TWN Info Service on WTO and Trade Issues (Jan11/05)
24 January 2011
Third World Network

WTO rules against US in another "zeroing" dispute
Published in SUNS #7070 dated 20 January 2011

Geneva, 19 Jan (Kanaga Raja) -- The World Trade Organization (WTO) on Tuesday handed down yet another ruling that has found that the United States has acted inconsistently with its WTO obligations in its continued application of the "zeroing" methodology in calculating dumping margins during its anti-dumping duty investigations.

This time, a panel ruling (WT/DS402/R) has found that the United States acted inconsistently with the first sentence of Article 2.4.2 of the Anti-Dumping Agreement by using the zeroing methodology in calculating certain margins of dumping in three investigations involving Korean products.

(The term "zeroing" is used when a member, in an anti-dumping investigation or finding of "dumping" and "margin of dumping" that results in a levy of countervailing duties, for comparison values, uses values of exports below the "normal" value, but ignores exports where prices are above the "normal" value.)

Before the panel, the US did not contest the accuracy of Korea's description of the zeroing methodology as it relates to the investigations at issue in this dispute, nor the evidence relied upon by Korea to substantiate its factual claims. The US acknowledged before the panel that the reasoning of the Appellate Body on the "zeroing" issue, found in its report on US - Softwood Lumber V, was equally applicable to the margins at issue in this dispute.

The US "zeroing" methodology has come up for challenge at the Dispute Settlement Body on numerous occasions and has been repeatedly struck down as being WTO-incompatible. But with the US Congress not changing its domestic legislation to comply with the rulings, the US administration has been continuing to use this methodology.

In the present instance, the dispute was brought by Korea against the United States concerning the United States' alleged application of the practice known as "zeroing" of negative dumping margins in calculating final margins of dumping in its investigations of three products from Korea, namely, stainless steel plate in coils (SSPC); stainless steel sheet and strip in coils (SSSS); and diamond saw-blades and parts thereof.

Korea and the United States held consultations on 22 December 2009 and on 2 February 2010, but failed to resolve the dispute. The Dispute Settlement Body (DSB) established a panel on 18 May 2010. The panel was subsequently composed on 8 July 2010.

In a background to the dispute, the panel said that at issue is the alleged use by the United States Department of Commerce (USDOC) of the methodology commonly referred to as "zeroing" in the calculation of certain antidumping margins in its investigations of three products from Korea, namely, stainless steel plate in coils, stainless steel sheet and strip in coils and diamond saw-blades.

The measures at issue, as identified by Korea, are the final determinations, amended final determinations, anti-dumping duty orders and amended anti-dumping duty orders imposed by the United States in relation to imports of the three products.

The United States published a notice of initiation of an anti-dumping investigation of stainless steel plate in coils from Korea on 27 April 1998. On 31 March 1999, the USDOC published the final determination of dumping in this investigation. Following a final determination of injury by the United States International Trade Commission, the United States issued an anti-dumping duty order on imports of stainless steel plate in coils from Korea on 21 May 1999.

An amended final determination of dumping was published by the USDOC on 28 August 2001, in order to implement the recommendations of a WTO dispute settlement panel on issues unrelated to the alleged use of the zeroing methodology. Further, amended anti-dumping duty orders were published in 2003 in response to an appeal against the injury determination of the United States International Trade Commission.

According to the panel, Korea contends that the USDOC's use of the "zeroing" methodology affected the determination of the margin of dumping for the responding company, Korean exporter Pohang Iron & Steel Co., Ltd., and that this affected the determination of the "all others" rate.

In relation to the second product, stainless steel sheet and strip in coils from Korea, the United States published a notice of initiation of an anti-dumping investigation on 13 July 1998. The final determination was published on 8 June 1999. An anti-dumping duty order on imports of stainless steel sheet and strip in coils from Korea was issued on 27 July 1999, following a final determination of injury by the United States International Trade Commission.

Korea contends that the USDOC applied its "zeroing" methodology in determining the margin of dumping for the responding Korean exporter, Pohang Iron & Steel Co., Ltd., and that this affected the determination of the "all others" rate.

The United States published a notice of initiation of an anti-dumping investigation of diamond saw-blades from Korea on 21 June 2005. The final determination by the USDOC was published on 22 May 2006. An anti-dumping duty order on imports of diamond saw-blades was issued on 4 November 2009. Further, an amended final determination correcting certain ministerial errors in the dumping calculation was published by the USDOC on 24 March 2010.

Korea alleges that the USDOC applied its "zeroing" methodology in determining the dumping margins for the three investigated Korean exporters, namely Ehwa Diamond Industrial Co., Ltd., Hyosung Diamond Industrial Co. and Shinhan Diamond Industrial Co., Ltd., and that this affected the determination of the "all others" rate.

