On March 25, 2024, the U.S. Department of Commerce (Commerce) published a final rule (Final Rule, available here) implementing a broad array of procedural and substantive amendments to the regulations that govern the agency’s administration of the antidumping duty (AD) and countervailing duty (CVD) laws.1 In a prior alert (available here), we noted the significant changes included in the version of these regulations proposed by Commerce on May 9, 2023 (Proposed Rule),2 and explained how, if implemented, those changes might affect AD/CVD proceedings. While Commerce adopted the vast majority of the proposals without change or with only minor changes, Commerce did make some notable revisions based on comments submitted in response to the Proposed Rule.
This Update focuses on what we view as the three most important aspects of the Final Rule: (1) the expansion of when Commerce may find a particular market situation (PMS), (2) the removal of the transnational subsidy limitation, and (3) Commerce’s overarching intent to provide itself maximum flexibility in administering the new regulations.
These changes go into effect April 24, 2024, and Sidley attorneys are available to advise on the implications and legality of these changes.
I. Commerce will now be able to consider evidence of weak, ineffective, or nonexistent property, intellectual property, human rights, labor, and environmental protections in determining whether a PMS exists.
As explained in our 2023 update, the Proposed and now Final Rule authorizes Commerce to consider evidence of “weak, ineffective, or nonexistent property, intellectual property, human rights, labor, and environmental protections and the impact that the lack of such protections has on the prices and costs of products” in various aspects of AD/CVD proceedings, including to determine that a PMS exists requiring adjustments to sales price comparisons and cost of production calculations in AD proceedings. While the overall thrust of the Final Rule on this issue remains the same as in the Proposed Rule, Commerce made several changes in the Final Rule that expanded the definition of PMS and expanded the circumstances under which Commerce may find a PMS exists relative to the Proposed Rule.
First, in § 351.416(a), Commerce removed the word “distinct,” agreeing with commenters that inclusion of the word misleadingly implied an additional obligation or analysis that the market situation be different from other circumstances or sets of circumstances in other countries.3 In addition, Commerce added language that allows it to find PMS when a situation not only “prevent[s]” a proper comparison but also “do[es] not permit” a proper comparison. Finally, Commerce revised the language of (a)(2) to provide flexibility to consider situations that “contribute[] to” a distortion of the cost of production rather than just situations that “distort” the cost of production. Commerce further clarified that such distortions can be to the costs of materials and fabrication and other processing of any kind.
Second, Commerce revised § 351.416(d) to allow it to determine that circumstances, or a set of circumstances, contributed to a distorted price or cost using a “more likely than not” standard. Commerce explained that this change aligns with the standard Commerce uses to analyze many facts and factors and accounts for difficulties in establishing a direct cause-and-effect relationship.4 Further, Commerce may now consider information, including documentation, that indicates that lower, rather than “considerably” lower, prices for significant inputs would likely result from certain governmental actions or inactions.5 These and similar changes effectively lower the bar for Commerce to determine that a PMS exists.
Third, Commerce added new subsections to § 351.416(f) that afford it increased flexibility to make (or decline to make) adjustments to its calculations when it determines a PMS exists. Specifically, Commerce added a new section on “imprecise quantification of the distortions,” allowing Commerce to use any “reasonable methodology” to adjust its calculations if precise quantification is not possible. Further, the revised regulations explicitly allow Commerce to not adjust its calculations if it determines that a PMS exists but that it would be inappropriate to revise the calculations. In choosing not to adjust, Commerce “may” consider whether the distortion is already sufficiently accounted for in the calculations, whether there is no reasonable methodology on the record to quantify the adjustment, and any other information on the record suggesting that an adjustment would be unreasonable.
Fourth, Commerce revised the example in § 351.416(g)(12) to reflect “nongovernmental entities” taking action that it concludes contributed to a cost distortion.6 Commerce similarly removed the phrase “state-owned enterprises” from other examples, explaining that Commerce’s examples are “focused not on the type of government entity, but on whether a government, government-controlled entity, or other public entity has taken actions, or not taken certain actions, that result in distorted costs of production.”7 These changes acknowledge that it is not just foreign governments but their instrumentalities as well that can provide a benefit.
Finally, in responding to comments, Commerce emphasized that no one challenged the assertion that such weak, ineffective, or nonexistent protections “result in lower direct costs of production that do not reflect indirect societal costs.”8 Commerce and petitioners may view this as a mandate to take an aggressive stance in how and when to argue that a PMS exists if, in their view, such protections are lacking. In addition, several comments linked the Proposed Rule to the Biden administration’s broader policies reflecting progressive social and climate-based policies, prompting Commerce to emphasize in the Final Rule that these changes are not meant to penalize or effect change in a foreign government’s policies, nor are they meant to be a subjective statement on the priorities or values of another country.9 Rather, Commerce’s “intent through these regulations is … to focus on one overarching analysis relevant to its calculations: whether the record reflects that certain prices or costs at issue were, more likely than not, distorted by identified weak, ineffective, or nonexistent protections.”10 Despite Commerce’s statements, the combination of an aggressive enforcement posture and the linkage with social issues might result in changes by foreign governments — or retaliation against U.S. companies.11
II. Commerce will now be able to investigate alleged transnational subsidies.
As explained in our prior update, Commerce announced its intention to remove the regulation that precludes it from countervailing transnational subsidies (i.e., 19 C.F.R. § 351.527).12 This change has now been codified, enabling Commerce to address suspected unfair practices related to subsidies allegedly provided by a government outside of its territory. However, Commerce did not add guidance or, indeed, any language about how it might address a transnational subsidy, leaving the door wide open for such challenges.
