RESTRICTEDWORLD TRADE
ORGANIZATIONG/ADP/IG/W/15
30 October 1998
(98-4197)
Committee on Anti-Dumping Practices
Informal Group on Anti-CircumventionOriginal:  English
TOPIC 1 – WHAT CONSTITUTES CIRCUMVENTION
Paper by Japan
The following communication, dated 27 October 1998, has been received from the Permanent
Mission of Japan.
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Anti-dumping measures are a derogation from the basic principles under the WTO rules, such
as the Articles I and II of the GATT 1994.  They should be implemented with strict discipline.  The
work of this group, therefore, should not lead to expansion of the scope of anti-dumping measures.
We should avoid making any rule which may discourage legitimate economic activities of enterprisesin the name of maintaining the level of protection given by legitimate anti-dumping duties.  In this
respect, this group should take into consideration the following, when discussing actual cases of
alleged circumvention and factual circumstances surrounding alleged circumvention.
1. Examples of actual cases of alleged circumvention will make it clear that it is almost
impossible to distinguish objectively between legitimate commercial activities and the
so-called "circumvention"
It seems that there are, in the views of pr oponents of anti-circumvention, two categories of
activities, legitimate economic activities and activities that should be deemed as circumvention.
Basically, Japan is of the view that it is essentially impossible to distinguish between
legitimate commercial activities and activities that should be deemed as circumvention.  There is no
doubt that the imposition of an anti-dumping or ot her additional duties on imported products will be
considered as a kind of cost by the industry concerned in the exporting country.  In this sense,
imposition of these duties is just like increase of cost occurred by changes in the external conditions
of the industry, such as consumer tastes, exchange rate and new development of technologies.  Whensuch changes occur, an enterprise business will need  to review its current commercial activities to see
whether any modifications should be made.  The modifications in the commercial activities made
after an anti-dumping duty has been imposed would not be different from those made in response to
changes which occurred in other external conditions, in other words those reflecting legitimate
business practice, and they therefore should not be deemed as circumvention.
The underlying point is that it is almost impossible to distinguish objectively between
legitimate commercial activities which are rational responses to changing economic conditions and
activities deemed as "circumvention".  Given this difficulty, it would be inappropriate to establish
special rules to expand the scope of the current anti-dumping measures in the name of addressing
"circumvention".  It would harass or put damaging effects on legitimate commercial activities.G/ADP/IG/W/15
Page 2
2. Factual circumstances surrounding alleged circumvention
Examination of the various suggested circumstances demonstrates that none of the factors are
helpful in identifying whether a particular economic activity is circumvention or legitimate.  This
difficulty is not an alleged obstacle advanced by certain Members supporting anti-circumventionmeasures.  Instead, this difficulty stems from the complex and changing economic conditions in
which companies operate.  Japan considers that it is especially doubtful for the authorities of an
importing country to use inadequate, and often subjective, economic criteria as the basis for deciding
whether a particular activity constitutes circumvention.  Fluctuations in factors other than the
imposition of anti-dumping duties are very important in determining the location of production, the
origin of parts and other factors related to manufacturing decisions.  We show three examples below:
(i) It has been argued that one of the economic conditions indicating circumvention is change of
location of production of the products subject to anti-dumping measures.  However, it is
important to recognize that a shift from exportation of a finished product produced in the
exporting country to production of the product in the importing country may well be a
legitimate economic activity of an enterprise.  When a sufficient number of parts-suppliers donot exist in the importing country, it would be necessary to import a significant portion of the
parts of the imported products.  This shift can be made whether or not the enterprise is subject
to anti-dumping measures.  Indeed, many enterprises not subject to anti-dumping duties
would have made these types of production shift due to changes in labour costs, input supply
costs and exchange rates.
(ii) Proponents of anti-circumvention rules advoca te that shifting trends in trade flows also
indicate circumvention.  In their view, a decrease in exports from one country subject to an
anti-dumping duty and an increase in exports from a third country (not subject to the duty),
will constitute evidence of circumvention.  However, there are a number of factors by which acompany may begin exporting from a third country.  Aside from changes in exchange rate or
other economic factors, there can be cases where production in the third country makes the
export prices different, i.e. not less than normal value.  A company might shift its production
to the third country so that it can export the products not less than normal value.  Proponents
of anti-circumvention rules, however, insist that it would be proper to presume that the
exports from the third country are dumped and they do not apply once again a full and fair
anti-dumping proceeding to those exports.
(iii) It has been suggested that affiliation of an exporter subject to anti-dumping measures and a
producer in a third country is relevant to circumvention.  However, there are a number of
factors, unrelated to dumping, that may influence their decision on affiliation, including the
ability to secure mutually agreeable pricing terms, government limitations on ownershippercentages and the level of existing investments in other overseas ventures.  In view of these
factors (and the various levels of importance they put on each factor), the relationship
between the exporter and the producer would hardly be evidence of circumvention.
3. There is no practical need for special, separate rules to address alleged circumvention
Japan gravely questions the rationale to create new rules to address alleged circumvention
from a practical perspective.  In addition, Japan believes that the actual cases provided by users of
anti-circumvention rules will demonstrate that the practical necessity of special rules for
circumvention is none, or very limited if any.  In view of the limited volume and effect of the actualcases alleging circumvention, it is clear that the overall impact of alleged circumvention is not
significant or meaningful.G/ADP/IG/W/15
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Examination of the experience of the US and the EC is helpful in this regard.  The US is the
most frequent user of its anti-dumping measures, and it has what is widely recognized as the most
comprehensive and ambitious anti-circumvention rules.  From 1995 until recently, the US has made
over 300 anti-dumping orders on imports into the US.  During the period, however, the US has
initiated only five anti-circumvention proceedings.  No proceedings out of the five have resulted infinding of circumvention, though some of the proceedings are still going on.  Thus, even the country
with the most aggressive anti-circumvention rules found no "circumvention" during the period.  The
EC is also a major user of its anti-dumping measures and has anti-circumvention rules.  It has made
over 150 anti-dumping orders from 1995 until recently.  Sixteen anti-circumvention proceedings have
been initiated.  However, only three proceedings have resulted in the finding of circumvention.  This
demonstrates that there is no practical necessity for special rules related to alleged circumvention.
4. Conclusion
The objectives of the anti-dumping duty are not to curb imports of a product which is not
found to be dumped , but to stop imports at dumped prices and to remedy the injury.  Dumping can be
eliminated by terminating exports of the dumped product.  At the same time, the termination ofdumped exports may be replaced by exports of the same product into the same market without
dumping if changes in market conditions, costs, pr ices, or exchange rates allow the same producer, or
an unaffiliated producer, to do so.  The domestic industry in the importing country is no longer
confronted with dumping of that product.  And, if slightly modified products, products from new
sources or parts of the products appear to be dumped, another anti-dumping investigation should beconducted prior to the imposition of anti-dumping duties.  In light of the limited number of cases
where "circumvention" was found, even under its broad definition adopted in US or EC anti-
circumvention rules, it cannot be burdensome to initiate another full investigation.
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