Once Again the WTO Reprimands the US From Employing Zeroing in Antidumping Administrative Reviews

The World Trade Organization (WTO) judges announced on July 11, 2011, that the United States is violating global trade rules in using its controversial "zeroing" method to continue impose anti-dumping tariffs on shrimp from Vietnam.

The decision by a three-member panel was the latest of a series in which zeroing — a framework for calculating duties on goods sold at less than their price on the exporter's home market — has been found illegal under WTO agreements.

The case which has been percolating since the beginning of 2010, finally confirmed what the trade community has known for a considerable length of time that the US’s continued use of zeroing is deliberately violating its obligations under the Antidumping Agreement.  Why the US continues to zero when it has been repeatedly told not to is a question not only for this trade practioner but to the rest of the trade community as well.

Vietnam's claims with respect to zeroing were upheld by the WTO Panel in that (1) The Panel upheld Viet Nam's claim that the USDOC's use of zeroing to calculate the dumping margins of respondents selected for individual examination in the second and third administrative reviews was inconsistent with Article 2.4 of the Anti-Dumping Agreement. And (2)    The Panel upheld Viet Nam's claims that the United States' “zeroing methodology”, as it relates to the use of simple zeroing in administrative reviews, is inconsistent with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994. The Panel first concluded that Vietnam had established the existence of the “zeroing methodology” as a rule or norm of general and prospective application. The Panel then relied on prior Appellate Body rulings to conclude that simple zeroing in administrative reviews is, “as such”, inconsistent with these two provisions.

Thus the Panel recommended that the United States brings its measures into conformity with its obligations under both the Antidumping Agreement as well as the Dispute Settlement Understanding.  The problem is that this is not the first nor will it  be the last of the cases before the WTO where it has found the U.S. to be in violation of its international obligations when it comes to zeroing.  When will the U.S. learn from its repeated reprimands, the readers’ guess is as good as this practioners.  However, one thing is certain the U.S. will not stop its use of zeroing unless and until it harms their overall trade strategy.

The U.S. continues to zero in reviews because it hides behind the U.S. statute governing trade remedies and specifically antidumping remedies which permits it to ignore WTO obligations unless and until there is a change in the actual language of the statute.  Here, the U.S. keeps finding the existence of dumping in a multitude of cases because it is able to under its own statute.  Thus, the question becomes, why change a statute when it helps the sovereign nation to apply it in the manner that helps it?  The answer is that the statute will change when the U.S. no longer sees a benefit to zeroing in reviews and it no longer benefits it.

COMMERCRE PROPOSES CHANGE TO RULES FOR LIQUIDATION OF ENTRIES FROM NON-REVIEWED NON-MARKET ECONOMY EXPORTERS IN ANTIDUMPING DUTY ADMINISTRATIVE REVIEWS

            The U.S. Department of Commerce (Commerce) is proposing to change its rules with respect to its procedure for issuing liquidation instructions, to U.S. Customs and Border Protection (CBP), for certain entries subject to antidumping duty orders.  See 76 FR 34046 (June 10, 2011): http://www.gpo.gov/fdsys/pkg/FR-2011-06-10/pdf/2011-14446.pdf.  More specifically, Commerce proposes to change its rules such that it will instruct CBP to liquidate "certain entries," suspended under antidumping duty orders, for "non-reviewed" non-market economy exporters--i.e., non-market economy exporters that are not involved in an antidumping administrative review for a particular period of review (POR)--at the country-wide antidumping duty rate.  Id. 

