New U.S. Law Ensures Countervailing Duties Continue to Apply to Chinese Imports

North American Free Trade & Investment Report


In a rare demonstration of bipartisan unity in an election year, the usually antagonistic members of the U.S. Senate and House of Representatives passed identical legislation permitting the U.S. government to continue assessing countervailing duties (CVDs) to offset subsidies that benefit imports from non-market economies (NMEs). The President signed the bill into law on March 13. The law ensures the 24 current  CVD orders against NME imports (23 on Chinese products, 1 on Vietnamese plastic bags) remain in effect, overturning the December 19, 2011 opinion of the Court of Appeals for the Federal  Circuit (Fed. Circuit).1 The new statute is also worded in a manner intended to overcome the adverse World Trade Organization (WTO) and Court of International Trade (CIT) decisions—based on somewhat different reasoning—that found U.S. law did not prevent double counting and was therefore not WTO-consistent or reasonable, respectively. Estimated U.S. imports of the current 24 CVD orders represent over $4.7 billion in trade.

What Does the New Statute Provide?

The new law has two provisions. The first specifically applies CVD law to products from NMEs unless the Department of Commerce (Commerce) is unable to identify and measure the subsidies in a particular NME because the NME's economy is "essentially comprised of a single entity." I expect this qualifier to apply to few countries—only the type of centrally-planned economy where the government exerts undue influence over the market, such as the former Soviet-model planned economy. The new statutory provision applies to all proceedings initiated on or after November 20, 2006 and all court proceedings related to such cases. Thus, the statute is intended to apply to all imports covered by current CVD orders as well as imports covered by the GPX Intl. Tire litigation and any other ongoing litigation on NME CVD orders.

The second provision adjusts downward the antidumping (AD) duty rate calculated for a product from an NME when Commerce finds domestic subsidies on the same product in a companion CVD case and can "reasonably estimate" the effect of these subsidies on the AD margin. Adjusting the AD duty avoids the problem of "double counting," or assessing both CVD and AD duties to offset the same unfair trade practice, which both the WTO and the CIT found objectionable. Requiring a reasonable estimation limits the cases in which Commerce will actually adjust the AD duty downward. Given that Commerce itself has noted the difficulty of this calculation, I expect copious litigation on this issue for the next 5-10 years.

Practical Effects of the New Statutory Provisions

  • The U.S. government will continue to collect cash deposits of estimated CVD on imports of NME products covered by the 24 existing orders and in new orders as they arise.
  • U.S. industries will continue to bring new AD and CVD petitions against products from NMEs, particularly because these cases typically result in significant AD and CVD margins.2
  • Expenses for participating in AD cases involving CVDs will rise for all parties because importers and respondents will try to demonstrate to Commerce that AD margins should be offset by domestic subsidies and U.S. industries will oppose these calculations.
  • In Congress, the impetus to pass a bill penalizing countries found to manipulate their currency (namely China) will decrease because Congress and the President can point to the CVD bill as proof they have taken action against unfair trading practices.
  • AD margins may decrease in some cases involving NMEs, but never more than to zero, when there are companion CVD margins.
  • Estimated AD and CVD deposits paid upon the entry of imports from NMEs covered by AD or CVD orders will languish for several years whenever litigation is involved.

Legal Effects of the New Statutory Provisions

  • The GPX Intl. Tire litigation will continue. In courtordered briefs delivered on March 23, plaintiffs raised the constitutionality of the new provision in the GPX Intl. Tire litigation because the statute is retroactive to November 20, 2006. Plaintiffs argued the statute impermissibly interferes with an Article III court and violates due process; the U.S. government urged the Fed. Circuit to vacate its decision because the new statute supersedes it. (Notably, the Fed. Circuit stated in its original decision in the GPX Intl. Tire case that the only legal way to permit Commerce to apply the CVD law to NMEs was to change the statute.)
  • If the Fed. Circuit vacates its GPX Intl. Tire decision, some speculate that the case would then be remanded to the lower court, the CIT, for Commerce to recalculate the CVD margin based on the new statute. This could be the first case in which Commerce develops a new methodology to implement the statutory change. The agency will find this task difficult; Commerce said in the initial CIT litigation that it could not devise such a methodology.
  • The United States has until April 25 to implement the Appellate Body decision in the WTO dispute brought by China against four U.S. CVD orders involving Chinese products. Commerce will not be able to devise a new methodology by that time. It may point to the new legislation and request yet more time. Without appropriate relief, at some point China may retaliate.
  • Parties will litigate Commerce's decisions in numerous NME cases where this new methodology is employed.
  • Once a methodology is developed, China will litigate Commerce's decisions at the WTO; the dispute process will take several years to reach a final decision.
  • China may bring additional CVD cases against U.S. products, as shown by China's history of retaliating against U.S. trade actions.

What's a Company to Do?

Most importantly, companies importing goods subject to AD and/or CVD orders should try not to be the importer of record. Only the importer of record is liable to pay any additional duties that may be assessed at the end of an administrative review of an AD/CVD order or post-litigation of the same. Secondly, importers should understand that the entry paperwork on goods subject to AD or CVD orders will be suspended and may not be liquidated for years. Thirdly, 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.

U.S. industries that suffer from import competition from NMEs should strongly consider filing both AD and
CVD petitions against their NME competitors. Importers should pay attention to the overall amount of imports from NMEs and what U.S. producers in their industry say about import penetration and foreign competition. If the talk gets too loud, consider finding a new supplier from another country.

1 The Federal Circuit had determined, in GPX Int'l Tire Corp. v. United States, 666 F.3d.732 (Fed. Cir. 2011) ("GPX Intl. Tire"), that the U.S. CVD law did not apply to NME imports (see background to this issue reported in NAFTIR Vol. 22, No. 2, January 31, 2012).

2 Although the most recent CVD determination in an NME investigation, involving solar panels from China, found only 2.9 – 4.73% CVD margins preliminarily, so this provision will not significantly affect all NME orders. See Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled Into Modules, From the People's Republic of China: Preliminary Affirmative Countervailing Duty Determination, 77 FR 17439-17456.


"New U.S. Law Ensures Countervailing Duties Continue to Apply to Chinese Imports" by Claire Rickard Palmer (Miller & Chevalier Chartered) appeared in North American Free Trade & Investment Report, Vol. 22, No. 6, March 31, 2012. ©2012 Thomson Reuters/WorldTrade Executive