On September 18, 2009, Judge Jane A. Restani of the U.S. Court of International Trade issued her decision in a hotly contested case regarding the application of U.S. countervailing duty laws to China. Judge Restani ruled that the U.S. Department of Commerce (Commerce) cannot simultaneously apply the antidumping and countervailing duty laws to China without making significant changes to its methodologies for doing so. Judge Restani also ruled that Commerce’s choice of a December 11, 2001 as the “cut-off” date for identifying Chinese subsidies was unreasonable.

Commerce is responsible for investigating complaints made by U.S. industries that imports are unfairly priced. Such unfairly low pricing may result either from dumping (the practice of selling merchandise at less than its cost of production) or from government subsidization in the country producing the merchandise. Should Commerce determine that foreign merchandise is either dumped or subsidized, it may impose either antidumping duties or countervailing duties.

Commerce has long considered China to be a “non-market economy”—i.e., an economy characterized by pervasive governmental control and intervention, such that the prices for goods, services and labor in that economy do not reflect their market value. For many years, Commerce refused to initiate countervailing duty investigations into non-market economies, reasoning that it was impossible to separate the effects of subsidization from the effects of dumping in such pervasively governmentally controlled economies. As such, Commerce applied a modified investigation methodology in considering allegations of dumping from non-market economies, in order to account for the effects of government control, but would not initiate separate countervailing duty investigations.

In 2007, however, Commerce began applying countervailing duty law to investigations into imports from China. Commerce argued that while the Chinese economy continued to be characterized by governmental control, Commerce was now able to identify discrete subsidy programs and the resulting benefits. At the same time, Commerce determined to continue to apply its modified non-market economy antidumping methodology to investigations into complaints of dumped imports from China. For purposes of identifying the date from which it would consider whether Chinese subsidy programs resulted in countervailable benefits to investigated producers and exporters, Commerce chose the date of China’s accession to the World Trade Organization—December 11, 2001.

Producers and importers of Chinese off-road pneumatic tires filed suit against Commerce’s simultaneous application of non-market antidumping methodologies and countervailing duty law to China, while the same parties and various U.S. interests challenged the choice of the December 11, 2001 cut-off date. Judge Restani held that Commerce could not continue to apply the countervailing duty laws to China while simultaneously applying its current non-market economy antidumping procedures. Judge Restani found that Commerce’s current system had a high potential for double-counting the effects of dumping and subsidization, such that Chinese companies may be subjected to unduly high combined antidumping and countervailing duties. Judge Restani also found that the use of a uniform cut-off date was inconsistent with the need to evaluate China’s evolving progress toward a market-based economy.

Judge Restani remanded the case to Commerce with instructions to either forgo the application of countervailing duties to China altogether or otherwise adopt new procedures that would eliminate the risk of double-counting between countervailing and antidumping duties. She also instructed Commerce, if it continues to apply countervailing duties, to individually evaluate each subsidy for purposes of determining its measurability at particular times, rather than applying a uniform cut-off date. Commerce’s remand results are due on December 17, 2009.

The full text of Judge Restani’s opinion may be accessed here.