TWN Info Service on WTO and Trade Issues (Apr10/08)
26 April 2010
Third World Network

Korea, Vietnam challenge US "zeroing" practice
SUNS #6909 dated 22 April 2010

Geneva, 21 Apr (Kanaga Raja) -- The controversial practice of "zeroing" employed by the United States in its determination of dumping margins in anti-dumping investigations has again been challenged at the World Trade Organization, this time with Korea and Vietnam bringing separate disputes over this issue.

Apart from challenging the "zeroing" practice, Vietnam's complaint also addressed two other actions employed by the US in its anti-dumping investigations.

A third dispute, brought by China against the European Union, related to EU anti-dumping measures against certain footwear imports from China.

All three disputes, brought before the Dispute Settlement Body (DSB) for the first time, were blocked, but would be automatically referred to panels when they come up a second time.

Korea's first-time request on Tuesday was for the establishment of a panel by the DSB to examine the use by the US of the "zeroing" methodology in imposing certain anti-dumping measures on imports of stainless steel plate in coils, stainless steel sheet and strip in coils, and diamond saw-blades and parts thereof from Korea.

The first-time request was however blocked by the US. Panel establishment will be automatic when the Korean request comes up again before the DSB.

The US has been involved in a series of disputes over its use of the "zeroing" methodology, with panels and the Appellate Body, in various disputes, repeatedly ruling against the US.

[Under the "zeroing" methodology, the foreign domestic price (FDP) of the product is compared with its US import price (USIP) adjusted for transportation and handling costs. Under zeroing, the US sets at zero the negative differences (that is when the FDP minus USIP is less than zero).]

According to the Korean communication to the DSB, the dispute is with regard to the practice, commonly referred to as "zeroing," by which the US Department of Commerce (USDOC) treats transactions with negative dumping margins as having margins equal to zero for purposes of determining the weighted-average dumping margins in the anti-dumping investigations.

Korea said that it requested that a panel be established concerning the USDOC's use of the practice of zeroing negative dumping margins in calculating overall weighted average margins of dumping in final determinations and amended final determinations in investigations in the following three specific cases involving Korean products: (1) Stainless Steel Plate in Coils from the Republic of Korea (A-580-831); (2) Stainless Steel Sheet and Strip in Coils from the Republic of Korea (A-580-834); and (3) Diamond Saw-blades and Parts Thereof from the Republic of Korea (A-580-855).

According to the Korean communication, the effect of the USDOC's zeroing practice in the cases listed above has been either to artificially create margins of dumping where none would otherwise have been found, or to inflate margins of dumping.

Korea noted that the zeroing methodology that the USDOC used in the anti-dumping investigations in these cases is virtually identical to the methodology that was held to be inconsistent with the Anti-Dumping Agreement in European Communities - Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India (WT/DS141/R and WT/DS141/AB/R), and also in United States - Final Dumping Determination on Softwood Lumber from Canada (WT/DS264/R and WT/DS264/AB/R).

The US has announced a change in the dumping margin calculation methodology employed in new antidumping investigations, as a result of which the US will no longer utilize the practice of zeroing in any investigations that were pending as of 22 February 2007.

However, said Korea, the US did not apply this change in methodology in the three specific cases listed above.

Korea considered that the measures at issue in this dispute are inconsistent with the obligations of the United States under the Anti-Dumping Agreement. Specifically, Korea considered that each of these measures is inconsistent with the first sentence of Article 2.4.2 of the Anti-Dumping Agreement because the United States' use of "zeroing" was not consistent with the methodologies for establishing margins of dumping described in that provision, and artificially inflated the margins of dumping by precluding a determination for the product as a whole.

[Article 2.4.2 states: Subject to the provisions governing fair comparison in paragraph 4, the existence of margins of dumping during the investigation phase shall normally be established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis. A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.]

In its statement at the DSB on Tuesday, Korea said that "zeroing" in anti-dumping investigations has repeatedly been found to be inconsistent with the Anti-Dumping Agreement.

The US has not contested those rulings since the United States - Softwood Lumber V (DS264) case and has announced that it will no longer utilize zeroing in investigations that were pending as of 22 February 2007, added Korea.

Korea also noted that the US has agreed to expedite proceedings in pervious zeroing disputes with Ecuador and Thailand. With the agreements in place, those disputes achieved prompt settlements and implementations. Korea believed that the dispute at hand could also be settled in a similar time-saving manner.

Expressing disappointment at Korea's request for a panel, the US said that the Department of Commerce has discontinued zeroing in the context of average-to-average comparisons in investigations.

