On April 15, 2021, Senators Sherrod Brown, D-Ohio, and Rob Portman, R-Ohio, introduced S. 1187, the Eliminating Global Market Distortions to Protect American Jobs Act, available here. The introduction of this bill underscores Congress’s current focus on challenging China.1 While the proposed legislation would apply to trade remedy proceedings covering all countries, the aim of the bill is clear: to combat perceived unfair trade practices emanating from China. In his press release announcing the bill, Sen. Portman expressly stated that this “bill will strengthen our antidumping and countervailing duty laws to challenge China’s unfair trade practices…”2
The bill’s eye toward China is a clear response to certain U.S. domestic industries’ concerns about recent trends in trade remedy cases. For example, domestic steelmakers have complained about “new surges in imports of the same products from other countries not subject to the original trade remedy orders” after successfully seeking relief under trade remedy laws against China.3
The legislation proposes new or enhanced tools to deal with several alleged issues that have been linked to unfair trade practices from China. This update provides a summary of those proposed tools and concludes with a discussion of the potential impact of those tools on companies’ global supply chains and their potential conflict with U.S. obligations under World Trade Organization (WTO) rules.
Tool 1: Successive Investigations
There have been several instances where, after an antidumping duty (AD) and/or countervailing duty (CVD) order is imposed on a product from China, third countries begin exporting the same product to the United States to account for the void left by Chinese producers’ leaving the U.S. market. In such instances, the domestic industry has followed up with new AD/CVD petitions on the product exported from those third countries.4 The domestic industries have argued that the subsequent rise in imports from third countries is a result of Chinese producers’ and exporters’ moving production to those third countries as a way to evade duties.
The proposed legislation seeks to establish a process to address this “whack-a-mole” issue by authorizing the Department of Commerce (DOC) and the International Trade Commission (ITC) to conduct “successive investigations.” Successive investigations would be those initiated subsequent to a concurrent or recently concluded (within two years) investigation of the same or similar imports from a different country. In a successive investigation, the ITC would be obligated to account for and include in the record the prior injury determinations and to assess certain findings made in regard to the condition and performance of the domestic industry in the concurrent or previously concluded investigations. In making its determination, the ITC would be prevented from making a negative injury finding if improvements in the domestic industry are a result of a previously concluded investigation. To ensure that successive investigations would be concluded swiftly, the proposed legislation limits the availability of time extensions in investigations initiated under this title.
Tool 2: Countervailing Cross-Border Subsidies
In response to China’s Belt and Road Initiative, the proposed legislation also includes provisions to address cross-border subsidies, that is, where a foreign government subsidizes its own manufacturers in third-country markets. In particular, the aim of this tool is to confront subsidies provided by the Chinese government to benefit Chinese companies operating outside of China. To this end, the proposed legislation would amend the definition of countervailable subsidy to include subsidies provided by governments outside of the country of export. The revised definition would allow the DOC to include these subsidies when calculating a company’s overall CVD rate.
Tool 3: Reinforcement of the DOC’s Ability to Countervail Benefits Conferred by Currency Undervaluation
In February 2020, the DOC implemented new regulations that outlined its methodology to determine whether a country’s currency is undervalued and how it would calculate the CVD associated with any benefit received from an undervalued currency. The DOC’s regulations were in response to many years of allegations related to China’s currency-related policies as well as those of other countries.
The new proposed legislation crystalizes the DOC’s authority to countervail any benefit received from undervalued currency and requires that the DOC evaluate any claims of currency undervaluation where the allegations satisfy certain specified criteria under existing CVD law. It also provides some guidance on the methodology the DOC may use to make its determination but still leaves the DOC with abundant discretion.
These provisions may, in part, be a reaction to the DOC’s recent hesitancy in addressing alleged currency undervaluation. In the Twist Ties from China CVD investigation, the DOC, under the new Biden administration, deferred making a final determination with respect to the currency undervaluation allegation until the first administrative review, citing significant time constraints and the complexity of the allegation.5 This was a shift from two affirmative preliminary determinations DOC made during the Trump administration, as discussed by Sidley here.
