters and U.S. importers should take note of a recent antidumping decision that represents a significant change in the U.S. Government's antidumping duty calculations. The decision, which involved imports of certain retail carrier plastic bags from Taiwan, expands the use of a controversial practice known as "zeroing" through the use of a "targeted dumping" analysis. Polyethylene Retail Carrier Bags from Taiwan: Final Determination of Sales at Less than Fair Value, 75 Fed. Reg. 14569 (Mar. 26, 2010) ("Taiwan Bags"). We discuss this below.
... if Commerce uses its targeted dumping methodology, it calculates dumping rates with zeroing; this calculation typically increases the dumping margins. Commerce used its targeted dumping methodology in Taiwan Bags, thereby enabling it to use zeroing to increase the exporter's amount of dumping. In Taiwan Bags, however, Commerce went a step further. In that decision, Commerce revised its targeted dumping methodology to use zeroing on virtually every sale, regardless of the extent of any actual targeted dumping. This is in contrast to its past practice of zeroing only the identified targeted sales. Through its expanded zeroing practices, Commerce appears to have essentially resumed its use of zeroing in dumping calculations without regard to WTO decisions declaring the practice unlawful.
While Commerce has used targeted dumping previously, it has never used it as broadly as was done in Taiwan Bags. This is a sharp departure from Commerce's past practice and it remains to be seen whether this new targeted dumping methodology survives any legal challenges.
A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.
The permissibility of zeroing under the weighted average-to-transaction comparison methodology provided in the second sentence of Article 2.4.2 is not before us in this appeal, nor have we examined it in previous cases.
The Appellate Body has so far not ruled on the question of whether or not zeroing is permissible under the comparison methodology in the second sentence of Article 2.4.2. Nor is it an issue before us in this appeal.
Thus, it appears that the Appellate Body has been careful to leave open its options for the consideration of zeroing under this provision. With decisions like the Taiwan Bags one, though, its hand may soon be forced.
Does Zeroing Violate U.S. Law?
See pages 5-24. There's lots of good Charming Betsy/Chevron talk, for those are into that sort of thing.
There is a two member (Lichtenstein and Liebman) dissent that says zeroing does not violate U.S. law. See pages 53-90.
I hope to have something more to say about all this at some point, but it may be a while, so I thought I'd just mention the case for those who are interested.
5. The United States acknowledges the accuracy of Thailand’s description of the Department of Commerce’s use of “zeroing” in calculating the dumping margins for the individually investigated exporters whose margins of dumping were not based on total facts available. The United States recognizes that in US – Softwood Lumber Dumping the Appellate Body found that the use of “zeroing” with respect to the average-to-average comparison methodology in investigations was inconsistent with Article 2.4.2, by interpreting the terms “margins of dumping” and “all comparable export transactions” as used in the first sentence of Article 2.4.2, in an integrated manner.7 The United States acknowledges that this reasoning is equally applicable with respect to Thailand’s claim regarding the individually investigated exporters whose margins of dumping were not based on total facts available in the investigation at issue.
How does one reconcile these two diametrically opposed positions?
The Chair of the Negotiating Group on Rules has issued a new working document: http://www.wto.org/english/tratop_e/rulesneg_e/rules_may08_annexa_e.doc Of course, I skipped right to the zeroing part.
(i) when, in an investigation initiated pursuant to Article 5, the authorities aggregate the results of multiple comparisons of a weighted average normal value with a weighted average of prices of all comparable export transactions, they shall take into account the amount by which the export price exceeds the normal value for any of the comparisons.
(ii) when, in an investigation initiated pursuant to Article 5, the authorities aggregate the results of multiple comparisons of normal value and export prices on a transaction-to-transaction basis or of multiple comparisons of individual export transactions to a weighted average normal value, they may disregard the amount by which the export price exceeds the normal value for any of the comparisons.
(iii) when, in a review pursuant to Articles 9 or 11, the authorities aggregate the results of multiple comparisons, they may disregard the amount by which the export price exceeds the normal value for any of the comparisons.
