On March 13, 2012, President Obama signed legislation that explicitly authorizes the United States to apply countervailing duties (CVD), defined as tariffs on imports that benefit from subsidies, to imports from non-market economy (NME) countries.

By way of background, in December 2011 the US Court of Appeals for the Federal Circuit (CAFC) ruled that current CVD law did not apply to NME imports (chiefly from Vietnam and China).1 The bill signed into law by the President, designated H.R. 4105 and titled “Application of Countervailing Duty Provisions to Nonmarket Economy Countries,” effectively reverses the CAFC ruling, which would have invalidated more than two dozen CVD orders and investigations against goods from China and Vietnam. The law also attempts to address concerns that concurrently applying antidumping (AD) and CVD tariffs against the same imported goods unfairly double-counts subsidies.

In its decision, the CAFC rejected the US Department of Commerce (Commerce) challenge to a more narrow Court of International Trade (CIT) decision known as the GPX cases, which overturned Commerce’s concurrent application of AD and CVD duties against certain Chinese exports to the United States. The CAFC affirmed the CIT, but on separate – and much broader – grounds: namely, that current US CVD law does not apply to exports from an NME country under any circumstances. The CAFC reasoned that the US Congress had implicitly ratified earlier administrative decisions declining to apply the CVD law to NME imports. Mayer Brown analyzed the court rulings and underlying issues in a previous legal update.

H.R. 4105 also attempts to bring the United States into compliance with a 2011 ruling against the United States by the World Trade Organization (WTO) Appellate Body.2 There, the Appellate Body ruled that concurrent application of CVD and AD duties to an NME can create a “double remedy” prohibited by the WTO Subsidies and Countervailing Measures Agreement.

The new law directly addresses the CAFC’s rationale that Congress did not mean to apply CVD law to NME imports—by explicitly authorizing it. The legislation also attempts to address the CIT rulings on double-counting and, by extension, the WTO ruling on the same subject.

However, the law creates uncertainty about how Commerce will address possible double-counting. Specifically, the new law requires Commerce to grant an offset to the calculation of whether there is, and if so how much, dumping (termed the “dumping margin”) if each of the following conditions are met: (i) a respondent received a countervailable subsidy other than an export subsidy, (ii) the countervailable subsidy reduced the prices of the subject imports and (iii) Commerce reasonably can estimate the extent to which the countervailable subsidy has increased the dumping margin for the subject imports. Commerce may not reduce duties to less than the AD-only margin.

These standards, however, may never be met.

In the same court proceedings that gave rise to the new law, these standards proved difficult, if not impossible, to satisfy. For example, regarding the law’s requirement of proof that a subsidy reduced subject imports’ prices, the CIT found the required proof and its assignment to respondents to be unreasonable. The CIT said that “Commerce cannot avoid addressing an important aspect of the problem caused by applying CVD and AD methodologies to goods from NME countries by placing the burden to demonstrate double counting on [the Chinese exporter], because there is likely no way for any respondent to accurately prove what may very well be occurring.”3 The new statute formally requires this proof and, by not assigning the burden of proof to Commerce or the petitioners, arguably assigns it to the respondents. However, the law provides no guidance on how to satisfy the test. Meeting the requirement, therefore, likely will be no easier and no more likely under the new statute.

In addition, the new law requires that Commerce “reasonably estimate” the effect of subsidies on the AD margin. However, the statute does not require that Commerce make substantial, or any, efforts to meet this test, nor does it guide Commerce in this determination. Even if Commerce diligently sought to make the estimate, the task also may prove impossible. As the CIT noted in the GPX cases, Commerce’s actions on remand, granting full offset for the CVD duties against the AD cash deposit rates, “clearly demonstrate its inability … to use improved methodologies to determine whether, and to what degree double counting occurs when NME antidumping remedies are imposed on the same good ….”4 Therefore, Commerce may well determine that it cannot “reasonably estimate the extent to which the countervailable subsidy has increased the dumping margin for the subject imports.” Thus, while the new law gives Commerce a legislative basis for its estimate, it does not suggest how Commerce can actually make a reasonable estimate.

The law also does not require Commerce to grant an offset unless all three statutory requirements are met. However, the new statute does not say what Commerce must or can do if the conditions are not met. While the law apparently does not require Commerce to apply the CVD law in such instances, Commerce is still likely to do so; and if so, given the CIT rulings discussed earlier (which found the required proofs problematic or impossible), respondents may appeal such results to the CIT. By the same token, based on the March 2011 WTO ruling, China and other countries may challenge such results at the WTO.

Apart from Commerce’s potential challenges in implementing the law, its retroactive application may trigger legal challenges. The law extends application of the CVD law to NME country imports back to November 20, 2006. Retroactive application raises special concerns under US law. The legislation may therefore be subject to due process or other challenges on this basis.

For more information on the legislation or Mayer Brown’s Global Trade Group, please contact Duane W. Layton at +1 202 263 3811, Matthew J. McConkey at +1 202 263 3235, or Dave M. Wharwood at +1 202 263 3353.

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  1. GPX Int’l Tire Corp. v. U.S., 666 F.3d 732 (Fed. Cir. 2011).
  2. United States – Definitive Antidumping and Countervailing Duties on Certain Products from China, WT/DS379/B/R (March 2011).
  3. GPX Int’l Tire Corp. v. United States, 645 F.Supp.2d 1231 (Ct. Int’l Trade 2001).
  4. Id.