TWN Info Service on WTO and Trade Issues (May09/04)
13 May 2009
Third World Network

US failed to comply in Japan "zeroing" dispute - WTO
Published in SUNS #6689 dated 28 April 2009

Geneva, 27 Apr (Kanaga Raja) -- A WTO compliance panel on 24 April handed down a ruling holding that the United States had failed to comply with the rulings and recommendations of the Dispute Settlement Body (DSB) in a dispute brought by Japan concerning the application by the United States of the "zeroing" methodology in anti-dumping investigations and reviews.

The US "zeroing" methodology has come up for challenge at the DSB on numerous occasions and has been repeatedly struck down as being WTO-incompatible.

On 7 April 2008, Japan requested the establishment of a panel pursuant to Article 21.5 of the Dispute Settlement Understanding (a compliance panel) concerning the alleged failure by the United States to comply with the recommendations and rulings of the DSB in the dispute US-Zeroing (Japan). The panel was established on 18 April 2008.

Providing some background to the dispute, the compliance panel said that on 23 January 2007, the DSB adopted the reports of the Appellate Body and the original panel. Those reports contained the following findings:

-- that by maintaining model zeroing procedures in the context of original investigations, the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping (AD) Agreement;

-- that the United States acted inconsistently with Articles 2.4 and 2.4.2 of the AD Agreement by maintaining zeroing procedures when calculating margins of dumping on the basis of transaction-to-transaction comparisons in original investigations;

-- that the United States acted inconsistently with Articles 2.4 and 9.3 of the AD Agreement and Article VI: 2 of the GATT 1994 by maintaining zeroing procedures in periodic reviews;

-- that the United States acted inconsistently with Articles 2.4 and 9.5 of the AD Agreement by maintaining zeroing procedures in new shipper reviews;

-- that by applying zeroing procedures in the anti-dumping investigation regarding imports of cut-to-length carbon quality steel products from Japan, the United States acted inconsistently with Article 2.4.2 of the AD Agreement;

-- that the United States acted inconsistently with Articles 2.4 and 9.3 of the AD Agreement and Article VI: 2 of the GATT 1994 by applying zeroing procedures in 11 periodic reviews; and

-- that the United States acted inconsistently with Article 11.3 of the AD Agreement when in two sunset review determinations, it relied on margins of dumping calculated in previous periodic review proceedings through the use of zeroing.

The DSB had recommended that the United States bring its measures found to be inconsistent with the AD Agreement and the GATT 1994 into conformity with the United States' obligations under those agreements.

On 4 May 2007, Japan and the United States agreed, pursuant to Article 21.3(b) of the DSU, that the United States should have a reasonable period of time (RPT) of 11 months from the date of the adoption of the reports in which to comply with the recommendations and rulings of the DSB. That RPT expired on 24 December 2007.

According to the compliance panel, Japan claimed that the United States has failed to comply with certain of the recommendations and rulings of the DSB. In particular, Japan requested the Panel to find that:

(a) with respect to the DSB's recommendations and rulings regarding the United States' maintenance of the zeroing procedures challenged "as such" in the original proceedings:

- the United States has failed to implement the DSB's recommendations and rulings in the context of T-to-T comparisons in original investigations, and under any comparison methodology in periodic and new shipper reviews, which is inconsistent with the United States' obligations under Articles 17.14, 21.1, and 21.3 of the DSU in the sense that these provisions aim at achieving a satisfactory and prompt settlement of the matter; and,

- the United States' failure to do so is in continued violation of its obligations under Article 2.4 of the AD Agreement and Article VI: 2 of the GATT 1994; as well as Article 2.4.2 of the AD Agreement with respect to T-to-T comparisons in original investigations; Article 9.3 with respect to periodic reviews; and Article 9.5 with respect to new shipper reviews;

(b) with respect to the DSB's recommendations and rulings regarding the United States' periodic reviews, that:

(I) in the case of five periodic reviews (Reviews 1, 2, 3, 7, and 8) that were found to be WTO-inconsistent in the original proceedings:

- the United States has failed to implement the DSB's recommendations and ruling regarding the importer-specific assessment rates determined in those Reviews, which is inconsistent with its obligations under Articles 17.14, 21.1, and 21.3 of the DSU in the sense that these provisions aim at achieving a satisfactory and prompt settlement of the matter; and

- the United States' failure to do so is in continued violation of its obligations under Articles 2.4 and 9.3 of the AD Agreement, and Article VI: 2 of the GATT 1994;

(ii) in the case of four subsequent periodic reviews (Reviews 4, 5, 6 and 9), which are measures taken to comply, the United States has acted inconsistently with its obligations under Articles 2.4 and 9.3 of the AD Agreement, and Article VI: 2 of the GATT 1994; and

( c) with respect to the DSB's recommendations and rulings regarding the United States' sunset review determination of 4 November 1999:

- the United States has failed to bring its WTO-inconsistent measure into conformity with its WTO obligations, which is inconsistent with its obligations under Articles 17.14, 21.1, and 21.3 of the DSU in the sense that these provisions aim at achieving a satisfactory and prompt settlement of the matter; and,

- the United States' failure to do so is in continued violation of its obligations under Article 11.3 of the AD Agreement; and

(d) with respect to certain liquidation actions taken after the expiry of the RPT, the United States acts in violation of Articles II: 1(a) and II: 1(b) of the GATT 1994.

