THIRD PARTY SUBMISSION OF JAPAN BEFORE THE APPELLATE BODY OF THE WORLD TRADE ORGANIZATION

Transcription

1 BEFORE THE APPELLATE BODY OF THE WORLD TRADE ORGANIZATION UNITED STATES LAWS, REGULATIONS AND METHODOLOGY FOR CALCULATING DUMPING MARGINS ( ZEROING ) WT/DS294 THIRD PARTY SUBMISSION OF JAPAN 24 JANUARY 2006

2 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page i TABLE OF CONTENTS Page I. INTRODUCTION AND EXECUTIVE SUMMARY... 1 II. THE AS SUCH MEASURES AT ISSUE THE ZEROING METHODOLOGY... 8 A. OVERVIEW OF THE UNITED STATES DUMPING MARGIN DETERMINATION PROCEDURES... 8 (i) Zeroing in W-to-W Comparisons in Original Proceedings... 9 (ii) Zeroing in W-to-T Comparisons in Reviews (iii) Standard Computer Programs III. SUMMARY OF THE PANEL S CONCLUSIONS A. THE PANEL S CONCLUSIONS B. THE ZEROING METHODOLOGY USED IN W-TO-W COMPARISONS IN ORIGINAL PROCEEDINGS IS WTO-INCONSISTENT IV. ISSUES ADDRESSED IN JAPAN S SUBMISSION V. THE MAJORITY ERRED IN FINDING THAT ZEROING IS CONSISTENT WITH ARTICLES 9.3, 9.5, 11.2 AND 11.3 AND ARTICLE VI ZEROING VIOLATES THE REQUIREMENT TO DETERMINE DUMPING FOR THE PRODUCT AS A WHOLE UNDER ARTICLE 2.1 AND ARTICLE VI A. SUMMARY OF THE PANEL S ERRONEOUS REASONING B. ARTICLE 2.1 REQUIRES THAT THE EXISTENCE AND AMOUNT OF DUMPING BE DETERMINED FOR THE PRODUCT AS A WHOLE C. THE EXISTENCE AND AMOUNT OF DUMPING IS DETERMINED IN REVIEWS FOR THE PRODUCT AS A WHOLE (i) (ii) The Definition of Dumping in Article 2.1 Applies to All Reviews The Majority s Errors in Rejecting the Product as a Whole Definition for Duty Assessment Reviews a. The Majority s Perception of the Purposes of a Duty Assessment Review Is Wrong... 28

3 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page ii b. The Majority s Rejection of Exporter-Oriented Approach Is Flawed c. The Majority Confuses the Rules on Dumping Determinations and the Rules on the Imposition of Variable Duties (iii) The Majority s Errors in Rejecting the Product as a Whole Definition for New Shipper, Changed Circumstances and Sunset Reviews D. ZEROING PREVENTS A DUMPING DETERMINATION FOR THE PRODUCT.. 40 E. CONCLUSION VI. THE MAJORITY ERRED IN FINDING THAT ZEROING IS CONSISTENT WITH ARTICLE 2.4 IN ALL REVIEWS ZEROING DOES NOT INVOLVE A FAIR COMPARISON A. SUMMARY OF THE PANEL S ERRONEOUS REASONING B. THE MAJORITY ERRED IN INTERPRETING THE WORD FAIR A FAIR COMPARISON IS UNBIASED AND EVEN-HANDED C. ZEROING INVOLVES AN UNFAIR COMPARISON D. THE MAJORITY ERRED BECAUSE ZEROING IS UNFAIR IN ALL FORMS OF REVIEW E. THE MAJORITY ERRED IN FINDING THAT ZEROING IS FAIR DUE TO THE PURPOSES OF DUTY ASSESSMENT REVIEWS F. THE MAJORITY ERRED IN FINDING THAT ZEROING IS PERMITTED WHERE THERE IS A PRICING PATTERN UNDER THE SECOND SENTENCE OF ARTICLE G. THE MAJORITY ERRED IN RELYING ON THE SECOND SENTENCE OF ARTICLE BECAUSE NO PRICING PATTERN IS ESTABLISHED UNDER THE ZEROING METHODOLOGY H. CONCLUSION VII. CONCLUSION ANNEX: THE ZEROING METHODOLOGY IS A MEASURE ATTACHMENT JPN 1: Definition of Normal From The Oxford English Dictionary ATTACHMENT JPN 2: Definition of Fair From The Oxford English Dictionary

4 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page iii TABLE OF CASES CITED Short Title Argentina Poultry Anti- Dumping Duties EC Bed Linen EC Bed Linen (Article 21.5 India) EC Steel Rebar EC Tube or Pipe Fittings EC Tube or Pipe Fittings Egypt Steel Rebar Guatemala Cement I US 1916 Act Full Case Title and Citation Panel Report, Argentina Definitive Anti-Dumping Duties on Poultry from Brazil, WT/DS241/R, adopted 19 May 2003 Appellate Body Report, European Communities Anti- Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/AB/R, adopted 12 March 2001, DSR 2001:V, 2049 Appellate Body Report, European Communities Anti- Dumping Duties on Imports of Cotton-Type Bed Linen from India Recourse to Article 21.5 of the DSU by India, WT/DS141/AB/RW, adopted 24 April 2003 Panel Report, Egypt Definitive Anti-Dumping Measures on Steel Rebar from Turkey, WT/DS211/R, adopted 1 October 2002 Appellate Body Report, European Communities Anti- Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/AB/R, adopted 18 August 2003 Panel Report, European Communities Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R, adopted 18 August 2003, as modified by the Appellate Body Report, WT/DS219/AB/R Panel Report, Egypt Definitive Anti-Dumping Measures on Steel Rebar from Turkey, WT/DS211/R, adopted 1 October 2002 Appellate Body Report, Guatemala Anti-Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998, DSR 1998:IX, 3767 Appellate Body Report, United States Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, DSR 2000:X, 4793 US Carbon Steel Appellate Body Report, United States Countervailing Duties on Certain Corrosion - Resistant Carbon Steel Flat Products from Germany, WT/DS213/AB/R and Corr.1, adopted 19 December 2002

