Law Offices of Stewart and Stewart
February 7, 2007
Hon. Charles B. Rangel
Chairman
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Chairman Rangel:
The following comments are submitted in response to
the Advisory from the Committee on Ways and Means, dated January 31, 2007,
requesting comments from the public on what action, if any, the Committee
should take with respect to the modification the Department of Commerce
(“Commerce”) has proposed to its calculation of weighted average dumping
margins in investigations.[1] These comments are submitted by the Law Offices of Stewart
and Stewart. Our firm has been involved in trade remedy litigation in the United States, including hundreds of antidumping investigation, since our founding in 1958.
For the reasons given below, we urge the Committee to work
with Commerce to have the agency withdraw its change in methodology and pursue
clarification of U.S. rights through negotiations. If such a course is not
successful, we urge the Committee to vote, pursuant to Section 123(g)(3) of the
Uruguay Round Agreements Act (19 U.S.C. § 3533(g)(3)), to indicate the
disagreement of the Committee with Commerce’s intended modification of its
methodology for measuring dumping in investigations when average price to
average price comparisons are made. Our firm believes that the United States should pursue correction of the erroneous line of Appellate Body decisions
that resulted in the EC “zeroing” decision through negotiations in the WTO. By
Agreement, the Appellate Body and WTO panels are not allowed to create
obligations not agreed to by members. The United States has correctly
characterized the line of “zeroing” decisions as doing exactly that.
Unfortunately, the only avenue available to ensure the balance of rights and
obligations that were actually negotiated is for the United States to pursue
clarification of rights in the ongoing negotiations and seek to change dispute
settlement rules to address the ongoing problems particularly in the trade
remedy area of creating obligations not contained in the Agreements and never
contemplated by the United States. Further, we urge the Committee to take
whatever other action may be necessary to ensure that U.S. antidumping law is not weakened through the implementation of other erroneous and
overreaching decisions of WTO dispute settlement panels and the Appellate
Body.
Commerce’s
Current Calculation Methodology is Longstanding and Logical
Since the creation of the Antidumping Act of 1921, U.S. trade policy has provided a remedy to address the distortions that flow when
international price discrimination results in low priced imports hurting
producers and their workers. The basic right to address injurious dumping was
included in GATT Article VI in the late 1940s and has been maintained ever
since.
Dumping has been defined in U.S. law and in the GATT
(and now WTO Agreement) as the sale of a product for export at a price that is
less than the price in the home market for the same product. Dumping is
actionable when a domestic industry is materially injured or threatened with
material injury.
The Commerce Department methodology at issue, which
has been given the misleading shorthand name “zeroing,” is not new. As far as
our firm understands, Commerce and Treasury Department practice in calculating
dumping duties owed has, since the beginning of the law, looked at all relevant
imports and determined which imports were dumped and which were not dumped.
For 86 years there has never been liability for imports that were not dumped
(i.e., not sold in the U.S. for a price greater than normal value). For 86
years, Treasury and Commerce have ensured that dumping duties would be
collected for all imports where the prices were less than normal value. When a
weighted average dumping margin was created for cash deposit purposes, the
methodology used for each exporter followed the historic logic of the administration
of the law and reflected a figure that was derived from dividing 100% of the
dumping found by the total imports from that exporter. Thus, if there were two
imports from an exporter with one being dumped and the other not being dumped,
the weighted average margin of dumping would be the amount of dumping found
divided by the value of the two sales. For example, if two different ties are
imported and one is imported at a price of $25 when the normal value in the
country of export was $35 and the other tie was imported at a price of $35 when
the normal value for the second tie was $35 or less, the weighted average
dumping margin would be 16.67% (dumping of $10 on the first tie divided by the
total value of the two ties, $60). This is true whether the normal value for
the second tie is $35, $30, $25 or some other amount less than $35. The second
tie is simply not dumped.
Administering the law in this way ensures that all dumping
is accounted for, and that dumping is not masked. There had never been the
concept prior to the WTO Appellate Body decision of reducing the amount of
dumping found by an amount that other exports are sold above normal value or
offset by unrelated, non-dumped transactions. No country with active trade
remedy laws at the creation of the WTO understood the purpose of their law or
of the Agreement negotiated to require such action or consideration.
