Companies that are thinking about acquiring a foreign company that exports to the United States should determine what effect the acquisition may have on remedial duties owed on products exported to the United States. Prior to an acquisition, a company may have no outstanding remedial tariff liabilities. However, the target company could become subject to these duties after acquisition.
A company that exports products subject to an AD or CVD order can receive a low or "de minimis" tariff rate (i.e., a duty rate below 0.5 percent established in an annual review process). Under U.S. law, companies with de minimis rates are not required to pay these duties to U.S. Customs. When a company's ownership changes, however, the newly acquired company does not automatically receive the same tariff rate as the pre-sale company.
To receive the pre-sale company's rate, the new company files a request with Commerce in a process known as a "changed circumstances review" ("CCR"). If Commerce determines that the new company is not the "successor-in-interest" to the pre-sale company, then the new company receives the "all-others rate." This rate, applicable to companies without individually established rates, is likely to be much higher than the pre-sale company's rate.
For years, Commerce applied the same standard to both AD and CVD CCRs. According to that standard, the new company receives the pre-sale company's rate if the "totality of circumstances" demonstrates that the new and presale companies operate as "the same business entity." Commerce, applying its traditional standard, considers how changes in management, production facilities, supplier relationships, and customer base, affect the company's pricing behavior. This standard remains in effect for AD CCRs.
After lengthy consideration, Commerce has applied a new standard to CVD CCRs, which the Court of International Trade recently upheld in Marsan Gida Sanayi Ve Ticaret A.S. v. United States. Under this standard, the new company receives the pre-sale company's rate if there is no evidence of significant changes that could affect the nature and extent of the new company's subsidy levels. Commerce considers the following non-exhaustive factors significant: (1) changes in ownership, other than normal trading of publicly owned, broadly held stock; (2) corporate mergers and acquisitions; and (3) purchases or sales of significant productive facilities. Commerce focuses only on whether these changes occur, not on whether they actually affect subsidy amounts.