The U.S. Congress passed legislation on March 6, 2012, designed to preserve application of countervailing duties against imports into the U.S. from “non-market economy” countries (“NMEs”), including China. The legislation was signed on March 13, 2012, by President Obama. Application of countervailing duties against imports from China had been ruled invalid by the U.S. Court of Appeals for the Federal Circuit (“CAFC”) in a decision issued by that court on Dec. 19, 2011. The CAFC decision held that countervailing duties cannot be applied to NMEs.
The U.S. Countervailing Duty law (“CVD Law”) is designed to apply a duty (countervailing duty) to offset government subsidies affecting products imported into the United States. Until late 2006, the U.S. Commerce Department (“Commerce”), which administers the CVD Law, had consistently held that the CVD Law did not apply to imports from NMEs, such as China. In late 2006, Commerce reversed its policy and began imposing countervailing duties against imports from NMEs, including China in particular. The CAFC decision concluded that Commerce’s change in policy was not permissible under the CVD Law. The CAFC decision was based on the CAFC’s conclusion that the 2006 change was not supported by the legislative history of the CVD Law and was also based on consistent prior administrative interpretations of the CVD Law in which Commerce chose not to impose countervailing duties against NMEs.
There are over 20 outstanding orders imposing countervailing duties against imports of products from China as well as several currently pending countervailing duty investigations against imports from China. Unless overturned on appeal or fixed by legislation, the CAFC decision would, presumably, have invalidated all of these outstanding orders and the pending investigations. In addition, the CAFC decision raises a question regarding the validity of countervailing duty assessments made on imports of products from NMEs since Commerce’s change in policy in late 2006.1
The new legislation amends the CVD Law to make clear that countervailing duties can be imposed on imports from NMEs.2
The legislation provides for a retroactive effective date, which purports to apply the amendment retroactively to all countervailing duty proceedings initiated on or after Nov. 20, 2006 (“Post Nov 2006 CVD Proceedings”). The effective date language of the legislation also purports to ratify “all resulting actions of U.S. Customs and Border Protection;” and further to ratify: “all civil actions, criminal proceedings, and other proceedings before a Federal court” relating to Post Nov 2006 CVD Proceedings and relating to the “resulting actions of U.S. Customs and Border Protection.”
It is unclear whether or not the retroactive effect contemplated in the new legislation will be subject to judicial challenge.3 There may be issues as to whether or not an investigation and resulting countervailing duties, which may have been unlawful at the time of investigation and at time of duty imposition, can be salvaged by the retroactive effect of legislation passed by Congress. Parties who have paid countervailing duties on imports from NMEs for which the time periods to challenge the duty assessments have not passed may want to protest any duty assessments that were imposed based on investigations that were initiated (and completed) prior to passage of the new legislation.
The new legislation also addresses a potential double duty assessment that can result from the simultaneous imposition of countervailing duties and antidumping duties. The antidumping law is designed to apply a duty (antidumping duty) to offset prices for imported products that are deemed to be lower than a benchmark, which is theoretically supposed to represent a measurement of the price for such products in the exporter’s home market. Because home market prices in NMEs are considered to be an unreliable measure of home market pricing for purposes of the antidumping law, “surrogate” prices derived from market economy countries are used by the Department of Commerce as a substitute for home market prices to determine whether or not dumping of NME products is occurring and, if it is, the level of duties that should be assessed to offset the dumping.
In theory, surrogate prices used as a substitute for NME home market prices should not reflect the impact of subsidies that may be granted by NME authorities while the prices of products exported from NMEs that benefit from such subsidies may be lower due to such subsidies — which in turn could lead to an increase in the amount of antidumping duties to be assessed. Consequently, antidumping duties may already take into account any subsidies received by NME producers of goods targeted for imposition of countervailing duties. If countervailing duties are imposed in such circumstances, the effect could be to apply the offsetting duties twice, a remedy that would overcompensate for the unfair trade practices addressed by the antidumping and countervailing duty laws. The new legislation contains provisions for elimination of this double duty, although elimination of the double duty is not automatic or straightforward — i.e., Commerce must, in effect, make a determination that the countervailable subsidy has resulted in an increase in the amount of antidumping duties.
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1 Because of applicable laws that impose time limits for challenges to duty assessments, the time period for challenging many of these assessments may have passed, but there likely remain many assessments for which the time period for challenge has not yet expired.
2 The new legislation explicitly provides that countervailing duties are not required if it is not possible to identify and measure subsidies because the “economy of [the NME] is essentially comprised of a single entity.”
3 According to recent press reports, the CAFC decision is still being challenged by the Obama Administration notwithstanding passage of the new legislation.
This article was originally published by Bingham McCutchen LLP.