What Next for Countervailing Duties on Imports from Non-Market Economies in the United States?

North American Free Trade & Investment Report
01.31.12

In the most important decision of 2011 affecting the international trade community, the Court of Appeals for the Federal Circuit ("Federal Circuit") determined that the United States may not impose countervailing duties ("CVD") on imports from non-market economy ("NME") countries, such as China and Vietnam, unless and until Congress explicitly authorizes such action. See GPX Int'l Tire Corp. v. United States, Nos. 2011-1107 to -09 (Fed. Cir. filed Dec. 19, 2011) ("GPX Intl. Tire"). This decision came on the heels of an unrelated decision at the World Trade Organization ("WTO"), which found that the Commerce Department's NME CVD methodology as applied is WTO-inconsistent because it could lead Commerce to assess both CVDs and antidumping ("AD") duties to offset the same unfair trade practice in cases involving NMEs.1 Together, these decisions are forcing the Obama Administration and Congress to reconsider whether and how the CVD law should apply to imports from NME countries.

Since 2007, when the Commerce Department first decided to apply the CVD law to imports from NME countries, most new U.S. CVD cases have targeted China. In fact, there are now 23 CVD orders against Chinese products, plus one against Vietnamese goods. Commerce estimates that these 24 orders cover $4.7 billion in annual imports. Given the stakes, the U.S. Government will almost certainly petition for en banc review by the Federal Circuit, and most likely will seek writ of certiorari to appeal the decision to the U.S. Supreme Court if necessary. If so, a final decision on this issue will be delayed for another 18 months or so, during which we expect Commerce, if permitted by the courts, to continue to investigate CVD allegations against NME goods. The Administration is also pursuing a legislative fix with Congress. If the courts do not reverse the Federal Circuit's recent decision or Congress does not change the statute, Commerce must revoke the existing 24 CVD orders against goods from NME countries and terminate the pending CVD investigations on NME products.

Background

When the Commerce Department first considered this issue in 1984, the agency determined that it would not apply the CVD law to imports from NME countries. This decision was litigated and, in 1986, the Federal Circuit upheld Commerce's decision in Georgetown Steel Corp. v. United States, 801 F.2d at 1309 ("Georgetown Steel"). In 2007, Commerce issued a memorandum repudiating its reasoning in Georgetown Steel, stating that China's economy was substantially different from the former Soviet-managed economies that formed the basis for Commerce's prior decision and that China's economy, unlike the one at issue in Georgetown Steel, enabled Commerce to calculate whether the Chinese government subsidized specific goods. The first CVD order on a Chinese product involved certain pneumatic off-the-road tires.

The CVD order against tires was litigated by GPX International Tire Corp. The Court of International Trade ("CIT")--the first court to hear the case--decided that Commerce's determination was "unreasonable" because of the high likelihood of "double counting"2 when both AD and CV duties were assessed on the same product. The CIT decision left the possibility open, however, that Commerce could find a calculation methodology that did not double count.

The Federal Circuit affirmed the CIT, but for an altogether different reason. The Federal Circuit noted that, following the Georgetown Steel case in 1986, the AD and CVD statutes have been amended by Congress in 1988 and 1994. The court also noted that Congress did not amend the AD/CVD laws to overturn the Georgetown Steel decision. The Federal Circuit then held that this inaction by Congress effectively ratified the Georgetown Steel reasoning. Specifically, the Federal Circuit relied on the following Supreme Court holding from Lorillard v. Pons, 434 U.S. 575, 580 (1978): "Congress is presumed to be aware of an administrative or judicial interpretation of a statute and to adopt that interpretation when it re-enacts a statute without change." According to the Federal Circuit, Commerce should seek legislative change if it wants to change the policy that was established in the 1980s.

Next Steps

The Administration appears to have a two-pronged approach: draw out the litigation as long as possible while trying to convince Congress to pass a legislative fix that will allow Commerce to maintain the 24 current CVD orders and impose future CVD orders on products imported from NMEs. As a first step, Commerce requested and received from the Federal Circuit an extension until March 5, 2012 to request a rehearing en banc of the GPX Intl. Tire decision. A rehearing by the Federal Circuit appears problematic, however. A majority of the judges must agree to the rehearing, but the decision itself shows that three of the nine judges, including the Chief Judge, support the decision as written.

If the Federal Circuit either denies the motion to rehear or does not change its opinion after rehearing, the U.S. Solicitor General has 90 days to appeal the case to the Supreme Court. To do so, the Administration must determine that this case is important enough to appeal to the Court. The timing could well work out such that the Administration's deadline to appeal the case to the Court is this summer, in the midst of the run-up to the Presidential election. In this situation, it seems more likely that the Administration would appeal, in order to emphasize its efforts to help American companies and workers compete against Chinese companies. We believe that the Supreme Court would agree to hear the case, although this and the ultimate outcome are uncertain.