This is no different than in other areas of the law,
where such illogical offsets are not even contemplated. For instance, if you
are caught exceeding the speed limit on the highway, you will receive a
citation. You will be given no credit for other times when you (or other
drivers) were driving below the speed limit. Likewise, if your car is
found parked in front of an expired parking meter, that is a parking violation,
regardless of whether other cars that are parked nearby still have time left on
their meters and regardless of whether the same car on other days may have been
parked (even at the same meter) with time left when it departed.
Such illogical offsetting, though, is precisely what
is contemplated by Commerce’s proposed modification of its dumping calculation
methodology in investigations where price comparisons on specific models at
specific levels of trade are made on an average price to average price basis –
the methodology that Commerce has used in all investigations since 1995. Making
the proposed change would introduce a fundamental flaw into the logic of U.S.
antidumping law and, depending on how Commerce construed other options
available to it, could seriously and systematically reduce the amount of dumping
that could be addressed under U.S. law, leaving injured domestic industries,
their workers and communities without the remedy intended by Congress for the
last 86 years.
WTO
Dispute Settlement Panels and the Appellate Body Have Made Erroneous,
Overreaching Decisions on “Zeroing,” Creating Obligations to Which the U.S. Never Agreed
Commerce proposes to change its
dumping calculation methodology because, purportedly, it “is necessary to implement the recommendations of the
World Trade Organization Dispute Settlement Body.”[2]
While implementation is, of course, always an option for a country which loses
a WTO dispute, it is not the only course of action. Here, DOC’s recommendations
flow from a series of decisions by the WTO Appellate Body that have been
harshly criticized by the U.S. government as exceeding the authority of the
Appellate Body by creating obligations never agreed to by the members. Stated
differently, these decisions have failed to properly interpret the WTO
Antidumping Agreement and the GATT, they have failed to accord appropriate
deference to the U.S.’ understanding of its rights and obligations, and they
have, in fact, created obligations to which the U.S. never agreed, in violation
of express provisions of the Dispute Settlement Understanding (DSU).[3]
In such an extraordinary situation, the U.S. protects its interests and
improves the functioning of the WTO by pursuing clarification through
negotiations and seeking modifications of the DSU to ensure conformity with the
limitations on the authority of the Appellate Body and panels.
From the beginning of the GATT, it was
recognized that countries had the right to address injurious international
price discrimination through the imposition of dumping duties. According to Article VI:1 of GATT 1994, injurious dumping is to
be “condemned.” Article VI:2 of GATT 1994 further explains that the purpose of
antidumping duties is to “offset or prevent dumping.” The entire focus of
Article VI of GATT 1994 is to set out what member states can do to counteract
dumping.[4]
The Antidumping Agreement elaborates in greater detail the provisions of
Article VI. The United States was a major participant in the creation of the
GATT and in the negotiation of the current Antidumping Agreement. Before the
GATT, after the GATT, before the negotiation of the Antidumping Agreement and
to the present day, the U.S. understanding of its rights has been the same – that
it may collect antidumping duties on 100% of the dumping found where an
antidumping duty finding or order is entered. No duties are collected on
imports that are not dumped. But the fact that there are some imports that are
not at dumped prices has never been a basis for reducing the amount of dumping
found.
Yet,
in a series of decisions, beginning with EC – Bed Linen, and continuing
through US – Softwood Lumber V and US – Zeroing (EC),[5]
WTO Appellate Body decisions have, for various and changing reasons, found that
imports that are not dumped actually constitute a basis for reducing the amount
of dumping found and that Commerce’s methodology violates WTO rules; i.e.,
“zeroing” is prohibited.
