TWN Info Service on WTO and Trade Issues  (Oct09/01)
6 October 2009
Third World Network

Panel set over US measures on Brazilian orange juice
Published in SUNS #6780 dated 28 September 2009

Geneva, 25 Sep (Kanaga Raja) -- A WTO dispute panel will be seized with yet another dispute over the United States use of "zeroing" methodology and procedures in levying anti-dumping duties on imports. The US has been involved in a series of disputes over this "zeroing" issue, with various panels, and the Appellate Body, in various disputes ruling against the United States.
 
The latest dispute on which the Dispute Settlement Body on Friday agreed to establish a panel, at the request of Brazil, is on US anti-dumping administrative reviews and other measures imposed in relation to imports of certain orange juice from Brazil.
 
This was a second-time request and panel establishment was automatic.
 
Thailand, the EC, Chinese Taipei, Korea, Argentina and Japan reserved their third-party rights to the dispute.
 
Under another agenda item, Brazil also made a statement regarding the decisions of the arbitrators in the US upland cotton dispute (see below).
 
The dispute with the US concerning imports of Brazilian orange juice is with regard to the laws, regulations, administrative procedures, practices and methodologies for calculating dumping margins in administrative reviews, involving the use of "zeroing", and their application in anti-dumping duty administrative reviews regarding imports of certain orange juice from Brazil.
 
In its communication to the DSB, Brazil said that the measures at issue include the anti-dumping duty investigation on certain orange juice from Brazil (the "Original Investigation"). This anti-dumping proceeding concerns the imposition of anti-dumping duties on certain orange juice for transport and/or further manufacturing produced in two different forms: (1) Frozen orange juice in a highly concentrated form, sometimes referred to as frozen concentrated orange juice for further manufacturing (FCOJM); and (2) pasteurized single-strength orange juice which has not been concentrated, referred to as Not-From-Concentrate (NFC). The period of investigation is 1 October 2003 through 30 September 2004.
 
In this Original Investigation, said Brazil, the United States Department of Commerce (USDOC) employed a methodology whereby it aggregated intermediate comparison results between weighted average normal value and weighted average export price for sub-groups of products within the product under investigation ("averaging groups"), treating as zero negative intermediate comparison results (i. e., situations in which the weighted average export price was greater than the weighted average normal value of an "averaging group").
 
Brazil referred to such methodology as "model zeroing" and/or US "zeroing procedures".
 
The Brazilian communication also cited the 2005-2007 anti-dumping duty administrative review on certain orange juice from Brazil (the "First Administrative Review"). This anti-dumping proceeding concerns the administrative review of anti-dumping duties on certain orange juice from Brazil for the period of 24 August 2005 through 28 February 2007.
 
In this First Administrative Review, in order to assess the importers' final liability for payment of anti-dumping duties and the going-forward cash deposit rates, the USDOC employed a methodology whereby it aggregated intermediate comparison results between weighted average normal value for each "averaging group" with the transaction price of individual export transactions, treating as zero negative intermediate comparison results (i. e., situations in which the individual export price was greater than the weighted average normal value of an "averaging group").
 
Brazil referred to such methodology as "simple zeroing" and/or US "zeroing procedures".
 
The Brazilian communication also pointed to the 2007-2008 anti-dumping duty administrative review on certain orange juice from Brazil (the "Second Administrative Review"). This anti-dumping proceeding concerns the administrative review of anti-dumping duties on certain orange juice from Brazil for the period of 1 March 2007 through 29 February 2008.
 
In this Second Administrative Review, the USDOC applied again "simple zeroing" and/or US "zeroing procedures".
 
Brazil also highlighted the continued use of the US "zeroing procedures" in successive anti-dumping proceedings, in relation to the anti-dumping duty order issued in respect of imports of certain orange juice from Brazil. This measure concerns the continued use by the United States of "zeroing procedures" in successive anti-dumping proceedings, in relation to the anti-dumping duty order issued in respect of imports of certain orange juice from Brazil, including the original investigation and any subsequent administrative reviews, by which duties are applied and maintained over a period of time.
 
Brazil considered the US measures to be inconsistent with the provisions of the Anti-Dumping Agreement, the GATT 1994 and the Marrakesh Agreement.
 
In its statement at the DSB, Brazil reiterated that the US used the "zeroing" methodology when calculating margins of dumping for exporters of orange juice from Brazil. "It is not necessary to repeat the long list of cases in which the WTO dispute settlement mechanism found the use of zeroing inconsistent with the GATT and the Anti-dumping Agreement," it said.
 
The US reiterated its concerns regarding the way in which Brazil had framed its panel request. It said that the panel request includes measures that were not in existence at the time of consultations and consequently could not have been, and were not, consulted upon.
 
Meanwhile, under another agenda item concerning the decisions of the arbitrators in the US-Brazil upland cotton dispute, Brazil drew attention to some of the important determinations made by the Arbitrators in their decisions circulated on 31 August.
 
(In two separate reports concerning arbitration proceedings in the US-Brazil cotton dispute, the Arbitrators ruled that Brazil may request authorization from the DSB to suspend concessions or other obligations totalling $294.7 million annually - see SUNS #6764 dated 1 September 2009).
 