As for its Congressional efforts, the first public Administrative salvo was a January 18, 2012 letter from U.S. Trade Representative Kirk and Commerce Secretary Bryson to the leadership of the Senate Finance and House Ways and Means Committees. The Cabinet officials warned of "substantial adverse economic implications" absent judicial or legislative action and expressed the Administration's willingness to work with Congress. The Administration wants a bill that protects the current 24 CVD orders and ongoing investigations against goods from China and Vietnam and preserves Commerce's ability to apply the CVD law to NME products. Rep. Dave Camp (R-MI), Chairman of the House Ways and Means Committee, stated last week that he is weighing targeted legislation to enable Commerce to continue to apply the CVD law to NMEs. Legislation will undoubtedly be introduced in Congress before the summer.

Business reactions are generally supportive of Commerce's actions, as is the AFL-CIO's Industrial Union Council. Importer groups, not surprisingly, oppose legislation. Given election year politics and the political sensitivities, both domestically and internationally between the United States and China, it remains to be seen whether a proposed bill can become law. Any trade bill on this subject would obviously be subject to change by individual legislators--particularly problematic in the Senate--and any amendments would likely lead to procedural wrangling that could doom the bill. Add to that the Republican disincentive for handing the President a legislative victory, particularly in an election year, and the prospects for passage further diminish. On the other hand, in this economic climate, neither Party may want to be seen as responsible for lifting CVD orders against a broad array of unfairly-traded goods from China. My view is that passage will require substantial lobbying by import-sensitive industries and unions and that this is unlikely to be sufficient to overcome the current political climate.

WTO Dispute Further Complicates New Action

While private parties have been challenging the CVD orders against China in the U.S. Courts, China itself has been challenging four of the CVD orders3 at the WTO, arguing that any assessment of both CVDs and ADs on products from NMEs amounts to "double remedies" that are inconsistent with the WTO's requirements. In March 2011, the WTO's highest dispute settlement tribunal -- the Appellate Body ("AB") -- ruled that the United States' CVD methodology as applied is WTO inconsistent because it may result in "double remedies" that impose an inappropriate amount of CVDs on NME imports. The AB also overturned certain specific findings made by Commerce that affect the amount of CVDs it levied on these Chinese imports. United States--Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (DS379). Importantly, the AB only ruled on Commerce's current methodology and did not close the door on other methodologies that might be used to calculate CVDs in NMEs. The United States requested a "reasonable period of time" to implement the ruling. The U.S. and China recently agreed to extend this deadline for implementation of the ruling from February 25, 2012 to April 25, 2012.

Because the WTO's AB does not consider U.S. law in rendering its decisions, the AB did not use the same rationale for overturning Commerce's determinations as did the Federal Circuit. The AB's ruling addresses some of the same issues reviewed by the CIT, but the decisions are only partially compatible. This places Commerce in the awkward position of having to devise a solution that overcomes two different rationales as it determines how to move forward. Even if the Federal Circuit's decision is overturned by legislation or appeal, Commerce will still have to contend with the AB ruling that invalidated critical aspects of its current methodology in these NME investigations, and devise a solution that reconciles both the AB ruling and whatever U.S. final court decision is issued. Currently, Commerce has committed to the AB to revise its CVD methodology well before it knows the outcome of the U.S. appeals process. Nevertheless, WTO disputes may take years to resolve and the United States will likely request additional time to bring its methodology into conformity with its WTO obligations while it attempts to overcome its legal problems at home.

What Specific Action Should Companies Take in the Meantime?

As this issue drags on, U.S. domestic industries should think carefully about whether to include allegations of subsidization in unfair trade cases involving imports from NMEs, given the facts of a particular industry, the cost of alleging subsidies, the risk that any relief from the Commerce Department may be fleeting or may last for years, etc. On the other hand, foreign respondents and importers should be sure to include arguments 1) opposing Commerce's investigations and reviews of CVD cases against NMEs per se; and 2) opposing Commerce's CVD methodology in such cases, in order to preserve their rights of appeal. Importers of goods subject to CVD orders for goods from NME countries such as China and Vietnam should protest the liquidation of any entries until a final resolution is reached in the U.S. courts and the WTO. In any event, most CVD orders and subsequent administrative reviews will likely be tied up in their own litigation on the same issues, preventing any liquidation instructions.


1 This "double counting" rationale results from the theory that Commerce does not use prices in a NME to determine whether a company is selling at less than fair value because the NME government's interference in the marketplace skews prices. Instead, Commerce uses surrogate market economy values to replace the home market prices. Calculating the CVD margin based on government subsidies to a particular company or industry while refusing to consider and use price effects in the NME to calculate AD duties could lead to an overassessment of CVDs.

2 The WTO calls this "double remedies."

3 These four cases involve circular welded carbon quality steel pipe, light-walled rectangular pipe and tube, laminated woven sacks, and certain new pneumatic off-the-road tires.

 

"What Next for Countervailing Duties on Imports from Non-Market Economies in the United States?" by Claire Rickard Palmer (Miller & Chevalier Chartered) appeared in North American Free Trade & Investment Report, Vol. 22, No. 2, January 31, 2012. ©2012 Thomson Reuters/WorldTrade Executive

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