The reality, though, is that the U.S. never agreed to any prohibition of “zeroing” during the Uruguay Round. The Appellate
Body simply created the prohibition out of whole cloth. Indeed, the U.S. Uruguay
Round antidumping negotiators have publicly stated that they never agreed to a
“zeroing” ban:
Despite the successful effort to prevent any provision
in the Antidumping Agreement that would prohibit ‘zeroing,’ the WTO AB
concluded that the Antidumping Agreement does prohibit ‘zeroing.’ This
interpretation of the Agreement creates an obligation to which the U.S. did not agree, and, even more disturbing, it imposes upon the U.S. an obligation that the U.S. affirmatively opposed and successfully prevented from being incorporated into the WTO
Antidumping Agreement.[6]
Not surprisingly, therefore, the Administration has
been consistently critical of the reasoning, or lack thereof, in the “zeroing” decisions:
- “The
representative of the United States said that her country was concerned
about the Appellate Body’s decision [in EC – Bed Linen], and was
monitoring the situation carefully, in particular since the standard of
review was at the centre of the dispute settlement system. The United States had grave concerns about whether the Appellate Body had properly applied the special
standard of review under Article 17.6(ii) of the Anti-Dumping
Agreement.” Dispute Settlement Body, Minutes of the Meeting (May 12,
2001), WT/DSB/M/101 (May 8, 2001).
- "There
was a widespread view among the GATT Contracting Parties – including Canada – that such offsetting had not been required in the years and decades before the WTO
Agreement, and they had continued in this view as WTO Members after 1995.
Thus, it was surprising to find now that the Anti-Dumping Agreement
required it. ... The United States ... regretted both that Canada had
chosen to litigate this issue despite its own on-going use of ‘zeroing,’
and that the Panel and the Appellate Body had agreed with Canada.” Statement
of the United States at the adoption of the Panel and Appellate Body
Reports in Softwood Lumber (WT/DS264) (Aug. 31, 2004).
- “[T]he
United States remains of the view that the Appellate Body report in [the US
– Zeroing (EC)] dispute is a deeply flawed document.” Statement of
the United States on implementation of the Panel and Appellate Body
Reports in Zeroing (EC) (WT/DS294) (May 30, 2006).
- “[T]he
sum total of the Appellate Body’s findings on the zeroing issue over the
past several years calls into question whether the major users of the
antidumping remedy began breaching that Agreement the very day it went
into effect in 1995. This is a surprising result. Presumably
the Members who negotiated the Agreement understood its meaning.” Statement
of the United States at the adoption of the Panel and Appellate Body
Reports in Zeroing (Japan) (WT/DS322) (Jan. 23, 2007).
In addition, the Administration has taken the unprecedented
step of submitting detailed written criticism of the Appellate Body decision in
US – Zeroing (EC).
Likewise, outside observers have
questioned the validity of the “zeroing” decisions:
If the Anti-dumping Agreement
negotiators had intended the interpretation of Article 2.4.2 favored by the
Appellate Body, it would have been a simple matter to instruct national authorities
to establish dumping margins on the basis of a comparison between the weighted
average normal value of the product under investigation and the weighted
average export price for that product. The choice of a very different
formulation that expressly contemplates a focus on the comparability of the
different ‘export transactions’ under investigation cannot properly be written
out of the Anti-dumping Agreement by a panel or Appellate Body
decision. At the very least, the EU’s ‘zeroing’ policy should have been
accepted as a ‘permissible’ interpretation of Article 2.4.2. Panels and the
Appellate Body (or, for that matter, economists and trade policy gurus) might
not have liked this result, but they have no business imposing their policy
views on this issue on WTO Members that negotiated something quite different.[7]
Another academic observer
posited:
The Appellate Body’s report in US—Zeroing [(EC)]
crystallizes some of the concerns that have been expressed in the past
regarding judicial excess in the WTO dispute settlement regime. Since the
report’s adoption by the Dispute Settlement Body on May 9, 2006, the United States has taken the unusual approach of writing two communications to WTO Members detailing
its serious legal objections to the Appellate Body’s decision and its corrosive
effect on the dispute settlement system. Those communications underscore the
disquiet with which the United States greets the Appellate Body’s approach to
appellate review in this case. That approach is one that ignores textual
obligations to defer to administering authorities, partakes in appellate
fact-finding, and rejects a well-established justiciability doctrine. It most
certainly does not inspire confidence for the future of WTO dispute resolution.[8]
And another commentator
discussing the US – Zeroing (EC) decision stated simply, “the Appellate
Body’s reasoning on [zeroing] does not seem very convincing…. This is
especially so given the special … standard of review set out in Article
17.6(ii).”[9]
The
Committee should be concerned about a determination by Commerce to implement
decisions of WTO dispute settlement panels and the Appellate Body that the
Administration itself has stated are erroneous and overreaching, which have
been strongly and widely criticized by outside observers, and which have demonstrably
imposed obligations on the U.S. to which it never agreed.
