CHAPTER 5 ANTI-DUMPING MEASURES

1. OVERVIEW OF RULES

(1) Anti-Dumping Measures

“Dumping” is defined as a situation in which the export price of a product is lower than
its selling price in the exporting country. A bargain sale, in the sense of ordinary trade, is not
dumping. Where it is demonstrated that the dumped imports are causing injury to the
importing country within the meaning of the WTO Agreement on Implementation of Article
VI of the General Agreement on Tariffs and Trade 1994 (“Anti-dumping Agreement”),
pursuant to and by investigation under that Agreement, the importing country can impose anti-
dumping measures to provide relief to domestic industries injured by imports.1
The country’s imposition of an anti-dumping duty is determined by the dumping
margin--the difference between the export price and the domestic selling price in the exporting
country. By adding dumping margin to export price, the dumped price can be rendered a “fair”
trade price.
When it is impossible to obtain a comparable domestic price because there are none or low
volume sales in the ordinary course of trade in the domestic market, either export prices to
third countries or a “constructed value” is used in price comparison. A “constructed value” is
the cost of production in the country of origin plus a reasonable amount for administrative,
selling and general costs and for profits.
Similarly, when the export price is found to be unreliable, the price at which the product is first
resold to independent buyers, or another price according to a reasonable basis determined by
the authorities may be used in price comparison.
Because anti-dumping measures are an exception to the rule of most-favoured-nation
treatment, the utmost care must be taken in invoking them. However, unlike safeguard
measures, which are also instruments for the protection of domestic industry, the
implementation of anti-dumping measures does not require the government to provide
offsetting concessions or consent to countermeasures taken by the trading partner. This has
increasingly led to the abuse of anti-dumping measures. For example, anti-dumping
investigations are often commenced based on insufficient evidence, and anti-dumping duties
may be retained long after the conditions for their levy have been eliminated. Some countries
have applied anti-dumping measures in an arbitrary manner to restrict imports, rather than to
achieve the limited, remedial objective authorized in the Agreement. In light of this situation,
one of the focal points of the Uruguay Round negotiations was to establish disciplines to rein
in the abuse of anti-dumping measures as tools for protectionism and import restriction.

1
“Injury” includes three cases: material injury to a domestic industry, threat of material injury to a domestic
industry, or material retardation of the establishment of such an industry.
Although considerable progress was seen in this process, many countries still express much
concern over this abuse.

(2) Legal Framework

(i) International Rules

The international anti-dumping rules are provided by (a) GATT Article VI and (b) the
Anti-dumping Agreement under the WTO. The Tokyo Round Anti-dumping Code was revised
to become the new Anti-dumping Agreement as a result of the Uruguay Round negotiation.
Amendment of the Code was called for because the procedures for investigating prices and
costs in order to measure the damage to domestic industry and calculate dumping margins
were extremely technical and complex, and since the Tokyo Round Anti-dumping Code lacked
sufficient detail to deal with the complexities of current international transactions. The Code's
lack of detail resulted in a dearth of effective disciplines and exacerbated the tendency to abuse
the Anti-dumping provisions, thus requiring a revision to the Code.
The WTO holds two meetings of the Anti-dumping Committee (AD Committee) each
year to provide a forum for discussion of anti-dumping measures. Among the business of the
AD Committee is the review of countries’ anti-dumping implementation laws for conformity
to the Agreement, the hearing of reports on countries’ anti-dumping measures, and the study of
issues in anti-dumping policies and practice.
The AD Committee is directly subordinate to the Council for Trade in Goods and reports
to it each year on the implementation and administration of the AD Agreement.
The AD Committee has also organized on an ad hoc basis two fora for discussions of
specific points of contention. The first is the meeting of the Informal Group on Anti-
circumvention. This was an issue that was referred to the AD Committee for further study
because no conclusions could be reached on it during the Uruguay Round negotiations (see
1(5) below). The second is the meeting of the Ad Hoc Group on Implementation, which
discusses ways to harmonize national discretion in the agreement where the interpretation is or
could be vague.
Having separate fora to discuss specific issues of concern has enabled the WTO to deal
with anti-dumping problems on an ongoing basis.
Countries have been amending their domestic anti-dumping implementation legislation
to bring it into conformity with the new AD Agreement. In Japan, for instance, this took the
form of amendments to Article 9 (Article 8 at present) of the Custom Tariff Law and other
relevant regulations. However, it is still uncertain whether new national legislation in WTO
Member countries will be administered in conformity with the new Agreement.
The AD Committee is charged with reviewing national legislation, and countries are
required both to notify the relevant laws to the Committee and to respond to questions from
other countries about their systems. If there are any problems found, countries are obliged to
bring their national laws in line with the Agreement.
Japan must use these kinds of fora to ensure that the domestic laws of other countries are
written and applied in conformity with the AD Agreement. Should legislation or discretion
contravene the Agreement, Japan should report it immediately to the AD Committee and other
GATT/WTO fora to seek appropriate remedies.
Therefore, if an anti-dumping measure is suspected of violating the GATT and/or Anti-
dumping Agreement, Japan should seek resolution through the GATT/WTO in dealing with
the increased abuse of anti-dumping measures by certain countries. If resolution cannot be
reached through bilateral consultations, the abuses should be referred to WTO panels.

In the past, there were two viewpoints: first, that panels should have broad discretion,
second, that certain standards of review (both objective and impartial) should be set for panel
deliberations. The reasoning for the latter view was as follows. Since many cases for resolving
disputes were expected to arise due to the newly introduced automaticity in the WTO dispute
settlement system, it was considered necessary to specify standards of review for anti-dumping
measures. As a result of the Uruguay Round negotiations, the new Anti-dumping Agreement
also introduced new standards of review for factual determinations and legal interpretations by
the panel. How the standards of review are applied to procedures for resolving disputes will
depend on the specific facts of the future actions and on the panelists themselves. The issue
will be re-examined following the application of these standards over the first three years
pursuant to a Ministerial decision adopted at Marrakesh2, but no examination has been done so
far.

(ii) Major Improvements in the Anti-Dumping Agreement

(a) Fair Price Comparison

In principle, a determination of dumping is based on whether the export price of a good

is less than the domestic price in the exporting country. This comparison must be conducted in
a fair manner. So far, the determination of the normal value and/or export price is sometimes
not sufficient to adjust the differences that affect price comparability. The Anti-dumping
Agreement prescribes that comparison shall be made at the same level of trade, in respect of
sales made at as nearly as possible the same time, that due allowance shall be made, on its
merit, for differences which affect price comparability (Article 2.4), and that the authority shall
make allowances for a conversion of currencies (Article 2.4.1). Also, authorities shall indicate
to the parties in question what information is required for a fair comparison and shall not
impose an unreasonable burden of proof on those parties (Article 2.4.2).

2
“The standard of review in paragraph 6 of Article 17 of the Agreement on Implementation of Article of GATT
1994 shall be reviewed after a period of three years with a view to considering the question of whether it is
capable of general application.”
 So far, in the United States and the European Union, in cases involving more than one
transaction, all export prices higher than the weighted-average domestic price were regarded to
be the same as the weighted-average domestic price, and thus no credit was given for
“negative” dumping margins. This practice results in artificial dumping margins, and the
inflation of actual margins.
Thus, in comparing domestic and export prices, the United States and European Union
compared a weighted average of all domestic prices with the export price of each individual
transaction (See Figure 5-1). The Anti-dumping Agreement takes into account this point,
prescribing that margins shall be established on the basis of a comparison of weighted average
normal value with a weighted average of prices of all comparable export transactions or by a
comparison of normal value and export prices on a transaction-to-transaction basis (Article
2.4.2). However, because price comparison is left to investigating authorities' discretion, we
need to watch their investigation in this point.