            As Commerce explains in its published Federal Register notice on the matter, in an antidumping administrative review involving a non-market economy (NME) country, importers "enter subject merchandise at a company-specific cash deposit rate, a separate rate, or the NME-wide rate.  Entries of subject merchandise are subject to cash-deposit requirements and are suspended from liquidation until the Department instructs CBP to liquidate the entries.  See section733(d)(2) of the Act.  When no review is requested for a particular AD order for a given review period, the Department instructs CBP to liquidate all entries of subject merchandise for that period at the cash-deposit rate that was required at the time of entry."  Id.  That is, the entries are liquidated a rate determined in a prior antidumping proceeding--an investigation, an administrative review, or a new shipper review.  "When a review is requested for a firm for a given review period, entries that have been identified by an importer as that firm’s merchandise remain suspended from liquidation during the pendency of the administrative review."  Id.  At the end of the administrative review proceeding, Commerce instructs CBP to liquidate the entries based on its findings relevant to the involved POR.  That is, it instructs CBP to liquidate the entries based on the company-specific or other rate found, in the final results of review, applicable to each reviewed respondent. 

            Under most, if not all, NME antidumping orders, the "NME-wide" rate is, in reality, punitive, effectively blocking access to the U.S. market for exporters to which it is applied.  In fact, many NME antidumping orders have NME-wide duty rates exceeding one-hundred percent. 

            The apparent concern is that Commerce is discovering, in the course of its antidumping administrative review proceedings, that certain U.S. importers are falsely claiming that their entries originated with a firm that is participating in an administrative review, when in fact the entries originated with an exporter not being reviewed for the POR during which the entries were made. 

            The exact form of the proposed rule change is not entirely clear from the Federal Register notice, and its rather ambiguous wording provides more confusion than guidance with respect to several important issues.  For example, Commerce does not explain what it means by "certain entries."  Taken by themselves, these words seem to suggest that Commerce does not intend to apply the NME-wide rate to all entries from non-reviewed exporters.  But if that is the case, the notice offers no clear guidance concerning where Commerce might draw the line. 

            Furthermore, other language in the notice seems to suggest that Commerce indeed intends to liquidate all entries from non-reviewed exporters, regardless of whether or not those exporters were reviewed previously, and regardless of whether or not those exporters have long track records of low, de minimis, or even zero antidumping duty rates, and regardless of whether or not those exporters have long-established reputations for complying with the letter and spirit of U.S. fair trade law.  To wit, the notice indicates that Commerce "is proposing to refine its practice with respect to the rate at which it instructs CBP to liquidate certain entries from non-reviewed exporters.  Specifically, the Department proposes to instruct CBP to liquidate such entries at the NME-wide rate."  This language implies that there will be no exceptions: if an exporter is not reviewed, its entries will be liquidated at the NME-wide rate, end of story. 

            Needless to say, an exporter can hardly be expected to remain competitive in the U.S. market if its U.S. sales are being assessed duties that match or exceed the sales prices of its goods.  Thus, if Commerce truly intends to apply NME-wide rates to all non-reviewed exporters, it can expect an unprecedented surge in requests for review on the part of NME exporters wishing to retain access to the U.S. market.  Certainly hundreds--perhaps even thousands--of NME exporters that were content to sit out annual administrative reviews would feel compelled to participate in Commerce's proceedings each and every POR.  Commerce has neither the personnel nor the funding to manage such a spike in its active caseload.  One is left to wonder, then, what exceptions the proposed rule might ultimately contain by which Commerce may have the option to decline to review certain exporters without having to impose punitive NME-wide duty rates on those exporters for their being "non-reviewed."  It remains to be seen.   

