Antidumping zeroing practice

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ZEROING PRACTICE IN THECALCULATION OF DUMPING

MARGINS IN THE UNITEDSTATE OF AMERICA

Bao Anh Thai *

May 2003

* Bao Anh Thai, managing partner of the Hanoi-based consulting firm of Bao&Partners, specializes in international trade and contract laws and public policy,http://www.baolawfirm.com.vn

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http://www.baolawfirm.com.vn/




TABLE OF CONTENTS

INTRODUCTION.......................................................................................................................................3

CHAPTER I: AN OVERVIEW ABOUT ANTIDUMPING LAW......................................................... 5

Economic critiques of antidumping law:..................................................................................................5 Conditions for the existence of international dumping........................................................................6

Reasons for dumping ........................................................... ................................................................ 6 Critiques of the legal background of antidumping laws............. .............................................................. 7 Antidumping law as contagion:................................................................................................................9

CHAPTER II: U.S. ANTIDUMPING LAW AND ZEROING PRACTICE................................. .......12

A brief history of antidumping law in the u.s.........................................................................................12 Antidumping investigation proceeding: ................................................................... ..............................13 How to calculate antidumping margin: .......................................................................... ........................16

Basic formula: ................................................................ ............................................................... ....17 Identifying and adjusting the EP or CEP: .............................................................. ...........................17 Identifying and adjusting the NV:......................................................................................................18 Zeroing Practice:...............................................................................................................................21

CHAPTER 3: THREE ANTIDUMPING CASES..................................................................................24

EU-Bed Linen ........................................................... ............................................................... ..............24 Facts:.................................................................................................................................................24

India’s claims: ..................................................................... .............................................................. 25 EC’s arguments:................................................................................................................................26 Panel’s holdings:...............................................................................................................................26 United States’ arguments: ................................................................ ................................................. 28

Timken Co. v. United States...................................................................................................................29 United States – Softwood Lumber from Canada (WT/DS264/R) .......................................................... 31

Facts:.................................................................................................................................................31 Canada’s arguments..........................................................................................................................31 United States’ arguments...................................................................................................................32 Panel’s holding: ............................................................ ................................................................ ....33

CHAPTER 4: THE NECESSITY TO AMEND THE ANTIDUMPING AGREEMENT...................36

Timken Co. v. United States...................................................................................................................36 EC-Bed Linen and US-Softwood Lumber..............................................................................................37 Conclusion..............................................................................................................................................39

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INTRODUCTION

Chemical weapons in the World War I was one of the most horrifying and inhuman

weapons ever seen in the human history showing nothing other than the desperation of the exhausted sides in the war when they could not find any new type of warfare toovercome the trench war deadlock. The painful experience of chemical weapon was sostrong that in the World War II, Adolph Hitler, who himself was hospitalized due to teargas of the French during the Great War, in order to delay the final collapse of his Reich,resorted to all available “wonder weapons” but chemical warfare. Seventy years later, in1988, the Economist argued that "anti-dumping suits are emerging as the chemicalweapons of the world's trade wars."1 This exclamation clearly showed the newdeadlock in the negotiation to create a new free-trade-world.

On the one hand, antidumping is considered by many free-trade-supporters as a weaponof choice for and abused by protectionists.2 On the other hand, the antidumping

supporters argue that this practice is necessary as it creates a level playing field fordomestic industries that face unfair import competition.3 Lindsey and Ikenson in a book about antidumping have commented that the arguments for and against antidumping laware not based on the same ground4. On the one hand, the critique of antidumping ismostly based on an economic approach which focuses on consumer welfare. Thisapproach considers that the importing country suffers no harm if the dumped pricewould not lead to a monopoly or unreasonable higher prices in the long term. 5 On theother hand, the supporters of antidumping law argue that the antidumping remediesaddress pricing practices that reflect artificial competitive advantages created by marketdistortion. They argue that it is unfair competition for the domestic industries althoughthe dumping may benefit consumers in the short term.6 Because the objectives of antidumping policy are differently defined by the supporters and critics of antidumpinglaw, they have often talked past each other.7

Bearing in mind the above situation about the discussion of antidumping policy, thispaper discusses one technical aspect of the antidumping law in the United States:zeroing practice in calculating dumping margins. Commented by a leading scholar ininternational trade law as a “core issue of antidumping law”8, zeroing is “one of theantidumping law’s most egregious distortions”9 that has been condemned by the WTOrecently. In this paper, we do not try to support or challenge antidumping policy but wesupport the WTO condemnation of zeroing practice.

1 The Anti-Dumping Dodge, Economist, Sept. 10, 1988, at 77.2 See generally Raj Bhala, Rethinking Antidumping Law, 29 GW J. Int'l L. & Econ. 1 (1995).3 Brink Lindsey & Daniel J. Ikenson, Antidumping Exposed The Devilish Details of Unfair Trade Law, vii(CATO Institute, 2003).4 Id. at viii – ix.5 Id. at xi.6 Id. at xi.7 Id. 8 David A. Gantz, professor of law, the University of Arizona, in an interview on March 10th, 2004.9

Lindsey & Ikenson, supra n. 3 at 70.




The paper is divided into four chapters. Chapter 1 is an over view about antidumpinglaws with the economic and legal backgrounds of these laws. Chapter 2 is about the USantidumping law and the zeroing practice. In Chapter 3, we discuss three cases in whichthe zeroing practice has been discussed by the WTO and the United States Court of Appeals. Chapter 4 is an analysis of the arguments in those three cases. In this Chapterwe have a conclusion that while the WTO’s condemnation of the zeroing practice shouldbe applauded, the reasoning of the Panels is not flawless. The flaws in the Panels’reasoning have roots in the ambiguousness of Article 2.4.2 of the AD Agreement whichshould be amended to be clear.




CHAPTER I: AN OVERVIEW ABOUT ANTIDUMPING LAW

If the antidumping law is considered as widely abused by the protectionists to create anew non-tariff trade barrier, the zeroing practice could be an example for suchconsideration as it is frequently used in the United States at present time and in Europeuntil EC-Bed Linen case was concluded.10 While the purpose of the antidumping law inthe United States is literally read as “the restoration of conditions of fair trade”11, stillthere are many critiques that the law does not serve a such purpose. Hence, it isnecessary to have an overview of the grounds of those critiques.

Economic critiques of antidumping law:

As already mentioned earlier12

, most of the critiques saying that antidumping is a newmeasure for protectionism is based on the economic efficiency of the policy . Manyeconomists consider dumping is "basically harmless for the importing country"13 whichlow prices can be tough for the domestic producers who have to compete with but it is abenefit for general consumers. By putting the consumer's benefit above that of thedomestic producers, the supporters of this approach prove that the net gain for thecountry upon accepting dumping outweighs the cost for the producers to change intonew business when they cannot compete with the dumped goods. An investigationcarried out by the U.S. Trade Commission in 1995 showed that in 1991, antidumpingorders cost the U.S. economy a collective net cost of $1.59 billion. This investigationalso pointed out that this cost outweighed the benefits derived by having the

antidumping orders in place.14

Another analysis of an economist explained this issue furthermore. According to thisanalysis, the antidumping duties are an extremely costly way to improve the profitabilityof U.S. producers or employment in U.S. industries. In the analyzed cases, theantidumping duties cost the consumer a range from $2.40 to $25.10 for each dollar of increased profits of U.S. industries. In terms of the U.S. economy, it costs from $0.20 to$10.80 per each dollar of increased profits. More dramatically, the analysis found thatto create a job in industries competed by dumping, the minimum cost for the consumerwas $113,000, while a new job can be created with a minimum cost for the economymuch more cheaply: $14,000.15 The figures tell the story itself – by maintaining the

antidumping duties, it costs the importing country more than repealing it. So, one canask a question “if it benefits the consumer in the importing country, how can the

10 European Communities – Anti-dumping Duties on Imports of Cotton-Type Bed Linen from India

(complaint by India, WT/DS141/AB/R) (available at http://www.wto.org).11 Continued Dumping and Subsidy Offset Act of 2000, Pub. L. No. 106-387, sec. 1002(2), 1(a), 114 Stat.1549A-72 (2000).12 Lindsey & Ikenson, supra n. 3 at xi.13 Bhala, supra n. 2 at 10.14 U.S. International Trade Commission, The Economic Effects of Antidumping and Countervailing Duty

Orders and Suspension Agreements, Pub. 2900, 4-13, (1995).15

Bhala, supra n. 2 at 11.




exporters maintain such dumping?” The different answers lead to different opinions onwhether the antidumping law is necessary or not.

Conditions for the existence of international dumping

It is generally agreed that, from economic perspective, the exporter can sustain dumpingonly upon the existence of three necessary and sufficient conditions. First, theexporter’s home market and the importing country’s market must be segregated so thatmerchandise does not flow between them16. Second, the exporter must have sufficientmarket power to influence the price of merchandise in its home market.17 Third, theexporter must face a relatively more elastic demand curve for merchandise in theimporting country’s market, and a relatively less elastic demand curve for likemerchandise in its home market.18 In brief, the benefit to the consumer in the importingcountry is paid not by the exporter but by the consumer in its home country where the

consumer has to pay higher prices due to the exporter’s market power.

Reasons for dumping

There are several reasons for an exporter to dump in a foreign market. Predatoryintention might be the one19, but in many cases it seems unlikely for foreign exporters toestablish a monopoly in the importing country. If one exporter wants to have monopolyin the importing market, it has to drive not only domestic producers but also otherforeign competitors out of the market. In a closed market, one company can drain outthe financial resource of competitors by a low-price race. However, in a non-closed

market, the predator will face a new wave of foreign competitors who would fill in thevacuum left by the driven out domestic competitors20. In this case, it’s unlikely that thepredator could launch such a competition on an international scale.

Unexpected surplus of produce or a decline of demand could force producers to sellgoods below cost. As long as the producer prices its goods above the variable costs, therevenue in excess of its variable costs will defray a portion of its fixed costs. Thus, theproducer suffers lower losses than it would by halting production (in which case itwould suffer losses equal to its full fixed costs).21

The fluctuation of foreign exchange rates or changed market conditions can also be thereason for dumping. For example, if the currency of the importing country is devaluated

and the devaluation leads to the actual market price turns out to be lower than estimated,the exporter will have no choice but to sell its merchandise at the best available price.Although this price may lead to losses to the exporter, but still, it helps the exporter to

16 If not, the dumped merchandise may be re-exported back to its home country.17 Bhala, supra n. 2 at 11.18 Id. at 10.19 U.S. antidumping laws were initially enacted out of a concern for predatory pricing by foreigncompetitors. Michael J. Trebilcock & Robert Howse, The Regulation of International Trade, 180 (2nd ed.Routledge 1999).20 Id. at 181.21

Id.




recoup a portion of its sunk cost.22 This situation is more clearly seen in the case wherethe merchandise is specifically customized for the importing market (i.e. products withpackages and brands specifically made for the importing market).

