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WorldTradeLaw.

net Dispute Settlement Commentary (DSC)

Appellate Body Report


European Communities - Anti-Dumping Duties on Imports
Of Cotton-Type Bed Linen from India
(WT/DS141/AB/R) / DSR 2001:V, 2049
Timeline of Dispute
Panel Request: September 7, 1999
Panel Established: October 27, 1999
Panel Composed: January 24, 2000
Interim Report Issued: July 31, 2000
Final Report Circulated: October 30, 2000
Notice of Appeal: December 1, 2000
AB Report Circulated: March 1, 2001
Adoption: March 12, 2001

Participants
Appellant/Appellee: EC
Appellant/Appellee: India
Third Participants: Egypt, Japan, U.S.

Appellate Body Division


Bacchus (Presiding Member),
Abi-Saab, Feliciano

Table of Contents
BACKGROUND ...........................................................................................................................................................2
SUMMARY OF APPELLATE BODY'S FINDINGS ..................................................................................................2
PROCEDURAL AND SYSTEMIC ISSUES .........................................................................................................................2
Working Procedures for Appellate Review Rule 16(2) - Revised Schedule .........................................................2
AD Agreement Article 17.6(ii) - Legal Standard of Review .................................................................................3
SUBSTANTIVE ISSUES .................................................................................................................................................3
AD Agreement Article 2.4.2 - "Zeroing"...............................................................................................................3
AD Agreement Article 2.2.2(ii) - SG&A Costs/Profit Amounts ...........................................................................4
COMMENTARY ..........................................................................................................................................................5
Subsequent Developments.....................................................................................................................................5
AD Agreement Article 2.4.2 - "Zeroing"...............................................................................................................5

Key Findings

Upheld Panel's finding that by "zeroing" negative dumping margins for particular product types, the
European Communities acted inconsistently with AD Agreement Article 2.4.2.

Reversed Panel's finding that constructed value can be calculated on the basis of data from "other
exporters or producers" under AD Agreement Article 2.2.2(ii) when data from only one "other exporter
or producer" is available.

Reversed Panel's finding that when constructed value is calculated under AD Agreement Article 2.2.2(ii),
sales that are not made in the "ordinary course of trade" may be excluded.

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EC - Bed Linen (AB)

BACKGROUND
This dispute concerns definitive anti-dumping duties imposed by the European Communities on
imports of cotton-type bed linen from India. On July 30, 1996, a petition requesting the anti-dumping
investigation at issue was filed with the European Communities by the Committee of the Cotton and
Allied Textile Industries of the European Communities ("Eurocoton"), a federation of national producers'
associations of cotton textile products. On September 13, 1996, the European Communities published a
notice of initiation of an anti-dumping investigation. The period of investigation ("POI") for dumping
was July 1, 1995 to June 30, 1996, and the injury POI was from 1992 until the end of the dumping POI.
The European Communities conducted its dumping analysis based on a sample of Indian
exporters. It also created a reserve sample in case companies in the primary sample refused to cooperate.
Only one of the five Indian companies in the sample, Bombay Dyeing, was found to have representative
sales of the subject merchandise in the home market, but these sales were considered to be outside the
ordinary course of trade. Therefore, normal value for all of the investigated Indian producers was
calculated on the basis of constructed value. Given that Bombay Dyeing did have representative sales
(albeit outside the ordinary course of trade), the European Communities based SG&A and profit amounts
for all of the sample companies on the amounts for Bombay Dyeing.
For its injury analysis, because of the high number of domestic producers, the European
Communities established a sample of domestic producers. The sample consisted of 17 of the 35
companies identified as the Community industry.
Notice of a preliminary affirmative determination of dumping, injury and causal link was
published by the European Communities on June 12, 1997. Provisional anti-dumping duties were
imposed effective June 14, 1997. Notice of the final affirmative determination was published on
November 28, 1997.
(Panel Report, paras. 2.1-11)
India argued that the imposition of anti-dumping duties as a result of this investigation was
carried out in a manner that was inconsistent with AD Agreement Articles 2.2, 2.2.2, 2.4.2, 3.1, 3.4, 3.5,
5.3, 5.4, 6.10, 6.11, 15, 12.2.1 and 12.2.2. The Panel found that the European Communities acted
inconsistently with Articles 2.4.2, 3.4 and 15.
The European Communities appealed the Panel's finding that the "zeroing" of negative dumping
margins in this investigation is inconsistent with Article 2.4.2. India cross-appealed the Panel's findings
that two particular aspects of the European Communities' calculation of constructed normal value are
consistent with Article 2.2.2.
SUMMARY OF APPELLATE BODY'S FINDINGS
PROCEDURAL AND SYSTEMIC ISSUES
Working Procedures for Appellate Review Rule 16(2) - Revised Schedule
Following a joint request by the European Communities and India, the Appellate Body extended
the time-period for filing the appellee's and third participant's submissions by six calendar days. The

