Orange Juice, Shrimp, and the United States Response to Adverse WTO Rulings on Zeroing
Continued rulings in World Trade Organization (WTO) disputes against the United States are having a profound effect on the WTO dispute settlement system, ongoing WTO negotiations, and U.S. anti-dumping law and practice.
In a series of cases over the last decade, the WTOâs Dispute Settlement Body (DSB) has adopted Panel and Appellate Body Reports ruling that the âzeroingâ methodology for determining anti-dumping margins is contrary to WTO law, specifically the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement) and the General Agreement on Tariffs and Trade 1994 (GATT 1994). The first two cases were against the European Union (EU), which then changed its anti-dumping practices. All fourteen subsequent cases have been against the United States.
The most recent two cases, both circulated this year, related to U.S. administrative reviews of anti-dumping orders concerning orange juice from Brazil and shrimp from Viet Nam. In addition to the Panelsâ substantive findings on zeroing in these two cases, the Panel Reports provide valuable insights into the kinds of measures that may be successfully challenged in the WTO dispute settlement system and the role of precedent within that system. The United Statesâ response to these and other adverse zeroing rulings demonstrates the significant, wide-ranging impact of the Appellate Bodyâs consistent yet controversial outlawing of zeroing.
Implications of the Latest Panel Reports within the WTO
The two recent Panel Reports on zeroing grappled with the difficulty that, although the Anti-Dumping Agreement does not explicitly prohibit zeroing, and different interpretations of the relevant provisions seem possible as regards the meaning of dumping and the permissibility of zeroing, the Appellate Body has repeatedly ruled that zeroing is prohibited. The Appellate Bodyâs conclusions have been consistent (although its reasoning has varied), regardless of the type of anti-dumping proceeding before it (e.g. original investigation, administrative review, or sunset review) or the overarching method used by the respondent in calculating anti-dumping margins (e.g. average-to-average, transaction-to-transaction, or average-to-transactionâall ways of determining whether the export price of an allegedly dumped product is lower than its ânormal valueâ). The Appellate Body has also not hesitated to overrule and even chastise Panels that had reached different conclusions.
Against this background, the Panel in USâOrange Juice (Brazil) seems to have concluded primarily in deference to the Appellate Body that dumping has the meaning ascribed to it by the Appellate Body:
[W]e find it difficult to accept . . . that the [Anti-Dumping] Agreement entertains only one exclusive definition of âdumpingâ. However, there is no doubt in our minds . . . the string of Appellate Body reports concerning mainly the United Statesâ use of âzeroingâ in anti-dumping proceedings read loud and clear. . . .
[O]n balance, our function under Article 11 of the [Understanding on Rules and Procedures Governing the Settlement of Disputes], and the integrity and effectiveness of the WTO dispute settlement system, are best served in the present instance by following the Appellate Body.
On this basis, the Panel concluded that so-called âsimple zeroingâ in administrative reviews is inconsistent with the âfair comparisonâ requirement in Article 2.4 of the Anti-Dumping Agreement, even if the review results in a dumping margin of 0% and no antidumping duties. The Panel in USâShrimp (Viet Nam) reached a similar conclusion, also finding, in reliance on the Appellate Bodyâs earlier rulings, that this form of zeroing is inconsistent with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994.
The Panelâs reasons for following the Appellate Body in USâOrange Juice (Brazil) call to mind the words of one Appellate Body Member, in a concurring opinion specifically referred to by the Panel in USâShrimp (Viet Nam):
The Appellate Body has decided the matter. At a point in every debate, there comes a time when it is more important for the system of dispute resolution to have a definitive outcome, than further to pick over the entrails of battles past. With respect to zeroing, that time has come.
That Appellate Body Member, like the Panel in USâOrange Juice (Brazil), referred to the fact that the DSB has routinely adopted Appellate Body Reports prohibiting zeroing, which (in the words of the Panel) âimplies acceptance by all WTO Members of their contents, and bestows upon them systemic legitimacy.â Yet adoption by the DSB is quasi-automatic, and in no instance to date has the DSB reached agreement not to adopt a WTO Panel or Appellate Body Report. Indeed, such an outcome would be virtually impossible since even the âwinningâ party would need to agree not to adopt the Report. Adoption of an Appellate Body Report does not mean that all WTO Members agree with it; indeed, Members frequently make statements objecting to an Appellate Body Report being adoptedâfor example, the U.S. statement that the Appellate Body Report in USâZeroing (Japan) was âdevoid of legal merit.â And the Appellate Body has ruled that adopted WTO Panel and Appellate Body Reports do not constitute âsubsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretationâ within the meaning of Article 31(3)(b) of the Vienna Convention on the Law of Treaties. Adopted Panel and Appellate Body Reports are strictly binding only on the parties to that dispute and only in connection with that dispute; they do not constitute authoritative interpretations of WTO law, although the zeroing line of cases may suggest otherwise.
These two Panels also addressed the way in which a measure may be framed in a WTO dispute. In USâOrange Juice (Brazil), the Panel declined a U.S. request to make a preliminary ruling that Brazilâs claim of a WTO violation through the âcontinued useâ of zeroing by the United States fell outside the Panelâs terms of reference. The Panel went on to findârelying on an earlier Appellate Body Report âthat âongoing conduct,â in the sense of âconduct that is currently taking place and is likely to continue in the future,â may be challenged in a WTO dispute. Moreover, the Panel accepted Brazilâs claim that the U.S. Department of Commerce (DoC) was engaged in the continued use of zeroing in proceedings related to the anti-dumping duty order against orange juice from Brazil, and that this ongoing conduct was inconsistent with Article 2.4 of the Anti-Dumping Agreement.