Congress Has Previously
Expressed Concern About WTO Overreaching, In Particular on the Issue of
“Zeroing”
Indeed, Congress has identified the
problem of WTO Appellate Body decisions creating obligations not agreed to by
the United States as a serious concern, in particular on the issue of
“zeroing.” In the Trade Act of 2002, Congress
recognized that “[s]upport for continued trade expansion requires that dispute
settlement procedures under international trade agreements not add to or
diminish the rights and obligations provided in such agreements,” noting that:
(A) the recent pattern of decisions by dispute
settlement panels of the WTO and the Appellate Body to impose obligations and
restrictions on the use of antidumping, countervailing, and safeguard measures
by WTO members under the Antidumping Agreement, the Agreement on Subsidies and
Countervailing Measures, and the Agreement on Safeguards has raised concerns;
and
(B) the Congress is concerned that dispute settlement
panels of the WTO and the Appellate Body appropriately apply the standard of
review contained in Article 17.6 of the Antidumping Agreement, to provide
deference to a permissible interpretation by a WTO member of provisions of that
Agreement, and to the evaluation by a WTO member of the facts where that
evaluation is unbiased and objective and the establishment of the facts is
proper.[10]
The accompanying Senate
report stated:
This concern is prompted by recent decisions placing
new obligations on the United States, and identifying restrictions on the use
of antidumping, countervailing duty and safeguard measures, which are not found
anywhere in the negotiated texts of the relevant WTO agreements.
S.
Rep. No. 107-139, at 6 (2002). That report specifically refers to the decision
in EC – Bed Linen, wherein the “zeroing” issue was first addressed. Id. at 7, n.1
More recently, Members and Senators
have written letters to the Administration about the continuing problem of WTO
overreaching in the “zeroing” cases. In November 2006, Representatives Cardin
and Levin wrote to Ambassador Schwab about their “continuing serious concern with regard to decisions of
the World Trade Organization Appellate Body (AB) addressing the issue of ‘zeroing’
in antidumping proceedings.”[11]
Likewise, in December 2006, eleven Senators wrote to Secretary Gutierrez and
Ambassador Schwab to express:
concern about the continuing pattern of World Trade
Organization (WTO) Appellate Body decisions addressing the issue of “zeroing”
in antidumping proceedings. Without question, the Appellate Body is creating
obligations not included in the WTO agreements and never accepted by the United States. We are deeply troubled that U.S. trade remedy laws are being undermined by WTO
overreaching on the “zeroing” issue.[12]
And, of course, Chairman Rangel and Chairman Baucus of the
Senate Finance Committee wrote to Secretary Gutierrez and Ambassador Schwab
seeking delay of the implementation now under consideration precisely because
of their own “concern[] that the Appellate Body decision at issue involves an
attempt to impose unilaterally obligations on a WTO Member – in this case, the
United States – without its prior consent.”[13]
In light of such strong, ongoing, and
growing concern, it is appropriate to question whether implementation of these
decisions of the WTO Dispute Settlement Body is in the best interest of the United States in this case. In our view, it is not, and the U.S. has other options it may
rightfully pursue under the WTO Agreement.
