"Zeroing" is bad and, on April 18th, the WTO's Appellate Body did something about it. For the bottom line, go to the end of this post.
By way of background:
If a country's firms sell their products in a foreign country for less than they do in their own, they are said to be "dumping" these products. Countries often adopt measures to protect import-competing firms from dumping. The U.S. has done this, implementing "anti-dumping" measures.
U.S. anti-dumping statutes may or may not be justifiable to protect import-competing industries from unfair foreign competition. That is another debate.
But when these laws are manipulated to actually suppress fair foreign competition, U.S. consumers, and U.S. firms using inputs supplied by import-competing firms, are losers.
How can pro-competitive laws be used to suppress competition? Consider "zeroing."
Dan Ikenson explains how zeroing works: Zeroing In: Antidumping’s Flawed Methodology under Fire (CATO Free Trade Bulletin No. 11, April 27, 2004):
To appreciate the impact of zeroing, it is important to understand how the U.S. Department of Commerce [DOC - Ben] calculates dumping margins. In a typical antidumping investigation, DOC calculates weighted-average net prices for each product sold in the United States. It then compares each of those U.S. prices to the product's normal value, which can be calculated a number of different ways but is ideally the weighted-average net price of the most similar product sold in the home market. Zeroing is introduced after the comparison of the U.S. price and normal value.
When normal value is higher than the U.S. price, the difference is treated as the dumping amount for that sale or that comparison. When, however, the U.S. price is higher, the dumping amount is set to zero rather than its calculated negative value. All dumping amounts are then added and divided by the aggregate export sales amount to yield the company's overall dumping margin. Zeroing thus eliminates "negative dumping margins" from the dumping calculation. In so doing, it can create dumping margins out of thin air.
In Table 1 comparisons of the average prices of five products in both markets are presented. Each product is sold at identical net prices in both markets with the exception of Product 1 and Product 5. Product 1 is sold for $0.50 less in the home market than in the U.S. market, and Product 5 is sold for $0.50 more. The unit margin is equal to the amount of dumping calculated for each unique comparison. The arithmetic sum of the individual dumping margins (total margin) is zero because the price differences for products 1 and 5 cancel each other out. But surprise: This is not how dumping is calculated by DOC.
Rather, the negative dumping margin on Product 1 is set equal to zero and is thus denied any impact on the overall margin. Thus, by engaging in zeroing in this example, the DOC would find a dumping margin of 10 percent (the sum of the total PUDD divided by the sum of the total value) despite the lack of any difference in overall price levels between the two markets.
The zeroing methodology stacks the deck, suppressing potentially exculpating evidence.
Think this is only a theoretical curiosity?
Consider the results of 18 actual U.S. dumping determinations in Table 2. Using actual case data and the DOC's dumping calculation computer programs, it was possible to calculate the actual effects of zeroing in these particular cases. In 17 of the 18 determinations, the dumping margin was inflated by zeroing. In 5 of the cases, the overall dumping margin would have been negative. On average, the dumping margins in the 17 cases would have been 86.41 percent lower if zeroing had not been employed.
Ikenson's article is not long, and is worth reading in full.
The WTO agreements include an agreement on permissible anti-dumping measures.
Scho1 at the International Economic Law and Policy Blog posts on an April 18 decision by the WTO's Appellate Body on U.S. zeroing: A Farewell to Zeroing The decision found that zeroing was incompatible with the WTO anti-dumping code.
...the AB, in a stern tone, viewed that zeroing methodology itself violated Article 9.3 of the AD Code ("The amount of the anti-dumping duty shall not exceed the margin of dumping as established under Article 2") since it results in higher dumping margins and hence higher antidumping duties than otherwise on account of the DOC’s "systematic disregard" of those export prices higher than normal values (para. 133). Therefore, to the AB zeroing is not an acceptable practice throughout the antidumping proceeding.
Scho1 asks if Congress will change U.S. laws to make the ruling effective? In an election year?
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