Koyo Corporation of USA
Westlake, Ohio 44145
February 7, 2007

The Honorable Charles B. Rangel
Chairman
Committee On Ways And Means
1102 Longworth House Office Building
Washington D.C. 20515

Dear Chairman Rangel:

I write on behalf of a manufacturing company with a substantial commitment to production in the United States.  Koyo Corporation of USA (“Koyo”) employs over 2000 persons in good-paying jobs with benefits.  Our facilities are located in Michigan, Ohio, South Carolina and Tennessee. 

My letter is in response to your request for comments last week on what the Committee’s reaction should be to the Department of Commerce’s modification of its method for calculating dumping margins in dumping investigations, also known as “zeroing.”  The most appropriate action for the Committee to take is none at all, allowing the Department to implement its modification without further delay.

The Department of Commerce’s announcement that it is taking the necessary steps to conform its practices to U.S. international trade obligations as decided by the World Trade Organization (WTO) in United States - Laws, Regulations and Methodology for Calculating Dumpling Margins (“Zeroing”) (WT/DS294) is entirely appropriate and essential to maintaining a level playing field for all U.S. manufacturers.  Indeed, the next step the Department should take, with the full support of the Committee, is to eliminate the practice of zeroing in all phases of antidumping reviews, consistent with the WTO’s recent ruling in United States - Measures Relating to Zeroing and Sunset Reviews (WT/DS322).

As a U.S. producer and importer of merchandise subject to an antidumping order, we are directly affected by the inflated margins currently calculated by the Department.  To the extent possible, Koyo seeks to fulfill its customers' requirements through the supply of merchandise produced at its U.S. production facilities.  However, we are required to rely on imports of products manufactured abroad in order to meet certain customer requirements for merchandise that Koyo cannot produce in the United States.  The imposition and inflation of the antidumping duties on such imports, in a case where the margins would be negligible but for the Department's practice of zeroing, serves no purpose other than to unfairly increase our costs as a domestically situated participant in the U.S. market.  This impairs our competitiveness and will ultimately impede the growth of our United States operations.  On a broader scale, continued zeroing threatens to result in the contraction of U.S. domestic manufacturing and represents unwise economic policy.  

While we have had a U.S. presence for over fifty years and expect to remain here well beyond the next fifty, our ability to thrive depends on how we adjust to the economic realities of 2007 and beyond.  The market for our products and the means of production are global, as is true for many products and services nowadays.  The time when producers and consumers were isolated into discrete markets that conformed to political borders due to technological and logistical limitations has long since passed.  National laws and trade practices such as zeroing, which penalize domestic manufacturers’ decisions on how and where to source their production to best meet customer needs, essentially try to conform reality to meet policy objectives, rather than adapting policy to best meet current and evolving economic conditions.  To the extent that U.S. trade laws and practices compound manufacturers’ significant existing economic pressures, they encourage manufacturers to retreat from the U.S. and/or expand elsewhere.  Surely the Committee and the Congress do not intend such a result.

In addition to the foregoing economic policy argument against zeroing and in support of the Department’s December 27, 2006 announcement, the compelling legal circumstances must also be considered.  Domestic courts have long recognized that the Department's practice of zeroing is inherently biased in that it systematically disregards those transactions in which the margin is negative.  As the U.S. Court of International Trade explained ten years ago:

This methodology introduces a statistical bias in the calculation of dumping margins. By zeroing negative margins Commerce will find that some dumping occurred if any U.S. sales were made below the average foreign market value. "This will be true even if the vast majority of sales made by the subject foreign producers in the United States were at prices higher than the average foreign market value." RONALD A. CASS & STEPHEN J. NARKIN, Antidumping and Countervailing Duty Law: The United States and the GATT, in DOWN IN THE DUMPS 200, 205 (Boltuck & Litan eds. 1991).Bowe Passat Reinigungs- and Waschereitechnik GmbH v. United States, 926 F. Supp. 1138, 1149 (CIT 1996).  The Court went on to note that the Department's practice meant that, despite the fact that "99.4 percent [of the respondent's U.S. sales] were made at or above fair market value . . . [the Department], adhering to its intrinsically unfair practice of disregarding negative margins, was able to arrive at a `positive' weighted--average margin above the de minimis level." Id. (citations omitted). 

As a general matter of law and equity, therefore, it is inappropriate for the Department to continue its zeroing practice in investigations through administrative, sunset and other reviews.  Moreover, the United States cannot reasonably expect its trading partners to comply with their obligations under WTO Agreements, if the United States persists in disregarding its own obligations.  Finally, non-compliance with these rulings could expose broad swaths of U.S. products to retaliatory tariffs from multiple trading partners.

In conclusion, we submit that the Department, consistent with sound economic policy and U.S. obligations based in law, should cease its zeroing practice in all phases of antidumping proceedings unimpeded by Congressional action.  Further, the USTR should abandon any effort to defend before the WTO this unfair method for calculating antidumping margins.  The time has come for the practice of zeroing to be discontinued altogether.  Only this will truly serve the interest of American manufacturers, their employees, and consumers.

Sincerely,

Thomas Peacock