Leibowitz on Trade: AD/CVD and Punitive Duties Against the Innocent

The basic policy choices for handling these matters have been debated for decades. The current structure of the law, which dates from 1979, leans heavily toward protecting domestic producers and heavily against accurately measuring the true impact of selling at below fair market prices (antidumping) and benefiting from foreign government subsidies (countervailing duties).

A recent Commerce Department decision smacking exporters of quartz from India (quartz countertops are frequently used in modern kitchens and most are imports) illustrates the protectionist choices of government regulators. This example applies to many other cases—but this one found its way to the editorial pages of the Wall Street Journal, one of very few instances of the abuses that have actually made it into the public consciousness.

India is by far the leading exporter of quartz for countertops to the US. When imports increase, domestic trade remedy petitions are a frequent result. China was once the leading exporter to the US, but an antidumping petition filed in 2017 established prohibitive dumping margins (341% for most exporters) and imports from China slowed to a trickle, down over 90% from a 2018 high. India picked up much of the slack.

The India case, filed in 2019, led to modest antidumping margins by comparison—about 2.5% and 5%, respectively, for the two largest exporters from India. All other exporters, which were not individually investigated, received margins of 3.19%, a weighted average of the two companies separately investigated. The petitioner in that case wanted more.

A brief digression—antidumping and countervailing duties are assessed by US Customs on a retroactive basis. The “margins” are deposits of estimated duties, but not the finally assessed duties. In other words, duties on imports are calculated long after the imports come into our country. Of the dozens of countries that administer trade remedy proceedings, only the United States imposes duties retroactively. All other countries with AD/CVD laws calculate antidumping and subsidy margins and impose duties that are set before the imports come in.

One more digression—because of the calculation of duties owed on a retrospective basis, the US Commerce Department conducts an annual “administrative review” of shipments of companies on which a review is requested. The exporter or the domestic producers can request a review of anyone with a simple one-page letter. This letter initiates a review of the shipments during the previous period and calculation of duties that might be lower than the initial margins, which are only deposits of estimated duties, or might be higher—much higher.

Exporters are required to provide reams of highly sensitive information so that Commerce can calculate the duties. The information includes home market selling prices and the cost of production as well as sales to US buyers. If the normal value exceeds the US price, the dumping margin is the difference. In a review, the weighted average margin sets the duty deposit rate for future imports, as well as the actual duties imposed for past imports.

The complexity and the rigid time limits have led to a high-stakes game in trade remedy cases. The exporters provide the reams of data, while the US petitioners routinely argue that the data are inaccurate or incomplete or untimely. The petitioners nearly always urge that Commerce reject the proffered data and instead resort to “adverse facts available,” usually data that results in huge margins that imports make imports all but impossible. Lawyers and consultants for the petitioners pick apart the data and make arguments about its inaccuracy. The domestic companies themselves (and their employees) are barred from seeing it because of its confidential nature.

In the India case, only the two largest Indian exporters were selected for the administrative review, just like the original 2019 investigation. One exporter submitted its data on time and accurately and received a zero margin.

The other exporter, due to a mistaken belief that its information was due at 5 p.m. (the customary time deadline in these cases) rather than 10 a.m. on the due date, missed the deadline by five hours. Commerce rejected the proffered information in its entirety. Instead of a modest antidumping margin, Commerce used the information from the domestic producer’s antidumping petition in 2019 and gave the late respondent a margin of more than 300 %. All other exporters were given a margin of 161%, halfway between zero and more than 300%.

One final digression—because this was a review and not an investigation, the results will be used to assess final antidumping duties on all exports of quartz from India as well as setting new duty deposit rates for affected exporters (including all exporters other than the one receiving a zero margin). As in all trade remedy cases, the Indian exporters will not have to pay the duties; US importers will pay them.

Commerce’s decision is only “preliminary.” The agency may change its mind in the final review determination, which is due in early November.

If Commerce’s decision is changed in the final results, the petitioner will likely appeal to the US Court of International Trade. If the decision stands, the exporters and their customers will probably appeal. The outcome is anyone’s guess.

But issues like this often explore whether the punishment fits the crime. In other words, to impose an “adverse inference,” the delay must result in injury to someone. A five-hour delay due to the unusual 10 a.m. filing deadline seems not to justify capital punishment, especially since the object of the punishment is the US importer, who probably was not the guilty party.

This is only one example of many that I could cite of the gap between the results in trade remedy cases and the actual result based on the data presented. As a practitioner in this area of law for several decades, I know that Commerce frequently exercises its authority to reject data because of technical violations. Petitioners regularly try, often successfully, to get higher duties than the data would support. It’s why the assertion that Commerce accurately calculates dumping and subsidy margins is frequently a cruel joke.

The petitioners think they win these cases, but many times they really don’t. The harshest consequence falls on importers that are saddled with a duty obligation they cannot pay. The result: importers disappear.

The exporters in many cases do not have to pay any duties, because the importers, not the exporters, are liable for them. The exporters find new importers and continue to ship, with extra care to meet deadlines and other requirements. The antidumping and countervailing duties imposed remain uncollected. The supply chain disruptions inherent in imposing prohibitive and enormous retroactive duties fall mostly on US companies that purchase the imported products for further manufacturing, and on their workers.

This need not happen. A prospective system of duty collection would eliminate most of the need for annual administrative reviews. The statute still contains a provision for annual reviews if petitioners desire them to make sure that future imports have accurate duties.

The trade remedy laws could do with a fundamental review and reform by Congress. The example of draconian punishment of importers for mistakes they did not make (rather than the foreign producers that did) is only one small example of the inequities of the system. The interests of importers and, more importantly, US manufacturers and processors of goods, are routinely ignored, costing many more jobs in the US than will ever be preserved by these trade remedy duties. That’s not to say that trade remedies don’t serve a purpose—they do. But stopping imports altogether is not a legitimate purpose. Instead, the duties should be based on the harm actually done.

Lewis Leibowitz

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