The DSB also heard a first-time request by Vietnam for the establishment of a panel to examine anti-dumping measures imposed by the US on certain shrimp from Vietnam.

According to trade officials, this is the first time that Vietnam has brought a dispute to the WTO since it became a full member in 2007.

The first-time request was however blocked by the US, and panel establishment will become automatic when the request comes up again at the DSB.

The Vietnamese complaint concerns certain anti-dumping measures imposed by the United States on imports of certain shrimp from Vietnam.

In its communication to the DSB, Vietnam said that the specific measures at issue are the anti-dumping order and subsequent periodic reviews conducted by the United States Department of Commerce (USDOC) on certain frozen and canned warm-water shrimp from Vietnam.

According to Vietnam, the USDOC engaged in model zeroing to calculate the dumping margin for all respondents during the original investigation. Specifically, the USDOC made an average-to-average comparison of export price and normal value within "subgroups" of the product under investigation. The USDOC aggregated the results of the subgroup, average-to-average comparisons to determine the weighted average margin of dumping, excluding any offsets where export price is greater than normal value.

The USDOC acknowledged use of this zeroing methodology in the decision memorandum that accompanied the final results. As a result, the US calculated a margin and amount of dumping in excess of the actual dumping practised by the respondent companies, said Vietnam.

In each of the administrative reviews at issue, Vietnam added, the USDOC has made use of this zeroing methodology. Specifically, in making an average-to-average comparison of export price and normal value, the USDOC does not allow non-dumped sales to offset the amount of dumping found with respect to other sales. As with the investigation, the USDOC has acknowledged in each review use of this zeroing methodology in the administrative determinations. Therefore, the dumping rate is in excess of the actual dumping performed by the respondent.

The Vietnamese complaint cited several US laws and regulations where these calculations and methodologies are applied.

Vietnam considered the above-mentioned laws and procedures by the USDOC to be, as such, inconsistent with several provisions of the Antidumping Agreement, GATT 1994, and the Marrakesh Agreement.

According to Vietnam, in original investigations, periodic reviews, new shipper reviews, sunset reviews, and certain changed circumstances reviews, USDOC's use of zeroing is inconsistent with several provisions of the Anti-Dumping Agreement, and the Protocol of Accession of the Socialist Republic of Vietnam, as well as Paragraphs 254 and 255 of the Report of the Working Party on Accession of Vietnam.

Vietnam also considered that USDOC's application of the above-mentioned laws and procedures in the original investigation and periodic reviews here at issue to be inconsistent with the provisions of the Anti-Dumping Agreement, GATT 1994, and the Marrakesh Agreement.

The USDOC has also applied a "country-wide rate" based on adverse facts available throughout the antidumping proceedings. For countries identified as non-market economy countries, the USDOC requires that companies not selected as mandatory respondents apply for separate rates; those that fail to do so or do not meet the separate rate criteria are given the "country-wide rate" as established by USDOC.

Even a company that timely and fully responds to the questions posed by USDOC will be assigned this country-wide rate if it does not rebut the presumption established by USDOC: specifically, the company must establish that it does not operate under the control of the government.

If the company is successful, said Vietnam, it will receive a "separate rate," which is the weighted average of the rates calculated for the individually investigated respondents.

Companies that do not receive a separate rate are assigned the country-wide rate. In the proceedings at issue, the USDOC assigned a company-wide rate based entirely on adverse facts available, even where companies responded timely and fully to the questionnaires issued by USDOC.

Vietnam said that the USDOC did so on the basis that certain separate rate applicants did not submit complete information and because the Vietnamese government did not submit a response on their behalf.

"The effect of this action is to assign highly prejudicial and unjustifiable rates to companies that do everything in their control to comply with USDOC requests. Companies granted a separate rate have received a margin of 4.57% over the course of the measures at-issue; companies assigned a country-wide rate have in contrast received a margin of 25.76%."

The Vietnamese complaint also addressed the issue of the US limiting the number of respondents selected for full investigation or review.

The Vietnamese communication said that the United States antidumping law requires as a general rule examination of each known producer or exporter of subject merchandise. Beyond this general rule, the USDOC has the authority to limit the investigation to a selected number of producers where investigation of all known producers or exporters is not practicable.

The USDOC has only investigated or reviewed the few largest exporters, with the exception of new shipper reviews, throughout the proceeding at-issue, limiting to a substantial degree the number of producers individually investigated or reviewed. In the original investigation, the USDOC investigated only four respondents out of thirty-eight potential respondents. The USDOC similarly limited the respondents reviewed to the largest exporters in each of the subsequent administrative reviews, selecting for individual investigation in each instance a fraction of the companies seeking individual review.

