TWN Info Service on WTO and Trade Issues (Oct16/22)
26 October 2016
Third World Network

United States AD measures on Chinese goods held WTO-illegal
Published in SUNS #8338 dated 21 October 2016

Geneva, 20 Oct (Kanaga Raja) -- A dispute panel at the World Trade Organisation (WTO) has handed down a ruling in a dispute over US anti-dumping (AD) measures, largely upholding Chinese claims that certain methodologies applied by the United States in AD proceedings on imports of goods from China are inconsistent with its WTO obligations.

In the ruling issued on 19 October, the panel concluded that, to the extent that the measures at issue are inconsistent with the Anti-Dumping Agreement and the GATT 1994, they have nullified or impaired benefits accruing to China under those Agreements.

On this basis, pursuant to Article 19.1 of the Dispute Settlement Understanding, the panel recommended that the United States bring its measures into conformity with its obligations under the Anti-Dumping Agreement and the GATT 1994.

This is the second dispute at the WTO involving the US Department of Commerce's use of the weighted average-to-transaction (WA-T) methodology in dumping determinations, as well as its use of ‘zeroing' in the application of this methodology.

Earlier this September, in the dispute ‘United States - Anti-Dumping and Countervailing Measures on Large Residential Washers from Korea', the Appellate Body had largely upheld an earlier panel ruling that anti-dumping and countervailing measures applied by the US on imports of large residential washers from Korea were inconsistent with its WTO obligations.

Korea had also challenged the US use of the weighted average-to-transaction methodology, as well as the use of zeroing in the context of this methodology (see SUNS #8311 dated 14 September 2016 for details of the Appellate Body ruling).

[Following a long line of earlier rulings by the Appellate Body against the US, the US is yet to implement the rulings and recommendations and make the changes to its domestic law and/or regulations to eliminate the use of the zeroing methodology that the WTO and its Appellate Body have repeatedly declared to be contrary to the Anti-Dumping Agreement.]

In the present dispute, China presented claims with respect to three issues concerning certain anti-dumping measures imposed by the United States Department of Commerce (USDOC), namely, the use of the weighted average-to-transaction (WA-T) methodology in dumping margin calculations, the treatment of multiple companies as a non-market economy-wide entity (NME-wide entity), and the manner in which the USDOC determines anti-dumping duty rates for such an entity as well as the level of such duty rates.

According to the panel report, in relation to the first issue, China's as applied claims challenge the USDOC's determination that, in three anti-dumping investigations involving exports from China, the conditions for use of the WA-T methodology provided in the second sentence of Article 2.4.2 of the Anti-Dumping Agreement were met, as well as the manner in which the USDOC applied the WA-T methodology in these investigations.

Regarding the first issue, China also brings a claim against the USDOC's use of zeroing in calculating the margin of dumping for a Chinese exporter in one administrative review involving exports from China.

With respect to the second issue, China raises both as such and as applied claims. The as such claims concern what China calls the Single Rate Presumption, that is, the USDOC's alleged presumption that all exporters from a non-market economy (NME) country comprise a single entity under common government control and the assignment of a single margin of dumping, or anti-dumping duty rate, to that entity.

To rebut this presumption, and obtain an individually determined margin of dumping, China submits that an exporter must prove, through the Separate Rate Test, an absence of government control, both in law and in fact, over its export activities.

China's as applied claims regarding the second issue relate to the application of the alleged Single Rate Presumption in 13 anti-dumping investigations and 25 administrative reviews involving Chinese exporters.

Regarding the third issue, China also raises both as such and as applied claims. The as applied claims concern the manner in which the USDOC determined the anti-dumping duty rates for the People's Republic of China-wide entity (PRC-wide entity) in 13 anti-dumping investigations and 17 administrative reviews involving Chinese exporters.

Specifically, said the panel, these claims challenge the USDOC's alleged failure to give notice of the information required, its recourse to and use of facts available, as well as the level of the anti-dumping duty rates assigned to the PRC-wide entity in these determinations.

