Technical note: ‘zeroing’

By Peter Ungphakorn
POSTED JANUARY 31, 2020 | UPDATED FEBRUARY 18, 2021

This technical note accompanies
A bit of bother down at the WTO court — Why? And is it a killer? Long read

Zeroing
Dumping margins with and without zeroing (Click the image to see it full size)
ANTI-DUMPING

THE most prominent cases involving “overreach” accusations are fiendishly complicated but at their heart are efforts to protect industries such as steel against competition from cheaper imports. The issue is “anti-dumping” actions and the US’s use of a method called “zeroing” to calculate tariffs imposed on imports in response.

Broadly speaking, “dumping” is when a product is exported more cheaply than its normal price. The exact meaning of a “normal” price is the first complication. It can be the price in the exporting country, or something different. (If you really want details, look for “normal value” here.) Let’s just say a dumped product is abnormally cheap, sometimes but not always sold at a loss, to gain or retain market share — although that objective is not part of the definition.

The WTO Anti-dumping Agreement allows countries to respond. They can impose import duties to offset the abnormally low price. But even alleged dumping prices fluctuate, as do the “normal values”. Sometimes they are below the normal price; sometimes they are above it. The solution is to calculate what has happened over a period of months, and use that for the tariff to bring the abnormally cheap price back to a normal level.

ZEROING

QUESTION: What do you do when the price is above the normal level, and there is no dumping?

The simplest answer is: take an average, where the extent of dumping (the “dumping margin”) is positive (the price is below normal, so there is dumping) when the price is below the normal level and negative (there is no dumping) when it’s above. The offsetting duty is then that average.
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The US method: do that, but if the price is above the normal level, then count the margin as zero instead of a negative amount. That’s “zeroing” and clearly it produces a bigger dumping margin — and a higher offsetting tariff — than in the straight average calculation. The US is saying when there is no dumping, that shouldn’t count towards the dumping margin.
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The US approach has been challenged in a number of WTO disputes. In all or almost all cases the US has lost.
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US attempts to negotiate changes to the Anti-Dumping Agreement in the WTO’s deadlocked Doha Round talks have also been blocked by other WTO members.
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But then, in April 2019, the US Trade Representative’s Office hailed a finding by a WTO dispute panel, which overruled a previous Appellate Body judgement that “zeroing” was illegal. The case is DS534. In it, Canada complained about US anti-dumping calculations on imports of softwood lumber, the latest in a long series of disputes about lumber. The case has not concluded yet: Canada has appealed.


More: A podcast explaining zeroing: “The Biggest WTO Threat You’ve Never Heard Of”; Chad Bown on the Office of the US Trade Representative’s claim that zeroing is “common sense”.


Updates:
February 18, 2021 — minor editing for clarity, including in the graphic. Reformatted
February 12, 2020 — adding “More”.