NAFTA Panel Charms Betsy

Chad Bond
            
Chad Bond received his BBA in Finance from the University of Texas at Austin and is currently a third-year JD candidate at SMU Dedman School of Law.

A North American Free Trade Agreement (NAFTA) Article 1904 binational panel issued a decision on April 14, 2010 addressing the legality of the administrative use of zeroing, a methodology for calculating antidumping duties, by the U.S. Department of Commerce (Commerce).[1]  The respondent in the underlying Commerce administrative proceeding pointed to the fact that multiple World Trade Organization (WTO) Appellate Body reports have taken a negative view of the use of zeroing.[2]  WTO norms have traditionally not been given domestic effect by U.S. courts, but recent NAFTA panels, “applying U.S. law and sitting in effect as U.S. courts, [have] adopted a diametrically opposed approach by giving effect to WTO law and specifically WTO dispute reports.”[3]  Commerce calculates antidumping duties by comparing multiple instances of the export and domestic price of a good and then aggregates these figures to determine a dumping margin[4] for a given product.[5]  Under a zeroing methodology, however, sales that are made abroad at or above the fair value, i.e. home sale price, are not assigned a negative dumping margin but rather a zero percent dumping margin.[6]  When sales that have been zeroed are then aggregated with sales by the same producer priced less than fair value, i.e. positive dumping margin sales, the mean dumping margin is greater.  This can result in the imposition of antidumping duties where there would not have otherwise been without the use of zeroing.[7]

The NAFTA panel concluded that the WTO rulings against zeroing are relevant, even if not directly implemented by the U.S., for determining whether zeroing violates U.S. law.[8]  This is contrary to zeroing decisions at the U.S. Federal Circuit court level, which have consistently held that WTO obligations are not relevant to the interpretation of U.S. law. But, the NAFTA Panel distinguished those Federal Circuit cases as addressing different legal questions and factual issues.[9]  As one commentator has noted, “the [United States] is not required to implement adverse WTO decisions, but could face trade retaliation from the aggrieved country if it fails to do so after a specific deadline.”[10]

The NAFTA panel referenced two landmark U.S. Supreme Court cases in its analysis of Commerce’s use of zeroing.[11] The Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.(1984) case provides a two-pronged test for when the judiciary must defer to agency interpretations of domestic administrative law.[12]  The first prong considers whether the issue at hand has been directly addressed by Congress; if so, the agency interpretation must not contravene Congressional intent.[13]  Under the second prong, if the statute does not address the issue, or is ambiguous, then courts must consider whether the agency’s interpretation is a permissible construction.[14]  The panel concluded that the relevant U.S. antidumping statute is not ambiguous regarding the method for calculating antidumping duties and that zeroing is inconsistent with the intent of Congress.[15]  The panel further quoted Chevron, noting that, “the judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.”[16]  The panel read the Chevron test in conjunction with Murray v. Charming Betsy, The (1804), which holds that “an act of Congress ought never to be construed to violate the law of nations if any other possible construction remains . . . .”[17]

The panel’s dissent disputed the conclusion drawn by the majority that the relevant statute is unambiguous, despite federal court opinions to the contrary.[18]  The dissent also questioned the use of the Charming Betsy doctrine to suggest that Commerce is bound by decisions of the WTO Appellate Body, rather than what the dissent claims is the true intent of the doctrine, which is to be bound by the laws of nations “as understood in this country” and incorporated into U.S. law.[19]  Ultimately, if the statute is determined to be ambiguous, deference will be given to interpretations by Commerce.  And, a reading of Charming Betsy that is consistent with the dissent’s views would give greater weight to decisions of U.S. federal courts that have already addressed the use of zeroing.

As one commentator noted of a similar NAFTA panel decision concerning the use of zoning, “these holdings represents [sic] rather extraordinary examples of international tribunals, sitting in effect as domestic courts, interpreting domestic law to require the application of a decision by another international tribunal to trump a judicially-sanctioned interpretation by the domestic agency responsible for administering the applicable statute.”[20]  Panel decisions like this raise important questions about the appropriate weight to be given WTO norms in domestic law and to what extent the incorporation of those norms, if any, falls to Congress or the judiciary.[21]

U.S. Federal courts, on the other hand have taken a more cautious approach. Federal Circuit decisions in The Timken Co. v. United States (2004) and Corus Staal Bv v. U.S. Dep’t of Commerce (2007) (two cases that the NAFTA panel distinguishes) indicate that in cases involving clear congressional intent, courts will not look to international sources for the interpretation of U.S. trade laws.[22]  And even where the intent of Congress is ambiguous, federal courts will not require acceptance of the interpretation by international bodies.[23]  Where disputes do present, U.S. courts “defer[] to the political branches to resolve any conflicts between U.S. laws and U.S. international trade obligations.”[24]  This is to say that U.S. federal courts have taken the position that it is not the role of the judiciary to resolve such conflicts.

            Ultimately, the split resulting from this recent NAFTA panel decision may lead to forum shopping between U.S. federal courts and NAFTA binational panels by aggrieved parties who seek to challenge the administrative use of zeroing.

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