Draft Anti-Dumping Agreement – Critique of Selected Issues

By Prabhash Ranjan, Lecturer, West Bengal National University of Juridical Sciences, Kolkata

Anti-dumping is one of the trade remedial measures recognised in the World Trade Organization (WTO). The other two trade remedial measures are – countervailing duties and safeguard measures. Anti-dumping provisions in the WTO (Article VI of GATT and the Anti-Dumping Agreement [ADA]) allow countries to impose a higher duty on imported products (anti-dumping duty) in cases where that imported product is being dumped and this dumping is resulting in material injury to the domestic industry and there is a causal link between the dumped product and the material injury. WTO member countries have resorted to anti-dumping, as a trade remedial measure, much more than countervailing duties and safeguard measures. This increasing use of the anti-dumping measures, both by developed and developing countries, acts as barriers to international trade. Hence, when the Doha Round of trade negotiations was launched in 2001, one of the most critical areas for review was anti-dumping.

The mandate was to review the Anti-dumping Agreement. It was agreed that this review would take place without prejudice to the basic definition and concept of anti-dumping and its role. In other words, countries agreed that anti-dumping as a trade remedial tool would not be scrapped, notwithstanding the argument made by many economists that anti-dumping measures are essentially protectionist devices and adversely affect the interest of the consumers¹.

This note critically evaluates the provisions – constructed normal value, zeroing, causation, de minimis dumping margin and the lesser duty rule -- of the draft anti-dumping agreement circulated by the chair of the rules negotiations.

Constructed normal value

Before one examines the implication of having a hierarchy between these three options, one needs to consider what is contained in Articles 2.2.2 (i), (ii) and (iii). Article 2.2.2 (i) talks of the same producer who is being investigated but allows the use of SG&A costs and profits realised with respect to production and sales in the domestic market of the same general category of products and not the like product. Article 2.2.2 (ii) sticks with the like product but departs from the producer under investigation to other producers or exporters of the like product in the domestic market to construct the normal value. Article 2.2.2 (iii) allows the importing country to use any other reasonable method provided that the amount of profit so established shall not exceed the profit normally realised by other exporters or producers on sales of products of the same general category in the domestic market of the country of origin⁴.

On the other hand, option given in Article 2.2.2 (ii), which although includes the like product, does not include the producer under investigation. It includes other exporters and producers of the like product. These other exporters or producers may have completely different costs and price structures from the producer under investigation. For instance, in the EC Bed linen case, the cost and sales figures of one of the Indian companies, Bombay Dyeing, was very different from other Indian companies who were subject to investigation. In such a case, relying on figures of other exporters and producers will not yield a proper comparison benchmark. Therefore, this method may prove to be more imperfect than the method given in Article 2.2.2 (i). Article 2.2.2 (ii) method should be used only if the method given in Article 2.2.2 (i) cannot be used. A hierarchy between these three methods is appropriate.

Notwithstanding the argument to have a hierarchy, the draft AD agreement does not talk of any hierarchy between these three options and hence has maintained the present position given in the AD agreement. There is a need to amend the present Article 2.2.2 and establish a hierarchy between the three options so that the option given in Article 2.2.2 (ii) should be used only if Article 2.2.2 (i) option cannot be exercised.

Zeroing

Before one understands zeroing, it is important to understand the structure of Article 2.4.2 because zeroing, as a methodology, to calculate dumping margin in the Anti-dumping investigations, takes into account transactions carried out or conducted over a period of time. In this investigating period, it is possible that the export price and the comparable domestic price may fluctuate. In order to iron out these differences in the prices, Article 2.4.2 states that the dumping margins during the investigating phase can be calculated by either comparing

1. Weighted average normal value with a weighted average of prices of all comparable export transactions or (W-W) or

2. Normal value with export prices on a transaction to transaction basis (T-T).

Article 2.4.2 gives a third option as well where a normal value established on a weighted average basis may be compared to prices of individual export transactions (W-T). However, this option can be used only if the following two conditions are fulfilled:

1. There is a pattern of export prices which differ significantly among different purchasers, regions or time periods and

These three methodologies could be understood with the help of the following example. Assume that a product ‘X' is being exported into country A. Further, assume that the investigation phase is spread over a month. The investigating authority is comparing the export price with the domestic price on the following dates – 1 st , 5 th , 13 th , 23 rd and 30 th . Further, assume that on these dates the export and the domestic price are as follows:

Application of the W-W methodology

In this case one needs to find out the weighted average of the domestic price and the weighted average of the export price and compare them.