5 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page iv Short Title US Corrosion-Resistant Steel Sunset Review US Corrosion-Resistant Steel Sunset Review US Hot-Rolled Steel US Line Pipe Safeguards US Malt Beverages US OCTG Sunset Reviews (Argentina) US OCTG Sunset Reviews (Mexico) US Shrimp US Softwood Lumber V US Softwood Lumber V Full Case Title and Citation Appellate Body Report, United States Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan, WT/DS244/AB/R, adopted 9 January 2004 Panel Report, United States Sunset Review of Anti- Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan, WT/DS244/R, adopted 9 January 2004, as modified by the Appellate Body Report, WT/DS244/AB/R Appellate Body Report, United States Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, 4697 Appellate Body Report, United States Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, WT/DS202/AB/R, adopted 8 March 2002 Panel Report, United States Measures Affecting Alcoholic and Malt Beverages, adopted 19 June 1992, BISD 39S/206 Appellate Body Report, United States Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WT/ DS268/AB/R, adopted 17 December 2004 Appellate Body Report, United States Anti-Dumping Measures on Oil Country Tubular Goods (OCTG) from Mexico, WT/DS282/AB/R, adopted 28 November 2005 Appellate Body Report, United States Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, 2755 Appellate Body Report, United States Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/R, adopted 31 August 2004 Panel Report, United States Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/R, adopted 31 August 2004, as modified by the Appellate Body Report, WT/DS264/AB/R

6 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page v TABLE OF ABBREVIATIONS USED IN THIS SUBMISSION Abbreviation Anti-Dumping Agreement DSB DSU EC Description Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 Dispute Settlement Body Understanding on Rules and Procedures Governing the Settlement of Disputes European Communities GATT 1994 General Agreement on Tariffs and Trade 1994 Panel Report Manual SCM Agreement T-to-T comparison USDOC USDOJ W-to-T comparison W-to-W comparison Working Procedures WTO Agreement United States Laws, Regulations and Methodology for Calculating Dumping Margins ( Zeroing ), WT/DS294/R, circulated 31 October 2005 United States Department of Commerce Import Administration Anti-Dumping Manual Agreement on Subsidies and Countervailing Measures Transaction-to-transaction comparison United States Department of Commerce United States Department of Justice Weighted average-to-transaction comparison Weighted average-to-weighted average comparison Working Procedures for Appellate Review, WT/AB/WP/5, 4 January 2005 Marrakesh Agreement Establishing the World Trade Organization

7 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 1 I. INTRODUCTION AND EXECUTIVE SUMMARY 1. In this dispute, the EC makes a series of claims against the United States zeroing methodology, including on an as such basis. The Panel s conclusions on these claims were very much divided. They were divided because zeroing was found to be prohibited when used in one type of anti-dumping proceeding, yet permitted when used in four others. And divided also because one of the panelists dissented in part from the conclusions of the other two, finding instead that zeroing is prohibited in all anti-dumping proceedings In separate dispute settlement proceedings currently underway (WT/DS322), Japan also challenges the United States zeroing methodology on an as such basis. Although Japan s claims are similar to those of the EC in this dispute, they are not identical. 2 Moreover, Japan s arguments also differ from those advanced by the EC to the Panel in this dispute. Both Japan and the United States have made their submissions in WT/DS322 publicly available on the Internet. 3 The panel report in WT/DS322 is scheduled to be circulated to Members during the course of this appeal, although the proceedings have been delayed somewhat. 3. Given that Japan has brought its own dispute regarding the United States zeroing methodology, its interests in this appeal are, essentially, those of an appellant, even though it is a third participant. This appeal will likely have important repercussions for the outcome of Japan s complaint regarding the same measures. 1 Japan refers to the Panel in connection with findings made by all three panelists; to the Majority where the findings were made by only two panelists; and, to the Minority for findings made by the dissenting panelist, found in Section 9 of the Panel Report. 2 One important difference between the EC s claims in this dispute and Japan s claims in WT/DS322 relates to the United States generalized use of a weighted average-to-transaction ( W-to-T ) comparison in reviews under Article 9.3 of the Anti-Dumping Agreement. The EC claims that it is inconsistent with the second sentence of Article of that Agreement for the USDOC to use a W-to- T comparison in a review, unless the two conditions in the second sentence of Article are satisfied. In dispute WT/DS322, Japan does not claim that the use of W-to-T comparisons in reviews under Article 9.3 is inconsistent with the Anti-Dumping Agreement, and Japan does not address this issue in this submission. Instead, Japan s third participant s submission focuses exclusively on the as such claims made against the zeroing methodology. 3 Japan s submissions and certain exhibits are available at: The United States submissions are available at: Settlement_Index_-_Pending.html. Because some of Japan s arguments in those submissions are referred to, and incorporated in, this submission, Japan attaches copies of all its submissions to the panel in dispute WT/DS322.