So, as discussed above, it is not easy for a producer to dump its goods in a foreignmarket, and in many case, the dumping occurs due to many reasons other than an unfairintention of the producer to oust its competitors from the market. In addition, in 29countries, the same products were subjected to antidumping duty order both at home(against imports) and abroad (against exports). This fact raises a question about the realreason of antidumping: How can an industry being injured by unfairly priced importscause injury to the same industry in other country at the same time by unfairly pricedexports?23

Critiques of the legal background of antidumping laws

With respect to the question about what type of dumping should be subject toantidumping law, it is noteworthy to mention the ways in which dumping can becharacterized. Generally, merchandise is considered dumped when it is sold in theUnited States at “less than fair value”.24 Dumping can be international price

discrimination (sales at a lower price in the United States than in the home country of the exporter) or sales below cost.

25 If the purpose of dumping is to knock the exporter’s

competitors in the importing country out of business and then recover the dumped costby higher prices once a monopoly is established, it would be called as predatory

pricing.26 If the dumping is a result of an unexpected surplus of produce and in an

intermittent period, it is called intermittent dumping.27

Antidumping law in the U.S. does not primarily acts against the predatory pricing. Itacts against international price discrimination and sales below cost, regardless of whether the sales are predatory.28 In other words, the scope of target of antidumpinglaw is wider than that of antitrust law. For this reason, on the contrary to argument of

22 Id. at 182.23 Lindsey & Ikenson, supra n. 3 at 109.24

David A. Gantz, A Post-Uruguay Round Introduction To International Trade Law In The United States ,12 Ariz. J. Int’l & Comp. Law 7, 35 (1995) (hereinafter Gantz, “Post-Uruguay Round”).25 Bhala, supra n. 3 at 17.26 Lindsey & Ikenson, supra n. 3 at xi.27 Trebilcock and Howse found that in Canada, the intermittent dumping occurred in agricultural cases.Due to the cyclical nature of supply in agricultural markets, the agricultural producers often find they haveexcess produce and rather than allowing it to rot they sell at low prices. In international trade context, theintermittent dumping cannot occur without the existence of three conditions. First, exporters must beunable to compete with domestic producers under normal market conditions. Otherwise exporters wouldprovide a permanent source of supply instead of an intermittent one. Second, intermittent dumping mustbe so extensive that it substantially disrupts domestic production. The losses incurred by selling below-cost products into export market make it unlikely that the dumping will last long enough to disruptdomestic production. Trebilcock & Howse, supra n. 19 at 185.28

Bhala, supra n. 3 at 17.




some scholars that antidumping law is redundant to domestic antitrust laws 29, supportersof antidumping law believe that it is still “a practical and political necessity in a world inwhich cross-border price discrimination is possible because of protection in homemarkets.”30 Citing a recent strong argument of the U.S. Government on this matter 31,some scholars go further to say that the likelihood antidumping laws and antitrust laws“will meet in any foreseeable future is virtually nil”.32

Another critique of antidumping law is the law cannot address the source of theproblem of the alleged unfair pricing - the closed foreign market. 33 As discussed in §1.1.1, the closed foreign market is one of three conditions for dumping practices.Without this condition, the dumped merchandise – in theory – could be re-exported back to the exporting country.34 The antidumping duty imposed upon dumpers can cut back the imports but it could not directly help to open the market of exporting country –which is normally the matter of government policy.

Antidumping law could also create one of two perverse incentives for an exporter.First, facing high antidumping duties, an exporter might reduce its exports and increaseits home-market sales. Consequently, the price of its merchandise in the importingcountry rises, reducing competitive pressure on producers in that country, while theprice of its merchandise in its home country falls. Alternatively, instead of withdrawingfrom the importing country, the exporter may relocate its production facilities in thatcountry if it is a significant market.35

Besides the critiques on the legal background of antidumping laws, there are alsocritiques on technical issues in applying the law (e.g. accounting techniques incalculating cost of production, the matter of comparing U.S. wholesale and foreign retailprices and zeroing practice).36 Those critiques do not aim at the necessity of

29 Id. at 16.30 Id. at 17.31 A paper from the U.S. Government to the WTO Working Group on the Interaction of Trade andCompetitive Policy stated: “In the view of the United States, this Group cannot gain from any inquiry intothe alleged ‘anti-competitive effects’ of the antidumping rules. As many Members have acknowledged,there is no reasonable foundation for replacing the antidumping rules with competition laws or modifyingthem in a way that would make them reflect competition policy principles. Stated simply, the antidumpingrules and competition laws have different objectives and are founded on different principles, and they seek to remedy different problems. If the antidumping rules were eliminated in favor of competition laws ormodified to be consistent with competition policy principles, the problems which the antidumping rules

seek to remedy would go unaddressed.” Peter D. Ehrenhaft, Is Interface of Antidumping and Antitrust Laws Possible? 34 Geo. Wash. Int'l L. Rev. 363, 401 n. 130 (2002).32 Id. at 400.33 Bernard M. Hoekman & Michael P. Leidy, Antidumping and Market Disruption: The Incentive Effects

of Antidumping Laws, in The Multilateral Trading System: Analysis and Options for Change 155, 163(Robert M. Stern ed., 1993)34 This theoretical assumption may be right in the case where dumping reflects predatory pricing. In thiscase, it’s unlikely that the dumping producers could have capable financial resources for maintaining thedumping both in its country and in the importing country. However, in the case the dumping is a result of unexpected surplus of production or the instability of the economy (i.e. currency devaluation), the closedmarket is not necessary condition for the dumping in the importing country.35 Bhala, supra n. 2 at 18-19.36 See generally Robert W. McGee, The Case to Repeal The Antidumping Laws, 13 NW. J. INT'L L. &

BUS. 491 (1993).




antidumping laws but the accuracy in applied methodologies and the fairness forinvolved parties.

Although there are still disputes on whether antidumping laws are necessary or how

to improve them, it is undisputable that recently the use of antidumping laws has beenbecoming very popular in international trade wars. The following section illustrates therecent popularity of antidumping.

Antidumping law as contagion:

Although the existence of antidumping laws in the United States37 and Canada38 couldbe traced back to the early 20th Century and even earlier in Europe39, those laws weresparingly invoked and even more stingily applied40. However, since the 1970s, thenumber of antidumping cases started rising and became an explosion during 1980s. Thelast two decades have seen dramatic changes in terms of (i) the number of antidumpingcases and antidumping measures in force, (ii) the number of antidumping users, and (iii)the increase of countries and industries become targets of antidumping. The factshereunder might help one to understand why antidumping is becoming considered acontagion.

In 1974, the United States amended its antidumping law to provide for the use of thecost test, the exclusion of below-cost sales in the comparison market, and the use of constructed value. With these changes, the number of antidumping cases increaseddramatically and it is much easier to find dumping and produce substantially highdumping margins41. From January 1980 to June 1989, 398 investigations were initiatedin the United States42 (about 40 per year – nearly five times in comparison with 15 cases

per year of the 1921-1967 period.) As other countries followed the United States toamend their antidumping laws, the number of antidumping investigations in thosecountries increased too. Over the same period, Australia, the European Community, andCanada combined initiated 1,091 new cases.43 In the 1990-1999 period, the number of antidumping cases skyrocketed to 2,483 in the world – more than 50 percent increaseover that of 1980s.44

New faces in the antidumping club are one of the reasons for the increase of antidumping cases. If there were only 28 countries had adopted antidumping laws bythe end of 198945, this number increased to 71 as of October 2002 (with 15 members of

37 The U.S antidumping laws date back to 1921.38 In Canada, antidumping laws date back to 1904 with the amendment of the Customs Tariff to providefor antidumping duties. Trebilcock & Howse, supra n. 19 at 172.39 J. Michael Finger, Antidumping: How It Works and Who Gets Hurt 16 (Ann Arbor: University of Michigan Press, 1993).40 There was a total of 706 antidumping investigations between 1921 and 1967 in the United States (about15 per year), and 75 of them resulted in relief for the petitioning industries. Id. at 26.41 Lindsey & Ikenson, supra n. 3 at 104.42 Id.43 Id. Footnote omitted.44 Id. at 105.45

Trebilcock & Howse, supra n. 19 at 166.




the European Union counted as one).46 Until very recently antidumping was a weaponof choice for a small number of highly developed countries. In the July 1980 – June1988 period, 97.5 percent of all antidumping actions brought by four countries (theantidumping cases initiated by United States, Australia, Canada and the European Unionwere respectively 30, 27, 22 and 19 percent of the total antidumping cases). 47 However,from the end of 1980s, developing countries have been increasingly using antidumpingas weapon of choice when other traditional protection tools (i.e. tariff, quotas andrestrictive import-license schemes) had been abandoned as a part of their engagement totrade liberalization.48 From negligible number before 1980s the percentage of antidumping initiated by new users increased to 37 percent and then to 59 percent in the1990 – 1994 and 1995 – 1999 periods respectively.49 The rising stars among the newfaces are Mexico, South Africa, India, Brazil, Argentina and Egypt.

Unsurprisingly, as the number of antidumping cases and antidumping users increase, theindustries and countries being targets for antidumping investigations escalate. In 1995-

2000 the victims of new antidumping users increased significantly: South Africa from13 to 33, India from 7 to 30, and Brazil from 12 to 23.50 It’s also interesting to see thatfour of the top 10 antidumping users (the United States, Brazil, Germany, and France)also fell victim to the protectionism of other countries and appear in the top 10 targets inthe same period. Other top 10 users like India, Canada, Mexico and the UnitedKingdom are among the top 20 targets.51

Few industries still remain insulated from antidumping. Nineteen of 21 broad industrygroups were the subject of antidumping measures during 1995-2000.52 While theEuropean Union maintained measures against 16 industry groups, the United States andMexico followed with 15 apiece.53 The case of India is noteworthy with the targeted

industries increased from 2 in 1995 to 8 in 2000.54

In brief, in the last two decades antidumping has gone global.55 From a protectionistweapon used by a small number of developed countries, now it becomes the weapon of choice for many other developing countries. The number of antidumping actionsdramatically increased and few industries are still kept intact from it. Antidumping hasbecome contagious.

Although there are still a lot of arguments on the legal background of antidumping law,the critiques are absolutely convincing regarding in the economic inefficiency of thelaw. Therefore, Kenneth Dam is getting more and more supporters for his comment:

“The fact that governments act against dumping only when the low price is charged in their own

territory reveals that governments are concerned with the welfare of their own enterprises rather than

46 Lindsey & Ikenson, supra n. 3 at 105.47 Trebilcock & Howse, supra n. 19 at 166.48 Lindsey & Ikenson, supra n. 3 at 104-105.49 Id. at 106.50 Id. at 107.51 Id.52 Industry groups correspond to the “section” level of the Harmonized Tariff Schedule. Id.53 Id. at 108.54 Id.55

Id. at 111.




with the protection of their citizens from extremely high prices charged by monopoly sellers. If theproblem were really the discrimination itself, then presumably governments would be moreconcerned to attack high prices than low prices. Where an exporter sold at home at higher prices thanhe sold abroad, it would be the exporter's government, not the importer's government, that would take

coercive action. The General Agreement [on Tariffs and Trade], like the governments themselves,views the impact in the low-price country as the harmful aspect of dumping...

