United States wind tower manufacturers have successfully petitioned the federal government to investigate Chinese and Vietnamese competitors for allegedly pricing at less than fair value in the U.S. export market.  As the domestic industry awaits the government’s preliminary determinations in these matters (two of which are antidumping investigations and one of which is a countervailing duty investigation) it can expect to benefit from a new law that enables the imposition of countervailing duties against respondents from nonmarket economies.

Pricing at less than fair value means selling exports to the U.S. for less than the price (or would-be price) in the country of origin.  As set forth in the antidumping and countervailing duty laws (found within the Tariff Act of 1930, 19 U.S.C. §§ 1671-1677n) the government will impose duties on imports to offset the margin of pricing below fair value if such pricing causes or threatens to cause material injury to a U.S. industry. 

Both antidumping and countervailing duties aim to neutralize the impact of imports priced at less than fair value, but they do so in different ways.  Antidumping duties offset the “dumping margin,” measured by the extent to which the “normal value” exceeds the “export price.”  Countervailing duties offset foreign subsidies that directly or indirectly reduce export prices.  In short, antidumping duties target price discrimination and countervailing duties target subsidization.

The Wind Tower Coalition, an American trade association comprised of three wind tower producers, filed a petition on December 31, 2011 seeking the imposition of antidumping duties against wind tower exports in China and Vietnam.  The Coalition also filed a separate countervailing duty petition against the Chinese industry.  The Department of Commerce (Commerce) and the International Trade Commission (the Commission), the two government agencies charged with making determinations as to the existence of (1) less than fair value pricing and (2) material injury, respectively, have both accepted the Coalition’s petitions and commenced investigations. Utility Scale Wind Towers from the People’s Republic of China and the Socialist Republic of Vietnam,  77 FR 3440 (Dep’t of Commerce, Int’l Trade Admin. Jan. 24, 2012; initiation of antidumping duty investigations); Utility Scale Wind Towers from the People’s Republic of China, 77 FR 3447 (Dep’t of Commerce, Int’l Trade Admin. Jan. 24, 2012; initiation of countervailing duty investigation); Press Release, U.S. International Trade Commission: USITC Votes to Continue Cases on Utility Scale Wind Towers from China and Vietnam (Feb. 10, 2012). Commerce and the Commission will issue factual findings in the following months on the two elements above.  If both agencies make affirmative determinations in connection with a given petition, an import duties order will issue.

Commerce presently designates both China and Vietnam as nonmarket economies.  Nonmarket  economy designation implies that actual home market prices do not reflect normal value.  Commerce presumes that the respondent industry in a nonmarket economy is a single entity; the distinction among individual firms is considered fictitious (unless respondents submit certain evidence to the contrary in the course of the investigation). 

It should be no surprise, given these implications, that the precise calculation of duties rates in nonmarket economy investigations can be complicated.

In today’s antidumping investigations involving nonmarket economies, Commerce consistently employs a methodology under which it designates a “surrogate country” – one that produces the same product (or like product) and has a similar level of economic development – to calculate “normal value” for the respondent industry.  Using surrogate country data, Commerce determines the input value for each factor of production that the respondent country uses to make the export.  This process constructs a piece-by-piece estimate of the respondent industry’s production costs, this time at “market value.”  Based on this estimate of production costs, Commerce generates two additional estimates: (1) selling and other general and administrative expenses, and (2) a reasonable profit margin.  Commerce adds all of these figures together to construct the final estimate of normal value in a nonmarket economy.  The surrogate country methodology is unique in that it produces a new, subsidy-free figure representing normal value.  Therefore, concurrent assessment of countervailing duties and antidumping duties in an ordinary nonmarket economy scenario (where the antidumping rate is calculated via the surrogate country methodology) might well result in certain subsidies being counted twice.  This risk of “double counting” has recently become a hot-button issue.

