The Anti-Dumping Agreement

Edwin Vermulst Vermulst Verhaeghe & Graafsma

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Overview Anti-dumping duty (ADD): a duty levied on

goods which have been sold (dumped) in the importing country

1) at lower prices than on the domestic market of the exporting country; or

2) below their cost of production.

ADD are a tool to shield domestic industries from low-priced third country imports.

AD is the most frequently invoked trade defense instrument worldwide.

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Presentation

1. Dumping

2. Injury

3. Procedures

4. WTO dispute settlement

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1. Dumping Six essential steps in establishing whether

goods have been dumped:1. Determine the product under consideration

(product concerned);2. Choose the investigation period (IP);3. Determine the export price;4. Determine the normal value of the goods;5. Compare the normal value to the export price;

and6. Calculate the dumping margin (i.e., the difference

between the normal value and export price).

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1. Dumping: Export price Export price: price actually paid/payable for goods when

sold for export to the EU.

IF: 1) no export price exists OR 2) the export price is unreliable

because the there is a relationship between the exporter and importer (ex. producing/exporting parent company and related importer)

THEN The export price may be constructed using the price at

which imported goods are first resold to an independent buyer.

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1. Dumping: Normal value (1/8) Normal Value: normally determined on the basis of

the price paid/payable by independent customers in the EXPORTING COUNTRY (e.g., domestic sales).

Cases when normal value CANNOT be determined on basis of sale price:

1. The exporter does not have sales of the like goods in the exporting country (i.e. domestic market)

2. The sales are insufficient and therefore not representative (i.e., less than 5% of export sales to EC);

3. Domestic sales are not made in “the ordinary course of trade” (e.g., domestic transactions are sold at a price below the cost of production)

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1. Dumping: Normal value (2/8)In the three instances when normal value CANNOT be based on domestic sales:

Normal value = cost of production (in

country of origin) + “reasonable amount” for SG&A costs (selling, general and

administrative) and profit

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1. Dumping: Normal value (3/8)Three Unique Situations:(1)Domestic sales are not made in “the ordinary course of trade”:

sales below cost: Domestic sales of like product/comparable models are representative (over 5%) but some domestic sales are sold below cost of production. These may be treated as not being ‘in the ordinary course of trade’ and may be excluded from normal value calculation if they are made within an extended period of time in substantial quantities at prices which do not provide for the recovery of all costs within a reasonable period of time.

In practice, sales below cost are excluded when:1. Weighted average selling prices is below the weighted average per unit costs , OR2. The sales represent more than 20% of the quantity of total

domestic sales of the models concerned.

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1) Dumping: Normal value (4/8)Exclusion of sales below cost will increase the normal value and thereby makes a finding of dumping more likely.

Sales below cost example:Cost: 50

Quantity Normal ExportValue Price

Day 1 10 40 40Day 10 10 100 100Day 20 10 150 150Day 30 10 200 200 WA 150 122.5

Dumping amount: 110Dumping margin: 110/515 (CIF value) x 100 = 21.14%

Note: Dumping margin = ((Normal value - export price)/CIF value) x 100

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1. Dumping: Normal value (5/8)(2) When domestic producers and distributors are

related, some WTO members base normal value on the (higher) ex-distributor price. [US-Hot-rolled Steel]

(3) Transshipments: the normal value is typically the price in the country of export. Three exceptions:

1. Products are merely transshipped through the country of export;

2. Products are not produced in the country of export;3. There is no comparable price in the country of export.

In the above cases, the normal value for the country of origin may be used.

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1. Dumping: Normal value (6/8) Non-market economy countries (NMEs): normal value

is based on 1) the price or 2) constructed value in a market economy third country [surrogate or analogue country].

