In his State of the Union address on January 27, 2010, President Obama announced the National Export Initiative (NEI) as a new effort designed to lead to long-term, sustainable economic growth for the United States. The NEI is focused on three key areas: (1) a robust, administration-wide trade promotion strategy; (2) improving access to credit; and (3) continuing the rigorous enforcement of U.S. trade laws.

The U.S. Department of Commerce’s (“Commerce”) International Trade Administration (ITA) enforces the U.S. trade laws (i.e., antidumping (AD) and countervailing (CVD) duty laws). These laws provide U.S. industries and their workers with a mechanism to seek relief from unfair trade practices related to imported goods. As part of the NEI, Commerce Secretary Locke directed ITA to review current trade remedy practices to ascertain how Commerce could improve its enforcement through administrative and regulatory changes to the trade remedies laws.

Based on this review, on August 26, 2010, Commerce announced 14 proposed changes aimed at strengthening enforcement of U.S. AD and CVD laws. These proposed measures could increase AD and CVD margins, as well as increase duty collections under orders and penalties for violations of orders. At the same time, these proposals will make it more difficult for foreign producers and U.S. importers to defend against allegations of dumping or subsidization.

General Impact Proposals

  • Companies may no longer be excluded through reviews. Under the current law, if an individual company can show zero dumping margins for three years in an AD case, and five years in a CVD case, the AD or CVD order will be revoked as to that company. Commerce proposes elimination of this ability to revoke an order as to an individual company through reviews. Accordingly, even if an individual company can show zero margins for a three- or five-year period of time, it will remain subject to the AD or CVD order and may be forced by the U.S. industry to participate, at a significant expense, in the administrative reviews that could potentially increase the company’s AD or CVD margin.
  • Tightened deadlines. Commerce proposes tightening the deadlines for submitting new factual information in AD or CVD cases. While these deadlines apply to respondents and petitioners, the tightened deadlines are mostly likely aimed at respondents that are correcting or supplementing their questionnaire responses prior to the on-site verification. The result of the tightened deadlines would be more frequent application of facts available or adverse facts available resulting in higher dumping margins.
  • Strengthened accountability. Commerce proposes strengthening the accountability of attorneys and non-attorneys practicing before the agency. There have been instances where information has been submitted that was improper. This change is designed to make attorneys and non-attorneys practicing before DOC have more responsibility for the information that is submitted. This change will likely increase the costs to respondents of attorneys and consultants as they will now be responsible for completeness and accuracy.
  • Strengthened certification process. Commerce proposes strengthening the certification process for the submission of factual information to the agency. There have been instances of inaccurate submission of information by respondents and this change is designed to make the information being submitted more reliable and accurate.
  • Random respondent sampling. Under its current practice, during the course of an investigation or administrative review where more than two or three manufacturers or exporters are potentially mandatory respondents, Commerce typically selects only the two or three companies that represent the largest volume of exports to the United States to conduct a full review to determine company-specific AD margins. Other companies that have requested a review but are not selected are then given a deposit rate that is the weighted average of the dumping rates found for the investigated companies. Commerce proposes expanding the use of random sampling to select the companies that will undergo a full review instead of not picking the largest respondents. This will result in companies with smaller volumes of exports to the United States being selected for a review and it is likely that these companies will either (1) not undergo a full review because of the cost and burden of a full review, and thus be assigned the highest rate in the proceeding, or (2) undergo a review with results not as good as those of a larger company that has more resources to use to minimize dumping margins.
  • Cash deposits only. Commerce is considering whether importers should be required to post cash deposits rather than bonds for imports that fall within the scope of an AD or CVD investigation, starting with the issuance of Commerce’s preliminary determination (rather than following the imposition of an AD or CVD order). This change may make it more difficult to import as bonds usually cost less than having to post cash. Also, a bond limits the liability of the importer to the bond amount, and if insufficient bonds are posted, there is chance that the full amount of CVD or AD duties will not be collected.
  • Clarification of State-Owned Enterprises (SOEs). Commerce seeks to clarify its current CVD practice to reiterate that it considers SOEs as constituting a “specific” group when they are alleged to be receiving countervailable subsidies from the government.

In addition to the above proposed changes, as most of today’s U.S. AD and CVD cases involve non-market economies (NMEs) such as China, many of Commerce’s proposed changes are focused on strengthening its NME methodologies.

NME-Targeted Proposals

  • New NME wage rate methodology. Commerce proposes adopting a new methodology for valuing wage (labor) rates in NME cases by using surrogate wage rates that fully capture all labor costs (including employee benefits and taxes) in the NME country. This change would increase the normal value against which the U.S. Price is compared, increasing the dumping margin.
  • Tightened NME rules on price inputs. Commerce proposes tightening the rules in NME cases for determining when the price of production inputs purchased from market economy countries will be substituted for Commerce’s surrogate valuation of such inputs. This change would limit the opportunities that presently exist for a company to buy inputs from a market economy and thereby control the value of its inputs, as opposed to having the inputs valued from a third-party source, such as Indian import statistics.
  • Strengthened treatment of NME resellers. Commerce proposes strengthening the treatment given resellers and other non-reviewed parties in NME cases to ensure that such parties pay the full amount of AD duties. This change would make more companies subject to the China-wide adverse facts available rate. While it is unclear exactly what DOC is trying to address here, we guess that this is directed at “name shifting”—U.S. importers and resellers that disappear (i.e., change names) before liquidation and assessment of the AD and CVD duties.
  • Strengthened company-specific rate practice. Commerce proposes strengthening its current practice regarding the issuance of company-specific AD rates in NME cases to avoid circumvention of orders by redirecting shipments through the entities with the lowest margins. Presently there are producer-exporter combination rates in investigations, but not in reviews. This change would likely result in producerexporter combination rates in reviews as well as investigations, so that exporters with low rates cannot ship goods made by other producers under the lower cash deposit rate.
  • Clarified NME import prices. Commerce proposes clarification of its current NME practice for using import prices for valuing factors of production, so as to include all applicable freight and handling costs. Under its current practice, Commerce already does this—or at least it intends to include all applicable freight and handling. This appears merely to be a statement of intent to tighten its internal procedures.
  • Required NME production inputs. Commerce proposes clarification of its current practice to require companies to report production inputs for all products produced at each of their facilities—not just those facilities that produce merchandise destined for the United States—for use in Commerce’s NME dumping calculations. This is not a change but a commitment to apply its current policy consistently. It is designed to avoid a situation where only the most efficient production facility was reviewed for the normal value calculation.
  • Treatment of export taxes and value added taxes (VAT). Commerce is reconsidering its NME AD methodology to account for export taxes or VAT included in the U.S. Price that are not rebated upon export, just as in cases involving market economy countries. Presently, the full amount of VAT is not considered, but China does not always fully rebate the VAT upon export because China uses its rebate of VAT as part of its industrial policy. As the economy improves, we should expect a greater reduction by China in VAT rebates. Where VAT rebates are limited, this proposed change would result in an increase in AD margins. Since China is clearly targeted by Commerce’s proposed changes, if these proposed changes are adopted without change, it is anticipated that China will react by (1) challenging these changes at the World Trade Organization (WTO), and (2) in the interim, while a WTO case is pending, targeting various U.S. industries for retaliation by way of customs, licensing, tariff, trade remedy cases and other means.

Beginning this fall, Commerce will seek input on and introduce these proposed changes in practice—in many cases, through a public notice and comment procedure in the Federal Register—and will give interested parties a full opportunity to comment.