<Figure 5-1> An Example of Unfair Price Comparison

Domestic Price($) Export Price($) Dumping Margin($)
Transaction 1 400 400  -150 → 0
Transaction 2 300 300 - 50 → 0
Transaction 3 200 200 + 50
Transaction 4 100 100 +150
Average Value 250 250 0
Note : Even though these individual prices are identical, and the overall average prices are identical, the US
Government will find dumping. Specifically, the US authorities compare the domestic average value of
$250 to individual export prices. Then the US authorities treat the so-called “negative dumping margins”
as zero when an export price is higher than the $250 domestic average value. As shown, this methodology
results in an artificial dumping margin of 20 percent despite the fact that the margin would be zero if the
comparison were made between average prices or on the basic of individual transactions.
0 + 0 +50 + 150
dumping margin percent = × 100 = 20%
400 + 300 + 200 + 100

(b) Problems Involved in Determining Injury

Under the Anti-dumping Agreement, imposition of an anti-dumping duty requires that

the investigating authority have evidence not only to substantiate dumping, but also to prove
that the dumping has resulted in injury to a competing domestic industry in the importing
country. Moreover, dumping may result in benefits to consumers in the form of lower-priced
goods and is thus not an entirely deleterious practice. Under the terms of the GATT, a country
can take actions against dumping only when there is a factual finding of injury to an industry
in an importing country.
The Tokyo Round Anti-dumping Code did not clearly set forth the conditions necessary
to establish injury. Unfortunately, the prior provisions have lent themselves to different
interpretations by different countries.
The Anti-dumping Agreement contains more detailed rules on determinations of injury.
It is difficult, however, to develop a general quantitative standard to measure the extent of
injury that has occurred.
We must therefore be aware of the potential problems in discretion. Specifically, we
must ensure that sufficient evidence is considered when determining injuries, that there is
sufficient proof of causality between dumping and injury, and that there is no potential for
injury from other factors unrelated to dumping imports to be counted in with dumping injury.

(c) Other Points

The Agreement contains many improvements over the Tokyo Round Anti-dumping
Code. The following are among the most important improvements.

i) The Agreement clarified the method used in calculating dumping margins by

establishing:
- New criteria for determining sales below cost (Article 2.2.1),
- Adjustment mechanisms for start-up costs (Article 2.2.1.1),
- The acceptance of cost calculation based on accepted accounting principles in the
exporting country (Article 2.2.1.1), and
- New criteria for setting profit rate in constructed value, (Article 2.2.2).

ii) The Agreement clarified investigation procedures through:

- Introduction of quantitative criteria for initiating proceedings (Article 5.4),
- Termination of investigations upon a determination of de minimis dumping margins
(less than 2 percent of the export price) or negligible import volumes (Normally import
volume will be considered negligible if it is less than 3 percent of total import volumes,
on an individual country basis. If the aggregate volume of imports from all negligible
countries exceeds 7 percent, negligibility will not apply) (Article 5.8),
- Establishment of strict time limits (normally 1 year with extension up to no more than
18 months after initiation)(Article 5.10),
- New disciplines on refunds of Anti-dumping duties (Article 9.3.1-3),
- New disciplines on sample-based investigations (Article 6.10), and
- New disciplines requiring accelerated investigations of new market entrants (Article
9.5).

iii) The Agreement introduced a sunset clause:

One of the most valuable and important improvements, requiring Anti-dumping duties
to be automatically terminated no later than five years from their imposition except in cases
where investigating authorities have conducted reviews on their own initiative or upon a duty-
substantiated request made by the domestic industry, and determined that dumping and injury
would continue or resume. The United States has rarely terminated Anti-dumping duties once
it imposed them. This change is, therefore, very important, and we need to keep a watch on the
US administration of Anti-dumping measures. (Article 11.3)
iv) Other changes provided in the Agreement include:
- New disciplines on cumulative assessment of injury (Article 3.3) and
- Standards of review for WTO dispute panel (Article 17.6).

Administration of the above new regulations will need to be closely monitored to ensure
that they are realized in actual application.

(3) Recent Trends

Anti-dumping investigations have been used primarily by the United States, the
European Union, Canada, and Australia, because domestic anti-dumping laws have been
enacted mostly in developed countries. However, the increase in actions brought by Brazil,
South Korea, and South Africa is a recent development worthy of note. In addition, many
other developing countries have recently introduced new anti-dumping laws. Figures 5-2 and
5-3 show the increasing number of investigations by each country. Figure 5-4 shows the
number of cases, by country, where anti-dumping duties have been imposed against Japan.
It is necessary to scrutinize carefully whether proceedings and methods of such new
“AD users” are consistent with the Anti-dumping Agreement.

<Figure 5-2> Number of Anti-Dumping Investigations, by Country

1969- 1975- 1980- 1985- 1990- 1995- Total
1974 1979 1984 1989 1994 1998
US 125 140 146 219 249 75 954
EU 19 55 138 101 147 110 570
Canada 42 74 176 115 90 31 528
Australia - 120 242 180 252 71 865
Japan 0 0 0 0 4 0 4
Others 39 64 10 74 227 395 809
Total 225 453 712 689 969 682 3730
Source: WTO documents
Note: Figure valid as of the end of June 1998
<Figure 5-3> Number of Anti-Dumping Investigations since 1993
1993 1994 1995 1996 1997 *1998
US 33 45 14 21 16 24
EU 21 43 32 24 43 12
Canada 24 2 14 5 14 1
Australia 58 13 5 17 42 7
Brazil 34 2 5 17 10 6
Korea 6 4 4 13 17 0
India 24 7 5 21 14 -
South Africa - 15 17 31 23 15
Indonesia - - 9 4 8
Japan 0 1 0 0 0 0
Source: WTO documents
Note: Figure valid as of the end of June 1998. The symbol – means non-notification

<Figure 5-4> Number of Cases where Anti-Dumping Duties were Imposed on Products      
Imported from Japan
US EU Canada Australia Korea India Taiwan Mexico South Africa
 52  7 3 2 5 2 3 1 1
Figure valid as of the end of December 1998
Note: Number includes interrupted and price undertaking cases

(4) Economic Implications

Anti-dumping measures are allowed under the GATT/WTO Agreement as an exception

to the general disciplines. However, admitting selective imposition of duties in terms of
country and supplier tends to lead to discriminatory trade policies. In addition, since anti-
dumping measures directly affect pricing, which is the most fundamental element of business
strategy, their abuse will have a tremendous negative impact on the pattern of trade and on the
overall economy. This section discusses some of the serious economic implications of anti-
dumping measures in cases where they are abused.

(i) The Influence of the Initiation of Investigation

The mere initiation of an anti-dumping investigation will have a vast impact on

exporters.
When an anti-dumping investigation is initiated, the potential surfaces for anti-dumping
duties to be imposed at some point in the future. This results in products becoming far less
attractive to importers.
Initiation of an anti-dumping investigation also places significant burdens on the
companies being investigated. They must answer numerous questions from the authorities in a
short period of time, spending enormous amounts of labour, time and money to defend
themselves. The legal costs involved are particularly high. For example, in one case involving
high-volume exports to the United States, the legal fees alone were $1 million a year. Such
burdens obviously have the potential to impair ordinary business activities.
Thus, regardless of their findings, the mere initiation of an anti-dumping investigation is
in itself a large threat to companies.
This reasoning supports the contention that investigations should only be initiated after
evidence is sufficiently considered. Any decision to go ahead with an investigation must be
made with the utmost care.
We would also note that there are many cases in which companies simply relinquish all
or part of their right to answer questions from the authorities because of the enormous burdens
involved. In such cases, the rule of “facts available” (sometimes called “best information
available”) applies.
In “facts available” proceedings, the authorities make calculations from whatever
information they have been able to gather if the company investigated has not furnished
answers or is unable to prove its contentions.
“Facts available” handling is explicitly allowed by the Agreement, and should naturally
apply in cases in which the company was able to respond but did not for its own reasons. But
as we have noted, there are also cases in which companies are forced to relinquish their right
to respond because the questions are so detailed and probing that the burden of response is too
great. The paradox is obvious. Authorities, in their excessive zeal to collect detailed
information and run rigorous investigations, end up having to use “facts available” procedures
instead. Such procedures are also, we would note, in contravention of Article 6.13 of the AD
Agreement, which states, “The authorities shall take due account of any difficulties
experienced by interested parties in supplying information requested, and shall provide any
assistance practicable.”
Since the Anti-dumping Agreement requires administering authorities to examine the
accuracy and adequacy of the evidence provided in the application to determine whether there
is sufficient evidence to justify the initiation of an investigation, we expect the number of
frivolous cases to decrease and the number of cases based on “facts available” to decrease.