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Appellate Body said that this extension was granted pursuant to Rule 16(2) of the Working Procedures,
and in light of the "exceptional circumstances" in the appeal. (Footnote 12)
AD Agreement Article 17.6(ii) - Legal Standard of Review
As part of its appeal related to the Panel's finding on "zeroing," the European Communities
argued that the Panel did not establish that the EC interpretation of Article 2.4.2, through which it
justified "zeroing," was "impermissible." According to the European Communities, because the Panel
failed to do so, it acted inconsistently with Article 17.6(ii). (Para. 63)
Article 17.6(ii) provides:
the panel shall interpret the relevant provisions of the Agreement in
accordance with customary rules of interpretation of public international
law. Where the panel finds that a relevant provision of the Agreement
admits of more than one permissible interpretation, the panel shall find
the authorities' measure to be in conformity with the Agreement if it rests
upon one of those permissible interpretations.
The Appellate Body rejected the EC claim. According to the Appellate Body, it was clear that the Panel
interpreted Article 2.4.2 in accordance with the customary rules of interpretation of international law, and
also that the Panel did not view the EC interpretation as "permissible" under these rules. Therefore, the
Appellate Body concluded that the Panel properly applied this standard of review. (Paras. 64-65)
SUBSTANTIVE ISSUES
AD Agreement Article 2.4.2 - "Zeroing"
In determining the dumping margin in its investigation, the European Communities had used the
following methodology. First, it had divided the products at issue into specific "models" or "types" for
each product. Then, for each model, the European Communities compared the weighted average normal
value with the weighted average export price. Where the normal value was higher than the export price, a
positive dumping margin existed (that is, dumping was found to exist for that model). For these models,
the European Communities simply used that figure in its later calculation of an overall dumping margin
for the product as a whole. On the other hand, where the normal value was lower than the export price
for a particular model, a negative margin existed (that is, dumping was not found for that model). For
these models, when calculating the dumping margin for the product as a whole, the European
Communities restated the negative number as zero. In its calculation of the final dumping margin for the
product as a whole, the European Communities added up all of the positive margins and the zeroes, and
divided this figure by the total quantity to arrive at a weighted average dumping margin for the product as
a whole. (Para. 47) The Panel had found that this practice was inconsistent with AD Agreement Article
2.4.2. The European Communities appealed this finding. (Para. 48)
The Appellate Body upheld the Panel's finding. In doing so, the Appellate Body first quoted
Article 2.4.2, which reads in relevant part:
Subject to the provisions governing fair comparison in paragraph 4, the
existence of margins of dumping during the investigation phase shall
normally be established on the basis of a comparison of a weighted
average normal value with a weighted average of prices of all

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comparable export transactions or by a comparison of normal value and


export prices on a transaction-to-transaction basis.
The Appellate Body then referred to Article 2.1, which makes clear that the AD Agreement concerns the
dumping of a product, and that, therefore, the margins of dumping to which Article 2.4.2 refers are the
margins of dumping for the product as a whole. (Paras. 50-51)
The Appellate Body emphasized that in determining a dumping margin for a product, Article
2.4.2 refers to a comparison of "all" comparable transactions. However, the Appellate Body noted, by
"zeroing" the models with negative dumping margins, the European Communities effectively failed to
take into account the prices of some transactions when calculating the overall dumping margin for the
product as a whole. Instead, the European Communities discounted these prices, thereby inflating the
dumping margin. As a result, the Appellate Body said, the European Communities did not establish the
existence of margins of dumping for the product at issue here, cotton-type bed linen, on the basis of
comparison of "all" transactions, as required by Article 2.4.2. Furthermore, a comparison between export
prices and normal value that does not take into account all transactions, the Appellate Body stated, does
not constitute a "fair comparison" between export price and normal value, as required by Article 2.4 and
2.4.2. (Para. 55)
On this basis, the Appellate Body upheld the Panel's finding that the practice of "zeroing"
when establishing dumping margins, as applied in this case by the European Communities, is
inconsistent with AD Agreement Article 2.4.2. (Para. 66)
AD Agreement Article 2.2.2(ii) - SG&A Costs/Profit Amounts
India appealed two of the Panel's findings under Article 2.2.2(ii). Article 2.2.2 provides in
relevant part:
For the purpose of paragraph 2, the amounts for administrative, selling
and general costs and for profits shall be based on actual data pertaining
to production and sales in the ordinary course of trade of the like product
by the exporter or producer under investigation. When such amounts
cannot be determined on this basis, the amounts may be determined on
the basis of:

(ii) the weighted average of the actual amounts incurred and realized by
other exporters or producers subject to investigation in respect of
production and sales of the like product in the domestic market of the
country of origin;

The Panel had found the following. First, the Panel concluded that Article 2.2.2(ii) may be applied not
only where there are multiple exporters or producers, but also where there is only one other exporter or
producer. And second, the Panel found that in calculating the amount for profits under Article 2.2.2(ii), a
Member may exclude sales by other exporters or producers that are not made in the ordinary course of
trade. India appealed both findings. (Paras. 67-70)

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With regard to the first issue, the Appellate Body reversed the Panel's finding. The basis for this
reversal was that Article 2.2.2(ii) refers to the "weighted average" of "amounts" incurred and realized by
"other exporters or producers." The Appellate Body considered that the use of the term "weighted
average" requires that there be more than one set of data on which to calculate the "weighted average."
Therefore, there must be more than one "exporter or producer." The use of the plural forms of the terms
"amounts" and "exporters or producers" confirmed this interpretation. On this basis, the Appellate
Body found that the method for calculating the amounts under Article 2.2.2(ii) requires that there
be more than one "other exporter or producer," and therefore reversed the Panel's finding to the
contrary. (Paras. 72-77)
With regard to the second issue, the Appellate Body also reversed the Panel's finding. On this
issue, the Appellate Body emphasized that Article 2.2.2(ii) refers to the weighted average of the "actual
amounts incurred and realized" by other exporters or producers. In referring to these amounts, the
Appellate Body noted, the provision does not make any exceptions. Therefore, there is no basis for
excluding amounts that are not in the ordinary course of trade from this calculation. As a result, the
Appellate Body reversed the Panel's finding that Members may exclude sales not made in the
ordinary course of trade when calculating the amount for profits under Article 2.2.2(ii). (Paras. 7984)
On the basis of these reversals, the Appellate Body concluded that the European
Communities, in calculating amounts for SG&A and profits under Article 2.2.2(ii), acted
inconsistently with this provision. (Para. 85)
COMMENTARY
For further reading on this dispute, see:
Merit E. Janow and Robert W. Staiger, "EC - Bed Linen," The WTO Case Law of 2001, Cambridge Press,
pp. 115-139 (2003).
Subsequent Developments
After the expiration of the reasonable period of time for implementation in this dispute, India was
of the view that the European Communities had not complied with the DSB's recommendations. As a
result, the matter was referred to the original panel under DSU Article 21.5. The Article 21.5 panel
rejected all of India's claims of violation. See DSC for EC - Bed Linen, Article 21.5 (Panel). On appeal,
the Appellate Body reversed one of the Panel's findings, and found a violation of AD Agreement Articles
3.1 and 3.2 in relation to the consideration of the volume of dumped imports. See DSC for EC - Bed
Linen, Article 21.5 (AB).
AD Agreement Article 2.4.2 - "Zeroing"
The Appellate Body's finding on "zeroing" was limited to the specific application of this
methodology by the European Communities in this case. However, it may have important implications
for similar practices by other Members. Here, the European Communities divided the product under
investigation into various "models," and calculated dumping margins for each one. By using this
approach, the European Communities was able to inflate the overall dumping margin by treating any
"negative" dumping margins (that is, situations where the export price was actually higher than the
normal value) as zero, rather than their full negative value, when combining the margins for each model.
The Appellate Body recognized the inherent unfairness in this approach, and found it to be a violation of
Article 2.4.2, which requires that "all" transactions be compared. In addition, the Appellate Body said

