News

Zeroing and anti-circumvention emerge as key points in anti-dumping negotiations

22.01.2008

Proposals for new international rules to deal with issues such as the scope of anti-dumping investigations; the controversial question of “zeroing”; anti-circumvention of dumping measures; and how countries must handle investigations, were circulated for comment late last year in the World Trade Organisation (“WTO”).

The way in which anti-dumping and countervailing investigations are carried out, and how subsidies should be regulated, is one of the issues under review in the Doha Development Round of trade negotiations taking place within the WTO.

In issuing the draft texts of revisions to the Anti-Dumping Agreement and the Subsidies and Countervailing Measures Agreement, the Chairman of the Negotiating Group on Rules said his intention was to stimulate serious reflection and to take the first step in a new phase involving further intensive discussions within the Group. He conceded that the revisions did not reflect every proposal put before the Group, and that participants would be likely to find things they do not like and even that they dislike intensely.

“Zeroing” to be authorised, in some cases

The new text states that “non-dumping margins” must be taken into account in arriving at an overall dumping margin in cases where the investigating authority compares weighted averages of normal values with weighted averages of export prices. However if the comparison used by the investigating authority is a transaction by transaction comparison, or is a comparison of a weighted average normal value with prices of individual export transactions, then the text says that “non-dumping” margins do not need to be taken into account. The new text would also allow “non-dumping” transactions to be ignored in refund calculations, circumvention cases, dumping margin reviews and continuation/sunset reviews.

Adoption of these proposals would partly preserve the US’s preferred practice of “zeroing” of non-dumping margins in calculating dumping margins. This seems to be contrary to WTO dispute settlement reports, and would represent a tilt towards anti-dumping user countries. Dumping margins calculated without taking non-dumping margins into account are mathematically higher than those calculated without “zeroing”.

Less technical injury causation test

The text proposes that less technical approaches towards establishing whether material injury has been caused to a domestic industry by dumping, and evaluating the impact of other causes, will be acceptable. The text suggests that an examination of competing factors may be qualitative, and the injurious effects attributable to dumping on the one hand, and to different factors on the other hand, need not be quantified or weighed against each other

Definition of new industry for purposes of material retardation test

Changes have been proposed to define when a new industry is emerging, for the purposes of determining whether its emergence has been materially retarded by dumping. The text provides that an industry may be considered to be in an establishment phase where a genuine and substantial commitment of resources has been made towards the production of a new product, but commercial volumes of production have not yet been established. Such commercial volumes will be deemed to exist where the production capacity of the new industry exceeds 10% of domestic demand.

Are importers of dumped products part of the domestic industry?

The rules of domestic industry status are also proposed to be clarified, to a small degree. Domestic industry status is important for working out whether there is enough support for an anti-dumping application to be accepted for investigation. If a domestic producer is also an importer of the allegedly dumped product, the new text provides that the producer need not be excluded from the domestic industry if its imports are small relative to its total sales, or if its imported models of the product under consideration are small in number when compared to its full range of models.

Product scope, and separate investigations for separate products

Some effort has been made to deal with the vexed question of product scope and definition. Investigations must be conducted in respect of single product, being an imported product having the same basic physical characteristics as the domestically-produced product. This does not mean that there cannot be separate models, types or grades of that single product. However if it is identified, in the course of an investigation, that a product initially thought to be within the single product scope is in fact a different product, then dumping duties cannot be imposed against that product unless it is subject to separate determinations of dumping, injury and causal link.

Procedural changes to improve due process

Greater transparency in decision making is one important theme of the changes to the text. User industries, suppliers to the domestic industry, and consumer organisations, are to be expressly allowed to make representations in the course of an investigation. Frequent new references are made to the need to give proper opportunities for interested parties to make their views known, and for investigating authorities to explain their reasoning on specific issues.

Supplementary questions must be asked by investigating authorities of exporters if preliminary analysis of the responses provided by the exporters indicate that the responses are lacking in some respect or require clarification.

The proposed text asks investigating authorities to be mindful of the translation burdens placed on exporters, expressing the desirability of not requesting certifications by official translators.

Fairness in the verification of information is also proposed to be enhanced by requiring investigators to give advance notice of specific matters which are intended to be the subject of verification, and by ensuring that visit reports record the methods and procedures adopted in the verification, and the factual findings made by the investigators. These new information transparency requirements would be welcomed by exporters, however they are somewhat offset by a proposal to delay the provision to exporters of dumping margin calculations until seven days after a final determination has been made.

