August 2012 was a busy month for challenges to the U.S. Department of Commerce (“Commerce”) imposing countervailing duties against China, and other non-market economies, while applying the non-market economy methodology in companion anti-dumping cases. On August 17, three Chinese companies filed briefs in the GPX case at the U.S. Court of International Trade (“CIT”), arguing that the March 13, 2012 legislation requiring Commerce to apply the countervailing duty law against non-market economies is unconstitutional because it violates the equal protection guarantees of the Fifth Amendment to the United States Constitution. On August 20, a fourth Chinese company filed two new cases at the CIT, also claiming that the March 13 law is unconstitutional because it violates the equal protection guarantees of the Fifth Amendment to the United States Constitution.

As reported previously on this blog, the U.S. Court of Appeals for the Federal Circuit (“CAFC”) ruled on December 19, 2011 that U.S. law forbade the application of countervailing duties to non-market economies. The U.S. Congress reacted to that ruling by enacting new legislation on March 13, 2012, titled “Application of Countervailing Duty Provisions to Nonmarket Economy Countries.” The new law, also discussed in detail in a previous article posted on this blog, provides that “the merchandise on which countervailing duties shall be imposed . . . includes a class or kind of merchandise imported, or sold (or likely to be sold) for importation, into the United States from a nonmarket economy country.” It provides in a separate section that the Department of Commerce should try to avoid “double counting” when imposing both countervailing and antidumping duties on the same merchandise from a non-market economy, which means Commerce should not count an alleged subsidy in a countervailing duty determination as a cost of production in the antidumping proceeding, thereby assessing duties on the same alleged program or conduct twice. The first provision of the March 2012 law, that countervailing duties should be applied to merchandise from non-market economies, was made retroactive to November 20, 2006, but the second provision, to avoid double counting, applies only to new cases initiated on or after March 13, 2012, when the new law was enacted.

The CAFC responded on May 9, 2012 by sending the case titled GPX International Tire Corp. v. United States back to the CIT for the lower court to consider the constitutionality of the March 13 legislation. Two Chinese companies, GPX International Tire Corporation and Hebei Starbright Tire Co., Ltd., argue in their August 17 brief that the new law violates the equal protection requirement of the Fifth Amendment to the U.S. Constitution because, they say, the law treats companies differently depending upon when petitions were filed against them. The retroactivity in the law applies penalties for alleged offenses before the law permitted such penalties.

A third Chinese company, Tianjin United Tire & Rubber International Co., Ltd., filed a separate brief in the GPX case, making essentially the same argument, and a fourth Chinese company, Beijing Tianhai Industry Co., Ltd., made the same argument in the complaints it filed on August 20 , challenging the Commerce Department’s final affirmative determinations in the antidumping and countervailing duty investigations of High Pressure Steel Cylinders from China. However, Tianhai challenged the constitutionality of the March 13 law in the antidumping case, as well as in the countervialing duty case because the March 13 law calls for Commerce to make adjustments for double counting in the companion antidumping case, rather than in the countervailing duty case.

All four companies argue the new law violates the equal protection clause of the U.S. Constitution because the provision applying the countervailing duty law to non-market economies was made retroactive to 2006, whereas the provision requiring Commerce to try to avoid double counting when antidumping and countervailing duties are imposed on the same merchandise applies prospectively only. The law thus discriminates against companies subject to cases initiated before March 13, 2012, exposing them to both antidumping and countervailing duties without any provision to avoid double counting. By contrast, Commerce must at least make an attempt to avoid double counting in cases filed after March 13, 2012.

Should the CIT conclude that the new law is unconstitutional, Commerce can be expected to appeal that decision back to the CAFC. Even were the CAFC to agree that the new law is unconstitutional, that decision might apply only to the GPX case, the Beijing Tianhai case, and the few other cases in which Commerce applied both countervailing and antidumping duties to the same merchandise from non-market economies between November 20, 2006 and March 13, 2012. The argument presented in court has been limited to the unequal treatment afforded to the companies whose investigations were initiated between the two effective dates. A favorable ruling would benefit only those companies.

While Chinese companies were busy in August in U.S. courts, challenging the simultaneous application of antidumping and countervailing duties and the new U.S. law, the Chinese Government was active at the World Trade Organization (“WTO”), challenging the U.S. application of countervailing duties to Chinese goods. On August 20, the Government of China requested the establishment of a WTO panel to examine its complaint that the United States Department of Commerce violated WTO obligations in twenty-two countervailing duty investigations of products from China. China’s request for a WTO panel challenges the conduct of those cases generally, as well as specific subsidy findings, but does not challenge the application of the countervailing duty law itself to China.

The Commerce Department and the petitioners in the GPX case will be filing their responses to the constitutional challenge by October 1, 2012 and the Chinese companies' replies would then be due by October 16, 2013.  There is no set date by which Judge Restani would need to make her decision, but there is a reasonable change she would do so before the end of the year.  At that point, the losing party is likely to appeal her decision back to the CAFC.  The Tianhai case would be on a later schedule with briefing likely to occur early next year.