Numerous delegations expressed the view that zeroing is a biased and partial method for calculating the margin of dumping which inflates anti-dumping duties, and that its use could nullify the results of trade liberalization efforts (see TN/RL/W/214/Rev.3), and therefore considered that the Chairman's text on zeroing was unacceptable. Accordingly, twenty delegations co-sponsored a Working Paper that proposed alternative language that would prohibit a Member from disregarding the amount by which the export price exceeds the normal value for any comparisons in all proceedings, including original investigations, proceedings under Articles 9.3 and 9.5 and reviews under Articles 11.2 and 11.3, and in respect of all methodologies (see TN/RL/W/215). They further proposed to make clear that Article 2.4.2 applies in all proceedings, to set a minimum time period on the basis of which a margin of dumping could be calculated, and to require consistency between the methodology used in an original investigation and a subsequent proceeding pursuant to Article 9.3.
Other delegations had different views about the Chairman's text. Some of these delegations believed that while the draft text went too far, zeroing might be permitted in some contexts. In particular, a number of delegations expressed the view that zeroing should be permitted in the context of the weighted average-transaction comparison methodology ("targeted dumping"), while it was also suggested that the same methodology need not necessarily be applied in original investigations as in the context of duty collection. One delegation considered that the Chairman's text permitted zeroing in certain contexts but prohibited it in the most common comparison methodology in investigations, and insisted that a restoration of zeroing in all contexts was necessary to return to the status quo that emerged from the Uruguay Round. This delegation could not conceive of a result that did not address zeroing.
Delegations on all sides of the issue emphasized how critical the issue was to their delegations.
My quick read is that this new text is saying that governments are not required to use the "offset" method (i.e., the method that does not involve zeroing). In other words, they are not required to "not zero." That is to say, they may engage in zeroing. However, the use of so many negatives combined with the anti-dumping jargon is making this a bit fuzzy for me, so let me know if somebody reads this differently than I have.
"To avoid any confusion, the "Consolidated Proposals" are NOT the Chair's own proposals. That is, the Chair is NOT proposing this new text that would appear to allow zeroing.
The layout of the document is as follows. The middle column contains the Chairman's text from last year (the first box you have above). The left column - i.e. the "Consolidated Proposals" column - sets forth/consolidates proposals from Members made in response to the Chair's text (the third box you have above). Finally, the right column - i.e. the "Comments" column - is the Chair's summary of the delegation's comments."
Thanks to anon99 for the clarification.
Corr.1 Please note that left column - i.e. the "Consolidated Proposals" column - sets forth/consolidates proposals from Members made prior to the Chair's text, and not, as I mistakenly wrote above, "in response to the Chair's text".
7.115 We respectfully disagree with the Appellate Body's reasoning. We recognize that our analysis inevitably resembles that of the panels in the last two cases that dealt with simple zeroing in periodic reviews, US – Zeroing (EC) and US – Zeroing (Japan), and that the Appellate Body reversed those panels' findings that simple zeroing is not inconsistent with Article 9.3 of the Anti-Dumping Agreement. We would like to underline, however, that our analysis is not simply an unthinking repetition of these past panel decisions. Rather, it reflects our own appreciation of the facts and the legal arguments presented by the parties in these proceedings, as is required by our obligation under Article 11 of the DSU to carry out an objective examination of the matter before us.
7.119 We are troubled by the fact that the principal basis of the Appellate Body's reasoning in the zeroing cases seems to be premised on an interpretation that does not have a solid textual basis in the relevant treaty provisions. We recall the rules on treaty interpretation (supra, paras. 7.3-7.5) which we have to follow in these proceedings. We are of the view that a good faith interpretation of the ordinary meaning of the texts of Articles VI:1 and VI:2 of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement, read in their context and in light of the object and purpose of the mentioned agreements, does not exclude an interpretation that allows the concept of dumping to exist on a transaction-specific basis. We recall that according to the standard of review that we have to follow in these proceedings (supra, paras. 7.1-7.2), we are precluded from excluding an interpretation which we find permissible, even if there may be other permissible interpretations.
162. We are deeply concerned about the Panel's decision to depart from well-established Appellate Body jurisprudence clarifying the interpretation of the same legal issues. The Panel's approach has serious implications for the proper functioning of the WTO dispute settlement system, as explained above. Nevertheless, we consider that the Panel's failure flowed, in essence, from its misguided understanding of the legal provisions at issue. Since we have corrected the Panel's erroneous legal interpretation and have reversed all of the Panel's findings and conclusions that have been appealed, we do not, in this case, make an additional finding that the Panel also failed to discharge its duties under Article 11 of the DSU.