8 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 2 Japan, therefore, takes the unusual step of filing its third participant s submission on the same day as the appellant, that is, considerably within 25 days after the date of filing of the Notice of Appeal By this stage, the Appellate Body is familiar with zeroing. In previous appeals, the Appellate Body considered zeroing when applied in original proceedings, duty assessment reviews and sunset reviews. 5 The novel feature of this dispute is that zeroing is challenged on an as such basis in original proceedings, as well as duty assessment, new shipper, changed circumstances and sunset reviews. The EC s appeal on its as such claims concerns zeroing in these four types of review proceeding, which the Majority found to be permissible. 5. The operation of zeroing in these reviews is straightforward and no different from the zeroing considered in previous appeals. The USDOC identifies all comparable export transactions and conducts multiple W-to-T comparisons covering all these transactions. Each comparison involves an individual export transaction and a weighted average normal value calculated for a sub-group, or model, of the product. To determine the overall amount of dumping, the USDOC aggregates the multiple comparison results. Under the zeroing methodology, the USDOC sums solely the positive comparison results, ignoring every single negative comparison result. In other words, the USDOC disregards or treats as zero value the negative comparison results for export transactions which the USDOC itself deems to be comparable. 6. The consequences of the zeroing methodology at issue are precisely the same as the consequences of the zeroing measures addressed in previous appeals. First, by excluding all negative comparison results, the USDOC makes a dumping determination that disregards an entire category of the export transactions making up the product namely, those transactions that generate the negative comparison results. Dumping is, therefore, not determined for the product that the investigating authority defined, but for a sub-part of it. 4 See Rule 24(1) of the Working Procedures. 5 Appellate Body Report, EC Bed Linen (original proceedings); Appellate Body Report, US Corrosion-Resistant Steel Sunset Review (duty assessment and sunset reviews); and, Appellate Body Report, US Softwood Lumber V (original proceedings).

9 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 3 7. In EC Bed Linen and US Softwood Lumber V, the Appellate Body ruled that a partial determination of this type violates the definition of dumping in Article 2.1 of the Anti-Dumping Agreement, and Article VI of the GATT 1994, because it is not made for the product as a whole. 6 The Appellate Body also ruled that this definition applies to the entire [Anti-Dumping] Agreement, including all the provisions governing reviews. 7 The zeroing methodology at issue also fails to comply with this definition because the amount of dumping is determined in reviews for a sub-part of the product, not for the product as a whole. 8. Second, zeroing means that an affirmative dumping determination is much more likely to be made than not. 8 The reason is that the positive comparison results included in the determination relate to export transactions with prices that are lower than normal value; in sharp contrast, the excluded negative results relate to export transactions with prices higher than normal value. The export transactions selected for inclusion in the determination, therefore, relate to the sub-part of the product that is the most likely to generate an affirmative dumping determination. 9. As a result, zeroing can produce a dumping determination where, in fact, the product as a whole is not dumped. 9 The exclusion of negative comparison results also inflates the amount of any dumping determination that is made Thus, zeroing systematically prejudices the interests of foreign producers and exporters because the negative comparison results that are favorable to them are purposefully set aside by the USDOC. The Appellate Body has held that a zeroing methodology with these effects involves an inherent bias in the comparison of export price and normal value. 11 This is the very antithesis of the fair comparison required by Article 2.4 of the Anti-Dumping Agreement. 6 Appellate Body Report, EC Bed Linen, para. 53; and, Appellate Body Report, US Softwood Lumber V, para Appellate Body Report, US Softwood Lumber V, para. 93; and Appellate Body Report, US Corrosion-Resistant Steel Sunset Review, paras. 109 and Appellate Body Report, US Corrosion-Resistant Steel Sunset Review, para Appellate Body Report, US Corrosion-Resistant Steel Sunset Review, para Appellate Body Report, EC Bed Linen, para. 55; Appellate Body Report, US Softwood Lumber V, para. 101; and Appellate Body Report, US Corrosion-Resistant Steel Sunset Review, para Panel Report, paras and See also Appellate Body Report, US Corrosion-Resistant Steel Sunset Review, paras. 134 to 135; and Appellate Body Report, EC Bed Linen, para. 55.

10 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page In sum, there is nothing new regarding either the operation or the effect of the zeroing methodology at issue in this appeal. It produces determinations that are for a sub-part of the product and it has the same prejudicial effects for foreign producers and exporters as the zeroing measures previously considered. Nonetheless, although the Panel held that zeroing is prohibited when it is used in a weighted average-toweighted average ( W-to-W ) comparison in an original proceeding, the Majority found that zeroing is permitted when used in duty assessment, new shipper, changed circumstances and sunset reviews According to the Majority, an authority is not obliged, in a review, to make a dumping determination for the product as a whole; instead, a determination can be made on a transaction-specific basis, thereby permitting the USDOC to ignore all the export transactions that generate negative comparison results. 13 Moreover, a comparison methodology that is unfair when used in an original proceeding 14 becomes fair when used in reviews. Consequently, even if an exporter s prices remain constant after the original proceeding, the margin of dumping found in a review will be higher than it was in the original proceeding. 13. The Majority s position is beset with contradictions. Although the Majority admits a prohibition on zeroing when the decision to impose an anti-dumping duty is first made in original proceedings, the constraint which that prohibition imposes is abandoned when the time comes to determine, among others, the definitive amount and the duration of the duty in reviews. Perversely, therefore, the Majority allows anti-dumping duties to be levied, maintained and, even, prolonged through reviews in circumstances where the Majority simultaneously accepts that the authority could never have introduced such a duty in the first place. 14. Given that reviews address matters such as the definitive amount and the duration of a duty, the practical significance of permitting zeroing in these proceedings is enormously prejudicial for foreign producers and exporters. 12 Panel Report, paras and Panel Report, para See Appellate Body Report, para. EC Bed Linen, para. 55; and Appellate Body Report, US Corrosion-Resistant Steel Sunset Review, para. 135.

