More than four years after the World Trade Organization’s (WTO) Appellate Body first found the US’s practice of zeroing negative margins when calculating weighted average dumping margins to violate the WTO Antidumping Agreement, a string of similar losses, and ongoing threats of retaliatory actions if conforming steps were not taken soon, the US Department of Commerce has taken the first step towards ending the zeroing practice in most antidumping proceedings. The result will be a general reduction in the size of antidumping margins in future proceedings. The extent of the reduction will depend on the facts and circumstances of individual cases.

On December 28th, Commerce published proposed modifications to its methodology for calculating weighted average dumping margins in administrative reviews, new shipper reviews and expedited reviews (collectively, “reviews”) of antidumping duty orders. Antidumping Proceedings: Calculation of the Weighted Average Dumping Margin and Assessment Rate in Certain Antidumping Proceedings, 75 Fed. Reg. 81533 (Dep’t Commerce Dec. 28, 2010) (proposed rule; proposed modification; request for comments) (the “Proposed Regulation”). Under the Proposed Regulation, Commerce makes two important changes to the calculation of margins in reviews: (1) the “preferred” methodology for calculating margins in reviews will be to compare monthly weighted average US export prices to monthly weighted average normal values (the “average-to-average” method) and (2) it will finally allow the offsetting of positive margins with negative margins, rather than zeroing negative margins, when using the monthly average-to-average method.

Zeroing, the practice of setting negative margins to zero and thus considering only positive margins in the overall weighted average dumping margin calculation, while not entirely abandoned, appears to be allowed only in limited cases. From a methodological standpoint this proposal is significant also because it establishes the average-to-average methodology as the “preferred” methodology for calculating margins in both original investigations and reviews. Some differences remain between investigations and reviews as to the time period over which Commerce may weight-average export prices and normal values in determining dumping margins. The specific proposed changes to Commerce’s practice and regulations are discussed below.

1. Offsetting Instead of Zeroing
   Offsetting and zeroing are different calculation methodologies applied by Commerce when determining weighted average dumping margins.1 Neither approach is defined or endorsed in either statute or current regulation.2 To calculate a weighted average dumping margin in an administrative review, for each US entry of goods Commerce compares the normal value (generally, the price a producer charges in its home market) and the export price (the price of the product in the US).3 The amount by which the normal value exceeds the export price is the dumping margin.4 Then Commerce aggregates these values over all entries in the period of review to calculate a weighted-average dumping margin.5 The weighted-average dumping margin is expressed as a percentage by dividing the aggregate dumping margins of a specific exporter or producer by the aggregate export prices of that same exporter or producer.6
   
   Under Commerce’s new proposal to allow offsetting, the numerator in the weighted average dumping margin calculation is the sum of all dumping margins, both positive and negative values. 75 Fed. Reg. 81534. Adding the negative and positive margins reduces the aggregate amount of dumping compared to what would have obtained under zeroing. With zeroing, dumping margins with a negative value were set at zero, meaning that only positive margins were included in the aggregate, thereby inflating the numerator of the calculation and invariably leading to a higher dumping margin than would have been the case if the negatives and positives were summed. Under the Proposed Regulation, Commerce will grant an offset for non-dumped comparisons when using the monthly average-to-average comparisons in reviews. Id. Except for differences in the weight-averaging period, the proposed offset methodology in reviews will work the same way it currently does in investigations.
2. A New Method of Calculating Margins in Reviews
   The Proposed Regulation entails modifications to Commerce’s regulation at 19 C.F.R. § 351.414, which explains when and how Commerce will weight average prices in comparing export price with normal value for the purpose of determining weighted average dumping margins. That regulation identifies three methods for making these comparisons: the average-to-average, the average-to-transaction and the transaction-to-transaction method.
   
