US, OTHER COUNTRIES CLASH OVER ANTI-DUMPING RULES IN CHAIR'S TEXT

The US and other major trading nations last week continued to clash over proposed changes to WTO trade remedy rules, principally on the issue of 'zeroing', a controversial practice that Washington uses to calculate anti-dumping duties.

At the end of three days of talks, the chair of the negotiations on 14 December said that an agreement would be impossible without significant shifts in position next year, reports Reuters.

A draft text circulated late last month by Chair Ambassador Guillermo Valles Games (Uruguay) would see WTO rules amended to explicitly allow zeroing under certain circumstances. For the US, the proposed changes placed too many constraints on the use of zeroing, as well as on anti-dumping measures more broadly.

Members including Brazil, China, India, Japan, Korea, and Switzerland complained that they did not go nearly far enough, and could undermine the value of future trade liberalisation. Some of these countries have belonged to a loose alliance known as the 'friends of anti-dumping negotiations', which wants anti-dumping rules tightened in order to make it harder for governments to misuse extra duties for protectionist ends.

Valles Games had stressed that his text, which also covered industrial subsidies and fisheries support, was merely a "first step" in further discussions. He asked delegations to propose alternatives, saying that their input was necessary in order to find an acceptable balance. Intensive negotiations on the text are scheduled for January and February.

What is zeroing?

When calculating the extent to which imports are being 'dumped' - that is, exported at artificially low prices - US trade authorities ignore ('zero out') instances where goods command higher prices in the US than at home. They only take into account cases where prices in the US are lower.

Critics say that this inflates 'dumping margins', allowing injured US companies to secure inappropriately high levels of anti-dumping duties on competing imports.

WTO dispute panels and the Appellate Body have repeatedly ruled against the practice. US officials, however, maintain that these rulings have been based on inappropriate interpretations of WTO law. They argue that nothing in the Agreement on Anti-Dumping specifies that 'non-dumped comparisons' (now zeroed out) must be 'offset' when calculating dumping margins.

The chair's text on zeroing

WTO anti-dumping rules currently specify that government anti-dumping authorities can compare home market costs and export prices either in terms of weighted averages, or across a range of individual transactions.

Valles Games' text, dated 30 November, specifically bans zeroing when averages are used to calculate dumping margins.

However, it specifically permits zeroing for transaction-to-transaction calculations, or when individual export transactions are compared to a weighted average 'normal' value. In such cases, government authorities "may disregard the amount by which the export price exceeds the normal value for any of the comparisons," says a legal article set out in the text.

For multiple-comparison based calculations, zeroing is also permitted for the purposes of reviews to examine whether anti-dumping duties should be phased out or reduced.

US opposition

US Ambassador Peter Allgeier described the prohibition of zeroing in average-to-average comparisons as a "significant disappointment" at a 12 December meeting of the negotiating committee. The US has used this methodology in "almost all investigations," he said.

The US envoy to the WTO repeated his government's grievances with the Appellate Body's rulings against zeroing, saying that they relied on "severely flawed legal reasoning." He said that the WTO's top court was not "dealing with settled law" on the matter, since some dispute panels had concluded that zeroing was permitted.

A fall 2006 dispute panel decision allowing zeroing did so only for limited circumstances - not for average-to-average comparisons, for instance - and was subsequently overturned by the Appellate Body (see BRIDGES Weekly, 17 January 2007, http://www.ictsd.org/weekly/07-01-17/story4.htm).

Allgeier expressed "strong" objections to the text's requirement to terminate anti-dumping duties after ten years. "Our experience has shown that some companies continue to dump notwithstanding the existence of remedial measures," he said. "We fail to understand why the measures should be removed in such circumstances." He said that the text's procedures allowing for the expedited re-introduction of additional duties if they still proved to be warranted were inadequate to address the needs of injured domestic producers.

Also questioned by the US was the text's proposed 'public interest' requirement for countries to establish processes to "take due account" of the views of parties potentially affected by the imposition of anti-dumping duties.

The use of anti-dumping measures can split companies based in a single country. When Brussels famously imposed anti-dumping duties on Chinese clothing imports during the "bra wars" of 2005, EU retailers lobbied against the extra tariffs that European manufacturers had managed to secure. This has been further complicated by economic globalisation: the EU's decision this year to retain extra tariffs on energy-saving light bulbs from China hurt European companies that had located manufacturing there.

