IMPACT OF NEW US TRADE LEGISLATIONS ON THE ANTIDUMPING AND COUNTERVAILING DUTY PROCEEDINGS AGAINST ITALIAN EXPORTERS

Dharmendra N. Choudhary

Recent amendments to US trade laws have potentially significant implications for Italian exports of goods to the USA. Specifically, the Trade Preferences Extension Act of June 2015 and Trade Facilitation and Trade Enforcement Act of February 2016, afford the US Department of Commerce (“Commerce”), International Trade Commission (“ITC”) and Customs and Border Protection (“Customs”) with a vast array of new tools that could be leveraged by these agencies to counter alleged dumping and subsidies. However, there is a concern that the two pieces of legislation, brought at the behest of the ultimate beneficiaries – US domestic manufacturing industry, could be used in a manner so as to unfairly impede the free and fair exports to the US from Italy. If that were to happen, it would adversely impact the Italian economy and would also be prejudicial to the interests of US consumers, who benefit from less costly imports and are at the mercy of the predatory prices that would otherwise be charged by the local producers.

According to US Census data for 2015, Italian exports of goods to the US totaled 44.00 billion dollars, while US exports to Italy aggregated about 16.25 billion dollars, resulting in an overall US trade deficit of 27.75 billion dollars. The US Census data for the previous fifteen years reveal similar trade deficits. Even so, in a US presidential election year, the over 27 billion dollar trade deficit is significant enough to be exploited by interested parties to file dumping and subsidy complaints against the Italian exporters.

A number of US Anti-dumping (“AD”) and Countervailing duty (“CVD”) proceedings are ongoing against Italian exporters. These actions, inter alia, cover a range of metal products, such as Stainless Steel Butt-Weld Pipe Fittings, Corrosion-Resistant Steel Products, Stainless Steel Sheet and Strip in Coils, Stainless Steel Bar, Brass Sheet and Strip, and consumer goods like Pressure Sensitive Plastic Tape, and Pasta.

In light of the new trade tools made available to various agencies with the sole objective to justify substantial AD/CVD margins, the outcome of the annual AD reviews are likely to contain severe results for the Italian exporters. It is, therefore, imperative that the relevant stakeholders in Italy and US be sensitized to the new developments in the two most significant trade remedy laws.
Dumping

In US AD proceedings, the allegation against exporters is that they are engaged in selling goods to the US market at a price that is lower than the fair market value (or, “normal value”) of goods, which causes or threatens to cause material injury to, or even materially retard the development of US domestic industries. In the case of market economy countries like Italy, the normal value of goods is typically the price at which the exporter sells the same or comparable goods in its own home market. Absent sales of comparable goods in its home market, normal value of goods is determined based on the exporter’s sale price to a third country market or the constructed value of the merchandise (i.e. on firm’s cost of production of comparable merchandise plus sales, general and administrative expenses and profits). The difference between a company’s U.S. sales price and the normal value is the basis for determining the dumping margin.
Subsidies

The CVD proceedings are aimed to counter the benefits received by exporters when foreign governments (federal, provincial or municipal) unfairly subsidize their industries that export to the US market and such subsidies result in material injury to the US industry.

While AD law focuses upon the pricing conduct of individual exporters, the focus in a CVD proceeding is upon the foreign government’s actions/policies in the grant of subsidy. This article discusses the impact of recent amendments to US AD and CVD laws on Italian exporters who are already facing or will face these investigations.

I. TRADE PREFERENCES EXTENSION ACT (JUNE 2015)

The Trade Preferences Extension Act of 2015 (“Trade Remedies Act”), which was enacted on June 29, 2015, contains several changes to U.S. AD and CVD laws impacting proceedings at the US Department of Commerce and the International Trade Commission . Some of these trade remedy amendments simply codify Commerce’s existing practice, while a few others have been included pursuant to vigorous and sustained lobbying efforts by the US industries. The amendments make it easier for US domestic industries to demonstrate material injury before the ITC and generally afford Commerce more discretion and leverage over certain key issues that are determinants of margins in AD/CVD cases.
Some of the key provisions are briefly summarized below.