China's as such claims concern the manner in which the USDOC uses facts available when determining the anti- dumping duty rates for NME-wide entities under the alleged "Use of Adverse Facts Available Norm" (AFA Norm).

In the three challenged investigations, the USDOC used what it called the Nails test to meet the requirements under the pattern clause of Article 2.4.2 to find a pattern of export prices which differ significantly among different purchasers or time periods.

Under the Nails test, the USDOC sought to establish whether the pattern of export prices to an allegedly targeted purchaser or time period (alleged target) differed significantly from export prices to non-targeted purchasers or time periods (non-targets). The USDOC required the domestic industry petitioner to make a specific allegation of targeted dumping and also identify the alleged target, before it applied the Nails test.

Having considered that the conditions for the use of the WA-T methodology were met, the USDOC applied the WA-T methodology to all export transactions of the Chinese exporters involved in the three challenged investigations.

The USDOC used "zeroing" when calculating the margins of dumping through the WA-T methodology.

The panel noted that in the three challenged investigations, in order to calculate the margins of dumping through the WA-T methodology, the USDOC first categorized the product under consideration into different CONNUMs (control numbers). The USDOC calculated a weighted average normal value for each CONNUM.

The USDOC then compared the relevant CONNUM-specific weighted average normal value with the prices of each relevant individual export transaction, which generated positive or negative intermediate comparison results depending on whether the normal value was higher or lower than the export price. When aggregating the intermediate comparison results to calculate the overall margin of dumping for the relevant CONNUM, the USDOC included the positive intermediate results but treated the negative intermediate results as zero.

China claims that the USDOC's decision to disregard negative intermediate results by treating them as zero, that is, its use of zeroing, under the WA-T methodology in the three challenged investigations, was inconsistent with Article 2.4.2 of the Anti-Dumping Agreement.

FINDINGS AND CONCLUSIONS

With respect to the USDOC's use of the WA-T methodology in Certain Oil Country Tubular Goods (OCTG), Coated Paper and Steel Cylinders investigations, the panel concluded that:

(i) The United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG and Coated Paper investigations because of the fourth quantitative flaw with the Nails test which led the USDOC to disregard non-target prices below the alleged target price under the price gap test and because of the first SAS programming error that occurred in the application of the price gap test.

(ii) The United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG, Coated Paper and Steel Cylinders investigations because of the USDOC's explanations which were premised on the use of the WA-T methodology with zeroing and because of its failure to provide an explanation as to why the transaction-to-transaction (T-T) methodology could not take into account appropriately the significant differences in the relevant export prices.

(iii) The United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG, Coated Paper and Steel Cylinders investigations by applying the WA-T methodology to all export transactions.

(iv) The United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG, Coated Paper and Steel Cylinders investigations because of the use of zeroing in the dumping margin calculations made through the WA-T methodology.

Explaining its reasoning behind this ruling, the panel noted that the text of Article 2.4.2 does not refer to zeroing.

"We recall, however, that the WTO-consistency of zeroing under the WA-WA [weighted average-to-weighted average] and the T-T methodologies has been discussed extensively in past disputes and a consistent line of reasoning has emerged in this regard."

Specifically, "we recall that the Appellate Body has stated that Article 2.4.2 does not permit an investigating authority to use zeroing in the calculation of dumping margins through the WA-WA and T-T methodologies."

The Appellate Body has also found the use of zeroing in duty assessment proceedings, such as US administrative reviews, to be inconsistent with Article 9.3 of the Anti-Dumping Agreement and Article VI: 2 of the GATT 1994.

The Appellate Body's findings in this regard have been based, inter alia, on three principles: (a) that the margins of dumping have to be calculated for the investigated product as a whole; (b) that the margins of dumping have to be calculated for an exporter, rather than an importer; and (c) that where the margins of dumping are calculated in two steps, all intermediate results have to be taken into consideration with their mathematical values when they are aggregated to calculate the margin of dumping for the investigated product as a whole.

The Appellate Body has found the use of "zeroing" to be impermissible because it disregards the intermediate comparison results that yield negative margins by treating them as zero.

