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.