Change is coming: what to expect from the recent amendments to the trade remedy laws.

Author:Sverdlov, Alexander V.
  1. Introduction II. Disputes About Which Data Commerce Should Use in Proceedings Involving Non-Market Economy Countries A. Overview of the CIT's 2014 Jurisprudence on Surrogate Values B. Changes Made by the 2015 Act III. Commerce's Treatment of Parties that Fail to Cooperate in its Proceedings A. Overview of the CIT's Jurisprudence on AFA B. Changes Made by the 2015 Act IV. What Lies Ahead I. Introduction

    Last spring--while Congressional Democrats were battling the President's efforts to complete the ambitious, and highly contentious, twelve-nation trade agreement known as the Trans-Pacific Partnership (TPP) (1)--a bill called the "Trade Preferences Extension Act of 2015" (the "Act") was quietly introduced into Congress. (2) With most pundits and officials focused on the TPP, this bill received relatively little attention. (3) An eclectic amalgam of amendments to existing statutes, the Act quickly cleared both chambers without much debate, and was signed into law shortly thereafter. (4) And just like that, Congress had made one of the biggest changes to our domestic trade remedy laws in over twenty years.

    In broad terms, U.S. domestic trade remedy laws (5) require the U.S. Department of Commerce ("Commerce") to calculate and impose duties on imported merchandise that is either sold in the United States below fair value (a practice known as "dumping") (6) or that benefits from unfair foreign government subsidies (also known as "countervailable subsidies"). (7) The governing trade statute, 19 U.S.C. [section][section] 1671-77, provides various guidelines for how Commerce is to make such calculations. (8) The Trade Preferences Extension Act changes a number of these guidelines. Most significantly, Title V of the Act, titled "Improvements to Antidumping and Countervailing Duty Laws" (1) adds a new provision that permits Commerce to disregard certain data when calculating dumping margins for producers of merchandise from non-market economy countries (9) and (2) changes how Commerce may calculate rates for parties that fail to cooperate with its proceedings. (10)

    What is the scope of these changes? How significant are they likely to be in practice? Perhaps the best way to answer these questions is to consider the constraints that Commerce previously faced in these areas--and, in particular, to consider how the Court of International Trade (CIT), which has exclusive jurisdiction to review Commerce's antidumping and countervailing duty determinations, (11) has analyzed Commerce's determinations on these issues under the old statute. This Article will focus on the CIT's jurisprudence in 2014--the last full year that Commerce operated under the "old" regime.

    As detailed below, the portion of the Act that permits Commerce to disregard certain types of data when calculating margins for non-market economy producers is a significant change. (12) Although the terms of the new provision are narrow, the provision comes in one of the most hotly contested areas of Commerce's practice: the fact-specific disputes about which data provide the best approximation of the producers' experience. And the Act's change to Commerce's treatment of non-cooperating parties is nothing less than dramatic. (13) The terms of the new Act repudiate a number of court-established standards and promise to significantly limit the types of challenges that parties can successfully bring in this realm.

  2. Disputes About Which Data Commerce Should Use in Proceedings Involving Non-Market Economy Countries

    Plaintiffs in CIT cases frequently complain about the data Commerce used to calculate dumping margins for producers that operate in non-market economy countries. Indeed, these types of challenges form a significant portion of the CIT's docket. This fact is not surprising. Commerce imposes antidumping duties on nearly one hundred different types of goods from China, which is considered a non-market economy. (14) No market-economy country even comes close. (15) Just as importantly, however, Commerce's non-market economy proceedings are inherently complicated, and therefore prone to court challenge.