The U.S. Should Negotiate a Solution on “Zeroing” in the WTO Doha Round Negotiations
The U.S. is a strong supporter of the WTO and its
dispute settlement system. In response to numerous adverse WTO decisions, the U.S. already has a remarkable record of bringing inconsistent measures into conformity with
the covered agreements in most of those disputes. However, the U.S. expects WTO dispute settlement panels and the Appellate Body to comply with express
limitations on their authority according to the WTO Dispute Settlement
Understanding (DSU). DSU Articles 3.2 and 19.2 explicitly
prohibit dispute settlement findings or recommendations that “add to or
diminish the rights and obligations provided in the covered agreements.” The series
of decisions on “zeroing” represents another instance of panels and the
Appellate Body imposing obligations that were not negotiated or agreed to by
the U.S.
Nothing in the WTO Agreement requires the U.S. government to implement an adverse decision by automatically repealing our laws or
changing our practices instead of negotiating a solution. WTO Members have
options on how to implement adverse decisions. Under DSU Article 22.8,
concessions or other obligations shall only be suspended until: 1) the
inconsistent measure is removed; 2) a solution to the nullification or
impairment of benefits is provided; or 3) a mutually satisfactory solution is
reached between parties.
Although the DSU specifically prohibits panels and the
Appellate Body from creating rights or obligations not contained in the
agreements, when a panel or the Appellate Body does not honor the limitation on
their authority, there is no remedy for a Member. Absent negotiations, except
for in the most extraordinary cases, the WTO dispute settlement system cannot
effectively limit erroneous decisions.
Many WTO Members, including the U.S., have submitted proposals in the Doha Round to address issues of panels and the
Appellate Body not limiting their decisions as required by the DSU. Yet at
present, when WTO panels and the Appellate Body exceed their authority by
reading rights and obligations into an agreement where none exist, the
appropriate response is to seek clarification of rights and obligations through
negotiation. The United States has specifically raised the issue of “zeroing”
in the ongoing Doha negotiations, noting that “the Agreement is not clear as to
the manner in which the overall weighted average margins are to be calculated”
and encouraging the negotiating group to “consider clarifying both the
obligations already agreed to by the Members in this respect, as well as any
areas where agreement could not previously be reached.”[14]
Resolving the issue of “zeroing” in the negotiations
is consistent with the “principal negotiating objectives of the United States with respect to trade remedy laws” established in the Trade Act of 2002, which
are:
(A) to preserve the ability of the United States to
enforce rigorously its trade laws, including the antidumping, countervailing
duty, and safeguard laws, and avoid agreements that lessen the effectiveness of
domestic and international disciplines on unfair trade, especially dumping and
subsidies, or that lessen the effectiveness of domestic and international
safeguard provisions, in order to ensure that United States workers,
agricultural producers, and firms can compete fully on fair terms and enjoy the
benefits of reciprocal trade concessions; and
(B) to address and remedy market distortions that lead
to dumping and subsidization, including overcapacity, cartelization, and
market-access barriers.[15]
In
addition to letters and other expressions of Congressional concern about the
“zeroing” issue, the Craig-Rockefeller Amendment to the Tax Relief Act of 2005
expressed the sense of the Senate that the United States should not be a
signatory to any agreement “outlawing the critical practice of ‘zeroing’ in
antidumping investigations.”[16]
Given the state of play of the negotiations and the
recognition by the Administration of the gross violation by the Appellate Body
of its function in this series of decisions, the United States should pursue
correction of the decisions through negotiations at the WTO rather than
implementing such adverse decisions. It is important that the House Ways and Means Committee work with the Administration to see that such an outcome is
accomplished.
Conclusion
The United States is a major supporter of the WTO and
the dispute settlement system. For the system to earn the respect of the Members,
the Appellate Body and dispute panels must live within the parameters
established by the Member states. In the line of “zeroing” cases, the
Appellate Body has impermissibly and repeatedly exceeded its authority.
Congress has noted the critical role preserving trade remedy laws has in
maintaining support for a liberalized trading system. We believe the
Administration and Congress are of the same view that what has happened is
unacceptable. Given that reality, it is imperative that the Committee work
with the Administration to take action that preserves our rights pending the
clarification of such rights through negotiations.
