Publication
title
Canadian Dumping Law: CBSA Discontinues "Zeroing"
DATE
August 12, 2005
EXPERTISE
On June 2, 2005, the Canada Border Services Agency ("CBSA") issued the Statement of Reasons for its final determination with respect to the dumping of laminate flooring from Austria, Belgium, China, France, Germany and Poland and its final determination with respect to the subsidizing of laminate flooring from China. In its reasons, the CBSA concluded that there was no dumping of laminate flooring imported from Poland and that the margins of dumping from Austria, Belgium and Germany were insignificant. As a consequence, the investigation against Austria, Belgium, Germany and Poland was terminated.
In its decision, the CBSA stated that, for the first time, it had discontinued its former practice of "zeroing" in dumping investigations and that it planned to follow the new administrative practice in future dumping investigations. In so doing, the CBSA made one of the most significant changes in the history of Canadian anti-dumping practice.
Zeroing is the practice of converting negative margins of dumping to zero. Prior to this laminate flooring proceeding, the CBSA calculated margins of dumping for each exporter in the following manner: the CBSA first divided the subject goods into models and then collected cost and sales information from each exporter for each model.
As a simple example, assume that the "laminate flooring" that was the subject of this dumping complaint consisted only of a 6 mm thick Model A and a 12 mm thick Model B and that the thickness was the only relevant characteristic that affected the cost of production or the selling price. Assume also that the CBSA determined the following for a particular exporter
|
|
N.V.* |
E.P. * |
M.D. * |
|
Model A |
$100 |
$75 |
$25 |
|
Model B |
$100 |
$125 |
-$25 |
|
|
$200 |
$200 |
|
Under the former practice of zeroing, the margin of dumping for Model B would have been changed from -$25 to zero. The dumping margin of $25 for Model A would then have been divided by the total export price of $200 for an overall dumping margin of 12.5 per cent. During the provisional period, which lasts for four months, the 12.5 per cent duty would have been applied to both Models A and B, even though Model B was found to be sold at 25 per cent more than the undumped price.
The practice of zeroing had the effect, in almost every case, of increasing the dumping margin. In many cases, the practice of zeroing also resulted in a dumping margin of more than the threshold of 2 per cent required to maintain an anti-dumping proceeding. In fact, in many cases, zeroing generated a margin of dumping where there would otherwise not have been any.
The WTO Appellate Body has now conclusively determined in multiple cases that zeroing is contrary to member countries' commitments under the WTO Anti-Dumping Agreement (ADA). Article 2.4.2 of the ADA requires that an investigating authority take into account "all comparable export transactions" in the calculation of dumping margins. The WTO Appellate Body held that, by converting negative dumping margins to zero, an investigating authority is not taking into account all export transactions. The Appellate Body thus said that it was impermissible to ignore the effects of "negative dumping," i.e., those sales made at "undumped" prices.
In the laminate flooring investigation, the CBSA for the first time decided to discontinue its long-standing practice of zeroing. The CBSA had announced this change in its preliminary determination Statement of Reasons on March 3, 2005. The domestic producer in the case argued that the CBSA should resume the practice of zeroing for the final determination, but to no avail.
In practice, this change is quite significant for exporters and their Canadian importers. Using the above example, when zeroing is not used, the negative -$25 and positive $25 are added together. These margins cancel each other out, with the result that no dumping would be found and the anti-dumping investigation against that country would be terminated if this were the only investigated exporter in that particular country.
In the final determination with respect to the dumping of laminate flooring, the CBSA thus terminated the proceeding against four of the six named countries on the basis that the margins of dumping for those countries were insignificant or non-existent. In the past, terminations by the CBSA on the basis of insignificant margins of dumping at either the preliminary determination or the final determination stage were rare. While the individual dumping calculations by the CBSA are confidential, it seems clear that the discontinuance of zeroing had a material effect on the dumping calculations in this case.
The effect of this change in the CBSA's administrative practice will likely be to significantly reduce the margins of dumping in the majority of cases and, perhaps, to discourage potential complaints. It should also prompt exporters and importers to more carefully consider participating in the CBSA's dumping investigations. After all, submitting complete responses to the CBSA will likely yield lower margins of dumping or no margins at all and increase the chances of being able to continue to compete in the Canadian market.
The decision is thus another reminder for exporters and importers that providing appropriate evidence to the CBSA now offers higher chances of quickly getting out of a dumping investigation at the CBSA stage (where the process is limited to written submissions), something that previously appeared to be highly unlikely.
From the perspective of Canadian producers interested in commencing a dumping action, this decision means that the likely dumping margins should be analysed in more detail before commencing an action. Domestic producers will also need to consider the subject goods definition more closely. If a more general subject goods definition includes high-priced models (such as our Model B above), the domestic producers would be well-advised to construct a more tailored definition, covering only the models that are clearly being dumped.
From a procedural standpoint, the laminate flooring investigation also featured another administrative initiative by the CBSA, which, if repeated in future cases, should provide exporters and importers with better means to present their case to the CBSA. In this investigation, the CBSA took the unprecedented step of releasing preliminary calculations of its final dumping results prior to the issuance of the final determination. The CBSA offered all parties (exporters, importers and domestic producers) an opportunity to comment on the preliminary calculations before the final determination. Indeed, this action by the CBSA provided all parties with an unprecedented opportunity to comment on calculations and results that they would normally see and become aware of only once the final determination is issued by the CBSA. The creation of an additional comment opportunity for exporters, importers and domestic producers will be welcome, as it makes the whole dumping investigation process more transparent. It echoes the general approach now taken by the CBSA, where the parties are informed (through the CBSA website) of all of the evidence put on the CBSA's record and are given an opportunity to comment on and file submissions with respect to such evidence.
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.
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