...

The concern with dumping is therefore a concern with the protection of domestic industry frominternational competition.”56

Despite all critiques, antidumping laws survive. Four times the supporters of free tradehave tried to ban the law and four times the use of antidumping actions have beenaffirmed by the negotiators in: (1) the negotiation of the GATT in 1947, (2) between1964 and 1967 when the Kennedy Round Antidumping Code was produced, (3) between1974 and 1979 when the Tokyo Round Antidumping Code was produced, and (4)

between 1986 and 1994 when the Uruguay Round Antidumping Code (officially calledthe Agreement on Implementation of Article VI of the General Agreement on Tariffsand Trade 1994, hereinafter the “AD Agreement”) was produced.57

However, in some instances, such efforts have been successful. The members of theEuropean Union, for instance, no longer engages in anti-dumping actions against eachother, and limits any investigations of unfair trade through dumping to instances wherepredatory pricing is at issue. Canada has succeeded in phasing out the use of anti-dumping remedies in the recently concluded Canada-Chile Free Trade Agreement. 58

56 Quoted by Bhala, supra n. 2 at 12. Another author even goes further in condemning antidumping laws:“The antidumping laws must be repealed, the sooner the better. They serve no public interest, but merelyprotect producers at the expense of everyone else. They result in a deadweight loss to the economy,destroy more jobs than they create and lower living standards. Reform is not called for because the goal of antidumping - protecting domestic industry at the expense of everyone else - is not a worthy goal.”McGee, supra n. 36 at 561.57 Bhala, supra n. 2 at 29. Another scholar thinks that the efforts in the Kenedy, Tokyo and UruguayRounds more less to ban antidumping actions than to regulate the abuse by national administratingagencies. Gantz, supra n. 8 comments on this thesis.58 Jean-Marc Leclerc, Reforming Anti-Dumping Law: Balancing the Interests of Consumers and Domestic

Industries, 44 McGill L.J. 111, 139 (1999).




Ch. 2 US Antidumping Law and Zeroing Practice

CHAPTER II: U.S. ANTIDUMPING LAW AND ZEROING

PRACTICEA brief history of antidumping law in the u.s.

Perhaps the first major antidumping law of the United States was the Revenue Act of 191659 which is also known as the Antidumping Duty Act of 1916 and still be in force.60 Some scholars also think that the Sherman Antitrust Act (1890) and section 73 of theWilson Tariff Act of 1894 are applicable to dumping situations61. The AntidumpingDuty Act of 1916 was passed in response to alleged German predatory dumping duringthe First World War, and made it a crime to import foreign products for prices that wereless than wholesale or actual market value.62 As it was a criminal statute, the

perpetrators could be found guilty only upon finding of the intent to harm or destroy anindustry in the United States or to prevent such an industry from being formed.63 Thisrequirement seems not easy to satisfy as there has never been either a successfulprosecution or a civil judgment under this Act.64 To lower the level of required proof for a complaint to seek for an antidumping relief, the U.S. Congress enacted theAntidumping Act of 1921.65 The Antidumping Act of 1921 is conceptually andinstitutionally similar to present-day antidumping law.66 For example, it established atwo-pronged legal process whereby one government agency decided whether a productwas being dumped and another government agency decided whether the dumpingcaused injury.67

The Trade Act of 197468

amended the Antidumping Act of 1921 and then was replacedby the Trade Agreements Act of 197969. This act added sections 731-740 to the Tariff Act of 1930. The Trade Agreement Act of 1979 contained major substantive andprocedural changes, and transferred responsibility for administering the antidumpinglaw from the Department of the Treasury to the Department of Commerce. 70 Most

59 Revenue Act of 1916, ch. 463, 800-801, 39 Stat. 798 (codified at 15 U.S.C. 72). 60

Michael S. Knoll, United States Antidumping Law: The Case for Reconsideration, 22 Tex. Int'l L. J.265, 268 (1987).61 McGee, supra n. 36, at 492 n. 1.62 Id. at 492.63 Id.64 Trebilcock & Howse, supra n. 19 at 172.65 Antidumping Act of 1921, Pub. L. No. 67-10, 42 Stat. 11 (codified as amended at 19 U.S.C. § 160-171).66 Knoll, supra n. 60 at 269. 67 Id.68 Trade Act of 1974, 19 USC§ 160 (1976).69 Trade Agreements Act of 1979, Pub. L. No. 96-39, tit. I, 106(a), 93 Stat. 193. (codified at 19 U.S.C.1673-1673i, 19 U.S.C.A. 1673-1673i (1980 & 1992 Supp.)).70 United States International Trade Commission, “Antidumping and Countervailing Duty Handbook”,

10th

ed., Pub. 3566, IV-4 (Dec 2002) (hereinafter “AD Handbook”)




provisions of the Antidumping Act of 1921 were later merged into the Tariff Act of 1930 as well.71

Other amendments to the antidumping law were Title VI of the Trade and Tariff Act of

1984, and Title I, Subtitle C, Part 2 of the Omnibus Trade and Competitiveness Act of 1988.72 The most important modifications of the 1984 Act were provisions relating tocumulation of imports from subject countries and threat of material injury.73 The 1988Act addressed the issues of the prevention of circumvention of antidumping orders, andamended provisions of the law relating to critical circumstances, material injury, andthreat of material injury.74

The most recently amendment of antidumping law is the Uruguay Round AgreementsAct (URAA) of 1995. To be in consistent with the AD Agreement of the WTO, this actmodified provisions of the law relating to issues such as material injury, threat of material injury, critical circumstances, regional industry, related parties, and cumulation.

New provisions in this Act were about captive production, negligible imports, andsunset reviews, among others.75

Antidumping investigation proceeding:

This section summarizes a typical antidumping investigation process carried out by theInternational Trade Commission (ITC) and U.S. Department of Commerce (DOC). Infact, International Trade Administration (ITA), an agency of the DOC is the organ tocarry out the works of the DOC. According to the U.S. law, antidumping duties areimposed upon the finding that “a class or kind of foreign merchandise is being, or islikely to be, sold in the United States at less than its fair value” and a U.S. industry is

“materially injured” or “threatened with material injury” or “the establishment of anindustry in the United States is materially retarded”.76 An investigation could bedivided into five stages: (i) initiation of the investigation by the DOC, (ii) thepreliminary phase of the ITC’s investigation, (iii) the preliminary phase of DOC’sinvestigation, (iv) the final phase of DOC’s investigation, and (v) the final phase of theITC’s investigation.

The antidumping investigation process is triggered by a petition of an industry or by theDOC (although in almost every case the petitioner is an industry) to the ITC and DOCsimultaneously. 77 Petitioners are required to provide some evidence of dumping andinjury in order to initiate an investigation though these requirements are quite modest. 78

Petition determination and initiation of the investigation by DOC: within 20 days afterthe date on which the petition is filed, the DOC determines whether it is necessary and

71 McGee, supra n. 36 at.494 and n.17.72 AD Handbook, supra n. 70 at IV-4.73 Id.74 Id.75 Id.76 19 USC § 1673.77 19 USC § 1673a.78

Lindsey & Ikenson, supra n. 3 at 2.




reasonable to open an antidumping investigation as requested by petitioners.79 If thedetermination is affirmative, the investigation is initiated. If not, the DOC dismisses thepetition and terminates the proceeding.80

Preliminary phase of the ITC’s investigation: within 45 days after the date on which thepetition is filed, the ITC determines whether an American industry is (i) materiallyinjured or (ii) threatened with material injury or (iii) the establishment of an industry inthe U.S. is materially retarded by reason of imports of the subject merchandise and thatimports of the subject merchandise are not negligible.81

The preliminary phase of the ITC’s investigation can be broken into 6 stages: 82

1. Institution of the investigation and scheduling of the preliminary phase;

2. Questionnaires;

3. Staff conference and briefs;

4. Staff report and memoranda;

5. Brief and vote; and

6. Determination and view of DOC.

In the first stage, a six-person team consisting of an investigator, economist,accountant/auditor, industry analyst, attorney, and supervisory investigator is set up to

make a schedule for the preliminary phase of investigation. This team also prepares anotice of institution of investigation for publishing in the Federal Register to provideinformation for anyone concerning the subject matter.83 In the second stage,questionnaires are sent to U.S. importers, U.S. producers, and foreign producers forinformation and data that the ITC needs for its determination. Before preliminarydetermination, a conference between the ITC and the attendance of concerned parties isheld. In this conference, the concerned parties have a chance to present their legal andfactual arguments and testimony by witnesses in support of their position. 84 After theconference, a staff report – prepared by the team addressing the factual issues, analysisof collected data and issues raised by the parties in the conference – is submitted to theITC. A memorandum about the legal issues is also submitted by the attorney through

the ITC General Counsel. In the fourth stage, the ITC convenes a public meetingbetween the ITC Commissioners and the investigation staff for questioning issuesrelated to the staff report and memoranda. Then, the Commissioners vote for thedetermination. In the sixth stage, the ITC informs the Secretary of Commerce its

79 19 USC § 1673a (c) (1).80 19 USC § 1673b (a) (2) and (3).81 19 USC § 1673b (a) (1).82 AD Handbook, supra n. 70 at II-5.83 Id.84

Id.




preliminary determination and publishes it in the Federal Register. If the determinationis negative or imports are found negligible the proceeding is terminated. If not, theDOC starts the preliminary phase of its investigation. 85

Preliminary phase of DOC’s investigation: within 160 days after the date on which thepetition is filed, the DOC determines “whether there is a reasonable basis to believe orsuspect that the merchandise is being sold, or is likely to be sold, at less than fair value[LTFV]”.86 If it finds affirmative, an order to suspend liquidation of all entries of thesubject imports is issued to the U.S. Customs Service. Importers are then required topost a cash deposit or bond for each entry of the subject merchandise in an amountbased on the estimated weighted average dumping margin.87

Final phase of DOC’s investigation: within 235 days after the date on which thepetition is filed, the DOC makes final determination of whether the subject merchandiseis being sold, or is likely to be sold at LTFV. 88

Final phase of the ITC’s investigation: within 280 days after the date on which thepetition is filed, the ITC makes final determination of an American industry is materiallyinjured or threatened with material injury or the establishment of an industry in the U.S.is materially retarded by reason of imports of subject merchandise. Similarly to thepreliminary phase, this phase can be divided into eight stages with the contents of eachstage are similar to the stage in the preliminary phase:

