The Court of Appeals for the Federal Circuit (CAFC) issued an important ruling yesterday that could significantly alter how the Department of Commerce (DOC) calculates antidumping margins. The issue was whether it was reasonable for DOC to say that it was wrong to “zero” dumping margins in initial investigations, but say that it was correct to do so in administrative review.
By way of background, in an antidumping case, if DOC calculates a dumping margin for a foreign exporter greater than 2 percent during the initial investigation, and the U.S. International Trade Commission finds that the investigated imports are causing material injury or threat of material injury to the U.S. industry, DOC will issue an antidumping duty order. Once every year during the anniversary month of the antidumping duty order, either the U.S. producers or the foreign exporter can request that the antidumping margin for a foreign exporter be adjusted. This process is called an administrative review.
“Zeroing” is a practice whereby the DOC treats U.S. sales that are sold at above-normalvalue (typically, higher than the price in the home market for the identical or similar merchandise) as if the dumping margin for those transactions was zero, instead of a negative dumping margin. This practice had a tendency to artificially inflate dumping margins, because even if the average price of U.S. transactions was at a high enough level to be considered fairly traded (i.e., not dumped), the DOC would, in effect, ignore the average and just calculate dumping margins only on those transactions that were below “normal” value.
DOC’s practice has been challenged many times and the courts have consistently found that DOC’s zeroing practice was legal. However, many nations disagreed and challenged DOC’s zeroing practice at the World Trade Organization (WTO). The WTO Appellate Body has consistently found that DOC’s zeroing practice was not in accordance with international norms. As a result, DOC agreed to change its practice and eliminate zeroing for antidumping investigations. Nevertheless, DOC continued to refuse to eliminate zeroing for administrative reviews.
Although the CAFC had consistently upheld DOC’s zeroing practice, the recent CAFC case was the first time that the CAFC had to decide whether it was reasonable for DOC to have two inconsistent practices (zeroing for administrative reviews, but no zeroing for initial investigations). The CAFC decided that it was NOT reasonable and told DOC that it had to resolve the inconsistency by either always using zeroing in both initial investigations and administrative reviews or not use zeroing in either proceeding.
In the short term, this ruling likely will make it more difficult for DOC to find dumping in administrative reviews. This would be good news for foreign exporters subject to antidumping orders, but bad news for U.S. industries harmed by dumped imports.
Although this is a significant ruling from the CAFC, it might have little impact: as reported in a prior Client Alert, DOC recently published a proposed rule to eliminate the practice of “zeroing” in administrative reviews. Once the new rule is finalized, DOC stated that it will apply the new methodology to all new administrative reviews and to all pending administrative reviews in which the preliminary results of the administrative review are published at least 60 days after DOC’s final rule is issued.