WTO: USDOC Needs to Conform to Obligations Under Anti-Dumping Agreement

Originally published by the following source: SBC MagazineApril 10, 2019
by Kirk Grundahl

  

The key provision that the WTO was evaluating, with respect to the U.S. claim of lumber being dumped by Canada into the U.S. market, is as follows:

2.4  A fair comparison shall be made between the export price and the normal value. This comparison shall be made at the same level of trade, normally at the ex-factory level, and in respect of sales made at, as nearly as possible, the same time. Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability.(7)

2.4.2   Subject to the provisions governing fair comparison in paragraph 4, the existence of margins of dumping during the investigation phase shall normally be established on the basis of:

  1. a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions, or
  2. by a comparison of normal value and export prices on a transaction-to-transaction basis. 

A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find:

  1. a pattern of export prices which differ significantly among different purchasers, regions or time periods, and
  2. if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.

The key concept for the WTO evaluation is defining what is a “fair comparison.” The USDOC used the “Differential Pricing Methodology” to examine whether the export prices were set in a manner that would be defined as unfair.

Canada challenged:

  1. How the USDOC met the conditions for the use of the W-T methodology in the underlying investigation using the “Differential Pricing Methodology”; and
  2. The USDOC's use of zeroing under the W-T methodology when applying the “Differential Pricing Methodology” in the underlying investigation.

The WTO arrived at the following conclusions:

  1. The USDOC acted inconsistently with the second sentence of Article 2.4.2 in the underlying investigation because in applying the “Differential Pricing Methodology,” and specifically under the ratio test, it aggregated differences in export prices across unrelated categories (Paragraph 7.49 of the WTO report). In other words, the USDOC did not demonstrate a “fair comparison.”
  2. Canada has not established that, in applying the “Differential Pricing Methodology” in the underlying investigation, that the USDOC acted inconsistently (Paragraph 7.66 of the WTO report). In other words, the USDOC was consistent in their approach of calculating the “Differential Pricing Methodology,” which means that Canada cannot throw out the US dumping tariffs on procedural grounds.
  3. Canada has failed to establish that the USDOC acted inconsistently with the second sentence of Article 2.4.2 by using zeroing under the W-T methodology in the underlying investigation (Paragraph 7.108 of the WTO report). In other words, the USDOC was consistent in their calculation approach with respect to incorporating a process called “zeroing.” This again means that Canada cannot throw out the US dumping tariffs on procedural grounds.

Given that the US did not demonstrate a “fair comparison” in its evaluation methods, a WTO summary conclusion follows; to the extent that the USDOC analysis is inconsistent with the Anti-Dumping agreement, the USDOC has nullified and impaired benefits of that agreement accruing to Canada. In other words, the benefit to Canada would be a finding of “no dumping exists.” From these conclusions, the WTO recommends that the USDOC bring its assessment of a “fair comparison” using its “Differential Pricing Methodology” into conformity with USDOC obligations under the Anti-Dumping Agreement. (Paragraph 8.3 and 8.4 of the WTO report).

Simply put; the WTO says the dispute playing field tilted toward Canada but the US can conform to the Anti-Dumping rules and still win. Furthermore, Canada has no “get out of jail” free card.