11 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page There is no justification in the Anti-Dumping Agreement or the GATT 1994 for modifying the definition of dumping or fairness in this way. In previous appeals, the Appellate Body has consistently held that there is a single definition of dumping in Article 2.1 that applies to the entire [Anti-Dumping] Agreement. 15 The uniform character of this definition is in keeping with the fact that, throughout the life of a duty, all anti-dumping proceedings serve a common purpose that is rooted in the concept of dumping : all proceedings determine the nature and extent of the action, if any, that a Member can take to counteract the injurious dumping of a product. The Appellate Body recently held that this purpose is reflected in the design and structure of the Anti-Dumping Agreement and constitutes an overarching principle within the Agreement. 16 By modifying the definition of dumping for purposes of reviews, the Majority destroys this unity of purpose. 16. The Majority relies on four principle reasons in support of its finding that zeroing is permissible in reviews. Each of these reasons is erroneous. 17. First, the Majority wrongly considered that the purpose of a duty assessment review is to determine the definitive amount of the duty imposed on a transactionspecific basis. 17 In consequence, it believed that the amount of dumping in a review is also determined for individual transactions, and not the product. This is wrong on both counts. 18. As the Appellate Body has held, Articles 9.2 and 9.5, and Article VI:2, state that anti-dumping duties are imposed on the product, not on individual transactions. 18 Moreover, consistent with the rules in Article 2, the margin of dumping must be established for the product as a whole. 19 As a result, in a duty assessment review, the authority must ensure that the aggregate amount of the duty levied on the product during the review period does not exceed the margin of dumping for the product for that period. 15 Appellate Body Report, US Softwood Lumber V, para. 93; and Appellate Body Report, US Corrosion-Resistant Steel Sunset Review, paras. 109 and See Appellate Body Report, US OCTG Sunset Reviews (Mexico), paras. 115 and Panel Report, paras to 7.207, and Appellate Body Report, US Softwood Lumber V, paras. 94 and Appellate Body Report, US Softwood Lumber V, paras. 93 to 99.

12 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page Second, the Majority incorrectly concluded that Members would be denied the right to impose variable anti-dumping duties if zeroing were prohibited. 20 The Majority thereby confuses the rules governing the determination of dumping margins with the distinct and separate rules on the imposition and collection of anti-dumping duties. 21 Members are, of course, entitled to impose either fixed or variable duties. However, whatever system of duty imposition is chosen, the rules in Article 2 governing the determination of the amount of dumping remain the same. 20. The Majority s reliance on Article 9.4(ii) of the Anti-Dumping Agreement in support of its position on variable duties is equally misplaced. Article 9.4 does not set forth any rules on the determination of dumping margins that could justify the zeroing methodology. Instead, the provision establishes rules on the imposition of duties that apply to non-sampled producers precisely where no individual margin is determined. 22 As the Appellate Body held, rules, such as Article 9.4, governing the imposition of dumping duties do not have a bearing on the rules governing the determination of dumping margins Third, the Majority strikingly failed to provide any reasons for finding that dumping is not determined for the product as a whole in relation to new shipper, changed circumstances and sunset reviews. The entirety of the Majority s reasoning on this point was given in connection with duty assessment reviews, and was based upon its incorrect perception of the specific purposes of those reviews. The Majority simply applied this reasoning to all other review proceedings, as if they all had identical purposes. 24 The Majority s conclusion that dumping is not determined for the product as a whole in new shipper, changed circumstances and sunset reviews is, therefore, bereft of supporting reasoning. 22. Fourth, the Majority wrongly assumed that an authority is entitled to use a zeroing methodology when it combats targeted dumping under the second sentence of Article The text of that sentence permits an authority to conduct an 20 Panel Report, paras and Appellate Body Report, EC Bed Linen (Article 21.5 India), para Appellate Body Report, EC Bed Linen (Article 21.5 India), para Appellate Body Report, EC Bed Linen (Article 21.5 India), paras. 124 and Panel Report, paras and