(ii) Distortion of Normal Commercial Practices

Anti-dumping measures also harm companies attempting to apply normal commercial

strategies and practices. This effect is illustrated in situations of “forward pricing” in advanced
technology products and “business cycle” pricing in industries with high fixed costs. These
two cases are explained below together with the new Anti-dumping Agreement provisions
designed to ameliorate these problems.
Forward pricing is a strategy designed to reduce costs by increasing sales volumes early
in a product’s life cycle. At the start-up phase of high-tech products, prices are set at a level
below the per unit cost on the assumption that there will be a sharp reduction in such costs in
the near future as production volumes increase. This practice not only enables rapid market
acceptance of a product, it also allows companies to secure stable profits in a short period of
time. One example comes from the US civil aircraft industry. The latest B-777 (which seats
350) cost about $500 billion to develop, but the costs incurred in building the aircraft drop, as
more aircrafts are built, in part because of significant improvements in worker skills. Aircraft
manufacturers, therefore, set sales prices far below initial costs in anticipation of these
productivity gains (See Figure 5-5.).

When an anti-dumping investigation of a forward-priced product takes place early in the

product cycle, short-term average costs will still exceed domestic prices. Domestic sales will
accordingly be deemed to be “below cost” and unusable for purposes of calculating anti-
dumping duties. When domestic sales are unusable, the Anti-dumping Agreement allows the
use of a “constructed value” of the exported good in the dumping margin calculation. The
theoretical “constructed value” in such cases will be composed of the unusually high short-
term average costs plus amounts for administrative costs and profits. This “constructed value”
is then compared to the actual export price, resulting in a high dumping margin.
This forward-pricing problem has been partially addressed in the Anti-dumping
Agreement. The Agreement incorporates a provision calling for adjustments to properly
allocate costs during the start-up period for new products. The provision calls for adjusting
costs based on costs at the end of the start-up period or, if that period is beyond the period of
investigation, the most recent costs that can be taken into account when determining whether
products are being sold below cost. We will need to monitor closely whether countries will
accurately administer these Anti-dumping procedures and make proper adjustments for start-
up costs.

<Figure 5-5> Illustration of Forward Pricing

 In capital-intensive materials industries, such as steel, companies frequently set prices in
view of the full business cycle, which results in wide swings in their ratio of fixed costs to unit
production because of changes in production volumes. Since prices are also affected by the
relative strength of demand and supply in the market, it is difficult to raise prices during a
recession. Because of this, normal practice is to set prices under the assumption that fixed
costs will be recovered over the long term. In the past, the United States has not taken into
account the possibility of long-term cost recovery when dealing with intermediates like steel.
It calculated fixed per unit costs based only on production volumes during the one-year period
investigated, and because of this practice, often determined that products were being sold
below cost. This practice has been criticized since 1974 for ignoring production and business
cycles, and US courts themselves have rendered verdicts critical of the use of data covering
only the short period under investigation. The current US practice appears to be to collect cost
data for a 12-month period. The European Union engages in similar practices. While more
specific provisions regarding business cycle pricing were discussed during the Uruguay Round
negotiations, only general standards for recognizing below-cost sales were included in the
Anti-dumping Agreement. These new standards restrict the recognition of below-cost sales
only to situations in which such sales occur within an extended period of time, in substantial
quantities, and occur at prices, which do not provide for recovery of all costs within a
reasonable time. Based on these new standards, therefore, normal business cycle pricing
practices such as these should be fully taken into consideration.

(iii) Effects on Technology Transfers (Unnecessary Expansion of the Product Scope

Subject to Anti-Dumping Duties)

Anti-dumping duties are imposed on “like products” found by investigators to be

dumped on domestic markets (GATT Article VI). However, depending on how the scope of
“like products” is defined, there could be cases in which anti-dumping duties are imposed on
products that are in fact different from the product subject to investigation. We are particularly
concerned about vague wording in the definition of the range of products subject to dumping
investigations. Care must be taken with regard to products that could or will be developed in
the future so that the definition cannot be expanded beyond those products “currently” causing
injury (according to the parties filing the complaint).
There are cases where the definition has even been expanded to apply to future
generation products not even existing at the time of the original investigation. Given the nature
of the products in the cases mentioned above and the wide differences between the original
and current versions of the products, authorities ought to investigate whether or not the new
products, in view of the differences in technology used and markets targeted, are having a
detrimental impact on the domestic markets initially investigated. There are obvious problems
in expanding the application of existing anti-dumping measures without doing so. We have
strong expectations for more appropriate administration in this regard.
There are also other examples in which the scope of what are recognized to be “like
products” has had an influence on new product development and, ultimately, technological
advancement. This is particularly the case in high-tech industries, like electronics. Suffice it to
note here that all such cases demonstrate the potential impediment to technological progress
that comes from facile expansions of the coverage of “like products” in Anti-dumping
proceedings.

(iv) Retarding Globalization of Production

As the economy becomes more global in scope, companies are transferring their
production overseas to their export markets or to developing countries where costs are lower.
However, when such transfers take place for products that are subject to anti-dumping levies,
they are often assumed to be attempts at circumvention. Anti-circumvention measures which
inadequately distinguish between production shifting for legitimate commercial reasons and
for circumvention purposes, risk not only distorting trade but also shrinking investment.

(v) Conclusion

As this discussion indicates, the economic effects of abusive anti-dumping measures can
be substantial in terms of trade volume and critical to a wide range of business activities.
Unfortunately, importing countries can easily resort to such practices because they can be
accomplished under the guise of measures sanctioned by the GATT/WTO and the Anti-
dumping Agreement. For these reasons, use of Anti-dumping measures as a means of
restricting imports has increased substantially in recent years. It should also be noted that often
the most serious victims of abusive anti-dumping measures are the consumers and user
industries in the importing country.

(5) Anti-Circumvention Issues

“Circumvention” generally refers to an attempt by parties subject to anti-dumping duties

to avoid paying the duties by “formally” moving outside the range of the anti-dumping duties
order while “substantially” engaging in the same commercial activities as before.
The Uruguay Round negotiations defined three kinds of circumvention: importing
country circumvention, third country circumvention and “country-hopping.”3 Disciplines on
measures to prevent these practices were also discussed, but conflicting opinions between
interested countries prevented any final conclusion from being reached. The Marrakesh
Ministerial Declaration merely states the expectation that uniform rules will be applied as soon

3
Below are the basic kinds of circumvention discussed by most countries:
(a) Falsified customs declarations and other clear illegalities.
(b) Switching to exports of products that have only minor differences with those subject to anti-dumping duties
(slightly modified product).
(c) Exporting the parts for products subject to anti-dumping duties to the importing country and assembling
them there (importing country circumvention).
(d) Exporting the parts for products subject to anti-dumping duties to a third country and assembling them there
(third country circumvention).
(e) Exporting products subject to anti-dumping duties from third countries (“country-hopping”).
as possible, and refers the issue to the AD Committee. In light of the large amounts of time
already spent negotiating the issue without success, the AD Committee began its discussions
by looking at approaches that could be used to seek a resolution. This has resulted in an
agreement on the framework for future considerations (procedures and agenda). There have
also been substantial, unofficial discussions on what constitutes circumvention, which is the
first item on the agenda.
The basic conflict over anti-circumvention is between the United States, the European
Union, and other countries that already have anti-circumvention rules and wish to legitimize
them, and a large number of other countries, led by Japan, who are wary of introducing these
measures because they could restrict even legitimate investment activities, potentially
contracting and distorting both trade and investment.
Resolving this conflict will require striking a balance between the current AD
Agreement and any future anti-circumvention measures. Doing this will require taking account
of the benefits brought by the globalization of corporate activities and the basic principles and
goals of the WTO Agreement. This will in turn require an analysis of specific cases that
illustrate how trade is conducted to seek measures that do not impair legitimate trade and
investment while still strengthening the disciplines of the current AD Agreement.
On the other hand, the fact remains that there are, at the current time, no uniform rules
on anti-circumvention in the WTO Agreement. Should countries that have domestic laws on
anti-circumvention take measures that depart from GATT Article VI or the AD Agreement,
they will need to be dealt with rigorously within the GATT/WTO context.

