Introduction

Dumping is the practice of exporting a product at a price lower than that sold in the domestic market of the exporting country. To counter the effects of dumping, importing countries are permitted to impose anti-dumping measures pursuant to investigations conducted in respect of such dumped imports.

The establishment of dumping involves comparison of two prices - export price of the dumped article and the domestic selling price of a like article in the exporting country (the normal value). Once it has been established that there is dumping, the investigating authority needs to determine the dumping margin, which is the basis for determination of rate of anti-dumping duty (‘ADD’).

The methodology for comparing the export prices with the domestic selling prices in the chosen investigation period is not as simple as it may seem. The cardinal and statutory principle which runs through the entire exercise is the principle of ‘fair comparison’. Therefore, the difference in timing and quantity of sales in the home market and the export market makes the exercise complex.

For example, if during the period for investigation of dumping (‘POI’), there are 10 transactions of export sales to be compared with 100 transactions of domestic sales, a question may arise whether to compare the weighted average of both prices during the POI or a monthly / quarterly comparison is warranted in the facts of a particular case. Taking another example, if for some months in the POI there are export sales but no sales in the home market and market prices were different in different months. In such scenarios, what methodology should the investigating authority employ for determining the dumping margins?

This article intends to discuss different methodologies prescribed under the World Trade Organization’s (‘WTO’s’) Agreement on Implementation of Article VI of the GATT (‘AD Agreement’) and the practices followed in India, the United States of America and the European Union (‘EU’).

Methodologies under the AD Agreement

In the international trading system, Article VI of the General Agreement on Tariffs and Trade, 1994 (‘GATT’) and the WTO’s AD Agreement govern the conduct of anti-dumping investigations. Article 2.4.2 of the AD Agreement provides three different methodologies for determining dumping margins:

1. Comparison of a weighted averagenormal value with a weighted average of prices of all comparable export transactions (‘W-W methodology’)
2. Comparison of normal value and export prices on a transaction-to-transaction basis (‘T-T methodology’).
3. Comparison of weighted average normal value to prices of individual export transactions (‘W-T methodology’)

While there are no specific conditions to be satisfied to apply W-W and T-T methodologies, Article 2.4.2 requires the following conditions to be satisfied for adopting W-T methodology:

1. There is a pattern of export prices which differ significantly among different purchasers, regions or time periods.
2. If an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.

It is relevant to note that since the comparison methodology is different under the three scenarios, mathematically, the resultant margins are generally not the same in different scenarios. The following illustration will help in appreciating this aspect. Let us take the example of product A (whose imports from USA to India are being investigated), with the following details:

Scenario-1- Comparison under W-W methodology

Scenario-2- Comparison under T-T methodology

Scenario-3- Comparison under W-T methodology[2]

From the above tables, it can be seen that the dumping margins under the three methodologies are not the same. The question then arises as to which is the appropriate methodology that should be considered by the investigating authority.

In US – Softwood Lumber V (WT/DS/264), the WTO Appellate Body (‘AB’) held that, as between W-W and T-T methodology, there is no hierarchy; the investigating authority has the discretion to choose between the two depending on which is most suitable in particular investigation.

In US – Washing machines (WT/DS/464), the AB held that both the methodologies are two symmetrical comparison methodologies which ‘fulfil the same function’. The AB also held that W-T comparison methodology is asymmetrical whereby a weighted average normal value is compared to prices of individual export transactions and the said methodology allows investigating authorities to address pricing behaviour that is focused on, or ‘targeted’ to, purchasers, regions, or time periods.

In the same case, the AB observed that the choice between W-W and T-T methodologies is generally made by considering the factors such as the number of domestic and export transactions involved, differences between the domestic and export sale models, and other factors concerning the complexity of the comparison. The AB recognized that the investigating authority may opt for the W-W methodology to avoid an overly burdensome comparison process. The AB however stated that if there are significant price fluctuations, resort can be made to the T-T comparison methodology.