1. Scheduling the final phase;

2. Questionnaires;

3. Pre-hearing staff report;

4. Hearing and briefs;

5. Final staff report and memoranda;

6. Closing of the record and final comments by parties;

7. Briefing and vote; and

8. Determination and views of the ITC.

If the ITC’s determination is aff irmative, the DOC issues an antidumping order within 7days of the ITC’s determination.89

85 Id.86 19 USC § 1673b (b) (1).87 AD Handbook, supra n. 70 at II-13.88 19 USC § 1673d (a) (1).89

19 USC § 1673e (a).




ITC DOC

(1) Initiation of

Investigation

(2) Preliminary

Investigation

(Determinin INJURY

(3) Preliminary

Investigation

(4) Final Investigation

(6) Final Dumping Liability

(5) Final Investigation

(Verifying INJURY)

Figure 1

ANTIDUMPING INVESTIGATION PROCESS

1. Institution of the investigationand scheduling of thepreliminary phase;

2. Questionnaires;

3. Staff conference and briefs;

4. Staff report and memoranda;

5. Brief and vote; and

6. Determination and view of theITC.

1. Scheduling the final phase;

2. Questionnaires;

3. Pre-hearing staff report;

4. Hearing and briefs;

5. Final staff report andmemoranda;

6. Closing of the record and finalcomments by parties;

7. Briefing and vote; and

8. Determination and views of the ITC

How to calculate antidumping margin:

As already mentioned earlier,90 an antidumping duty is imposed upon the satisfaction of two conditions: dumping and injury. Within the context of this thesis, we do not discussthe methodology used by the ITC to determine the material injury or the threatening of material injury to a U.S. industry. We do not go into details of dumping margincalculation which is complicated, either. In this section, we limit ourselves in

90

Chapter 2, section 2 of this thesis.




explaining the general rule of dumping margin calculation, the zeroing practice and itsaffect to the results of the calculation.

Basic formula:

To determine a dumping, or in other words to determine if the subject merchandise isbeing sold at LTFV, the DOC makes a comparison between the “normal value” (NV)and the “export price” (EP).91 The normal value is the foreign home market price of a"foreign like product" sold in the ordinary course of trade for consumption in theexporter's country. The EP is price at which the subject merchandise is first sold (oragreed to be sold) before the date of importation by the producer or exporter of thesubject merchandise outside of the United States to an unaffiliated purchaser in theUnited States or to an unaffiliated purchaser for exportation to the United States”. 92 A“constructed export price” (CEP) is used where the EP is unavailable or unreliable. The

formula for the dumping margin calculation is:93

Dumping Margin = NV – EP (or CEP)

NV: Normal Value.

EP: Export Price.

CEP: Constructed Export Price.

Identifying and adjusting the EP or CEP:

The EP is the price at which the subject merchandise is first sold (or agreed to be sold)before the date of importation by the producer or exporter of the subject merchandiseoutside of the United States to an unaffiliated purchaser in the United States or to anunaffiliated purchaser for exportation to the United States.94 The CEP is the price atwhich the subject merchandise is first sold (or agreed to be sold) in the United Statesbefore or after the date of importation by or for the account of the producer or exporterof such merchandise or by a seller affiliated with the producer or exporter, to a purchasernot affiliated with the producer or exporter.95

In order to make a “fair comparison” between the NV and EP (or CEP), as required bythe Agreement on Implementation of Article VI of the General Agreement on Tariffsand Trade 199496, the DOC adjusts the EP or CEP under the form of subtractions or

91 Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, § 2.1codified as 19 USC §1677 (35).92 19 USC § 1677a (a).93 Bhala, supra n. 2 at 31.94 19 USC § 1677a (a).95 Id. at (b).96

Art 2.4.




additions to a starting figure.97 In the case of CEP, three further subtractions are made asin seen in Figure 2 below.

Figure 2: Adjusting the EP and CEP

EP and CEP

Shipping cost

Subtractions

Only CEP

Exporter’s expenses to sell themerchandise in the U.S (see 19USC 1677a (d) (1))

Profit allocated to the expenses inthe above boxes (see 19 USC1677a (d) (3))

Value added to the goods after itsimport in the U.S. but before sellingto unrelated purchasers (see 19USC 1677a (d) (2))

Additions

Cost of containerand pack

Import dutiesrebated oruncollected due to

export

Any taxes or dutiesrebated oruncollected due toexport

Export duties

Identifying and adjusting the NV:

The DOC can determine the NV based on (i) the sales in the home market of theexporter, or (ii) the sales in a third country, or (iii) a constructed value (CV). Two

factors are taken into account by the DOC to determine if the home market, or the thirdcountry market or the CV to be used: (i) the availability of the foreign like product, and(ii) the sufficient quantity of the sales of such merchandise in the exporter’s homemarket.

The home market is used if the exporter sells “like products” and with a sufficientquantity. The sufficient quantity in the home market is determined by a test comparingthe volume of home-market sales with the volume sold to the United States. If the home-market sales are less than 5% of the United States, it is insufficient.98 Considering the case that the merchandise may different from those sold in the UnitedStates due to design, package and other specifications may be customized for the local

market, the DOC may use other like products as the merchandise subject toinvestigation. 99

The sales in a third country can be used by the DOC to determine the NV if: (i) theexporter does not sell the foreign like product in the home market; or (ii) the sales of such merchandise is not in a sufficient quantity; or (iii) the “particular market situationin the exporting country does not permit a proper comparison with the export price or

97 19 USC § 1677a (c) and (d).98 19 C.F.R. § 351.404. (b) (2).99

For the definition of “foreign like product” see 19 USC § 1677 (16).




constructed export price”.100 The CV is used when neither home- nor third-countrysales are an adequate basis for the NV.101

The DOC can disregard certain sales in the NV calculation when it has “reasonable

grounds to believe or suspect” that the sales in the home- or third-country market atprices below the cost of production.102 However, to disregard the suspected sales, TheDOC must find that the sales (1) “have been made within an extended period of time insubstantial quantities;” and (2) not "at prices which permit recovery of all costs within areasonable period of time”.103 The Figure 2 summarizes the conditions for excluding asale from the NV calculation.104

Disregard of sales less than cost ofproduction

In substantial quantities

Over an extendedperiod of time: normally1 year but not less than6 months

NOT "at prices whichpermit recovery of allcosts within areasonable period oftime”

X < 20% of the volume of sales below cost of production

considered by DOC in calculating the NV

The weighted average per unit price of the sales underconsideration is less than the weighted average per unit costof production for such sales

AND

AND

OR

Figure 3: Disregard of sales less than cost of production

Adjusting the NV:

Like the EP and CEP, the NV is also adjusted under the forms of subtractions andadditions.105 Figure 4 illustrates the subtractions from and additions to the NV.

100 19 USC § 1677b (a) (1) (C) (iii).101 19 USC § 1677b (a) (4).102 19 U.S.C. § 1677b(b) (1) (1994).103 Id.104 19 USC § 1677b (b) (2) (B) and (C).105

19 USC § 1677b (a) (6).




Figure 4: Adjusting the NV

NV

Cost and expenses for placing the merchandise in condition packed ready forshipment to the place of delivery to the purchaser (19 USC 1677b (a) (6) (B))

Subtractions

Additions

(i) Costs of containers and coverings and (ii) other costs and charges forplacing the merchandise in condition packed ready for shipment to the UnitedStates (19 USC 1677b (a) (6) (A))

Cost and expenses for bringing the merchandise from the original place ofshipment to the place of deliver to the purchaser (19 USC 1677b (a) (6) (B))

Taxes imposed directly on the merchandise which have been rebated, orhave not been collected (19 USC 1677b (a) (6) (B))

Subtraction OR addition of any difference (or lack thereof) between the EP or the CEP and the price at whichthe merchandise is first sold (or offered for sale) for consumption in the exporting country (or a third countryor the United States (19 USC 1677b (a) (1) (B) and (6) (C))

The DOC also carries out additional adjustments to the NV which are (1) level of trade,(2) direct and indirect expenses, and (3) physical differences of merchandise. Thepurposes of adjustments could be summarized as follows.

The purpose of the level of trade adjustment is to ensure that retail sales in the homemarket are not compared with wholesale sales in the United States (or vice versa).106

The adjustment of physical characteristics of merchandise is to make sure that the

differences of cost of production is adjusted corresponding to the difference of physicalcharacteristics of merchandise. The comparison is usually based on manufacturingcosts.107 For example, a Japanese company sells a version of car in both Japan and theUnited States. However, due to a requirement of Japanese authority, the Japanesemarket version is equipped with a motor with less power but more economic fuelconsumption than that of the US market version. In this case, an adjustment is carriedout to reflect how the difference of the motors could reflect to the price of the car.Nevertheless, if the differential is more than twenty percent, The DOC will consider themerchandise is not a like product and will use the merchandise in a third country orconstructed value.108

The direct and indirect expenses are conducted to level many varieties of tradingpractices in the United States and the home market such as commissions, warranties,technical services, interest on accounts receivable, guarantees, advertising, warehousing,general discounts and rebates, free samples of merchandise, and sampling and testingexpenses.

Direct expenses are characterized as expenses incurred to facilitate specific sales (i.e.advertising cost involving in promoting the merchandise, warranty expenses associated

106 Bhala, supra n. 2 at 43.107 Gantz, “Post-Uruguay Round”, supra n. 24 at 42.108

Id.




with materials and labor to service defective merchandise, commissions paid onparticular sales).109 Direct expenses are adjusted to both the home and the United Statesmarket.110

Indirect expenses are costs incurred that are not directly attributable to particular sales.These expenses include rent, salaries, supplies and general advertising (the advertisingnot for promoting a particular product). The indirect expenses are deducted from theU.S. price under certain situations – CEP transactions – but are not always deductedfrom the prices of the home-market products.111

Zeroing Practice:

It is evident that in an antidumping investigation, the objectives of the parties are in

conflict. The petitioner will make his best efforts to prove that there is a dumping andupon finding of such dumping he will try to maximize as much as possible the dumpingmargin. Because the DOC normally makes an affirmative determination of dumping inits investigations112, the most practical hope for the respondent, therefore, is to minimizethe determined dumping margin to make it as low as possible.

One way to do that is through adjustments of the NV and EP (or CEP). In this manner,the parties will subtract or add as much as they can to either increase or decrease the NVand EP. However, there is another way which none of the parties can use except theDOC. This is the combining of multiple dumping margins to create an overall rate of dumping. One of the ways to combine multiple dumping margins is called “zeroing”which is further explained below.

The fact is there are rarely antidumping investigations in which there is only onerespondent involving one model or one type of products that has been sold in one marketand at one period of time. Antidumping investigations in fact almost always involvemore than one respondent, with the subject merchandise of several models or producttypes and being sold in various places at different periods of time. This complexitycould lead to numerous dumping margins of which the number would skyrocket if thenumbers of respondents or involved products just slightly increased. To avoid thecomplication in the implementation of antidumping orders, antidumping authoritiesnormally make multiple comparisons of the EP and NV and then aggregate the results of these individual comparisons to calculate an overall dumping margin.

