TWN Info Service on WTO and Trade Issues (Sept10/09)
28 September 2010
Third World Network

Panel set in US-Mexico stainless steel "zeroing" dispute
Published in SUNS #7002 dated 22 September 2010

Geneva, 21 Sep (Kanaga Raja) -- The WTO Dispute Settlement Body (DSB) on Tuesday agreed to establish a panel, at the request of Mexico, to rule on compliance by the United States of an earlier WTO ruling concerning its final anti-dumping measures on stainless steel sheet and strip in coils from Mexico.

Although this was a first-time request by Mexico under Article 21.5 of the Dispute Settlement Understanding, the US did not object to the panel's establishment, as it was entitled to at this instance, on account of a prior sequencing agreement between the two parties.

The European Union, Japan, Korea and China reserved their third-party rights to the dispute.

The dispute concerns the calculation of the margin of dumping by the US Department of Commerce (USDOC) based on the "zeroing" methodology that does not fully reflect export prices that are above normal values.

On 20 May 2008, the DSB adopted the Appellate Body Report and the Panel Report, as modified by the Appellate Body Report, in the dispute brought by Mexico against the US.

Mexico had appealed certain issues of law and legal interpretations that were developed in the panel report, issued in December 2007.

In its dispute against the US, Mexico had claimed that "model zeroing in investigations", model zeroing as applied in the original investigation at issue in the dispute, "simple zeroing in periodic reviews", and simple zeroing as applied in the five periodic reviews at issue in the dispute, were inconsistent with the provisions of the Anti-Dumping Agreement and the WTO Agreement.

In its ruling, the panel found that "model zeroing in investigations", is, as such, inconsistent with Article 2.4.2 of the Anti-Dumping Agreement, and that the USDOC acted inconsistently with this provision by using model zeroing in the original investigation at issue.

The panel however found that "simple zeroing in periodic reviews" is not, as such, inconsistent with Articles VI: 1 and VI: 2 of the GATT 1994 and Articles 2.1, 2.4 and 9.3 of the Anti-Dumping Agreement.

The Appellate Body subsequently upheld the panel ruling that model zeroing in original investigations is, as such, inconsistent with Article 2.4.2 of the Anti-Dumping Agreement.

Reversing the panel's finding, the Appellate Body however ruled that simple zeroing in periodic reviews is, as such, inconsistent with Article VI: 2 of the GATT 1994 and Article 9.3 of the Anti-Dumping Agreement. It found that the US had acted inconsistently with Article VI: 2 of the GATT 1994 and Article 9.3 of the Anti-Dumping Agreement by applying simple zeroing in the five periodic reviews at issue in the dispute.

In a communication to the DSB, Mexico said that both it and the United States were unable to agree on a reasonable period of time for implementation of the recommendations and rulings of the DSB. On 20 October 2008, the Arbitrator determined that the reasonable period of time for the United States to implement the recommendations and rulings of the DSB was 11 months plus ten days from the date of adoption of the Panel and Appellate Body Reports. The reasonable period of time ended on 30 April 2009.

In its communication, Mexico highlighted the implementation action, and inaction, declared by the US.

On 27 December 2006, the USDOC had published a notice stating its intention to abandon the use of zeroing in average-to-average comparisons in anti-dumping original investigations, pursuant to the recommendations and rulings of the DSB. The final modification became effective for investigations initiated on or after 22 February 2007.

At the DSB meeting on 20 May 2009, the United States informed the DSB that it had issued a new final determination on 31 March 2009, recalculating the margin of dumping in the original investigation on stainless steel sheet and strip in coils from Mexico without model zeroing.

According to Mexico, the USDOC published a notice confirming implementation of this determination, effective 23 April 2009. The determination, and instructions to US Customs and Border Protection issued pursuant thereto, revised the "all others" anti-dumping duty cash deposit rate prospectively for subject entries made from 23 April 2009 forward, but did not affect the anti-dumping duty cash deposit rate for the sole respondent, ThyssenKrupp Mexinox S. A. de C. V.