A. Widened Ambit of a Particular Market Situation

As noted earlier, at the heart of an AD investigation lies a comparison between the price at which a product is sold in the United States (“export price”) and the price at which the product is sold in the home market (“normal value”). Commerce generally calculates normal value based on an exporter’s sales prices in the home market (i.e., country of manufacture and export). Prior to the amendment, an exporter’s home market sales prices could be disregarded generally only absent a “viable” home market (i.e., home market sales that constitute five percent or more of its sales to the United States), or where certain defined situations, called “particular market situations”, exist.

The US law does not identify these “particular market situations,” but several are set forth in the Statement of Administrative Action (“SAA”) accompanying the Uruguay Round Agreement Act (“URAA”) of 1994, by which the US government introduced several changes pursuant to the multi-national WTO agreement on trade issues including AD and CVD. As per the SAA, “particular market situations” include: (1) where a single sale in a foreign market constitutes five percent of sales to the United States; (2) where there are such extensive government controls over pricing in a foreign market that prices in that market cannot be considered competitively set; and (3) where there are differing patterns of demand in the United States and a foreign market. For example, if significant price changes are closely correlated with holidays, which occur at different times of the year in the two markets, the prices in the foreign market may not be suitable for comparison to prices to the United States. These instances are mere illustrations and it is fair to presume that Commerce has enough discretion to further expand the contours of “particular market situation”, so as to even encompass situations of general subsidies provided by the Italian government.

Given such a high degree of fluidity surrounding the concept of a “particular market situation”, the ramifications of its recent expansion could be staggering and a potential game changer for Italy, as follows.
First, the recent amendments confirm that Commerce retains the ability to reject home market sale prices, its default choice for normal value, by invoking a “particular market situation”.

Second, the amendment permits Commerce to reject a normal value based on the third country price, if the agency simply determines that a “particular market situation” as illustrated above in the home market exists. Prior to this amendment, a third country price could be rejected on this ground only if a “particular market situation” existed in such third country.

Third, the amendment expands the role of “particular market situation”, enabling Commerce to disregard not only sales prices of finished goods, but also costs of production in a country if “the cost of materials and fabrication or other processing of any kind does not accurately reflect the cost of production in the ordinary course of trade.” In order to effectuate its widened power, Commerce would need to examine broader economic considerations, including the Italian government’s role in allocating resources and granting subsidies on material inputs and other non-material inputs like energy, instead of focusing solely on the facts surrounding the sale of the merchandise under consideration.

As such, the of a “particular market situation” in the home country enables commerce to reject not only the home market sale price of merchandise under consideration but also two additional metrics of normal value – the third country sale price of merchandise under consideration and cost of production of such merchandise.

At this point, Commerce is yet to make a determination invoking the amended law regarding “particular market situation”. Even so, it can be fairly assumed that Commerce may use this provision more often on grounds of subsidy considerations. US domestic industries could be counted upon to allege grants of actionable subsidies by the Italian government to its exporters and argue that based on this “particular market situation” prevailing in Italy, Commerce must reject the home market sale prices of merchandise as well as the cost of inputs.

Consequently, once the agency makes a determination of a “particular market situation” in Italy, the agency could then determine the normal value of goods exported from Italy by resorting to the familiar “factors of production” methodology, hitherto limited to a non-market economy (“NME”) country like China. In other words, Commerce could determine normal value based on the price data from a surrogate country, i.e. a different market economy country, which could be situated in a different continent (e.g. Asia or Latin America) with a fundamentally different set of market practices and constraints.
It is, therefore, reasonable to expect that the widened ambit of “particular market situation” would exacerbate uncertainties regarding the final outcome of the US AD proceedings on goods exported from Italy. A prudent Italian exporter to US market would, accordingly, benefit by obtaining a prior estimate of AD margins by simulating his export transactions using NME “factors of production” methodology.

