Antidumping and Countervailing Duties

U.S. antidumping and countervailing duty laws have been subject to several changes over the years; the most recent amendments were to implement the Uruguay Round Agreements of the GATT. An important effect of the agreement is that it has reduced the discretion previously available to the administering authorities by imposing strict statutory time limits. In the case of an antidumping or countervailing duty petition, for example, domestic authorities are required to make an initial determination within twenty days after the petition is filed. Similar time limits are imposed on the determination of injury. The U.S. Court of International Trade has taken the position that the WTO panel rulings do not have a binding effect (that they are merely persuasive) on U.S. court decisions on such matters (Folsom, Gordon, and Spanogle, 2005).

Antidumping or countervailing duties are a statutory remedy that cannot be vetoed by the president except by negotiation of an international trade agreement. Such an agreement may, for example, take the form of voluntary export restraints to restrain the flow of the offending goods to the U.S. market.

It is important to describe the terms that are often used in the analysis of unfair trade practices, that is, dumping, subsidies, and material injury.

Dumping is defined as selling a product in the United States at a price that is lower than the price for which it is sold in the home market in the ordinary course of trade (certain adjustments are made for differences in the merchandise, quantity purchased, or circumstances of sale). In the absence of sales or sufficient sales of the like product in the domestic market of the exporting country, dumping may be measured by comparison (1) with a comparable price of a like product sold in a third country, or (2) with the cost of production in the country of origin plus a reasonable amount for administrative, selling, and other costs and for profits (constructed value). Selection of the third country is often based on the similarity of merchandise sold there to the merchandise exported to the United States, the volume of sales (country with largest volume of sales), and similarity of market in the third country, in terms of organization and development, to that of the United States. In calculating constructed value, transactions with related parties that do not fairly reflect the usual market price, as well as sales that are made at less than the cost of production, are disregarded. In cases in which the economy of the home market is state controlled and does not reflect the market value of the product, foreign market value can be determined on the basis of, in order of preference, (1) the price at which such or similar merchandise produced in a non-state-controlled economy is sold for consumption in that country or in another country, including the United States, or (2) the constructed value of such and simi­lar merchandise in a country where the economy is not state controlled. Where the price comparison requires a conversion of currencies, such conversion is made using the rate of exchange on the date of sale.

A major problem with the application of such methods is that the surrogate market econ­omy country selected for comparison may be inappropriate (in terms of its level of economic development) or that its producers may not be willing to furnish the information necessary to determine constructed value (Czako et al., 2003).

There is no agreed-upon definition of subsidies anywhere in the GATT or domestic law. However, it is reasonable to infer from the list of practices that are considered subsidies that a subsidy is a preferential benefit given by the government to domestic producers. The benefit could be in the form of income or price support of any direct or indirect financial contribu­tions (e.g., grants, loans, tax credits, loan guarantees) (International Perspective 19.1).

Export subsidies are benefits intended to increase exports; domestic subsidies are granted for a product regardless of whether it is exported or consumed at home. Governments pro­vide domestic subsidies to achieve certain socioeconomic goals, such as optimum employ­ment or location of industries in depressed regions, that could not be attained through the efforts of the private sector alone. Although domestic subsidies may increase the subsidizing country’s trade flow, they do not attract international condemnation as export subsidies.

It is important to review the rules with respect to permitted or actionable subsidies. If an actionable subsidy is found in a country that is a signatory to the GATT Subsidies Code and that subsidy causes injury to a domestic industry, a countervailing duty is imposed on the subsidized imported product. Proof of injury is not required if the subsidized import comes from a country that is not party to the Subsidies Code or similar agreement. A countervailing duty is imposed to offset the subsidy, that is, equal to the net amount of the subsidy (Trebil- cock and Howse, 2005).

The rules and practices on actionable subsidies, nonactionable subsidies (e.g., nonspecific subsidies, subsidies for R&D) are consistent with the WTO rules.

Proof of Injury and Remedies

In both antidumping and countervailing duty investigations, it is important to establish causation: material injury or threat of material injury to or retardation of a U.S. industry producing similar products caused by the importation of subsidized and dumped products. Imports do not have to be the sole or even the major cause of the injury. “Like products” are defined as products that are the same or, in the absence of such, “most similar in character­istics and uses” to the foreign product under investigation. In one case, for example, the U.S. International Trade Commission (ITC) defined one U.S. industry as canned mushrooms (and thus not similar to fresh mushrooms). This narrow definition gives the exporter a much larger U.S. market share, thus supporting a preliminary injury determination (USITC, 2008).

Typically, the ITC considers the collective impact of all imports of a product from a given country in arriving at its injury determination. However, in countervailing duty investiga­tions, there is no injury determination for imports from countries that are not signatories of the Subsidies Code or an equivalent arrangement with the United States unless the goods are entered duty free.

In determining whether there is injury to a U.S. industry, the ITC considers import vol­umes, price effects, and the impact on domestic producers of like products, as well as all other relevant economic factors that have a bearing on the domestic industry. Domestic industry impact analysis considers the effect of allegedly dumped imports on the development and production of the domestic industry, employment, and utilization of plant capacity in the relevant industry. Threat of material injury can be found, for example, if lost sales indicate a threat to future sales, production, and profit. Price undercutting is not a per se basis for a finding of injury if the demand for the product is not price sensitive. Lost sales to the do­mestic industry have traditionally served as an important element of injury (Czako et al., 2003). Injury may be shown even in cases that involve an improvement in the condition of the industry or a decrease in import volume. The ITC’s determination of threat of material injury is made on the basis of evidence that the threat is real and the actual injury imminent and not based on “mere conjectures and suppositions” (19 U.S. Code 1677).

Once it is established that foreign merchandise is being sold in the United States at less than fair market value and injury to domestic industry is established, an antidumping duty is imposed on the product (i.e., an amount by which the foreign market value exceeds the United States price of the merchandise). The causation factor can be satisfied if the dumped or subsidized imports contribute even minimally to an injury to the domestic industry. A correlation between dumped or subsidized imports and alleged injury is not required for an affirmative injury determination.

The cumulation doctrine is also allowed in determining material injury in dumping or subsidy cases. This means that the effect of dumped and/or subsidized imports from two or more countries of like products (that compete with each other and with domestic products) can be assessed to determine injury to domestic industry. This encourages petitioners to name as many countries as possible. Similarly, if a subsidy is shown to exist and to cause ma­terial injury or threat to U.S. industry, then a duty equal to the subsidy (countervailing duty) is imposed. In the case of agricultural products, injury could still be established even though the prevailing market price is at or above the minimum support price. This is intended to ensure that injury analysis is not distorted by the beneficial effects of government assistance programs (Trebilcock and Howse, 2005)

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.