DS350: US — Continued existence and application of zeroing methodology
Adoption of Panel and Appellate Body reports

The EC said that the zeroing issue was not a new one and that the practice was first condemned by the Appellate Body (AB) in a case (DS141 Bed Linen case) involving the EC in 2001. The EC complied with the DSB’s recommendations and rulings by ceasing to apply “zeroing”.

Since then, said the EC, the AB had maintained a consistent and coherent line on this issue in about 14 cases. It had confirmed the inconsistency of zeroing with the fundamental obligations of the Anti-Dumping (AD) Agreement, which were to establish dumping in respect of an exporter and a certain product and to conduct a fair comparison between the export prices and normal value. It was patently clear from these rulings that the practice of zeroing, whether in original investigations or in reviews, was per se WTO incompatible. Unlike the EC, the US had not drawn the inevitable consequences and stopped using zeroing. It had chosen rather to challenge the AB’s authority and the dispute settlement system as a whole by forcing other WTO members into continued litigation only to get the opportunity to re-argue its case over and over again and delay compliance.

The EC welcomed the rejection by the AB of the controversial findings by the Panel and all the grounds of appeal put forward by the US and said that the EC was elated by the affirmation of the Panel’s findings that the US had violated Article 9.3 of the AD Agreement and Article VI:2 of the GATT 1994 by applying simple zeroing in 29 periodic reviews, and also Article 11.3 of the AD Agreement by using dumping margins established through “model” zeroing in original investigation in eight sunset reviews. The finding that a challenge could be mounted against the continued use of the zeroing methodology in successive proceedings in which duties resulting from specific anti-dumping duty orders were maintained was very important, as it confirmed the view that form could not prevail over substance and restrict the ability of members to challenge measures with prospective effect. It was not only the AB’s conclusion on what constituted a measure which was interesting, but also its finding that the distinction between “as such” and “as applied” should not delineate the type of measures that could be challenged under the dispute settlement system.

The EC was, however, disappointed that the AB could not complete its analysis and make findings on whether the continued application of zeroing in 14 out of the 18 anti-dumping cases and two out of the seven periodic reviews at issue was WTO-consistent. The cautious approach of the AB could have ramifications for the dispute settlement system if followed in subsequent cases. Nevertheless, the EC supported the adoption of the reports and expected implementation to quickly follow. Given that implementation in this case mainly involved a recalculation exercise, the EC believed that the US could promptly do this and bring its measures into conformity with the DSB's recommendations and rulings.

The US was disappointed with the findings of the AB, which, according to the US, incorrectly expanded the scope of the proceedings and disregarded the careful bargain struck as part of the Uruguay Round Agreements. The US felt it was disheartening that the AB failed, once again, to accept the permissibility of zeroing under the covered agreements and imposed obligations on members where none existed. The reasoning of the AB that the concepts of “dumping” and “margin of dumping” were exporter-based and precluded a finding that dumping could exist with respect to an individual transaction was not persuasive, said the US. While dumping might be an exporter-related concept, the US believed it could still exist on a transaction-by-transaction basis. The US said it was instructive that one AB member wrote that “[w]hile aggregation is an unavoidable requirement of the AD Agreement, these provisions are not clear as to what it is that must be aggregated” and “[t]here are arguments of substance made on both sides”. There was no basis for the AB to have ruled that the use of zeroing in reviews was prohibited under the AD Agreement, said the US.

The US was also perturbed by the AB's approach to Article 17.6(ii) of the AD Agreement, which provides that where a relevant provision of the Agreement admitted more than one permissible interpretation, the Panel should find the authorities' measure to be in conformity with the AD Agreement if it rested on one of the permissible interpretations. Instead of examining whether the US interpretation was permissible, the AB began by reiterating its analysis of the AD Agreement and concluded that since the US interpretation was at variance with it, it was not permissible under the Agreement.

If Article 17.6(ii) only sanctioned interpretations that yielded the same result, said the US, it would serve no purpose. The fact that contrasting conclusions could be reached was no basis for finding one of them to be impermissible. Instead of examining the meaning of “permissible”, the AB simply asserted “the rules and principles of the Vienna Convention cannot contemplate interpretations with mutually contradictory results”. This assertion was unsupported, especially considering that the ordinary meaning of “permissible” was “allowable” or “permitted”. There was nothing in the Vienna Convention that said an interpretation was not allowable simply because another interpretation could also result from application of those rules. Indeed, Article 32 of the Vienna Convention recognised that the application of Article 31 could lead to an ambiguous result. Thus, it was strange for the AB to have reached the view that Article 17(6)(ii) did not contemplate interpretations with mutually contradictory results. The negotiating history indicated otherwise; they indicated that it would be a legal error not to respect a permissible interpretation of the AD Agreement.