With respect to the five administrative reviews that were challenged "as applied," Mexico complained that the United States has taken no action and informed the DSB that "any prospective effect of those reviews had been eliminated and all entries of merchandise under the five reviews had been liquidated for customs purposes."

With respect to other findings and recommendations in the dispute, the United States informed the DSB that it had "also been conferring with Mexico about the steps that the United States has taken to comply with the recommendations and rulings of the DSB."

However, said Mexico, no other action has been taken by the United States to implement the recommendations and rulings in this dispute and the United States has continued to use simple zeroing in a series of closely connected measures.

Mexico considers that the United States has failed to implement the recommendations and rulings of the DSB in this dispute and is therefore in breach of its WTO obligations.

On the DSB recommendations and rulings that the use of simple zeroing in periodic reviews is "as such" inconsistent with Article VI: 2 of the GATT 1994 and Article 9.3 of the Anti-Dumping Agreement, Mexico claims that the United States has taken no steps to eliminate simple zeroing in periodic reviews and has therefore failed to implement the DSB's recommendations and rulings in this regard by the end of the reasonable period of time or thereafter.

On the DSB recommendations and rulings that the United States acted inconsistently with Article VI: 2 of the GATT 1994 and Article 9.3 of the Anti-Dumping Agreement by applying simple zeroing in the five periodic reviews originally at issue in this dispute, Mexico said that the margins of dumping calculated using zeroing in these five periodic reviews continue to have legal effects after the end of the reasonable period of time and have been relied upon by the USDOC in several subsequent closely connected measures, including in the 2005 and 2010 "sunset" reviews, and revocation decisions made in the context of subsequent anti-dumping administrative reviews, including the seventh and ninth administrative reviews.

The United States has failed to adopt any measures by the end of the reasonable period of time or thereafter to implement the DSB's recommendations and rulings regarding the use of simple zeroing in the five periodic reviews, Mexico stressed.

Mexico further said that its compliance panel request also concerns the use of zeroing in a series of closely connected measures, including the six subsequent periodic reviews of the same anti-dumping duty order on stainless steel sheet and strip in coils from Mexico, in which margins of dumping for cash deposit purposes and assessment amounts are calculated using simple zeroing.

Also included are the 2005 and 2010 five-year "sunset" reviews of the anti-dumping order on stainless steel sheet and strip in coils from Mexico conducted by the USDOC pursuant to section 751( c) of the Tariff Act of 1930, as amended, in which the USDOC relied upon margins of dumping calculated using simple zeroing.

Mexico also mentioned among the closely connected measures, all other subsequent closely connected measures taken by the United States in relation to the anti-dumping order on stainless steel sheet and strip in coils from Mexico in which the USDOC calculated, or relied upon, margins of dumping calculated using simple zeroing or model zeroing, including the negative "absence of dumping" revocation determinations made in the seventh and ninth administrative reviews.

The Mexican communication said that by failing to take action to bring these measures into compliance as of the end of the reasonable period of time established in this proceeding and by continuing to use simple zeroing in subsequent closely connected measures, the United States has imposed, assessed and/or collected anti-dumping duties in excess of the proper margin of dumping.

The United States thereby improperly imposes duties on the importation of Mexican goods in excess of the duties permitted under the United States' Schedule of Concessions and otherwise nullifies or impairs benefits accruing to Mexico under the covered agreements, said the communication.

In a statement at the DSB, Mexico said it has been extremely patient in expecting full US compliance of the recommendations adopted by the DSB in this dispute. It however expressed disappointment that nothing close to full compliance has occurred in this matter.

Mexico noted that the DSB has issued multiple binding rulings, including those issued and adopted in the present dispute, declaring that the use by the US of "simple zeroing" to determine the margins of dumping in periodic reviews is contrary to the US' obligations under Article VI: 2 of the GATT 1994 and Article 9.3 of the Anti-Dumping Agreement, both "as such" and "as applied" in the various measures brought before the dispute settlement panels.

Voicing disappointment over Mexico's request for the establishment of a compliance panel in this dispute, the US said that it remained open to discussions with Mexico for a more productive way of addressing issues of concern to Mexico, and continued to urge Mexico to take this course.

