Wednesday, December 16, 2009

US "Zeroing" Strategy: Hide and Seek Protectionism

At first blush, the United States' strategy re: WTO challenges to its use of "zeroing" in antidumping investigations is bizarre.  Upon closer review, however, the policy might just be another case of protectionist politics and WTO maneuvering. Here's Law360 with the necessary background:
Zeroing refers to the system of calculating anti-dumping margins where only transactions at dumped prices are taken into account, and any nondumped transactions are disregarded. The methodology makes for larger dumping margins and has become a major source of contention among trading partners who claim it limits access to U.S. markets.

A string of WTO appellate rulings over the past decade have found the practice to be inconsistent with current anti-dumping agreements, and those rulings have grown progressively broader to encompass zeroing at any stage, from preliminary investigations to sunset reviews and new shipper reviews.

The U.S., which is the only major market economy that clings to the practice, abandoned zeroing in original anti-dumping investigations in 2006 in response to the adverse WTO rulings. But the U.S. Department of Commerce continues to zero in the hundreds of anti-dumping orders reviewed annually, giving nations unhappy with the methodology fodder for new WTO complaints...

For a relatively arcane practice, passions on both sides of the zeroing argument run high.

Domestic manufacturers have aggressively pushed to keep the practice in place, since it tends to discourage foreign imports. Proponents also point out that there is no explicit reference barring the methodology in the current anti-dumping agreement, negotiated in the Uruguay Round.

“There is a vocal constituency in the U.S., led by the U.S. steel industry, who have engaged their congressional representatives over the years on the preservation of U.S. trade laws,” said Duane Layton, head of Mayer Brown LLP’s government and global trade group.
In other words, the United States is the only country in the world to keep using a protectionist practice - zeroing - that has been consistently ruled illegal under global trade rules. And WTO Members harmed by the practice keep bringing the US to the WTO, and the US keeps losing. Yet the United States (through the Department of Commerce) has not jettisoned the practice of zeroing and instead only amends certain antidumping decisions that have been ruled illegal by the WTO. Weird, huh?

Well, if that little dance weren't bizarre enough, it now appears that the United States isn't even trying at the WTO anymore. For example, according to's International Economic Law and Policy Blog, the US has just filed the "Shortest WTO Dispute Written Submission Ever" in a new WTO dispute between the US and Thailand over zeroing in an antidumping review of Thai plastic bags. The submission is five whole paragraphs, and in the final paragraph, the US basically admits that it's at fault:
5. The United States acknowledges the accuracy of Thailand’s description of the Department of Commerce’s use of “zeroing” in calculating the dumping margins for the individually investigated exporters whose margins of dumping were not based on total facts available. The United States recognizes that in US – Softwood Lumber Dumping the Appellate Body found that the use of “zeroing” with respect to the average-to-average comparison methodology in investigations was inconsistent with Article 2.4.2, by interpreting the terms “margins of dumping” and “all comparable export transactions” as used in the first sentence of Article 2.4.2, in an integrated manner.7 The United States acknowledges that this reasoning is equally applicable with respect to Thailand’s claim regarding the individually investigated exporters whose margins of dumping were not based on total facts available in the investigation at issue.
Translation: Thailand's 100% right - our bad, dude. (On the bright side, I guess they're not wasting many of my tax dollars on photocopies!)

Seriously, what's going on here? Why is the United States still zeroing, and still getting brought to the WTO, when it's now even admitting at the WTO that the practice has been deemed illegal under WTO rules?

My guess is that it's a combination of protectionist politics and WTO strategy. Allow me to explain (and wildly hypothesize):

As the Law360 article makes clear, domestic manufacturers - particularly the powerful and well-connected US steel industry - believe that the US zeroing practice is still an effective tool to discourage imports, and thus they still intensely lobby their congressional allies to fight for zeroing, despite the long string of adverse WTO rulings. The Obama Administration, as it has with myriad other bouts of congressional protectionism (e.g., Mexican trucks or Buy American), has acquiesced on the issue and not pushed the Department of Commerce to stop zeroing, so the WTO cases keep coming (and coming and coming). And the protectionism continues.

Moreover, the administration might actually side with the congressmen and view the prior adverse WTO decisions as wrong (notice how the US submission doesn't say that the practice itself is WTO-illegal but merely cites the adverse Appellate Body decision - lawyer nuance!). But at this point, the only hope for reviving zeroing is through express validation in a revised WTO Antidumping Agreement. Thus, USTR views the endless WTO cases as perhaps the only way to keep the zeroing issue ripe for negotiation in the WTO's Doha Round negotiations on Rules (which would result in, among other things, a new AD Agreement). But because the Doha negotiations are stalled (at best), and because the outcome of any new WTO challenge to the US zeroing practice is pretty much a slam-dunk against the US, they simply accept their fault, and amend the isolated, challenged instance, rather than actually change the broader zeroing policy. Thus, they keep most of the protectionism in place, placate domestic industries and their political muscle, and live to fight another day at the WTO - all the while avoiding lengthy litigation and WTO-sanctioned retaliation (not to mention those brutal copying costs!).

Cynical? Yes. Highly possible? Yes. Pathetic? Undoubtedly.

[Final note: the Bush administration engaged in similar zeroing acquiescence and also supported zeroing in the Doha Round, so this isn't a partisan shot at Obama. Trade remedies shenanigans are a bipartisan epidemic.]

1 comment:

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