The dumping controversy: Is it really over?

The dumping controversy is supposed to be over. But months after the final International Trade Commission ruling, the industry is still trying to sort fact from fiction. As are governments around the world it seems.
The outboard case generated thousands, if not tens of thousands, of pages of documents written in legalese, and dozens of press releases from interested parties. Efforts to interpret this wealth of information by the media, including Boating Industry, have in some cases only added to the confusion. In a recent Sherwood Speaks Out column (April 2005), our columnist shared his opinion under the headline of “Let’s get the story straight on dumping,” that did not fully explain all of the intricacies of the legal process and therefore did not set the story straight as promised.
Here are the facts. The World Trade Organization governs dumping claims between countries. According to Article VI of the General Agreement on Tariffs and Trade 1994, which the WTO uses as a basis for dumping cases, “… dumping, by which products of one country are introduced into the commerce of another country at less than normal value of the products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party…”
On Jan. 8, 2004, Mercury Marine filed a petition with the International Trade Commission accusing Japanese outboard engine manufacturers of violating U.S. anti-dumping laws. In the first phase of the complex process, the U.S. Department of Commerce made a final determination on Dec. 28, 2004, that Japanese producers of outboard engines had engaged in dumping in the U.S. market by a margin of 18.98 percent. Many people in the industry believe that the story ends there. It doesn’t.
It’s important to note that the formula used to calculate that margin takes into account hundreds of different items, which compare two vastly diverse markets: the United States and Japan. For example, the U.S. outboard engine market has a multilayered distribution channel that includes selling engines to boat builders and dealers alike. In the much smaller Japanese market, however, there is almost no reliance on the boat building community for packaged distribution, and therefore the comparison of selling expenses and other business costs is substantially different.
Additionally, the formula in many cases does not compare like-products. If a given engine in the United States is not offered in Japan, the next closest engine will be used in the calculations. As an example, since Yamaha Marine Group, which was the primary defendant in the case, does not sell outboard core components such as powerheads to OEM outboard manufacturers in Japan, OEM powerheads sold to Mercury in the United States were compared against powerheads in Japan sold to dealers as replacement parts.
On Feb. 2, 2005, in a 4-2 decision, the ITC ruled that dumping by Japanese outboard engine manufacturers did not cause material injury to domestic manufacturers, and therefore those companies would face no duty or other consequences. In layman’s terms, the harm that Mercury claimed the Japanese builders caused was determined by the ITC to be “inconsequential, immaterial and unimportant,” according to the 180-page ITC final report, which Boating Industry reviewed.
In assessing whether the U.S. industry was materially injured by the imports, the ITC considered “all relevant economic factors that bear on the state of the industry in the United States.” This included conditions of competition such as engine technologies, supply and demand, data relating to the period following the Outboard Marine Corp. bankruptcy and product substitutability, in addition to pricing matters.
Finding fault with the system
Both Mercury Marine and Yamaha Marine Group found fault with the U.S. government. Naturally, Mercury Marine President Pat Mackey disagreed with the ITC findings, pointing out that had one more commissioner found evidence of injury, the duty would have been imposed on imports of Japanese outboards into the United States. And although Yamaha was ultimately seen as the winner in the case, Marine Group President Phil Dyskow believes the government’s method of calculating dumping margins is flawed and “does not meet the standards of the World Trade Organization.”
Despite what either party says, the WTO agrees that there is fault in the system, both in the “zeroing” practice used to calculate dumping margins and in the way collected anti-dumping duties are distributed. In a 2004 dumping case involving Canadian lumber companies, the WTO found the United States’ practice of “zeroing” to be WTO-inconsistent and recommended that the United States bring its measures into conformity with WTO obligations.
Zeroing is the practice of assigning a value of zero to goods for which the export price exceeds the home market price. Zeroing prevents the negative margin for one category of goods from offsetting a positive margin of dumping for another category of goods, which inflates the overall dumping margin.
In layman’s terms, if you export a product for $1,000, and that product sells for $800 in the home market, the export price is $200 above what it should be to avoid dumping. If, on a subsequent sale, the same product sells for $600 ($200 less than the home market value), the WTO requires that the margins offset each other, as they do in this example.
In the United States, however, the Department of Commerce does not offset positive margins of dumping with negative margins of dumping. Herein lies the debate: Mercury Marine claimed dumping, while Yamaha asserted that zeroing and other practices within the U.S. Department of Commerce’s calculations created margins of dumping where, they assert, none existed.
In fact, it is not unusual for the WTO to find that the United States is not operating according to its rules. In another dispute regarding U.S. dumping policies, the Byrd Amendment, which governs the way the United States handles anti-dumping cases, was found to violate U.S. obligations under WTO agreements. The Amendment allows the U.S. government to distribute collected anti-dumping duties among the U.S. companies that initiated the anti-dumping cases. This procedure was found to be inconsistent with WTO policies as the act does not entail a specific action against anti-dumping, and it was seen as a measure that could encourage the U.S. industry to file more such cases.
The U.S. administration apparently agrees as it has proposed repeal of the Byrd Amendment, in its budget proposal for fiscal 2006, and legislation that would repeal it was introduced in the House of Representatives on March 3.
The Byrd Amendment became a hot topic last November when the WTO authorized eight countries to impose sanctions against the United States until it made the act WTO-compliant. Canada and the EU have already imposed sanctions. And most recently Canada has requested the establishment of a WTO compliance panel to review U.S. implementation in the lumber case and also requested authority to retaliate against the United States. Although we’ll never know how these factors may have affected the outboard dumping case, we thought it best to present this additional information to explain the intricacies of the case.

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