China-U.S. Trade Law

The US Department of Commerce (“DOC”) initiated 731 antidumping investigations between 1988 and 2008. Three hundred (or 41%) of those investigations did not result in an antidumping order because the International Trade Commission (“ITC”) determined that the imports in question were not the cause of material injury or threat of imminent material injury to a US Industry. Another 81 (or 11%) of those investigations did not result in an antidumping order because DOC terminated or suspended the investigation or found no dumping. Thus, historically, slightly more than half of all antidumping petitions did not result in the imposition of antidumping duties, and about 80 percent of those escaped an antidumping order because of the findings and conclusions of the ITC. These historical results demonstrate that it pays for respondents to defend their interests before the Commissioners.

The benefits of participating at the ITC can be shown by comparing the statistics for cases involving Chinese merchandise (whose respondents typically do not participate actively) to cases involving merchandise from all other countries (whose respondents generally do participate actively). During the same 20 year period indicated above (1988-2008), DOC initiated 124 antidumping cases against products from the People’s Republic of China. The ITC made negative injury and threat of injury determinations in 26 of those cases (or 21%). By contrast, 45% of the antidumping investigations brought against non-Chinese merchandise in those same years resulted in negative ITC determinations and no antidumping order. Although there undoubtedly are many reasons contributing to this disparity, one that cannot be denied is that a party has a better chance to succeed when it participates actively than when it remains on the sidelines.

Appreciation Of The Full Process: There Are Benefits To Be Had At The ITC

Most Chinese respondents seem to believe that they must participate at the DOC when confronted with dumping or subsidy allegations, but that they can ignore the ITC. This belief, which may be based on a misunderstanding of the U.S. trade remedies system (or a reflection of China’s own), is self-defeating. DOC participation is important, but participation at the ITC is no less so, assuming the objective of participation at all is to retain access to the U.S. market. DOC is part of the executive branch of the U.S. government, created primarily to promote and protect domestic industry. The ITC, by contrast, is an agency wholly independent of the executive branch, bipartisan by law, charged with studying world markets for Congress and therefore staffed with competent professionals generally free of protectionist biases.

To initiate an investigation, DOC has a check-off list to make sure a petition makes the required claims as to dumping or subsidies, and injury. DOC undertakes no serious analysis as to whether a U.S. industry is injured or threatened with injury, which is left entirely to the ITC. US law and WTO rules provide that findings of dumping or subsidies do not permit the imposition of duties without a finding of injury (or threat of injury) to an industry in the importing country caused by the dumped or subsidized imports.

The ITC does not assume that, because the U.S. producers may be losing sales or profits (typical indicia of injury), the allegedly dumped or subsidized imports are a cause of the apparent injury. Instead, the ITC must by law consider whether other factors are the cause, including changes in technologies, customer requirements, market conditions, domestic industry efficiency and competitiveness, and third-country competition.

The ITC depends on information provided by the parties to determine causes of injury. When Chinese companies fail to participate at the ITC, or participate with little effort and energy, the ITC is constrained to base its determinations on a record shaped predominantly by the petitioners seeking to impose an order. Notwithstanding views we commonly hear from outside the United States, and especially in China, the ITC has proved in its procedures and results that it wants to hear from both sides in a trade dispute. Even as the law contains its own biases (an evenly split 3-3 vote in the Commission, for example, is awarded to the petitioner), the Commission and its staff generally want to protect domestic industries only when they need protection.  However, it is very difficult for them to reach even-handed conclusions when they hear from only one side.

Participation Should Begin At The Beginning

The ITC conducts its investigations in two phases. In the preliminary phase, the ITC must decide within 45 days of the filing of the petition whether there is a reasonable indication that the US industry is injured or threatened with injury by reason of the imports in question. The ITC, thus, must decide within 45 days whether there is enough evidence indicating injury (or threat of injury) to be worth investigating further and requiring DOC to investigate further. A negative determination here would end the case.