In the context of doing so, the Appellate Body offered some helpful clarifications of the role of precedent in the WTO dispute settlement system, including the following: "Ensuring 'security and predictability' in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case." The "absent cogent reasons" language appears to be the new standard for following precedent: You must follow precedent unless you have "cogent reasons" for doing otherwise.
This poll is highly unscientific, but nevertheless I'm curious to see what people think! I'm going to keep it at the top for a few days to give people a chance to vote.
ADDED: I realize now that I should have made more clear that I was after people's views on whether zeroing should be found legal or illegal under WTO rules, not their views on what the prevailing AB jurisprudence says.
As of 7:17 pm EST on Sunday, we have had 70 votes. There are probably more that will come in, but I think the trend is pretty clear so I'm going summarize things now (in part so that I can make room at the top of the page for other posts).
There were two basic questions involved in this poll. The first was whether "zeroing" is "good policy" or "bad policy." There was a pretty clear answer to this question: 5 voters thought it was good policy and 65 thought it was bad policy. Obviously, the poll ignores many nuances. For example, there are a number of kinds of zeroing. But as a general matter, the fact that 65 out of 70 people say that zeroing is bad policy is a pretty strong statement.
The second question was whether zeroing should be found legal or illegal under WTO rules. 9 out of 70 (13%) thought it should always be legal under WTO rules. This choice had the fewest votes, but it's a percentage that is not insubstantial. By contrast, 42 (60%) thought zeroing should always be illegal under WTO rules. This was the clear majority position. Finally, 19 (27%) thought that zeroing should be found legal in some situations, but illegal in others.
The split on the second question seems to be a pretty good reflection of the split among panelists and the Appellate Body that we have seen in the various cases over the past few years, with 40% of poll voters saying zeroing should be legal some or all of the time and 60% saying it should be illegal all of the time.
-- Why is injurious dumping to be "condemned," as stated in GATT Article VI:1? What's wrong with, for example, price discriminating between markets, one of the ways that dumping can be found to exist? Should we really "condemn" companies for setting different prices in different markets where the price level differs between the markets?
-- If dumping is to be "condemned," for whatever reason, should the rules try to limit it to the greatest extent possible?
-- There is an argument that the existence of anti-dumping laws makes greater tariff reductions possible in trade negotiations. But is it possible that we'd be better off with higher tariffs and no anti-dumping rules?
These seem like good questions to me. I don't have any good answers, though.
More zeroing in the news: An article from Reuters; and Japan is thinking about pressing its case further.
zeroing cases seems to be premised on an interpretation that does not have a solid textual basis in the relevant treaty provisions. We recall the rules on treaty interpretation (supra, paras. 7.3-7.5) which we have to follow in these proceedings. We are of the view that a good faith interpretation of the ordinary meaning of the texts of Articles VI:1 and VI:2 of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement, read in their context and in light of the object and purpose of the mentioned agreements, does not exclude an interpretation that allows the concept of dumping to exist on a transaction-specific basis. We recall that according to the standard of review that we have to follow in these proceedings (supra, paras. 7.1-7.2), we are precluded from excluding an interpretation which we find permissible, even if there may be other permissible interpretations.
More later after I've read the decision (but I'm still working on Cotton, so it might not happen soon).
Zeroing: Artificially Higher Margins or Artificially Lower Margins?
Of course, zeroing opponents say that zeroing results in an artificially higher margin. But higher or lower than what? What's the baseline? That's what the argument is fundamentally about.
There's also a reference in the U.S. statement to the prospective versus retrospective issue mentioned earlier on this blog, as well as some comments on issues other than zeroing.
The United States squared off against other World Trade Organisation members on Wednesday over its use of import penalties, an issue diplomats see as the latest obstacle to a new global trade deal.
"It is a very serious issue," U.S. ambassador to the WTO Peter Allegeier said after a heated negotiating session at the trade body's Geneva headquarters. He has previously said the United States "cannot envisage an outcome to the negotiations without addressing zeroing."
Diplomats from major economies including the European Union, China, Brazil and India denounced that text at Wednesday's meeting, saying the "biased and partial" U.S. method had no place in a WTO accord meant to remove global barriers to trade.
"If the use of such practice prevails in the future, it could nullify the results of trade liberalisation efforts," said a joint statement from countries including Brazil, China, India and Japan and backed by the European Union and Canada.
