'Zeroing'

"Few trade policies engender more bitterness and international ill will than the US anti-dumping law."

-- Dan Ikenson, policy analyst, Center for Trade Policy Studies, Cato Institute

A dispute over a 'zeroing' -- a protectionist practice that allows Washington to levy artificially high trade tariffs on its trade partners -- is threatening to hold back the much-delayed Doha round of world trade talks. The practice may come under the microscope this Wednesday, as new proposals in a text drafted by Guillermo Valles Galmes, the Uruguayan ambassador chairing World Trade Organisation negotiations, are discussed. 

Galmes has made some draft changes to WTO subsidy and anti-dumping rules that have displeased Washington. The United States has insisted that any change to WTO anti-dumping rules must permit 'zeroing' which, critics say, inflates dumping margins and the duties based on them.

• Countries have methods to fight 'dumping' -- the act of a manufacturer exporting a product to another country at a price which is below the price it charges in its home market. The importer can impose an anti-dumping duty to compensate for this gap, known as the dumping margin, if the low price is injurious to its industry.
• Yet there are complaints in some quarters that Washington routinely exaggerates and even fabricates dumping margins, thereby ignoring instances in which foreign firms charge prices over fair value, and offsetting supposed instances of undercharging.

Harvard professor of economics Greg Mankiw gives an example of 'zeroing' in miniature: 

• Six months a year, a firm charges $10 for its product in its home market and $8 in the United States; the other six months a year, it charges $8 at home and $10 in the United States.
• On average, the firm charges $9 both overseas and in the United States.
• But US officials assign each sale in the first half of the year a dumping margin of $2 and each sale in the second half a margin of zero, rather than -$2.
• The average dumping margin -- and the resulting tariff -- is $1.

Galmes's draft text allows zeroing in certain circumstances, but does not go as far as the Washington wants. Senior congressmen have said any trade deal emerging from the Doha round must recognise the practice.  Washington's expected intransigence makes the aim to conclude Doha negotiations by the end of 2008 look even more unlikely.