U.S. Anti-Dumping and Countervailing Duties Increasingly a China-Specific Remedy

By Gregory Husisian, Foley & Lardner LLP

This article is part of our Summer 2010 edition of Legal News: China Quarterly Newsletter, Eye on China.

How Trade Remedy Investigations Went From a General to a China-Specific Focus
For many years, anti-dumping and countervailing duty actions operated in the background of U.S. economic policy, generally spiking up in times of recession and subsiding in times of prosperity. Anti-dumping and countervailing duties are designed to remedy the so-called “unfair” trade practices of dumping and subsidization. In broad terms, “dumping” means selling merchandise in the United States at prices that are lower than the prices at which comparable merchandise is sold in the home market of the exporter or lower than the fully allocated cost of producing the merchandise, including a measure of profit. In cases involving China, which is treated as a “non-market economy,” a special measure of the home market price is used where inputs are valued using a “surrogate value” (i.e., the inputs consumed are valued based upon prices charged in another market at an equivalent level of economic development). Countervailing duty laws are intended to offset the advantage that foreign producers gain through government subsidies in the production or exportation of goods.

During the history of modern U.S. trade actions (which began in the early 1980s), anti-dumping and countervailing duty investigations have been filed against a variety of countries, with the exact targets varying depending upon the industry at issue. Beginning in 2005, however, this trend began to change, as shown by the following table:

As this table shows, the number of China-based filings jumped in 2006, and has stayed high ever since. The rise in China-based filings in 2006 was no accident, since that was the year the U.S. Department of Commerce changed its policy regarding the overlap between anti-dumping and countervailing duty cases. Previously, the Department stated that the concept of a “subsidy” in a non-market economy was not meaningful due to manipulation of input and product prices by the foreign government. In 2006, however, the Department reversed this position in a preliminary determination (which it made final in 2007), and ruled that it would allow the filing of countervailing duty cases for non-market economies.

Under the U.S. system, anti-dumping and countervailing duty cases generally are filed at the same time, and in many ways rely on similar data, particularly for satisfying the element that the U.S. industry has been “materially injured.” This means that the attractiveness of filing trade cases against Chinese respondents went up sharply due to the policy change, since now both anti-dumping and countervailing duty cases could be brought simultaneously. For just a little bit more work, petitioning U.S. firms now can seek both anti-dumping and countervailing duties on Chinese imports. And the data shows that this has happened, for beginning in 2007 the majority of anti-dumping duty cases filed also involved simultaneous filings of countervailing duty cases.

Of course, there are other reasons why trade cases have been filed, including the presence of rapidly increasing imports, substantial margins of underselling, and increasing Chinese market share. Still, with most of the cases targeting China alone, rather than seeking simultaneous relief against other countries that also have rapidly increasing imports, it is hard not to credit the policy change at the Department with substantial responsibility for the change. With the U.S. trade deficit with China still high, and Chinese imports continuing to make inroads into the U.S. market, the focus of U.S. trade remedy law on Chinese imports is unlikely to subside.

What Can Affected Companies Do?
Trade remedy cases, if not handled properly, can result in the foreign respondents being pushed completely out of a market. The level of duties imposed can exceed 100 percent — a crushing level that generally makes participation in the U.S. market impossible. But careful planning and consideration of the imported product and market in relation to U.S. law allows targeted companies to continue to participate in the U.S. market on reasonable terms. Respondents who are targeted in these kinds of trade cases can take the following steps:

• Participate in the process. In many cases, respondents do not appear to take the case seriously. While it is true that most filed cases result in the imposition of anti-dumping and countervailing duty margins, it also is true that a significant number of cases are won, whether in total or by individual companies that achieve margins low enough to excuse them from the coverage of any order on the product.
• Pick and choose battles. Certain issues tend to have a large impact on the anti-dumping and countervailing duty rates applied, including the selection of the surrogate company for valuing factor inputs under the non-market economy. These issues should be the focus. Conversely, other issues — such as the preliminary injury determination if the facts are very unfavorable — tend to have little impact on the case. Allocating resources where they can have the highest impact can maximize the chances of success at a minimized cost.
• Put effort into data collection. It is impossible to achieve a good outcome without spending the resources to get the record regarding U.S. sales and incurred costs in order. It is critical to secure the help of an experienced accounting specialist who knows the data-collection and data-analysis issues on the accounting side.
• Think of verification from the outset. Chinese respondents have a reputation for filing information that is difficult to verify or tie to reliable books and records. Nothing will lead to a worse outcome than the Department finding that it could not verify some or all of a respondent’s books and records. Verification issues should be thought of from the outset of the case.
• Think ahead to administrative reviews. At the end of an investigation, the anti-dumping and countervailing duty rates announced are only estimates. The actual final rate is determined later, in an administrative review. Firms experienced in navigating the dumping rules can come up with systems that mimic Department methodologies to determine which sales patterns are likely to lead to high dumping margins. Firms that wish to remain in the U.S. market should use the information that they are gathering for the anti-dumping duty investigation and use it to create a monitoring system that will allow continuing participation in the U.S. market on a reasonable basis.

The filing of an anti-dumping or countervailing duty case is never a good sign for a foreign respondent, or for importers that rely on the products targeted. Nonetheless, for companies that are targeted by these cases, there are steps to take to ensure that even if an order is put in place, they still can compete in the U.S. market on a reasonable basis.