(6) Response to Dumping in Japan

Japan has three laws and ordinances that come under the AD Agreement: Article 8 of the
Customs Tariff Law, the Cabinet Order on Anti-dumping Duties and the Guidelines on
Procedures for Countervailing and Anti-dumping Duties. Up to 1991, only three anti-dumping
cases had been filed in Japan, none of which led to an investigation. Japan initiated its first
official anti-dumping investigation in October 1991, concerning ferro-silicon-manganese
imported from China, South Africa, and Norway. The Japanese authorities conducted a
transparent, fair, and strict investigation. In January 1993, a final determination to impose anti-
dumping duties on Chinese exporters was made after a positive finding of dumping and injury
and a causal relationship between them (two of the Chinese exporters agreed to a price
undertaking with the Japanese government). In January 1998, this measure was terminated
(pursuant to the sunset clause).
In December 1993, a dumping complaint was filed on imports of cotton yarn from
Pakistan. The investigation began in February 1994, and after a year and a half of impartial
and rigorous study, it was found that dumping had in fact caused serious injury to the domestic
industry. An anti-dumping duty was therefore imposed. Should there be other dumping
complaints received in the future, Japan will investigate them according to international rules
in a transparent, impartial, and rigorous manner.
<Column> The Discussion of Anti-dumping Measures in the WTO Working Group on
the Interaction between Trade and Competition Policy
On the grounds that there is a close interaction between competition policy and trade
policy, the first WTO Ministerial Meeting held in Singapore in December 1996 decided to
establish a working group to study issues relating to the “interaction between trade and
competition policy.” It was originally decided that the General Council would determine after
two years’ study how the work should proceed, but at the working group meetings held at the
end of 1998, a report from the working group to the General Council was adopted requesting
an extension. As of this writing, no clear termination point had been set for the extension.
As for the discussion on antidumping measures, the working group put “the impact of
trade policy on competition” on the agenda for its fifth meeting, which was held in July 1998.
Japan focused in particular on the anti-competitive effects of antidumping measures in this
meeting. Pointing out the difference in handling under competition laws compared with
competition laws of an identical activity, namely predatory pricing, Japan emphasized the need
for review of antidumping regimes from the perspective of competition policy.
Japan has urged strongly that since the interaction between competition policy and trade
policy is examined in the WTO regime, we need to consider how to ensure the consistency
between trade policy and competition policy. As pointed out that some trade measures such as
antidumping measures and countervailing duties have a negative effect on competition, Japan
has also urged that we need further discussion on the antidumping scheme itself and therefore
these issues should continue to be addressed in the extended working group.
On the other hand, the United States is opposed to a review of antidumping measures
and urges that the working group should focus on the discussion on competition policy. Since
the US is opposed to further discussion of trade measures in the working group, it is expected
that we will face conflict over the handling of the discussion of antidumping measures.

2. PROBLEMS OF TRADE POLICIES AND MEASURES IN INDIVIDUAL COUNTRIES

(1) United States

While the United States is one of the most open markets in the world, it still has
elements of unilateralism and protectionism in its trading systems. Anti-dumping legislation is
perhaps the largest source of hidden protectionism in the United States, and many countries
have complained about its shortcomings. Some of these problems have been remedied in the
Uruguay Round implementation legislation, in which the United States brought certain parts of
its anti-dumping system in line with the new Anti-dumping Agreement. This progress is
among the most noteworthy achievements of the eight-year long Uruguay Round negotiations.
Notwithstanding these improvements, there are two concerns. First, in some areas, the US
implementing legislation could be interpreted or applied in ways that may be inconsistent with
the Anti-dumping Agreement. Second, even in areas where the implementing legislation
seems to be clear, there is a concern that actual practice under the new provisions might violate
the intent of the Anti-dumping Agreement. Therefore, it will be very important to monitor
closely the future administration of the US Anti-dumping law, and if there exist any problems,
to point them out.

(i) Recent Trends

First on the list of problematic dumping cases from recent year is the large number of
AD cases in steel products of 1992 involving nineteen different countries. The countries
subject to this investigation have pointed to numerous problems with it, including the abuse of
“best information available” procedures in calculating dumping margins, and irregularities in
the identification of injury. Another problematic case was the complaint involving
supercomputers, in which the actions of the government of the United States prior to the
initiation of the investigation were opaque and questionable.
We also find the cause-and-effect relationship for damages to be questionable in Large
Newspaper Printing Presses, Gas Turbo-compressors cases.
Thus, even though the number of complaints being filed is lower than in the 1980s and
continues to decline, there are questions about the discretion of these implementing the system
that point to the need for continued watchfulness.
Sunset reviews began in July 1998 and more than 300 measures are expected to be
studied.
In 1998, investigations were initiated for four Japanese steel products, and the study of
hot-rolled steel in particular produced some troubling administrative changes, including a
shortening of the period for the antidumping investigation and a alleviation of the “critical
circumstances” determination. The Antidumping Agreement does not specify the details of
administration, so it would be hasty to immediately conclude that these administrative changes
are in violation of the agreement, but the situation will require further vigilance so that the
rights of the defendant companies to respond and rebut are not infringed.
In November 1998, suit under the Antidumping Act of 1916 was brought against
Japanese companies regarding the import of hot-rolled steel. There are doubts about the WTO-
consistency of this law, and Japan will need to consider possible responses, including bringing
the case before the WTO.

<Column> Problems with the Procurement of Supercomputers from Japan

(1) Background
(i) In May 1996, NEC's bid was selected for final contact negotiations for a supercomputer
system to be procured by the National Centre for Atmospheric Research (NCAR). Anomalous
actions by the US Government could be seen regarding this matter as summarized below.

<Action by the United States>

(a) The National Science Foundation (NSF), which provided budgetary support for the
supercomputer procurement, sent a letter to University Corporation for Atmospheric Research
(UCAR), which runs NCAR, explaining that it had been advised that the Department of
Commerce (DOC) reached the preliminary conclusion that NEC's procurement proposal was
equivalent to dumping, and that the NSF would not allow budgetary support unless there was
sufficient documentation to demonstrate the contrary. This letter was sent even though the
Anti-dumping investigation had not yet been initiated (17 May 1996).
(b) Documents suggesting dumping by NEC were made available both to the press and to
Cray Research (US supercomputer manufacturer having also participated in the procurement
bidding) prior to the initiation of the Anti-dumping investigation (20 May 1996).

(ii) After that, NCAR froze negotiations with NEC, and in August 1997 decided to exclude
NEC from its approved vendors.

(iii) In July 1996, Cray filed a complaint alleging dumping by NEC, and in August 1997 the
DOC determined that dumping had occurred. The following September, the US International
Trade Commission (ITC) found that US industry had been threatened with material injury and
imposed an Anti-dumping duty.
NEC appealed the AD investigation by the DOC as invalid, but the Supreme Court
dismissed its appeal in February 1999.

