In Major Policy Shift, US Applies Countervailing Duties to China

Apr. 2, 2007

On March 30, 2007, the U.S. Department of Commerce (Commerce) released its preliminary determination in the countervailing duty investigation of Coated Free Sheet Paper from China, holding that the Chinese companies under investigation received subsidies from the Chinese government that US law will now treat as subject to offsetting countervailing duties.   Under US law, the liquidation of these entries will be suspended and countervailing duties ranging from 10 to 20 percent will be imposed.  A final determination could be made by mid-June, 2007.

This is the first time that Commerce has applied U.S. countervailing duty law to imports from a non-market economy country (“NME”), such as China, a policy that had been upheld by the Court of Appeals for the Federal Circuit in Georgetown Steel Corp. v. United States.  In the past, US policy recognized the Chinese economy to be so controlled by the central government that the specific impact of individual subsidies on exports to the United States could not be calculated.  The impact of such controls could be recognized, however, in the antidumping laws, which substitute a surrogate economy for the Chinese economy, and compares Chinese export prices against the theoretical cost of producing the same goods in a market economy environment. 

In reversing its policy, Commerce pointed to significant differences between China’s economy today and the Soviet and Soviet-style economies that were at issue in previous cases.  Commerce found that private industry now dominates many sectors in the Chinese economy and entrepreneurship is flourishing.  As a result of these developments, Commerce now believes that it is possible to determine whether the Chinese government has bestowed a benefit upon a Chinese producer and whether that benefit is “specific” under the law. 

However, despite these developments, Commerce has not changed its designation of China as a NME country for purposes of determining whether and by how much Chinese exports have been sold to the US at less than fair value (dumping).  While the application of CVD laws to NME countries could lead to higher duties being imposed on subject imports, at this point, it is unclear what effect this new CVD policy will have on the accompanying preliminary antidumping determination.  In its press release, Commerce stated that it recognizes that the basis of our conclusion to apply the CVD law to China may require a review of U.S. anti-dumping methodology for China, particularly at the enterprise-specific level, and is currently considering this issue. 

In conducting simultaneous antidumping and countervailing duty investigations, Commerce must be concerned with the possibility of “double-counting” the effects of a subsidy by reference to a surrogate economy fair value.  A General Accounting Office report issued last year noted that the NME methodology used to calculate antidumping duties arguably already accounts for any price advantages exporting companies obtained from otherwise countervailable subsidies. Depending on if or how Commerce modifies its NME antidumping methodology, the application of countervailing duties to subject imports could merely result in lower antidumping duties being imposed on the same products.  Another possibility is that Commerce combines CVD and AD assessments and makes no adjustments to avoid double counting.   A third possibility is that adjustments are made to the NME antidumping methodology which more than eliminate double counting, and combined net effect is that the import duty liability is lower.  Until these decisions are made, there will be considerable uncertainty about whether trade relief actions against Chinese imports will increase, or be held in abeyance by potential petitioners.

Commerce’s preliminary determination in the accompanying antidumping investigation of coated free sheet paper from China is due on or about April 9, 2007. Commerce is currently scheduled to make its final determination in the countervailing duty investigation on or about June 13, 2007 and its final determination in the antidumping investigation on or about June 25, 2007, although these deadlines may be postponed.