"Although the Appellate Body in these disputes was not dealing with the permissibility of zeroing in the context of the WA-T methodology, in our view, these principles on which the Appellate Body's findings were based are also relevant to the calculation of dumping margins through the WA-T methodology set forth in the second sentence of Article 2.4.2."

Specifically, the panel noted that the WA-T methodology also serves to find the existence of margins of dumping in an anti-dumping investigation. The Appellate Body has clarified that the term "margins of dumping" has the same meaning throughout the Anti-Dumping Agreement.

Therefore, as both parties also agree, dumping margins calculated on the basis of the WA-T methodology provided in the second sentence of Article 2.4.2 also have to be calculated for the investigated product as a whole.

The panel said: "We note, and parties agree, that by using zeroing under the WA-T methodology in the three challenged investigations, the USDOC disregarded negative intermediate comparison results by treating them as zero in calculating the margin of dumping for the investigated product as a whole. Such margins, in our view, were not calculated for the investigated product as a whole and were therefore inconsistent with the second sentence of Article 2.4.2."

The panel noted that the United States seeks to distinguish past Appellate Body reports, specifically the ones where the Appellate Body found the use of zeroing under the WA-WA and T-T methodologies to be inconsistent with Article 2.4.2, from the legal question before the panel in these proceedings.

The United States emphasizes that the Appellate Body has found zeroing to be impermissible in these past disputes based on its interpretation of the words and phrases, which appear only in the first sentence of Article 2.4.2 that describes the WA-WA and T-T methodologies.

Specifically, the United States notes that the Appellate Body relied on the phrase "all" in "all comparable transactions" in the first sentence of Article 2.4.2 to find zeroing to be impermissible under the WA-WA methodology.

The Appellate Body relied on the reference to "a comparison" in the singular and the word "basis" to find zeroing to be impermissible under the T-T methodology.

The United States argues that because these words and phrases do not appear in the second sentence of Article 2.4.2, which describes the WA-T methodology, there is no similar textual basis in the second sentence to proscribe the use of zeroing under that methodology.

"We disagree," the panel said. "We consider that reading the long line of Appellate Body reports that have addressed zeroing under different methodologies and in various anti-dumping proceedings makes it clear that the Appellate Body has not found zeroing to be impermissible based solely on an interpretation of the first sentence of Article 2.4.2."

Instead, the Appellate Body has found zeroing to be impermissible because it has found its use to be contrary to the obligation to calculate the margins of dumping for the investigated product as a whole. In turn, the Appellate Body's view that the margins of dumping have to be calculated for the investigated product as a whole was based on various contextual considerations, including the context provided by the text of Article 2.1 of the Anti- Dumping Agreement.

"We find particular support for our view in the fact that the Appellate Body has also found the use of zeroing in US administrative or periodic reviews to be inconsistent with Article 9.3 of the Anti-Dumping Agreement and Article VI: 2 of the GATT 1994, and its use in new shipper reviews to be inconsistent with Article 9.5 of the Anti-Dumping Agreement and Article VI: 2 of the GATT 1994," said the panel.

The words and phrases alluded to by the United States with respect to the first sentence of Article 2.4.2 are not present in the text of Articles 9.3 and 9.5 of the Anti-Dumping Agreement or Article VI: 2 of the GATT 1994, just as they are not present in the second sentence of Article 2.4.2 of the Anti-Dumping Agreement.

This confirms that the Appellate Body did not find zeroing to be impermissible based on its interpretation of the first sentence of Article 2.4.2 alone, said the panel.

The panel did not agree with the United States' argument that the Appellate Body in US - Zeroing (EC) found against zeroing based simply on its interpretation of the text of the first sentence of Article 2.4.2, and that the use of zeroing is permissible when these textual elements are absent.

"Furthermore, we disagree with the United States that there is no textual basis in the second sentence of Article 2.4.2 to proscribe the use of zeroing."

