Wednesday, February 17, 2010

Latest Zeroing Cases

The latest two Zeroing cases added to a long history of Zeroing cases:

Dongbu Steel Co. Ltd. v. United States 2/4/2010 Slip Op. 10-13.
Corrosion-resistant carbon flat steel products from the Republic of Korea.
Use of zeroing in context of administrative review sustained. 
Andaman Seafood v. United States 2/4/2010 Slip Op.10-12
Frozen warm water shrimp from Thailand.
Sustained zeroing as commerce could apply the decision to stop using zeroing prospectively and not on already decided cases

"Zeroing" is a method used by the International Trade Administration in calculating "Antidumping Duties."

"Antidumping Duties" are extra duties levied on products being sent tot he US at less than fair market value. The two requirements are that a 1) US Industry is being injured by import and 2) the reason is that the injuring imports are being sold less than fair market value.

It is often explained as analogous to predatory price protection under Antitrust laws. However, the key distinction is that under anti trust laws the complainant must show that the offender has the intention of driving competitors out of business to recoup monopoly profits in the future. Antidumping is much easier to prove.

The remedy for dumping is additional duties calculated by figuring out what the fair market price should be and taxing the subject imports until they are that fair market price. So the difference between the higher 'fair market' price and the lower actually imported price is the dumping margin and the dumping duties. The higher the fair market price is when compared to the prices the foreign companies sell in the US the higher the duties.

"Zeroing" is a method of calculating the average price the foreign company sells the products in the United States. Over a period of time, the International Trade Administration the "Agency" averages the price in the home market, or fair market price, for a period of time usually a year. Then the Agency calculates the average sales price over time. Except, ever time that average sales price is over the fair market price the agency "zeros" it out to make it equal but not over the fair market price.

A brief example would be if month one the "home" market price is $3.00, then in month two it is $5.00, and in month three the price it $4.00. The average home market price for the three month period would then be $4.00. ((3+5+4)/3=4). Now lets say the same three month period the company sells the products to the US for the same price as the home market. Normally, there would be no dumping because the prices int he home market match the sales price to the US. But with the introduction of "zeroing" we have a different result. The $5.00 price would be "zeroed" out to the average home market price of $4.00. So the average sales price to the US becomes $3.66. ((3+4+4)/3=3.66) So where there should be no dumping the Agency finds a 9.2% dumping margin.

So when price of a product varies frequently, there is almost a guarantee there will be a dumping margin. The fair market price is arrived at by taking all the numbers and averaging them. The imported price is arrived at by taking all the numbers that are less than the fair market price and changing all the numbers that are high to the fair market price and then averaging them. You are always guaranteed to get a number less than the fair market price and hence always guaranteed to find a dumping margin.

More on the history of zeroing. Looks like this might be a three part blog series.