13 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 7 asymmetrical W-to-T comparison that focuses on certain export transactions with a pattern of prices which differ significantly among purchasers, regions or time periods. However, the mere fact that there is such a pricing pattern does not mean that there is dumping, targeted or otherwise. Instead, the authority must conduct a fair and unbiased comparison to ascertain whether there is dumping. The existence of a pricing pattern is not a license for unfairness. 23. In any event, even assuming arguendo that the second sentence of Article permits zeroing on an exceptional basis to combat dumping targeted at certain purchasers, regions or time periods, that limited authorization cannot justify the zeroing methodology at issue. The second sentence of Article is inapplicable in circumstances where the two conditions set forth in that sentence are not satisfied. The second sentence is, therefore, relevant only if the two conditions are satisfied. 24. The zeroing methodology at issue in this dispute applies without regard to fulfillment of the conditions in the second sentence of Article The USDOC uses the methodology in reviews as a matter of course, even when the conditions in the second sentence of Article are not satisfied. Absent fulfillment of these conditions, the second sentence is inapplicable, and simply not relevant to the permissibility of the contested zeroing methodology. By extending any exceptional right that the second sentence might afford for zeroing to circumstances where the sentence does not apply, the Majority transforms a (disputed) exceptional right under Article into a general rule applicable to all reviews. 25. The Majority s reasons in support of the permissibility of zeroing in reviews are, therefore, all flawed. None supports the Majority s erroneous conclusion. Instead, zeroing is prohibited in reviews because it contradicts the requirement in Article 2.1 and Article VI to determine the amount of dumping for the product as a whole, as defined by the investigating authority. This requirement applies to any determination of the existence and amount of dumping, in any anti-dumping proceeding. Accordingly, the zeroing methodology violates Articles 9.3 (duty assessment), 9.5 (new shipper), 11.2 (changed circumstances) and 11.3 (sunset) of the Anti-Dumping Agreement.

14 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page Moreover, by disregarding all negative comparison results, zeroing also involves a biased comparison that is heavily skewed in favor of an affirmative dumping determination. This violates Article 2.4 of the Anti-Dumping Agreement. 27. Japan, therefore, requests that the Appellate Body reverse the Majority s contrary findings and conclusions. II. THE AS SUCH MEASURES AT ISSUE THE ZEROING METHODOLOGY A. Overview of the United States Dumping Margin Determination Procedures 28. Japan refers the Appellate Body to paragraphs 11 to 64 of its First Written Submission to the Panel in its own complaint against the zeroing methodology, which provide a comprehensive description of the United States margin calculation procedures, in general, and the zeroing methodology, in detail Briefly, those procedures and methodologies may be explained as follows. In calculating dumping margins in any anti-dumping proceeding, the United States compares normal value and export price using one of the three methods set forth in Article of the Anti-Dumping Agreement: W-to-W comparison; transaction-totransaction ( T-to-T ) comparison; or W-to-T comparison. 26 The USDOC includes the zeroing methodology in its calculation procedures no matter which method of comparison it uses. 30. In practice, the United States consistently uses particular comparison methods in particular types of proceeding: a. In original proceedings, the USDOC routinely determines dumping margins using a W-to-W comparison. b. In administrative or duty assessment reviews, in order to assess retrospectively the amount of duty due, the USDOC determines dumping margins using a W-to-T comparison. In these reviews, the United States calculates two types of margin: a margin for each exporter that becomes the duty deposit rate for all entries of the 25 See 26 The first and second methods are sometimes referred to as symmetrical comparisons because normal value and export price are compared on the same basis; correspondingly, the third method is sometimes described as an asymmetrical comparison because of the different bases of comparison.

15 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 9 product exported to the United States by that exporter until the next review, and an importer-specific assessment rate that determines an importer s liability for the review period. c. In new shipper reviews, the USDOC determines dumping margins using a W-to-T comparison. d. In both changed circumstances reviews and sunset reviews, the USDOC generally does not determine a new dumping margin and, instead, relies on a margin calculated either in an original proceeding or in a duty assessment review. The margin relied upon may, therefore, be calculated using either a W-to-W or a W-to-T comparison, in both cases including the zeroing methodology. (i) Zeroing in W-to-W Comparisons in Original Proceedings 31. In calculating a dumping margin on a W-to-W basis, the United States proceeds in three steps. First, the USDOC sub-divides the product into a series of averaging groups 27 or models. A model consists of goods that are identical or virtually identical in all significant physical characteristics, and may contain anywhere from a single transaction to hundreds, or even thousands, of transactions. A W-to-W comparison is conducted for each of the models, and three outcomes are possible. Normal value may exceed export price for a particular model, in which case there is a positive price difference for the model; normal value may be less than export price, in which case the price difference is negative; or, finally, normal value and export price may be equal, in which case there is zero difference. 32. In the second step, the USDOC calculates both the numerator and denominator for the fraction from which an overall percentage margin of dumping is derived. The numerator is the total amount of the positive price differences by model, and the denominator is the total value of all comparable export transactions. All negative comparisons results are disregarded in the calculation of the numerator, giving them a zero value. Thus, for models with negative results, the USDOC ignores the results for comparable export transactions. Japan and the EC sometimes refer to this modelbased zeroing as model zeroing. As a result of this zeroing, the sum total of the numerator expressing the alleged dumping amount is inflated by the amount of the excluded negative results. In calculating the denominator of the fraction, the USDOC includes the total value of all comparable export transactions for all models. 27 USDOC Anti-Dumping Regulations, 19 C.F.R (d)(1). Exhibit EC-35.3.