Just months ago, the U.S. Court of Appeals for the Federal Circuit held that assessing countervailing duties against respondents from nonmarket economies was not allowed at all.  GPX International Tire Corp. v. United States (“GPX III”), 2011-1107, 08, 09 (Dec. 19, 2011), superseded by statute, H.R. 4105, 112th Cong. (see below).  Commerce had insisted over the past several years that it possessed this power, justifying its 2007 decision to begin assessing countervailing duties against China as a policy adaptation within the scope of the law. Commerce’s previous policy, dating back to the 1980s, was not to apply countervailing duties in nonmarket economy cases.  It sought to change course in 2007, stating that the obstacles which had precluded reasonable or meaningful identification of Chinese subsidies two decades ago no longer existed in China’s economy.  See Dep’t of Commerce, Countervailing Duty Investigation of Coated Free Sheet Paper from the People’s Republic of China – Whether the Analytical Elements of the George-town Steel Opinion Are Applicable to China’s Present-Day Economy (Mar. 29, 2007).  Shortly after Commerce’s 2007 policy change, a Chinese industry subject to concurrent antidumping and countervailing duties determinations sought judicial review.  The Court of International Trade held in the favor of the Chinese industry, ruling that the combination of methodologies employed by Commerce was not appropriate under the law due to the high risk of double counting.  GPX International Tire Corp. v. United States (“GPX I”), 645 F. Supp. 2d 1231, 1234-35 (Ct. Int’l Trade 2009); see also GPX International Tire Corp. v. United States (“GPX II”) 715 F.Supp 1337, 1344-45 (Ct. Int’l Trade 2010) (absent protections against double counting, use of the surrogate country methodology alongside a separate countervailing duties assessment counts certain subsidies twice whenever the dumping margin, measured as the difference between the subsidy-free normal value and the export price, “is greater than it would be if subsidies were reflected on both sides of the comparison.”).  The U.S. Court of Appeals for the Federal Circuit affirmed, but it rejected the Trade Court’s reasoning. The real issue, the Federal Circuit explained, did not involve the risk of double counting (an issue that the Tariff Act did not clearly address, and technically, might not exist under the facts of a given case).  GPX III, supra, slip op. at 11.  Rather, the problem was that Congress had ratified Commerce’s earlier abstention policy for nonmarket economies, as demonstrated in subsequent amendments to the countervailing duties provisions in the Tariff Act.  Id. at 18.  Thus, the Act precluded altogether the imposition of countervailing duties on respondents from nonmarket economies.  Id. at 26.

But the law on this contentious issue has just changed.  Over the past two weeks, Congress pushed forward a proposed amendment to the Tariff Act overturning GPX III, and making clear that countervailing duties law applies to respondents from nonmarket economies. Press Release, U.S. House of Representatives, Means and Ways Committee: Camp, Levin, Brady, and McDermott Introduce Legislation to Ensure Commerce Department Can Continue to Apply Countervailing Duty Laws to Non-Market Economies Like China (Feb. 29, 2012).  The bill swiftly passed in both the House and Senate, and the President signed H.R. 4105 into law on March 13, 2012. 

This new legislation retroactively enables the imposition of countervailing duties in the Chinese wind towers investigation, along with the rest of the proceedings as to which Commerce asserted its authority to impose countervailing duties under its 2007 policy change.  See H.R. 4105, 112th Cong. § 1(b)(1) (final as passed by Senate, March 7, 2012).  The law also contains a provision (applicable to assessments made in any future investigations or reviews of orders), which, on its face, protects against double counting.  See id., § 2. Specifically, the provision requires Commerce to reduce the dumping margin in a nonmarket economy investigation by the extent to which a countervailable subsidy has been given (with the exception of an “export subsidy,” as defined under the Act), and the subsidy has increased the dumping margin, provided that Commerce can reasonably make this estimate.  Id.  The requirement that Commerce can “reasonably estimate” the extent of overlap allocates the risk of error in a way that is favorable to petitioners; this might effectively place a burden of proving up double counting on certain respondents in a future.  The express exclusion of “export subsidies,” (i.e., benefits made contingent on export performance) from being offset appears to simply reflect the assumption that all subsidies except these are captured and accounted for under the surrogate country methodology. 

Before the President signed the bill into law, Commerce and the Commission were meanwhile gathering facts in all three wind towers investigations.  Thus, the countervailing duties investigation against the Chinese industry should proceed in a timely manner, alongside the other two investigations.

If U.S. wind tower manufacturers prevail on the merits of any petition against the Chinese or Vietnamese industry, then exporters covered by the final order would have to pay duties to the extent that prices are determined to be at less than fair value.