Fair Price Comparison in the WTO Anti-Dumping Agreement: Recent WTO Panel Decisions Against ‘Zeroing’ Method

Abstract

The notion of dumping is established on the idea that exports are sold at prices less than what is normally sold in the domestic market of the exporter. Based on this notion, the existence and the degree of dumping are measured by the difference between the export price and the domestic price of the product. Notwithstanding the simplicity of the basic notion of dumping, the deficiency in the method of measuring a dumping margin resulted in the finding of “spurious” dumping margins by many investigating authorities. The imposition of dumping duty on the finding of fictitious appearance of dumping margins is clearly unfair to exporters that are subject to the duties and results in significant barriers to trade. The importance of margin calculation in the administration of dumping laws, therefore, calls for an international rule on dumping, which unambiguously ensures fairness in price comparison. The GATT rule on dumping administration as established in the Tokyo Round Anti-dumping Code was far from adequate in providing unambiguous rules for measuring a dumping margin. Although the World Trade Organization Anti-dumping Agreement that resulted from the Uruguay Round of Multilateral Trade Negotiations provided much more detailed provisions for calculating a dumping margin, each country’s practice is still sharply diverged. As a result, the usual practices that were taken for granted as being consistent with the WTO Anti-dumping Agreement have become subject to disputes. A particularly contentious issue involving price comparison was the treatment of dumping margins that were found to be negative. In particular, the method of assigning zero values to negative dumping margins was challenged under both the GATT and the WTO. However, only in recent WTO disputes, the challenges against the “zeroing method” became successful. The panel in European Communities — Anti-dumping Duties on Imports of Cotton-type Bed Linen From India (“Bed Linen”) found that the European Communities’ zeroing method was inconsistent with the WTO Anti-dumping Agreement. Also, in a similar line of ruling, the panel in United States — Imposition of Anti-dumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet and Strip from Korea (“Stainless Steel”) ruled that the United States’ use of multiple averaging periods in the “Plate” and “Sheet” investigation was inconsistent with Article 2.4.2 of the WTO Anti-dumping Agreement. In both the cases, the WTO panel favoured the method of comparing a single average normal value with a single average export price based on entire export and domestic transactions during the period of investigation (“POI”). The panel’s decision, as argued in this article, was consistent with the statistical notion that the larger the number of data points, the more likely that the estimate would be close to the unknown parameter. This article begins by interpreting the dumping margin calculation provisions of the WTO Anti-dumping Agreement by first studying the amendment of the GATT Anti-dumping Code through the Uruguay Round negotiations. In the following section, it discusses the GATT disputes involving margin calculation issues and compares them with the analogous WTO disputes. Then, the article goes on to provide a statistical interpretation of the price comparison provisions of the WTO Anti-dumping Agreement in the context of the recent rulings in the WTO disputes. Finally, the article concludes with suggestions for future amendment to the WTO Anti-dumping Agreement with a view to providing a better foundation for fair price comparison.