16 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page In the final step of the calculation procedures, the USDOC expresses the fraction as a percentage overall margin of dumping, known in the United States law as the weighted average dumping margin. 28 (ii) Zeroing in W-to-T Comparisons in Reviews 34. The mechanics and effects of zeroing in W-to-W and W-to-T comparisons are identical. In W-to-T comparisons, the USDOC calculates a normal value, by averaging group or model, typically for each calendar month of the review period. Again, each model may contain anywhere from one to thousands of transactions. Each individual export transaction for the review period is then compared to the normal value for the model to which it corresponds, for the month in which the export transaction occurred. Again, for each of the multiple comparisons, there are three possible outcomes: there may be a positive, negative or zero price difference. 35. As in the W-to-W comparison, in step two, to derive an overall margin, the USDOC aggregates certain of the multiple comparisons results, and expresses the result as a percentage. Again, the USDOC sums solely the positive comparison results, ignoring all negative results for comparable export transactions. Because this zeroing takes place in connection with comparison results relating to individual transactions, Japan and the EC have sometimes referred to it as simple zeroing. Through zeroing, the numerator expressing the alleged dumping amount is inflated by the amount of the excluded negative values. As with W-to-W comparisons, the USDOC retains the total sales value of all comparable export transactions in the denominator. In the final step of the calculation procedures, the USDOC expresses the fraction as a percentage, which is the overall margin of dumping or weighted average dumping margin. (iii) Standard Computer Programs 36. The USDOC relies on computer programs to manipulate the large volumes of data collected in an anti-dumping proceeding. To ensure that determinations are consistent with the United States laws and policies, the USDOC maintains standard 28 Tariff Act, Section 771(35)(B). Exhibit EC-33.

17 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 11 computer programs which act as a template for use whenever the USDOC develops a specific computer program for a particular anti-dumping proceeding The zeroing methodology is executed through a line of computer code that is contained in the standard AD Margin Calculation Program, and also in every casespecific computer program developed for a particular anti-dumping proceeding. Specifically, a line of computer programming code actively selects from among all of the multiple comparison results those that are greater than zero: WHERE EMARGIN GT 0; As a result of this line, all negative comparison results are ignored in the process of determining the total dumping amount. III. SUMMARY OF THE PANEL S CONCLUSIONS A. The Panel s Conclusions 39. The Panel concluded that the zeroing methodology is an as such measure for purposes of WTO dispute settlement. Japan believes that the Panel s findings on this issue are correct and, in the event that they are appealed by the United States, Japan submits that they should be upheld. Japan has provided a brief statement of reasons why these findings should be upheld in an annex to this submission On the substance of the EC s as such claims on the zeroing methodology, the Majority found that: 29 The nature and purpose of these standard programs are described in the USDOC Import Administration Anti-Dumping Manual ( Manual ), which is publicly available on the Internet. See Exhibit EC-36.9 and See Japan s First Written Submission, paras. 28 to 30, for arguments relating to the Manual. 30 In the standard program for determining importer-specific assessment rates in periodic reviews, the relevant line is commonly: WHERE UMARGIN GT 0;. The Panel and the EC labeled this line of computer code, along with the lines surrounding it in the standard program, as the Standard Zeroing Procedure (EC First Written Submission, paras. 21 and 37; Panel Report, para. 7.91). In Japan s submissions in WT/DS322, this line is referred to as the Standard Zeroing Line. 31 In the event that United States appeals the character of the zeroing methodology as an as such measure, Japan refers the Appellate Body to the Annex to this submission, as well as the following arguments on this issue made in WT/DS322, which are hereby incorporated into this submission: Japan s First Written Submission, paras. 47 to 64; Japan s Responses of 20 July 2005 to the Panel s First Set of Questions, paras. 1 to 9; Japan s Second Written Submission, paras. 6 to 39; and Japan s Responses of 21 September 2005 to the Panel s Second Set of Questions, paras. 6 to 18.

18 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 12 the zeroing methodology is prohibited by the first sentence of Article of the Anti-Dumping Agreement when used in a W-to-W comparison in original proceedings under Article 5 of that Agreement; 32 it was not necessary to examine the EC s claim that the zeroing methodology involves an unfair comparison under Article 2.4 when used in W-to-W comparisons in original proceedings; 33 the zeroing methodology is permitted when used in: duty assessment reviews under Article 9.3; new shipper reviews under Article 9.5; changed circumstances reviews under Article 11.2; and, sunset reviews under Article In reaching its conclusions on zeroing in reviews, the Majority found that zeroing involves a fair comparison, under Article 2.4 of the Anti-Dumping Agreement, when used in these reviews. 35 It also found that Article applies solely to original proceedings, and does not apply to reviews. 36 Moreover, for the purposes of all forms of review, the Majority refused to apply the Appellate Body s ruling that dumping, and the margin of dumping, are determined for the product as a whole Panel Report, para The EC did not claim that the zeroing methodology is WTO-inconsistent when used in T-to-T or W-to-T comparisons in original proceedings. However, in WT/DS322, Japan has made an as such claim regarding the use of the zeroing methodology in T-to-T comparisons. Further, in US Softwood Lumber V, the United States has implemented the DSB s recommendations and rulings regarding the WTO-inconsistent use of zeroing in a W-to-W comparison, in an original proceeding, through a revised dumping determination that uses the zeroing methodology in a T-to-T comparison. Canada challenges the use of zeroing in this T-to-T comparison in proceedings brought under Article 21.5 of the DSU. 33 Panel Report, para Panel Report, paras and Panel Report, paras and Panel Report, para Panel Report, paras to

