The U.S. DOC Proposes to Abandon “Zeroing” Methodology in Administrative Reviews of Antidumping Duty Orders

On December 28, 2010, the U.S. Department of Commerce (DOC) issued a proposed rule that, if adopted, could change significantly the calculation of the amount of duties owed in administrative reviews of antidumping duty orders. This change would entail abandonment of the DOC’s controversial “zeroing” methodology, which repeatedly has been found to be inconsistent with U.S. obligations under the World Trade Organization (WTO) agreements. The DOC is seeking public comments on the proposed rule, which must be submitted by January 27, 2011.

“Zeroing” Methodology

The DOC is charged with imposing antidumping duties on imported merchandise being sold in the United States at less than fair value ( i.e., “dumped” merchandise). The amount of duties imposed by the DOC depends on the degree to which the price at which the subject merchandise is sold in the United States is below the merchandise’s “normal value” (typically measured as its home market price). In administrative reviews, based on the differences between the prices of individual U.S. sales and weighted average normal values, the DOC calculates a weighted average dumping margin specific to an exporter or producer. The weighted average dumping margin is used as the cash deposit rate that is applied to entries of the subject merchandise exported by the foreign producer or exporter, and also is the basis for, the calculation of assessment rates for each U.S. importer of the foreign producer’s or exporter’s merchandise.

In many cases, the U.S. prices in individual transactions for imported merchandise exceed the normal value, which means, in effect, that those sales generated “negative” price comparison results. The DOC’s practice, however, has been to refuse to include the negative price comparison results in calculating the weighted average dumping margin for the exporter or producer. Instead, the DOC has set the negative comparison results on those transactions at zero. This practice of converting negative price comparisons to zero is, appropriately, referred to as “zeroing.”

WTO Decisions

The DOC’s use of the “zeroing” methodology has been challenged repeatedly in WTO dispute settlement proceedings. Several U.S. trading partners have complained that “zeroing” inflates dumping margins in a manner inconsistent with obligations established in the WTO agreements. The WTO Dispute Settlement Body has agreed, initially finding impermissible the use of “zeroing” in original antidumping investigations. In response, the DOC abandoned the use of this methodology in original investigations in 2006 (implemented in February 2007). In January 2007, the WTO found that the DOC’s “zeroing” methodology was also inconsistent with the WTO agreements when used in administrative reviews of antidumping orders, a finding that has been reiterated in subsequent WTO disputes. The United States has issued statements indicating that it would implement the adverse WTO decisions, but offered no timeframe for implementation.

The Proposed Rule

The DOC’s proposed rule would implement the adverse WTO decisions by abandoning the use of the “zeroing” methodology in administrative reviews of antidumping orders. In doing so, the DOC would no longer use, as its normal methodology, the comparison of the prices of individual U.S. transactions with monthly weighted average home market sales prices (as normal value). Instead, the DOC proposes to compare monthly weighted average U.S. prices with monthly weighted average normal values. Further, in the move that would comprise the abandonment of zeroing, the DOC would grant an “offset” against the amounts of “positive” comparisons for the “negative” amounts generated by those individual comparisons where the monthly average U.S. price exceeds the monthly average normal value. Thus, in aggregating the comparison results to obtain the foreign producer’s or exporter’s cash deposit rate and the importer-specific assessment rates, the DOC will no longer set the value of negative price comparison results to zero.

Specifically, the DOC stated that it:

now proposes to modify its methodology for calculating weighted average margins of dumping and assessment rates to provide offsets for non-dumped comparisons while using monthly average-to-average comparisons in reviews in a manner that parallels the WTO-consistent methodology the Department currently applies in original investigations. In particular, . . . in reviews, the Department proposes to compare monthly weighted average export prices with monthly weighted average normal values and to grant an offset for such comparisons that show export price exceeds normal value in the calculation of the weighted average margin of dumping and assessment rate. Where the weighted average margin of dumping is zero or de minimis, no antidumping duties will be assessed.

If adopted, the DOC would apply its new methodology in all pending administrative reviews in which preliminary results are due more than 60 business days after publication of the final rule.

The DOC’s notice states that it may forego use of the proposed methodology in individual cases if it determines that “a different comparison method is more appropriate.” The DOC has not indicated those circumstances in which another comparison method would be more appropriate nor what the alternative comparison method would entail. These details could determine the practical impact of the DOC’s decision to eliminate the use of “zeroing” in administrative reviews.

The DOC also would apply the proposed methodology in remedial proceedings concerning the specific administrative reviews that were the subjects of adverse WTO decisions ( i.e., so-called Section 129 proceedings). Under the proposed rule, it appears that the dumping margins resulting from all other completed administrative reviews would not be recalculated using the DOC’s new methodology. However, the notice indicates that, in determining the likelihood of future dumping in sunset reviews, the DOC may disregard prior dumping margins calculated in investigations or reviews that were based upon zeroing.

As noted above, comments on the proposed rule are due to be submitted to the DOC by January 27, 2011. If you have questions about the impact of the DOC's proposed change in methodology on particular imports, or wish to consider submitting comments to the DOC, please contact the Sidley lawyers with whom you generally work.

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