            Adding to the confusion over Commerce's intended direction with respect to this rule change, toward the end of its Federal Register notice, Commerce states that "when a party does not file a separate-rate application, the Department lacks necessary information on the record to determine whether it is entitled to a separate rate."  Id.  In context, this phrase seems like a non sequitur.  However, it could be read as a hint of Commerce's intent to leave a loophole through which parties to antidumping proceedings could engage in the sorts of activities highlighted in a February 11, 2011 Wall Street Journal Article by James R. Hagerty, titled Cash Softens Trade Blow: Payments to U.S. Rivals Lets Chinese Furniture Makers Skirt Import-Duty Review.  Does Commerce intend to allow an exporter that engages in activity of the sort described in the aforementioned article--even if the involved antidumping petitioner eventually retracts its request for review of that exporter, and that exporter is consequently not reviewed--to continue selling its goods in the U.S. market via its previously-established company-specific rate, as long as that exporter applied for a separate rate for the POR at issue?  In other words, will a separate rate application allow a "non-reviewed" exporter to avoid the NME-wide rate, in effect giving it the green light to dump its goods, at prices less than fair value, with utter abandon, and without fear of repercussions in the form of higher antidumping duty rates?  It seems unlikely that Commerce would knowingly do anything to encourage activity of the sort described in the Wall Street Journal article.  But, again, it remains to be seen.       

WHY IS DOC STILL ZEROING IN ADMINISTRATIVE REVIEWS? THERE IS NO EXPLANATION AND THE COURTS ORDER COMMERCE TO EXPLAIN WHY

The Federal Circuit on June 29, 2011, overturned a ruling that affirmed anti-dumping duties on Japanese ball bearing imports, saying the U.S. Department of Commerce must explain why it continues to use zeroing in administrative reviews but not in investigations.  Japanese companies JTEKT Corp. and NTN Bearing Corp. appealed to the Federal Circuit after the U.S. Court of International Trade upheld Commerce’s administrative review of the anti-dumping duty orders on ball bearings from France, Germany, Italy, Japan and the United Kingdom.

One of the core issues in the appeal was the subject of “zeroing” or in more common terms – the disregarding of negative dumping margins to offset the overall dumping margin calculation.  Zeroing is the practice where the values of positive dumping margins are used in calculating the overall margin, but negative dumping margins are included in the sum of margins as zeroes.  What this means is that a company can be found to have been dumping even though the majority of its sales were not dumped simply because the Department of Commerce has decided that the non-dumped sales must be disregarded in the overall margin calculation. Dongbu Steel Co. Ltd. v. United States, 635 F.3d 1363, 1366 (Fed. Cir. 2011).  Historically, Commerce used zeroing in both the initial investigation to determine whether dumping occurred, and in the subsequent administrative reviews of its dumping determination. But this practice has changed. In response to pressure from the World Trade Organization (WTO), Commerce changed its practice with respect to investigations and no longer zeroes in investigations, but still continues to zero in administrative reviews.

Antidumping investigations and administrative reviews are two very different types of proceedings with different purposes. Specifically, in antidumping investigations, the statute  specifies particular types of sale comparisons and Commerce generally uses average-to-average comparisons whereas in administrative reviews Commerce generally uses average-to-transaction comparisons (which means that individual transactions which are not dumped or have negative margins are more easily identifiable).  Furthermore, the purpose of the dumping-margin calculation also varies significantly between antidumping investigations and reviews. In antidumping investigations, the primary function of the dumping margin is to determine whether an antidumping duty order will be imposed on the subject imports. In administrative reviews, in contrast, the dumping margin is the basis for the assessment of antidumping duties on entries of subject merchandise subject to the antidumping duty order.

While Commerce continues to point to differences between investigations and administrative reviews, it has repeatedly continued to fail to address the relevant question— which is why is it a reasonable interpretation of the statute to zero in administrative reviews, but not in investiga-tions?   The Federal Circuit did not buy Commerce’s very simplistic argument that during an investigation “uses average-to-average comparisons” while administrative reviews “uses average-to-transaction comparisons”.  The question still remains why these (or other) differences between the two phases make it reasonable to continue zeroing in one phase, but not the other.    As a result, the court found that because Commerce continued to stall and not provide any justification for using zeroing in administrative reviews and not in investigations, the court determined that Commerce’s continuing practice of zeroing in administrative reviews, but not in investigations, is unreasonable.  The court has not ordered Commerce to provide an explanation as to why they continue to practice this dichotomous methodology.

By Nithya Nagarajan