Market Economy Treatment: normal value will be determined on the basis of the price paid/payable by independent customers in the exporting country, if—

On the basis of a properly substantiated claim, the producer in the NME can show that market economy conditions prevail with respect to:

1. manufacture, and 2. sale of the like product concerned

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1. Dumping: Normal value (7/8)Market Economy Treatment (MET) claims must show:1. Decisions regarding prices, costs and inputs (including raw

materials), cost of technology and labour, output, sales and investment, are made in response to market signals reflecting supply and demand, without significant State interference, and costs of major inputs reflect market values,

2. One clear set of basic accounting records independently audited in line with international accounting standards and applied for all purposes,

3. Production costs and financial situation not subject to significant distortions carried over from the former NME economy system,

4. Firms are subject to bankruptcy and property laws which guarantee legal certainty and stability for the operation of firms, and

5. Exchange rate conversions carried out at the market rate.

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1. Dumping: Normal value (8/8) The European Commission consults with the

Advisory Committee and allows the EU’s producers of the product concerned to comment. It then makes its final determination whether the producer has met the five criteria.

The determination must be made within three months of initiation the anti-dumping investigation.

The determination remains in force throughout the investigation.

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1. Dumping: Fair Comparison (1/2) A ‘fair comparison’ must be made between the export price and the

normal value at the same trade level, at or about the same time, and taking into account differences which may affect price comparability.

When the normal value and the export price are not on a comparable basis, adjustments must be made if the entity can demonstrate that the factors affect price comparability. They include:

Differences in commissions paid, After-sales costs, Costs of credit granted, Directly related transport and handling costs, Discounts, Rebates, Level of trade, Physical characteristics, Import charges and indirect taxes.

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1. Dumping: Fair Comparison (2/2)

The adjustments can work either way, i.e., depending on the circumstances they may increase or decrease the dumping margin.

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1. Dumping: Comparison methods

• Two general methods:1. Weighted average to weighted average.2. Transaction-to-transaction basis.

• One exception: weighted average normal value compared to prices of individual export prices IF two conditions are met:

1. Pattern of export prices differ significantly among different purchasers, regions or time periods.

2. The exceptional method must be proven to be more appropriate.

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1. Dumping: Dumping margin Amount by which the normal value exceeds the export price.

The difference will be the ADD (unless the injury margin is lower).

In the basic formula used by the European Commission, the export price is deducted from the normal value and the result is calculated as a percentage of the CIF (cost, insurance, freight) value.

Normal value - export price x 100 = dumping margin. CIF value

The export price used in the numerator is not the same as the export price used in the denominator.

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1. Dumping: Examples of Dumping Margin Calculations (1/2) Example I: Direct sales to unrelated customers (simple situation)

DM: 82 - 79 = (3 / 100) x 100 = 3%. Domestic and export sales prices are the same, but there is dumping margin because the ex factory export price is lower than the ex factory normal value.

Normal value Export price

Producer X --> unrelated customer Producer X --> unrelated EC customer

Sales price: 100 CIF sales price: 100

- duty drawback: 5 - physical difference: 5

- discounts: 2 - discounts: 2

- packing: 1 - packing: 1

- inland freight: 1 - inland freight: 1

- credit: 5 - ocean freight/insurance: 6

- guarantees: 2 - credit: 2

- commissions: 2 - guarantees: 2

- commissions: 2

= ex-factory price: 82 = ex-factory price: 79

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1. Dumping: Examples of Dumping Margin Calculations (2/2) Example II: Sales through subsidiaries (related parties)

DM: 122.5 – 91.3= (31.2/100) x 100 = 31.2%. Normal value-deduct direct selling expenses mother company/domestic sales subsidiary, creating ex distributor price. If the EC deducted the same costs on both sides, DM would become: 98.5 - 91.3 = (7.2/100) x 100 = 7.2%.