Weighted average domestic price in the above example will be – (100+150+150+200+250)/5 = 170

Weighted average export price in the above example will be – (100+120+180+230+220)/5 = 170.

Since the weighted average domestic price is equal to the weighted average export price, there is no dumping (170-170=0).

Application of the T-T methodology

In this methodology individual transaction is compared with individual transaction. In other words, for each transaction the domestic price is compared with the export price and individual dumping margin is established. Then these individual dumping margins are added up and if the net figure is more than zero, then dumping is taking place and if it is equal to or less than zero, then there is no dumping.

In the above case, if all the individual dumping margins are added, then there is no dumping [0 + (+30) + (-30) + (-30) + (+30)] = 0.

However, dumping can be shown by the use of zeroing. Zeroing implies that those individual transactions where the dumping margin is negative i.e. no dumping is taking place, should be given a value equal to zero before adding up the individual dumping margins. In the above example if the negative dumping margins are equated to zero, then the conclusion would be that dumping is taking place - the dumping margin in the above case will be +60; [0 + (+30) + (0) + (0) + (+30)] = +60.

In other words, the use of zeroing methodology does not allow negative dumping margins to offset positive dumping margins and hence unfairly inflates the aggregate dumping margin. It results in finding dumping in cases even where the product is not being dumped.

Application of the W-T methodology

In this methodology, the weighted average of the domestic price is determined, which is then compared with the export price of every individual transaction. In the above example, the weighted average domestic price is 170. Therefore, the comparison has to be made between 170 and other individual export prices.

If all the individual dumping margins are added, then no dumping will be found. However, if the negative dumping margins are converted to zero (zeroing), then the dumping margin will be +120. This again goes on to illustrate that use of zeroing inflates the dumping margin and finds dumping even in cases where there is no dumping.

Given this understanding and impact of the zeroing methodology, we now turn to examine the draft AD agreement in this regard. The draft AD agreement has added Article 2.4.3, which allows zeroing. Article 2.4.3 (ii) states that in aggregating the results found after the use of the T-T methodology and the W-T methodology, countries may discard those results where the export price exceeds the normal value. In other words, the negative dumping margins will not be allowed to offset positive dumping margins. Further, Article 2.4.3 (ii) states that even in the anti-dumping review cases, while aggregating the results of the multiple comparisons; countries may disregard those results where the export price exceeds the normal value.

In other words, the draft AD agreement is legitimising the use of zeroing as a methodology. This legitimisation comes, notwithstanding the fact that zeroing unfairly inflates dumping, has been held inconsistent by the Appellate Body (AB) of the WTO on many occasions (see the EC-Bed linen case, US-Softwood lumber case, US-Zeroing case and in the case related to US – Measures Relating to Zeroing and Sunset Reviews) and many developing countries have submitted proposals to prohibit it [see p roposals submitted by India to the Negotiating Group on Rules, (TN/RL/W/26) and the proposal submitted by the Friends of Anti-Dumping (FAN) group to the Group on Negotiating Rules (TN/RL/W/6)] . Therefore, in the light of this, it is important for countries like India to oppose the attempted legitimisation of the zeroing methodology in the draft AD agreement.

Causation

One of the most important issues in imposition of anti-dumping duty is to establish that dumping is causing material injury to domestic industry. In other words, for imposition of anti-dumping duties, it is not enough to establish dumping alone. The importing country also has to determine that these dumped imports are causing material injury to domestic industry. In other words, the issue of causation becomes important. Article 3.5 of the AD agreement requires causation to be established. Article 3.5 states that the demonstration of a causal relationship between the dumped imports and the injury to the domestic industry shall be based on all relevant evidence before the authorities. Article 3.5 further recognises the need to examine any known factors other than dumped imports, which are, at the same time, causing material injury to domestic industry. Finding out these factors other than dumped imports is important in order to ensure that injury caused due to non dumped factors is not attributed to dumped imports. Attributing injury caused by non dumped imports to dumped imports will not establish causal link between dumping and material injury, which is one of the prerequisites of imposing an anti-dumping duty. Article 3.5 mentions some of the factors -- different from the dumped imports that may cause injury to domestic industry. The non-dumped factors explicitly recognised in Article 3.5 are:

•  Volume and prices of imports not sold at dumped prices

•  Contraction in demand or changes in the patterns of consumption

•  Trade restrictive practices of foreign and domestic producers

•  Competition between foreign and domestic producers

•  Developments in technology and the export performance and productivity of the domestic industry

One of the important issues connected to Article 3.5 is that which are the factors that can be said to be ‘known' to the investigating authorities in the sense in which the word ‘known' is described in Article 3.5. In other words, how do factors become ‘known' to the investigating authorities? In the Thailand H Beams case, the panel held that there is no express requirement in Article 3.5 that investigating authorities, on their own, find out the effects of all possible factors other than imports that may be causing injury to domestic industry (paragraph 7.273 of the Panel report on Thailand H Beams). In other words, if the interested parties do not raise a particular issue before the investigating authorities and do not make a prima facie case, the investigating authorities are under no obligation to examine that particular factor. This implies that if there is a factor other than dumped imports and which is not raised by the parties to the dispute, then the investigating authority need not examine that factor. Hence, the impact of a factor, other than dumped import, which may be causing injury, will go unexamined.

Further, the AB held in EC-Malleable Cast Iron Tube case that there is no need for the investigating authority to examine the collective effects of other known factors, in addition to the individual impact of these factors. This implies that if there are five factors other than dumped imports and if individually these factors are not causing injury to domestic industry, then there is no need to find out the collective impact of these factors. However, these factors collectively may cause injury to the domestic industry and if their collective impact is not taken into account, then non-dumped factors that are causing injury will not be taken into account and the injury will be attributed to dumped imports.

There is a need to have clarity in this regard in Article 3.5. The article should clarify whether it is the collective impact of the non-dumped imports or other factors, only that should be taken into account or is the individual impact of the factors also to be examined. However, the draft AD agreement does not give clarity in this regard. It rather proposes that the investigating authorities need not quantify the injurious effects attributable to dumped imports and to other factors. The draft Article 3.5 also explicitly states that the investigating authorities do not require weighing the injurious effects of dumped imports against those of other factors. In other words, as per the draft Article 3.5 of the AD agreement, the causal link between dumped imports and material injury to domestic industry will not be fully established. Further, there may be certain non-dumped factors that may be causing injury but that injury may be attributed to dumped imports. Hence, the non-attribution requirement will not be fully met.

Furthermore, the draft Article 3.5 has deleted the specific factors that are presently given in Article 3.5 to find out whether there are other non-dumped factors that are causing injury to domestic industry. Although these factors are not exhaustive as there may be other non-dumped factors that may contribute to injury, these factors are certainly indicative enough for the investigating authorities to find out and separate non-dumped factors from dumped factors. The investigating authorities should be under an obligation to at least examine these factors, which have been specifically mentioned in Article 3.5 of the AD agreement, even if these factors are not raised by the parties to the dispute. The draft Article 3.5, by deleting these factors, actually does not give any clue to the investigating authorities in terms of which are the factors that they need to consider to segregate non-dumped factors or imports from dumped imports to determine material injury to domestic industry.

In this regard, it is important to recall the submissions made by countries like India and the FAN group of countries. India has made a submission to the negotiating group on rules that Article 3.5 needs to be elaborated so that appropriate guidance is provided to the investigating authorities while separating and distinguishing the injurious effects of other factors from the injurious effects caused by dumped imports. Further, the Indian submission argues that there is a need to specify an appropriate standard for establishing causality between dumped imports and material injury. The submission made by the FAN group of countries requires developing procedures and criteria so as to ensure that a causal relationship will be established only when there is a clear and substantial link between the dumped imports and the injury, notwithstanding the presence of other factors.

However, the draft Article 3.5 does not elaborate or clarify the procedures that are to be used by the investigating authorities to segregate non-dumped factors from dumped import to identify or find out material injury. In light of the above discussion, there is a need for developing countries to oppose the present draft Article 3.5 and to ensure that it is made clearer.

De minimis dumping margin

De minimis dumping margin is a concept that recognises those cases where, although dumping is taking place, but the magnitude of dumping is insignificant and hence it is presumed that such dumping will not cause any material injury and hence is not actionable. Before one understands the de minimis dumping margin, it is important to comprehend the meaning of dumping margin. Dumping margin is the difference between the normal value and export price. If the normal value (say, domestic price) is 10 units and the export price (price at which the product is being sold in the exporting country) is 8 units, then dumping is taking place. In this case the dumping margin will be 10-8=+2. Since the dumping margin is positive, dumping is taking place.