(iv) In November of that year, NEC and Fujitsu filed a suit with the US Court of
International Trade (CIT) claiming problems in the determination of injury. The CIT submitted
an opinion paper to the ITC in December 1998 in which it instructed the ITC to reinvestigate a
part of NEC's claims. In March 1999, ITC remand the US industry is threatened with material
injury by reason. The ITC’s remand determination was delivered to the CIT. The CIT will
render the final decision in May.

(2) Points of contention

Actions by the US Government in that it alleged and made public the preliminary
analysis that dumping had occurred prior to the initiation of the Anti-dumping investigation,
could be seen as anomalous. For example, if the measures taken affected imports only, this
case may be in violation of WTO rules as a potential violation of the national treatment
obligation.
During the Japan-US Supercomputer Consultation (November 1997), Japan sought an
explanation from the US Government, urged it to maintain the transparency of US trade policy
and measures, and sought assurances from the United States that such anomalous actions
would not be repeated.

(ii) Problems Involved in Applying Anti-Circumvention Measures

The revised US anti-dumping law states that anti-dumping duties will only be imposed
when the investigating authorities find that dumping has caused domestic industry injury in
accordance with GATT Article VI and the AD Agreement. Where it departs from the WTO
Agreement is in also providing for measures traditionally used by the United States to prevent
the circumvention of anti-dumping duties. These measures provide for expanded application of
the original anti-dumping duty under set conditions if the companies subject to anti-dumping
duties attempt to circumvent them by shifting production to factories in the importing country
or third countries and selling the products from there, or by directly or indirectly selling
products that have been subject to only minor modifications from those covered by anti-
dumping duties, or similar products later developed.
To determine whether products produced in the importing country (the United States) or
a third country are guilty of circumvention, the investigating authorities look at the price ratio
of imported parts from the country subject to anti-dumping duties in the finished product or the
composition ratio of products produced from those parts. They may also take into account
patterns of trade, the relationship between exporters and importers, changes in import volumes,
levels of investment and research and development in the United States or third countries, the
nature of the production process, and the extent of the production facilities. There are, however,
no standards of judgement for any of these items. Nor are their standards of judgement for
minor modifications or later developments. This leaves a large amount of discretion to the
investigating authorities. For example, they have to consider both value-added ratios and parts
procurement ratios when they look at product composition ratios, but there are no numerical
standards given, and, therefore, there is no objectivity. In considering the “relationship
between exporters and importers,” there is a danger of companies being judged to be
“affiliates” even though there are no capital relationships as long as one of the companies is
legally or operationally in a position to exercise restraint or direction over the other.
In short, while the United States has amended the conditions for applying its anti-
dumping laws consistent with the Uruguay Round negotiations, it also includes measures like
these for which there is no justification in the WTO Agreement, which are worded vaguely (as
we have shown above), and which have the potential to obstruct legitimate investment
activities.
The United States conducted an anti-circumvention investigation on Korean Colour
Television Sets (which was terminated without conclusion). Initiating such an investigation
just as the AD Committee is discussing anti-circumvention measures would seem to be an
attempt to impede the impartial discussions of the Committee, and problematic.

(iii) Problems Involved in Determining Dumping

The United States has restructured the basis for this price comparison. There are three
major new elements to the comparison. First, the new law adds a provision to deduct from
the “constructed export price” (which replaces the prior “exporters sales price”) an allocated
portion of total profit. Second, the new law clarifies the importance of making comparisons at
comparable levels of trade and revising the provisions on level of trade adjustments. Third, the
new laws limits the offset for indirect selling expenses to those situations where a proper level
of trade comparison or level of trade adjustment cannot ensure price comparability (the ESP
offset).
The new laws state that the profit of a related importer shall be deducted from the
constructed export price. However, it is not clear how profit in the normal value shall be
accounted for. We need to monitor this point.
In addition, US law prescribes several factors to be considered in determining “affiliated
parties,” but in actual administration the authorities consider only the percentages of shares
held. This raises the risk that parties that are not, in essence, “affiliated parties” will
nonetheless be deemed to be so.
The Anti-dumping Agreement contains revisions requiring in principle that export price
and normal price should be compared in either way, weighted averages to weighted averages,
or individual transactions to individual transactions. However, it also permits exceptions to this
principle under certain conditions. The United States interpreted that this article applies only to
original investigations, but not to administrative reviews. For this reason, under the US laws in
administrative reviews it is possible to compare weighted average normal price and individual
export prices. Though this is one permissible interpretation, in light of the fact that final
determination of dumping margin is made in administrative review, it is desirable that the
United States compare weighted averages to weighted averages, or individual transactions to
individual transactions.
And during the original investigation, there were cases in which comparisons of
weighted average normal prices were not used. We will therefore need to be monitored in the
future.

(iv) Problems Involved in Determining Injury

The Tokyo Round Anti-dumping Code did not clearly set forth the conditions necessary
to establish injury. Unfortunately, the prior provisions have lent themselves to different
interpretations by different countries. For example, in the case of Japanese flat panel displays,
four types of products that were not “like products” were simultaneously subject to
investigation. Although some of the products were clearly not injuring the domestic industry,
the US authorities found injury by aggregating the four products and imputing the injury on
some products to other products.
The US International Trade Commission (“ITC”) must make its preliminary
determination regarding injury within 45 days of the petition. This period seems to be too short
a time to prepare counter-arguments challenging whether injury did indeed occur or whether
there was a causal relationship between dumping and injury.
The enormous steel complaint of 1992 that involved nineteen countries (twenty-one
when countervailing duties are included) is an example of the problems in determining
causality. The case involved what amounted to half (by value) of all steel imported by the
United States, and 1 percent of total US imports.
The ITC issued a preliminary determination that the imports of hot-rolled, cold-rolled,
and corrosion-resistant carbon steel flat products from Japan had injured the US industry. This
determination was reached despite the fact that a VRA (voluntary restraint agreement) had
been implemented on exports of these products until the end of March 1992 and the actual
export volume from Japan had been continuously and rapidly declining. Thus, the accuracy of
the ITC’s preliminary determination was highly questionable at the time, especially in light of
Article 3.4 of the Tokyo Round Anti-dumping Code (present AD Agreement article 3.5),
which states that “injuries caused by other factors must not be attributed to the dumped
imports.” After the termination of the VRA, it is highly likely that anti-dumping measures
became a substitute for the VRA, since anti-dumping measures relating to steel increased
rapidly. In June 1993, after additional arguments by Japan on this matter, the ITC issued a final
determination finding no injury from imports of hot-rolled and cold-rolled carbon steel
products from Japan, but still finding injury from imports of corrosion-resistant carbon steel
products. Just recently, the ITC findings of no injury from Japanese imports of hot-rolled and
cold-rolled carbon steel were upheld by the Court of International Trade. It is also of note that
AD cases brought immediately after losing out on a bid are increasing (Large Newspaper
Printing Presses, Gas Turbo-compressor and Supercomputers). It is necessary to monitor
whether dumping or another factor causes the injury.
The Anti-dumping Agreement contains no provisions for aggregating the effects of
dumping and subsidies (“cross-cumulation”) when assessing injury, but the United States
maintains that this is something that should be done. Should the United States actually
engage in this practice, it is likely to be in contravention of the stipulation against attributing to
dumping damage from other factors (under Article 3.5 of the Anti-dumping Agreement).

Under its new Anti-dumping legislation, the United States has adopted new rules for
dealing with the so-called “captive production” situation. These rules will effect the way in
which the United States determines the market share of the imports under investigation when
producers consume significant production of the like product internally. The denominator in
this calculation will be domestic US production minus the amount used in-house by US
companies, which makes it easy to overstate changes in import share. The numerator will be
total import volume minus imports which do not compete with domestic products (products
consumed by the importers themselves). Adjustments are thus made to both the numerator and
denominator. The United States maintains that there are no problems in this approach. In some
sectors, however, the degree of adjustment between the two may be extremely unbalanced,
making this an area where continued monitoring of administrative practice will be required.