Export price

X ---> subs. ---> unrelated customer

100 140

X ---> EC subs. ---> unrelated customer

100 140

- duty drawback: 5 - discounts subs.: 5

- discounts subs.: 5 - inland freight subs.: 0.5

- inland freight subs.: 0.5 - credit by subs.: 2

- packing: 1 - guarantees by subs.: 2

- credit by subs.: 4 - net SGA subs.: 17

- guarantees: 2 - reasonable profit subs. (5%): 7

- customs duties paid by subs.: 8.2

ex distributor price: 122.5 - constructed Export Price: 98.3

- ocean freight/insurance: 6

- inland freight: 1

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1. Dumping: Zeroing (1/7)Comparison methods, zeroing

Suppose four transactions of equal weight are sold in the domestic market and the export market as follows:

Comparison methods, zeroing

Transaction DateDomestic Prices (normal value)

Export Prices

1 01-Jun 50 502 10-Jun 100 1003 15-Jun 150 1504 20-Jun 200 200

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1. Dumping: Zeroing (2/7)

• Weighted average domestic price: 125

• ( 50 + 100 + 150 + 200) / 4 = 125

• Weighted average export price: 125

• (50 + 100 + 150 + 200) / 4 = 125

1st method – WEIGHTED AVERAGE TO WEIGHTED AVERAGE

DateDomestic Prices (normal value)

Export Prices

01-Jun 50 5010-Jun 100 10015-Jun 150 15020-Jun 200 200

WA 125 125

1st method - weighted average to weighted average

Thus: no dumping would be found

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1. Dumping: Zeroing (3/7)2nd method – TRANSACTION-TO-TRANSACTION METHOD

One compares domestic prices and export prices sold on or around the same date.

DateDomestic Prices (normal value)

Export Prices

01-Jun 50 5010-Jun 100 10015-Jun 150 15020-Jun 200 200

2nd method - transaction to transaction

This method will lead to a finding of no dumping

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1. Dumping: Zeroing (4/7)3rd method – COMPARISON WEIGHTED AVERAGE NORMAL VALUE

WITH EXPORT PRICES ON A TRANSACTION-TO-TRANSACTION BASIS

This less obvious comparison method calculates a weighted average domestic price and then compares this price with prices of export transactions on a transaction by transaction basis.

Date

Domestic Prices

(normal value)

Export Prices

WA Normal Value

Export Prices

Dumping amount

01-Jun 50 50 125 50 7510-Jun 100 100 125 100 2515-Jun 150 150 125 150 -2520-Jun 200 200 125 200 -75

WA 125

3rd method - weighted average normal value to transaction to transaction export prices

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1. Dumping: Zeroing (5/7)

• Under this third method we find two transactions which are dumped and two transactions which are not or negatively dumped.

• The total dumping amount is 100.

• The total non-dumped amount is also 100.

3rd method – COMPARISON WEIGHTED AVERAGE NORMAL VALUE WITH EXPORT PRICES ON A TRANSACTION-TO-TRANSACTION

BASIS

WA Normal Value

Export Prices

Dumping amount

125 50 75125 100 25125 150 -25125 200 -75

3rd method - weighted average normal value to transaction to transaction export prices

100

-100

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1. Dumping: Zeroing (6/7)SIMPLE ZEROING

• Prior to the entry into force of the Uruguay Anti-Dumping Agreement this third method was routinely used by some authorities when comparing export prices with normal value and calculating dumping margins.

• They would then take the position that the third and the fourth transaction are not dumped and subsequently attribute a zero dumping amount to these third and fourth transactions: practice of zeroing.

• The result was that non-dumped transactions could not be used to offset dumped transactions.

• This practice became later known as simple zeroing.

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1. Dumping: Zeroing (7/7)SIMPLE ZEROING

• The total dumping amount in the example above is 100 (75 on the first transaction and 25 on the second).

• Assuming that the total CIF price of the four export transactions is 525, this will give a dumping margin of 19,05% (100 / 525) x 100

WA Domestic Prices (NV)

Export Prices

Dumping amount (simple zeroing)

125 50 75125 100 25

125 150 (-25) 0125 200 (-75) 0

Simple Zeroing

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2. Injury Four steps:

a) Like productb) Domestic Industryc) Injuryd) Causation* Community Interest

The determination of injury must be based on 1) ‘positive evidence’ and 2) involve an ‘objective examination’ of:

1. The volume of dumped imports and their effect on EU prices;

2. The impact of the dumped imports on EU producers of like products.

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2. Injury: (a) Like product• Like product: identical product or product

with closely resembling characteristics• Exception: available data do not permit the

identification of the domestic production of the like product. The assessment must be carried out taking into consideration the narrowest range of products.

