TWN Info Service on WTO and Trade Issues (Feb09/15)
28 February 2009
Third World Network

DSB adopts rulings in EC-US "zeroing" dispute
Published in SUNS #6644 dated 20 February 2009

Geneva, 19 Feb (Kanaga Raja) -- The WTO Dispute Settlement Body on Thursday adopted the report of the Appellate Body(AB) and the report of the panel (as modified by the AB) in relation to a dispute brought by the European Communities against the United States over its continued application of the "zeroing" methodology in calculating dumping margins in periodic reviews of certain specified anti-dumping measures maintained against the European Communities.

On 4 February, the Appellate Body held that the United States had acted inconsistently with its obligations under the GATT 1994 and the Anti-Dumping Agreement in its continued application of the "zeroing" methodology, and recommended that the Dispute Settlement Body request the United States to bring its measures into conformity with its obligations under those agreements.

In its ruling, the Appellate Body not only upheld parts of the earlier panel ruling but also reversed several of its findings with respect to the European Communities' claims. (See SUNS #6635 dated 9 February 2009 for a full report on the Appellate Body ruling.)

In its statement at the DSB, the EC said that the issue of zeroing is not a new one. Indeed, the practice of zeroing was first condemned in 2001 in a WTO dispute against the EC (bed linen case brought by India against the EC) and led to its abandonment by the EC.

The EC said that the Appellate Body has since maintained a consistent and coherent line on this issue. It confirmed on several occasions that zeroing runs foul of fundamental obligations of the Anti-Dumping agreement: to establish dumping in respect of an exporter and a certain product and to conduct a fair comparison between export prices and normal value.

The EC said that these earlier decisions had already made clear that the practice of zeroing, whether in original investigations or in reviews, was per se WTO incompatible. And it is regrettable that unlike the EC after the bed linen ruling, the US refused to draw the inevitable consequences of these earlier decisions.

Instead, said the EC, the US chose to question the authority of the Appellate Body of the WTO and the dispute settlement system as a whole, by forcing other WTO members into continued litigation only to get the opportunity to re-argue its position over and over again and delay compliance.

"Suffice it to say that fourteen WTO disputes have been brought in less than a decade against the US on zeroing (both as the unique subject of the dispute or as part of a wider dispute). Despite having been condemned by panels and the Appellate Body a number of times, the US refused to comply and abolish zeroing."

The EC warmly welcomed the Appellate Body decision to reject all grounds of appeal put forward by the US and uphold the Panel's findings that: (i ) the US was in violation of Article 9.3 of the Anti-Dumping Agreement and Article VI: 2 of the GATT 1994 by applying simple zeroing in the 29 periodic reviews at issue; (ii) that the US violated Article 11.3 of the Anti-Dumping Agreement by using, in eight sunset reviews at issue, dumping margins obtained through so-called "model" zeroing in original investigations.

The EC also stressed another fundamental aspect of the Appellate Body report, namely, its conclusion that a challenge may be brought in the WTO against the continued use of the zeroing methodology in successive proceedings in which duties resulting from specific anti-dumping duty orders are maintained.

The Appellate Body confirmed that in seeking an effective resolution of its dispute with the US, the EC, rather than having to challenge each new investigation and review separately, is entitled to make a case against the "continued use" of the zeroing methodology against the "duty" as a whole in the specified cases, under the scrutiny of WTO dispute settlement.

These findings are of systemic importance, said the EC, adding that as in the present dispute, there are clearly cases where the measure at issue consists of an ongoing conduct, with prospective application and a life potentially stretching into the future.

The EC also regarded the Appellate Body's findings on the matter of susceptibility to WTO challenges of the duty as a measure as an important landmark which contributes to the credibility of the WTO dispute settlement system as a whole and will represent a powerful tool against the abuse of trade defence instruments.

It is not just the conclusion reached by the Appellate Body on the matter of the duty as a measure which merits attention, but also the fact that the Appellate Body confirmed in its analysis that the distinction between "as such" and "as applied" should not be considered as to governing the definition of a measure for the purposes of WTO dispute settlement. The EC welcomed the clarification that the said distinction, however useful, does not exhaustively define the types of measures that may be subject to challenge in the WTO.

The EC said that the only reservation that it would make concerns the Appellate Body's conclusion that it could not complete the analysis and make findings on whether the continued application of zeroing by the US in 14 of the 18 anti-dumping cases and in 2 of the 7 periodic reviews at issue, was WTO-inconsistent.

In its statement, the US expressed disappointment at the Appellate Body's findings, which it said both incorrectly expanded the scope of the proceedings and disregarded the careful bargain struck as part of the Uruguay Round Agreements.

The US regretted that the Appellate Body, once again, has failed to accept the permissibility of zeroing under the covered agreements, and has imposed obligations on members where there are none.

The US said that in reaching its finding on the inconsistency of zeroing in reviews, the Appellate Body relied on the same flawed interpretation that it offered in previous reports. According to the Appellate Body, the concepts of "dumping" and "margin of dumping" are exporter-based and preclude a finding that dumping can exist with respect to an individual transaction.