The AB also held that if the use of either the W-W or T-T methodology results in targeted dumping being hidden, it is appropriate for an authority to use the W-T methodology. However, this does not mean that the W-T comparison methodology may be applied simply because of the existence of a pattern of export prices which differ significantly among different purchasers, regions or time periods. The W-W and T-T methodologies must be exhausted first before applying the W-T methodology.

Application of the comparison methodologies in different jurisdictions

India

In India, the Directorate General of Trade Remedies (‘DGTR’), which is the trade remedy authority under the Ministry of Commerce, generally applies the W-W methodology for calculating the dumping margins. The DGTR does not generally apply T-T methodology or W-T methodology for determining dumping margin.

To deal with the situation of fluctuations in prices, in some cases, DGTR has calculated the margins on quarterly basis/monthly basis and a weighted average of the same was considered (See, recent anti-dumping investigations on imports of Pentaerythritol from China PR, Saudi Arabia and Taiwan). It may be noted that it still needs to be tested whether the same is in accordance with the three methods statutorily prescribed in the AD Agreement as given above.

It is suggested that DGTR may consider conducting an analysis to decide which method would be appropriate in each situation. For this purpose, the interested parties may be requested to provide relevant information to enable the DGTR to decide on the appropriate methodology. This will ensure that the dumping margins calculated in all investigations are accurate and shows the true extent of dumping.

United States of America

The United States Department of Commerce (‘USDOC’) selects a methodology depending upon its suitability to a particular situation. To determine whether there exists a pattern of export prices which differ significantly among different purchasers, regions, or time periods, the USDOC applies what is called as the ‘Nails’ test, which consists of certain statistical methods like a ‘standard deviation test’ and a ‘price gap test’ in deciding whether to apply the W-T methodology in a particular fact situation.

European Union

The European Commission (‘EC’), much like DGTR in India, generally applies the W-W methodology for calculating the dumping margins. The T-T methodology is rarely applied by the EC because of its practical difficulty in application because it involves comparing each export transaction with a comparable and closest domestic sales transaction. As provided in the WTO’s AD Agreement, the W-T methodology is applied only when there is targeted dumping, and the differences cannot be appropriately taken into account by the W-W and T-T methodology.

Conclusion

The W-W methodology is the most preferred methodology across jurisdictions because of the lesser complications involved. The T-T methodology is applied in situations where there are price fluctuations. However, where there is high number of transactions, the T-T methodology becomes practically very complicated to apply.

On the other hand, the W-T methodology is applied when the issue of targeted dumping cannot be addressed by the W-W and T-T methodology. The goal is to ensure calculation of correct dumping margins. Choosing the appropriate methodology is of utmost importance since a wrong choice of methodology may actually show dumping when it is in fact non-existent or vice versa. Hence, it is always advisable for participating exporters / producers to make a proper analysis and make appropriate and timely comments on this aspect to bring it to the attention of the investigating authorities so that correct margins are determined in an investigation.

[The author is a Principal Associate in WTO and International Trade Division in Lakshmikumaran & Sridharan Attorneys, New Delhi]

1. [1] The USDOC generally applies the rule of ‘zeroing’ where the negative margins are ignored and are considered as zero for the purpose of calculating the weighted average margin. This results in a higher dumping margin than would otherwise result if there was no zeroing. However, numerous WTO decisions (like US – Softwood Lumber V (DS264), US – Softwood Lumber (DS534) have held that zeroing is prohibited under the W-W and T-T methodologies.
2. [2] Under the W-T methodology also, the USDOC applies the rule of zeroing. The WTO Panel in US – Softwood Lumber (DS534) has found that zeroing is allowed in the W-T methodology, after considering the contrary rulings of the panel and the Appellate Body in US – Washing Machines (DS464) as well as the panel in US – Anti-Dumping Methodologies (China) (DS471)