• Product control numbers [PCNs]

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2. Injury: (b) Domestic Industry• Domestic industry: 1) all domestic producers

of the like product or 2) those domestic producers whose collective output constitutes a major proportion of the total domestic production of those products

• Exceptions: 1. Producers related to exporters or importers or the

producers are importers;

2. Regional industry.

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2. Injury: (c) Injury (1/5)

Material Injury:• Based on Objective Examination of Positive evidence;• Cumulation: the (injury) effects of a product from more than

one country simultaneously subject to an AD investigation may be assessed together (cumulated) if:

(a) the margin of dumping established in relation to the imports from each country is more than de minimis and the volume of imports from each country is not negligible; and

(b) a cumulative assessment of the effects of the imports is appropriate in light of 1) the conditions of competition between imported products and 2) the conditions of competition between the imported products and the like Community product.

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2. Injury: (c) Injury (2/5)

• Injury investigation period: three years

• Evaluation of all relevant economic factors/indices including 15 factors:

• Sales

• Profits

• Output

• Market share

• Productivity

• Return on investments

• Capacity utilization

• Factors affecting domestic prices

• Magnitude of the dumping margin

• Cash flow

• Inventories

• Employment

• Wages

• Growth

• Ability to raise capital or investments

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2. Injury: (c) Injury (3/5)Threat of material injury: It must be based on hard facts, not merely on allegation, conjecture or

remote possibility. The change in circumstances which would create a situation in which the

dumping would cause injury must be clearly foreseen and imminent. This conclusion should be based on factors such as:

1. Significant rate of increase dumped imports;2. Substantial increase capacity of the exporter;3. Whether imports entering EU at prices which will have a significant

depressing/suppressing effect on domestic prices; and4. Inventories of the product.

The totality of the above factors must lead to the conclusion that further dumped exports are imminent and that failing protective action, material injury would occur.

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2. Injury: (c) Injury (4/5)Negligibility: ADD will not be imposed when the

injury is negligible-

1. Imports account for less than 1% of the market share in the EC.

2. The WTO standard is that injury is negligible if the volume of dumped imports from the exporting country accounts for less than 3% of the imports into the country running the AD investigation.

3. However, while imports may have a high overall market share, i.e. more than 1%, they may still be less than 3% of total imports. In such instances the WTO standard applies.

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2. Injury: (d) Causation• Non-attribution: the fundamental question is

“Was the injury caused by the dumped imports or by other factors ?”

• Other factors: (non-exhaustive list) include:1. Volume & prices of non-dumped imports

2. contraction in demand;

3. changes in patterns of consumption;

4. Trade restrictive practices;

5. developments in technology;

6. performance of the domestic industry.

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2.a Injury margins

(1) Undercutting method

P S S S

DM 30% 20% 10%

Price 100 110 90 80

IM 100 - 110 = 0 100 - 90 = 10

10 / 90= 11%

100 - 80 = 20

20 / 80 = 25%

Duty 0 11% 10%

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2.a Injury margins

(2) Underselling method

P S S S

Price 123.2 110 90 80

IM 123.2 - 110 = 13.2

13.2 / 110 = 12%

123.2 - 90 = 33.2

33.2 / 90= 36.88%

123.2 - 80 = 43.2

43.2 / 80 = 54%

Duty 12% 20% 10%

Cost P = 110

Profit P = 13.2

TP = 123.2

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2.b Injury: Community Interest EU AD legislation (the Basic Regulation)

requires the EC to determine whether the Community interest calls for intervention.

