Adding a chapter to the long-running controversy over the Department of Commerce's application of the anti-subsidy (countervailing duty) statute to goods imported from non-market economy countries, the US Court of International Trade has rejected constitutional challenges to legislation to provide a retrofitted legal foundation for the department's practice. On January 7 2013 in GPX International Tire Co v United States(1) the court held that countervailing duties may be retroactively applied to products imported from the People's Republic of China, which had been the subject of a countervailing duty investigation and order issued by the department some six years before Congress amended the statute explicitly to authorise the application of countervailing duties to imports from non-market economy countries.

Several developments led to the ruling:

  • In December 2011 the Court of Appeals for the Federal Circuit ruled that the Department of Commerce lacked statutory authority to reverse an earlier administrative decision that the countervailing duty law could not be applied to imports from non-market economy countries.(2) That decision effectively affirmed a Court of International Trade ruling which had been decided on different grounds.
  • In response, in March 2012 Congress amended the countervailing duty law to provide express authority to the department to apply the countervailing duty law to non-market economy countries, retroactive to November 2006. The revised statute permitted some two dozen countervailing duty orders that had been issued by the department on Chinese and Vietnamese products to remain in force, including the order issued on imports of Chinese tyres that is the subject of the current litigation.
  • In May 2012 the Court of Appeals for the Federal Circuit, acting on a petition to rehear its December 2011 decision in light of the new legislation, vacated the Court of International Trade's previous ruling and remanded the case for scrutiny of the new legislation's constitutionality.(3)

The Court of International Trade's decision addressed three constitutional claims presented by the plaintiffs – based on the ex post facto clause of the Constitution, the due process clause of the Fifth Amendment and the constitutional guarantee of equal protection under the laws – and rejected them all. First, the court determined that even if the statutory amendment is viewed as retroactive, the countervailing duty law has long been considered to be remedial, as opposed to penal, in nature. Therefore, the retroactive application of the countervailing duty law to non-market economy countries could not be viewed as an unconstitutional "retroactive penal legislation".(4) Second, the court concluded that the law serves a "rational economic policy" and is therefore subject to deference, even if it retroactively "imposes new duties or liabilities for past acts".(5) As to the final constitutional claim, the court noted that because no suspect class or fundamental right is implicated by the statutory amendment, the equal protection challenge is subject to a low level of scrutiny regarding whether it bears "a rational relation to some legitimate end".(6) The court concluded that the amendment did so. However, the court remanded the case to the Department of Commerce to address disputed methodology issues related to the calculation of the countervailing duty rates imposed on the imports of the Chinese tyres.

The Court of International Trade's January 7 ruling will almost certainly not be the last word in this dispute. One or more of the parties may appeal to the Court of Appeals for the Federal Circuit in an effort to vindicate their interests, including the important constitutional issues addressed by the Court of International Trade. As the Court of Appeals for the Federal Circuit noted in its May 2012 remand, the constitutional questions raised by the parties were questions of "first impression" and had received "only cursory briefing". The Court of Appeals for the Federal Circuit is unlikely to decline an opportunity to reconsider these issues under more detailed briefing. With respect to the Court of International Trade's remand of the Department of Commerce's calculation of countervailing duty rates for various methodology issues, this decision opens additional areas of controversy, as the underlying issues may raise their own potentially significant consequences for the Chinese respondents and for future departmental practice in applying the countervailing duty law to non-market economy countries.

For further information on this topic please contact Neil Ellis, Brenda Jacobs or Dave M Wharwood at Sidley Austin LLP by telephone (+1 202 736 8000), fax (+1 202 736 8711) or email ([email protected], [email protected] or [email protected]).

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(1) 37 CIT __, Slip Op 13-02 (Jan 7 2013).

(2) GPX International Tire Co v United States, 666 F 3d 732 (Fed Cir 2011).

(3) GPX International Tire Co v United States, 678 F 3d 1308 (Fed Cir 2012).

(4) CIT Slip Op at 18.

(5) CIT Slip Op at 19.

(6) CIT Slip Op at 28.