The Commerce Department, hoping to head off retaliation by the European Union, Japan, and other trading partners has proposed ending a controversial method of calculating penalties on trade dumping cases.For those of you interested (or suffering from insomnia), DOC's formal announcement is here. I've discussed zeroing and why it's been a black mark for US trade policy several times over the last couple years. In short, the WTO's Appellate Body (and multiple dispute settlement panels) has consistently ruled that all forms of zeroing are inconsistent with WTO rules because zeroing leads to dumping margins (and duties) that are higher than the actual level of dumping; yet DOC continues to zero in administrative reviews and has made no efforts, until now, to change the practice. Thus, WTO Members continue to bring new WTO cases (which the US continues to fight and lose), and, armed with adverse WTO rulings authorizing retaliatory tariffs against the US, they keep threatening to impose steep tariffs on US exports until DOC stops the WTO-illegal practice. Moreover, the artificially (and illegally) inflated dumping margins caused by zeroing lead to higher tariffs on subject imports, thus making those goods more expensive for American consumers. And finally, the United States' consistent refusal to comply with adverse WTO rulings on zeroing undermines its credibility at the WTO and provides other nations with an excuse to shirk their own WTO obligations (including those with respect to US exports). It's a classic case of what I like to call "bad trade parenting": do as I say, not as I do, WTO Members.
The proposal, disclosed quietly last week in the Federal Register, could resolve a long-running fight between the U.S. and several of its largest trading partners. The dispute could spill out into a broader trade battle, with the EU and Japan threatening hundreds of millions of dollars in trade sanctions against U.S. goods in retaliation.
The EU, Japan and other countries have successfully challenged the practice at the World Trade Organization.
The dispute centers on the a method of calculating antidumping duties, a type of penalty in trade cases. This type of calculation, known as "zeroing," doesn't take into account imported goods that are priced higher than domestic goods. Other countries complain the method artificially lowers the average price of the imports.
Since early 2007, the U.S. has stopped the practice in calculating new penalties, now weighing the dumped goods against high-priced imports from the same country.
But the practice of zeroing has continued in reviews of whether to keep existing duties in place, despite several WTO rulings against the U.S.
On Dec. 28, the Commerce Department issued for public comment a plan to extend the ban on zeroing to reviews and a limited number of new investigations that weren't already covered. The comment period runs through Jan. 27, but a final decision will come later, a senior Commerce Department official said....
Given all of this, it's obvious why DOC's announcement is pretty big news, and any final DOC rule that ends zeroing would be a very welcome development (although probably not the end of zeroing altogether). The United States' obduracy on zeroing (i) wastes government resources through pointless and embarrassing WTO litigation that the US always loses; (ii) illegally raises anti-dumping duty rates on subject imports (and thus the prices that American businesses and families must pay for those and other like products); (iii) threatens US exporters with WTO-sanctioned retaliation in important foreign markets; and (iv) undermines US credibility on the global stage. Thus, US efforts to end zeroing should be applauded, and they should scare the bejeezus out of the domestic industries and unions that have relied on zeroing to unfairly tilt the playing field in their favor (at American consumers' expense, natch).
Yet DOC's zeroing notice is big news for another reason: it could be further proof that the Obama administration is getting serious about concluding the WTO's Doha Round this year.
As I've noted previously, zeroing is one of the most contentious "lesser issues" (i.e., issues other than farm subsidies and industrial tariffs) in the Doha Round. The debate on zeroing takes place as part of the Round's negotiations on "rules" (i.e., WTO disciplines on anti-dumping, subsidies and countervailing measures, and safeguards), and the United States has been fighting (with almost every other WTO Member) to amend the WTO Anti-Dumping Agreement such that it expressly permits zeroing. I've wildly speculated that the United States' refusal to end zeroing in annual reviews - and the resulting beatdowns USTR keeps getting at the WTO - is (among other things) part of a sneaky US strategy in the Doha Round rules negotiations. In short, the United States, as the only country in the world that's still zeroing, has been keeping the issue ripe for future negotiation by refusing to change its policies and admit defeat. Thus, USTR keeps getting dragged before the WTO to face an inevitable, embarrassing and much-deserved flogging just to keep the zeroing hope alive. (Great use of taxpayer money, eh?)
And that brings me back to DOC's formal announcement that it might eliminate zeroing in annual reviews and the announcement's potential impact on the Doha Round. Because the Round is a "single undertaking," all negotiations - not just those on subsidies and market access - must be completed simultaneously. (Although some Members have suggested that this approach be abandoned for an "early harvest" on low-hanging fruit like trade facilitation and trade in evironmental goods, this idea has thus far been rejected.) Thus, if you want to finish the Doha Round, you need to complete all negotiations, including those on rules, which, again, are being held up by the contentious debate on zeroing. If the US is serious about changing DOC's policy on zeroing, then it also could be quietly planning to do the same in the Doha Round, with DOC's announcement as a first sign of "good faith" on the issue. In the WSJ article quoted above, a US official steadfastly asserts that DOC's notice has absolutely nothing to do with the Doha Round, but of course he has to say that - no sense in tipping your negotiating hand and angering constituents before it's absolutely necessary to do so, right? Moreover, American reps at the WTO (and USTR's General Counsel) months ago hinted that a change in the United States' position on zeroing was in the works, so this move is certainly not out of the blue. Thus, DOC's announcement could be a very strong hint that the United States is quietly angling to remove one of the larger impediments to completing the Doha Round and, more broadly, is serious about completing the Round in 2010.
AEI's Phil Levy and I recently laid out a basic roadmap of how the Obama administration could lead the renewed global charge to complete the Doha Round. We hit on the "big issues" - farm subsidies (including those for cotton) and developing country market access. A revised US position on zeroing would be a fantastic addition to our suggestions and could be the first signs that the President really is serious about concluding the Round in 2011. Of course, if American labor unions and other protectionists stymie US efforts on zeroing, or if the administration thinks that its zeroing proposal alone will be sufficient to advance the Doha Round, then DOC's announcement could end up being a big fat nothingburger.
Guess we'll find out over the next few months.
UPDATE: Looks like Simon Lester over at the IELP blog is pondering the same thing (and beat me to the punch by a few hours!). Great minds...