   In investigations, Commerce normally applies the average-to-average method of calculating margins, and makes that computation for each product using averages that cover the entire period being investigated.7 Under the Proposed Regulations, the same method would apply also in reviews, although instead of using averages that cover the whole period of review, monthly averages would be used.8 In the “average-to-average” comparison of normal value and export price Commerce divides the products under investigation into groups (based on model and level of trade) and calculates the average export price and average normal value of each group. 19 C.F.R. § 351.414(d)(1). The dumping margin for each group is calculated as the amount by which the weighted-average normal value exceeds the weighted-average export price. The dumping margins for the groups are then aggregated to calculate the overall weighted-average dumping margin for the transactions being investigated.
   
   Currently, in reviews Commerce calculates margins using the average-to-transaction methodology, by comparing each US export price to the weighted average of the normal values for the month contemporary with the US sale. 19 C.F.R. § 351.414(c)(2) and (e). If normal value cannot be determined for the contemporary month (i.e. no home market sales in that month), Commerce uses normal values from a window period covering the first of the three months prior to the contemporary month in which normal value can be found. If no such values can be found, Commerce looks to the two months that follow the contemporaneous month.
   
   The Proposed Regulation does not modify this practice of matching US sales and home market sales within the window period. In fact, the Proposed Regulation does not modify at all the normal value side of the dumping comparison; only the export price side of the comparison changes from individual export prices to monthly weighted average prices. As a result, the change in the margin calculation methodology for reviews — from average-to-transaction to average-to-average — is not expected to translate in significantly different outcomes. However, the offsetting of positive margins with negative margins will have beneficial effects on the margins.
3. Zeroing May Survive in the Proposed Regulation…But Only in Limited Cases
   As discussed above, Commerce’s offsetting proposal appears to be limited to average-to-average comparisons - those situations where US sales of a particular good are grouped together before being compared with normal values (home market sales), similarly grouped together. Although the average-to-average method would be the default option under the new methodology, Commerce does not seem to abandon the average-to-transaction method in reviews. Commerce does not explain when it would be used, but it clearly reserves the right to do so if it determines that a method other than average-to-average “is appropriate in a particular case.” 75 Fed. Reg. at 81535.
   
   As the average-to-transaction method survives under the Proposed Regulation and Commerce has not explicitly proposed to discontinue zeroing when using this method, it would appear that Commerce may be able to apply zeroing in these limited cases. This issue will likely be raised in comments on the Proposed Regulation. We note that when Commerce discontinued zeroing in investigations four years ago it did so only in the context of average-to-average comparisons.9 Currently, in investigations Commerce is not prohibited from using zeroing in individual-to-individual transaction comparisons, or for weighted average-to-individual transaction comparisons allowed where Commerce finds targeted dumping.10
   
   Under the Proposed Regulation, as under the current regime, Commerce will continue to use the transaction-to-transaction method only in unusual situations, such as when there are very few sales of the goods at issue and the goods sold in each market are identical or very similar or are custom-made. Further, Commerce expressly rejects the premise that its prior use of the transaction-to-transaction method in investigations establishes a practice with respect to the application of offsets for non-dumped comparisons. 75 Fed. Reg. at 81534.
4. No Changes to the Sunset Review Procedures
   The US’s zeroing practice has been challenged at the WTO also in the context of sunset reviews. The WTO Appellate Body found that reliance on weighted average margins of dumping calculated using zeroing as the basis for determinations made in sunset reviews was inconsistent with the WTO Antidumping Agreement (Art. 11.3).11 The Proposed Regulation does not provide for any changes with respect to the sunset review procedures. Commerce explains that no changes are necessary because the inconsistencies with WTO obligations were due to zeroing in the underlying investigations and reviews and those are being addressed.
   