Tool 4: Modifications to the Dumping Calculation
In addition to providing these specific tools in CVD proceedings, the proposed legislation modifies the DOC’s dumping calculation methodologies in AD proceedings. These proposals include changes to the “transactions disregarded” rule, the definition of “ordinary course of trade,” the application of the duty drawback adjustments, and determinations related to “particular market situations.”
When calculating the cost of production, currently the DOC may disregard affiliated party transactions that do not reflect the value of merchandise in the market under consideration. The proposed legislation would expand the DOC’s authority to disregard transactions with any person (affiliated or unaffiliated) (i) in a nonmarket economy (ii) that has been determined to have received subsidies, (iii) that has been determined to have sold the input involved in the transaction for less than fair market value into the exporting country or any other country, or (iv) that is a government or state-owned entity or a group of government or state-owned entities that account for “a meaningful share of the production of the input.”
Ordinary Course of Trade
The proposed legislation would also authorize the DOC to ignore sales of small quantities when determining the normal value. This provision is introduced as an effort to prevent strategic sales that may mask alleged dumping.
In addition, the proposed legislation would also affect the calculation of the export and constructed export price by limiting the application of duty drawback provisions. Under current law, the DOC must increase the export or constructed export price by the amount of any import duties imposed by the country of exportation that have been rebated or not collected by reason of exportation to the United States. Under the proposed legislation, the DOC may make this adjustment only when the duty is included in the cost of production or constructed value.
Particular Market Situation
Finally, the proposed legislation would also expand the DOC’s ability to make a “particular market situation” finding, which is significant given such a finding allows the DOC to use a constructed value to calculate dumping margins. Current law allows the DOC to make an affirmative particular market situation determination only if it finds that the exporting country provides subsidies that would affect the cost of production. The proposed legislation would allow the DOC to address cross-border subsidies for inputs, authorizing the DOC to make an affirmative particular market situation determination if the inputs used to produce the foreign merchandise are subsidized by a country other than the exporting country.
Tool 5: A Formalized Circumvention Process
Over the past few years, the DOC has increasingly relied on circumvention proceedings to address allegations of Chinese producers’ moving production of downstream processes to third countries not covered by AD/CVD orders to avoid paying duties. The statute, however, does not provide a defined process for such proceedings. The proposed legislation would amend the statute to outline a formalized process with set deadlines for initiation and determinations in such proceedings. Additionally, the proposed legislation would provide the DOC with express authority to make circumvention determinations on a countrywide basis and to do so as the default unless the DOC determines that application to particular producers or exporters is more appropriate.
Tool 6: New Asset Requirements for Nonresident Importers and Import Certifications
The bill addresses a historical concern related to nonresident importers that import merchandise subject to an AD/CVD order and dissolve or disappear immediately after importation to evade duty liabilities (these importers are sometimes referred to as fly-by-night importers) as well as other duty circumvention concerns. As detailed below, new provisions under the proposed legislation attempt to address these issues by requiring nonresident importers to maintain assets in the United States sufficient to pay all potential duties applied to the merchandise and allow the DOC to require that an importer maintain certification(s) regarding the inapplicability of AD/CVD duties. The importer would also be required to present the certification(s) to U.S. Customs and Border Protection (CBP) on demand.
Subject to limited exceptions,6 the proposed nonresident importer provisions require nonresident importers to maintain assets in the United States sufficient to pay all duties, taxes, and fees that may be due for merchandise of that type from any country, regardless of the rate of duty declared by the importer as applicable. This is in stark contrast to current law, which does not require a nonresident importer to maintain any assets in the United States. The proposal also enhances bonding requirements to an amount equal to the total potential duties, taxes, and fees determined to apply to merchandise of that type. To ensure compliance with the asset requirements, the proposal allows for penalties for a failure to maintain sufficient assets, separate and apart from penalties related to any potential violation of other customs laws. Significantly, this change would affect all nonresident importers, not just importers of products potentially subject o AD/CVD.