We appreciate the opportunity to provide these
comments to the Committee, and thank the Committee for its attention to this
important issue.
Respectfully submitted,
Terence P. Stewart
Managing Partner
[1]
Antidumping Proceedings: Calculation of the Weighted–Average Dumping Margin
During an Antidumping Investigation; Final Modification, 71 Fed. Reg. 77,722
(Dec. 27, 2006) (“Final Modification”).
[2]
Final Modification, 71 Fed. Reg. at 77,722.
[3] See DSU Articles 3.2 and 19.2;
see also Antidumping Agreement
Article 17.6(ii). In fact, numerous WTO Members have identified instances of
overreaching by WTO dispute settlement panels and the Appellate Body in a
variety of cases, suggesting the existence of a systemic problem. See
Stewart, T., Dwyer, A., and Hein, E., Proposals for DSU Reform that Address
Reform Directly or Indirectly, the Limitations on Panels and the Appellate Body
Not to Create Rights and Obligations, 535-541, in Reform and Development of the WTO Dispute Settlement System
(Georgiev and Van der Borght, eds.), Cameron May (2006); Stewart, T., Dwyer A.,
and Hein, E., Trends in the Last Decade of Trade Remedy Decisions:
Problems and Opportunities for the WTO Dispute Settlement System, 22-23,
28-29, presented to the ABA Section of International Law: The World Trade
Organization at 10 and the Road to Hong Kong (2005) (pending publication in the
Arizona Journal of International and Comparative Law,
Spring 2007).
[4] US – 1916 Act (EC) (Panel), Panel Report, at paras. 6.103,
6.106-107, 6.114.
[5]
Recently, the Appellate Body has again ruled against the U.S. on “zeroing” in US – Zeroing (Japan).
[6]
Letter from Eric I. Garfinkel, Former Assistant Secretary of Commerce for
Import Administration (1989-1991), and Alan M. Dunn, Former Assistant Secretary
of Commerce for Import Administration (1991-1993), to the Secretary of Commerce
and the U.S. Trade Representative (Jun. 20, 2005).
[7]
Greenwald, John, WTO Dispute Settlement: An Exercise in Trade Law
Legislation?, 6(1) J. Int’l Econ. Law 113, 120 (2003).
[8]
Alford, Roger P., Reflections on US-Zeroing: A Study in Judicial
Overreaching by the WTO Appellate Body, 45 Colum. J. Transnat’l Law (2006)
(pending publication) (available in draft form on the web site of the Social
Science Research Network at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=926909).
[9]
WorldTradeLaw.net Dispute Settlement Commentary, Appellate Body Report: United States—Laws, Regulations and Methodology for Calculating Dumping Margins (“Zeroing”), at 18,
available at http://worldtradelaw.net/dsc/ab/us-zeroing(dsc)(ab).pdf (cited
by Roger P. Alford).
[10]
19 U.S.C. § 3801(b)(3).
[11]
Letter to Ambassador Susan C. Schwab from Representatives Benjamin L. Cardin
and Sander M. Levin (November 27, 2006).
[12]
Letter to Secretary Carlos M. Gutierrez and Ambassador Susan C. Schwab from
Senators Rockefeller, Baucus, Craig, Durbin, Crapo, Byrd, Voinovich, Conrad,
Graham, Bayh, and Dole (December 11, 2006).
[13]
Letter to Secretary Carlos M. Gutierrez and Ambassador Susan C. Schwab from
Chairman Charles B. Rangel (Committee on Ways and Means) and Chairman Max
Baucus (Committee on Finance) (January 19, 2007).
[14] Submission by the United States,
TN/RL/W/72, p. 2 (Mar. 19,
2003).
[15]
19 U.S.C. § 3802(b)(14).
[16] S. Amdt. 2655 to S. 2020, “To express the
sense of the Congress regarding the conditions for the United States to become
a signatory to any multilateral agreement on trade resulting from the World
Trade Organization’s Doha Development Agenda Round,” 151 Cong. Rec. S13135
(daily ed. November 17, 2005). The amendment was agreed to by voice vote. Id. at S13136.
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