The determination must be based on all of the various interests, including those of the Community industry, importers and user industry.

AD measures may not be applied when the authorities conclude that it is not in the Community interest to apply the measures.

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3. Procedure The primary objective of the procedural

requirements of the WTO ADA and the Basic Regulation is to:

1. Ensure transparency of proceedings2. Give interested parties the opportunity to make their case

known and provide adequate explanation of the determinations made.

Procedural issues:a) Submission of complaint.b) Initiation of the proceeding.c) AD investigation timeline. d) Application of duties*) EU Procedure and Judicial Review

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3. Procedure: (a) Submission of complaint (1/3) The European Commission (Commission) may

initiate an investigation of its own accord but normally the Commission begins an investigation after receiving a complaint by/on behalf of the Community industry.

Any individual/association can submit in writing a complaint to the Commission alleging dumping and resulting injury by non-EU suppliers.

Complainants are typically associations representing producers in a section of the Community industry.

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3. Procedure: (a) Submission of complaint (2/3)

The complaint should provide:1. evidence of dumping; 2. the injury being caused to the domestic industry; and3. a causal link between dumping of products on the EU market

and alleged injury caused.

The Commission must examine the accuracy and adequacy of the evidence submitted to determine whether the initiation of an investigation is justified.

The Commission must notify the government of the exporting country after it has received a properly documented complaint, but before proceeding to initiate an investigation.

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3. Procedure: (a) Submission of complaint (3/3) Standing: an investigation must not be initiated unless the

Commission has concluded that the complaint was made by/on behalf of the Community Industry.

The complaint has been made by/on behalf of the Community industry if it is supported by Community producers with a collective output that is more than 50 % of the total production of the like product produced by that portion of the Community industry expressing either support for or opposition to the complaint.

No investigation may be initiated when Community producers expressly supporting the complaint account for less than 25 % of total production of the like product produced by the Community industry.

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3. Procedure: (b) Initiation of proceedings

The Commission publishes a Notice of Initiation (NOI) in the Official Journal (OJ). The purpose is:

1. To inform affected importers and exporters, and representatives of the concerned exporting countries, and

2. To commences the investigation into the alleged dumping and injury being caused simultaneously.

The Commission sends out/makes available:- A questionnaire for EC producers;- A questionnaire for exporters;- A questionnaire for unrelated importers

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3. Procedure: (c) AD investigation timeline (1/2) Day - 45: Complaint lodged by Community industry with the EC.

Day 1: Initiation of proceeding by publication of NOI. Interested parties invited to comment. Usually 37-day deadline for Questionnaire (Q) responses and requests for

hearing/comments by interested parties (specified in NOI/Questionnaires) .

Around Day 2: Letters and Qs to exporters, importers, Community industry, users, and/or consumers (“interested parties”).

Day 38: Expiry deadline for:(1) Q responses, (2) requests for a hearing or (3) other comments by interested parties.

Before/on Day 270: Publication in OJ of EC Regulation imposing provisional measures for 6 months. Entry into force usually day after publication. ->15-30 day deadline comments.

Day 300: Expiry deadline, comments on provisional disclosure letters if there is 30-day deadline

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3. Procedure: (c) AD investigation timeline (2/2) Around Day 390: definitive disclosure letters sent to interested

parties which co-operated in proceeding. At least 10-day deadline for interested parties which co-

operated in proceeding.

Around Day 400: Expiry deadline for comments.

Day 405 to 425: EC analyzes comments.

Around Day 425: EC conclusions sent to the Council.

Before/on Day 455: Publication in the OJ a Council Regulation imposing definitive measures for 5 years. Entry into force usually day after publication

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3. Procedure: (d) Application of duties (1/4)

Provisional duties: provisional duties can be imposed no earlier than 60 days from the initiation of proceedings but not later than 9 months from the initiation.

The provisional duty is set with reference to the established provisional dumping margin (the lesser duty rule applies).

Provisional measures may be a bond or security deposit.

