Remember Zeroing? USTR Says It's Out For Good – Part One

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Remember zeroing? The controversial US practice in figuring antidumping violations that’s been frowned upon by the World Trade Organization (WTO), and has made trade enemies of certain US industries in the eyes of Japan, the European Union, and a host of other nations?

Well, that practice has likely met its demise, finally, based on the recent settlement of sorts between the US Trade Representative and the European Union and Japan. The three parties “signed agreements” to avoid Japanese and European trade penalties (in the millions of dollars) placed on US imports, not to mention continued WTO Appellate Body decisions that the practice is “inconsistent with WTO rules.”

What the heck is zeroing? Glad you asked. Based on a 2009 MetalMiner interview with Dan Ikenson, Associate Director for the Cato Institute’s Center for Trade Policy Studies (these WTO cases have been dragging on since 2003, after all), we can refresh your memory with the following examples.

“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.” 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.”

That’s exactly why the USTR was under pressure to finally sign agreements with the EU and Japan. What do the agreements stipulate? All we know is that “the United States will complete the process – which began in December 2010 – of ending the zeroing practices found in these disputes to be inconsistent with WTO rules.” (We’re trying to get our hands on the language of the agreements to read between the lines.)

Continued in Part Two.

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