On February 14, 2012, the Department of Commerce (DOC) published a final regulation that will change significantly its method of calculating antidumping duties in annual administrative reviews of antidumping duty orders, by eliminating in most cases a practice known as “zeroing.”

This change is significant to importers because it will likely result in lower dumping margins in most administrative reviews than under the DOC’s current calculation method, and in some cases may eliminate antidumping duty margins altogether. While the new policy on its face may appear to be detrimental to U.S. companies being injured by imports, the DOC has left the door open for the DOC to continue to use zeroing in some as-of-yet undefined situations.

History of Zeroing in the United States

Currently, the DOC uses a two-step procedure to calculate an overall dumping margin for a foreign producer in a typical annual administrative review. In the first step, the DOC compares, on a monthly basis, the producer’s per-unit U.S. sales prices to a “normal value,” which ordinarily is an average of the producer’s per-unit home market sales prices. (For non-market economies, the DOC uses a different procedure to determine normal value.) If the U.S. price is lower than the normal value, then the “dumping margin” for the transaction is positive; if the U.S. price is higher than the normal value, then the dumping margin for the transaction is negative.

In the second step of the procedure, the DOC sums up all of the positive dumping margins, “zeros out” (i.e., disregards) all of the negative dumping margins, and divides the result by the total number of units exported to the U.S. market, to arrive at a weighted-average dumping margin. The DOC uses this weighted-average dumping margin as the cash deposit rate for future imports, and calculates an importer-specific dumping margin for assessment of final antidumping duties of imports that were entered during the period of review.

For many years, the European Union, Japan and several other countries have complained that the U.S. practice of zeroing unfairly inflates overall dumping margins, because the procedure does not allow negative dumping margins to offset positive dumping margins. U.S. producers, on the other hand, counter that the alternative of allowing negative dumping margins to offset positive dumping margins allows foreign producers to selectively dump certain products for which the foreign producer faces stiffer competition in the U.S. market, and erase the margin by making non-dumped sales of products where the U.S. industry does not compete. In a series of World Trade Organization (WTO) decisions, the WTO has held that the U.S. practice of zeroing is inconsistent with the WTO Agreement, and has taken steps to authorize the European Union and Japan to retaliate.

On February 6, 2012, the United States Trade Representative announced that the United States reached a settlement of the zeroing disputes with the EU and Japan. The final regulation issued by the DOC on February 14, 2012 is a partial fulfillment of the settlement.

Impact of the Final Regulation

Pursuant to the final regulation, for all future administrative reviews, and for all current administrative reviews in which the preliminary results are due after April 16, 2012, the DOC will use a new calculation procedure to eliminate zeroing. Instead of using the “average-to-transaction” (A-T) comparison described above, the DOC will now use an “average-to-average” (A-A) comparison. Under the A-A approach, the DOC’s first step in its calculation will be to compute a weighted-average U.S. price and compare it to the weighted-average home market price on a monthly basis. In the second step, the DOC will create an overall weighted-average dumping margin, but will not zero out negative dumping margins. Under the new procedure, negative dumping margins will offset positive dumping margins. This A-A comparison is similar to the method that the DOC currently uses to compute dumping margins in the original investigations that lead to imposition of antidumping duty orders, except that in an original investigation the averages are calculated on an annual basis, rather than a monthly basis.

The DOC will also recalculate the dumping margins for completed administrative reviews in certain proceedings that were the subject of the EU and Japanese complaints, for certain foreign producers that are not currently undergoing new administrative reviews. The DOC will announce those recalculations at a later date; however, the DOC will use the recalculated margins only to change the future cash deposit rates, not to refund any final antidumping duties paid by the importers in those cases.

Final Thoughts on New Zeroing Regulations

There are some technical details of the new A-A comparison approach that the DOC has not yet clarified. Importantly, the new regulations also allow the DOC to use a different comparison method (other than A-A comparison) if the DOC “determines another method is appropriate in a particular case.” This language in the regulation itself, and other language in the Federal Register notice announcing the regulation, appears to leave open the door for the DOC to resort to zeroing in certain administrative reviews, on a case-by-case basis. But the Federal Register notice gives no guidance on the limit of the DOC’s discretion. Therefore, the ultimate impact on U.S. importers and manufacturers may depend on the extent to which the DOC exercises its discretion to use alternative methodologies, potentially with zeroing, on a case-by-case basis.

Although the DOC’s announcement is certainly good news to importers, it is important to understand that this new policy does not automatically eliminate dumping margins. Importers and their foreign producers still need to monitor their selling practices and prices to avoid dumping. For U.S. companies that are adversely impacted by imports that they believe are dumped, the ultimate impact of the new policy is likely to depend on the extent to which the DOC exercises its discretion to use alternative methodologies, potentially with zeroing, on a case-by-case basis. Stay tuned for more highlights.