B. Mandatory Submission of Cost of Production Data

Under US law, Commerce can reject normal value based on home market or third country sale prices if such prices are below the cost of production of goods. However, a cost investigation inquiry by Commerce under prior law was discretionary. Prior to the amendments, unless Commerce initiated a cost of production investigation based upon petitioners’ allegations of sales below cost in the home market, the agency did not require an exporter to submit cost of production data in an AD investigation.

As a result of the amendment, Commerce is now mandated in all AD investigations and reviews to “request information necessary to calculate the constructed value and cost of production” to determine whether there are reasonable grounds to believe or suspect that the product was being sold at prices below the cost of production.

This change adds another unnecessary burden on the unwary exporters ensnared in US AD proceedings. Apart from responding to all other extensive, detailed and substantive questionnaires, exporters are now required to allocate additional resources to report extensive cost of production data for material and non-material factors of production.

C. Consequences of Alleged Failure to Cooperate in AD or CVD Proceedings

Changes have also been made with regard to the adverse inferences that Commerce can make upon an exporter’s failure to cooperate with a request for information in an AD/CVD proceeding.

The US AD/CVD law allows Commerce to draw an adverse inference when selecting among facts otherwise available against parties who fail to respond to requests for information or otherwise fail to participate in an AD or CVD proceeding. In the past, Commerce has assigned high “adverse facts available” (AFA) AD/CVD rates to unresponsive companies in order to deter noncompliance with its requests for information. Commerce’s broad discretion in selecting AFA rates in the past was, however, circumscribed by its legal obligation to “corroborate” the AFA rates it applied with the commercial reality of the non-cooperative respondent. When it did not US Courts often remanded its decisions and even overturned the punitive AFA rates it applied. The amendment nearly obliterates the corroboration requirement and generally grants Commerce greater discretion in selecting among available AFA rates.
First, if Commerce resorts to adverse inferences, it is not required to determine or make adjustments to AD/CVD rates based on assumptions about information that the interested party would have provided if they had complied with requests for information.

Second, the new law provides an exception to the corroboration requirement, stating that once Commerce has applied an AD/CVD rate in one segment of the proceeding, no corroboration is required in a separate segment of the same proceeding.

Third, for CVD cases, the law authorizes Commerce to use rates previously applied for the same or on similar subsidy program in the same country, or if there is no same or similar program, Commerce can use a rate for a subsidy program from any proceeding the agency finds is reasonable to use. For AD cases, Commerce may use any dumping margin found from any segment of the proceeding under the AD Order.

Also, Commerce may use the highest rate available under these circumstances. In addition, the new law states that for corroboration purposes, Commerce is not required to estimate what the rate would have been if a party had not failed to cooperate, or to demonstrate that the rate reflects commercial reality for the particular party.

Instances of alleged failure to cooperate are endemic in AD/CVD proceedings and may not always be a product of an exporter’s willful action. For instance, a toller who does jobwork for the exporter and who is not an interested party before Commerce may refuse to provide the necessary cost information to Commerce. In such a situation, Commerce could invoke AFA to its fullest extent and assign a punitive rate of duty to the exporter for being uncooperative. As such, exporters need to exercise a much higher degree of control of their manufacturing operations and finances with respect to goods produced and exported to the US market.

D. Definition of Material Injury

The first step in a US AD or CVD investigation is a preliminary determination by the ITC whether the affected US industry has been materially injured, or faces a threat of material injury, or its development has been materially retarded on account of the dumped or subsidized imports at issue. The new law amends the definition of “material injury” and the set of factors the ITC examines when evaluating any actual or potential material injury.
Specifically, pursuant to the amendment, the ITC is prohibited from concluding that there has been no injury “merely because that industry is profitable or because the performance of that industry has recently improved.” The amendment also expands the factors the ITC may examine such as the domestic industry’s ability to service debt. Likewise, the ITC is also empowered to examine several types of profits including “gross profits, operating profits, and net profits.”

