I’m the last person to write up anything about some complicated anti-dumping duty calculation called zeroing. But because little appears in the public domain about this practice and since it does have special significance to steel buyers, we felt obligated to cover it. A ruling last week by the World Trade Organization, urges the US to comply with earlier rulings made by the WTO, specifically to eliminate the use of zeroing when calculating anti-dumping duties.
What is zeroing and why does it matter to buyers of steel? The definition of zeroing remains confusing and elusive. We spoke with Dan Ikenson, Associate Director for the Cato Institute’s Center for Trade Policy Studies, who walked us through a couple of examples to illustrate how it works.
Let’s say we have two countries each producing coffee cups. The US cup is $1 and the foreign cup is $2. In another example of coffee cups, let’s say the US cup was $2 and the foreign cup was $1. We would all conclude that the average dumping margin on coffee cups is zero because in one transaction, the US price was higher and in the other transaction, the foreign price was higher. The practice of zeroing, however would not allow you to include the transaction in which the US price was $1 cheaper than the foreign price. Let’s start again. The practice of zeroing examines multiple transactions and does not count any transaction that contains a negative dumping margin. A steel example may help illustrate this point:
Say we are looking at a [potential] steel strip anti-dumping case. Let’s say only 3 transactions will form the basis of analysis (there would of course be many more). The case involves strip products manufactured in Japan. Here are the examples:
Example 1 Japan domestic price: $1000/ton US price: $900/ton
Example 2 Japan domestic price: $1000/ton US price: $1000/ton
Example 3 Japan domestic price: $900/ton US price: $1000/ton
We might conclude that no dumping exists because everything balances in the wash assuming volumes were also taken into consideration (which they are). In other words, if you average the three examples, one would conclude that no dumping exists.
But actually, a dumping duty would be assessed because Example 1 would be tossed out or zeroed. A duty would be assessed based upon Japan dumping steel into the US market. All negative margins where the foreign price appears cheaper gets set to zero. Just as a drug company trying to prove a drug’s efficacy cannot throw out results in which no statistical correlation exists, the zeroing rule appears difficult to justify. All 153 of 154 WTO member countries, with the exception of the United States, oppose zeroing.
The US no longer zeros today, but other means of calculation exist. The anti-dumping pipeline appears chock full of steel cases. The concern we have relates to steel buyers ” a lack of competition reduces negotiating power. Finally, these cases will have a chilling effect on imports and a backlash from overseas markets in the form of retaliatory tariffs punishing our exports.