(v) Like Products

Determination of “like products” is an area where problems are likely to occur because,
as we have already noted (see 1.(3)(iii) above), so much is up to the discretion of authority. A
specific example of this comes from Japanese television receivers, which have long been
subject to Anti-dumping duties. Authorities decided that LCD televisions were also within the
scope of the duties because they are “units able to receive broadcast television signals and
display images.” This represents an arbitrary expansion of the scope of duties to subsequently
developed products, a practice of questionable soundness.
We would also question the finding of like products for Colour Picture Tubes (CPTs).
Large CPTs require different technology than small CPTs. Therefore, at the time of the original
petition, no large CPT were even being produced in the United States, so there was no US
industry to damage. In spite of this, investigators found “like products” because “even though
large CPT require more advanced technology, there is a similarity between large and small
screen sets above and beyond any technical differences.”
We advocate the exercise of restraint in setting the scope for “similarity;” we do not
think the scope of duties should be improperly expanded. If a country wishes to expand duties
to later-developed products, we think it should redo the original investigation.

(vi) Other issues

Under US law, when dumping exports have ceased, the decision on whether to revoke
antidumping measures must take into account the potential for dumping to recur in the future.
At this juncture, exporters are asked to furnish proof that they will not dump in the foreseeable
future, but the specific requirements that would constitute this proof have never been explicitly
defined. This places an excessive burden of proof on the exporters. In this regard, the panel on
Korean DRAMs stipulated that excessive burdens of proof should not be imposed, so we will
need to monitor the behaviour of the government of the United States to comply with
Antidumping Agreement.

(vii) Sunset Provision

Because past US Anti-dumping laws lacked a sunset provision, such as that provided by
the European Union, Australia, Canada, and other countries, there was no time limit on orders
imposing Anti-dumping measures.
Consequently, Anti-dumping duties tend to remain in force much longer in the United
States than in other importing countries. Of the 52 products still subject to Anti-dumping
duties levied since 1970, 26 have been subject to duties for over ten years. (See Figure 5-6).

The AD Agreement provides for a “sunset clause” for the first time ever (Article 11.3).
Anti-dumping duties automatically expire at the end of five years unless the duties are
reviewed and found to have a positive impact on both dumping and injury. This led to the
inclusion of a sunset clause in the new US Anti-dumping law. Under the law, all Anti-dumping
measures imposed prior to 1 January 1995 will be reviewed in order beginning July 1998
(Sunset Reviews).
Because of this, US antidumping law has been given new sunset provisions, and all
antidumping measures that took effect prior to 1 January 1995 have been up for review in a
process that began in July 1998 (sunset reviews). Of the fifteen reviews toward Japan that have
been initiated, nine antidumping measures will be revoked on 1 January 2000. (As of this
writing in December 1998. Note that for one product (titanium sponges), the antidumping
measure has been already revoked by the ITC changed circumstance review separately. The
remaining five products are in either simplified review or full review.) The introduction of
sunset reviews for antidumping measures was one of the results of the Uruguay Round
negotiations, and we need to monitor the more than three hundred reviews waiting
administered and conducted in an appropriate manner.

<Figure 5-6> Lifting or Continuance of Anti-dumping Duties

(1970-present; products imported from Japan)
1970-1979 1980-1998 Years in effect
Duties in Total Duties Duties in 10 years 5-10 Less than
Effect Cases Lifted Effect and more years 5 years
US 13 54 15 39 12 14 26
EU 0 32 24 8 4 3 1
Canada 0 15 12 3 2 0 1
note) Figure valid as of the end of December 1998

(viii) Actions by the United States Steel Industry

In 1998, steel demand was robust in the United States, and its steel industry was unable
to supply its needs, leading to sharp increases in steel imports from Japan and other countries.
The US steel industry responded to this by filing four antidumping and anti-circumvention
suits against Japanese steel products (stainless steel round wires, stainless sheet strip in coils,
hot-rolled steel, corrosion-resistant steel) in 1998 alone. The industry has put pressure on the
US administration and Congress as well, and the Department of Commerce caved in to this
pressure by changing, in October 1998, the administration of the antidumping investigation for
hot-rolled sheet steel, specifically by shortening the investigation period and by alleviation and
accelerating the “critical circumstances” determination. It would be hasty to immediately
conclude that these administrative changes are in violation of the agreement, but the situation
will require further vigilance so that the rights of the defendant companies to respond and
rebut are not infringed.
Besides the antidumping suits, there are also moves to resort to suits under Article 201
of the Trade Act (steel wire rod), and even under the Antidumping Act of 1916 (see the
column for further details). We will need to monitor this situation closely because of the
protectionism aspects that it entails.

(ix) Problems with the US Antidumping Act of 1916

In November 1998, the Wheeling-Pittsburgh Steel Corporation of the United States

brought suit at the Federal District Court of Ohio under the Antidumping Act of 1916, alleging
that nine importers, including three Japanese trading houses, had engaged in dumping with the
intent to harm the US steel industry and itself.
Japan sought consultations at the WTO with the United States over the matter because
the 1916 statute provides for compensation for damages and criminal penalties as relief
measures rather than tariffs. Similarly, the initiation of the investigation was not according to
the procedures in the WTO Antidumping Agreement. Japan therefore considers this statute to
be highly likely to be inconsistent with the WTO Agreement, and if left intact it has the
potential to nullify the entire antidumping framework that has been erected.
The EU has also brought the case before the WTO because US steel manufacturers have
filed suits at federal district courts against European steel importers in the United States under
the 1916 Antidumping Act. A panel was established for the EU-USA case in February 1999,
and Japan has expressed its intent to participate as a third party.

(2) European Union

Anti-dumping is an area of hidden protectionism in the European Union. Recent EU

legislation contained amendments to bring European practice into line with the new anti-
dumping Agreement. We consider this to be one of the major successes of the Uruguay Round
negotiations. However, regarding abuse in this area which seems to have become common
practice, there are legitimate concerns that abuse may continue where discretion is allowed
even if the EU implementing legislation do not seem to violate the Agreement. This is
especially the case in the European Union because authorities have greater discretionary
powers than they do in the United States, and it is still too early to tell whether past
administrative practices will really be corrected. It will, therefore, be necessary to monitor the
administration of the new EU Anti-dumping provisions for conformity to the Anti-dumping
Agreement.

(i) Recent Trends

The number of complaints being filed is down from what it was in the 1980s and more
measures are being eliminated. However, in 1997, two investigations were initiated. There are
two cases for which we will need to continue to monitor how Anti-dumping provisions are
administered. There is great concern on these cases on various points, for example, it appeared
that unfair price comparisons were made between export price and normal value (Personal Fax
Machines) and product categories appeared to have been defined arbitrarily (Laser Optical
Reading System for use in motor vehicles). (The EU terminated the investigation without
imposing antidumping duties.)
In June 1998, an Anti-circumvention investigation was initiated against Japanese
television camera systems though there is no rationale under the WTO for doing so.(The
investigation was terminated in February 1999)
 Vice-President Sir Leon Brittan of the European Commission proposed in July 1997 that
anti-dumping procedures be improved and that “community interest” be defined. These
proposals were based on criticisms of the anti-dumping procedures, and the definition of
“community interest” for emphasizing the producers to the exclusion of other interested parties
(for example, consumers). Sir Leon proposed that “community interest” be clearly defined,
that anti-dumping investigation procedures be made more efficient, and that steps be taken to
foster greater understanding of procedures in non-EU countries.
Japan welcomes these proposals and the improvements they will bring to the impartiality
and transparency of anti-dumping procedures. We believe it will be worthwhile for the
European Commission to study them.

