Leibowitz: New Commerce Rules on Antidumping—Game Changer?

In a mild surprise, the Biden administration, which has been busy countermanding a number of Trump-era regulatory changes, adopted the proposed regulations on antidumping almost without exception. Jeffrey Kessler, the Assistant Secretary of Commerce overseeing antidumping cases, expressed his pleasant surprise that the proposed regulations were put in place by Biden’s Secretary of Commerce, Gina Raimondo.

The regulations take up 85 pages in the Federal Register; therefore, a detailed analysis is not in the cards for this weekly column. However, some general conclusions are possible.

The antidumping laws are intended to protect domestic industries that complain about the prices of imports being too low. In my experience, Commerce nearly always finds dumping. Advocates for petitioners in these cases have tried (and in many cases succeeded) in painting traders or foreign suppliers as trade cheaters breaking internationally agreed rules. This is not true; indeed, “dumping” does not violate international trade rules at all. But countries that wish to protect domestic industries are permitted, if they desire, to impose additional duties to protect complaining industries.

The United States, essentially alone among all countries that employ antidumping duties (there are about 70 countries that have these laws), does not impose duties in the customary way, by taxing imports at the time of Customs entry. Instead the U.S. imposes a requirement to post deposits of estimated antidumping duties at the time of entry. Then, in subsequent “administrative reviews,” Commerce will determine whether the cash deposits were higher or lower than they should have been. Traders and importers are thus exposed to additional duty charges that can be imposed long after the goods have been sold. The result is that traders are driven out of the market by the fear of ruinous additional duties. Trade dries up.

Importers that do their homework can maintain their existence in this dangerous market. They need to pay careful attention to the ability of foreign suppliers to go through the expensive and grueling administrative review procedure. If the foreign suppliers can go through administrative reviews successfully, they can produce duty refunds for the importers.

The new Commerce regulations provide additional tools to increase the risks to importers of antidumping duties. Here’s how:

“Circumvention” of antidumping orders through processing goods in countries that are not covered by existing orders, or changing the goods to remove them from the “scope” of the orders can be remedied under U.S. law by declaring that the processing adds only “small” value. The new rules don’t change these definitions—but they permit Commerce to apply the “circumvention” findings to more imports than was previously permitted, increasing the risk of ruinous duties that could put importers out of business.

The same increased risk is present in “scope review” cases that are closely related to circumvention cases. “Scope” refers to the description of products and countries that are covered by particular cases. If the coverage is in doubt, parties can request Commerce to rule on whether products are covered. Commerce usually finds in favor of the domestic industry in these cases.

Another area where Commerce increased risks to importers is in “new shipper” reviews. The rules are complex, but briefly, companies that have not shipped to the U.S. during the pendency of an antidumping investigation may request a review of their shipments after the case has been determined. A “new shipper review” is an expedited determination of the antidumping duty deposit rate for a new market participant.

Commerce has made it hard for new shipper reviews to succeed by restricting these reviews to so-called “bona fide sales.” The new rules toughen those rules further.

In summary, the new rules put significantly greater burdens on importers and foreign suppliers of products subject to antidumping procedures. The new rules build on previous practices, so there are few new requirements. They are tougher but not new.

Antidumping rules have been around for a long time (the first antidumping law in the world was introduced in 1904 by Canada, which felt threatened by exports of U.S.-produced steel). These rules are exceptions to the generally applicable rules of trade formulated by the World Trade Organization and its predecessor, the General Agreement on Tariffs and Trade (GATT).

The standards applied by antidumping rules are themselves economically suspect. For example, products that are sold in the “home market” at below fully allocated average cost of production could be subject to antidumping duties; but economists will tell you that selling below the average cost of production is pro-competitive as long it is not below the marginal cost of production (the cost of the last unit). The practice of “zeroing,” or imposing antidumping duties on any sales below “normal value” (home market selling prices or the average cost of production) without offsetting sales above normal value, has been found to violate WTO rules. But the U.S. insists on bringing this discredited practice back in many cases, further burdening international commerce.

There are many other aspects of antidumping law and procedure that increase its protective effect, harming consumers (both individual and industrial) and reducing the economic benefits of trade. The debate over these issues continues—but the domestic petitioners have the upper hand in Washington, DC.

Now we have several other statutes at play, all increasing burdens on international commerce. Antidumping, countervailing duties, safeguards, Section 232, and Buy American laws affecting government procurement all channel trade into narrower lanes.

The benefits of trade for all Americans (and indeed all humans) tend to get lost in all this. Trade means increased competition for all companies. When everyone must compete, everyone must continually improve and serve their customers better, or lose out to someone else who will. Over the last 40 years, as columnist George Will reported today, increased international commerce has reduced extreme poverty around the world from 60% of the global population after World War II to 10% today. It has permitted huge economic growth with minimal inflation and has raised standards of living substantially.

Antidumping law affects a small part of global commerce, but those parts that it does affect don’t do as well as they otherwise might. These new rules may nudge the system in a more protectionist direction.

 Lewis Leibowitz

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