Scott Lincicome points to the new CVD-NME legislation, as well as a summary, that has been in the news today. In this post, I'm going to talk briefly about how the legislation deals with the "double remedies" issue, in relation to the Appellate Body's findings in DS379. But don't get too excited -- I'm not sure I have any great insights about how this legislation would fare if (when?) challenged at the WTO.
Recall that the Appellate Body found as follows (from our DSC; the full AB report is here):
... The [SCM Agreement] Article 19.3 obligation, it explained, "encompasses a requirement to conduct a sufficiently diligent 'investigation' into, and solicitation of, relevant facts, and to base its determination on positive evidence in the record." In this regard, it recalled its finding above that, "among the factors to be taken into account by an investigating authority, in establishing the 'appropriate' amount of countervailing duty to be imposed, is evidence of whether and to what degree the same subsidies are being offset twice when anti-dumping and countervailing duties are simultaneously imposed on the same imported products." Here, it noted, the DOC "made no attempt to establish whether or to what degree it would offset the same subsidies twice by imposing anti-dumping duties calculated under its NME methodology, concurrently with countervailing duties." That is, the DOC "did not initiate any examination of whether double remedies would arise in the four investigations at issue and refused outright to afford any consideration to the issue or to the submissions pertaining to the issue that were presented to it." (Paras. 601-604)
According to the Appellate Body, "by declining to address China's claims concerning double remedies in the four countervailing duty investigations at issue," the DOC "failed to fulfil its obligation to determine the 'appropriate' amount of countervailing duties within the meaning of Article 19.3." On this basis, the Appellate Body concluded that "in the circumstances of the four sets of anti-dumping and countervailing duty investigations at issue," by virtue of the DOC's imposition of anti-dumping duties calculated on the basis of an NME methodology, concurrently with the imposition of countervailing duties on the same products, without having assessed whether double remedies arose from such concurrent duties, the United States acted inconsistently with Article 19.3. (Paras. 605-606)
Basically, the DOC erred by not even addressing the double remedies issue that was before it.
The proposed legislation deals with this issue in a section entitled "Adjustment of Antidumping Duty in Certain Proceedings Relating to Imports from Non-Market Economy Countries":
(1) IN GENERAL.—If the administering authority determines, with respect to a class or kind of merchandise from a nonmarket economy country for which an antidumping duty is determined using normal value pursuant to section 773(c), that—
(A) pursuant to section 701(a)(1), a countervailable subsidy (other than an export subsidy referred to in section 772(c)(1)(C)) has been provided with respect to the class or kind of merchandise,
(B) such countervailable subsidy has been demonstrated to have reduced the average price of imports of the class or kind of merchandise during the relevant period, and
(C) the administering authority can reasonably estimate the extent to which the countervailable subsidy referred to in subparagraph (B), in combination with the use of normal value determined pursuant to section 773(c), has increased the weighted average dumping margin for the class or kind of merchandise, the administering authority shall, except as provided in paragraph (2), reduce the antidumping duty by the amount of the increase in the weighted average dumping margin estimated by the administering authority under subparagraph (C).
In a nutshell, an adjustment to antidumping duties, so as to avoid the double remedy problem, will be made where the subsidy reduces the price of imports, in a way that increases the dumping margins. Here's an explanation from the legislation summary:
Legislation addresses an adverse WTO finding on “double remedies”
Last year, the WTO Appellate Body found that there may be a “double remedy” in situations where countervailing duties are applied to NME exports at the same time that antidumping duties, calculated using the so-called “surrogate value” methodology, are applied to the exports. This legislation provides for Commerce to adjust antidumping duties to address any possible double remedy in these situations. Specifically, if a foreign exporter in a dumping case were able to demonstrate that there was an increase to its export prices due to a countervailed domestic subsidy and the use of the surrogate value methodology, Commerce would determine whether it could make a reasonable estimate of the extent of the increase to the dumping margin, and if so, make a corresponding reduction to the dumping margin.
Let me highlight two important points. First, it has to be "demonstrated" that prices have been reduced, and it is the respondents who have to demonstrate this. That could be difficult. Second, DOC must be able to "reasonably estimate" the extent to which these lower prices have led to higher margins. It's not clear how they will do this. What if DOC can't make this estimate? As Scott puts it on these same issues:
This raises two obvious problems:
- First, it could be impossible for a foreign exporter to prove that a tax break (for example) it received has affected its US import prices. (Seriously, how on earth does a big manufacturing company with tons of costs and revenues prove that a little tax break affected import prices?) And if this burden is found to be unreasonable, it might be illegal;
- Second, as noted above, Commerce has repeatedly stated that it has no idea how to "reasonably estimate the extent to which the countervailable subsidy... has increased the weighted average duty margin." And even if Commerce does figure something out, nobody has any idea whether the WTO or the courts would find Commerce's methodology to be legal.
With so much uncertainty about how this will all work, an "as applied" challenge may be difficult. We may have to wait for DOC to implement (assuming the bill passes, of course).
But putting that aside, does the legislation address the Appellate Body's concerns? Well, the Appellate Body didn't tell us all that much in this regard. Here's what we said in our DSC comment about the AB's ruling:
What is not clear at this point is exactly how detailed an analysis the Appellate Body expects, and what its components should be. For example, do export prices need to be related to the subsidies at issue, to see how much, if at all, prices were lowered due to the subsidies? Clearly, some type of examination of the issue is required. But what exactly is required may only be known after a couple rounds of trying to come up with a test, and then having it challenged in WTO dispute settlement.
Of course, before the issue goes to the Appellate Body, it will be heard by a panel. Here's what the DS379 panel had to say about double remedies (from our DSC summary):
The Panel further stated that "conceptually, the dumping margin calculated under an NME methodology – i.e., the difference between the constructed normal value and the export price – reflects not only price discrimination by the investigated producer between the domestic and export markets ('dumping'), but also, in addition, the economic distortions that affect the producer's costs of production." "Specific domestic subsidies granted to the producer of the good in question," it said, "are one of these economic distortions that are 'captured' in the NME dumping margin calculation." Thus, "the dumping margin calculated under an NME methodology generally is higher than would be the case otherwise because it results from a comparison of the export price to market-determined, and hence unsubsidized, costs of production, rather than to the producer's actual, subsidized (or distorted) costs of production." According to the Panel, "[t]o the extent that part of the dumping margin found to exist resulted from subsidies provided in respect of the exported good, the anti-dumping duties calculated under an NME methodology will remedy both dumping and subsidization." In this sense, the Panel said that "if countervailing duties are simultaneously applied to imports of the same good, the subsidy is likely to be 'offset' more than once, i.e., once through the anti-dumping duty, and again at least partially through the countervailing duty." Therefore, the Panel considered that "the concurrent imposition of anti-dumping duties calculated under an NME methodology and of countervailing duties creates the potential for imposition of a 'double remedy.'" (Paras. 14.69-70)
Thus, the panel saw "potential" for a "double remedy." However, it's not clear what this panel would say on the question of whether the proposed statute eliminates that "potential."
This all feels like we are still in the early rounds of a long fight.