(iii) Problems Involved in Applying Anti-Circumvention Measures

The EU anti-dumping rules also contain anti-circumvention measures, which are

different from those of the United States. The older rules only contained the importing country
circumvention and the third-country circumvention taking advantage of EU rules of origin.
However, new anti-circumvention rules have been drafted based on the panel findings from the
parts dumping case and the opinions voiced in the Uruguay Round negotiations. The new rules
define two conditions to be met and allow various measures to be taken that cannot be
counteracted with traditional circumvention (importing country or third-country
circumvention). The conditions are: 1) there has been a change in trading patterns that cannot
be adequately explained by legitimate reasons or economic justifications other than the
circumvention of Anti-dumping duties; and 2) the effectiveness of the relief provided by Anti-
dumping duties has been impaired and there is evidence of dumping in comparison with past
normal prices. The EU has also added numerical criteria to its standards for determining
traditional circumvention – 25 percent of value added or 60 percent of parts procurement. It
has taken administrative steps to strengthen its anti-circumvention measures as well, by
registering imported products and issuing non-circumvention certificates. However, these
measures could also be applied against other forms of circumvention like country hopping.
The scope of the measures is not only broad, but omits new investigations of dumping and
injury. There are other problems too. In finding importing country or third-country
circumvention, the EU rules do not consider the relationship between assemblers and
companies subject to Anti-dumping duties, but they do include assemblers that began
operations immediately before the initiation of investigations to be part of circumvention
investigations. We would note that there is no rationale in the WTO Agreement for anti-
circumvention rules at all, and these rules, depending upon how they are administered, could
obstruct or impair legitimate investment activities.
Another troubling trend is the proposal to investigate the origin of third-country products,
where the European Union is imposing an anti-dumping duty to X country's products, and
imposes the same anti-dumping duties as are imposed in imports from X country on the third
country’s products as well, without a dumping investigation, if the third-country products are
found to be “X country’s” under the EC’s rules of origin. Disregarding for a moment the many
problems in EC rules of origin, we would note the violation of the AD Agreement involved in
imposing anti-dumping duties on third-country products just because of the way the rules of
origin are administered and without engaging in ordinary dumping investigations.
The initiation of circumvention investigations for 3.5-inch floppy disks from Taiwan and
China, and for electronic scales from Japan and Singapore, and the imposition of duties from a
circumvention investigation on bicycle parts from China all appear to be attempts to influence
the discussions of anti-circumvention currently taking place at the WTO, much like the United
States is also trying to do.
Anti-circumvention investigations have also been initiated for 3.5-inch floppy disks from
Taiwan and China, on electronic scales from Japan and Singapore, and on bicycle parts from
China. Duties have been imposed on Chinese bicycle parts already. In June 1998, an anti-
circumvention investigation was initiated for Japanese television camera systems. Japan has
protested this to the EU, there is nothing in the WTO that justifies current anti-circumvention
measures (including circumvention investigations), and arguing that the investigations are
therefore illegal.
As a result, the EU terminated its investigation in February 1999. The EU also initiated
an antidumping investigation of Japanese television camera system parts at the same time, and
we will need to continue to monitor this investigation initiation standards and procedures for
conformity to the Anti-dumping Agreement.

<Reference> Findings of the Parts and Components Panel

In 1987, anti-circumvention measures were applied to four parts for Japanese Copying
Machines and so on. Japan brought the measures to a panel, considering them a violation of
the GATT. The panel found that the EU anti-circumvention duty was applied to products
manufactured within the region and therefore was a domestic tax rather than an import duty. It
then found the fact that this tax was imposed only on Japanese companies to be a violation of
GATT Article III:2 (national treatment with regard to domestic taxation). After that, this point
was amended in the EU legislation. The panel did not, however, render a ruling on whether the
anti-circumvention rules themselves conformed to the GATT.

(iii) Problems Involved in Determining Dumping

Under EU practice, when a company employs an affiliated importer in the export market,
the EU applies asymmetrical rules to adjust the prices. For domestic prices, the European
Union deducts only direct selling expenses, while for export prices the European Union
deducts direct and indirect selling expenses as well as profits. This leads to an overstatement
of domestic prices, which makes it easy to artificially create and expand dumping margins
(See Figure 5-7).
This problem affects every determination of dumping in cases involving affiliated
importers, the degree of the problem being the only variable in any particular case. The
ubiquitousness of this problem makes it especially serious. With respect to a case involving
anti-dumping duties on Japanese audio cassette tapes, a panel was established in October 1992.
The panel reported in April 1995 and found EU price comparison methods and related rules to
be in violation of the Anti-dumping Agreement. The report was not adopted because of
opposition by the European Union. The European Union, however, revised its AD regulations
in December 1996 partly in response to the panel's recommendation. Still we need to monitor
how the new regulations will be administered.
<Figure 5-7> Asymmetrical Comparison of Normal Value and Export Price in the
European Union
<Reference> Panel on Anti-dumping Duties Levied by the European Union on Japanese
Audio Cassettes
In May 1991, the European Union levied Anti-dumping duties on Japanese audio
cassettes. Japan maintained that the methods used to calculate dumping were counter to the
Tokyo Round Anti-dumping Code, and, in October 1992, a panel was established under the
provisions of the Code. The panel reported in April 1995.
The report found the “asymmetrical price comparisons*1” used by the European Union in
comparing normal (domestic) prices and export prices to be in violation of the Tokyo Round
Anti-dumping Code. It advised the European Union to review its decision to impose Anti-
dumping duties and to bring its Anti-dumping rules into conformity with the Code. (It did,
however, determine that “zeroing*2” and “injury findings*3” were not necessarily in violation of
the Code.)
Although the panel report was supported not only by Japan but also by many other
Members, the panel report was left unadopted due to the opposition of the European Union.
That particular panel was established under the Tokyo Round Anti-dumping Code and,
therefore, did not come under the current dispute settlement procedure. As a result, the vote of
all members was required for its adoption. Since the transitional period for disputes brought
under the old Code expired at the end of 1996, the panel report can no longer be adopted.
This case is nonetheless significant because it made the European Union correct its
legislation regarding the asymmetrical comparison which the panel report condemned. It
marks the second case in which the unfair practices of Japan’s trade partners were rectified
based on GATT/WTO rules.
*1.
Asymmetrical price comparisons: The Agreement stipulates that when calculating
dumping margins, comparisons between export prices and domestic prices must be fair, and
that any differences affecting price comparability must be adjusted for. However, what the
European Union did was to only allow direct selling costs to be deducted from the domestic
price, while from the export price it deducted full direct and indirect selling costs for affiliate
companies and also the profits of affiliate companies. This overstated the domestic price and
resulted in the creation and expansion of the dumping margin. (See Figure 5-7)
The panel found the European Union to be in violation of the Agreement because it did
not make appropriate adjustments in comparisons of export prices and normal value even
though the difference in indirect sales costs and profits was that to influence price
comparisons. It therefore judged these provisions in the EU’s basic rules to be "mandatory
provisions in contravention to the Agreement."
*2.
Zeroing (See Figure 5-1): The panel maintained that calculations of dumping margins
are based on the idea that Anti-dumping duties should be imposed to the extent that the export
price in individual transactions is below the domestic selling price. Therefore, the EU's method
of calculating dumping margins did not necessarily expand the dumping margin and cannot be
considered a violation of the Agreement.
*3.
Injury findings: First, The European Union found injury even though there was only a
slight increase in the absolute volume of imports from Japan and no declines in relative
volumes of EU consumption or production nor any price undercutting. Second, in determining
injury, the European Union aggregated imports from Japan and Korea. The panel found that
the aggregation of dumped imports was not in violation of the Agreement because the
Agreement did not require evaluation of competitive conditions for dumped imports from
individual import sources. Based on this judgement, it did not render an individual ruling on
related problems regarding imports from Japan.

