Introduction

On April 18, 2006, the WTO Appellate Body (AB) released its decision on the “zeroing” antidumping case which the EU brought against the U.S.[1] In the decision, the AB upheld the panel’s finding that the U.S.’ zeroing methodology employed in initial antidumping investigations was inconsistent with the fair comparison requirement under Article 2.4.2 of the WTO Antidumping Agreement (AD Agreement). In addition, the AB, reversing the panel’s original finding, held that certain applications of the same methodology in the administrative review process were inconsistent with Article 9.3 of the AD Agreement.

Background: What is “Zeroing”?

The amount of antidumping duties corresponds to the magnitude of dumping (dumping margin) which is a difference between export price and domestic price (or normal value). Dumping margins are calculated in two different stages. First, in the “original investigation,” an antidumping authority, such as the Department of Commerce (DOC) in the U.S., determines a general dumping margin over a particular product in question by summing up each individual dumping margin (normal value minus export price) computed in a group (an “averaging group”) of identical products. In doing so, the DOC disregards any “negative” dumping margin (any excess of export price over normal value) in the group by simply “zeroing” it. Consequently, a general dumping margin, which is a total sum of these individual dumping margins, tends to be inflated because the zeroing methodology precludes any offsetting effect of negative individual dumping margins. The DOC employs the same methodology when it finally assesses a company-specific dumping margin to impose actual antidumping duties in the annual “administrative review” process.

The zeroing methodology has been contested several times under the GATT/WTO. An unadopted panel report under the GATT (Committee on Antidumping Practices) once upheld the European Union’s (EU) zeroing methodology.[4] However, the WTO Appellate Body struck down certain applications of such methodology both by the EU[5] and the U.S.[6] A recent NAFTA Chapter 19 panel (NAFTA Softwood Lumber)[7] condemned this practice, invoking the celebrated Charming Betsy doctrine (a U.S. Supreme Court decision holding that U.S. statutes should be interpreted, if possible, in such a way as to avoid placing the United States in violation of international law), and expressing the view that the U.S. should follow the AB decision against it in WTO Softwood Lumber V. It may be no coincidence that the EU challenged the U.S. zeroing methodology after the EU’s own applications of the same methodology were invalidated by the WTO.

The AB Report

The panel had originally struck down “as such” the U.S.’ zeroing methodology embodied in the “Standard Zeroing Procedures” in the original investigation under Article 5 of the AD Agreement. The panel held that the methodology ignored negative margins and thus violated the “fair comparison” requirement under Article 2.4.2 of AD Agreement.[8] The AB upheld the panel’s finding.[9] The U.S., in its appeal, had challenged the panel’s aforementioned finding under Article 11 of Dispute Settlement Understanding (DSU).[10] The U.S. contended that the zeroing methodology itself could not be challenged “as such” because it did not “mandate” a WTO violation or “preclude” a WTO-consistent action.[11] Thus, the U.S. argued that the panel failed to make an objective assessment required under DSU Article 11.[12] However, the AB rejected this argument and upheld the panel’s ruling as it refused to make any “general” mandatory/discretionary distinction in deciding the admissibility of a measure as such.[13]

In addition, the AB reversed the panel’s original finding on the EU’s “as applied” claims as to the DOC’s applications of the zeroing methodology in the administrative review. The panel had ruled in favor of the U.S. that the zeroing applications in the administrative review were not inconsistent with the AD Agreement.[14] The U.S. argued that a dumping margin can be computed on a “transaction-specific” basis so that a certain comparison in a certain averaging group might produce a zeroed margin.[15] In other words, for the purpose of calculating dumping margins the DOC might rely selectively on a comparison between an averaged normal value (average domestic price) and a particular export price (which is less than the normal value), not an averaged export price. Suppose that there are two shipments (transactions) of a widget whose normal value (an average domestic price) is one dollar. Also suppose that an export price is fifty cents in the first shipment, and one dollar and fifty cents in the second shipment. According the U.S., it can simply pick the first transaction to compare the normal value to the export price, thereby producing a 50% dumping margin. However, the AB sternly rejected the U.S. argument. It highlighted its previous position under EC – Bed Linen and US – Softwood Lumber V which ruled that multiple comparisons to establish a dumping margin should include the results of all of those comparisons.[16] Therefore, in the aforementioned example the dumping margin should be 0% (50%-50%), instead of 50%.