The United States asked the Panel to find that the United States has complied with the recommendations and rulings of the DSB and to reject Japan's claims to the contrary.

The United States asserted that the zeroing procedures challenged "as such" by Japan in the original proceeding no longer exist, as on 27 December 2006 USDOC published a final notice announcing that it would no longer apply the zeroing procedures in W-to-W comparisons in original investigations.

According to the compliance panel, the United States submitted that it complied with the DSB's recommendations and rulings regarding Reviews 1, 2 and 3 by withdrawing the WTO-inconsistent cash deposit rates with prospective effect, replacing them with new cash deposit rates determined in subsequent administrative reviews. The United States denied that it was required to take any compliance action in respect of the importer-specific assessment rates determined in Reviews 1, 2, 3, 7 and 8.

Furthermore, the United States asked for a preliminary ruling that Reviews 4, 5, 6 and 9 are not "measures taken to comply" within the meaning of Article 21.5 of the DSU, and therefore fall outside the scope of this proceeding. The United States also requested a preliminary ruling that "subsequent closely connected measures", including Review 9, are not within the Panel's terms of reference.

The United States asserted that it was not required to take any action to comply with the DSB's recommendations and rulings regarding the 4 November 1999 sunset review, because the relevant likelihood of dumping determination continues to be based on a number of dumping rates not called into question by the findings of the Appellate Body.

The United States asked the Panel to exercise judicial economy in respect of Japan's Article II claims. Furthermore, the United States asserted that the anti-dumping liability giving rise to the liquidation actions challenged by Japan was incurred prior to the expiry of the RPT.

In its conclusions and recommendations, the compliance panel said that it has examined the existence or consistency with covered agreements of measures taken by the United States to comply with recommendations and rulings adopted by the DSB in the original proceeding.

In the light of its reasoning:

(a) It found that the United States has failed to comply with the DSB's recommendations and rulings regarding the importer-specific assessment rates determined in Reviews 1, 2, 3, 7 and 8 that apply to entries covered by those Reviews that were, or will be, liquidated after the expiry of the RPT.

(I) Accordingly, it found that the United States is in continued violation of its obligations under Articles 2.4 and 9.3 of the AD Agreement and Article VI: 2 of the GATT 1994.

(ii) It declined to rule on Japan's claim that this failure to comply is inconsistent with the United States' obligations under Articles 17.14, 21.1 and 21.3 of the DSU.

(b) It found that the United States has acted inconsistently with Articles 2.4 and 9.3 of the AD Agreement and Article VI: 2 of the GATT 1994 by applying zeroing in the context of Reviews 4, 5, 6 and 9.

( c) It found that the United States has failed to comply with the recommendations and rulings of the DSB regarding the United States' maintenance of zeroing procedures challenged "as such" in the original proceedings. In particular, it found that the United States has failed to implement the DSB's recommendations and rulings in the context of T-to-T comparisons in original investigations and under any comparison methodology in periodic and new shipper reviews.

(I) Accordingly, it found that the United States remains in violation of Articles 2.4, 2.4.2, 9.3 and 9.5 of the AD Agreement and Article VI: 2 of the GATT 1994.

(ii) It declined to rule on Japan's claim that this failure to comply is inconsistent with the United States' obligations under Articles 17.14, 21.1 and 21.3 of the DSU.

(d) It found that the United States is in violation of Articles II: 1(a) and II: 1(b) of the GATT 1994 with respect to certain liquidation actions taken after the expiry of the RPT, namely with respect to the USDOC liquidation instructions set forth in Exhibits JPN-40A and JPN-77 to JPN-80 and the USCBP liquidation notices set forth in Exhibits JPN-81 to JPN-87.

(e) It found that the United States has failed to comply with the DSB's recommendations and rulings with respect to the 1999 sunset review.

(I) Accordingly, it found that the United States remains in violation of Article 11.3 of the AD Agreement.

(ii) It declined to rule on Japan's claim that this failure to implement is inconsistent with the United States' obligations under Articles 17.14, 21.1 and 21.3 of the DSU.

The compliance panel said that to the extent that the United States has failed to comply with the recommendations and rulings of the DSB in the original dispute, the recommendations and rulings remain operative.

It also recommended that the DSB request the United States to bring Reviews 4, 5, 6 and 9, and the liquidation actions referred to in para. 7.1(d) above, into conformity with the AD Agreement and the GATT 1994. +