When the U.S. Congress considers important trade liberalizing measures, it often faces opposition from domestic industries that are concerned that they will be adversely affected. This summer’s drama in Washington over granting the President “trade promotion authority” provides an example of the sorts of compromises involved in this process. President Obama’s successful push for authority to negotiate trade liberalizing agreements that will eliminate duties on imported goods from new free trade agreement partners was accompanied by significant new trade enforcement measures to protect U.S. manufacturing industries from allegedly unfairly-traded imports.
The American Trade Enforcement Effectiveness Act, included as part of a larger legislative package signed into law by the President on June 29, gives new directions and discretion to the two agencies responsible for administering U.S. antidumping and countervailing duty (AD/CVD) laws. The U.S. International Trade Commission (the Commission), which is tasked with determining whether a domestic industry is materially injured or threatened with material injury by reason of unfairly-traded imports, must now consider additional factors in determining the impact of those imports on the economic condition of the U.S. industry. On the other hand, the U.S. Department of Commerce (the Department), which is charged with investigating whether foreign producers are “dumping” their products in the United States or have received subsidies from their governments, is provided with greater discretion in making those determinations and in calculating the resulting price advantage provided to foreign producers.
New Directions for the Commission
Under the Tariff Act of 1930, as amended, material injury is defined as “harm which is not inconsequential, immaterial, or unimportant.” To make a determination as to whether the subject imports have caused, or threaten to cause, material injury, the statute instructs the Commission to consider: (1) the volume of allegedly unfairly-traded imports, (2) the effect of the allegedly unfairly-traded imports on prices in the United States for domestic like products, and (3) the impact of the allegedly unfairly-traded imports on the U.S. production operations of domestic manufacturers. The newly-enacted amendment to the law provides new direction to what the Commission should evaluate with respect to the “impact” criterion. Specifically, prior law required the Commission to evaluate the “actual and potential decline in output, sales, market share, profits, productivity, return on investment and utilization of capacity.” As amended, this list has been modified. Instead of just “profits,” the law provides more specific instruction to the Commission to consider “gross profits, operating profits, [and] net profits.” The list also is expanded to include “ability to service debt” and “return on assets.”
Further, a new provision has been added to the statute, directing that “[t]he Commission may not determine that there is no material injury or threat of material injury to an industry in the United States merely because that industry is profitable or because the performance of that industry has recently improved.” The prohibition is clearly aimed at a concern by U.S. industries that the Commission may be unwilling to find material injury if there is evidence that an industry has recently become profitable, or if the industry’s trend is improving even if still in a loss-making position. Indeed, the U.S. steel industry filed petitions in early June seeking relief against imports of corrosion-resistant steel in which it has alleged that although the industry’s profitability improved in 2014, as compared to 2013, and is currently profitable, it nonetheless is suffering material injury. Those petitions will be the first considered under the new law, with the Commission scheduled to make its preliminary determination later this month. Notably, however, nothing in the law prohibits the Commission from making a negative determination if there are indicators other than profitability—such as sales or productivity or capacity utilization—that point to an absence of material injury.
Expanded Discretion for the Department of Commerce
For the Department, Congress enacted several amendments to the Tariff Act of 1930, which provide it with additional discretion in determining the existence, and quantifying the magnitude, of dumping and subsidies. The major amendments include, first, clarification that if a “particular market situation” exists in the country from which the subject merchandise has been exported, then the home market sales of those goods shall be considered “outside the ordinary course of trade,” and hence excluded from consideration in determining whether exports to the United States have been sold at dumped prices. Likewise, if the Department is using “constructed value” to determine if the U.S. prices are dumped, the amendment grants the Department discretion to disregard the value of inputs used to calculate constructed value (such as the cost of “materials and fabrication or other processing of any kind”) if a “particular market situation” exists in the country where the goods are produced. The contours of what comprises a “particular market situation,” however, remain as yet uncertain in U.S. practice.
Second, the amendment grants the Department authority to request information from foreign respondents to calculate their costs of production, so that the Department may determine if the prices at which their goods are sold in their home market are below the cost of production. Such a determination, in turn, would lead the Department to disregard those low-priced home market sales as “outside the ordinary course of trade” in determining if the exports to the United States were dumped.
Third, the amendment grants the Department additional flexibility in limiting the number of foreign exporters for which it will calculate individual dumping margins or subsidy rates. The Department may consider several factors (such as the complexity of the issues or the data, prior experience in the same or similar proceedings or the total number of investigations being conducted at that time by the Department) in concluding that it would be “unduly burdensome” to consider the data of voluntary respondents.
Finally, the amendment grants the agencies additional discretion in applying “adverse facts available” in response to a failure to cooperate on the part of a foreign respondent. In that situation, the Department may apply a subsidy rate or dumping margin calculated in any prior proceeding under the same AD/CVD order, including “the highest such rate or margin.” In addition, the Department need not “corroborate” the accuracy of any dumping margin or subsidy rate obtained from a prior proceeding under the same order, and it need not estimate what the dumping margin or subsidy rate would have been if the non-cooperative respondent had cooperated nor demonstrate that the selected rate or margin “reflects an alleged commercial reality . . .”
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It will take some time before the full impact of these amendments is felt. They were enacted, however, with the explicit intent to increase the likelihood of affirmative injury determinations by the International Trade Commission and to grant the Department of Commerce greater discretion to augment the dumping margins and subsidy rates applied to foreign manufacturers and their U.S. importers. The latter, in turn, is likely to cause the reviewing courts to grant greater deference when evaluating the lawfulness of the Department’s determinations.