“Zeroing” refers to a practice that treats all non-dumped sales as having a dumpingmargin of zero rather than negative, and thereby preventing non-dumped sales fromoffsetting dumped sales.113 For example, a Chinese company sells lighters in to EU

109 Lindsey & Ikenson, supra n. 3 at 9.110 Id.111 Id.112 Lindsey & Ikenson found out that the affirmative determination of dumping occured in 94 percent of the time. Lindsey & Ikenson, supra n. 3 at 3.113 Raj Bhala & David A. Gantz, WTO Case Review 2001, 19 Ariz. J. Int'l & Comp. Law 457, 524 (2002).

(hereinafter Bhala & Gantz, “WTO Case Review”)




market as the follows: in France the price per unit is € 1.50. The unit price in Germanyis € 0.50, in England is € 1.00. The unit price in China is equivalent to € 1.00. Thequantity of each market is 100 units.

Table 1. ZEROING

Country EP NV Unit margin Quantity Total margins

without zeroing

practice

Total margins

with zeroing

practice

Total

value

France €1.50 €1.00 - €0.50 100 - €50.00 €0 €150.00

England €1.00 €1.00 €0.00 100 €0.00 €0 €100.00

Germany €0.50 €1.00 €0.50 100 €50.00 €50.00 €50.00

Total Margin without zeroing practice €0.00114

Total Margin with zeroing practice €50.00

Total Value €200.00

Margin Percentage 25.00%

As shown in Table 1, dumping is found in Germany market. In England dumping iszero, but in France dumping is negative. If the positive dumping margin in Germany isallowed to be offset by the negative dumping in France, the total dumping marginswould be zero. However, in zeroing practice the antidumping authority sets the negativedumping margin as zero, and therefore the total dumping margins undoubtedly“positive”. The zeroing practice is considered as “one of the antidumping law’s mostegregious distortions”.115 In an examination of 18 actual antidumping determinationscarried out by the DOC recently, Lindsey found that the zeroing practice affected theoutcomes in 17 cases.116 Moreover, the dumping margins will decrease by 86.41 percent

in these 18 cases if the zeroing practice is eliminated.117

Zeroing practice has consistently been used by major antidumping users such as theUnited States and the European Union. However, in 2000 this practice was found to

114 In this, the margin -€50.00 is offset by €50.00.115 Lindsey & Ikenson, supra n. 3 at 70.116 Id. at 71.117

Id.




violate the WTO Antidumping Agreement in the EC-Bed Linen case.118 In January 2002, the United States Court of International Trade in Timken Co. v. United States,119 held that the DOC’s zeroing methodology as a reasonable interpretation of the U.S.antidumping statute and the United States was not bound by the EU-Bed Linen. In 2004,the US Court of Appeals upheld the holding of the Court of International Trade.However, in 2004 the Panel of United States – Final Dumping Determination on

Softwood Lumber from Canada,120 (hereinafter the “US-Softwood Lumber”) held that

the zeroing practice of the DOC was inconsistent with the AD Agreement. In the nextchapter we discuss the three mentioned cases with the arguments of involved parties.

118 European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India

(complaint by India, WT/DS141/AB/R) (available at http://www.wto.org)119 Codified as 240 F. Supp. 2d 1228 (Ct. Int’l Trade 2002).120

WT/DS264 (available at http://www.wto.org).




CHAPTER 3: THREE ANTIDUMPING CASES

EU-Bed Linen121

Facts:

On 7 September 1999, India requested the establishment of a panel to examine thedecision of the European Communities (EC) in Commission Regulation No.2398/97 of 28 November 1997 imposing antidumping duties on imports of cotton-type bed linenfrom India after the failures in two consultations with the EC in September 1998 andApril 1999. India made thirty one claims among which one was about the legality of

the “zeroing” practice that the EC applied in calculating an overall antidumping marginfor the bed linen product.122

The antidumping case was brought at the request of “Eurocoton”, a federation of associations of European producers of cotton textile products. The period of investigation was July 1, 1995 to June 30, 1996.123

Because there were so many Indian producers and exporters of the subjectmerchandise, the EC elected to conduct its analysis of dumping on the basis of asample of Indian companies. The EC used the Constructed Value (CV) as a proxy forNormal Value (NV) as not all five types of the subject merchandise were also sold inIndia in the ordinary course of trade.124 The EC established the Export Price (EP) from

prices actually paid or payable for cotton-type bed linen in the EC market andcompared CV with this EP. The zeroing methodology was used in the calculation of the weighted average dumping margin and described by the Appellate Body asfollows125:

“[F]irst, the European Communities identified with respect to the product under investigation –cotton-type bed linen – a certain number of different "models" or "types" of that product. Next,the European Communities calculated, for each of these models, a weighted average normalvalue and a weighted average export price. Then, the European Communities compared theweighted average normal value with the weighted average export price for each model. Forsome models, normal value was higher than export price; by subtracting export price fromnormal value for these models, the European Communities established a " positive dumpingmargin" for each model. For other models, normal value was lower than export price; by

subtracting export price from normal value for these other models, the European Communitiesestablished a "negative dumping margin" for each model. Thus, there is a "positive dumpingmargin" where there is dumping, and a "negative dumping margin" where there is not . The

121 Within the context of this thesis, only the facts related to the zeroing practice in EC-Bed Linen caseare discussed in this section.122 Report of the Panel of EC-Bed Linen, WT/DS141/R, 10 (2000) (hereinafter the “Bed Linen Panel’sreport”).123 Bhala & Gantz, WTO Cases Review, supra n. 113 at 518-519.124 Id. at 519.125 The Report of EC-Bed Linen Appellate Body report para. 47. (Hereinafter Bed-Linen Appellate Body

Report).




"positives" and "negatives" of the amounts in this calculation are an indication of precisely how

much the export price is above or below the normal value. Having made this calculation, theEuropean Communities then added up the amounts it had calculated as "dumping margins" foreach model of the product in order to determine an overall dumping margin for the product as a

whole. However, in doing so, the European Communities treated any "negative dumpingmargin" as zero – hence the use of the word "zeroing". Then, finally, having added up the"positive dumping margins" and the zeroes, the European Communities divided this sum by thecumulative total value of all the export transactions involving all types and models of thatproduct. In this way, the European Communities obtained an overall margin of dumping for theproduct under investigation.” [footnotes omitted]

India’s claims:

India claimed that the EC acted inconsistently with Article 2.4.2 of the AD Agreementby zeroing “negative dumping” amounts for certain types of bed linen in calculatingthe overall weighted average dumping margin for the like product bed linen. 126

Article 2.4.2 is read as follows:

“Subject to the provisions governing fair comparison in [Article 2.4], the existence of marginsof dumping during the investigation phase shall normally be established on the basis of acomparison of a weighted average normal value with a weighted average of prices of allcomparable export transactions or by a comparison of normal value and export prices on atransaction-to-transaction basis. A normal value established on a weighted average basis may becompared to prices of individual export transactions if the authorities find a pattern of exportprices which differ significantly among different purchasers, regions or time periods, and if anexplanation is provided as to why such differences cannot be taken into account appropriatelyby the use of a weighted average-to-weighted average or transaction-to-transactioncomparison.”127

According to India, in dumping calculations, the EC averaged only within a model, notbetween models. Thus it did not compare “a weighted average normal value with aweighted average of prices of all comparable export transactions” by excluding“negative dumping”.128 India resorted to the language of Article 2.4.2 for supports of its argument. First, it said that given the words “weighted average” in Article 2.4.2 andthe definition of the word “average”, there was “clearly no justification for excludingcertain amounts in establishing an average”.129 Second, the use of the word “all” in thesame sentence supports this meaning.130 Third, India claimed that, by attributing zerovalue to negative dumping, the practice was in contrary to the concept of weighting andin fact distorted the process of actually weighting dumping margins.131 This practice,according to India, inflated the dumping margins of four companies and createddumping for one company where dumping actually did not exist.

126 Bed-Linen Panel Report, supra n. 122 at para. 6.103.127 Emphasis by the writer.128 Bed-Linen Panel Report, supra n. 122 at para. 6.103.129 Id. at para 6.104.130 Id.131

Id.




EC’s arguments:

The EC’s arguments are based on its interpretation of the language of Article 2.4.2 and

the scope of governing of this Article. First, the EC argued that Article 2.4.2 required acomparison with a "weighted average of prices of all comparable export transactions"(emphasis added), which is not the same as requiring a comparison with a weightedaverage of all export transactions.132 Emphasizing the word "comparable", theEuropean Communities argued that, where the subject merchandise consists of various"non-comparable" types or models, the investigating authorities should first calculate"margins of dumping" for each of the "non-comparable" types or models, and, then, ata subsequent stage, combine those "margins" in order to calculate an overall margin of dumping for the product under investigation.133 This two-stage process in calculatingdumping margin is very important because the EC then will base on this view todiscuss whether the zeroing practice is inconsistent with Article 2.4.2.

According to the EC, zeroing is not inconsistent with Article 2.4.2 simply because thisArticle provides no guidance as to how the "margins of dumping" for each of the typesor models should be combined in the second stage.134 Article 2.4.2, the EC argued,referred to “the existence of margins of dumping” marking clear that the process of comparing weighted averages normally concludes with more than one dumpingmargin.135 However, how these margins can be combined into one overall margin (thesecond stage) is not provided in this Article and should be left to the discretion of theAD Agreement Members.136 The EC maintained that it had consistently followedArticle 2.4.2 in the first stage by determining dumping margin of each model of theproduct.

Panel’s holdings:

The Panel held that the EC’s zeroing practice was inconsistent with Article 2.4.2. Theholdings are based on the Panel’s analysis of the parties’ arguments and the ADAgreement.

First, it disagreed with the EC’s view of the two-stage process in calculating an overallmargin. To determine the meaning of the phase “margins of dumping” in Article 2.4.2– or in other words to determine the purpose of dumping margin calculating in thisArticle, the Panel looked to Article 2.1. In Article 2.1, it found a definition that “a

product is to be considered as being dumped i.e. introduced into the commerce of another country at less than its normal value,…”137 Based on this definition of adumped product the Panel reasoned that the determination of a dumping in Article2.4.2 “can only be established for the product at issue, and not for individual

132 Bed-Linen Appellate Body report, supra n. 125 at para. 49.133 Id. at para. 49.134 Id.135 Bed-Linen Panel Report, supra n. 122 at para. 6.106. Emphasized by the writer.136 Id.137

AD Agreement, Art 2.1. Emphasized by the writer.




transactions concerning that product, or discrete models of that product.”138 Thisreasoning means that the dumping determination is considered as a whole, not as atwo-separated-stage process as in the EC’s view, and therefore, there is no room for theEC to decide by itself how to combine the dumping margins. Regarding the EC’sargument on the plural of the word margin in the phrase “the existence of margins of dumping”, the Panel explained that the “margins of dumping” is “a general statement”and refers to individual dumping margins determined for each producer or exporterunder investigation as set forth in Article 6.10 and 9 of the AD Agreement. 139 Thus,there is no conflict between the purpose of Article 2.4.2 to determining a singledumping margin for a product and the “margins” in the plural in the Article.

