China recently filed a dispute against the U.S. at the World Trade Organization (WTO) biennial conference in Bali on December 3, 2013. The dispute centers on that country’s disagreement with the method the U.S. uses in calculating whether exports from China violate anti-dumping measures.

China brought its dispute to the WTO by using the mechanism of a request for consultation with the U.S. In consultation proceedings, WTO members can initiate a dialogue with each other to address disagreements on WTO matters. After the initial request for consultation was issued by China, the U.S. had thirty (30) days to enter into consultations with China to resolve the disagreement directly. If no resolution is found, China can request the WTO to establish a panel to address the issue no earlier than sixty (60) days after the request was first filed. However, in practice, parties to a dispute often allow themselves more than 60 days prior to requesting that the WTO establish a panel. The request to establish a panel raises the pressure in the dispute process, and indicates the importance of the issue to the disagreeing parties.

In the case of China, its government submitted the request for resolution to the U.S. to contest the U.S. methodology in determining whether certain Chinese exports were subject to anti-dumping measures. The request covers a broad range of products, including among others: coated paper for print graphics, high pressure steel cylinders, tubular goods, aluminum extrusions, frozen and canned shrimp, pneumatic off road tires, crystalline silicon photovoltaic cells, diamond saw blades and wooden bedroom furniture. As the U.S. has imported more than $8.4 billion in U.S. imports of these products, a change in the anti-dumping status of these goods would greatly impact the U.S.

“Dumping” is defined under Article VI of the General Agreement on Tariffs and Trade (GATT) as sales for export below “normal value” (the comparable price for sales within the exporting country or to a third country, or the cost of production plus overhead and profit). The DOC and other antidumping authorities calculate the margin of dumping for a product by computing the difference between normal value and export price for each model or type of a particular product, and aggregate the results. In the case of the resolution request, China is taking issue with the following U.S. anti-dumping methodologies and states they are inconsistent with U.S. obligations under the Anti-dumping Agreement of the WTO: 1) targeting dumping, including zeroing, in original investigations and administrative reviews; 2) single rate presumption; and 3) non-market economy-wide (NME) methodology; and 4) adverse facts available used to determine anti-dumping applicability.

One of the more contentious areas is that of targeted dumping and zeroing, which involve a specific statistical formula when determining if a pattern of differing export prices exists among purchasers, regions or periods of time. When aggregating the intermediate comparison results, the U.S. used zeroing, which treats as “0” any amounts by which the export price of a transaction exceeds the weighted average normal value. The use of zeroing is contentious due to other countries’ interpretations on how zeroing impacts the determination of anti-dumping margin. Other countries, including European Union nations and Japan, state that when applying a “0” number to a negative margin rate, the resulting margin is artificially inflated and creates an inaccurate anti-dumping finding.

The WTO has previously ruled against the U.S. use of zeroing in calculating suspected dumping cases, stating it does not meet the terms of the WTO anti-dumping agreement. For example, a WTO panel held that zeroing did not comply with some articles in the Anti-dumping Agreement, in dispute DS322 first brought by Japan against the U.S. in 2004 and settled in 2012. The WTO has also ruled that zeroing is not permitted in several European Union actions brought against the U.S. The U.S. has stated it would no longer use this method, although it still maintains zeroing is the most accurate way to determine the existence and extent of dumping.

At the time of this writing there have been no formal announcements on the outcome of the consultations between China and the U.S. However, the initial request for consultation filed by China may be viewed online at the WTO website at the following address: http://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c6s2p2_e.htm.