TWN Info Service on WTO and Trade Issues (Jan11/08)
31 January 2011
Third World Network

Doubts raised over US claims of compliance on "zeroing"
Published in SUNS #7076 dated 28 January 2011

Geneva, 27 Jan (Kanaga Raja) -- Both the European Union and Japan have cast some doubt over a recent proposal by the US Commerce Department to address the adverse findings in several disputes at the World Trade Organization (WTO) over its controversial practice of "zeroing" in the calculation of dumping margins in its anti-dumping investigations.

The US Commerce Department's proposal to address these adverse findings on "zeroing" was questioned by both the European Union and Japan at a meeting of the Dispute Settlement Body (DSB) on Tuesday.

"While this proposal by USDOC (US Department of Commerce) is a step in the right direction, it should be clear that the proposal - even if adopted and implemented correctly - will not bring about full implementation, unless it is supplemented by additional measures," the EU told the DSB meeting.

While welcoming this positive development, Japan noted that the proposal does not make clear whether implementation of the proposal suffices to implement the recommendations and rulings by the DSB fully.

The zeroing issue also figured on Wednesday at an informal meeting of the Negotiating Group on Rules - where the US appeared to be seeking some changes in the anti-dumping rules to accommodate its position, while Brazil and some others pointed to their positions and proposals to prohibit all zeroing.

In a status report (WT/DS322/36/Add. 16), dated 13 January, the US said that on 28 December 2010, in part in response to the findings in this dispute with respect to administrative reviews, new shipper reviews, sunset reviews, and investigations using transaction-to-transaction comparisons, the US Department of Commerce (USDOC) announced a proposal to change the methodology for calculating weighted average dumping margins and assessment rates in certain anti-dumping proceedings, including administrative and new shipper reviews.

According to the status report, the Department proposes to compare monthly weighted average export prices with monthly weighted average normal values, and to grant an offset for comparisons that show an export price that exceeds normal value in the calculation of the weighted average margin of dumping and assessment rate.

The modifications the Department has made with respect to investigations, and is proposing to make with respect to reviews, address the underlying issue with respect to sunset reviews, said the US.

In addition, to the extent that any prior application of the transaction-to-transaction methodology in an investigation could be considered as establishing a practice with respect to offsets, the Department is proposing to withdraw any such practice.

The status report said that the proposal has been published in the Federal Register, and that under US law, there will be a period for public comment on this proposal and for consultations with appropriate committees in the US Congress.

The status report provided by the US concerned implementation of the DSB recommendations and rulings in the dispute US - Measures Relating to Zeroing and Sunset Reviews (brought by Japan).

The US provided largely similar status reports with respect to two other disputes under the same agenda item of surveillance of implementation of recommendations adopted by the DSB. One is on US - Continued Existence and Application of Zeroing Methodology (brought by the European Communities, WT/DS350/18/Add. 13) and the other, on US - Laws, Regulations and Methodology For Calculating Dumping Margins ("Zeroing") (also brought by the European Communities, WT/DS294/38/Add. 7).

In its statement at the DSB, the US said that it has made clear its significant concerns with the rulings on zeroing in past disputes. "We continue to believe that those rulings go beyond what the text of the agreements provides and what negotiators agreed to in the Uruguay Round, and that such issues should be of concern to all Members."

"As we have stated many times in the DSB, the United States recognizes the systemic importance of compliance with dispute settlement findings. To that end, we have devoted significant resources to comply with the recommendations and rulings in this and other zeroing disputes," it added.

The US noted that in response to the findings in this (DS322) and other zeroing disputes, on 28 December 2010, the US Department of Commerce announced a proposal to change the calculation of weighted average dumping margins and assessment rates in certain antidumping proceedings, including administrative reviews, new shipper reviews, and original antidumping investigations using transaction-to-transaction comparisons, and to address the findings made in connection with sunset reviews.

First, said the US, with respect to reviews, the Department of Commerce proposes to compare monthly weighted average export prices with monthly weighted average normal values, and to grant an offset for comparisons that show an export price that exceeds normal value in the calculation of the weighted average margin of dumping and assessment rate. This would parallel the methodology that the Department now applies in original investigations and would apply to administrative reviews as well as new shipper reviews.

Second, with respect to the transaction-to-transaction approach in original investigations, the US said that it should be noted that the Department of Commerce has rarely applied this approach in investigations.