Similarly, the Panel in USâShrimp (Viet Nam) found that the zeroing methodology applied by the DoC in administrative reviews âis a rule or norm of general and prospective application . . . which may be challenged âas such,ââ and that this norm is inconsistent with WTO law. These broader successful claims against zeroing, which are more frequently being made in addition to claims against zeroing âas appliedâ in particular anti-dumping proceedings, further limit U.S. flexibility in implementing adverse zeroing rulings. Rather than merely addressing the determination of dumping margins in specific investigations or reviews, the United States must consider more extensive changes to its anti-dumping practice, as discussed further below.
In an unusual step, the DSB agreed to extend the time for an appeal of the Panel Report in US âOrange Juice (Brazil), but ultimately the Panel Report was adopted without appeal. The usual procedural rules give the parties sixty days from July 11, 2011 (when the Panel Report was circulated) to appeal the Panel Report in USâShrimp (Viet Nam), which may be placed on the DSB agenda for adoption after twenty days. If this too is not appealed, both these cases could represent some form of acceptance by the United States, not that the Appellate Bodyâs interpretation of zeroing in administrative reviews is correct, but that appeal is not worthwhile as there is no realistic possibility of changing that interpretation. This seems to be the U.S. approach in the five most recent zeroing cases concerning âmodel zeroingâ in original investigations, where the United States has chosen not to appeal the relevant Panel Report, or not to appeal the relevant Panel finding. Indeed, in most of these cases the United States did not even present arguments to contest all claims regarding zeroing.
Negotiations on Zeroing in the Doha Round
The Appellate Bodyâs insistence on the unlawfulness of zeroing also affects the ongoing negotiations on WTO rules (including anti-dumping rules) in the Doha Round of multilateral trade negotiations in the WTO. According to the latest status report by the negotiating group Chair, zeroing âremains among the most divisive [issues] in the AD negotiations, and there have been few signs of convergence. Positions range from insistence on a total prohibition on zeroing . . . to a demand that zeroing be specifically authorized in all contexts.â
The Appellate Bodyâs stance on zeroing establishes the starting point for any bargaining on zeroing: if the Members cannot agree on whether to explicitly permit or explicitly prohibit zeroing, or to take some middle path, the outcome will be that zeroing remains prohibited according to the Appellate Bodyâs past reasoning and conclusions. Arguably, the Appellate Body has in effect handed over significant negotiating power from the United States to other WTO Members. To change the current treatment of zeroing in the WTO, the United States would likely have to provide something significant in return, either in the rules negotiations or in some other area of the Doha Round. The Panel in USâOrange Juice (Brazil) recognized the overlap between dispute settlement and negotiations, stating, âwe firmly believe that all Members have a strong systemic interest in seeing that a lasting resolution to the âzeroingâ controversy is found sooner rather than later.â
Related Developments in the United States
Despite the United Statesâ continued stance that zeroing is and should be permitted under WTO law, the string of adverse Appellate Body rulings has had significant concrete impact on U.S. anti-dumping practice in connection with zeroing.
From February 22, 2007, the DoC ceased using âmodel zeroingâ in original anti-dumping investigations. More recently, on December 28, 2010, the DoC proposed further âmodifications to its practice in response to . . . WTO dispute settlement findings.â Specifically, the DoC proposed replacing the average-to-transaction methodology it typically usesâtogether with zeroingâin administrative reviews with an average-to-average methodology of the kind it now usesâwithout zeroingâin original investigations. Comments on the proposal were due by early 2011, but no deadline has been set for a decision on the proposal, which would also require review by Congress before implementation. Some members of Congress have already expressed concerns about the DoC proposal.
Following a WTO determination that the United States failed to comply with certain past rulings on zeroing, the EU and Japan sought authorization to retaliate; arbitration proceedings on the retaliation are suspended, but only until September 7, 2011. The EU and Japan have demanded that the United States correct the results of past administrative reviews that calculated dumping margins using zeroing. However, it is not clear as a matter of U.S. law whether the DoC has authority to recalculate dumping margins or refund duties paid. The September deadline places pressure on the United States to finalize its proposal for future calculations of dumping margins in administrative reviews,  although the original proposal did not specifically address past reviews such as those at issue in the disputes with the EU and Japan.
The DoCâs approach to date in implementing adverse WTO rulings on zeroing has already created substantial concerns under domestic law, with rulings in the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit. These disputes concern issues such as whether U.S. law permits the DoC to calculate dumping margins without zeroing, and the apparent inconsistency between the DoCâs current general approaches to original investigations (in which it has renounced zeroing) and administrative reviews of anti-dumping orders (in which it continues to use zeroing).
The intransigence of the WTO Appellate Body in relation to zeroing appears to have increased the scope and significance of its rulings, with Panels falling in line in recognition of its authority, and the United States in recent years refraining from contesting some claims and declining to appeal adverse Panel findings on some forms of zeroing. At the same time, the Appellate Bodyâs prohibition of zeroing has established the framework for the negotiations on this issue in the Doha Round, while provoking substantial developments in U.S. anti-dumping law and practice. It would indeed be preferable for WTO Members to resolve this issue through negotiation, but the current state of the Doha Round may preclude progress on that front, along with many others.
About the Author:
Tania Voon, an ASIL member, is Associate Professor at Melbourne Law School, Editorial Board Member of the Journal of International Economic Law, and a former Legal Officer of the Appellate Body Secretariat of the WTO.