This article was originally published in Blakes Bulletin on International Trade, July 2005
Article by: Greg Kanargelidis, ©2005, Blake, Cassels & Graydon LLP
Canadian importers applaud policy change that will lower dumping margins.
Pursuant to Canada’s trade remedies legislation, unfairly traded goods may be subject to an anti-dumping duty if the goods are being "dumped" and if the Canadian International Trade Tribunal (the CITT) decides that the dumped goods have caused or are likely to cause material injury to like goods produced in Canada. The Canada Border Services Agency (the CBSA) determines whether particular goods are being dumped and the "margin of dumping" of those goods. The CBSA recently has ceased applying the "zeroing" methodology it has historically applied in making these calculations. This change in practice has been supported by importers and exporters, who point out that the changes are consistent with Canada’s international trade obligations. The changes have been condemned by a Canadian industry allegedly adversely affected by the changes, which has appealed the CBSA’s decision to the Federal Court of Appeal.
What Is Zeroing?
The margin of dumping is the difference between the "normal value" and the "export price". In general, the "normal value" is the price normally charged by a foreign exporter to customers in the exporter’s home country. The "export price" is the price charged to the importer in Canada.
In calculating the margin of dumping, the Special Import Measures Act directs the CBSA to subtract the weighted average export price of the goods from the weighted average normal value of the goods. When "zeroing" was applied until recently, the CBSA would ignore (by setting to zero) any instances where there was no dumping (i.e., where the export price was higher than the normal value). The practice of "zeroing" therefore tends to raise the resulting "margin of dumping". Importers and exporters argue that this artificially inflates the margin of dumping and is not appropriate. The Canadian industry would argue that this approach is entirely accurate because the object is to calculate the extent of "dumping", not the extent of "non-dumping".
The Laminate Flooring Case
The CBSA’s change in practice was applied, apparently for the first time, in the investigation involving certain laminate flooring from Austria, Belgium, the People’s Republic of China, France, the Federal Republic of Germany, Luxembourg and the Republic of Poland ("Laminate Flooring"). (The formal name of the investigation is Laminate flooring in thickness ranging from 5.5mm to 13 mm (other than laminate hardwood flooring where the hardwood component exceeds 2mm in thickness) originating in or exported from Austria, Belgium, the People’s Republic of China, France, the Federal Republic of Germany, Luxembourg and the Republic of Poland and the alleged injurious subsidization of laminate flooring in thickness ranging from 5.5mm to 13 mm (same exclusion) originating in or exported from China.) The CBSA made its Preliminary Determination of Dumping on February 16, 2005, at which time the CBSA confirmed that it had recently discontinued its "zeroing" policy.
The CBSA made a Final Determination of Dumping on May 17, 2005. On that date, the CBSA terminated its dumping investigation in respect of goods originating in or exported from Austria, Belgium, Germany and Poland. The CBSA announced that in the case of these countries, the CBSA determined that the subject goods have either not been dumped or that the margin of dumping on the subject goods is "insignificant" (i.e., less than 2%).(The rates for countries in respect of which the investigation was terminated, were determined as follows: Austria – 0.1%; Belgium – 1.0%; Germany – 1.1%; and Poland – 0%.) Therefore, the list of "subject countries" was reduced from the original 7 to 2, being China and France. The sole complainant in the case, which also comprised the Canadian industry in respect of laminate flooring produced in Canada, has appealed the CBSA’s Final Determination to the Federal Court of Appeal on the grounds, among other things, that the CBSA erred in law in "determining the methodology to be employed in antidumping investigations by using a novel methodology that is contrary to law".
WTO Pronouncements on "Zeroing"
The issue of "zeroing" was addressed in EC – Bed Linen (European Communities – Anti-dumping Duties on Imports of Cotton Bed Linen from India, WT/DS 141R, 30 October, 2000) and more recently in United States – Final Dumping Determination on Softwood Lumber from Canada (United States – Final Determination on Softwood Lumber from Canada, AB-2004-02, WT/DS264/AB/R, 11 August, 2004). The WTO Appellate Body in both cases determined that "zeroing" is not consistent with the WTO Antidumping Agreement. Therefore, by discontinuing its use of "zeroing", the CBSA is moving to a policy that is more consistent with its international trade obligations.
Comments The CBSA’s recent decision to discontinue the "zeroing" methodology will tend to result in lower overall margins of dumping per exporter. The new approach should be welcomed by exporters and their importer customers, who argue that the new approach results in a more accurate measure of the "margin of dumping" at both the preliminary and final determination stages of the CBSA’s investigation. It is not clear whether the new approach will tend to exclude countries from future investigations. This will depend on a number of factors, such as the number of exporters within a country, and the individual pricing practices of each exporter, among other things.
In addition, for exporters who fully participate in the CBSA’s investigation, the zeroing methodology or the new methodology may have very little, if any, ultimate impact. This is because the amount of dumping duties ultimately payable by its importer customers is a function of the "normal value", which calculation is not affected by application or non-application of the "zeroing" methodology The most direct result of the decision to abandon the "zeroing" methodology may be in a more precise and measured complaint by Canadian industries. In particular, a Canadian industry preparing a dumping complaint may wish to consider more carefully its representations on the definition of the "product" to be investigated, so as to include only those "products" or models of product in respect of which a positive margin of dumping is thought to exist.
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