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3. Procedure: (d) Application of duties (2/4)

Definitive action1) Termination without measures: e.g. the complaint is

withdrawn, dumping margins are de minimis (less than 2%); injury is negligible.

1) Undertaking: exporter undertakes to amend prices. The advantage of price undertaking is that the importer does not have to pay ADD.

1) Definitive duties: ADD are imposed for five years: 1) final facts establish that dumping has taken place;2) dumping caused injury to Community industry; and3) Community interest calls for application of definitive duties. * Provisional measures are made final at the same time.

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3. Procedure: (d) Application of duties (3/4)

Retroactivity In general, ADD can only be applied from the

date on which the determination of 1) dumping 2) injury and 3) causality has been made.

In certain cases, duties can be imposed retroactively:

Provisional Measures:1. Final determination of injury, or2. Final determination of threat of injury

90 days prior to Provisional:1. History of dumping which caused injury;2. Massive dumped imports in a relatively short time.

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3. Procedure: (d) Application of duties (4/4)

- Interim Review: after one year and changed circumstances.

- Newcomer Review: to determine individual margins of dumping for new exporters in the exporting country which did not export the product during the period of the investigation.

- Expiry Review: definitive duties must be terminated at the latest 5 years from their imposition unless the Commission determines in the course of an ‘expiry review’ that the expiry of the duty would lead to a continuation or reoccurrence of dumping and injury.

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3. Procedure: (*) EU Procedure and Judicial Review (1/2)

1. The European Commission 1) analyses the complaints, 2) decides which cases are initiated, and 3) carries out investigations.

2. Member States (in advisory committee) are consulted on the decision to initiate a proceeding and they are consulted before a decision to impose provisional or definitive ADD is taken.

3. Discussions about the imposition of definitive ADD occur in preparatory groups (Commercial Questions Group); decisions are taken in the COREPER and in the Council.

4. In case of Commission proposals to impose definitive measures, within one month of receiving the proposal, the Council must adopt it- unless it decides by a simple majority (13 votes out of 25) to reject the proposal. [Abstentions count in favor of Commission proposals to impose measures.]

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3. Procedure: (*) EU Procedure and Judicial Review (1/2)

The Court of First Instance (CFI) and the European Court of Justice (ECJ) have jurisdiction to hear anti-dumping cases. The CFI may only hear direct actions. The ECJ may hear direct actions and preliminary rulings referred by

the national courts. By virtue of Art. 173 EC Treaty, the CFI and ECJ can review the

legality of certain acts of the Council and Commission including. Regulations and Decisions reached by the Commission or Council

regarding the imposition of provisional/definitive duties and in relation to the termination of investigations, acceptance of price undertakings, etc.

An application for judicial review may be brought on the basis of inter alia lack of competence or infringement of an essential procedural requirement.

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4. WTO dispute settlement• Claims must be sufficiently precise.

• New claims: no principle of exhaustion for administrative remedies.

• Only governments can initiate AD disputes.

• Role of industry representatives (amicus curiae, part of the Member delegation).

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4. WTO dispute settlement (1/3)

• Identification of one of these 3 measures:1. Definitive AD duties;2. Acceptance of price undertakings; or 3. Provisional measures

• Challenging national legislation

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4. WTO dispute settlement (2/3)• Special standard of review:

(i) in its assessment of the facts of the matter, the panel shall determine whether the authorities' establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;

(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

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4. WTO dispute settlement (3/3)Developing Countries• ADA, Article 15

– Developing countries’ particular situations must be taken into account by developed countries when imposing ADD.

– Constructive remedies must be explored before applying ADD duties.

• [EC-Bed Linen, Panel] – Application of Article 15: only before definitive measures are

imposed. – Examples of constructive remedies include the imposition of anti-

dumping duties in less than the full amount than those calculated, and price undertakings.

– Article 15 requires an authority "to actively consider, with an open mind, the possibility of such a remedy prior to imposition of an anti-dumping measure … ."