"However, in light of findings by the Appellate Body with respect to this approach in this dispute (DS322), to the extent that any prior application of the transaction-to-transaction approach in an investigation could be considered as establishing a practice with respect to the granting or denial of offsets for non-dumped comparisons, the Department proposes to withdraw any such practice."

Third, and finally, the modifications that the Department is proposing with respect to reviews, and the modifications that the Department has already made with respect to investigations, would address the findings in this dispute (DS322) with respect to sunset reviews.

The US further said that because of its concerns about the findings regarding zeroing in this (DS322) and other disputes, responding to those findings in a proposal has presented substantial challenges for the United States and required significant resources.

"The proposal discussed today reflects that effort and, if successful, would address adverse findings on zeroing in reviews, sunset reviews, and transaction-to-transaction comparisons in investigations."

In its statement at the DSB, Japan welcomed the fact that the United States has announced a proposal to amend certain procedures on anti-dumping, and has commenced an internal process to ensure compliance with the recommendations by the DSB.

While welcoming this positive development, Japan noted that the proposal does not make clear whether implementation of the proposal suffices to implement the recommendations and rulings by the DSB fully.

For example, said Japan, the proposal does not indicate how intermediate weighted average comparisons, made on a monthly basis, would be aggregated for a one-year review period.

While Japan said that it understands that it is not the intention of the United States to leave room for the use of the methodologies found to be WTO-inconsistent, it would like to obtain assurance on this point.

In addition, Japan recalled that the DSB's recommendations and rulings cover several "as applied" measures that do not appear to be addressed by the proposal.

First, explained Japan, several period reviews were found to be WTO-inconsistent. "Since the end of the RPT (Reasonable Period of Time to implement the DSB rulings) more than three years ago, the United States has continued to collect duties at unchanged WTO-inconsistent rates established in these 'as applied' periodic reviews."

For a number of these reviews, many entries remain unliquidated today, and the United States is still to collect final anti-dumping duties, but has yet to calculate assessment rates without zeroing, Japan pointed out.

Second, said Japan, a sunset review was also found to be WTO-inconsistent and has not yet been brought into conformity with the Anti-dumping Agreement. Japan, therefore, has a keen interest in how these "as applied" measures will be treated in the internal process of the United States.

Japan stressed that it continues to seek prompt and full compliance by the United States in this matter with respect to all of the measures at issue.

With that in mind, Japan said that it looks forward to the United States' clarification of its proposal in light of these comments, which are provisional and not exhaustive. It will continue to closely monitor developments and may take appropriate action, if necessary.

In its statement at the DSB, the European Union said that it welcomed the publication on 28 December 2010 by the US Department of Commerce of a proposal, which should - if adopted and implemented correctly - contribute to ending the practice of zeroing in administrative reviews.

In the view of the EU, the proposed weighted average-to-weighted average methodology can satisfy WTO requirements only if: (i) the new methodology is used so as to establish one single dumping margin for the whole review period, for the purposes of both the duty assessment and the cash deposit rate; (ii) the US offsets "negative" monthly amounts of dumping (i. e., where the weighted-average export price exceeds normal value) against "positive monthly amounts of dumping", in all cases; (iii) the amount of duty collected from importers under the new methodology never exceeds the exporter's dumping margin.

The EU also noted that despite what seems like a move away from zeroing, the USDOC retains the possibility pursuant to the proposal to use a different approach in reviews besides the weighted average-to-weighted average approach in some instances ("except where the Department determines that applications of a different comparison method is more appropriate").

In this respect, the EU said that it would like to ask the US to clarify what criteria USDOC will use to vary from the "normal" method outlined in the proposal, and whether zeroing will be used in connection with any alternative methods.

"While this proposal by USDOC is a step in the right direction, it should be clear that the proposal - even if adopted and implemented correctly - will not bring about full implementation, unless it is supplemented by additional measures," said the EU.

Noting that the reasonable period of time for implementation expired over a year ago in its dispute with the US (DS350) and nearly four years ago in DS294, without the US having brought itself into full compliance, the EU said that since then duties calculated with zeroing have been imposed and liquidated contrary to US compliance obligations.

The Appellate Body has made it clear that compliance in the context of zeroing implies not only cessation of zeroing in the assessment of duties, but also in consequent measures that, in the ordinary course of the imposition of anti-dumping duties, derive mechanically from the assessment of duties.

Consequently, said the EU, to the extent that a measure of this kind remains based on zeroing, the US failed to comply with the recommendations and rulings of the DSB by applying that measure after the end of the reasonable period of time.

