What a Dump! the Current State of Antidumping Duty Calculations in Non-market Economy Cases
| Publication year | 2018 |
What a Dump! The Current State of Antidumping Duty Calculations in Non-Market Economy Cases
Adam Williams
How does the administrating authority choose among possible third countries from which to obtain these prices? . . . The answer many respondents give is hard-bitten, perhaps cynical. They suggest in N[on-market economies] A[ntidumping] cases, an administering authority essentially is free to "make up the numbers."1
—Raj Bhala
Currently, a debate rages at the World Trade Organization (WTO) between China on the one hand and the United States and the European Union on the other.2 It revolves around the latter two entities' refusal to treat China as a market economy for the purposes of assessing an antidumping duty.3 An antidumping duty is a tariff applied to dumped products (i.e., products that have been sold in the importing country at less than their fair market value).4 Normally when assessing such duties, a country simply charges the violating entity the difference between the product's fair market value5 and the price at which it was first sold in the importing country.6 China is preoccupied with its status as a non-market economy ("NME") because WTO members are allowed to calculate the antidumping duties owed on imports from NMEs using a different methodology that many consider to be, at best, "convoluted."7 While
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arguments rage about what certain language in China's 2000 Accession Agreement to the World Trade Organization means or whether China is actually a market economy, the reality, especially for purposes of the United States, is that China's status as a NME is unlikely to change in the near future, and improvements to the convoluted methodology should at least be considered.8
The history of custom duties extends back at least to the ancient Egyptians,9 but only relatively recently have countries imposed tariffs for the stated purpose of correcting unfair market distortions that undermine the general social welfare promoted by free trade.10 The General Agreement on Tariffs and Trade (GATT) was created in 1947 for the express objective of substantially reducing tariffs and other trade barriers and eliminating preferences on a "reciprocal and mutually advantageous" basis;11 even so, it has always allowed for the levying of antidumping and countervailing duties.12 Within eight years of the GATT's creation, countries quickly realized the "special difficulties [that] may exist" in trying to assess such duties on imports from NME countries.13 Calculating the duty for dumped products is a difficult process even in the market economy context; doing so for products from NMEs adds another layer of complexity that substantially adds unpredictability to the process. The significance of these administrative problems explains why China is so concerned about its NME status.
For NME antidumping duty determinations, the U.S. Department of Commerce (Commerce Department) is required to attempt to find a comparable price for the dumped product by examining data from a third country with a market economy.14 The lack of consistency or predictability in
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the Commerce Department's attempts to establish such a surrogate country and determine a good's fair market price has left many with the impression that the Commerce Department "makes it up as it goes."15 It is well established that in large part "economic success . . . depend[s] on an efficient and predictable rule of law."16 The lack of predictability in the Commerce Department's work hurts both foreign and domestic producers.17 Foreign companies cannot know ahead of time how much they must pay, and domestic companies cannot know how saturated the market will be—a problem that makes it significantly more difficult for them to predict the sales prices for their goods.18
This Comment first examines the Commerce Department's process for assessing duties on dumped imports from NMEs to determine this method's consistency. Finding problems with the Commerce Department's results, this Comment argues that to reduce lawsuits and add a modicum of predictability to its determinations, the Commerce Department should adopt a more formulaic approach for selecting the best surrogate country. More specifically, Part I of this Comment provides not only the historical background of such duties, but also presents the economic theory underlying such duties. Part II lays out the basic state of antidumping duties in the United States in 2017, while Part III raises questions about the accuracy of the process for dealing with antidumping duties on imports from NMEs. Part IV examines how the Canadian antidumping duty regime deals with the surrogate country selection conundrum. Lastly, Part V presents a potential path forward for the Commerce Department to increase the predictability of their proceedings without unduly hampering their discretion.
Custom duties trace their origins back to the gifts and bribes ancient merchants would give a king or chieftain for the right to trade within that
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sovereign's territory.19 The adoption of mercantilism by the European powers of the seventeenth and eighteenth centuries brought about a new rationale for the implementation of tariffs; sovereigns hoped tariffs would reduce imports and encourage exports, thereby encouraging the flow into the king's coffers of money deriving from local production.20 Very early in its history, the United States recognized the detrimental impact another country's export subsidies and dumping could have on a national economy.21 Perhaps unsurprisingly, the United States was the first country to enact what would now be considered a countervailing duty law when it passed the McKinley Tariff of 1890.22 The McKinley Tariff imposed an additional duty on sugar from countries paying "directly or indirectly, a bounty on the exportation" of certain kinds of sugar.23 The first antidumping duty law came in 1904 when Canada created a "special duty of customs equal to the difference between [a product's] fair market value and [its] selling price."24 Even before that law passed, critics expressed concern over potential administrative problems.25 Nevertheless, countervailing and antidumping duties became fairly common within the tariff laws of the first half of the twentieth century and so were incorporated into the GATT in 1947.26
In theory, antidumping and countervailing duty laws exist to "prevent companies from establishing monopolies through the use of predatory pricing."27 Even temporary or sporadic dumping can theoretically force local
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producers to exit a market, which means the economy will have to bear the cost of retraining people or rebuilding facilities when the dumping inevitably ends.28 Dumping can also force people to change jobs, which can have an effect on the morale and efficiency of the community.29 Economic analyses have, at best, left unresolved whether the harm caused by dumping or export subsidies does in fact outweigh the benefit of cheaper goods; nevertheless, such law retains a central place in many countries' trade policies.30 It is on this controversial theoretical basis that support for antidumping duties must rely before even bringing in practical administrative concerns.
For antidumping and countervailing duty purposes, U.S. law defines NMEs as those that, according to the Commerce Department, do "not operate on market principles of cost or pricing structures, so that sales of merchandise in such countr[ies] do not reflect the fair value of the merchandise."31 Eleven countries are currently designated by the Commerce Department as NMEs,32 but by far the most significant two are China and Vietnam.33 Every year, goods
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from those two countries constitute approximately twenty-three percent of all imports into the United States.34 Of the 321 antidumping duty orders in place as of September 13, 2017, 120 involved products from China or Vietnam.35 Almost one third of all import duties collected during 2014, 2015, and 2016 were on imports from those two countries.36
As noted above, one major complaint with the Commerce Department's process for assessing antidumping duties on imports from NMEs is that neither foreign exporters nor the domestic industry can predict how large a tariff will be charged on products.37 "The U.S. antidumping rubric is left open to criticism . . . because of its unpredictability and lack of accuracy."38 In particular, critics argue that "the use of nonmarket economy methodology harms domestic import-using businesses and consumers" because it "results in unpredictable and unrealistically high antidumping duties."39 The inability to plan for the future creates significant difficulties for foreign producers and exporters, while American consumers have to pay higher prices.
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To properly understand the uncertainty companies face when dealing with exports from non-market economies, it is first necessary to understand the problems inherent to all antidumping duty calculations. Current U.S. antidumping (and countervailing duty) law comes from the Tariff Act of 1930, which Congress has substantively amended on numerous occasions.40 Antidumping duty investigations may be initiated upon the request of a domestic industry,41 at which point the International Trade Commission must make an initial determination as to whether a domestic industry is being (or is threatened to be) injured.42 If that is the case, the Commerce Department preliminarily determines whether there is a reasonable basis to believe that merchandise is being sold at less than fair value.43 Broadly speaking, the Commerce Department makes this preliminary determination by calculating what the dumping margin for each exporter should be.44 The...
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