Leibowitz on Trade: Into the Weeds on New AD/CVD Rules

Antidumping and countervailing duty laws impose duties on imports of steel and many other covered products. The United States’ versions of these laws are more restrictive than most other countries. About 60 countries around the world have these laws. The countries that do not generally need to import most of what their people consume. In steel, for example, about 40 countries produce nearly all the steel made in the world. The United States currently ranks fourth in the world behind China, India and Indonesia and just ahead of Russia and South Korea.

The U.S. system, virtually unique in the world, does not impose these duties on imports at the same time that regular duties are imposed. Instead, the U.S. law requires that estimated antidumping and countervailing duties be paid, subject to revision (up or down) after a review of the individual shipments. Almost all other countries charge final duties at the time of importation, so that importers know what they are paying. In the U.S., importers do not know what they will finally pay.

The Commerce Department has announced significant proposed revisions to its regulations governing antidumping and countervailing duty cases. These proposed changes will affect importers and their customers more seriously than before, mostly by looking back at imports and potentially charging them with antidumping and countervailing duties they may have been unaware of. Domestic producers of products that are or may be subject to these cases, as well as importers and domestic consumers of such products, should monitor these proposed regulations. The comment deadline is Sept. 14.

Commerce cited three kinds of antidumping and countervailing duty procedures that could have the most important changes for consumers and importers:

First, “new shipper reviews.”  Commerce investigates exporters of subject merchandise covered by an antidumping or countervailing duty order that are “new shippers,” meaning they did not export specific products during the initial investigations. In the 1990s, the WTO agreements were changed to require countries to give an opportunity to “new shippers” to establish their own antidumping and countervailing duty rates.

Commerce believes that “new shippers” have abused this process and that it should be tightened up. A new shipper must actually sell a product in the United States after the case has moved from the investigation to the review stage. These sales must be “bona fide,” meaning they must be on terms and at prices that reflect market realities. The main abuse they describe is that sales are not “bona fide” by the new exporters. These shippers can arrange sales to U.S. customers that do not reflect market realities and can lead to low- or zero-margin sales, allowing these new shippers to obtain market share by escaping the requirement to post cash deposits of estimated duties. These new rules, if finally adopted, would likely lead to fewer sales that the Commerce Department considers “bona fide.”

Second, Commerce proposes significant changes in the process for rulings on “scope” of antidumping and countervailing duty orders. All antidumping and countervailing duty orders cover specified merchandise described in the orders. Frequently, questions arise whether specific products are within the “scope” of these orders. The Commerce Department evaluates these questions. Almost always Commerce determines that products are within the scope of the order.  Importers and their customers are therefore reluctant to ask the Commerce Department to rule on scope issues; the perception is that Commerce wants to include all products within the scope if they possibly can.

The changes Commerce is proposing would increase risks on importers regarding the inclusion of products within the scope of orders. Mainly, Commerce proposes to change scope rulings to apply to Customs entries that remain “unliquidated” (i.e., still open to decision) when determinations are made. This is a change from the current rule, which generally applies the scope ruling only to entries made on or after the scope inquiry was first initiated.

Third, Commerce wants to change the procedures regarding “circumvention.” The circumvention concept, which is related to the scope issue, evaluates whether “minor” changes to a product that removes a product from the scope, or changes the country of origin of the products, are likely to dilute the effect of the antidumping or countervailing duty order.

As with scope determinations, the proposed circumvention changes would expand the Customs entries that are subject to a circumvention determination. Instead of limiting the application of a finding to entries that were after the initiation of the circumvention inquiry, they will apply to all unliquidated entries, putting importers at greater risk of potentially ruinous duties retroactively.

The Commerce Department is often suspected of taking the domestic producers’ side on these issues. The proposed regulations published on Thursday reinforce that feeling, placing the interests of importers and consumers clearly behind domestic producers on these issues. While there are political and economic reasons for this preference, the new proposed rules reinforce the belief that Commerce is not interested in the welfare of domestic consumers or traders. 

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