Leibowitz: The Impact of Russia Losing 'Market Economy' Status

The Commerce Department outlined the reasons for changing Russia’s designation in a 65-page memorandum on the NME issue. The department applied a six-factor test for determining whether a country is an NME, all of which are open to very flexible interpretation. Commerce concluded that Russia failed the test.

The factors are as follows:

• Whether currency of the country is freely convertible

• Whether wages and working conditions are freely negotiated between labor and management

• The extent to which foreign investment and joint ventures are permitted

• The extent to which the factors of production are controlled by the government

• The extent of government control over the allocation of resources, and the price and output decisions of businesses

• “Other factors” the Commerce Department considers appropriate

When Russia was removed from the NME list in 2002, it was expected that Russia’s economic reforms would steadily progress, Commerce noted. But in recent years, those expectations have not come to fruition. Russia’s invasion of Ukraine figured prominently in the Commerce analysis. Since February of this year, economic regulation (the fourth and fifth factors) and labor issues (the second factor) have deteriorated in Russia. And the ruble has largely disappeared as a convertible currency (the first factor). Thus, the Ukraine war was largely responsible for Commerce’s change of position on market-economy status for Russia.

Given the rather imprecise criteria for evaluating market-economy statute, Commerce could conceivably defend a decision to designate almost any country in the world an NME. But so far, only 12 countries are so designated, all of them with a Communist past (or present). Ten are former Soviet republics: Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, and Uzbekistan. Two are Communist countries in Asia: the People’s Republic of China and Vietnam. Russia is the first country to return to NME status.

What is the consequence of being an NME in antidumping cases?

Antidumping calculations are highly complex in all cases. The Commerce Department determines whether products subject to antidumping duties are sold into the United States at less than “normal value.”

For market-economy countries, “normal value” usually starts with the selling price for the same product in the market where the imported product originates. There is “dumping” if the price into the US market is below the home-market selling price. The “margin of dumping” is equal to an average of home-market selling prices compared to the average selling prices into the US. There are dozens of adjustments possible to these prices. Petitioners (domestic producers) and respondents (foreign producers and US importers) argue over them with great vigor.

But in some cases, the home market is not a reliable comparison because of economic, social, and governmental autocracy. These are NME countries. In such cases, Commerce chooses a complex analysis of normal value based on the “factors of production” of the product under consideration (materials, capital equipment, labor costs, etc.). These factors are valued based on their prices in a market-economy country at a comparable stage of development. After considering all possibilities for choosing such a “surrogate” country, the department decides on one or more market-economy countries to obtain the values of the factors of production.

The NME analysis makes the final dumping margin unpredictable, and it might bear no resemblance at all to actual economic conditions. The litigants, however, are not vitally concerned with those finer points. Basically, domestic petitioners want high margins, and respondents want low margins.

The re-designation of Russia as an NME will eventually affect dumping margins in all cases on Russian imports. Every case is subject to administrative review once a year. Commerce will apply NME analysis to the goods subject to each review. Cases include such products as hot-rolled steel flat products, oil country tubular goods (OCTG), uranium, granular polytetrafluoroethylene resin, and sodium nitrite fertilizer.

The unpredictability of margins using the “surrogate country” methodology will present additional challenges in importing into the US. In market-economy cases, the margins can be unpredictable because of the failure of respondents to answer questions thoroughly or on time. Those risks are also present in NME cases. They are compounded by the uncertainty inherent in selection of surrogate countries and in calculating the relevant figures.

NME status is a clear signal that imports from Russia will be even riskier than before. The complexity of the rules are hard enough to navigate even in market-economy cases. Now, for Russia, they will be even harder.

The original aim of antidumping law was to “level the playing field” by equalizing competitive conditions. An exporting company charging high prices in a protected market at home could undercut prices in other markets. Canada in 1904 was the first country to enact an antidumping law, largely due to imports of cheap steel from the United States. But the Canadian duty was set at a maximum of half the regular Customs duty. The United States followed with its own antidumping laws in 1916 and 1921, which were not so limited.

Now, the goal of filing a dumping case is not to level the playing field but to stop imports of offending products altogether. Triple-digit dumping margins based on “adverse facts available” are commonplace, and they can make trade nearly impossible. In the US, the duties are calculated and collected retroactively, so that importers can and often do receive huge duty bills years after they import the products and resell them.

Antidumping reform is needed now to “level the playing field.” But the Ukraine invasion demands a response from the US and its allies. It is hard to argue that the relapse of Russia into NME status is unjustified. And as long as that war lasts, Russia deserves little sympathy.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
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