The text also mandates that the public must have access to non-confidential documents lodged by interested parties.

Continuation reviews (also referred to as “sunset reviews” in some jurisdictions) would be more clearly and closely disciplined than before if the new text is accepted.

Imposing duties at lower levels, to redress injury only

The new text retains the ability for investigating authorities to impose dumping duties at margins which are less than the full margin of dumping (“the lesser duty rule”), but at the same time removes the statement in the existing text as to why a lesser margin might be justified.

New anti-circumvention proposals

An unsuccessful attempt was made to incorporate anti- circumvention provisions in the text of the Anti-Dumping Agreement at the conclusion of the Uruguay Round. The new text indicates that another attempt is to be made this time, with the Chairman including a raft of new provisions intended to deal with this issue.

The new proposals seek to prevent continued dumping of a product when that takes place in any of the following ways:

  • importation of components of the dumped product for assembly;
  • importation of the dumped product from a third country where the product has been assembled; and
  • importation of a slightly modified version of the dumped product, to move it outside the scope of the product subject to dumping duties.

The application of the new rules which are suggested by the text are to be conditional on certain subjective matters, and by quantitative thresholds relating to the value of the components and the value added in the assembly process. If circumvention is identified, and if the components or the product are found to be dumped, then the scope of the existing measures may be extended to cover them (including retroactively) and without requiring proof of injury to the domestic industry.

Duration of dumping measures to be limited to 10 years

A new provision to prevent dumping duties from applying for more than ten continuous years appears in the text. However if dumping re-emerges within two years of the end of the ten year period, then investigating authorities will be permitted to immediately impose provisional measures using “best information available”.

Periodic reviews of anti-dumping laws and policies

Lastly, monitoring Members’ compliance with the terms of the Anti-Dumping Agreement, and gaining a better understanding of the anti-dumping policies applied by them, is to be achieved by a periodic review process to be undertaken within the WTO’s Committee of Anti-Dumping Practices. Reviews of a Members laws and policies will incorporate a factual report prepared by the WTO Secretariat from available information, and (at the discretion of the Member under review), a report supplied by that Member.

Comment

The Chairman’s attempt to consolidate proposals for anti-dumping reform, and to do so incompletely, is necessarily and intentionally provocative. It is by this means that the Chairman hopes to focus participants in the negotiating group on the issues that are important to them, and on compromises that will need to be made in order to move towards a final agreed text.

Many participants will be happy to see the improvements which have been proposed in the areas of procedures and transparency. Going forward, there can be no doubt that “zeroing” will continue to be a critical area of dispute, as will “anti-circumvention”.

Some of the important issues raised by developing countries do not appear to have been picked up in the draft text. Developing countries have voiced concerns such as these in the negotiations:

  • that the test for initiation of investigations is too low, and that a higher evidentiary standard should be implemented;
  • that a more favourable de minimis test (the threshold below which no dumping measures can be imposed) be applied in the case of exports from developing countries;
  • that undertakings offered by exporters from developing countries should be automatically accepted; and
  • that the lesser duty rule (the imposition of dumping duties at a level less than the full margin of dumping, where the lesser margin is sufficient to remove the injury to the domestic industry) should be mandatory in case of dumping measures imposed against exports from developing countries.

It was not the Chairman’s intention to incorporate all suggested revisions, and to cater to all the participants’ requests, and to do so would have resulted in an incoherent text. Nonetheless it could be said that visible attempts to address the special and differential needs of developing countries, especially at this early drafting stage, would have reflected the developing country perspective of the Doha Development Round.

Reactions, and next steps

Strong concern about the draft text, and protest against the practice of “zeroing”, was immediately voiced by the delegations of Brazil, Chile, China, Colombia, Costa Rica, Hong Kong, India, Indonesia, Israel, Japan, Korea, Mexico, Norway, Pakistan, Singapore, South Africa, Switzerland, Taiwan and Thailand. These Members jointly issued a Statement saying that the vast majority of their proposals had been neglected and that the draft text lacks balance. They objected to the permission given to “zeroing” in the draft text, seeing this as increasing opportunities for imposing barriers to trade, and called upon all Members to ensure that the Multilateral Trading System is not undermined through zeroing.

The next meetings of the negotiating group take place this week and in the week beginning 11 February. The Chairman expects that a more in-depth process will commence at those meetings, in order to identify specific problems and then resolve them, as a precursor to the circulation of revised draft texts.

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.