Bridges Weekly Trade News Digest • Volume 14 • Number 19 • 26th May 2010

WTO Panel to Examine EU Anti-Dumping Duties on Chinese Footwear; Zeroing Under Fire Again

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When their economies hit downturns, WTO members’ use of anti-dumping measures tends to increase. So too, it seems, does the number of dispute settlement cases challenging the extra duties.

Three WTO dispute panels were established last week to scrutinise a range of anti-dumping measures: duties levied by the European Union on Chinese footwear, and by the United States on Korean steel and Vietnamese shrimp.

Despite months of consultations - the first step in WTO dispute settlement procedures - the various governments concerned were unable to resolve their differences. And so, a meeting of the WTO Dispute Settlement Body on 18 May created panels to adjudicate the cases (a country targeted by a potential dispute can block the creation of a panel once, but cannot do so a second time).

Beijing argues that EU anti-dumping duties ranging as high as 16.5 percent on certain leather shoes violate WTO rules, by discriminating against China and Chinese companies.

The EU introduced the duties in 2006, claiming they were necessary to shield European shoemakers from being harmed by below-cost, or ‘dumped’ imports from China and Vietnam. In December 2009, Brussels decided, after a review, to prolong the punitive measures by an additional 15 months. That decision prompted Beijing to initiate WTO dispute proceedings in February, by requesting consultations on the matter with the EU.

Vietnamese shoes on average face somewhat lower duties than Chinese ones (a point not lost on China); Hanoi criticised the extension but has thus far stopped short of launching its own WTO case.

China’s case centres on allegations that the EU used inappropriate methods to calculate the ‘dumping margin’ and the consequent value of duties. China also argued that the EU failed to adequately account for the fact that domestic industry may have been hurt by factors other than the dumping of Chinese goods, such as changing consumption patterns, the removal of an import quota on Chinese footwear, shifts in demand, and exchange rate fluctuations.

As has been the case for anti-dumping duties on other Chinese products, such as clothing and energy-efficient light bulbs, EU members and the European footwear industry have been divided on support for the extra duties on Chinese and Vietnamese shoes. Support has come primarily from Mediterranean countries, such as Italy, where producers have been hit by competition from imports. The European Footwear Alliance, which represents global brands such as Adidas, Ecco and Timberland, has argued that the extra duties - and consequently, higher prices - hurt European businesses and consumers.

In March, a branch of the European Court of Justice ruled against Chinese footwear companies seeking the removal of the anti-dumping duties, ordering the companies to pay their own and the EU’s legal costs.

China it is not just an unhappy target of EU anti-dumping duties. The dissatisfaction goes both ways. The most recent example of this came earlier this month, when Brussels initiated WTO dispute proceedings against anti-dumping duties levied by China on EU ‘steel fasteners’ like screws, nuts, and bolts. The duties cover EU exports worth some 140 million euros per year. The EU’s request for consultations cited flawed calculations and procedural inadequacies. Last year, China launched a WTO dispute against the EU’s anti-dumping duties on Chinese steel fasteners; that case is now in the process of adjudication.

‘Zeroing’ under fire, again

‘Zeroing’, a controversial method that the US has long used to calculate dumping margins and the resulting duties, was the subject of two other panels created at the 18 May meeting of the Dispute Settlement Body. The term refers to a practice under which US commerce officials, while calculating dumping margins, do not reflect (‘zero out’) instances where the price of an imported product is higher in the US than in its home market, instead of averaging these instances into an overall comparison. Critics argue that this unfairly inflates dumping margins and anti-dumping duties, or creates dumping margins where there would have been none. WTO dispute panels and the Appellate Body have repeatedly ruled that zeroing is inconsistent with multilateral trade rules.

While a significant irritant to many of the US’s trading partners, anti-dumping is a deeply sensitive issue in the US Congress, where many lawmakers see US anti-dumping law as a valuable means of protection from unfair trade. Indeed, anti-dumping has emerged as a major sticking point in the Doha Round rules negotiations, as the US, with little support, has tried to negotiate clear rules permitting zeroing.

