China vs United States DS422

Anti-Dumping: Shrimp and Diamond Saw Blades

By: Kenia Torres, Philip Thompson, Sheri Streicker, Maria Tatarska ITRN-603 Dr. Malawer

Overview

• • • • • • • History Defining Terms WTO Issues Involved Positions Decision and Implementation Interests at Stake Observations

History

In 2004 and 2007, the EU launched WTO disputes against the US for the use of a method called "zeroing" in calculating anti-dumping duty rates. Brazil, China, Ecuador, Japan, Korea, Mexico, Thailand and Vietnam lodged similar cases. Over the past decade, the WTO Appellate Body has consistently condemned the practice of zeroing as unfair.

Defining Terms… Dumping, Anti-Dumping, and ‘Zeroing’

Dumping

• When a foreign producer sells a product in the United States at a price that is below that producer's sales price in the country of origin ("home market"), or at a price that is lower than the cost of production. • The difference between the price (or cost) in the foreign market and the price in the U.S. market is called the dumping margin.

Anti-Dumping Measures

• WTO agreement allows governments to act against dumping where there is genuine injury to the competing domestic industry. • To do that, the government must show that: • Dumping is taking place, • Calculate the extent of dumping (how much lower the export price is compared to the exporter’s home market price), and • Show that the dumping is causing injury or threatening to do so.

Zeroing

• • • Idiosyncratic method of calculation used by the U.S. Department of Commerce to establish antidumping duty. When applying zeroing, the U.S. compares the price of the product on the home market with the price of the product on the U.S. market, but disregards, by setting at zero, all transactions in which the price of the product in the home market is smaller than the price on the U.S. market. • (Otherwise all prices would be averaged; USDOC method introduces a zero value that changes average) WTO rulings have confirmed that this method increases the exporter's margin of dumping (often substantially) and thus, the amount of anti-dumping duty that the exporter has to pay.

Zeroing

● ● Article VI 2.4.2 and 5.8 how to compare prices to determine margin between dumping price and world price When comparing weighted averages of Export price (Ep) and world price (Wp)- marking as Zero cases where Wp is less than Ep- only counting when Ep is less than Wp.

Sale

1 2 3 4 Weighted average With Zeroing

World Price

5 5 4 5 4.75

Export Price

5 4 5 5 4.75

5 4.75

Difference

0 -1 +1 0 0

Difference as %

0 20% 20% 0 0 5-4.75= .25 .25= 5% of Wp. Margin is > 2%

= Dumping

Timeline Leading up to DS422

2004:

USDOC starts anti-dumping investigation on frozen and canned shrimp; final determination calculating dumping margins regarding shrimp on responsible parties published

2005:

Anti-dumping duty order on shrimp goes into effect, USDOC began an anti-dumping investigation on sawblades

2006:

Final determination of injury in relation to sawblade released; December 2006, USDOC ceases zeroing in original investigations [does not recalculate A/D margins already in place (Prusa)]

2007:

[prior zeroing case] DS344 over-ruled Appellate Body in favor of Mexico

2009:

[prior zeroing case] DS350 ruled in favor of European Communities. Anti-dumping measure goes into effect for sawblades

2010:

[prior zeroing case] DS402 ruled in favor of Korea, DS383 ruled in favor of Thailand

2011:

July: China requested additional consultations on zeroing practice related to anti-dumping measures on diamond sawblades and parts.October: China requested establishment of panel. EU, Japan, Honduras, Korea, Thailand and Vietnam reserved third party rights. December: Panel established

2012:

April: USDOC discontinues “zeroing” in calculating dumping margins in administrative reviews. June 2012: Panel report distributed

WTO Issues Involved

Are the U.S. methods of implementing anti-dumping measures on shrimp and sawblades from China in violation of: ● Article VI of the GATT (1947): o “2. In order to offset or prevent dumping, a contracting party may levy on any dumped product an anti-dumping duty not greater than the margin of dumping in respect of such product.” ● Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade GATT (1994): o § Article 2.4: “A fair comparison shall be made between the export price and the normal value…” o § Article 2.4.2: “…the existence of margins of dumping during the investigation phase shall normally be established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to transaction basis…”

Specific Provisions Involved

Anti-dumping agreement article VI of GATT 1994 : 1

- Following provisions govern application of anti-dumping legislation or regulations

2.1

- Definition

Dumping is when exported product is less than normal value or less than comparable product

2.4

- Allowable differences in price- terms of sale, transport, taxes, etc

2.4.2

-

● Determine dumping through: Comparing weighted average of normal value to weighted average of all comparable exports weighted average of exports ● OR Compare normal value of export prices to individual transactions 5.8

● - No dumping if-

de minimis

Margin in price is less than 2%

●

Volume is less than 3% of total imports of comparable item

Specific Provisions, Cont.