The threshold for finding a likelihood of injury if more evidence were gathered is low, but the Commission and its staff frame the issues during this preliminary phase and identify most of the sources from which they will gather evidence. Absence from the proceedings during this phase means failing to help the Commission organize and structure its investigation. Unfortunately, Chinese industry rarely reacts quickly enough to a petition to appear and participate effectively at the ITC before the Commission is required by statute to issue its preliminary determination.

Although few investigations end in the preliminary phase at the ITC, it has happened, in the recent Certain Steel Fasteners From China and in Steel Wire Form China but, in both cases the petitions were filed against multiple countries which probably helped the Chinese cause in that those countries likely hired counsel to defend at the ITC. When it does, everything ends, including especially the greatest expense, which is in responding to DOC questionnaires and participating in verification. All that activity is mooted by a negative preliminary determination at the ITC. So, although such an outcome is improbable, the relative investment is small for the potential gain.

The ITC continues with its investigation, following an affirmative preliminary determination, even while DOC is still deciding whether subject merchandise is being subsidized or dumped, but the ITC will not finish its investigation unless DOC issues final affirmative determinations. The ITC then issues additional questionnaires (much more extensive and tailored to the specific product than those used in the preliminary phase), to the domestic manufacturers, importers, purchasers and foreign producers. These questionnaires are heavily influenced by the parties, on both sides when both sides participate, by the petitioners when they alone invest in the process. The ITC also considers the interested parties' comments submitted during a briefing and hearing, but based on the record evidence.

Chinese Companies Have Prevailed At The ITC

In Manganese Sulfate from the People’s Republic of China, DOC found a margin of about 32%, entirely the result of a very high surrogate value assigned to ocean freight. All international shipping is purchased in US dollars and does not generally vary much by carrier; DOC, nonetheless, assigned a surrogate value much higher than the amount actually paid, an example of the “engineering” of a result that has not been uncommon historically at DOC. The story was different at the ITC, where both the foreign respondent and the U.S. importer participated actively, beginning with the preliminary phase and the development of the factual record. They persuaded the ITC that their product did not compete with the domestic product, not through a conventional argument that the Chinese product was cheaper and sold to a different buyer, but because it was superior and could be used, unlike the domestic product, for both fertilizer and as a nutritional additive for animal feed. The result in the judgment of the ITC: different product, different markets, no injury.

In Refined Antimony Trioxide from the People’s Republic of China. the largest Chinese respondent cooperated with DOC and actively participated at the ITC. DOC found a margin of 13% for the primary Chinese respondent; the ITC, however, found that those imports did not cause injury to a US industry. As a result of the ITC finding, no antidumping order was imposed.

These cases are old, and there are few examples. The problem is not in the impossibility of winning, nor in any particular bias against China. The problem is in the failure to accept and participate in the process. Had the Chinese companies not participated at the ITC, in these cases, the ITC would have heard only the petitioner and dumping orders likely would have been imposed. In the case of antimony trioxide, the domestic U.S. industry was very profitable; its complaint against Chinese imports was unjustified. The domestic industry did not expect the Chinese to defend themselves at the ITC, and thought it would be easy, therefore, to shut the Chinese out of the U.S. market by relying on protectionist impulses at DOC. Petitioners’ counsel remarked privately, following the final negative ITC determination, that it was the first case they had lost against China, principally because Chinese companies routinely abandoned the U.S. market rather than rely on legal proceedings.

Some Chinese companies have made recent ITC appearances, but they remain exceptional. The Chinese Government, in subsidies cases, has not appeared, even as other foreign governments appear at the ITC when their programs are alleged to be the source of injury to a domestic U.S. industry. And even when the outcome at the ITC is not favorable to respondents, a solid evidentiary record can matter. In perhaps the most celebrated trade dispute of all, a NAFTA panel and the Court of International Trade reversed the ITC and found neither injury nor threat of injury to American softwood lumber producers, based on the record compiled by Canadian industry the Canadian and provincial governments at the ITC.