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United States Prevails on “Zeroing” Again: WTO Panel Rejects Flawed Appellate Body Findings

04/09/2019

Washington, DC – U.S. Trade Representative Robert Lighthizer announced today that a World Trade Organization (WTO) panel has once again found in favor of the United States in a dispute involving the use of “zeroing” in calculating antidumping duties.  This dispute concerned a challenge by Canada to an antidumping investigation of softwood lumber products.  For the fifth time overall, and the first time in relation to the specific “differential pricing” methodology at issue in this dispute, a WTO panel has disagreed with the Appellate Body and found that WTO rules do not prohibit zeroing.

“The WTO rules do not prohibit ‘zeroing’,” said Ambassador Lighthizer.  “The United States never agreed to any such rule in the WTO negotiations, and never would.  WTO Appellate Body reports to the contrary are wrong, and reflect overreaching by that body.  The United States commends this panel for doing its own interpretive analysis, and for having the courage to stand up to the undue pressure that the Appellate Body has been putting on panels for many years.  Appellate Body reports are not binding precedent, and where the Appellate Body’s reasoning is erroneous and unpersuasive, a WTO panel has an obligation not to follow such flawed reasoning.”

In this report, the WTO panel considered and rejected Appellate Body findings concerning the use of “zeroing” to calculate antidumping duties.  The panel interpreted the WTO Antidumping Agreement and found that the text does not prohibit zeroing under the alternative methodology designed to address targeted dumping.  In fact, the panel found that, reading a prohibition on zeroing into the text would render that alternative approach useless, contrary to the intention of WTO Members.  The panel explained that it “carefully considered” prior panel and Appellate Body reports but disagreed with those reports and therefore found convincing reasons to arrive at different conclusions.

Background:

The United States has longstanding concerns about unfairly dumped and subsidized imports of softwood lumber products from Canada.  In 2017, the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (USITC) found, for the third time in three decades, that Canadian producers are dumping softwood lumber in the U.S. market and causing material injury to U.S. softwood lumber producers. 

The softwood lumber industry is a vital part of the U.S. economy.  There are thousands of sawmills throughout the United States, the majority of which are small, local mills.  The USITC identified producers across the country, in AK, AL, AR, AZ, CA, CO, FL, GA, ID, LA, ME, MI, MN, MO, MS, MT, NC, NH, NY, OK, OR, SC, SD, TX, VA, UT, WA, WI, WV, and WY.  In 2016, the U.S. softwood lumber industry employed more than 18,000 workers and shipped approximately $7.12 billion of softwood lumber products.  Imports of softwood lumber products from Canada in 2016 totaled $5.78 billion. 

In this dispute, Canada challenged Commerce’s affirmative final determination in the antidumping investigation of softwood lumber products from Canada.  Specifically, Canada challenged Commerce’s use of a “differential pricing” analysis and “zeroing” in connection with an alternative methodology provided for in the WTO Antidumping Agreement that permits WTO Members to identify and address injurious targeted dumping.

When Commerce calculates a weighted average dumping margin for a given company, it typically takes into account numerous comparisons between sales in the United States and sales in the home market or third country market (or costs in the home market).  It is not uncommon for Commerce to find that some comparisons reveal dumping (i.e., the price in the United States is lower than the home market price), while others reveal no dumping (i.e., the price in the United States is equal to or higher than the home market price).  Where a comparison reveals no dumping, Commerce assigns a zero to that comparison, rather than a negative number equal to the amount by which the U.S. price exceeds the home market price.  This approach is commonly referred to as “zeroing.”

Commerce has used a “differential pricing” analysis to identify a pattern of export prices which differ significantly among different purchasers, regions, or time periods.  The identification of such a pattern is a prerequisite to applying an alternative methodology to unmask targeted dumping, which can be hidden when high-priced sales are averaged together with low-priced sales.

This panel found that the use of “zeroing” in connection with the alternative, targeted dumping methodology under Article 2.4.2 of the Antidumping Agreement is not inconsistent with WTO rules.  Among other things, the panel reasoned that nothing in the text of the Antidumping Agreement directly addresses the use of “zeroing”.  The panel agreed with the United States that, if the use of “zeroing” were prohibited in connection with the alternative, targeted dumping methodology, then the alternative calculation methodology necessarily always would result in a margin of dumping that is mathematically equivalent to that calculated using the normal calculation methodology, which would render the alternative methodology useless.  In coming to its conclusion, the panel also examined and disagreed with findings in prior WTO panel and Appellate Body reports.  The panel explained why it found the approach of those reports not persuasive.

The panel also found that one aspect of Commerce’s “differential pricing” analysis – in which Commerce aggregated differences in export prices across categories (i.e., purchasers, regions, and time periods) to find a single pattern of export prices which differed significantly among different purchasers, regions, and time periods – was inconsistent with the requirements of the WTO Antidumping Agreement.

Either party may request adoption of the panel report by the WTO Dispute Settlement Body (DSB) or may appeal the report. 

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