The WTO Appellate Body on 9 January ruled that the US' controversial methodology for calculating anti-dumping duties was incompatible with multilateral trade rules, in what is widely seen as the clearest blow yet to Washington's use of 'zeroing.' The global trade body's equivalent of an appeals court overturned aspects of an earlier panel decision, handing a comprehensive victory to Japan.

'Dumping,' in trade parlance, refers to the practice of exporting goods at below the price that they command in their home market. WTO rules allow Member governments to place extra duties on dumped goods, so long as they can prove that dumping is indeed taking place and that it is injuring the competing domestic industry. Governments also have to be able to calculate the 'dumping margin' - the gap between the home market price and the export one.

It is the US government's method for making this calculation that Japan had challenged -- specifically, its practice of ignoring ('zeroing out') instances where prices are lower at home than in the export market, and only taking into account cases where the 'dumping margins' are positive. The US had in this case imposed anti-dumping measures against some steel products and ball bearings.

Countries including Canada, the EU, and Korea have brought WTO cases against the US' zeroing methodology, most of which finished with a rap on the knuckles for Washington. In the current dispute, however, a September 2006 panel ruling had rejected some of Japan's arguments.

The US argued to the adjudicative bodies a general prohibition on 'zeroing' had not been established in WTO law. However, both the earlier panel and the Appellate Body rejected its argument that 'zeroing' is not a measure that can be challenged 'as such' in WTO dispute settlement.

The September panel ruling had already agreed with Japan's claim that the US government's use of zeroing violated the Anti-Dumping (AD) Agreement's provisions for calculating dumping margins, a finding which was upheld by the Appellate Body. However, the panel had rejected Japan's claim that zeroing was only allowed in original investigations of whether anti-dumping was taking place, and was prohibited for other kinds of examinations of whether it was persisting, such as periodic reviews, new shipper reviews, and sunset reviews.

The Appellate Body reversed the aspects of the panel's decision that had gone against Japan. It found that the US' use of 'zeroing' in all four areas - original investigations, periodic reviews, new shipper reviews and sunset reviews - was incompatible with its WTO obligations. It found that the US had acted in violation of the AD Agreement and the General Agreement on Tariffs and Trade (GATT). It directed the US to bring its measures into conformity.

Japan's Foreign Affairs Minister Taro Aso welcomed the Appellate Body's decision, saying that it would help maintain and promote the rules-based multilateral trading system.

Some trade observers who oppose zeroing as a form of unfair protectionism have described the Appellate Body's rulings as a contribution to free trade that would have been difficult to achieve in negotiations. Talks on changing WTO anti-dumping rules have faltered alongside other issues in the Doha Round, with the US particularly reluctant to accept reforms that would have made it harder to impose extra duties.

Unsurprisingly, the report did not receive a favourable reception in some sections of the US. Sander Levin, a senior Congressional Democrat from Michigan, said that the Appellate Body was overstepping its mandate, "changing the rules in the middle of the game." He added that "the Appellate Body is required to apply obligations that the United States and other WTO Members have negotiated - not create obligations out of thin air."

Even before this latest ruling the issue had been making waves in Washington. On 11 December 2006, 11 House representatives submitted a letter to Secretary of Commerce Carlos Gutierrez and US Trade Representative Susan Schwab. In it, they expressed concern that the WTO was overreaching on US trade remedy laws, with regard to zeroing in particular. They noted that implementing the Appellate Body rulings on 'zeroing' would "result in a dramatic weakening of the antidumping laws." The lawmakers urged the Bush administration officials to be "steadfast in this continuing assault on our ability to effectively address unfair trade imports," to "vigorously defend the rights of the US" and to "work to persuade the Appellate Body to do the right thing".

Later that month, however, a senior Commerce Department official indicated that the US would change its ways to comply with its WTO obligations.

The US is already facing a series of new challenges on zeroing, with countries such as Ecuador and Thailand already having filed formal complaints with the WTO. The Appellate Body's recent decision appears to have made the outcome of these cases seem easier to predict.

The Appellate Body ruling and all relevant documents on the US-Japan Zeroing dispute are available at http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds322_e.htm.

ICTSD reporting; "U.S. Changes Anti-Dumping Duties After WTO Decision," BLOOMBERG, 22 December 2006; "WTO rules against U.S. anti-dumping trade policy," LA TIMES, 10 January 2007.