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that this zeroing does not provide a "fair comparison" between export price and normal value, as required
by Article 2.4 and by Article 2.4.2.
The Appellate Body's findings on "zeroing" were confirmed in a later case, although the
reasoning used varied somewhat from Bed Linen. See DSC for U.S. - Lumber Final AD Determination
(Panel) and DSC for U.S. - Lumber Final AD Determination (AB).
In addition, in the U.S. - Sheet/Plate from Korea case, the United States used zeroing in the
following way. Because of exchange rate fluctuations over the period of investigation, the Department of
Commerce ("DOC") divided the period of investigation into two sub-periods, and then calculated a
dumping margin for each sub-period. When one of the periods turned out to have a negative margin, the
DOC treated this margin as zero. Korea did not directly challenge the practice of zeroing in its WTO
complaint, instead challenging only the DOC decision to use multiple averages by creating two subperiods. As a result, the panel in that case was not called upon to examine the practice of zeroing. See
DSC for U.S. - Sheet/Plate from Korea (Panel).
The practice of "zeroing" can occur in other ways as well. During the Uruguay Round, "zeroing"
was discussed in the following context. It had been the practice of some Members to calculate dumping
margins on the basis of comparing weighted-average normal value to individual export prices. Under this
methodology, the difference between normal value and export price would be calculated for each export
transaction. Positive margins (where export price was lower than normal value) were taken as is. By
contrast, negative margins (where export price was higher than normal value) were counted as zero. In
this way, countries applying anti-dumping duties were sometimes able to find that dumping existed even
when prices were the same in both the home and export markets. The following chart demonstrates how
this would occur (in a very simple example):
A
Comparisons

B
Home market
sales
(transaction
basis)

C
Home market
sales (weightaverage basis)

D
Export market
sales
(transaction
basis)
500
400
300
200
100

E
Margin
before
zeroing
(average-totransaction)
-200
-100
0
100
200

F
Margin
after
zeroing
(average-totransaction)
0
0
0
100
200

1
2
3
4
5

500
400
300
200
100

300
300
300
300
300

Total dumping:

300

In this example, five comparisons are made between a home market price and an export price. Column B
shows the prices for each of the five home market transactions. Column C shows an average price for all
five of the home market transactions. Column D shows the prices for each of the five export market
transactions. If the sales for the home market and the export market are compared on an average-totransaction basis (that is, if an average of the home market sales price in Column C is compared to the
price for individual transactions in the export market in Column D), the resulting dumping margin
depends on whether zeroing is used. Without zeroing, as shown in Column E, there is no dumping, as the
positive and negative dumping margins cancel each other out. By contrast, when zeroing is used, the
negative margins are treated as zero, and the result is a total dumping margin of 300, shown in Column F.

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To address this issue, the Uruguay Round negotiators placed certain limits on the use of averageto-transaction comparisons. Specifically, the second sentence of Article 2.4.2 provides as follows:
A normal value established on a weighted average basis may be
compared to prices of individual export transactions if the authorities
find a pattern of export prices which differ significantly among different
purchasers, regions or time periods, and if an explanation is provided as
to why such differences cannot be taken into account appropriately by
the use of a weighted average-to-weighted average or transaction-totransaction comparison.
This provision was included to ensure that, except in the case of targeted dumping, margin calculations
would be made on a consistent basis, i.e., weighted-average to weighted-average or transaction-totransaction.
In addition, two GATT cases discussed certain forms of zeroing. See EC - Cotton Yarn (paras.
500-501) and EC - Audio-cassettes (para. 348).
For further reading on zeroing, see:
Jong Bum Kim, "Fair Price Comparison in the WTO Anti-dumping Agreement: Recent WTO Panel
Decisions against the 'Zeroing' Method," 36 Journal of World Trade 1, pp. 39-56 (2002).
Terence Stewart, The GATT Uruguay Round: A Negotiating History (1986-1992), Kluwer Law
International, pp. 155-161 (1993).
Edwin Vermulst and Brian Hindley, "Zeroing in on Zeroing," The Wall Street Journal Europe, p. 6
(August 9, 2001).
Last Update: March 22, 2005

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