The AB also made some troubling procedural findings. The EC's panel request was deficient and did not meet the requirements of Article 6.2 of the DSU, as it only referred to the “application or continued application of antidumping duties in 18 cases”. The Panel adopted the correct approach when it found that the EC could not refer to duties in a general way, detached from the underlying administrative determinations. The US also had concerns about the 14 measures not included in the consultations request and the four preliminary measures. Secondly, there was no basis for the AB's statement that a hierarchical structure was contemplated in the DSU. The DSU did not establish a common law system, in which findings of the AB on legal issues became binding precedents. On the contrary, it was only the Ministerial Conference and the General Council which had the exclusive authority to adopt binding interpretations of the covered agreements.

Finally, the US welcomed the recognition by the AB that in the case of members with less-than transparent systems, it might be entirely appropriate in WTO disputes for panels to make findings based on circumstantial evidence. It, however, found puzzling the refusal by the AB to complete the analysis in India — Alcohol Tariffs, notwithstanding the existence of evidence — including an admission by India — from which the proper legal conclusions could have been drawn. It was not easily discernable why the AB intended to take a different approach in these two cases.

The representatives of Brazil, Chile, China, Hong Kong (China), India, Japan, Norway and Thailand welcomed the affirmation by the AB that the zeroing practice was inconsistent with the AD Agreement. They particularly welcomed the finding that a challenge could be mounted against the continued use of the zeroing methodology in successive proceedings in which duties resulting from specific anti-dumping duty orders were maintained. They expressed the hope that this ruling would finally clear up any remaining disagreements about the legality of the zeroing practice and make the initiation of new cases unnecessary. They urged the US to promptly bring its measures into conformity with the DSB's recommendations and rulings in this case.

The representative of Chile agreed with the US statement that no hierarchical structure was contemplated in the DSU.

 

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Implementation of DSB rulings 

a) EC — Measures affecting the approval and marketing of biotech products
(DS291, DS292, DS293)

The EC said that recent developments had shown that the EC’s regulatory regime for biotech products was operating normally. Draft Commission decisions which would authorise the cultivation of GM maize 1507 and Bt 11 would be presented to the regulatory committee at the end of February and two draft authorisation decisions on two other maize applications (maize 59122 NK 603 and MON89034), which had received a positive opinion by the European Food Safety Authority (EFSA), would soon be adopted.

Regarding national bans, the EC said that action was being taken and that draft decisions on several measures implemented by France, Greece and Hungary prohibiting the cultivation of GM maize MON810 would soon be discussed by the EC Council. A draft decision had also been adopted on the Austrian ban which was condemned by the Panel. The EC recalled that the EU Agriculture Council had voted in January on two draft authorisation decisions for two products, namely GM oilseed rape (T-45), a product of interest to Canada, and a GM carnation. The authorisation of these two products was expected very soon and this would bring the total number of authorisations to 21 since the establishment of the Panel in this case. The EC continued to believe that given the sensitive nature of biotech issues, dialogue was the appropriate way forward and remained committed to continuing discussions with the three complainants.

The US said that recent developments had not eased US concerns about the EC’s treatment of biotech products. The US said that 50 applications were still outstanding and that this was having a commercial impact on US interests. Regarding the national bans imposed by EC member states on products approved by the EC before the moratorium, the US said that the EC had not addressed these measures, even though the DSB had found that they were not based on a risk assessment consistent with the SPS Agreement.

The US said that Austria continued to ban the cultivation of an insect-resistant maize variety, even though it had been approved by the Commission before the moratorium and recently found to be safe by the EC’s own scientific committee. Member states which did not ban this maize variety were cultivating it in greater quantities without any adverse effects on health, safety or the environment. Notwithstanding all this, the EC had failed to remove this ban by Austria and had also allowed other member states (France, Greece and Hungary) to impose this unjustified ban on this variety of maize. The US was disappointed that the EC’s regulatory committee failed to adopt a measure on Monday 16 February 2009 which would have compelled France and Greece to lift their ban applications. The US urged the EC to bring its measures into conformity with the DSB’s recommendations and rulings.

Canada appreciated its continuing dialogue with the EC, but it was concerned about the bans imposed by certain EC member states. Canada referred to the safeguard measures imposed by France and Greece on GM maize MON810 and said that notwithstanding the opinion of the EFSA that its cultivation did not pose any risks for humans, animals or the environment, the EC’s Standing Committee on Food Chain and Animal Health could not agree to a measure which would have required them to lift their measures. Canada was concerned that undue delays were reappearing in the EC’s approval system for biotech products.

Argentina expressed concerns about the slow pace of the approval system for biotech products and expressed the hope that the continuing dialogue with the EC would lead to the resolution of this dispute.

b) EC — Regime for the Importation, Sale and Distribution of Bananas: Second Recourse to Article 21.5 by Ecuador (DS27)

The EC said that it intended to implement the DSB’s recommendations and rulings in this dispute by modifying its bound duty. It was the EC’s expectation that the rebinding could be made in the context of a comprehensive agreement with Most-Favoured Nation (MFN) suppliers. The EC had been seeking such an agreement since 2004 when it initiated GATT Article XXVIII negotiations and that it was committed to finding a permanent solution to this long-standing dispute. To that end, the EC held negotiations with Ecuador and other MFN suppliers on 10 February.

