US Zeroing Methodology Applied In Antidumping Investigations

Introduction

It is seldom that US antidumping law is not under public glare. Few trade policies engender more bitterness and international ill will than the US Antidumping law. For many years the law has been a weapon in the hands of the domestic producers seeking to control import competition. Principally, the purpose of antidumping law is to ensure competition by punishing the foreign firms that sell their products at ‘unfair’ price in other markets. In practice, the administration of antidumping law is entirely separate from the theoretical justification of means to redress the unfair competition. Time and again there have been several cases before WTO in respect of antidumping duties. One such case is US ‘zeroing methodology’ in antidumping duties investigation. On 18th April 2006, the Appellate Body at WTO released its decision on the Zeroing antidumping case initiated by EU against US. The Appellate body uphold the finding of panel that the zeroing methodology adopted in antidumping investigations is inconsistent with the provision of fair comparison under Article 2.4.2 of WTO Antidumping Agreement. It also reverse the panel’s finding that application of the methodology in certain cases of administrative review process is inconsistent with Article 9.3 of Antidumping Agreement.

What is Zeroing?

The “zeroing” methodology, generally speaking, involves treating specific price comparisons, which do not show dumping as zero values in the calculation of a weighted average dumping margin.
To appreciate the impact of zeroing, it is important to understand how the U.S. Department of Commerce calculates dumping margins. In a typical antidumping investigation, DOC calculates weighted-average net prices for each product sold in the United States. It then compares each of those Dr. Fuellmich U.S. prices to the product’s normal value, which can be calculated a number of different ways but is ideally the weighted-average net price of the most similar product sold in the home market. Zeroing is introduced after the comparison of the U.S. price and normal value. When normal value is higher than the U.S. price, the difference is treated as the dumping amount for that sale or that comparison. When, however, the U.S. price is higher, the dumping amount is set to zero rather than its calculated negative value. All dumping amounts are then added and divided by the aggregate export sales amount to yield the company’s overall dumping margin. Zeroing thus eliminates “negative dumping margins” from the dumping calculation. In so doing, it can create dumping margins out of thin air.

The amount of antidumping duties corresponds to the magnitude of dumping (dumping margin) which is a difference between export price and domestic price (or normal value). Dumping margins are calculated in two different stages. First, in the “original investigation,” an antidumping authority, such as the Department of Commerce (DOC) in the U.S., determines a general dumping margin over a particular product in question by summing up each individual dumping margin (normal value minus export price) computed in a group (an “averaging group”) of identical products. In doing so, the DOC disregards any “negative” dumping margin (any excess of export price over normal value) in the group by simply “zeroing” it. Consequently, a general dumping margin, which is a total sum of these individual dumping margins, tends to be inflated because the zeroing methodology precludes any offsetting effect of negative individual dumping margins. The DOC employs the same methodology when it finally assesses a company-specific dumping margin to impose actual antidumping duties in the annual “administrative review” process.

The zeroing methodology has been contested several times under the GATT/WTO. An unadopted panel report under the GATT (Committee on Antidumping Practices) once upheld the European Union’s (EU) zeroing methodology. However, the WTO Appellate Body struck down certain applications of such methodology both by the EU and the U.S. A recent NAFTA Chapter 19 panel (NAFTA Softwood Lumber) condemned this practice, invoking the celebrated Charming Betsy doctrine (a U.S. Supreme Court decision holding that U.S. statutes should be interpreted, if possible, in such a way as to avoid placing the United States in violation of international law), and expressing the view that the U.S. should follow the AB decision against it in WTO Softwood Lumber V. It may be no coincidence that the EU challenged the U.S. zeroing methodology after the EU’s own applications of the same methodology were invalidated by the WTO.

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