The Anti-dumping Agreement contains revisions requiring in principle that countries

compare weighted averages to weighted averages or individual transactions to individual
transactions (See 1.(2)(ii)(a)).
However, it also contains exceptions to this principle that, under certain conditions
(Article 2.4.2), permit comparisons between individual export prices and weighted-average
normal prices. The new EU rules incorporate these exceptions, but the conditions for invoking
the exceptions are open to different interpretation than those in the new Anti-dumping
Agreement. The EU rules state that comparison of weighted-average normal prices to
individual export prices will be permitted if it is determined that the principle method of price
comparison does not reflect the full degree of dumping. It is not clear how the European
Union will determine what “the full degree of dumping” is, and arbitrary administration of this
provision is of concern. Obviously, it should only be used under the exceptional circumstances
stipulated in the Agreement.

The Anti-dumping Agreement contains criteria for determining whether there are below-
cost sales (Article 2.2.1) that require consideration of whether costs can be recovered in a
reasonable period of time.
The new rules of the European Union require adjustments when the determination of
below-cost sales is influenced by new investments in production capacity or low production
efficiency. The Agreement, however, specifies that start-up costs should be adjusted when they
influence costs, and it will be necessary to monitor administration of the EU rules to ensure
that they do not depart from the intentions of the Agreement.

(iv) Problems Involved in Determining Injury

Invocation of Anti-dumping measures requires that dumping causes injury to the

domestic industry of the importing country, but EU injury findings contain much that is of
doubtful conformity to this rule. One example comes from the review investigation for the
Anti-dumping duties levied by the EU Commission on Japanese ball bearings (in excess of 30-
mm external diameter) in September 1992. The investigation again found dumping, but appeal
to the Court of First Instance overturned this ruling in May 1995 because of problems with
evidence used to find injury. The principal reason for the nullification of the Commission's
finding was that neither the Commission nor the Council of Ministers had proved that there
was injury or threat of injury (As a specific example, the European Commission maintained
that dumped imports had increased 2.7 percent in volume terms, but in fact total sales volumes
in the common market, including imports, had increased 9.5 percent and sales in the common
market by common market producers had increased 14.8 percent by volume.) This was the
first verdict involving Japanese firms since the Court of First Instance began hearing anti-
dumping cases in March 1994 (previous to that time, they had been heard only by the
European Court of Justice.). It is a verdict that we are pleased with because of the court's
willingness to examine the facts in detail. The EU Council of Ministers was dissatisfied with
the verdict and has appealed it to the European Court of Justice, however, in February 1998,
this appeal was rejected by the European Court of Justice.
There is also the case of Japanese audio cassettes that was disputed in a panel. In spite of
this, the European Union cumulated the effects of imports from Japan and Korea in making its
evaluation, and the panel ruled that this was not in violation of the Agreement. As a result, the
panel has refused to rule on Japan-specific issues. The anti-dumping Agreement, however,
contains criteria to be used in cumulative evaluations of injury, and it will be necessary to
monitor future administration for compliance with these criteria in injury findings.
In addition, the new EU rules allow the impact of past dumping to be considered in
injury findings. These practices are questionable in terms of the Agreement’s provision that
damage from other factors not be attributed to dumping.

(v) Like Products

We have already considered problems in the identification of “like” products (see

1.(4)(iii) above). During the review, the EU included products such as high-speed copy
machines and high-performance television camera systems that were not part of the original
anti-dumping investigation, and it ultimately expanded the scope of the products on which
duties were imposed.
The investigation into Laser Optical Reading System (presumed primarily to consist of car CD
decks) that was initiated in October 1997 also used an extremely broad definition that tries to
encompass products that the parties filing the complaint were not even producing, products
that were clearly not “like products” and that include the components that were not the subject
of the complaint. The investigation was terminated without finding any injury and causation,
but we will need to continue to monitor to ensure that any future investigations are conducted
with fair and rigorous similar products definitions.

<Reference> Deduction of Anti-dumping Duties as Costs

Under the EU policies governing refunds, when a request for a refund of anti-dumping
duties is made and the import transaction is carried out by an affiliate of the exporter, there are
problems stemming from the way in which constructed export prices are calculated. The price
used to determine the existence of dumping is reduced by the amount of anti-dumping duties
already paid (in calculating constructed export prices for the purpose of refunds, the amount of
tax is deducted from the resale price along with sales and administrative expenses and profits).
In effect, the European Union will not make a full refund of an anti-dumping duty unless the
resale price is raised by at least twice the amount of the dumping margin (See Figure 5-8). This
same problem has also been seen in reviews of anti-dumping measures (the case of Japanese
bearings).
The issue arose because there are cases in which the anti-dumping duty that is supposed
to be reflected in the export price is not reflected adequately because of the mediation of
affiliated importers. The rule seeks to counteract such opaque dealings on the part of the
exporters. The Anti-dumping Agreement stipulates that no deduction for anti-dumping duties
paid should be applied in determining the amount of duties to be refunded, if conclusive
evidence is provided (Article 9.3.3). The EU amended its Directive 11 (10) to bring it in line
with these provisions.

<Figure 5-8> “Duty as a Cost” Rule in the European Union

(3) Australia

It could be considered as a principle of the Anti-dumping Agreement that home market

sales of individual exporters in the ordinary course of trade is the proper object of comparison,
as the general rule in the Anti-dumping Agreement is to determine dumping margins for each
product for individual exporters. It is unfair to penalize a company that is itself fully in
compliance with the norms of the Anti-dumping Agreement by using the prices set by other
companies to determine normal value. An individual exporter has no control over the prices of
other exporters. The Australian anti-dumping laws, however, permit comparison between the
domestic price of other exporters or sellers and the export price, where the exporter does not
sell in the ordinary course of trade in the home market. The Australian Government insists that
as long as any products by any of the other exporters or sellers are sold in the ordinary course
of trade, the domestic price by those companies could be used as the basis for normal value
used for the comparison. However, as mentioned above, the principle of the Anti-dumping
Agreement is that anti-dumping duties are levied on sales of individual exporters, and it is
doubtful whether the interpretation of the Australian government is consistent with the Anti-
dumping Agreement. A better approach would be establishing constructed normal value or
using price exported to an appropriate third country as normal value. Either constructed
normal value or third country export price would be based on information for the particular
exporter under investigation.

(4) Canada

The provision concerning the determination of normal value in Canada's new anti-
dumping legislation is similar to Australia’s. Where there are insufficient sales in the
exporter’s domestic markets, Canadian law allows the selling prices of other sellers in the
export market to be used to determine appropriate pricing. It is doubtful whether this conforms
to the Agreement.
In injury findings, Canada also allows cross-cumulation of the effects of dumping and
subsidies imports. The Agreement allows the authorities to assess the cumulative effects of
dumping by multiple countries, but it does not contain any provision for cumulation of
dumping and subsidies. It does, however, specify that injury from other factors shall not be
attributed to dumping, which puts these provisions in a doubtful light.

(5) Others Countries

In spite of the fact that neither the GATT nor the Anti-dumping Agreement contains any
rationale for anti-circumvention provisions and is slated for discussion in the Anti-dumping
Committee, the United States, European Union and others (Mexico, Venezuela, Iceland.) have
already gone ahead and introduced anti-circumvention provisions. And Malaysia may
introduce anti-circumvention measures as well. This is a problem that was discussed earlier in
this chapter.
 Unlike customs unions, where only a single domestic industry is recognized (Article 4 of
the AD Agreement), in free trade agreements, the industry of each constituent member is
considered a separate domestic industry. When agreements stipulate that members of free trade
agreements that are not customs unions will not invoke anti-dumping duties against each other,
it would likely be a violation of Article 9 of the AD Agreement, which mandates non-
discriminatory duty collection.