August 24, 2007

Dear Chairman Rangel and Rep. McCrery:

On behalf of the Consuming Industries Trade Action Coalition ("CITAC"), this letter supplements the views of CITAC in connection with the recent Trade Subcommittee hearing (August 2, 2007) and states the views of CITAC regarding the merit of including trade remedy provisions regarding the WTO-inconsistent practice of "zeroing" in antidumping investigations, administrative reviews and other proceedings.  In particular, we draw the Committee's attention to the bill offered by Mr. Barrett of South Carolina (H.R. 2714) and urge the Committee not to include this bill or similar provisions in any legislation reported out of the Committee.

We oppose any legislation to require the continuation of "zeroing" because it is bad tax policy for the United States, because it is contrary to U.S. international obligations and because continuation of zeroing will subject U.S. exporters to potential retaliation as a result of the failure of the United States to abide by its WTO obligations.

1. Zeroing is Bad Tax Policy

First, the continuation of zeroing in antidumping proceedings (and its restoration to investigations despite the decision of the Department of Commerce to discontinue the practice in initial investigations) is bad tax policy. The purpose of antidumping duties is to offset the effect of imports of "subject merchandise" into the United States market. It is impossible to measure this impact accurately without considering sales where the price in the U.S. market of subject imports is greater than the "normal value" for such sales. American manufacturers that need globally competitive raw materials must be assured that the duties they pay are not excessive.

A simple example illustrates the point:

This example shows that the appropriate amount of the tax to offset the impact of the import sales (all of which are subject to antidumping duties) is $5, which equals the amount by which these imports are below normal value in the aggregate. Taxing these imports at more than $5 (e.g., $10 if "zeroing" is used) would pass excess duties on to U.S. consuming industries and overcompensate U.S. petitioners for the impact of sales of imported merchandise in the United States. The result would be a net economic loss for the United States through excess taxation.

Consuming industries would therefore be harmed if zeroing is continued in antidumping cases. Unfortunately, H.R. 2714 does not consider this critically important fact. Consuming industries deserve better. CITAC urges the Committee to examine the appropriate tax policy before including any provisions that would distort trade and economic impacts as seriously as would zeroing.

2. Zeroing is Not Permitted under WTO Rules; the United States Has Already Agreed to Comply with the WTO Rulings against Zeroing.

While the United States has sharply criticized the decisions of the WTO Appellate Body, arguing that the text of the Anti-Dumping Agreement and the GATT 1994 (the organic document of the WTO) do not prohibit zeroing, this is neither a uniformly held view, nor do we believe is it the right view. In fact, the law of the WTO is that zeroing in investigations and administrative reviews (assessment proceedings) is "as such" a violation of U.S. international obligations. The Dispute Settlement Body has adopted decisions against the United States and, earlier, the European Communities, that clearly hold that zeroing is contrary to WTO rules. While the United States has the right to request that the relevant agreements be amended to permit countries to engage in zeroing, no such change has been adopted. Unless and until such changes have been made to the underlying agreements, zeroing is not lawful and the U.S. must abide by these decisions, even decisions the Administration may not like. This is vital for the Unites States to be able to insist that other members of the WTO live up to their obligations under the WTO.

On May 4, 2007, the United States and Japan notified the Dispute Settlement of an agreement between them, specifying that a "reasonable period of time for the United States to implement the recommendations and rulings of the Dispute Settlement Body (DSB) in the dispute 'United States — Measures Relating to Zeroing and Sunset Reviews' (WT/DS322) shall be 11 months [from the date the decision was adopted by the Dispute Settlement Body], expiring on 24 December 2007." This agreement settled a WTO arbitration proceeding that had been filed by Japan to determine the "reasonable period of time" within which the United States must implement the WTO zeroing decisions and avoid potential retaliation against U.S. exports.

The agreement with Japan means that the United States is obligated to implement the decision prohibiting zeroing in administrative reviews and other antidumping proceedings by December 24, 2007. CITAC has been working with the Administration to bring this implementation about, because it will be a significant benefit to the vast majority of American manufacturers and consumers.

H.R. 2714 (and indeed, any congressional effort to prevent the United States from complying with these WTO rulings) would violate WTO rules and the commitment of the Administration to comply with these rulings. The Ways and Means Committee should not approve any legislation that would require the United States to defy a WTO decision duly adopted by the Dispute Settlement Body. CITAC and its members believe that such defiance would undermine the ability of the United States to enforce its rights in the WTO, including its rights to assure enforcement of intellectual property obligations by other countries.

3. The United States Has Proposed Changes to the WTO Anti-Dumping Agreement, which CITAC Opposes

In June and July 2007, the United States proposed changes to the WTO Anti-Dumping Agreement. These changes would explicitly permit zeroing in antidumping investigations and reviews. As we have indicated, CITAC opposes these initiatives, because they would be bad tax and trade policy for the United States. In addition, any effort by the United States to seek a change of this magnitude as part of the Doha Development Agenda would threaten the conclusion of the Round and its benefits for U.S. interests.

Nonetheless, it is important to acknowledge that the United States, in making these proposals, is acting within WTO rules. There should be no question that acting outside these rules, by considering legislation that would require the Administration to disobey the WTO zeroing rulings, would be unacceptable.

In conclusion, CITAC urges the Committee to refrain from considering any legislation that would dictate a reinstatement of zeroing or a refusal by the United States to implement the decision of the WTO Dispute Settlement Body that it has committed to follow and implement by December 24, 2007. Defiance of this decision would do serious damage to consuming industries in the United States, and probably to U.S. exporters.

We look forward to working with the Committee on this important matter.