   Commerce acknowledges that the magnitude of the dumping margins calculated during the investigation and subsequent periods of review are a factor in its statutory analysis in sunset reviews. However, Commerce justifies its position by explaining that the dumping laws do not require Commerce to rely on weighted average dumping margins as the basis for its sunset review decision “where such reliance would render the determination inconsistent with the United States’ international obligations.” 75 Fed. Reg. at 81534. Exactly how Commerce will apply that reasoning is uncertain. One possible reading is that Commerce will ignore weighted average margins derived using zeroing when making its sunset review determinations. But could Commerce recalculate dumping margins without zeroing solely for purposes of its sunset review determinations? Many questions remain on this topic and we expect that interested parties will be filing comments on the language in the Proposed Regulation dealing with sunset reviews.
5. Is The Proposed Methodology for Reviews Consistent With the Statute?
   As explained above, under the Proposed Regulation Commerce is changing the method to determine weighted average margins in reviews from the average-to-transaction method to the average-to-average method. However, this proposed methodology seems to lack support in the statute. The statutory provision for determining weighted-average dumping margins in reviews contemplates the average-to-transaction method for calculating dumping margins; it says nothing about the average-to-average methodology.12 By contrast, the statute expressly provides for use of all three comparison methodologies for investigations. Id. Although the statute does not expressly prohibit the use of the average-to-average method in reviews, an argument could (and will) be made that by referring to one methodology for reviews and three for investigations, Congress intended to limit Commerce’s options in reviews. This issue will likely be raised in comments on the Proposed Regulation and may be fodder for future litigation.
6. Prospective Application of the Proposed Regulation
   Commerce has invited public comments on the Proposed Regulation until January 27, 2011. This opportunity for public comment is provided pursuant to Section 123(g)(1) of the Uruguay Round Agreements Acts, which is one of the procedures by which an adverse WTO decision may be implemented into US law.13 To effectuate a change of Commerce’s regulation or practice due to an adverse WTO ruling, Section 123 provides for a process involving the USTR, Congress, Commerce, private sector advisory committees, and the public, which results in a final rule or modification. The final modification takes effect when it is published in the Federal Register.14 By statute, any action the US takes to comply with the WTO’s decisions on zeroing in administrative reviews will not apply retroactively. The statute directs that the agency regulation or practice may not change before publication of the new proposed practice or rules for public comment. Under Commerce’s proposed regulations, the new rules will take effect 60 days after they are published in final form. No date has been set for that publication.

For additional details regarding Commerce’s zeroing or offsetting practice, please contact any of the Arent Fox attorneys indicated below or your regular Arent Fox counsel.

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1Corus Staal BV v. US, 395 F.3d 1343, 1345 (Fed. Cir. 2005).
2In fact the Federal Circuit has ruled that the statute neither requires zeroing nor prohibits it. The Court has instead ruled that zeroing is not inconsistent with the statute and therefore is a permissible interpretation of the statute falling within the ambit of Commerce’s administrative authority. Id.; see also US Steel Corp. v. US, 621 F. 3d 1351 (Fed. Cir. 2010).
319 USC. § 1677(35)(B); 19 USC. § 1675(a)(2)(A)(i).
4 19 USC. §§ 1675(a)(2)(A)(ii), 1677(35)(A).
5 19 U.S .C. § 1677(35)(B).
6 Id.
719 U.S .C. § 1677f-1(d)(1)(A); 19 C.F.R. § 351.414(c)(1).
8 75 Fed. Reg. at 81535 at proposed 19 C.F.R. § 351.414(c)(1).
9 Antidumping Proceedings: Calculation of the Weighted -Average Dumping Margin During an Antidumping Investigation, 71 Fed. Reg. 77722 (Dep’t Commerce Dec. 27, 2006) (final modification); seeUS Steel Corp. v. US, 621 F. 3d 1351, 1357 (Fed. Cir. 2010).
1019 USC. § 1677f-1(d)(1)(B).
11See e.g. US-Continued Zeroing (EC), WT/DS350/R ¶ 8.1(f); WT/DS305/AB/R ¶ 395(f).
1219 USC. § 1677f-1(d)(1) and (2).
1319 USC. § 3533(g)(1).
1419 USC. § 3533(g)(1)(F).