The new provisions would also enable DOC to require an importer, resident or otherwise, to maintain, and provide to CBP upon request, a certification that imported articles are not subject to an AD or CVD order. CBP could enforce this requirement under new authority to suspend liquidation and require posting of a cash deposit equal to potential liabilities upon failure to produce such a certificate or in the event of false, misleading, or fraudulent statements in the certification. The proposal also affirms the applicability of 18 U.S.C. § 1001 (related to false statements to the government) to false, misleading, or fraudulent statements in such a certification.
The bill already has support from a variety of stakeholders, including the sponsoring Republican and Democratic senators from Ohio and interested parties representing key U.S. domestic industries that are frequent users of the AD/CVD law.7 Moreover, because of its potential impact on trade with China, it could be bundled with a larger legislative package countering China that Sen. Charles Schumer, D-N.Y., is coordinating.8
If the proposed bill is enacted in its current form and applied to all exporting nations, the impact on global supply chains could be significant. Broadened AD/CVD laws would require producers, exporters, and importers from all countries to consider their global footprint and to evaluate whether the structure of their supply chains could subject them to additional AD/CVD liabilities resulting from issues such as third-country subsidies.
Moreover, questions remain as to the consistency of these new tools with the United States’ WTO obligations. For example:
- Cross-border subsidies and currency undervaluation may not be countervailable under the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
- Changes to the definition of “ordinary course of trade,” the “transactions disregarded” rule, or basing a “particular market situation” on third-country subsidies may run afoul of the Agreement on Implementation of Article VI of the GATT 1994 (Anti-Dumping Agreement).
- The requirement to take into account in a successive investigation injury findings made in concurrent or recently completed investigations may violate the evidentiary standards for injury investigations under the SCM Agreement and Anti-Dumping Agreement.
Sidley attorneys can assist with congressional engagement to help shape the scope of this bill to effect corporate objectives. We are also available to help evaluate the effect on companies’ global supply chains, as well as the customs and WTO implications of any final bill enacted into law.
1 See, e.g., Strategic Competition Act, S. 1169, 117th Cong. § 4 (2021) (“The United States global leadership role is sustained and its political system and major foundations of national power are postured for long-term political, economic, technological, and military competition with the PRC”).
2 Press Release, Portman, Brown Introduce Legislation to Strengthen Trade Remedy Laws, Protect American Workers (Apr. 16, 2021).
3 Letter from AISI to Senators Brown and Portman (April 15, 2021).
4See, e.g., Certain Passenger Vehicle and Light Truck Tires from the People’s Republic of China: Amended Final Affirmative Antidumping Duty Determination and Antidumping Duty Order; and Amended Final Affirmative Countervailing Duty Determination and Countervailing Duty Order, 80 Fed. Reg. 47902 (Aug. 10, 2015) and Passenger Vehicle and Light Truck Tires From Korea, Taiwan, Thailand, and Vietnam: Institution of Antidumping and Countervailing Duty Investigations and Scheduling of Preliminary Phase Investigations, 85 Fed. Reg. 29972 (May 19, 2020).
5 Twist Ties From the People’s Republic of China: Final Affirmative Countervailing Duty Determination, 86 Fed. Reg. 10542 (Feb. 22, 2021) and accompanying Issues and Decision Memorandum at Comment 1.
6 The bill creates exceptions from this requirement for (1) nonresident importers that are Tier 2 or Tier 3 Customs-Trade Partnership Against Terrorism participants and (2) nonresident importers that satisfy CBP that CBP would have the same ability to collect all potentially duties that may be owned by it as it would against a resident importer.
7 See, e.g., Press Release, Portman, Brown Introduce Legislation to Strengthen Trade Remedy Laws, Protect American Workers (Apr. 16, 2021).
8 Patricia Zengerle & Michael Martina, U.S. lawmakers intensify bipartisan efforts to counter China, Reuters (Apr. 22, 2021).
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