The Panel then considered whether the zeroing is in consistent with Article 2.4.2. Byzeroing the negative margins, the Panel argued, the EC’s calculation did not “rest on acomparison with the prices of all comparable export transactions” which is required byArticle 2.4.2.140 The zeroing, in fact, changed the prices of export transactions in

comparisons.141 The zeroing, the Panel said, “is the equivalent of manipulating theindividual export prices counted in calculating the weighted average, in order to arriveat a weighted average equal to the weighted average normal value”. 142 The Panel,therefore, held that the zeroing practice is not “based on comparisons which fullyreflect all comparable export prices, and is therefore calculated inconsistently with therequirements of Article 2.4.2.”143

None of the EC’s appeals were successful in the hearing of the Appellate Body. TheAppellate Body upheld the Panel’s finding on the inconsistency with Article 2.4.2 of the EC’s zeroing practice. In addition, the Appellate Body asserted that “Article 2.4sets forth a general obligation to make a ‘fair comparison’ between export price and

normal value”144

and the zeroing practice “is not a ‘fair comparison’ between exportprice and normal value, as required by Article 2.4 and Article 2.4.2.”145

Regarding the word “comparable” emphasized by the EC and its argument that “exporttransactions involving different types or models of cotton-type bed linen are not‘comparable’ because different types or models of cotton-type bed linen have verydifferent physical characteristics”, the Appellate Body quoted a definition set forth theEC itself in which "the different possible product types … constitute a single product for the purpose of this proceeding because they have the same physical characteristics and essentially the same use".146

The Appellate Body also explained its view about the word “comparable” as follows:

138 Bed-Linen Panel Report, supra n. 122 at para. 6.114.139 Id. at para. 6.118.140 Id. at para 6.115. Emphasized by the writer.141 Id.142 Id.143 Id.144 Bed-Linen Appellate Body Report at para. 59.145 Id. at para.55.146

Id. at para. 57.




“In our view, the word "comparable" in Article 2.4.2 relates back to both the general and thespecific obligations of the investigating authorities when comparing the export price with thenormal value…

… here again we fail to see how the European Communities can be permitted to see the physical

characteristics of cotton-type bed linen in one way for one purpose and in another way foranother.”

A scholar commented that if EU had been concerned about product types it would havedone a DIFMER147 adjustment to Normal Value – the adjustment that required byArticle 2.4 of the AD Agreement.148 “The Appellate Body very nearly seemed to besaying that the EC ought to be ashamed for failing to consider more thoughtfully thetechnical rules set forth in the AD Agreement on dumping margin adjustments. Afterall, India – a developing country – seemed to have mastered the relevant technicalrules.”149

United States’ arguments:

The United States participated in this case as a third party. As in the next two cases wewill discuss the zeroing practice of the United States, it is noteworthy to have anoverview on the United States’ arguments in this case. Among other arguments, threeare interesting as they will appear in the next two cases.

First, in the United States’ view, the zeroing practice applied by the EC is not coveredby Articles 2.4 and 2.4.2 because it arises at a step subsequent to the comparison of export price and normal value, when the individual, model-specific margins werecombined into an overall average rate of dumping. 150

Second, the United States said that a positive dumping margin representing theaggregate amount of dumping duties that the importing country is permitted to collectfor that product or group of transactions.151 The negative difference between normalvalue and export price – as the United States argued – simply means there is nodumping and the dumping duty that the importing country permitted to collecttherefore is zero.152

Final, the United States resorted to the negotiating history of the AD Agreement andpointed out that Article 2.4.2 was included in the Agreement to provide that – except inthe case of targeted dumping – the margin calculation is an investigation that would bemade on a consistent basis, i.e., weighted average to weighted average or transaction to

transaction. Thus, the United States asserted that the intent of Article 2.4.2 was toeliminate transaction-to-average comparisons, not to alter the manner in whichauthorities calculated overall margins after all appropriate comparisons were made.153

147 Bhala & Gantz, WTO Case Review, supra n. 113 at 538.148 Id.149 Id. at 539.150 Bed-Linen Panel Report, supra n. 122 at para. 6.109.151 Id.152 Id.153

Id.




Timken Co. v. United States

After EC-Bed Linen case and the EC’s abandonment of the zeroing practice, manyhoped that the United States would do the same. However, in 2002 the United StatesCourt of International Trade in Timken Co. v. United States,

154 held that the DOC

properly “zeroed” any negative dumping margins in calculating the weighted-averagedumping margin applied to imports of Kyoko Seiko., Ltd. and Kyoko Corporation of U.S.A, (hereinafter “Kyoko”) the respondents in an antidumping case. Kyoko thenappealed to the U.S. Court of Appeals for the Federal Circuit. In January 2004, theUnited States Court of Appeals upheld the judgment of the Court of International Tradeon zeroing practice.

The Court of Appeals described the zeroing methodology of the DOC as follows:155

“After calculating the dumping margins on the individual U.S. transactions subject to review,Commerce calculates the weighted-average dumping margin “by dividing the aggregatedumping margins determined for a specific exporter or producer by the aggregate . . .constructed export prices of such exporter or producer.” Id. § 1677(35) (B); see also KoyoSeiko, 258 F.3d at 1342-43. When calculating the weighted-average dumping margin,Commerce treats transactions that generate “negative” dumping margins (i.e., a dumpingmargin with a value less than zero) as if they were zero. See, e.g., Serampore Indus. Pvt. Ltd. v.Dep’t of Commerce, 675 F. Supp. 1354, 1360-61 (Ct. Int’l Trade 1987). This practice isreferred to as “zeroing.” Finally, Commerce uses this weighted-average dumping margin tocalculate the duties owed on an entry-by-entry basis. 19 U.S.C. § 1675(a) (2).”

On appeal, Kyoko argued that the DOC had acted unreasonably in zeroing negative-

margin transactions. First, Kyoko contended that 19 U.S.C. § 1677b (a) required a“fair comparison” of EP or CEP and NV.156 Kyoko then argued that § 1677b (a)specifically implemented the “fair comparison” requirements of Article 2.4 of the ADAgreement. Finally, Kyoko said that EC-Bed Linen held that the zeroing practice incalculating dumping margins was not a “fair comparison” between EP or CEP and NV.The DOC, therefore, had refused to interpret US antidumping law in a mannerconsistent with U.S. international obligation by ignoring EC-Bed Linen. 157

Explaining its holding, the Court of Appeals first considered whether DOC’s zeroingpractice was based on a reasonable interpretation of antidumping statute. First, theCourt asserted that while the law did not unambiguously preclude the existence of

negative dumping margins, it did at a minimum allow for the DOC’s construction.

158

The Court then analyzed the language of the US antidumping law. According to theCourt, one number “exceeds”159 another if it is “greater than” the other, meaning it

154 Timken Co. v. United states, 240 F. Supp. 2d 1228 (Ct. Int’l Trade 2002) (hereinafter Timken)155 Timken Co. v. United States, 354 F.3d 1334; 1338-39 (U.S. App. 2004) LEXIS 627.156 Id. at 1140.157 Id. at 1340.158 Id. at 1342.159 19 USC § 1677 (35) (A): “Dumping margin. The term ‘dumping margin’ means the amount bywhich the normal value exceeds the export price or constructed export price of the subject merchandise.”

Emphasized by the writer.




falls to the right of it on the number line.160 This means that the dumping margin existsonly when the value of NV falls to the right of the value of EP on the number line (forexample, if NV is 5 and EP is 7, NV is on the left of EP on the number line – andtherefore, it cannot “exceed” EP.) In other words, dumping margin, which is a result of the exceeding of NV to EP161, should be always positive.

Not only finding the DOC’s methodology was reasonable in mathematic way, theCourt also found it made practical sense.162 The Court explained this as follows:163

“[DOC] calculates dumping duties on an entry-by-entry basis. 19 U.S.C. § 1675(a) (2). Itspractice of zeroing negative dumping margins comports with this approach. BorrowingTimken’s example, suppose a foreign exporter sells the same product to two U.S. customers.The product has a normal value of $0.90, and is sold to the first customer for $1.00 and thesecond customer for $0.70. Calculated in accordance with § 1677(35) (A), the dumping marginfor the first customer is zeroed (0.90 - 1.00 = -0.10) and for the second customer is 0.20 (0.90 -0.70 = 0.20). Assuming sales of 1000 units to each customer, the first customer would not haveto pay any dumping duties because it paid a price above normal value, and the second customer

would have to pay $200 (1000 transactions x 0.20 dumping margin/transaction = 200) becauseit paid a price below normal value. This approach makes sense; it neutralizes dumped sales andhas no effect on fair-value sales. On the other hand, the approach urged by Koyo, wherebyCommerce could not zero negative transactions, would essentially require Commerce to grantthe first customer a credit. In the absence of offsetting sales below fair market value, however,Commerce could potentially owe the first customer a payment—a result clearly notcontemplated by the statutory scheme.”

It is interesting to see this reasoning of the Court. In EC-Bed Linen case the UnitedState argued that the dumping margin representing the aggregate amount of dumpingduties that the importing country is permitted to collect and the negative differencebetween normal value and export price means there is no dumping. 164 This argument

of the United States in fact was quite natural in terms of the purpose of imposingdumping duties. However, in this case, the Court boldly considered the dumping not asa measure to create a level playing field for competing products but as a punishmentimposed on consumers who bought the dumped products. A classical statement of protectionism!

Regarding Kyoko’s argument on “fair comparison”, the Court reasoned that the “faircomparison” requirement of § 1677b (a) is simply applied to the calculation of normalvalue and “does not impose any requirements for calculating normal value beyondthose explicitly established in the statute and does not carry over to create additionallimitations on the calculation of dumping margins.”165

With respect to the persuasive value of EC-Bed Linen holding on the zeroing practice,the Court held that EC-Bed Linen was not binding on the United States and did notfind the decision was sufficiently persuasive to find the DOC’s practice

160 Timken, supra n. 155 at 1342.161 US Antidumping law defines “dumping margin” as “the amount by which the normal value exceedsthe export price or constructed export price of the subject merchandise.” 19 U.S.C. § 1677(35)(A).162 Timken, supra n. 155 at 1342.163 Id. at 1342-43.164 Bed-Linen Panel Report, supra n. 122 at para.6.109.165

Timken, supra n. 155 at 1344.




unreasonable.166 The Court found that the DOC’s zeroing practice to be a reasonableinterpretation of the statute, even in light of the decision in EC – Bed Linen.167

United States – Softwood Lumber from Canada (WT/DS264/R)

Just three months after the Court in Timken wrote that EC-Bed Linen decision was notbinding on the United States, the WTO, in United States – Final DumpingDetermination on Softwood Lumber from Canada (WT/DS264/R) (herein US-Softwood Lumber) held that zeroing practice of the United States was inconsistent withArticle 2.4.2 of the AD Agreement.

