The U.S. Department of Commerce (the “Department”) has requested comments on the use of “zeroing” in calculating duty margins in anti-dumping investigations. This is an issue that will have a major impact in many future anti-dumping investigations and is, therefore, of critical importance to any company that may be a petitioner or respondent in such cases.

In calculating an anti-dumping duty margin, the Department basically compares prices at which the relevant good is sold in the United States with prices at which it is sold in the home country market (or with other surrogate prices if the home market sales do not provide an adequate benchmark). In initial investigations, the Department does the comparison on an average-to-average basis, where the averages are typically over one month each. The term “zeroing” refers to the Department’s practice, when conducting its average-to-average comparison, of setting the margin for each product for each month to zero if the U.S. price is higher than the home market price (negative dumping). In other words, the Department does not offset positive price comparisons with negative ones. The result is usually a higher dumping margin; in some cases, zeroing has made the difference between a margin that is below de minimis (and therefore will not result in duties) and one that is above.

In 2005, the Appellate Body of the World Trade Organization held in the US-Zeroing case brought by the European Commission that the U.S. practice of zeroing in initial investigations is inconsistent with the WTO Antidumping Agreement.

U.S. law provides for a specific process to follow when a U.S. trade law has been found to violate any of the WTO agreements. If the affected agency, here the Commerce
Department, can modify its practice to bring the U.S. into compliance with the WTO without a statutory change, the U.S. Trade Representative directs it to do so. As part of the process, the agency must provide an opportunity for the public to comment on the proposed change.

In this instance, Commerce is not proposing to abandon the use of zeroing altogether. Rather, it is proposing to abandon its use of zeroing when making average-to-average comparisons, but to no longer use average-to-average comparisons in investigations. Instead, under the new proposed methodology, Commerce would compare prices from individual U.S. sales to individual home market or other benchmark sales prices. Commerce is now requesting comments on this new proposed individual-to-individual comparison methodology, with zeroing, and more generally on “appropriate methodologies to be applied in future antidumping duty investigations in light of the panel’s report in US-Zeroing.” Comments are due no later than April 5, 2006.

The Department’s proposal raises a number of issues: (1) Will anti-dumping margins generally be higher under the new proposed methodology than under the old methodology? (2) Commerce has not indicated how it will “match” individual U.S. sales to benchmark sales, which may be very complex for companies with many sales. The way in which sales are matched may badly distort the calculation and may inflate or deflate dumping margins. (3) More generally, it is not clear whether the new methodology will be consistent with the WTO Agreement. Opponents will argue that it is not consistent with the literal language of the WTO Panel decision in the US-Zeroing case, which held that the “United States’ zeroing methodology, as it relates to original investigations, . . . is inconsistent with the [WTO Agreement.]” (4) The US-Zeroing decision is now before the WTO Appellate Body, and its determination is due no later than April 18, 2006. Moreover, the WTO Appellate Body is also considering the zeroing issue in a case brought by Canada. As in the US-Zeroing decision, the Panel in the Canadian case found the use of zeroing in average-to-average comparisons in investigations to violate the Agreement, but upheld the use of zeroing when comparing individual-to-individual transactions in an investigation. The Appellate Body should issue its determination in that case by July or August of 2006. It may be premature for the United States to consider a specific new methodology now, without the benefit of the guidance the Appellate Body will shortly provide in those two cases.

Companies with current or potential future exposure to a U.S. anti-dumping investigation should consider carefully the implications of this notice and the possibility of filing comments with the Department.

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