19 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page The Majority s conclusions may be summarized in tabular form as follows: TYPE OF PROCEEDING IS ZEROING PERMISSIBLE? ORIGINAL PROCEEDING (W-TO-W) NO ORIGINAL PROCEEDING (T-TO-T) NO EC CLAIM ORIGINAL PROCEEDING (W-TO-T) ( TARGETED DUMPING) YES DUTY ASSESSMENT REVIEWS YES NEW SHIPPER REVIEWS YES CHANGED CIRCUMSTANCES REVIEWS YES SUNSET REVIEWS YES 43. Japan submits that the Majority erred in finding that, in all reviews, the existence and amount of dumping are not determined for the product, as required by Article 2.1 of the Anti-Dumping Agreement and Article VI of the GATT The Majority, therefore, erred in determining that the zeroing methodology is consistent with Articles 9.3, 9.5, 11.2 and 11.3 of that Agreement. The Majority erred in finding that the zeroing methodology involves a fair comparison under Article 2.4 of that Agreement when used in reviews. B. The Zeroing Methodology Used in W-to-W Comparisons in Original Proceedings Is WTO-Inconsistent 44. The Panel upheld the EC s claim that the zeroing methodology is as such inconsistent with Article when used in W-to-W comparisons in original proceedings. 38 In the event that the United States appeals these findings, Japan also submits that they should be upheld Panel Report, para In the event that United States appeals the finding that the zeroing methodology is inconsistent with Article 2.4.2, Japan refers the Appellate Body to its arguments in WT/DS322 on the WTOinconsistency of zeroing in an original proceeding issue, which are hereby incorporated into this

20 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page By excluding negative comparison results from the determination of the amount of dumping, the zeroing methodology prevents a determination for the product as a whole, as required by the definition of dumping in Article 2.1 of the Anti-Dumping Agreement and Article VI of the GATT As a result, the margin of dumping is also not determined for the product, as required by Article Instead, the determination is simply made for a sub-grouping of the export transactions making up the product. The zeroing methodology used in original investigations is, therefore, inconsistent with Articles 2.4 and Japan s arguments below in connection with reviews elaborate more fully on the definition of dumping and also on the failure of a zeroing methodology to comply with this definition. These arguments apply equally to zeroing in original proceedings. 46. The Majority s reasons for its findings on zeroing in original proceedings were stated very shortly. 40 The zeroing methodology was found to be inconsistent with Article because it was the same of type of zeroing, used in the same type of W- to-w comparison, that the Appellate Body had already found to be inconsistent with Article in EC Bed Linen and US Softwood Lumber V. 41 Thus, the zeroing methodology was also inconsistent with this provision. The Majority dismissed the United States argument that the Appellate Body s findings in EC Bed Linen and US Softwood Lumber V should be rejected as erroneous The Panel exercised judicial economy with respect to the EC s claim that the zeroing methodology is inconsistent with the fair comparison requirement in Article 2.4 of the Anti-Dumping Agreement when used in W-to-W comparisons in original proceedings. 43 submission: Japan s First Written Submission, paras. 75 to 130; and, Japan s Second Written Submission, paras. 40 to The Majority based its as such findings regarding original proceedings on its earlier findings regarding certain as applied anti-dumping measures. Panel Report, para The as applied findings, which therefore also justify the as such findings, were given at Panel Report, paras to Panel Report, paras and Panel Report, para Panel Report, para

21 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 15 IV. ISSUES ADDRESSED IN JAPAN S SUBMISSION 48. Japan does not address all of the issues raised by the EC in its Notice of Appeal. Instead, Japan addresses the following two issues: (i) the Majority s errors in finding that the zeroing methodology used in duty assessment, new shipper, changed circumstances and sunset reviews is as such consistent with Articles 9.3, 9.5, 11.2 and 11.3 of the Anti-Dumping Agreement, respectively, and with Article VI of the GATT 1994, given that the methodology prevents the determination of dumping, and margins of dumping, for the product as a whole, as required by Article 2.1 of the Anti-Dumping Agreement and Article VI of the GATT 1994; and, (ii) the Majority s errors in finding that the zeroing methodology used in these same reviews is as such consistent with Article 2.4 of that Agreement, given that the zeroing methodology prevents a fair comparison of normal value and export price. V. THE MAJORITY ERRED IN FINDING THAT ZEROING IS CONSISTENT WITH ARTICLES 9.3, 9.5, 11.2 AND 11.3 AND ARTICLE VI ZEROING VIOLATES THE REQUIREMENT TO DETERMINE DUMPING FOR THE PRODUCT AS A WHOLE UNDER ARTICLE 2.1 AND ARTICLE VI A. Summary of the Panel s Erroneous Reasoning 49. The Majority proceeded in the following steps: first, it found that certain as applied anti-dumping measures, adopted by the USDOC in duty assessment reviews under Article 9.3.1, were consistent with Articles 2.4, and 9.3 of the Anti-Dumping Agreement, despite the use of zeroing; 44 second, for identical reasons, it found that the zeroing methodology used in duty assessment reviews under Article 9.3 is as such consistent with Articles 2.4, and 9.3 of the Anti-Dumping Agreement; 45 and, third, also for identical reasons, it found that the zeroing methodology used in new shipper, changed circumstances and sunset reviews is as such consistent with Articles 2.4, 2.4.2, 9.5, 11.2 and 11.3 of the Anti-Dumping Agreement Panel Report, paras , and Panel Report, para Panel Report, para

