On April 9, 2019, the World Trade Organization released the Panel Report in United States – Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada, WT/DS534/R. The decision addresses particular aspects of the US Department of Commerce’s methodology for calculating antidumping duties under the Antidumping Agreement (the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994). In some ways, the decision reiterates already-established principles – for example, Commerce may address perceived “targeted dumping” through the use of “zeroing” in its calculations. In other ways, the decision sets up changes that may be necessary in the margin calculations. After the 60-day period for appeal passes, it will be clearer whether the decision will affect future proceedings and if there is a new avenue for foreign producers to challenge Commerce’s practice domestically.

The idea behind “targeted dumping” is that a foreign producer could mask its dumping by selectively selling at dumped prices to specific customers or regions or over particular timeframes. To address that possibility, Commerce has employed a number of methodologies over the years that allow it to “zero,” where non-dumped (higher-priced) sales are set to zero, while dumped sales are counted in the calculation. (The overall effect of which tends to increase the dumping rate considerably.) Currently, Commerce assesses targeted dumping in two steps under its so-called differential pricing methodology. In the first step, it uses a coefficient (Cohen’s d) to determine whether the weighted average prices in a test group differ significantly from those in a comparison group. It is worth noting that “differ” for Commerce here means higher or lower, as opposed to capturing only the lower prices. Commerce’s groups align with the categories in the WTO Antidumping Agreement (purchasers, regions, or time periods). In the second step, Commerce takes all export transactions that passed the Cohen’s d test and aggregates them to identify a single pattern in the “ratio test.”

What did the Panel say?

The Panel highlighted the second step of the differential pricing methodology – the aggregation step – and found it problematic. According to the Panel, when Commerce aggregates the export transactions in this way, it no longer has an identified pattern of targeting by purchaser, regions, or time periods. It has a single pattern across all categories. Without the identified pattern, the use of zeroing raises concerns.

The Panel went on to green light Commerce’s practice where it did identify the more specific patterns. In those cases, Commerce is free to use zeroing to address the perceived risk of targeted dumping.

What Do You Need To Know?

For companies with current antidumping or countervailing duty proceedings before Commerce, do not expect an announced change to the differential pricing methodology or practices. However, keep in mind that this Panel decision is critical of Commerce’s differential pricing methodology, which it currently uses in all ongoing investigations and reviews. The decision instructs that Commerce should apply its differential pricing methodology such that the second step – the ratio test – is assessed across customer, region, and time period categories. This analysis should be done before Commerce can lawfully apply zeroing.

As noted, if Commerce identifies a pattern of targeted dumping within the specific categories, then zeroing is alive and well. That has been the state of the law for several years, where, although the WTO has found Commerce’s widespread application of zeroing to be inconsistent with the United States’ WTO commitments, it is permitted to address targeted dumping.

The timing of this decision is also noteworthy – as the United States and Canada attempt to ratify their new trade deal with Mexico and tensions continue over the U.S. tariffs on aluminum and steel. The United States and Canada have 60 days to decide whether to appeal the decision. Canada has indicated that it intends to file an appeal.