Zeroing: Beyond Dumping?

I thought I'd mention quickly that I might be less active on this blog in the coming days than people have come to expect from me.  It's not that I've lost interest, it's that I got picked for a jury.  (For the first 15 minutes or so of voir dire, I thought, I wonder how this compares to WTO panel selection?  For the next 6 hours, it was more like "please make this end!")  In addition to being on the jury, I need to focus on finishing our Dispute Settlement Commentary for the U.S. - AD/CVD on Certain Chinese Products case, which is quite a long case.  Anyway, here's one last post for everyone to think about in case I don't have much to say for a little while.

Most of this blog's readers know the story of "zeroing" and the various WTO panel and Appellate Body rulings on the issue.  I'm not going to repeat it all now, but for some background you can see various posts in the "Zeroing" category of this blog: http://worldtradelaw.typepad.com/ielpblog/zeroing/  "Zeroing" in the dumping context is probably wearing on many people by now.  But to make things a little more exciting, the  U.S. - AD/CVD on Certain Chinese Products case gives us a new variation:  "zeroing" in the subsidies context.  For those who don't think "zeroing" of any sort is interesting anymore, I fully understand.  But for those who are intrigued, read on.

From the panel report, here's China's argument on the issue:

11.2 Based on the use of the word "product" in Article VI:3 of the GATT and Articles 10, 19.3 and 19.4 of the SCM Agreement, China submits that the SCM Agreement establishes that a countervailing duty is to be imposed in respect of the "product" under investigation. Therefore, subsidization, like dumping, is to be defined in relation to a "product as a whole", and "margins of subsidization", like "margins of dumping", can only be calculated for the product under investigation "as a whole". Thus, China submits, paraphrasing the Appellate Body's findings on zeroing in the anti-dumping context, while the USDOC could choose to undertake multiple comparisons at an intermediate stage to establish the margin of subsidization, it could only establish the margin of subsidization for each producer on the basis of aggregating all these "intermediate values". China adds that the Appellate Body's findings on zeroing in the anti-dumping context apply with even greater force in the countervailing duty context given that subsidization is not investigated on an individual transaction basis but instead necessarily involves an aggregated inquiry focusing on the "manufacture" or "production" of a product over the entire period of investigation. In particular, China submits, the principal policy justification advanced by the proponents of zeroing in the anti-dumping context – targeted dumping – does not arise in the countervailing duty context.

11.3 Further, China argues, when goods are purchased frequently over the period of investigation, determining whether remuneration was "adequate" necessarily requires an aggregate analysis that takes into account all purchases over that entire period. China adds that because of the lack of perfect information and frequent fluctuations in market conditions, buyers and sellers never know with certainty what the market price is on any given day. As a consequence, the USDOC's approach implies that government suppliers would have to sell at or above a retroactively-established benchmark price in every transaction to avoid a finding of subsidization. China submits that no market actor could ever meet this test, and that the drafters of the SCM Agreement could not have had such an outcome in mind when they created the "adequate remuneration" standard in Article 14.

...

11.36 ... China is challenging the fact that the USDOC did not "offset" the positive benefit amounts it found in certain months for certain types of rubber inputs with negative amounts in the other months, and for the other types of rubber. In other words, in China's view, the USDOC was required by Article 14(d) of the SCM Agreement, Article VI:3 of the GATT
1994, and the other provisions cited in this claim, to have summed these positive and negative amounts over the entire period of investigation and – the USDOC having defined the good at issue as "rubber" – all four kinds of rubber inputs. In particular, China argues that the references to "product" in Article VI:3 of the GATT 1994, and Articles 10, 19.3 and 19.4 of the SCM Agreement require an aggregate analysis of the inputs in question over the entire period of investigation. Furthermore, specifically in regard to Article 14(d) of the SCM Agreement, China argues that "in the context of a case like OTR, where the alleged government-provided goods were purchased frequently over the period of investigation, determining whether remuneration was 'adequate' [in the sense of Article 14(d)] necessarily required an aggregate analysis that took into account all of the respondents' purchases over the entire period of investigation". For China, if the net effect of these transactions over the course of a year is that the average price charged by the government supplier equals or exceeds the average "market price" benchmark, it would be nonsensical to suggest that the government received insufficient remuneration for the goods it sold. China further argues that if a purchaser of inputs pays on average at or above the market price for those inputs, it has not received the "good" for less than adequate remuneration, it is not "better off" for having made purchases from the government, and the "manufacture" and "production" of its merchandise can in no objective sense be considered subsidized. China's view is that there is a legal obligation under the covered agreements, at least in some circumstances, to use a method of aggregation that takes into account the full range of transactions that occurred during the period of investigation, not just some of them.  In sum, China argues, the USDOC was obligated to conduct an aggregate analysis of all transactions involving the purchase of rubber inputs over the period, including those that were made for more than the benchmark price, and not merely those that were made for less than the benchmark price.

For those who have read about "zeroing" in the dumping context, this will all look familiar.  Although the text of the two agreements differs a bit, it's easy to see how the Appellate Body's "zeroing" analysis could apply here.

So what did the Panel have to say?  It's difficult to summarize all the reasoning quickly, so I'll just give you the conclusion:

11.68  ... we find that China has not established that the USDOC acted inconsistently with the obligations of the United States under Article 14(d) of the SCM Agreement by not "offsetting" positive benefit amounts with "negative" benefit amounts, either across different
kinds of rubber or across different months of the period of investigation, nor that the United States also thereby acted inconsistently with its obligations under Articles 10, 19.1, 19.4 or 32.1 of the SCM Agreement, or Article VI:3 of the GATT 1994.

Is it surprising that a panel would not expand "zeroing" by applying it to the subsidies context?  Perhaps not, given that, over the years, some panelists have been skeptical of expanding the zeroing concept even within anti-dumping.

The interesting question will be, in the event of an appeal, how will the Appellate Body, which has been very active in striking down any and all zeroing, deal with this issue?