Korea requested that the panel find that the United States acted inconsistently with the requirements of the first sentence of Article 2.4.2 of the Anti-Dumping Agreement.

It argues that, in calculating the dumping margins for the relevant respondents, the USDOC: (i) identified different "models" (i. e., types of products based on the most relevant product characteristics); (ii) calculated weighted average prices for sales in the United States and weighted average normal values for sales in the comparison market on a model-specific basis, for the entire period of investigation; (iii) compared the weighted average normal value of each model to the weighted average United States price for that same model; (iv) calculated the dumping margin for an exporter by summing up the amount of dumping for each model and then dividing it by the aggregated United States price for all models; and in doing so (v) set to zero all negative margins on individual models prior to summing the total amount of dumping for all models.

Korea submits that by applying this methodology, the USDOC calculated margins of dumping in amounts that exceeded the actual extent of dumping (if any) by the investigated companies and, consequently, that the United States collected anti-dumping duties in excess of those that would have been due had the zeroing methodology not been applied.

According to the panel, Korea also argues that the zeroing methodology used by USDOC is virtually identical to the methodology that the Appellate Body, in EC - Bed Linen and also in US - Softwood Lumber V, found to be inconsistent with Article 2.4.2 of the Anti-Dumping Agreement.

In particular, Korea refers to the Appellate Body's finding in US - Softwood Lumber V that "'margins of dumping' can be found only for the product under investigation as a whole". While investigating authorities may be permitted to compare normal values and export prices for sub-groups of a product, the results of those comparisons reflect only intermediate calculations in the context of establishing margins of dumping, and "[i]t is only on the basis of aggregating all such intermediate values that an investigating authority can establish margins of dumping for the product under investigation as a whole".

Consequently, Korea argues that investigating authorities are not permitted to disregard some of the intermediate results of model-specific comparisons, or to treat some of those intermediate results as being greater or less than they actually are, and that the practice of zeroing, as employed by the USDOC, does not comport with this requirement.

According to the panel, Korea understands that while "there is a consistent line of Appellate Body reports" finding that zeroing in the context of the weighted average-to-weighted average methodology in original investigations is inconsistent with the first sentence of Article 2.4.2 of the Anti-Dumping Agreement, it is also clear that the panel is not bound by the reasoning in prior Appellate Body and panel reports.

However, adopted reports create legitimate expectations among WTO Members, and "following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same".

Korea argues that the apparent disagreement between the United States and the European Union regarding the extent to which Appellate Body reports are binding on panels is not relevant to the present dispute. This is because, in any event, the text, context, object and purpose of Article 2.4.2 confirm that the practice of zeroing, as employed by the USDOC in the three investigations that are the subject of this dispute, is inconsistent with the requirements of that provision.

According to the panel, the United States does not contest the accuracy of Korea's description of the zeroing methodology as it relates to the investigations at issue in this dispute, nor does it contest that the evidence relied upon by Korea to substantiate its factual claims was generated by the Department of Commerce.

The United States recognizes that in US - Softwood Lumber V, the Appellate Body found that the use of zeroing with respect to the average-to-average comparison methodology in investigations was inconsistent with the first sentence of Article 2.4.2 when it interpreted the terms "margins of dumping" and "all comparable export transactions", as used in the first sentence of Article 2.4.2, in an integrated manner.

Finally, the United States acknowledges that this reasoning is equally applicable to the margins at issue in this dispute.

However, said the panel, and to the extent Korea or the European Union suggest that the panel should simply base its findings upon a "consistent line of Appellate Body Reports", the United States submits that prior panel and Appellate Body reports are not binding on panels in other disputes. The rights and obligations of Members flow from the text of the covered agreements. Therefore, the panel is not bound to follow the reasoning of any prior report.

According to the United States, the panel is charged with making its own objective assessment of the matter before it, including an objective assessment of the facts and the applicability of and conformity with the covered agreements as required by Article 11 of the Dispute Settlement Understanding (DSU).

In its analysis, the panel noted that the United States does not contest Korea's claims. In particular, the United States does not contest the factual assertions made by Korea regarding the United States' actions, nor the legal relevance of the Appellate Body reports cited by Korea as applicable to those facts. Further, while the United States argues that the panel need not follow past Appellate Body reports, it does not advance any legal arguments to contest the Appellate Body's interpretation of Article 2.4.2 in those reports.

Notwithstanding that the United States did not contest Korea's claims, the panel considered that it is still required to reach its own conclusion on the matter before it, in accordance with Article 11 of the DSU. In particular, it said that it is required to "make an objective assessment of the matter before [us] including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements".

As to whether Korea has established that the USDOC "zeroed" in the measures at issue, the panel said that on the basis of the evidence, and in the light of the fact that the United States does not contest that the USDOC used the "zeroing" methodology in the manner described by Korea, in its view, Korea has established that the USDOC "zeroed" in the measures at issue.