The panel considers that due to zeroing, an investigating authority fails to have proper regard to the "individual" characteristics of the prices of those export transactions which are found to be higher than the normal value. This is because an investigating authority disregards, by treating as zero, the results generated from a comparison of the normal value and those specific export transactions.

"Importantly, we also do not find anything in the second sentence of Article 2.4.2 which would suggest that the use of zeroing under the WA-T methodology is permissible, even though its use is impermissible in other contexts such as under the WA-WA or the T-T methodology."

The panel recalled, in this context, the Appellate Body report in US - Softwood Lumber V, where, noting that Article 2.4.2 contains no express language permitting an investigating authority to disregard the results of multiple comparisons at the aggregation stage, the Appellate Body stated that when negotiators sought to permit an investigating authority to disregard certain matters under the Anti-Dumping Agreement, they did so explicitly.

Thus, the Appellate Body found the absence of any express language in Article 2.4.2 permitting the use of zeroing to be relevant to its finding that this provision does not permit zeroing under the WA-WA methodology.

"Similarly, we find the absence of any express language in the text of the second sentence of Article 2.4.2 permitting the use of zeroing under the WA-T methodology to be instructive, and find that this also supports our view that the use of zeroing under this methodology is impermissible."

Based on the foregoing, the panel was of the view that Article 2.4.2 proscribes the use of zeroing under the WA-T methodology.

In other findings, the panel concluded that:

(i) China has not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the Steel Cylinders investigation by reason of the fourth quantitative flaw with the Nails test which allegedly led the USDOC to disregard non-target prices below the alleged target price under the price gap test;

(ii) China has not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG, Coated Paper and Steel Cylinders investigations by reason of the first, second and third alleged quantitative flaws with the Nails test;

(iii) China has not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement by reason of the second alleged SAS programming error that occurred in the application of the price gap test in the OCTG and Coated Paper investigations;

(iv) China has not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG, Coated Paper and Steel Cylinders investigations because of the alleged qualitative issues with the Nails test; and

(v) China has not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG, Coated Paper and Steel Cylinders investigations by finding the relevant pattern on the basis of purchaser or time period averages as opposed to individual export transaction prices.

With respect to the USDOC's use of zeroing in the third administrative review in PET Film, the panel concluded that the United States acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI: 2 of the GATT 1994 because of the use of zeroing in the dumping margin calculations made through the WA-T methodology.

With respect to the Single Rate Presumption, the panel concluded that:

(i) The six administrative review determinations introduced at the Panel's first substantive meeting with the parties are within the Panel's terms of reference;

(ii) The Single Rate Presumption constitutes a measure of general and prospective application, which is, as such, inconsistent with Articles 6.10 and 9.2 of the Anti-Dumping Agreement;

(iii) The United States acted inconsistently with Articles 6.10 and 9.2 of the Anti-Dumping Agreement as a result of the application of the Single Rate Presumption in the 38 determinations challenged by China under these provisions.

The panel made no findings, based on exercise of judicial economy, with respect to China's as such and as applied claims under the second sentence of Article 9.4 of the Anti-Dumping Agreement concerning the Single Rate Presumption.

With respect to China's claims under Articles 6.1 and 6.8, paragraphs 1 and 7 of Annex II, and the first sentence of Article 9.4 of the Anti-Dumping Agreement, the panel concluded that:

(i) The four of the six administrative review determinations introduced at the Panel's first substantive meeting with the parties, which are relevant to these claims, are within the Panel's terms of reference;

(ii) China has not demonstrated that the alleged AFA Norm constitutes a norm of general and prospective application and there is therefore no need to examine whether that Norm falls within the Panel's terms of reference nor to address China's as such claims under Article 6.8 of the Anti-Dumping Agreement and paragraph 7 of its Annex II against that Norm.

The panel made no findings, based on judicial economy, with respect to China's as applied claims under Articles 6.1 and 6.8, paragraphs 1 and 7 of Annex II, and the first sentence of Article 9.4 of the Anti-Dumping Agreement concerning the 30 determinations challenged by China under these provisions. +