Thursday, August 26, 2010

U.S. May Face WTO Disputes over “Zeroing” from Developing Economies

(World Bank Research e-Newsletter)

The U.S. use of the controversial method of “zeroing” in its antidumping procedures and its failure to reform in light of World Trade Organization legal rulings threaten the legitimacy of the WTO’s dispute settlement system, according to a new working paper by Chad Bown and Thomas J. Prusa.

With zeroing, when a country calculates a weighted average margin of dumping, it uses zero to replace the actual amount of dumping that yields negative dumping margins, which effectively increases overall dumping margins and the size of the antidumping duty. Not surprisingly, zeroing especially punishes suppliers with export price variation.

Evidence suggests imports from developing economies into the U.S. subject to antidumping have prices that are just as volatile as imports from rich economies. Hence, zeroing is just as likely to impact the size of U.S. antidumping duties applied on developing country exports as developed-economy exports.

Thus while developed economies have so far filed the vast majority of WTO disputes against the U.S. over zeroing, zeroing is also likely a relevant issue for developing-country exporters. In fact, more than 60% of the product lines currently subject to U.S. antidumping are exported by developing countries.

Read the World Bank Policy Research Working Paper 5352 here.