In other actions, the DSB adopted the reports of the panels in the disputes brought by the United States, Japan and Chinese Taipei against the tariff treatment by the European Communities and its Member States of certain information technology products (that are covered by the Information Technology Agreement) from the United States, Japan and Chinese Taipei.

In a ruling issued on 16 August, the panel said that the tariff treatment by the EC and its Member States was inconsistent with the EC's WTO obligations, and requested that the EC bring the relevant measures into conformity with its obligations under the GATT 1994. (See SUNS #6988 dated 31 August 2010 for full details of the panel ruling.)

In a statement at the DSB, the US said that the panel report has major systemic importance in at least two respects.

First, the report affirms that the scope of the tariff concessions are not dictated by classification technicalities. Both in its findings with respect to products covered by the so-called "Attachment A" of the Information Technology Agreement (ITA), as well as for products covered by "Attachment B", the panel interpreted the terms of the Schedules based on their ordinary meaning in context, in light of the object and purpose of the GATT 1994.

According to the US, the panel did not accept the EU arguments suggesting that its WTO tariff concessions are circumscribed by customs classification matters, whether classification decisions of individual Members, or technical characteristics of a product nowhere referenced in the concession.

Second, said the US, the report affirms that the product coverage of a tariff concession is not, as the EU argued, circumscribed by the state of the technology at the time the concession is made. Tariff concessions are defined by the ordinary meaning of the concession, in context, and in light of the object and purpose of the GATT 1994.

The US added that the panel recognized this fact and declined to accept an EU theory suggesting that, the moment the ITA was concluded, technological change began undoing the negotiators' hard work.

In its statement, noting that the dispute is about the scope of the tariff concessions on certain IT products assumed by the EU and its Member States in their Schedules of Concessions to the GATT 1994 as a result of the ITA, Japan said that the issue before the panel is whether technological innovations in those products would remove them out of the scope of those EU tariff concessions.

According to Japan, the panel says "No" and finds that the EU has acted inconsistently with Article II: 1 (a) and (b) of the GATT 1994.

In so finding, said Japan, the panel leaves little doubt as to the scope and meaning of the relevant concessions, making clear that the IT products shall not be treated less favourably nor be penalized as out of the scope of duty free commitments simply because, with additional features and functions, they have become smarter, more sophisticated and more advanced.

In its statement, Chinese Taipei said that trade in IT products is of vital importance to it. Such products make up a very significant portion of its international trade. The potential exclusion of important categories of IT products from the tariff concessions as agreed in the WTO Information Technology Agreement is therefore of fundamental concern to its traders and for its economy, added Chinese Taipei.

Chinese Taipei was pleased that the panel has confirmed that the complainants were not obliged to identify all aspects of the products at issue in order to succeed with their "as such" claims, but that the identification of certain characteristics which automatically exclude the products concerned from duty-free treatment was sufficient. The issue was therefore whether it is permissible to exclude certain products from duty-free treatment simply because they have certain identified characteristics.

In its statement, the EU commended the panel on rejecting the over-simplistic reading of its commitments pursuant to the ITA advanced by the complainants and confirming that not all multi-functional copy machines, television set-top boxes and flat panel display devices necessarily fall within the scope of its concessions pursuant to the ITA.

Whether or not a product falls within the scope of a particular concession has to be determined on a case-by-case basis, taking into account all the objective characteristics of a particular product. "This reasoning of the panel is of crucial importance."

On the other hand, the EU said that it is disappointed that the panel has adopted an over-broad reading of certain commitments. Extending commitments in such a way may tend to blur the scope of commitments and hence may make it more difficult for negotiators to agree on new commitments because of the risk that those commitments may be understood in a manner which at least some of the parties did not intend.

The EU remained of the view that it is by negotiation, not by litigation, that the scope of the ITA needs to be extended, and renewed its call for an update of the ITA.

As a result, and despite its reservations concerning certain conclusions of the panel, the EU said that it has decided not to appeal and will instead focus its efforts on implementation and - in the hope other WTO Members will now engage - in negotiations of an updated ITA which will be fit for the 21st century.