The Biden Administration Defers Countervailable Subsidy Determination Related to China’s Alleged Undervalued Currency
On February 4, 2020, the U.S. Department of Commerce (Commerce) published a final rule that, in part, authorized Commerce to apply countervailing duties based on any benefit a foreign exporter or producer may receive from undervalued currency.1 Sidley’s prior update with details on this final rule is available here. Commerce’s new tool related to undervalued currency provides broad authority with potentially significant effects. In particular, if Commerce determines that a specific country’s currency is undervalued, then it effectively has determined that all products produced and/or exported from that country receive some amount of subsidies, potentially opening the floodgates to countless countervailing duty petitions on a wide variety of products exported from that country to the United States.
Commerce has had the opportunity to apply this new rule in two recent countervailing duty investigations: (1) Passenger Vehicle and Light Truck Tires from Vietnam2 and (2) Twist Ties From the People’s Republic of China.3 In both instances, Commerce preliminary determined that the currency of the relevant country was undervalued and that the undervalued currency benefited the individually investigated respondents. Both preliminary determinations were published under the previous administration.
Shortly after the Biden administration took office, Commerce was tasked with making a final determination in the Twist Ties From the People’s Republic of China countervailing duty investigation.4 In its final determination, Commerce effectively hit the pause button. It stated that the issue was complicated and required additional time for consideration.5 As a result, it did not make any findings with regard to the alleged currency undervaluation and stated that it would consider the issue again in a future administrative review.
Commerce’s decision to punt on making a final determination with regard to the currency undervaluation is not necessarily unusual. Commerce has deferred resolving complicated questions presented during investigations on many occasions. However, the circumstances related to its decision to punt on this issue in this investigation appear unusual for a couple of reasons.
First, as noted above, Commerce previously made affirmative preliminary determinations with respect to currency undervaluation, and nothing on the record changed between the preliminary determination and final determination. In prior cases, when Commerce punted on a question in an investigation, typically it either has not made any determinations in the preliminary phase or, if it has, it deferred making a final determination because (i) the existence and use of the program was not alleged until sometime after the initiation of the investigation and/or (ii) Commerce received additional factual information related to the program shortly before or after the preliminary determination that required additional time to review. Here, Commerce made a preliminary determination, the program was alleged prior to the initiation of the investigation, and Commerce did not receive any additional factual information shortly before or after the preliminary determination. Commerce does not explain why it was able to make a preliminary determination but cannot do so for the final determination. Nor does Commerce state what additional information it may need to fully analyze the issue so that it could make a final determination. It simply relies on the argument that it faces significant time constraints and the issue is complex, and therefore it requires more time to consider the issue.
Second, in this investigation, Commerce applied total adverse facts available because it found that the mandatory respondent failed to act to the best of its ability. When Commerce applies total adverse fact available, it may apply adverse inferences and ignore record evidence. It is therefore unusual that Commerce still attempted to resolve the issue related to currency undervaluation despite its authority to apply an adverse inference and make an affirmative finding. Commerce attempts to support this position by claiming it has deferred making a final determination for a different subsidy program in one previous investigation — Silicon Metal from Kazakhstan — despite having applied adverse facts available in the preliminary determination.6 However, in Silicon Metal from Kazakhstan, the program at issue was not alleged until more than three months after Commerce initiated the investigation, and Commerce did not issue and receive responses to supplemental questionnaires related to the program until a month after the preliminary determination.7 Therefore, the reliance on Silicon Metal from Kazakhstan as similar past practice seems misplaced.
Instead, it seems more likely that Commerce deferred its decision on this program for political reasons. As noted, the Biden administration only recently took office, and one of its most strategic policy agendas is that toward China. A finding that China’s currency is undervalued, and therefore qualifies as a countervailable subsidy, would be a significant determination with potentially substantial effects. The administration may desire more time to consider these effects and to use this as a tool for future trade negotiations. There are several other ongoing Chinese countervailing duty investigations for which the administration will have the opportunity to opine on this issue in the near future.
1 Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings, 85 Fed. Reg. 6031 (Dep’t of Commerce Feb. 04, 2020).
2 Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination, 85 Fed. Reg. 71607 (Dep’t of Commerce Nov. 10, 2020).
3 Twist Ties From the People’s Republic of China: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination, 85 Fed. Reg. 77167 (Dep’t of Commerce Dec. 1, 2020).
4 Twist Ties From the People’s Republic of China: Final Affirmative Countervailing Duty Determination, 86 Fed. Reg. 10542 (Dep’t of Commerce Feb. 22, 2021) and accompanying Issues and Decision Memorandum (“Twist Ties from China IDM”).
5 “Twist Ties from China IDM” at Comment 1.
6 Silicon Metal from the Republic of Kazakhstan: Final Affirmative Countervailing Duty Determination, 83 Fed. Reg. 9831 (Dep’t of Commerce Mar. 8, 2018) and accompanying Issues and Decision Memorandum at Comment 6.
7 See ID