Vietnam’s case (WT/DS404/1) challenges several aspects of the anti-dumping duties the US is levying on certain kinds of frozen Vietnamese shrimp, including Washington’s use of zeroing. The case marks Vietnam’s first use of the WTO dispute settlement system since it joined the global trade body in 2007. Vietnam, like China, had to agree to be designated a ‘non-market economy’ for several years when it acceded to the WTO; this makes both countries easier targets for anti-dumping measures.

The Korean case focuses exclusively on the US’s use of zeroing while levying anti-dumping duties on some Korean steel products (WT/DS402/1).

In theory, WTO disputes should take up to a year and a half to be adjudicated, if a ruling is appealed. In practice, however, many cases are settled ‘out of court’, while others can take much longer.

Do the cases represent a new trend?

Asked whether the disputes represented a new trend, Jasper Wauters, a Geneva-based associate at White and Case, an international law firm, explained that trade remedy cases have always been an important part of WTO dispute settlement, accounting for about half of the docket.

Wauters, who used to work in the WTO secretariat’s rules division, distinguished between the zeroing cases and the disputes brought by China.

Zeroing cases are far from new, and seem likely to continue, he said. Washington has preferred to defend anti-dumping measures involving zeroing on a case-by-case basis, repeatedly arguing that its domestic legal structures prevent it from amending the relevant orders absent a WTO ruling calling for changes to the particular anti-dumping order.

What was newer, he told Bridges, was China’s willingness to use WTO dispute settlement to aggressively defend itself from trade remedy determinations (both anti-dumping and countervailing duty determinations) by major players like the US and the EU. “It’s clearly a decision by China to fight back,” Wauters said.

EU, US clash over zeroing

Zeroing was also at the heart of a separate disagreement being addressed at the WTO last week: an arbitration to determine the amount of retaliatory sanctions the EU can levy against the US for the latter’s use of zeroing.

The arbitration, which started on 20 May, marked the first time in WTO history that an arbitration on retaliatory measures was open to the public. In the past, a number of dispute panel and Appellate Body hearings had been opened up, but never an arbitration.

The arbitration is the final stage of a long running dispute between the US and the EU over zeroing. The EU estimates its losses resulting from the practice at over $300 million annually, and proposed to the arbitrator two potential sets of sanctions to make up for those losses. A US lawyer contested this, arguing that the amount “should not be greater than $2.87 million” and that the EU’s proposed retaliatory sanctions “grossly exceed the level of nullification or impairment in this case.”

Pointing to past WTO rulings against zeroing, the EU stressed that the US was in the wrong. “The parties do not appear before you as equals today” an EU lawyer appealed to the arbitrator. “It is the United States… that has been found… to have adopted no fewer than 32 WTO inconsistent measures. It is the United States… that has publicly stated that it will not comply.”

Reuters noted that the arbitration was embarrassing for the United States: having to admit that it had failed to comply with past WTO rulings and was still using zeroing did not sit easily with the Obama administration’s vocal emphasis on the enforcement of international trade rules.

Several WTO members not involved in the EU-US dispute followed the proceeding with great interest. For countries such as Japan, South Korea and Vietnam, which have launched similar cases against the US, the arbitration proceeding will be significant, since the US is having to acknowledge that it is still using the illegal zeroing methodology.

Arbitral decisions normally take up to 60 days, but in this case it is not clear when the arbitrator will reach a decision.

ICTSD reporting; “WTO Agrees to Probe EU Duties on Chinese Footwear,” BLOOMBERG, 18 May 2010; “Court backs EU anti-dumping duties on Chinese shoes,” AGENCE FRANCE PRESSE, 4 March 2010; “U.S., EU clash over trade sanctions at WTO,” REUTERS, 20 May 2010; “China Escalates Trade Fight Over European Shoe Tariff,” NEW YORK TIMES, 4 February 2010.