In light of this reasoning, the zeroing methodology itself caused the anti-dumping duty to exceed the margin of the dumping, in violation Article 9.3 of the AD Agreement[17] since it inevitably led to higher dumping margins and hence higher antidumping duties than otherwise[18] . The AB focused on the violative structure of the zeroing methodology itself. The AB held that:

Because results of this type were systematically disregarded, the methodology applied by the USDOC in the administrative reviews at issue resulted in amounts of assessed anti-dumping duties that exceeded the foreign producers' or exporters' margins of dumping with which the anti-dumping duties had to be compared under Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994. (Emphasis added.)[19]

This uncompromising ruling leaves the DOC nearly no option but to repeal the zeroing methodology on the whole in the administrative review as well, even though the EU’s claim here was “as applied” to the facts of the particular case.

Prospects

The U.S. Court of Appeals for the Federal Circuit has recently ruled that the zeroing methodology is a reasonable interpretation by the DOC.[20] However, under the aforementioned Charming Betsy doctrine, the DOC may now have to abandon the entire zeroing methodology when it examines dumping margins in the initial antidumping investigation. The U.S. would also find it hard to justify such methodology in other stages of an antidumping proceeding, such as the administrative review, considering the AB’s emphasis on the systematic flaws embedded in this methodology.

This decision appears to benefit the hitherto main targets of antidumping investigations, in particular developing countries, as well as consumers and consuming industries which have been forced to pay higher prices for imported products due to antidumping duties generated by the zeroing methodology.[21]

At the same time, however, one might argue that this case is an exercise of judicial activism that goes beyond the limited standard of review under Article 17.6 of AD Agreement.[22] The AB in this case foresaw such potential criticism when it noted that its interpretation was still consistent with Article 17.6 (ii) because the U.S. zeroing methodology clearly violated the text of Article 9.3 of AD Agreement.[23] Yet, to those who regard the nature of the WTO as a contract among its Members, the AB’s ruling might, at least to certain Members including the U.S., threaten to undermine their original terms of bargain under the Uruguay Round. They would argue that the bargain included Article 17.6, which unsurprisingly resembles the Chevron doctrine – a doctrine of U.S. law that gives considerable deference to decisions by administrative agencies.[24] In this regard, they might argue that such judicial activism could precipitate political backlashes from some (developed) Members and might deter them from making further concessions in future trade talks. [25]

It remains to be seen how far this decision can influence future negotiations as well as panel or AB decisions in the areas of antidumping and related subjects.

About the author

Sungjoon Cho, an ASIL member, is an Assistant Professor of Law at Chicago-Kent College of Law, Illinois Institute of Technology. During the period of 1994-96, he represented the government of South Korea in negotiations under the World Trade Organization and the Organization for Economic Cooperation and Development. He is the author of Free Markets and Social Regulation: A Reform Agenda of the Global Trading System (Kluwer Law International, 2003), and The Law of the World Trade Organization (2005) (with Joseph H. H. Weiler), http://www.jeanmonnetprogram.org/wto/Units/index.html.