22 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page Thus, the Majority s reasoning for finding that zeroing is permissible in all forms of review was given in relation to zeroing in duty assessment reviews. No separate analysis was provided in connection with zeroing in new shipper, changed circumstances and sunset reviews. 51. In the course of its reasoning on the applicability of Article to reviews, the Majority addressed the requirement to determine dumping and margins of dumping for the product as a whole. 47 The Majority acknowledged that the Appellate Body has ruled that dumping can be found to exist only for the product under investigation as a whole, but observed that the Appellate Body has not considered whether this interpretation applies to reviews under Article The Majority concluded that, in duty assessment reviews, the authorities make determinations of dumping, and impose duties, on a transaction-specific basis, 49 not on a product-wide basis. The Majority, therefore, refused to apply the Appellate Body s repeated finding that dumping is defined in relation to the product. 52. One member of the Majority added that, because it clearly connotes real world business transactions, Article 2.1 can reasonably be interpreted to permit an authority to focus on particular import transactions and does not require a consideration of dumping in terms of an aggregate or average of export transactions over a period of time. 50 This interpretation effectively reverses the Appellate Body s ruling in the earlier zeroing disputes that the definition of dumping as contained in Article 2.1 applies to the entire Agreement and, under that provision, dumping exist[s] only for the product under investigation as a whole, and cannot be found to exist only for a type, model, or category of that product The Majority, therefore, found that dumping is defined in different ways for original proceedings and reviews. In the former, the existence and amount of dumping is determined on an aggregate basis for the product as a whole, and in the latter it may be determined for a particular import transaction. 52 As a result, on the 47 Panel Report, paras to 7.207, and See Panel Report, para See Panel Report, paras to 7.207, and Panel Report, para Appellate Body Report, US Softwood Lumber V, para Panel Report, para

23 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page 17 Majority s view, where multiple comparisons are made in reviews, each of the multiple positive comparison results is a margin of dumping, and negative comparison results can be disregarded as of zero value. 54. In concluding that dumping can be defined in different ways for different proceedings, the Majority ignored the Appellate Body s statement in US Softwood Lumber V and US Corrosion-Resistant Steel Sunset Review that the product as a whole definition of dumping in Article 2.1 applies to the entire [Anti-Dumping] Agreement. 53 Strikingly, but perhaps unsurprisingly, the Majority never addressed the definition of dumping in Article 2.1, confining it to a fleeting mention in footnote 239. The Majority s failure to address the meaning of the term dumping is particularly noteworthy because it accepted that the permissibility of zeroing cannot be divorced from the underlying conception of what dumping means, and even asserted that its approach was rooted in the concept of dumping In stark contrast, echoing the Appellate Body s rulings, the Minority panelist premised his conclusions on the view that the AD Agreement is based on the principle of a unique definition of dumping applying throughout all anti-dumping proceedings The Majority s justification for its novel approach is that the purposes of original proceedings and duty assessment reviews are different. 56 It held that, in original proceedings, the question is whether dumping exists and the focus is on the overall pricing behavior of the exporter under investigation. 57 In duty assessment reviews, it said, the margin of dumping must be related to the liability incurred in respect of particular import transactions. 58 As a result, it found that different rules apply in determining the amount of dumping: a product as a whole rule in original proceedings, and a transaction-specific rule in duty assessment reviews. 53 Appellate Body Report, US Softwood Lumber V, para. 93; and Appellate Body Report, US Corrosion-Resistant Steel Sunset Review, paras. 109 and Panel Report, para and footnote 367. Emphasis added. 55 Panel Report, para Panel Report, paras and Panel Report, para Panel Report, para

24 US Laws, Regulations and Methodology for Japan s Third Participant s Submission Page In support, relying partly on Article 9.4, the Majority noted that, under a prospective normal value system, variable duties are initially imposed on the difference between the price of an individual import and a reference price. 59 Thus, the amount of duties initially imposed varies depending on the prices of individual transactions, and duties may be initially imposed on some transactions, but not others. 58. The Majority found that, because the amount of duty initially imposed varied with each individual transaction, the amount of dumping can also be determined in a duty assessment review for individual transactions, and not the product. 60 In other words, the Majority found that duties are imposed when an individual transaction is dumped, not when the product is dumped. Equally, it found that anti-dumping duties are levied on individual transactions, not on the product. The Majority did not refer to the Appellate Body s statement that an anti-dumping duty is to be imposed in respect of the product. 61 Thus, for the Majority, the purpose of a review under Article 9.3 is to assess whether excessive duties were imposed on particular transactions The Majority did not provide separate reasons for its findings in relation to new shipper, changed circumstances and sunset reviews. 63 In other words, the reasons that the Majority gave for rejecting the product as a whole dumping definition for duty assessment reviews are applied equally to all other reviews. This is startling because, as we have just seen, the reasons given in relation to duty assessment reviews were based entirely on the perceived purposes of such reviews. 64 The purposes of new shipper, changed circumstances and sunset reviews are, of course, quite different. Yet, the Majority gave no reasons whatsoever in relation to the purpose of these other proceedings for rejecting the product as a whole definition. 60. For the reasons set out below, Japan submits that the Majority erred under Articles 9.3, 9.5, 11.2 and 11.3 of the Anti-Dumping Agreement because, for each of 59 Panel Report, para Panel Report, paras and Appellate Body Report, US Softwood Lumber V, para. 94. See also para Panel Report, paras to 7.207, and Panel Report, para Panel Report, para