    When it deals with a market economy, Commerce can often compute a producer's dumping margin by simply comparing the price that the producer charges for its goods in the United States with the price it charges in its home country (or, when such price is unavailable, with how much the producer reports spending to produce the goods). (16) However, that method usually does not work with respondents from non-market economies. In those economies, there is often a "concern that the factors of production used to produce the goods at issue are under state control, [meaning that] home market sales may not be reliable indicators of' fair value. (17) To eliminate these types of distortions, the statute directs Commerce to reconstruct the producer's business experience. (18) In particular, the statute provides that Commerce shall determine the fair value "of the subject merchandise on the basis of the value of the factors of production" (19)--that is, how much it would generally cost to make the product in question. These factors of production can include things like "hours of labor required," "quantities of raw materials employed," "amounts of energy and other utilities consumed," and "representative capital cost, including depreciation." (20) The statute directs Commerce to value these factors of production "based on the best available information regarding the values of such factors" in a market economy country that can serve as an appropriate surrogate for the non-market economy at issue. (21)

    Naturally, parties frequently disagree about what constitutes the "best available" surrogate value information. Domestic petitioners often want Commerce to use values that increase the calculated cost of production--thereby raising the foreign respondents' dumping or countervailing duty margins. (22) For their part, the respondents want Commerce to use surrogate values that have the opposite effect (i.e., that decrease the calculated cost of production). Given that a typical proceeding can require Commerce to establish more than a dozen surrogate values, (23) it is rare that all parties are satisfied with Commerce's calculations. More often than not, parties bring their disputes to the CIT. (24)

    1. Overview of the CIT's 2014 Jurisprudence on Surrogate Values

      In 2014, the CIT issued a total of eighty-two decisions analyzing the Department of Commerce's antidumping and countervailing duty determinations; more than a quarter of these involved at least one surrogate value issue (and many involved more). Although each case has unique facts, there are overarching trends. As a general matter, the CIT deferred to Commerce's selection of overall methodologies to establish surrogate values. However, the Court was much more skeptical of Commerce's factual determinations and how Commerce weighed competing evidence on the record--and frequently reversed Commerce on those grounds. (25)

      For example, in one case, Jiaxing Brother Fastener Co. v. United States, a Chinese producer of steel-threaded rod challenged the methodology that Commerce used to select Thailand as the surrogate country. (26) The producer claimed that Commerce did not give proper meaning to the statute's requirements that a surrogate country's "level of economic development" be comparable to that of China, and that the surrogate country be a "significant producer of comparable merchandise." (27) The Court rejected this challenge. As the Court explained, the statute does not define how Commerce should measure the two criteria. (28) To fill the gap, Commerce published a policy bulletin, which stated that Commerce would follow a sequential analysis: first, Commerce would identify a list of potential surrogate countries that had a reported per-capita gross national income (GNI, a measure derived from a country's gross domestic product), similar to that of the non-market economy country; then, Commerce would determine whether any of those countries were significant producers of comparable merchandise. (29) This methodology, the Court explained, was a reasonable way for Commerce to fill a gap in the statute (30) and therefore deserved deference under the established two-step framework laid out by the Supreme Court in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc. (31) Because India's GNI was not close to China's, the Court explained that Commerce was right to eliminate it from further consideration; Commerce was not required to consider whether factors other than GNI made India economically similar to China, and Commerce was not required to consider whether India was a more significant producer of subject merchandise than Thailand. (32)

      The Court rejected a similar set of challenges to Commerce's general methodology for selecting a surrogate country in Clearon Corp. v. United States. (33) As the Court explained in that case, Commerce had discretion to consider GNI as reflective of economic comparability. (34) Likewise, the Court held, Commerce had discretion to consider the statutory factors sequentially and treat economic comparability as a threshold criterion that could eliminate a country from further consideration. (35)

      Commerce had similar success in defending its general methodology for valuing labor rates. For example, in two cases involving shrimp from Vietnam, the plaintiff claimed that Commerce erred by valuing labor "in the same way that [it] value [d] all other surrogate" factors of production--that is, by "relying on data from a single surrogate country." (36) In both cases, the plaintiffs claimed that Commerce did not appropriately explain why it departed from its prior method of constructing a "regression-based" model that approximated the wage rate of Vietnam based on the data from multiple market economies. (37) In rejecting both of these challenges, the Court observed that Commerce was merely...

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