Article 5.8 of the AD agreement states that the investigating authorities shall immediately terminate the anti-dumping investigations where the margin of dumping is de minimis . This article goes on to state that the dumping margin shall be considered de minimis if the margin is less than 2 per cent expressed as a percentage of the export price. In the above example, the de minimis dumping margin expressed as a percentage of the export price will be 25 per cent and hence is not within the de minimis level.

The AD agreement does not create different de minimis dumping margin levels for developed and developing countries. In other words, the same de minimis margin level is applicable, whether the products are of a developed country or a developing country. In this regard, submissions have been made to have a separate de minimis dumping margins for developing countries, which should be higher than the de minimis margins for developed countries.

However, the draft Article 5.8 of the draft AD agreement does not recognise this and provides for the same de minimis dumping margins both for developed and developing countries. Developing countries like India need to oppose this and negotiate harder to have different levels of de minimis dumping margins for developed and developing countries.

Lesser Duty Rule

The lesser duty rule provides that if an anti-dumping duty that is lesser than the full dumping margin is adequate to remove the material injury or counter the material injury caused to the domestic industry, then such lesser duty should be imposed instead of imposing duty equivalent to the full dumping margin. In the present AD agreement, Article 9.1 states that the quantum of anti-dumping duty that a country can impose is equivalent to the full dumping margin or is less than that. In other words, a country cannot impose an anti-dumping duty that is more than the dumping margin although it can impose a lesser duty. In fact, Article 9.1 itself states that it is desirable for countries to impose a lesser duty i.e. duty less than the dumping margin if such duty is good enough to remedy the injury caused to domestic industry. However, it is not mandatory for countries to impose this lesser duty. It is only desirable that countries may impose duty less than the full dumping margin.

Many countries such as India have argued that the lesser duty rule should be made mandatory. This is in spirit of the AD agreement, where the purpose of imposing an anti-dumping duty is to remedy the injury caused to the domestic industry and not to punish or penalise the exporter. Hence, if the same can be achieved by imposing a lesser duty, then the countries should do that.

However, draft Article 9.1 of the AD agreement has done away with even the desirable or the non-mandatory provision of imposing a lesser duty. In other words, instead of making the lesser duty rule mandatory, the draft Article 9.1, has gone to the other extreme by deleting the provision. This should be opposed as going against the demands of developing countries and also the basic character of an anti-dumping measure, which is trade remedial.

The critique of these selected issues is to raise the question that the draft AD agreement is not tuned to correct the anomalies in the imposition and use of the anti-dumping instrument. Developing countries need to oppose the draft AD agreement.

Notes

¹Robert W. McGee (1996), 96 (5) European Business Review, 27-33. Also see George Yarrow, ‘Economic Aspects of Anti-Dumping Policies, 3 (1) Oxford Review of Economic Policy, 66-79. George Yarrow has argued that dumping can normally be expected to enhance the economic welfare of the importing nation and to increase competition in the latter's market.

²Article 2.2 of the AD agreement.

³Article 2.2.2 (i), 2.2.2 (ii) and 2.2.2 (iii) of the AD agreement

⁴Article 2.2.2 (iii) of the AD agreement.

⁵Panel Report, EC-Bed Linen, para 6.58 – 6.62

⁶Panel Report, Thailand H Beams, para 7.113.

References

Edwin Vermulust (2005), ‘The WTO Anti-Dumping Agreement: A Commentary' (Oxford University Press: New York: 1 st edition).

V Lakshmi Kumaran (2005), ‘The 10 Major Problems With the Anti-Dumping Instrument in India', 39 (1), Journal of World Trade.

Mitsuo Matsushita, Thomas J. Schoenbaum and Petros C. Mavroidis (2006), ‘The World Trade Organization: Law, Practice and Policy' (Oxford University Press: New York: 1 st edition).

Prabhash Ranjan (2006), ‘Anti Dumping and South Asia' in BL Das, BS Chimni, Mustaifizur Rahman, Saman Kelegama ( eds .) ‘South Asian Yearbook of Trade and Development: Mainstreaming Development in Multilateral Trade Negotiations' (Wiley India and Centad: New Delhi).

Aradhana Aggarwal (2007), ‘The Anti Dumping Agreement and Developing Countries: An Introduction' (Oxford University Press: New Delhi).

February 26, 2008