TWN Info Service on WTO and Trade Issues (Nov16/07)
4 November 2016
Third World Network

Rules technical talks on critical dumping issues
Published in SUNS #8345 dated 1 November 2016

Geneva, 31 Oct (D. Ravi Kanth) -- A technical group of the Negotiating Group on Rules on Friday (28 October) discussed "a highly technical but critically important topic that can have fundamental implications for the calculation, or even existence, of margins of dumping" at the World Trade Organization, according to an unofficial room document reviewed by SUNS.

It is not clear why the chair of the technical group, Hannes Welge, chose to focus on the use of "alternative methods for determining normal value", which is a critical element in the calculation of anti-dumping margins, all of a sudden, said a negotiator who asked not to be identified.

When there are several outstanding issues in the Doha rules dossier, particularly in anti-dumping that includes the "zeroing" methodology, the chair's focus on alternative methods has raised eyebrows, the negotiator said.

Barring the United States, all other WTO members have called for the elimination of the zeroing methodology. But the zeroing issue is not even remotely touched because of the pervasive fear that it will anger the US, said another negotiator.

Meanwhile, the chair of the Doha rules negotiating body Ambassador Wayne McCook of Jamaica is convening an informal meeting on 11 November to present his assessment based on the consultations he held with members until now.

Perhaps, "we will then know the issues that would be taken up in the rules, particularly fisheries subsidies," for the WTO's eleventh ministerial meeting in Buenos Aires, Argentina, next year, the negotiator said.

In his fax as well as the unofficial room document circulated to members ahead of Friday's meeting, the chair of the technical group on anti-dumping said "the starting point for the discussion is once a decision has been made to resort to an alternative method."

"In other words," he said, "we will not be talking about the circumstances when one could or could not use alternative methods, such as "NME [non-market economy]" methodologies or "particular market situation"."

"Nor will we address the treatment of "distorted input prices" under Article 2.2.1.1, because this controversial topic is currently in dispute settlement," Mr Welge said.

The moot issue is why the chair is leaving out a discussion on "NME methodologies" which are often used against China by the US and also the EU, or "particular market situation," a codeword for China again, the negotiator pointed out.

The chair said "our discussion will begin with the choice between alternative methodologies", without clarifying why the discussion must begin with this issue.

Mr Welge posed a range of questions to members directly on the choice between alternative methodologies. The questions include:

(i) Do you use third country export price, or CNV [constructed normal value], or perhaps some other alternative, when you cannot use home market prices?

(ii) Do you always use one or the other of these alternative methodologies, or can you choose case-by-case?

(iii) If the latter, i. e. case-by-case, do you have a preference or hierarchy between alternatives? What factors do you take into account in choosing between them?

(iv) Where the investigation involves multiple models, might you use different methodologies for different models?

(v) At what point in the investigation do you seek detailed information on cost of production and third country export prices?

(vi) Do you seek all that information in your primary questionnaire or do you only seek that information once you have decided that you cannot use home market prices?

These questions, though pertinent to alternative methods for determining normal value, do not quite reveal the underlying background and why the chair finalized these questions.

Mr Welge did not explain why these issues are raised and whether they are based on proposals/inputs provided by any member or members, according to the negotiator.

From alternative methodologies, the chair went on to discuss the "use of third country export prices."

Here again he raised a range of direct questions to members such as:

(i) How do you decide which country [export prices] to use, taking into account the tests of "appropriateness" and "representativeness" in the ADA?

(ii) Do you consider the volume of sales, the ordinary course of trade test, how prices vary between third country markets, or any differences between products, transactions, levels of trade, etc.?

(iii) Do you collect data regarding more than one third country before choosing the third country and, if so, what data do you collect and for what purposes? Once a third country is chosen, what is your source of data?

(iv) Do you rely upon the exporter's pricing data, or do you also seek corroborating information from the importers or other parties in the third country? Do you ever undertake verification in the third country?

(v) How do you deal with lack of information or non-cooperation from parties in the third country?

(vi) What do you do if the exporter is related to the importer in the third country?

These are interesting issues on which the panels and the Appellate Body have already issued definite rulings. The chair ought to have explained the historical context which prompted him to raise these questions on the use of third country export prices.

After the discussion on the choice of alternative methodologies and the use of third country export prices, the chair turned to "the construction of normal values" in which he raised the following questions:

(i) Do you routinely ask for cost information necessary to construct a normal value, or only when the applicant so requests?

(ii) How do you distinguish between costs associated with the domestic like product for which you are constructing normal value, costs associated with a product other than the domestic like product, and costs not associated with any specific product?

(iii) What evidence do you consider and who bears the burden of establishing these links?

(iv) Do you routinely check whether records are kept consistent with GAAP? Under what circumstances has your authority considered that cost allocations in the producer's records are not consistent with GAAP [Generally Accepted Accounting Principles]?

(v) How do you address situations where nothing in the producer's records speaks to how a particular allocation should be made?

Following these three issues, the chair moved to another set of questions on production costs and their role in anti-dumping investigations. Mr Welge sought to know:

(i) What do you do if inputs are purchased from a related supplier?

(ii) How do you distinguish between "direct" (or variable) and "indirect" (fixed, overhead) production costs?

(iii) How do you distinguish any such "indirect" manufacturing costs from SG&A [selling, general, and administrative expenses]?

(iv) How do you allocate production costs over different products?

(v) Do you allocate costs on the basis of volume, value, production capacity or some other method?

(vi) How do you deal with costs that should be allocated over a period longer than the dumping POI?

(vii) Do you rely upon the average useful life of assets, upon evidence of allocations from the company's records, or some other means?

(viii) What is your approach where the producer, or the production, is in the start-up phase?

(ix) When costs differ between the exported goods and those sold in the home market, which do you use?

Further, he sought to know more about selling, general and administrative expenses.

Mr Welge raised the following questions on SG&A:

(a) What types of expenses do you include in the SG&A calculation?

(b) Under what circumstances might you consider that SG&A cannot be determined on the basis of an exporter's SG&A?

(c) In such cases, what alternative bases do you use to calculate SG&A?

(d) Do you treat research and/or development costs as SG&A or as production costs, and why?

(e) How do you allocate SG&A to the like product?

(f) How do you deal with claims of differentiated selling expenses between the domestic and export market? How do address financial expenses, particularly in cases where those expenses are not product-specific?

Lastly, the chair asked members to answer issues centering on amount for profit. The questions include:

(1) In what circumstances do you decline to consider the actual data associated with the sale of the like product for a particular exporter or producer?

(2) In such cases, on what basis do you determine an amount for profit?

(3) Do you have a preference for profits of the same producer for similar products, for profits of different producers for the like product, or some other approach?

(4) Or do you proceed on a case by case basis?

(5) Are any such preferences reflected in your law, regulations or guidelines, or are they a reflection of practice?

In short, the chair's technical questions raised doubts about the underlying goals and whether these questions are posed by any one or more members, said negotiators familiar with the discussion. +