However, said the US, the Appellate Body has manufactured a conflict where there is none -- dumping may be an exporter-related concept, but dumping can still exist on a transaction-by-transaction basis.

The US was also disturbed by the Appellate Body's approach to Article 17.6 (ii) of the Anti-Dumping Agreement. That provision states that where a 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 Anti-Dumping Agreement if it rests on one of those permissible interpretations.

Noting that Article 17.6 (ii) requires a panel, and the Appellate Body, to determine whether the interpretation proposed by a member is permissible, the US said that the Appellate Body, however, failed to take that approach. Instead of examining the US interpretation, the Appellate Body began by reiterating its analysis of the Anti-Dumping Agreement. It then found that the US interpretation of the Anti-Dumping Agreement led to a result that contradicted the result of the Appellate Body's analysis -- and on that basis alone, said that the US interpretation could not be permissible.

"This is a simple non sequitur," said the US, adding that if Article 17.6 (ii) only sanctioned interpretations that all yield the same result, Article 17.6 (ii) would have no function.

The US also said that the Appellate Body never actually examined the meaning of "permissible". Instead, it simply asserted "the rules and principles of the Vienna Convention cannot contemplate interpretations with mutually contradictory results."

The US noted that at the end of the Uruguay Round negotiations, Article 17.6 (ii) was the key to the acceptance of the other provisions of the Anti-Dumping Agreement. The existence of such a provision confirms that members were aware that the text would pose particular interpretive challenges, at least in part because it was drafted to cover varying and complex anti-dumping systems around the world and long-standing differences concerning methodology. The negotiators there indicated that it would be a legal error not to respect a permissible interpretation of the Anti-Dumping Agreement.

The US deeply regretted the Appellate Body's disregard for the meaning and importance of Article 17.6 (ii).

The US also commented on a number of procedural findings by the Appellate Body.

It said that it failed to see how the EC's reference, in its panel request, to the "application or continued application of anti-dumping duties in 18 cases" could in any way meet the requirement in Article 6.2 of the Dispute Settlement Understanding (DSU) to identify the specific measures at issue.

In the US view, it was the panel that adopted the correct approach when it found that the EC could not meet the requirements of Article 6.2 by referring to duties in a general way, detached from any underlying administrative determinations.

The US was also concerned by the Appellate Body's statement that the panel in the dispute "appear[s] to have acceded to the hierarchical structure contemplated in the DSU", a statement that is neither explained nor supported.

The US said that the DSU does not establish a common-law system, in which Appellate Body findings on legal issues become binding precedents. On the contrary, the only thing in the DSU that resembles a hierarchical structure is the role assigned to the Ministerial Conference and the General Council by Article IX: 2 of the WTO Agreement -- those bodies have the exclusive authority to adopt binding interpretations of the covered agreements.

In an intervention, Japan said that the Appellate Body once again confirmed its previous findings that simple zeroing in periodic reviews is inconsistent with the Anti-Dumping Agreement and the GATT 1994.

Norway said that the Appellate Body has once again confirmed the illegality of the "zeroing methodology". The Appellate Body thus confirmed that the US cannot escape its WTO obligations by creating a "moving target" of measures that are re-determined every year.

Brazil said that the Appellate Body has once again concluded that the Anti-Dumping Agreement does not allow margins of dumping to be calculated based on the zeroing methodology. The lack of support for this methodology in the negotiated texts should be, by this point in time, beyond any reasonable doubt. It is a matter of systemic concern that members continue to be compelled to re-litigate an issue that has been so clearly settled by the Appellate Body.

India welcomed the Appellate Body report in the dispute regarding the clarification given by the Appellate Body on the issue of WTO-inconsistency of the "zeroing" practice. It also welcomed the Appellate Body findings with respect to the simple zeroing in periodic reviews reaffirming its previous rulings that simple zeroing in periodic reviews is inconsistent with the Anti-Dumping Agreement.

India further welcomed the Appellate Body findings that the continued application of anti-dumping duties after sunset reviews, where the margins of dumping were calculated through the use of zeroing methodology in the original investigations, is also inconsistent with Article 11.3 of the Anti-Dumping Agreement, relating to sunset reviews.

Meanwhile, under the agenda item of surveillance of implementation of recommendations of the DSB, the EC, in relation to its regime for the importation, sale and distribution of bananas, said that it stands ready to implement the recommendations made in the Ecuador report by means of modifying its bound duty.

It said that it had started negotiations last week not only with Ecuador but also with other MFN suppliers with rights to reach an agreement regarding the rebinding of the EC tariff on bananas.

It said that requests made to the EC to simply sign the draft agreement established in the margins of the July Ministerial last year simply disregard the fact that the signature of that agreement was subject to the successful adoption of the agriculture modalities.

"Having said that, we are now engaged in negotiations to discuss the possibility of concluding a draft agreement with a number of elements based in the July 2008 text, subject to necessary adjustments to the current situation and we hope that all banana suppliers will constructively engage in the necessary discussions," said the EC. +