9.2

- The anti-dumping duty should be specific to supplier if possible

9.3

- Anti-dumping duty not to exceed margin of dumping- determinations based on if it happened, still going on, timeframes for reimbursement

9.4

- anti-dumping duty should not affect producers or exports not named- more than the

de minimis

11.3

- Anti-dumping duty, remains in force if dumping and injury still going on after 5 years- reviews

GATT 1994: Art. VI:1 -

Similar

definition

of antidumping as Article VI

VI:2(a) d

oes not require elimination of preferences for Annex A countries

VI:2(b) -

Countries with agreements before 1939 in Annex B,C,D are subject to Article VI of GATT

Position of China

• Claims that the U.S. used the zeroing methodolgy to calculate the dumping margins in its final determinations and orders of Shrimp and Diamond Sawblades.

• Claims that the U.S. relied on dumping margins calculated with the use of zeroing in establishing the separate rate of Shrimp orders.

Position of the United States

• USTR Statement (Feb 2011):

“The United States is deeply disappointed in China’s decision to request consultations. Members have called for the United States to come into compliance with the WTO rulings on zeroing. In December, the Department of Commerce issued a proposal to end zeroing in administrative reviews, the core issue on which the Government of China has today requested consultations,” said spokeswoman Nefeterius McPherson. “Nonetheless, China has determined to pursue consultations even as the United States is in the midst of its domestic legal and administrative compliance process, including consultations with Congress. The decision now by China to pursue new claims against the United States on zeroing only complicates resolution of this issue.”

• The U.S. did not oppose China’s claims and allegations.

Third Parties

• • • • • • The European Union Honduras Japan Korea Thailand Vietnam

Decision of the Panel

•

ADA Art. 2.4.2 (dumping determination - zeroing):

U.S. acted inconsistently with its obligations under this provision. China’s claim was upheld.

•

ADA Art. 2.4.2 (dumping determination - separate rate calculation):

USDOC averaged the dumping margins, which were calculated with zeroing. Provision inconsistent dumping margins do not necessarily equal provision inconsistent separate rate calculations. China’s claim was rejected.

Implementation

• • • • Panel Report Adopted 23 Jul 2012 “Reasonable period of time for the U.S. to implement the DSB recommendations and rulings shall be 8 months” • Expiration: 23 Mar 2013 26 Mar 2013, the U.S. told the Dispute Settlement Body (DSB) that it had implemented the recommendations China said the U.S. failed to revoke the anti-dumping duty on sawblades • China urged the U.S. to comply

Interests

• • Affects the global trading system: • Skews dumping margins for countries involved Finding a solution for this sort of dispute is necessary because it interferes with national and international interest • China: Inflated anti-dumping duties • International Community: Many countries trade with the U.S. and has been found ‘zeroing’ in many instances

U.S. Dumping Margins for Shrimp Exporters

Exporter

China Brazil Ecuador India Thailand Vietnam

Dumping Margin

Over 90% 68% 2-4% 13% 5-6% 25%

Observations

• U.S. lack of response speaks for itself • Failure to respond implies responsibility in illegal action • Encourages other nations to take disputes to the WTO • Highlights how the lack of specificity in international agreements can impact countries • Doha Round Rules negotiations need to adopt clear and precise rules in the Anti-dumping Agreement on the use of zeroing • Significant to other countries exporting or considering to export with the U.S.

• The U.S. failure to comply with WTO rulings undermines the legitimacy of the dispute settlement system and its notion of fairness.

‘Zeroing’ Cases

References

Ahn, Dukgeun. Oct. 16, 2013. “US - Anti-Dumping Measures on Certain Shrimp and Diamond Sawblades from China: Never Ending Zeroing in the WTO?” [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2396297] Ikenson, Daniel J. April 27, 2004. “Zeroing In: Antidumping’s Flawed Methodology under Fire.” CATO Institute. [http://www.cato.org/publications/free-trade-bulletin/zeroing-antidumpings-flawed-methodology-under-fire] Marsh, C. U.S. Department of Commerce, International Trade Administration. (2013).

Final results of the proceeding under section 129 of the uruguay round agreements act: Antidumping measures on certain frozen and canned warmwater shrimp from the people's republic of china

. [http://enforcement.trade.gov/download/section129/prc-shrimp-ad-wto-129-final memo-20130304.pdf] USTR Statement Regarding China’s Decision to Request WTO Consultations on Shrimp Anti-dumping Measures. Feb 2011. Office of the United Staes Trade Representative. [http://www.ustr.gov/ about-us/press/office/press-releases/2011/february/ustr-statement-regarding-Chinas-decisions request] World Trade Organization, (2012).

Index of Disputes

. [https://www.wto.org/english/tratop_e/dispu_e/ dispu_subjects_index_e.htm#selected_subject] World Trade Organization, (2012).

United States — Anti-dumping Measures on Shrimp and Diamond Sawblades from China

. [https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009DP.aspx?language=E& CatalogueIdList=115575,114958,42815,43639,63758,6323,70177,99615,109777,98644 &CurrentCatalogueIdIndex=5&FullTextSearch=] WTO Dispute Settlement: One-Page Case Summaries. US – Shrimp and Sawblades (China). [https://www.wto.org/english/tratop_e/dispu_e/cases_e/1pagesum_e/ds422sum_e.pdf]