These amendments will likely facilitate the domestic industry’s arguments relating to alleged material injury in AD/CVD injury investigations. In recent years, the Court of International Trade had been extra careful while parsing the Commission’s injury decisions for reasonableness, and had reversed the ITC’s findings in few affirmative cases, resulting in the revocation of the AD/CVD Order in question. These amendments will make it increasingly more difficult for the Court to do so.

Italian exporters cannot really do anything about this legislative change, but nevertheless, these are things that need to be considered in the future.

E. CommerceGrantedWideDiscretioninLimitingtheNumberofVoluntary Respondents

In US AD/CVD proceedings, Commerce determines individual AD/CVD rates for the individually examined respondents and, thereafter, assigns duty rates to all other respondents based on a weighted average of the respondents which are individually examined. Often, an individual exporter is interested in being individually examined in order to obtain its own AD or CVD rate, but the pre-amended statute permitted Commerce to limit the number of individually examined respondents if their number was “so large” that examining all of them would have been “unduly burdensome”. The Court has often remanded this issue to Commerce, directing the agency to consider one or more voluntary respondents where such respondents had timely submitted all of the questionnaire responses.

Under the law, as amended, the agency has been accorded wide discretion to reject consideration of voluntary respondents, based on an expansive and subjective finding that it would be “unduly burdensome”. It appears likely that going forward, the agency’s initial decision on this issue will never be disturbed by the Court.
II. TRADE FACILITATION AND TRADE ENFORCEMENT ACT (FEB. 2016)

Previously, the AD/CVD inquiry was almost solely within the province of Commerce, with Customs playing the role of ministerially implementing Commerce’s instructions.
The recently enacted Trade Facilitation and Trade Enforcement Act (“Customs

Enforcement Act”) was considered at the request of US domestic industries who claimed that Customs was not taking seriously their allegations of fraud, circumvention, etc., and who wanted to play a role in the Customs enforcement process.

The Customs Enforcement Act builds on the Trade Remedies Act and further fortifies enforcement of US antidumping and countervailing duty laws. The Customs Enforcement Act includes several provisions that are intended to help Customs effectively enforce US trade laws, with the sole aim of preventing alleged evasion of AD/CVD duties and creating a new enforcement division.

The new law, effective in late August, 2016, creates an entirely new mechanism for dealing with alleged evasion of duties on merchandise subject to an AD and/or CVD Order, imported into the USA by means of a “material and false” statement or “material” omission (i.e., failing to deposit the correct cash deposit upon entry). The new provisions do not require that an importer failed to act with reasonable care, i.e., if Customs decides that the correct amount of AD/CVD was not deposited (except perhaps by non-recurring clerical error), the concerned importer could be held liable for “evasion” of duties.

Pursuant to the new law, upon receipt of an allegation from the US domestic industries, Customs would initiate an investigation if the allegation “reasonably suggests” that evasion of AD/CVD duties is occurring. Following initiation, if Customs has a “reasonable suspicion” that evasion is taking place, the agency can suspend liquidation of entries or may require single entry bonds, or additional security, or the posting of cash deposits. Besides consulting Commerce, Customs can send out its own questionnaires, conduct on-site verifications, and apply adverse inferences for alleged failure to cooperate.

The new procedure does not address several areas of possible intersections and arguably concurrent jurisdictions of Commerce and Customs, such as when an allegation of evasion of AD duties is filed with Customs while a scope ruling request is pending with Commerce. From the perspective of Italian exporters, the new law not only adds yet another agency they have to deal with in AD/CVD matters, but also any conflict of jurisdiction between the two agencies could further exacerbate their situation.
(Dharmendra N. Choudhary is a Foreign Trade Counsel at the Washington D.C. office of Customs and International Trade Law firm, Grunfeld Desiderio Lebowitz Silverman and Klestadt LLP, which serves at the Chamber’s Advisor on Tariffs and Trade. Mr. Choudhary’s practice area is focused on defending Foreign Exporters in US Antidumping and Countervailing Duty cases.