Bridges Weekly Trade News Digest • Volume 13 • Number 5 • 12th February 2009

WTO Appellate Body Backs EU over US in ‘Zeroing’ Dispute

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The WTO’s Appellate Body issued an opinion last week siding with the European Union in its challenge to the United States’ use of ‘zeroing’ in calculating anti-dumping duties.

The report, released 4 February, comes amidst growing fears of protectionism in the international community, and is but the most recent addition to the significant body of WTO jurisprudence that has already been issued on the controversial method.

The WTO allows its Members to impose retaliatory duties on exported goods that are sold more cheaply abroad than in the market where they were produced. The pricing strategy, known as dumping, is not expressly prohibited by the WTO agreement, but the retaliatory ‘anti-dumping duties’ are regulated by the WTO’s Anti-Dumping Agreement (ADA).

Zeroing’ is a method of calculating dumping margins that ignores, or treats as zero, instances in which import prices are actually higher abroad than in the product’s home market. Thus, anti-dumping duties calculated under ‘zeroing’ are not offset by those instances in which the imported product is sold at a higher price. As such, many nations contend that zeroing artificially inflates US anti-dumping duties. Those higher duties, they argue, in turn act as a barrier to trade.

The Appellate Body’s recent report was a review of an October 2008 ruling by a dispute panel on the imposition of US anti-dumping duties on a wide range of European goods (see BRIDGES Weekly, 9 October 2008, http://ictsd.net/i/news/bridgesweekly/30885/).

Although the panel decision found largely in favour of the EU, it was appealed by both parties, as Brussels sought to clarify unaddressed issues within the ruling.

The Appellate Body overturned many of the panel’s reservations and recommended that “the (Dispute Settlement Body) request the United States to bring its measures, found in this Report . . . to be inconsistent with the GATT 1994 and the Anti-Dumping Agreement, into conformity with its obligations under those Agreements.”

“This is an important decision and will lend continued credibility to the WTO dispute settlement system, and to the legitimate use of Trade Defence instruments to fight unfair trade,” said Peter Power, spokesman for the EU Trade Commission. “Given the repeated WTO findings against the use of zeroing by the US, the Commission hopes that the US will abandon this practice and fall into line with other WTO Members,” Power said.

An official from the US Trade Representative’s office said Washington was “highly disappointed” with many points of the ruling.

The WTO dispute settlement bodies have repeatedly ruled against the US practice; however, panel decisions have often been at odds with decisions of the Appellate Body, creating uncertainty. The US has ended the practice in some cases but continues to argue for the legitimacy of the calculation in other situations, on the grounds that the WTO courts have exceeded their authority in ruling against zeroing.

While this decision provides guidance, the issue continues to be a major source of controversy within the multilateral trading system. Brazil, China, Egypt, India, Japan, Korea, Mexico, Norway, Taiwan, and Thailand were third parties to the EU’s complaint against the US. Brazil and Thailand initiated separate WTO consultations with Washington over zeroing last November (see BRIDGES Weekly, 10 December 2008, http://ictsd.net/i/news/bridgesweekly/35917/).

For the foreseeable future, however, the US has not signalled a clear intent to abolish the procedure, and it is unclear what changes will result from Wednesday’s decision.

“We will continue to consult with members of Congress and interested members of the public as we move forward with next steps,” the US trade official said.

ICTSD Reporting; “WTO top court again condemns U.S. dumping measure,” REUTERS, 5 February 2009.