Normal Value, Significant Distortions, and the Limits of Cost Adjustment under the WTO Anti-Dumping Agreement

Abstract

State intervention and industrial policies are standing out as the global trade system changes. Anti-dumping measures have shifted from their original role of fixing price discrimination to being an important tool for international competition. This paper examines the European Union's significant distortions approach, focusing on the practice of replacing the actual costs recorded in the exporting country with surrogate costs when constructing normal value, and evaluates whether that practice is consistent with the WTO Anti-Dumping Agreement. The paper first clarifies the meaning of normal value under the Anti-Dumping Agreement. It then explains how the European Union reformulated the basis of normal value after the expiry of Article 15(a)(ii) of China's WTO Accession Protocol through the significant distortions framework. It next identifies three main WTO law constraints on investigative discretion. On that basis, the paper argues that current EU practice often seeks to eliminate, rather than reflect, market distortions. The paper concludes that anti-dumping rules should remain focused on harmful dumping and should not be used as a broader instrument for reshaping other economies.