Facts:

On March 3, 2003 a Panel was established by the request of Canada to examine theUnited States’ final determination of sales at LTFV with respect to certain softwoodlumber products from Canada published in the Federal Register on 2 April 2002, andamended on 22 May 2002. The European Communities, India and Japan reserved theirthird-party rights. Among many claims of Canada, there was a request f or the Panel tofind that the DOC had “illegally ‘zeroed’ negative margins of dumping”. 168

The DOC’s zeroing practice in this case was described by the Panel as follows:169

“In the anti-dumping investigation underlying this dispute, DOC divided the product underinvestigation into groups of identical, or broadly similar, product types. After making certainadjustments within each product type, DOC calculated a weighted average normal value andexport price for each product type, and then compared the weighted averages for each product

type. This process resulted in multiple values, one for each product type. In some instancesthis comparison showed that the weighted average export price for a specific product type wasless that the weighted average normal value, while in other instances, the comparison showedthat the weighted average export price was greater than the weighted average normal value.These values were then aggregated to produce one single value, the margin of dumping for theproduct under investigation for each investigated exporter. In the aggregation process, a valueof "zero" was attributed to those product comparisons where the weighted average export pricewas greater than the weighted average normal value. DOC then aggregated the positive valuesfrom the individual product type comparisons, that is, those instances where the weightedaverage export price was lower than the weighted normal value, and divided the result by thetotal value of exports, to arrive at a weighted average margin of dumping.”

Canada’s arguments

As in EC-Bed Linen, the arguments of parties were mostly about (i) whether Article2.4.2 covered the combining of multiple dumping margins or, in other words, if Article2.4.2 covered only the first in the two-stage process of calculating multiple dumping

166 Id.167 Id.168 Report of the Panel of US-Softwood Lumber, WT/DS264/R, 3 (WTO, 2004) (available athttp://www.wto.org) (hereinafter US-Softwood Lumber Panel Report).169

Id. at para. 7.185.


http://www.wto.org/

http://www.wto.org/



margins, (ii) the words “comparable” and words “all” in the phrase “all comparableexport transactions”.

Canada argued that DOC’s zeroing practice in this case was identical to that used by

the EC in EC-Bed Linen which was found inconsistent with Article 2.4.2.170

LikeIndia in EC-Bed Linen, Canada asserted that “the methodology used by the UnitedStates in the underlying investigation did not fully take into account ‘all comparableexport transactions’”.171 This methodology as claimed by Canada “did not produce afair comparison as required by Article 2.4 because it did not in fact average allvalues.”172

Regarding the two-stage process in dumping margin calculation, Canada was of theview that “Article 2.4.2 establishes a single standard for the calculation of a margin of dumping which is applicable to all stages of the calculation, whether intermediate orfinal”.173

United States’ arguments

First, the United States focused on the word “comparable” in the phrase "allcomparable export transactions". It contended that Canada deprived the term"comparable" in Article 2.4.2 of any meaning, instead making it equivalent to the term"all", which immediately precedes it.174 Then, like the EC in EC-Bed Linen it arguedthat not all export transactions were equally comparable with all transactions used fornormal value purposes.175 According to the United States, Canada's prescription forcombining particular dumping margins for purposes of developing a single, overalldumping margin would be contrary to the requirements of Articles 2.4.2 and 2.4.176

Second, the United States was of a view that Articles 2.4 and 2.4.2 did not address themanner in which particular model-specific or level-of-trade-specific dumping marginswere to be combined to determine an overall dumping margin. 177 Therefore, like theEC’s argument in EC-Bed Linen, the combining of multiple dumping margins,according to the United States, are left to the Member’s discretion. It further arguedthat the use of plural term "margins" in Article 2.4.2 operated to limit the scope of thatprovision to intermediate stage calculations only, which confirmed its interpretation of Article 2.4.2.178

Final, the United States looked into the negotiating history of the AD Agreement toexplain Article 2.4.2. According to the United States, the negotiating history

demonstrated that the question whether to address zeroing was presented to thenegotiators, and that the draft text, as compared to the AD Agreement 's predecessor, the

170 Id. at para 7.187.171 Id.172 Id.173 Id.174 Id. para 7.189.175 Id.176 Id.177 Id.178

Id.




GATT Anti-Dumping Code, was not modified to prohibit this methodology.179 Further,the negotiating history demonstrated that insertion of the word "comparable" intoArticle 2.4.2 was intended precisely to ensure that the term "all" not be interpreted toimply that an average export price is to be established on the basis of sales both withinand outside of the category of comparison.180

Panel’s holding:

With respect to the Parties’ arguments over the terms “all” and “comparable”, the Panelexpressed its view: “we do not believe that [the AD Agreement drafters] would haveincluded the word "comparable" in Article 2.4.2, as that word would serve no purpose inthe text. The fact that the word "comparable" was added to the text of Article 2.4.2 ….confirms our view that it was included for a purpose and should not simply bedisregarded as surplus verbiage.”181 Therefore, the Panel thought that “there is no need to

choose between the two terms. Rather, the phrase ‘all comparable export transactions’would in its ordinary meaning appear to signify that Members may only compare thoseexport transactions which are comparable, but that it must compare all suchtransactions.”182 Consequently, the Panel did not agree with the Appellate Body in EC-Bed Linen in reducing the importance of the term “comparable”:

“[W]e do not believe that the significance of the reference to "comparable" export prices cansimply be discounted on the grounds that the products/transactions must ‘necessarily becomparable’”.183

About non-comparable transactions, the Panel did not explicitly assert that there werenon-comparable transactions. However, it agreed to a limited extent with the United

States that though the differences of transactions could be adjusted by due allowanceand other adjustments, still in some cases, the application of such adjustment wasproblematic.184 However, unlike the United States, the Panel did not conclude that thesuch transactions in these cases must be excluded from dumping calculation, instead, itsaw this problem was the reason for the fact that many investigating authorities andrespondent exporters – in order to limit the possible adjustments – chose to performtheir comparisons on the basis of groups of transactions sharing commoncharacteristics. 185 Those comparisons were called multiple averaging and theconclusion drawn by the Panel was “the use of multiple averaging is consistent withthe overall objective of Article 2.4”.186

179 Id. para 7.192.180 Id.181 Id. para 7.203.182 Id. para 7.204.183 Id. para 7.206. In EC-Bed Linen, the Appellate Body reduced the importance of the term“comparable” by saying this: “All types or models falling within the scope of a ‘like’ product mustnecessarily be ‘comparable’, and export transactions involving those types or models must therefore beconsidered ‘comparable export transactions’ within the meaning of Article 2.4.2.” Bed Linen AppellateReport, supra n. 125 at para 58. Emphasized by the writer.184 US-Softwood Lumber Panel Report, supra n. 168 at para 7.207.185 Id. at para 7.207.186

Id. at para 7.207.




Then the Panel analyzed if an overall dumping margin could be derived from multipleaveraging or not. The Panel noted that the first sentence of Article 2.4.2 as follows:

“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 acomparison of a weighted average normal value with weight average of prices of allcomparable export transactions or by a comparison of normal value and export prices on atransaction-to-transaction basis.”187

The Panel asserted that in both cases (weighted-average-to-weighted-averagecomparison and transaction-to-transaction comparison), the word “comparison” wasused in singular (and preceding by the word “a”). However, in both cases, the exportsare referred to as in the plural (“export transactions” and “export prices”). 188 Thismeant that, according to the Panel, the comparison could be done by comparison of asingle transaction or by multiple comparisons of individual transactions. 189 This meansthat an overall dumping margin could be derived from multiple averaging. 190

After asserting that an overall dumping margin could be derived from multipleaveraging or, in other words, an overall dumping margin could be combined frommultiple individual dumping margins, the Panel examined the questions whether thiscombination was covered by Article 2.4.2. However, unlike the Panel in EC-BedLinen, the Panel in this case had another approach by reformatting the question as:

“[W]hether an investigating authority is allowed to partially exclude from the aggregationprocess those results of comparing types or models for which the weighted-average-normal-value was determined to be less than the weighted-average-export-price in the aggregationprocess[?]”191

To answer this question, once again, the Panel avoided getting into the point. Instead

of giving a direct answer the Panel explained its conclusion in the way “If they did this,it means they didn’t want to do that!” In a highly delicate language, it said:192

“[W]e fail to understand why the negotiators of the AD Agreement would have included anobligation in the provisions of the AD Agreement (the term "all" in "all comparable exporttransactions"), if, in the very next step of the calculation process – through zeroing –investigating authorities were to be allowed to ignore this very same obligation (certain valueswhich they were obligated to take into account in the first stage of the process).”

Behind the nice language, the Panel’s reasoning was barely if the negotiators put theword “all” in to Article 2.4.2 – “they did this” – they implied that the zeroing was notallowed – “they didn’t want to do that”.

With respect to the United States’ interpretation based on the negotiating history of theAD Agreement, the Panel simply said that the meaning imparted by the text of Article2.4.2 was “neither equivocal nor inconclusive” – the requirements of Article 32 of the

187 AD Agreement, Article 2.4.2. Emphasized by the writer.188 US-Softwood Lumber Panel Report, supra n. 168 at para. 7.209.189 US-Softwood Lumber Panel Report, supra n. 168 at para 7.209.190 Id. at para. 7.210.191 Id. at para. 7. 214.192

Id. at para. 7.216.




Vienna Convention to resort to negotiating history of a treaty. Therefore, the Panelsaid it was not necessary to “have recourse to the negotiating history”. 193

The Panel held the zeroing practice of the United States violated Article 2.4.2.194

193 Id. at para. 7.221-23.194

Id. at para. 7.224.




CHAPTER 4: THE NECESSITY TO AMEND THE ANTIDUMPING

AGREEMENT

In Chapters 2 and 3, we have discussed the methodology to determining dumping marginsand three recent important cases in which zeroing practices have been analyzed. In thisChapter we will explain why the Court’s judgment in Timken Co. v. United States is notreasonable. We also analyze why the legal grounds for condemnation of the zeroingpractice in EC-Bed Linen and US-Softwood Lumber were not very persuasive though thispractice deserves such condemnation. The conclusion of this Chapter is Article 2.4.2 of the AD Agreement should be amended to give a firm ground for prohibition of thezeroing practice.