Footnotes

[1]United States – Laws, Regulations, and Methodology for Calculating Dumping Margins (“Zeroing”), WT/DS294/AB/R, Apr. 18, 2006, http://www.wto.org/english/tratop_e/dispu_e/294abr_e.pdf [hereinafter the AB Report].
[2]General Agreement on Tariffs and Trade, October 30, 1947, T.I.A.S. No. 1700, 55 U.N.T.S. 187, art. VI; Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, Annex 1 A, Marrakech Agreement Establishing the World Trade Organization, April 15, 1994, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, LEGAL INSTRUMENTS–RESULTS OF THE URUGUAY ROUND, 6, 6-18; 33 I.L.M. 1140, 1144-1153 (1994).
[3]Alan Greenspan once observed that antidumping remedies are “just simple guises for inhibiting competition” imposed in the name of “fair trade.” Richard J. Pierce, Jr., Antidumping Law as a Means of Facilitating Cartelization, 67 ANTITRUST L.J. 725, 725 (2000) (quoting the former Federal Reserve Board Chairman Alan Greenspan, Remarks Before the Dallas Ambassadors Forum, Dallas, Texas (Apr. 16, 1999)).
[4]EC – Anti-Dumping Duties on Audio Tapes in Cassettes Originating in Japan, ADP/136, Apr. 28, 1995 (unadopted). Unlike the WTO, under the old GATT system any party, including a losing party, could “veto” the adoption of a panel report so that the report would not be legally “binding.” However, even such an unadopted report is still regarded as a useful legal guidance. See Japan - Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, at 13, Appellate Body and Panel Report, as modified, adopted on November 1 1996.
[5]European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, the Appellate Body Report circulated on Mar. 1, 2001, WT/DS141/AB/R, paras. 54-55.
[6]United States – Anti-Dumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet and Strip from Korea, Panel Report circulated on Dec. 22, 2000, WT/DS179/R, para. 6.105; U.S. – Final Dumping Determination on Soft Lumber from Canada, WT/DS264/AB/R, circulated on Aug. 11, 2004, para. 183 (a)
[7]Softwood Lumber Products from Canada, No. USA-CDA-2002-1904-2, Jun. 9, 2005, at 43-44.
[8]United States – Laws, Regulations, and Methodology for Calculating Dumping Margins (“Zeroing”), WT/DS294/R, Panel Report circulated on Oct. 31, 2005, paras. 7.105-106.
[9]The AB Report, supra note 1, para. 222.
[10]“[A] panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, (…)”
[11]United States’ Other Appellant's Submission, para. 44.
[12]The AB Report, supra note 1, paras. 207-08.
[13]Id., para. 211.
[14]The AB Report, supra note 1, para. 3.
[15]United States' Appellee's Submission, paras. 171-178.
[16]The AB Report, supra note 1, para. 126.
[17]“The amount of the anti dumping duty shall not exceed the margin of dumping as established under Article 2.”
[18]The AB Report, supra note 1, para. 133.
[19]Id.
[20]Corus Staal B.A. v. United States, 395 F.3d 1343 (Fed. Cir. 2005); Timken Co. v. United States, 354 F.3d 1334, 1343-44 (Fed. Cir. 2004).
[21]See PRNewswire, CITAC Calls on Commerce Department to Stop 'Zeroing' Practice Following WTO Ruling, Apr. 18, 2006, http://www.prnewswire.com/cgi- bin/
stories.pl? ACCT=109&STORY=/www/story/04-18- 2006/0004342396&EDATE.
[22]17.6 In examining the matter referred to in paragraph 5:

(i) in its assessment of the facts of the matter, the panel shall determine whether the authorities' establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;

(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

[23]The AB Report, supra note 1, para. 134.
[24]Despite the textual similarity, the interpretation of Article 17.6 is subject to public international law principles stipulated in the Vienna Convention of the Law of Treaties, not to the U.S. domestic law. See notably Steven P. Croley & John H. Jackson, WTO Dispute Procedures, Standard of Review, and Deference to National Governments, 90 AM. J. INT’L L. 193 (1996).
[25]See Daniel K. Tarullo, Paved with Good Intentions: The Dynamic Effects of WTO Review of Anti-Dumping Action, 2 WORLD TRADE REV. 373, 374 (2003).