Diplomats involved in Wednesday's session said no country spoke in defence of zeroing other than the United States, but the WTO's 151 member states need consensus on all aspects of a Doha deal for it to be achieved.
The Japanese WTO ambassador, Ichiro Fujisaki, told diplomats that his country was "both perplexed and disappointed" with the rules text, stressing "the negative impact of zeroing on future world trade."
And China's ambassador Sun Zhenyu said that if all WTO members were to use zeroing, the level of protectionism worldwide would surely increase "which is clearly not the objective of this organisation."
One part of the debate which confuses me is that, as I understand it, some Members with prospective systems use a practice that seems a lot like zeroing when they impose duties, under which they apply anti-dumping duties to products that sell below a designated price but not to products that sell above that price. But it's complicated by the fact that there are a variety of approaches, so I don't have a good sense of the issue. It's not clear to me how this issue is being dealt with, if at all, in the current negotiations.
On Friday, November 30, Uruguay’s Ambassador to the World Trade Organization, Guillermo Valles Galmés, published a paper on the way forward in the Doha Round Negotiations on Rules – antidumping, subsidies and countervailing duties, and regional trade agreements. He did so in his capacity as Chairman of the Negotiating Group on Rules.
The Committee to Support U.S. Trade Laws ("CSUSTL") expressed grave concerns with the draft negotiating text issued as part of the Rules Negotiations in the Doha round of talks at the World Trade Organization, and urged the Administration to obtain stronger rules against unfair trade practices.
Although the provision in the draft that would permit "zeroing" in some circumstances has been identified as a benefit to domestic industries, CSUSTL noted that the proposal is weaker than U.S. law and practice had been before it was overturned by the WTO Appellate Body. The zeroing proposal essentially "splits the baby" by prohibiting zeroing in average-to-average comparisons in original investigations but permitting zeroing in administrative reviews. Previously, the U.S. Department of Commerce applied the zeroing methodology in both investigations and administrative reviews.
To be clear, zeroing wasn't the only concern about the draft texts -- there were many others. Still, reaching a compromise here will not be easy.
[Brazilian Foreign Ministry trade chief Roberto Azevedo] also slammed a new proposal released last week by the WTO's leading rules negotiator, Guillermo Valles Galmez of Uruguay. He said his silence until Tuesday was "one of the symptoms of shock."
A number of officials have privately expressed surprise that the proposal allows Washington to continue with a controversial method for calculating fees to penalize other countries for "dumping" imports into the U.S.
The WTO has chided the U.S. in disputes with the 27-nation EU, Canada, Japan and others for the process known in trade jargon as "zeroing," which panels have consistently ruled leads to artificial and inflated margins of dumping, and thus higher duties.
"It is a major step backwards for world trade," Azevedo said.
I'm not sure if there's room for compromise on this issue, but clearly a suggestion to prohibit zeroing for only one type of comparison in only one type of anti-dumping proceeding, and permit it in all the rest, is rubbing some Members the wrong way.
I've only looked at this quickly, but it seems to say the following. Under 2.4.3(i), for weighted average to weighted average comparisons in original investigations, zeroing is not permitted ("they shall take into account the amount by which the export price exceeds the normal value for any of the comparisons").
Under 2.4.3(ii), for transaction to transaction comparisons and weighted average to transaction comparisons in original investigations, zeroing is permitted ("they may disregard the amount by which the export price exceeds the normal value for any of the comparisons").
Under 2.4.3(iii), in reviews, zeroing is permitted for any type of comparison ("they may disregard the amount by which the export price exceeds the normal value for any of the comparisons").
This is the first I've seen or heard of this proposal, so I'm not sure of the origins. It clearly seems like a compromise, but I'm not sure what its chances of making the final cut are.
ADDED: Here is a Reuters article about the issue.
"We appreciate Rules Negotiating Group Chairman Valles' leadership in this difficult and complex negotiation. While the U.S. is very disappointed with important aspects of this draft text, we believe it provides a basis for further negotiations. As we proceed with those negotiations, we will be fully committed to preserving the strength and effectiveness of U.S. trade remedy laws."

References: v. 
 v. 
 v. 
 v. 
 v. 
 § 1677
 § 1677
 § 1677
 § 1677
 § 1677
 § 129
 § 1677
 § 1677
 v. 
 § 1677
 § 1677
 § 1677
 § 1677
 v. 
 § 1677
 v. 
 § 1677
 § 1677
 § 1677