Court Decision Could Result in Lower Duties on Goods Subject to U.S. Trade Remedy Cases from Non-Market Economies

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August 20, 2010

In a recent ruling, the U.S. Court of International Trade (CIT) prohibited the Department of Commerce (“Commerce”) from applying both its antidumping (AD) non-market economy (NME) methodology and countervailing (CV) duty law for related investigations against imports of tires from China. The Court essentially held that by simultaneously applying the NME methodology and CV law, Commerce had unfairly inflated the level of penalization against the subject goods by effectively double counting the impact of any subsidization that may have occurred.

The ruling, issued in GPX International Tire Corporation and Hebei Starbright Tire Co., Ltd., v. United States,  concerns the process by which Commerce calculates the normal value of dumped merchandise for nonmarket economies in relation to the application of countervailing duty law. Normal value is usually determined as the price at which the merchandise is sold in the exporting country. Commerce then calculates the dumping margin as the amount by which the normal value exceeds the export price.

However for non-market economy countries, such as  China, normal value is determined by calculating the total value of all the factors of production (e.g. raw materials, labor consumption, energy costs, etc.) used in producing the merchandise. To determine the value of these factors, Commerce is required to use, to the extent possible, the prices of factors in one or more market economy countries that are comparable (known as surrogate values).

The CIT has previously upheld Commerce’s use of surrogate values. However, GPX challenged its application in coordination with countervailing duty law which is meant to capture unfair subsidies paid to foreign manufacturers. Since Commerce uses surrogate values from market economies (i.e. cost of non-subsidized factors of production) in constructing normal value, GPX claimed that commerce was double counting the impact if of any subsidization by capturing them under its NME methodology for AD proceedings as well as CVD investigations. The CIT agreed and issued an order preventing the Commerce from imposing countervailing duties against certain tires from china.

The decision makes it likely that companies implicated in trade remedy investigations in which Commerce applied both the NME methodology and countervailing law will seek similar injunctions from the CIT prohibiting the application of both AD & CVD duties. However, such relief may not be permanent.

In a separate ruling on challenges to U.S. trade remedy methodology for NMEs brought by China, the World Trade Organization (WTO) is said to have rejected the same claims made by GPX at the CIT. If true, the U.S. application of its NME methodology and countervailing law in trade remedy cases with regard to countries such as China would be acceptable under the WTO. With the rare backing of a WTO decision, proponents of U.S. trade remedy laws could be successful in getting Congress to alter the statutes underlying U.S. trade remedy cases to permit the double counting prohibited by the CIT’s decision.

Although the situation is still in flux and number of factors, including the precise wording of the WTO’s decision due out sometime in September and the U.S. Congress’ ability to act, could ultimately determine how NME and CV laws are carried out in relation to each other, importers and foreign producers affected by AD and CV duties may be eligible to have their penalty rates reduced.

For more information, please contact a Barnes/Richardson attorney.