In its statement at the DSB Friday, Brazil said that firstly, regarding prohibited subsidies - namely export credit guarantees provided under program GSM 102 (not only for cotton but also for a number of other commodities) - the Arbitrators did not accept the argument that the countermeasures should be gauged solely in light of the net cost incurred by the US government in providing the guarantees.
 
According to Brazil, another important determination concerns the actionable subsidies - in this case, the payments on US cotton provided under the programs "marketing loan" and "counter-cyclical payments". The US argued that the marketing loan and counter-cyclical payments challenged by Brazil before the original and the compliance panels were payments authorized by the 2002 Farm Bill, which has expired. Thus, the US argument went, there should be no legal basis for countermeasures in respect of those payments.
 
The Arbitrators agreed with Brazil that, even though the 2002 Farm Bill had expired, it had been replaced by new legislation - the 2008 Farm Bill - which left the marketing loan and counter-cyclical payment programs basically unchanged in respect of cotton. In response to the US argument that one would have to wait and see what the level of the payments would be under the new Farm Bill, the Arbitrators noted that they had not been provided "with any indication that the payments that may be made under the 2008 Farm Bill would be of a different nature than those that gave rise to the rulings at issue."
 
Brazil also highlighted the quantification effects of the cotton subsidies, in which the Arbitrators calculated that, in MY 2005, the world price of upland cotton would have been higher by 9.38% but for US marketing loan and counter-cyclical payments. It cited the Arbitrators saying "the adverse effects on the rest of the world from US marketing loans and counter-cyclical payments in MY 2005 amounted to US$2.905 billion."
 
Turning to the issue of "cross-retaliation", Brazil welcomed the Arbitrators' recognition of the difficulties faced by the country if it only had the option to apply countermeasures on imports of US goods. The Arbitrators determined that only a limited subset of the overall US imports into Brazil could be subject to countermeasures without resulting in unreasonable costs on the Brazilian economy and its consumers. The Arbitrators thus granted Brazil the right to seek the suspension of concessions and obligations under GATS and TRIPS Agreement under certain conditions.
 
In Brazil's view, these determinations were important not only for illuminating - and sometimes precisely quantifying - some aspects of the dispute. They also are important for safeguarding the integrity and credibility of the WTO dispute settlement.
 
Brazil pointed to the Arbitrators' award, in which it is authorized to adopt countermeasures in an amount that is made of two parts: (I) a fixed amount of $147.3 million per year, which corresponds to the actionable subsidies, and (ii) with respect to the prohibited subsidies, a variable amount, to be updated each year on the basis of data on US exports of several commodities that benefit from the export credit guarantee program GSM 102.
 
As regards the type of the countermeasures, the Arbitrators determined that Brazil will have the right to apply "cross retaliation" every time the total amount of calculated countermeasures exceeds a "threshold" in a given year. This threshold is in turn calculated on the basis of the variation in Brazilian imports from the US.
 
Referring to the formula provided by the Arbitrators to determine the permissible amount and type of countermeasures, Brazil said that in that regard, the Arbitrators determined that the "United States shall provide the most recent fiscal year data on GSM 102 transactions." The Arbitrators also decided that the formula shall be applied to three scheduled products (pig meat, poultry meat and rice) only to the extent that the export subsidies provided to volumes of exports of the products are in excess of US reduction commitments. The Arbitrators also determined that the "United States shall provide the most recent data on US export prices of the scheduled products."
 
Brazil stressed that it intends to apply the formula on the basis of 2009 data. Given that fiscal year 2009 ends on 30 September, Brazil said that it will be sending a letter today to the US where it will request GSM 102 data relating to fiscal year 2009 in the format indicated by the Arbitrators. It will also request data on US export prices for the abovementioned three commodities.
 
The US commended the work of the Arbitrators. It said that the Arbitrators properly limited possible countermeasures by Brazil to the trade effects of the subsidies at issue on Brazil. In addition, the Arbitrators properly rejected Brazil's request for a one-time award of countermeasures for the Step 2 program, which had been repealed. Furthermore, it said that the Arbitrators were correct to reject Brazil's arguments that it was entitled to an unlimited right to cross-sectoral countermeasures, for example, subject only to the "appropriate countermeasures" standard of Article 4.10 of the Subsidies and Countervailing Measures Agreement (SCM).
 
At the same time, the US voiced certain concerns over the awards of the Arbitrators. With respect to the countermeasures for GSM 102, the Arbitrator acknowledged that its approach of using and combining an interest rate subsidy and an additionality calculation, which it adapted from Brazil's methodology, may overestimate the actual effects on Brazil in some aspects. Yet, the Arbitrator still used it as the basis for the formula for countermeasures.
 
Similarly, said the US, in the arbitration concerning marketing loan and counter-cyclical payments for cotton, the US believed that the Arbitrator incorrectly gave Brazil the benefit of the doubt on several issues, such as the choice of price elasticities in the model for the effects of marketing loan and counter-cyclical payments.
 
The US said that it understands from press reports that Brazil would like to open a dialogue with the US. It said that it looked forward in engaged discussion with Brazil.
 
Australia noted that the total estimated damage to farmers outside the US from the subsidy programmes considered by the Arbitrator is in excess of $17 billion for fiscal years 1999 to 2005 inclusive. And all of those programmes continue today, having been re-authorized by the 2008 Farm Bill. +