The US proposal of 28 December 2010 is not proposing to do anything with regard to duties imposed and collected contrary to the US compliance obligations after the expiry of the reasonable period of time, said the EU.

"To the EU's knowledge, the United States has not yet taken any action to bring itself into compliance with its WTO obligations. This raises serious concerns as to the United States' intention to fully implement the DSB rulings and recommendations."

The EU said that it would like to know how the US intends to deal with excess duties paid. "Does the US intend to correct the original review calculations by removing zeroing in each of the outstanding cases and do this now?"

The EU urged the US to complete the process for adoption of the proposal swiftly and to addressing the issue of excess duties paid after the deadline for implementation expired without further delay. It recalled that compliance in this and other zeroing disputes is already long overdue and that further delays and incomplete implementation cannot be acceptable.

In a second intervention, the US took note of Japan's comments and said that it will convey Japan's questions to capital. With respect to the issue of past reviews, at this point, Commerce has issued a proposal. The proposal is not final and does not prejudge what might happen in any specific past review. The proposal is subject to comment, including by WTO Members, the US added.

"We will continue to work with interested parties, including Japan, on a solution to this dispute as we move forward with what I think everyone would agree is a very challenging domestic implementation process," said the US.

With respect to the comments made by the EU, the US took note of the EU's comments, and as with Japan's questions, said that it will refer the EU's questions to capital.

It however commented on two issues raised by the EU. With respect to past reviews, the US said that the Department of Commerce has issued a proposal. The proposal is not final, does not prejudge what might happen in any specific past review, and is subject to comment.

Noting that the EU has also raised the issue of duties "imposed and collected after the expiry of the reasonable period of time", the US said that with respect to the issue of duties already collected, "we would be interested in hearing more explanation from the EU on its position on this issue."

It said that it was not aware of any other instances in which a Member has refunded duties in response to an adverse finding in a WTO dispute. For example, the US had understood that the EU took a very different approach in the Bananas dispute.

However, the EU's statement today would appear to indicate a different position. "We would therefore like to ask the EU to explain how it refunded duties in Bananas where my understanding is that the reasonable period of time expired in January 1999," asked the US.

In other actions, the Dominican Republic blocked four separate first-time panel requests by Costa Rica, Guatemala, Honduras and El Salvador concerning safeguard measures imposed by the Dominican Republic on imports of polypropylene bags and tubular fabric.

The four complainants requested that a single panel be established to hear the dispute. Panel establishment will be automatic once a second request is made by the four complainants before the DSB.

Meanwhile, in a related development, an informal meeting of the Negotiating Group on Rules was convened on Wednesday by the Chair, Ambassador Dennis Francis of Trinidad and Tobago, in response to a request by the United States to make a statement.

According to trade officials, the US said that while it disagrees with the Appellate Body's reasoning in disputes over "zeroing", it respects the WTO dispute settlement system.

The (Barack) Obama Administration has worked to come into compliance with the rulings, and on 28 December 2010, the US Department of Commerce took a significant step in that effort by publishing a proposed change in its methodologies to address the "zeroing findings".

According to trade officials, the US said that the USDOC is still receiving public comments, and along with the US Trade Representative, is consulting with US Congressional committees and other stakeholders in finalizing the change in methodologies.

However, said trade officials, the US underscored that its position on zeroing in the Doha Round negotiations has not changed. It maintained that there was no agreement in the Uruguay Round to prohibit zeroing, and that Members must clarify the WTO Antidumping Agreement in this regard, said trade officials.

The US further said it looks forward to continuing the constructive dialogue on the issue of zeroing, adding that progress on this issue must be made to achieve a balanced outcome in the negotiations.

Japan said that at the DSB meeting the previous day, it had welcomed the US statement on compliance with the zeroing rulings, but it was not clear whether the US would comply fully.

It recalled that 20 WTO Members have sought to prohibit zeroing in all anti-dumping proceedings.

According to trade officials, the European Union said that it is ready to negotiate, and welcomed US engagement.

It added that the end should be a situation in which nobody is completely destroyed and nobody is completely happy.

Canada said it also looked forward to US engagement. Brazil said that its position remains the same, namely, support for the prohibition of the practice of zeroing. China said that it looked forward to US compliance with the rulings on zeroing.

At the close of the meeting, said trade officials, the US said that it had held informal consultations with Members, adding that it has an "open door" policy on this issue. It said that this issue requires further conversation among Members, which the Chair could facilitate.

The Chair responded that he would gladly facilitate this conversation at the appropriate time, and closed the informal meeting. +