Companies not selected for individual investigation or review because of the US authorities methodology have not been assigned their own antidumping rate, but instead receive either the "separate rate" or the country-wide rate. The USDOC in the proceedings at-issue have declined to calculate an individual rate even where companies not individually investigated have voluntarily submitted information so that USDOC may do so.

The result is that companies not presently engaging in dumping have not had and do not have the opportunity to receive a dumping rate of zero or de minimis, because they never have the opportunity to be individually investigated, said Vietnam.

Thus, companies not individually investigated, caused by USDOC's review of only the largest exporters, are not eligible for revocation of the dumping order on an individual basis. The USDOC will revoke an antidumping order where the exporter or producer has not engaged in dumping for three consecutive years and there is a likelihood that they will not do so in the future.

Companies not individually investigated in these proceedings have no opportunity to establish three consecutive years of de minimis dumping rates and will be forced to continue to pay dumping rates even if they have not engaged in sales at less than fair value for more than three consecutive years, said Vietnam. In addition, any final duties related to imports from these companies are, have been, or will be assessed duties in excess of the margin of dumping.

Vietnam considered these actions to be inconsistent with Articles 6.10 and 11 of the Anti-Dumping Agreement, and Article 31 of the Vienna Convention on the Law of Treaties.

The Vietnamese complaint also drew attention to sunset reviews, whereby the USDOC initiated a sunset review for these antidumping proceedings on 4 January 2010.

Based on statutory time limitations and an exceptional situation in which the USDOC tolled all deadlines for seven days, the preliminary determination for the sunset review is presently due on 3 May 2010, said Vietnam.

Because of the circumstances described above with regard to the original investigation and the subsequent reviews, including USDOC's use of zeroing, the use of a country-wide rate, and the respondent selection methodology which prevented certain producers and exporters from having the opportunity to receive individual rates, Vietnam said that the ongoing sunset review is inconsistent with the Anti-Dumping Agreement.

Each of these practices has a substantial and possibly determinative impact on the USDOC's sunset review determination because of the effect on the dumping margins calculated during the administrative reviews, added Vietnam.

In a statement at the DSB on Tuesday, Vietnam said that the central issue involved in its request for a panel is the issue of zeroing and specifically, zeroing in periodic reviews under US law.

In its view, this issue has been decided already by WTO panels and the Appellate Body on multiple occasions. "Yet, the US has failed to implement the reports of the Appellate Body and has continued to apply zeroing in administrative reviews, including those applied to products of Vietnam."

Unfortunately, said Vietnam, zeroing is not the only hurdle to the termination of the anti-dumping measures. The US has taken two additional actions which will also prevent the anti-dumping measures from being sunset.

First, said Vietnam, it has consistently over the period of the second, third, fourth and fifth reviews declined to specifically review major exporters that have requested such review. Despite the fact that the US found no margins of dumping in the first, second or third review of the companies specifically investigated, it has continued to assign margins of dumping to companies not investigated despite their request to be investigated and, in at least for one case, the submission of a full response.

"The US is clearly abusing the exceptions provided for in Article 6.10 and Article 9.4 by refusing throughout this proceeding to allow companies that are not dumping to demonstrate this through being investigated," said Vietnam.

In addition to continuing to assign margins to un-investigated companies that have sought to be investigated over a period of five years, the US has also found margins of dumping in determining a "Vietnam wide rate" for companies that have not responded to questionnaires, said Vietnam, adding that there is no authority for this so-called Vietnam wide rate in either the Anti-Dumping Agreement or Vietnam's Protocol of Accession to the WTO.

Citing Vietnam identifying, among others, the original anti-dumping investigation of shrimp as well as the "initiation" of the five-year sunset review, the US complained that these items were not identified in Vietnam's request for consultations and thus were not the subject of consultations.

Additionally, said the US, the original anti-dumping investigation, as well as the first annual review of the anti-dumping order, were each initiated pursuant to applications received prior to Vietnam's accession to the WTO.

Thus, pursuant to Article 18.3 of the Anti-Dumping Agreement, these proceedings are not subject to the Anti-Dumping Agreement and are not properly a subject of review by a WTO dispute settlement panel.

The US further said that the fourth administrative review, also identified by Vietnam as a measure in its panel request, has not yet been completed, and thus there is no measure for a panel to review. Likewise, the sunset review has yet to be completed, and thus does not constitute a measure.

In other actions, the European Union blocked a panel request by China over anti-dumping measures imposed by the EU on certain footwear from China.

Panel establishment will be automatic when the Chinese request comes up again before the DSB. +