Other countries critical, but for different reasons

Several other countries heavily criticised the text's provisions for explicitly opening the door to zeroing. A joint statement (TN/RL/W/214, available at http://docsonline.wto.org) from countries including Japan, Brazil, Chile, China, Hong Kong, India, Korea, Mexico, Taiwan, Singapore, and Switzerland said that "Zeroing is a biased and partial method for calculating the margin of dumping and inflates anti-dumping duties. If the use of such practice prevails in the future, it could nullify the results of trade liberalisation efforts." "Clarified and improved disciplines [under the Anti-Dumping Agreement] do not imply increased opportunities for imposing barriers to trade," the paper added.

Hong Kong described the zeroing provisions as a major step backward. It said that they did not accord with the views of much of the WTO Membership, an opinion that was echoed by Korea. Brazil suggested that the zeroing rules could even make countries want to backtrack on liberalisation in the negotiations on agriculture and industrial goods. China warned of increased protectionism; Canada said that zeroing was unacceptable.

The EU, although it did not sign onto the statement, described zeroing as a minority sport, in a thinly veiled jibe at the US. It said that in light of this, the zeroing provisions in Valles Games' text were surprising.

Japan praised the text's 'public interest' requirement, as well as its provisions for phasing out anti-dumping duties. Brazil said that placing a ten-year cap on anti-dumping duties was a step in the right direction, but not enough - it wanted a shorter time limit. The EU said that ten years might not suffice if dumping persists after that time, and suggested that instead of setting a hard limit, Members could focus on developing strict criteria for the extension of anti-dumping tariffs.

Some delegations praised the text's expanded transparency requirements, which would require government authorities to make all non-confidential information related to anti-dumping investigations available for public scrutiny.

Members including the EU and India questioned why the chair's text omitted the so-called 'lesser duty rule' currently in the Anti-Dumping Agreement, under which Members are obliged to keep anti-dumping duties within the bounds of what is necessary to offset injury to domestic industry (even if lower than the actual dumping margin).

Circumvention rules prove problematic

The text's 'anti-circumvention' provisions were also controversial. These would allow countries to extend anti-dumping duties on a particular good to other products, if they found that imports of the latter were being used to get around the anti-dumping tariffs.

Thus, a Member levying anti-dumping duties on t-shirts from Bangladesh would be able to extend these duties to t-shirt components from Bangladesh, to t-shirts made in a third country from Bangladeshi parts, or on slightly different clothes from Bangladesh - if it could prove that imports of the latter three had supplanted imports of regular t-shirts because of the existence of anti-dumping measures.

Valles Games' text has a further caveat: for circumvention to be established, the components would have to account for more than 60 percent of the value of the finished product; and the value addition in the country where t-shirts are assembled would have to be low, no more than 25 percent.

The US, which has lobbied for strong anti-circumvention rules, argued that the specific thresholds created a "safe harbour" for circumvention.

China expressed opposition to the text's anti-circumvention provisions, calling for them to be removed. Taiwan said that they would be open to abuse. Singapore made a similar point, adding that such rules could affect globalised manufacturing chains.

US politics complicated

Trade remedies are a sensitive issue in US politics, a fact that US trade officials have used to argue that they cannot accept substantial changes to WTO anti-dumping rules, especially a ban on zeroing.

Senior Congressional Democrats such as Montana Senator Max Baucus and Michigan Representative Sander Levin are in the unusual position of agreeing with the Bush administration on the chair's text. In a 12 December letter to US Trade Representative Susan Schwab, they criticised the proposed ten-year limit for anti-dumping duties. Though welcoming some of the provisions explicitly legalising zeroing, they said that they did not go far enough to correct "aspects of deeply flawed Appellate Body decisions."

US politicians would do well to reconsider their attachment to trade remedies, according to a letter sent the same day to Schwab and Commerce Secretary Carlos Gutierrez by several US farm and manufacturing companies and industry groups, however.

The signatories, including Cargill, Nike, Home Depot, Ford, Target, and the National Cattlemen's Beef Association, said that changing patterns in the use of anti-dumping duties means that "the United States is no longer the primary user of anti-dumping rules, but rather one of its primary targets."

"Without robust improvement on rules, the new market access you are negotiating in the Doha Round will be negated as other countries erect new barriers" to US exports, they warned, echoing the critiques made by Washington's opponents in the WTO debates.

The letter described the changes to anti-dumping rules, including on zeroing, as "unnecessary," arguing that they "will increase the abusive use of these rules against US exports and US industries." The signatories called for the participation of consuming industries - rather than simply producers - in anti-dumping determinations.

The rules negotiating group at the WTO is set to meet next from 21 January.

ICTSD reporting; "WTO anti-dumping talks to carry on despite rift," REUTERS, 14 December 2007.