South Korea

WTO Rules for South Korea in Case Over U.S. Import Duty-Calculation Method

By Jennifer M. Freedman
The U.S. method used to work out import duties on Korean products such as thin stainless-steel sheets, heavy steel plate and a cutting tool containing diamond illegally inflates tariffs, the World Trade Organization ruled.

The calculation, called “zeroing,” enables the U.S. to maximize customs duties by selectively excluding some market price data. The U.S. used the methodology to work out whether imports from South Korea were sold below cost, or dumped, on the domestic market.

The U.S. “acted inconsistently” with trade rules, WTO judges in Geneva said in their 17-page report.

WTO judges have repeatedly ruled that zeroing violates global trade regulations, prompting the U.S. Commerce Department to propose scrapping the method. A decision by the agency, issued in a Dec. 28 Federal Register notice, may lower or eliminate duties on products such as steel or furniture. The regulation expands a decision that took effect in 2007 and discontinued the practice for initial calculations of duties.

Dumping occurs when companies export goods to the U.S. at a loss or at prices below what the products fetch in their domestic market. In most investigations, the Commerce Department averages prices for each product under review and the comparable goods in the U.S. It then compares the prices, and sets duties based on the difference.

When the price in the exporting country on a product is lower, the U.S. has been setting the cost at zero, and not the actual amount. This “zeroing out” makes the average margin in a dumping case higher. Averaging the actual amount may offset the dumping margins, lowering the duties in some cases.

The Korean government lodged the complaint at the WTO in November 2009 at the request of Posco, the world’s third-biggest steelmaker, and domestic cutting-tool manufacturers.

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.