The lack of regulatory text might lead respondent governments to bring a challenge at the World Trade Organization (WTO), particularly with respect to the “financial contribution” and/or “specificity” requirements of a subsidy under the WTO’s Agreement on Subsidies and Countervailing Measures. The former is tied to “the territory of a Member,” and the latter is tied to “the jurisdiction of the granting authority,”13 which might lead trading partners to challenge the WTO consistency of countervailing transnational subsidies.
III. Changes from the Proposed Rule to the Final Rule reflect Commerce’s overarching intent to provide itself maximum flexibility in administering the new regulations.
As is apparent from the changes described above, Commerce seems to have been concerned with its ability to administer the new regulations as it sees fit. In other words, these and other changes not described herein appear to have been designed to provide Commerce maximum maneuverability. For example, by declining to include any language at all about transnational subsidies, Commerce avoided creating limitations it must then abide by, including with respect to geographic scope, how to view specificity, and what level of evidence would be required.
Commerce’s responses to comments about changes to the regulations regarding PMS also reflect this consideration. Specifically, in response to comments about how to measure the impact of weak, ineffective, or nonexistent protections, Commerce clarified that it would use economically comparable countries in making such assessments but noted the limitations of such comparisons, including different government experiences and the effects of other aspects of a potential surrogate country’s situation (i.e., widespread pollution, child slavery, and other issues).14 Put simply, Commerce acknowledged that it should use comparable countries but provided a reason to maintain discretion in doing so. In addition, Commerce declined to define or describe its expectations for what constitutes “weak” or “ineffective” protections, recognizing that different countries enforce protections differently and that such methods may still be strong and effective.15 However, the practical impact is that Commerce has avoided establishing expectations for how it will assess these terms — particularly at these early stages. Finally, Commerce confirmed that it views itself as having the statutory authority to examine and determine whether a PMS exists sua sponte,16 and that it does not believe the regulations need to specify this authority. Thus, we can expect to see Commerce raising this issue even if petitioners do not.
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Although it remains to be seen how and to what extent Commerce and petitioners will use these new tools, it is likely that these regulations will result in new investigations, allegations, and arguments in AD/CVD proceedings, which will require vigorous support or defense from domestic industries and foreign respondents. Consistent with recent history and the fact that many of these regulations were written to provide Commerce with flexibility and discretion, Commerce, petitioners, and respondents will all be learning as this area develops, creating opportunities and risks, including the risk of substantially increased AD/CVD rates in future proceedings.
We also expect that these new tools will face legal challenges, both in U.S. courts and before the WTO, because, as noted above and despite Commerce’s responses to the contrary, substantial questions arise as to the legality of these regulations under Commerce’s statutory authority and its obligations under international law.
1See Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws, 89 Fed. Reg. 20766 (Dep’t of Commerce March 25, 2024) (Final AD/CVD Regulations).
2See Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws, 88 Fed. Reg. 29850 (Dep’t of Commerce May 9, 2023) (Proposed AD/CVD Regulations).
3Final AD/CVD Regulations, 89 Fed. Reg. at 20792.
4Final AD/CVD Regulations, 89 Fed. Reg. at 20792.
5Final AD/CVD Regulations, 89 Fed. Reg. at 20793.
6Final AD/CVD Regulations, 89 Fed. Reg. at 20793-794.
7Final AD/CVD Regulations, 89 Fed. Reg. at 20794.
8Final AD/CVD Regulations, 89 Fed. Reg. at 20783.
9Final AD/CVD Regulations, 89 Fed. Reg. at 20803.
10Final AD/CVD Regulations, 89 Fed. Reg. at 20783-784.
11See Final AD/CVD Regulations, 89 Fed. Reg. at 20783-784 (noting that commenters expressed concerns that other countries would punish U.S. exporters for the same types of weak, ineffective, or nonexistent protections).
12Proposed AD/CVD Regulations, 88 Fed. Reg. at 29870.
13Agreement on Subsidies and Countervailing Measures, Arts. 1.1(a)(1) and 2.1.
14Final AD/CVD Regulations, 89 Fed. Reg. at 20788-789.
15Final AD/CVD Regulations, 89 Fed. Reg. at 20784-785.
16Final AD/CVD Regulations, 89 Fed. Reg. at 20796.
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