The EC said that demands by MFN suppliers that the EC should sign the Geneva Banana Agreement (GBA) ignored the fact that it was linked to the successful adoption of Doha Development Agenda agriculture modalities. Notwithstanding that the EC was committed to negotiating a new draft agreement which would incorporate some elements in the GBA and seek to modify others based on current developments with all banana suppliers. The EC hoped that they would all engage in the negotiations constructively.

Ecuador said that it was not apparent from the EC’s statement when it would implement the rulings. The EC’s denial of the existence of the GBA, which was concluded on 27 July 2008, and its inclination not to sign it was regrettable. Ecuador said that the recent EC proposal was not balanced and sought to amend unilaterally several agreed elements in the GBA. It would require MFN suppliers to relinquish their WTO rights and make it dependent on developments in the Doha Round. Ecuador urged the EC to reconsider its position and sign the GBA which would put an end to this long-running dispute and obviate the need for Ecuador to exercise its retaliatory rights under the DSU. A unilateral decision by the EC in this case would have serious ramifications. Ecuador concluded by requesting the EC to submit a status report as to how it intended to comply with the DSB’s recommendations and rulings in the case initiated by the US.

The US regretted that the EC had decided to submit a status report only for this case and not the one involving the US. The US reiterated the AB's ruling that the “DSB’s recommendations and rulings from the original proceedings remain in effect until the EC brings itself into substantive compliance”. It contested the EC's view that further action on its part was unnecessary to comply with the DSB's recommendations and rulings, as the measures complained of had ceased to exist following the conclusion of economic partnership agreements with the relevant African, Caribbean and Pacific (ACP) states.

There was no panel or AB Report to back up this claim, the US said, nor had the EC provided any information on the measures it had taken to comply with the DSB's recommendations and rulings. Furthermore, the EC had omitted to provide information in its status report on how its new banana regime, allegedly introduced on 1 January 2008, was in compliance with its obligations under GATT Articles I and XIII. Regarding the GATT Article II consistency in Ecuador's proceeding, the US referred to the EC statement that it was committed to achieving a “comprehensive agreement on bananas that would establish, among other elements, the level of the new EC bound tariff duty” and said that the EC was required to reduce its tariffs on bananas as a compliance matter. The US concluded by saying that it expected that the EC would provide a comprehensive status report with a comprehensive explanation of how it intended to comply with the DSB’s recommendations and rulings, as well as a description of the progress that it was making towards that end.

Several members, including Colombia, Costa Rica, Guatemala, Honduras and Panama, urged the EC to bring its measures into conformity with the DSB's recommendations and rulings. They criticised the EC proposals and urged it to sign the stand-alone “Geneva Banana Agreement” which would resolve definitively this long-running dispute.

The Dominican Republic, speaking on behalf of the ACP Group, supported the EC's position that two of the substantive legal issues — violations of Articles I and XIII of the GATT 1994 — had been overtaken by subsequent developments and were therefore no longer relevant. With respect to the violation of Article II, the Dominican Republic said that the AB had concluded that the EC's schedule still committed it to an out-of-quota tariff of €680m/t and a TRQ of 2.2 million tons at €75m/t. The ACP could accept a faithful implementation of this recommendation. The DSB did not require the EC to reduce its overall average tariffs and the decision by the EC to renegotiate its tariff should be attributed principally to the DDA negotiations. The Dominican Republic concluded by saying that the ACP supported the efforts to resolve this issue but that any decision must be balanced.

Cameroon associated itself with the statement made by the Dominican Republic and said that it supported an effective negotiated solution to this dispute. It said that the process to reach such a negotiated solution should be transparent and inclusive.

Ghana supported the statements made by the Dominican Republic and Cameroon.

The EC reiterated the view that since the measure at issue had ceased to exist, no action was required on its part. It said that through the commendable efforts of the Director-General in the context of the good offices procedure, a comprehensive agreement which would have settled the banana issue definitively was reached, but unfortunately only one MFN supplier and the EC were prepared to initial the draft stand-alone Agreement as proposed by the DG on 19 July. Negotiations continued and the MFN suppliers used the leverage of the Doha negotiations to get an improvement in the terms of the package, but it could not be signed as it was made subject to an agreement on modalities in agriculture. Nevertheless, the EC was willing to sign the draft Bananas Agreement subject to some modifications.

Several members, including Ecuador and Costa Rica, disputed the EC's assertion that the Geneva Banana Agreement was linked to an agreement on modalities in agriculture and said that a careful reading would show that it was meant to be a stand-alone agreement. Ecuador said that given that MFN suppliers were not invited to participate in the discussions leading to the conclusion of the Economic Partnership Agreements (EPAs), the ACP Group were not entitled to participate in the discussions between the EC and MFN suppliers.

 

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Election of new Chairperson 

The DSB elected by acclamation Ambassador John Gero of Canada as its next Chairman.

  

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Next meeting 

The next meeting is due to be held on 20 March 2009.