On whether Korea has established that the methodology used by the USDOC is the same in all legally relevant respects as the methodology reviewed by the Appellate Body in US - Softwood Lumber V, the panel said that it examined the preliminary determinations, final determinations, amended final determinations, computer programmes and Issues and Decision Memorandum cited by Korea in an attachment to its first written submission.

On the basis of this evidence, the panel concluded that Korea has made a prima facie case that the methodology used by the USDOC in calculating the margins of dumping in the three anti-dumping investigations at issue, was the same in all legally relevant respects as the methodology found by the Appellate Body in US - Softwood Lumber V to be inconsistent with Article 2.4.2 of the Anti-Dumping Agreement.

This conclusion, said the panel, is supported by the fact that the United States acknowledges that the reasoning used by the Appellate Body in US - Softwood Lumber V is "equally applicable" to the margins at issue in this dispute.

On the issue of whether Korea has established that the methodology applied by the USDOC is inconsistent with Article 2.4.2 of the Anti-Dumping Agreement, the panel referred to the said article.

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."

The panel noted that Korea relies upon the Appellate Body report in US - Softwood Lumber V to argue that the United States acted inconsistently with the first sentence of Article 2.4.2 of the Anti-Dumping Agreement.

In particular, Korea relies on the Appellate Body's finding that, under the weighted average-to-weighted average methodology provided for under the first sentence of Article 2.4.2, "dumping ... margins must be, and can only be, established for the product under investigation as a whole".

Therefore, model-specific results are only intermediate calculations and "[i]t is only on the basis of aggregating all such intermediate values that an investigating authority can establish margins of dumping for the product under investigation as a whole". A proper aggregation of the intermediate results of model-specific comparisons must reflect the result of all such comparisons, said the panel.

In relation to the reliance by Korea on the Appellate Body's report in US - Softwood Lumber V, the panel said that both the United States and Korea agree that the panel is not bound by the reasoning in prior Appellate Body reports. However, the United States recognizes that prior adopted panel and Appellate Body reports may be taken into account by a panel.

According to Korea, adopted reports create legitimate expectations among WTO Members and that, where the issues are the same, following Appellate Body conclusions is what would be expected from panels.

In contrast, added the panel, in its third party submission, the European Union argues that the "Panel should follow the rulings of the Appellate Body". The European Union supports this position by referring to Appellate Body statements in US - Stainless Steel (Mexico), including that "absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case".

"In our view, there is not a system of precedent within the WTO dispute settlement system and panels are not bound by Appellate Body reasoning. However, we agree with Korea that adopted reports create legitimate expectations among WTO Members and that 'following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same'", said the panel.

The panel noted that the Appellate Body's finding in US - Softwood Lumber V regarding "zeroing" in the context of the weighted average-to-weighted average methodology in original investigations, is consistent with its finding in EC - Bed Linen.

"In fact, panels considering the issue have found that 'there is now a consistent line of Appellate Body Reports' holding that the use of 'zeroing' as described by Korea in this dispute is inconsistent with the first sentence of Article 2.4.2. Further, three successive panels have reached the same conclusions as the Appellate Body on this issue."

The panel said that it has carefully considered the Appellate Body's reasoning in US - Softwood Lumber V and taken into consideration panel reports and the "consistent line of Appellate Body reports" finding that zeroing in the context of the weighted average-to-weighted average methodology in original investigations is inconsistent with Article 2.4.2, first sentence.

"We recall our finding that the zeroing methodology at issue in this dispute is identical to that at issue in US - Softwood Lumber V and that the legal issues raised in Korea's claim are also identical in all material respects to those addressed by the Appellate Body in US - Softwood Lumber V."

In the light of this, and the fact that the respondent has failed to advance any legal arguments to contradict the reasoning in the line of cases cited by Korea, the panel said that it is satisfied that Korea has established a prima facie case that the use of zeroing by the USDOC in the calculation of the margins of dumping at issue is inconsistent with the United States' obligations under the first sentence of Article
2.4.2 of the Anti-Dumping Agreement.

This is because the USDOC did not take into account all comparable export transactions when calculating the dumping margins at issue, it added.

The panel concluded that the United States acted inconsistently with the first sentence of Article 2.4.2 of the Anti-Dumping Agreement by using the zeroing methodology in calculating certain margins of dumping in the three investigations involving Korean products. Consequently, the final determinations, amended final determinations, anti-dumping duty orders and amended anti-dumping duty orders at issue are inconsistent with Article 2.4.2, first sentence.

The panel further concluded that, to the extent the United States has acted inconsistently with the provisions of the Anti-Dumping Agreement, it has nullified or impaired benefits accruing to Korea under that Agreement. It therefore recommended that the DSB request the United States to bring its measures into conformity with its obligations under the Anti-Dumping Agreement. +