Before discussing each case, we would like to briefly discuss if the zeroing practice is

reasonable not in legal context but in common sense.As discussed in Chapter 2, in practice, to determine the dumping margin for a product,investigating authorities normally go through two steps. First step is to determine thedumping margin of each models or types of the product. The second is to determine anoverall dumping margin. In the first step, there are at least three parties involved, therespondent, the claimant and the investigating authority. The parties could affect thecalculation outcomes by adjustment to NV and EP (or CEP). In the second step, only theinvesting authority could arbitrarily affect the calculation by excluding certain dumpingmargins from the calculation by zeroing it. The outcomes of such zeroing enormouslyoutweighs the outcome of the first step because zeroing does not affect some elementsconstituting the NV or EP, it directly affects the margins. Not only can zeroing bearbitrarily imposed by the authority195 and unreasonably inflate dumping margins, zeroingis blind to distinguishing the innocent and the guilty – it helps to create artificial dumpingwhere such dumping does not exist. These are enough to see that zeroing does not servethe purpose of “create a level playing field” for competition of merchandise asantidumping laws supporters say.

In the next section, we discuss about the legal reasoning in the three above-mentionedcases.

Timken Co. v. United States

As mentioned somewhere else, the Court of Appeals in Timken analyzed the word“exceeds”196 in a mathematical way that if one number exceeds another if it falls to the

195 As discussed in Ch.3 § 3.4, the use of zeroing solely depends on the administrating authority. In the EC-

Bed Linen case, the Panel asserted that the EU did not always follow the practice of zeroing. India assertedthat in another case, the EU allowed the “negative” dumping found for certain models was offset against thedumping found for other models. Bed-Linen Panel Report, supra n. 122 at 111 n.45.196According to the Court, one number “exceeds” another if it is “greater than” the other, meaning it falls tothe right of it on the number line. This means that the dumping margin exists only when the value of NVfalls to the right of the value of EP on the number line (for example, if NV is 5 and EP is 7, NV is on the leftof EP on the number line – and therefore, it cannot “exceed” EP.) In other words, dumping margin, which is

a result of the exceeding of NV to EP196, should be always positive.

Trade Agreements and Industry Influence Trang 36 / 41



right of the other on the number line. It is worth noting that in the US antidumping lawthere is no provision which expressly stipulates the equation: Dumping margin = NV –EP. The most related background for this equation is possibly the definition of dumpingmargin in 19 USC § 1677 (35) “… ‘dumping margin’ means the amount by which the

normal value exceeds the export price or constructed export price …”. In this definitionthe “normal value” precedes the “export price” so, in the equation, it is presented as (NV– EP). If we apply this reasoning to the definition of dumping in 19 USC § 1677 (34), wewould know whether there is a dumping when we make a comparison between the saleand the fair value. This hypothetical equation could be formed as:

Dumping = value of sale – fair value

Following the reasoning of Timken, if the “value of sale” is less than “fair value”, itmeans that the “value of sale” falls on the left of the “fair value” in the number line (e.g. 5– the “value of sale” – is on the left of 7 – the “fair value” – on the number line). Now, if we apply this into the hypothetical equation in which value of sale (smaller number)minus fair value (bigger number) – the result, indisputably is a “negative” value. How theCourt in Timken could explain that using its own method we can find dumpingrepresented by a “negative” value while the dumping margin is “positive”? The answer issimple. The Court in Timken just ignored the meaning of “negative” value in accountingprinciples, which is also applied in the antidumping process197. In accounting, the“negative” or “positive” just indicates in which column of the balance sheet that numbershould be entered. For example, if a profit for a product is -$10.00, this means that it is a+$10.00 loss and the number $10.00 should be entered both under the profit and losscolumns (- $10.00 under the profit and + $10.00 under the loss). It cannot be zeroedbecause doing so, the real fact is distorted – the real loss disappears. So, the Court’s

explanation of the word “exceed” erred.About another explanation of the Court of Timken that why the dumping duty should beimposed: “the second customer would have to pay …. because it paid a price belownormal value.” As we already discussed earlier198, this statement unambiguously showedthat the Court considered the dumping duty as a punishment to the customer who hadenjoyed the benefit of dumped products. It is not a measure to create a “level field” forthe competition of products.

EC-Bed Linen and US-Softwood Lumber

Let’s set aside the extreme argument that zeroing is just merely a measure thatantidumping abusers use blindly to distort the dumping margin calculation, and just focuson the discussion of the parties in EC-Bed Linen and US-Softwood Lumber. Althoughthe discussions about zeroing in these cases are lengthy and complex, it could besummarized into three issues. First, the calculation of dumping margin for a product isnormally a two-step process in which the first step is to calculate the dumping margin of models or types of the product and the second step is to combine the found dumping

197 Profit is taken into account in calculating “constructed value” in antidumping. It is doubtfully that incalculating the constructed value any party has ever zeroed such profit when it is presented by a negativenumber.198 Ch.3 at 56.




margins into an overall dumping margin. Second, whether Article 2.4.2 covers the secondstep of combining margins. Third, if Article 2.4.2 covers both steps of calculating, is itpossible to exclude some negative margins in the calculation by zeroing it?

Regarding the first issue, both Panels and parties of the two cases agreed that thecalculation of dumping margin in many cases should be taken in two steps. Regarding thesecond issue, the Panels in both cases persuasively asserted that although the calculationcan be divided into steps, still it is a continuous process as under Articles 2.4 and 2.4.2 theultimate purpose of the calculation is to determine the dumping margin of one product.And therefore, there is no room for the AD Agreement Member to interpret that thecombination of dumping margins is in its owned discretion.

With respect to the third issue, all discussions were about the interpretation of two terms“all” and “comparable” in the phrase “all comparable export transactions” in Article 2.4.2.The respondents in both case, the EC in EC-Bed Linen and the United States in US-Softwood Lumber, insisted that it would be erred to consider “all comparable exporttransactions” to be equal to “all export transactions”.

The Panel in EC-Bed Linen got luck when it found a definition of bed linen product thatthe EC had written and then served as the rope that the EC-Bed Linen Appellate Bodyused to hang it up while lecturing it should not see one thing “in one way for one purposeand in another way for another”.199 Having in hand the “smoking gun” of the insincereintention of the EC, the Panel in this case therefore could put all of its stress on the word“all” and almost ignored to explain the meaning of the word “comparable”. The Panel

just simply said: “All types or models falling within the scope of a ‘like’ product mustnecessarily be ‘comparable’, and export transactions involving those types or models musttherefore be considered ‘comparable export transactions’ within the meaning of

Article 2.4.2”200

However, in US-Softwood Lumber, the Panel did not find such kind of mistake. Inaddition, unlike the EC in EC-Bed Linen, the United States did not try to apply the word“comparable” in its particular case,201 Instead, it discussed the purpose of such word inthe phrase “all comparable export transactions” and traced back to the negotiation historyof Article 2.4.2 for supports. The Panel in US-Softwood Lumber therefore, could not usethe argument of EC-Bed Linen. The Panel therefore admitted that the word “comparable”is not a “surplus verbiage” and “Members may only compare those export transactionswhich are comparable, but that it must compare all such transactions.”202 The Panelhowever avoided getting into the core issue: whether exist non-comparable transactions.

With respect this issue, the Panel just limited itself in acknowledging that though thedifferences of transactions could be adjusted by due allowance and other adjustments, stillin some cases, the application of such adjustment was problematic. 203 Ambiguously in

199 See Ch. 3 §1.4. of this thesis.200 Bed Linen Appellate Report, supra n. 168 at para 58. Emphasized by the writer.201 In EC-Bed Linen, the EC argued that it must exclude several negative margins as the models in thetransactions of such margins were non-comparable because of the difference of physical characteristics. Bysaying that, it fell into the trap made by itself when the Appellate Body ironically commented that by thedefinition set by the EC, such non-comparable models consisted a single product.202 US-Softwood Lumber Panel Report, supra n. 168 at para 7.204. Emphasized by the writer.203 Id. at para 7.207.




describing such “problematic” transactions, the Panel then maneuvered to avoid answerthe direct question of what should be done to such problematic transactions byacknowledging the fact that many investigating authorities and respondent exporters – inorder to limit the possible adjustments – chose to perform their comparisons on the basis

of groups of transactions sharing common characteristics.204 Hence, though accepting thatthe “Members may only compare those export transactions which are comparable”, by twoconsecutive maneuvers, it did not give any clear explanation on the meaning of the word“comparable” and what difference between “all comparable export transactions” and “allexport transactions”.

Additionally, the Panel simply disregarded the negotiating history by saying that Article2.4.2 was not unclear and therefore, according to Article 32 of Vienna Convention, it wasnot necessary to resort to the negotiating history. We fail to understand how the Panel cansee the context of Article 2.4.2 clearly while it fails to give a clear explanation of the word“comparable” in this Article.

Again, in answering the question whether an investigating authority is allowed to partiallyexclude certain transactions from the calculating process, the Panel – like the GermanPanzer Gel. Guderian in the World War II – made another outflank maneuver by guessingthat if the negotiators of the AD Agreement put the term “all” in “all comparable exporttransactions” they implied that the zeroing was not allowed. 205

Conclusion

As discussed earlier,206 zeroing practice is unjust and unreasonable and should beprohibited. However, it should be noted that in both EC-Bed Linen and US-Softwood

Lumber, the Panels failed to give a persuasive explanation of the word “comparable” andtherefore could not make any distinctions between “all comparable export transactions”and “all export transactions”. Further, the Panels unreasonably refused to look into thenegotiating history of Article 2.4.2 for some clues of the meaning of these words. Theholdings of the Panels on the zeroing deserve applause, but the reasoning is unsatisfactorybecause it contains loopholes.

It seems that the Panels and the Appellate Bodies have made all their best efforts but theirreasoning is still incomprehensive because the phrase “all comparable exporttransactions” is problematic since it is written down. It is possibly that the phrase “allcomparable export transactions” is not a clear and firm intention of the negotiators in

prohibiting the zeroing practice, but instead, a result of a concession between thenegotiators who want to eliminate the zeroing (the supports of “all”) and the ones whowant to maintain it (the supports of “comparable”). Both sides in the negotiation of Article 2.4.2, possibly upon seeing that they are unable to obtain a complete victory, hasaccepted a concession in which both words “all” and “comparable” appear together in thisArticle.

204 Id.205 See Chapter 3, § 3.4 of this thesis.206 Ch. 4, § 1 of this thesis.




Any efforts to interpret a clause that ambiguous by its born cannot be flawless. Article2.4.2 therefore should be amended to clarify the intention of the negotiators.

- THE END -




ABOUT THE AUTHOR

Bao Anh Thai, managing partner of the Hanoi-based law firm of Bao&Partners,specializes in international trade and contract laws and public policy. His practiceincludes advising state agencies companies with regard to antidumping duty proceedingsand international commercial and banking transactions. Mr. Thai is a 1995 graduate of Hanoi Law School and a 2004 LL.M. graduate of James E. Rogers College of Law, theUniversity of Arizona. He was a Fulbright scholar in 2003-2004.

Contact the Author at:

Bao & Partners Law Office

Email: [email protected]

Website: http://www.baolawfirm.com.vn

Room A1406, M3M4 Building, Nguyen Chi Thanh Street, Ha Noi, Vietnam.

Tel: (84 4) 2 751 181

Fax: (84 4) 2 751 180



Documents

Antidumping zeroing practice