Monday, February 6, 2012

Zeroing May Be Dead, But Its Zombies Still Roam the Earth (UPDATED)

I've long lamented the United States' almost-decade-old refusal to comply with numerous WTO Appellate Body rulings (and a US appeals court decision) against the Commerce Department's "zeroing" methodology in anti-dumping investigations and reviews.  (Plenty of background here.)  DOC terminated the practice - which artifically inflates dumping margins (and thus anti-dumping duties) - in original investigations in 2007 and announced in December 2010 a "preliminary rule" intended to cease zeroing in annual reviews and 5-year "sunset" reviews.  But since 2010, there's been nary a peep from DOC with respect to the Final Rule needed to actually stop the practice and get the United States into compliance with all those adverse WTO decisions.  Thus, US exports remained vulnerable to potential retaliation from aggrieved WTO Members who had brought and won challenges to DOC's use of zeroing in reviews involving their imports, and the United States zeroing delinquency sullied its good name (stop laughing) in international trade negotiations and undermined its incessant fingerwagging about "enforcing global trade rules." 

Well, it appears that the retaliation threats (not the policy embarrassment or good will) have finally forced the US government to act:
The US has reached deals with the European Union and Japan to drop a contentious practice in its anti-dumping calculations known as “zeroing”, ending a longstanding international trade dispute in order to prevent retaliation against American products.

The agreements, signed in Geneva, will close the books on a fight that began in 2003 when the EU first filed a case against the US at the World Trade Organisation. The WTO eventually found that the “zeroing” applied by the US was in violation of global trade laws, authorising the EU and Japan, which had joined the case, to punish the US with higher tariffs on certain goods.

“We have finally put these burdensome and potentially damaging trade disputes behind us,” said Ron Kirk, US trade representative. “American farmers and businesses can invest in job-creating export markets without the uncertainty of possible trade retaliation.”

Anti-dumping measures are imposed in the event that a product is being exported at a lower price than it costs in the domestic market. But in the case of “zeroing”, a country would ignore instances in which that product was being sold at a higher price internationally than at home, which critics see as unfair and protectionist.
The full USTR press release and more background on the settlement are available here.  What caught my attention are the following passages:

Under the agreements signed today, the United States will complete the process – which began in December 2010 – of ending the zeroing practices found in these disputes to be inconsistent with WTO rules. In return, the EU and Japan will drop their claims for trade retaliation....

The United States will continue to press in ongoing WTO negotiations for affirmation that zeroing is consistent with WTO rules. Nonetheless, in these circumstances and at this time, the compliance actions announced today are important in confirming U.S. support for the rules-based system that the WTO provides. Moreover, as Ambassador Kirk explained, “the Administration is committed to vigorous enforcement of U.S. antidumping and other trade remedy laws. I am confident that we will continue to enforce these laws effectively, as was shown, for example, in our successful defense of the President’s imposition of duties on tires from China.”

The EU first requested WTO consultations with respect to zeroing in June 2003, and Japan requested WTO consultations in November 2004.  In October 2006, the EU initiated a second zeroing dispute covering additional proceedings. In each of these disputes, the WTO Dispute Settlement Body (DSB) found that the use of zeroing in certain antidumping proceedings was inconsistent with WTO rules. Detailed information may be found at, under dispute numbers DS294, DS322, and DS350....

After the DSB found that the United States had not come into compliance with the DSB findings, the EU and Japan made separate requests for authorizations to impose trade retaliation against the United States. These requests were referred to WTO arbitrators. The parties subsequently agreed to suspend the arbitrations to allow additional time for discussions.

Under the terms of today’s agreements, the U.S.-Japan and U.S.-EU trade arbitrations will remain suspended and will be terminated – without the issuance of awards – after the United States completes its implementation of the agreements.
The text of the bilateral agreements is not publicly available, but it would appear that USTR is signaling not only the end of zeroing in the reviews at issue in the Japan and EU disputes (via a recalculation of anti-dumping duties) but also the end of zeroing altogether.  And, indeed, word on the street is that DOC will announce in the next week or so a Final Rule terminating the practice on a prospective basis.  If so, that's good - albeit very long overdue - news. 

However (you just knew that was coming, didn't you?), beyond the seemingly interminable delay and USTR Kirk's bizarre praise for the China tires case, today's news is far from ideal.  Most notably, it appears that DOC will not recalculate duties in the hundreds of reviews in which the agency has illegally used zeroing over the last several years.  (Indeed, DOC is still vigorously defending the practice in US courts.) 

So, admittedly without seeing the bilateral agreements or DOC's Final Rule, it looks like (i) all of the pending WTO disputes unrelated to the EU/Japan agreements will continue unabated; and (ii) foreign exporters, US importers and/or foreign governments will have to bring additional WTO challenges in order to force USTR to recalculate all the duties that were illegally calculated and collected pursuant to the zeroing methodology.  And, even though WTO rules (or at least the Appellate Body's interpretation of them) are abundantly clear on the illegality of zeroing, point (ii) could, of course, cost plenty of time and money before it actually produces results.  (Sorry, poor developing countries with tiny trade budgets, but you're gonna have to pay a lot and threaten us before we correct our errors!)

Did I mention that this decision had nothing with good will and everything to do with avoiding direct retaliation against US exports?

UPDATE: A friendly commenter directed me to the text of the US-EU Agreement.  As expected, it calls for the recalculation (via a "Section 129" determination) of duties only for EU imports, as specified in the Annex.  I understand that the US-Japan Agreement takes the same approach.  Not much more in there about DOC's Final Rule, so I guess we'll have to wait until next week for that.


Josué said...

Here is the link to the 'Road Map' published by the EU Commission:

Seemingly, the US will have to revise a series of investigations in the case of the exporters/producers in annex.

Scott Lincicome said...

Thanks, Josué. As expected, it looks like the US has only committed to fix (via Section 129 determinations) orders on EU imports. I understand that's also the case for Japan.