Media Mentions 媒体引述

By Jing Zhu on January 28, 2011 Posted in CFIUS and Investment

Washington, D.C., partner Elliot J. Feldman, leader of Baker Hostetler’s international trade practice, recently was interviewed by China’s National Economic Weekly regarding how to invest in the United States. The National Economic Weekly is a Xinhua News Agency affiliation that has a circulation of 200,000 and a very large online readership.

Feldman highlighted several important issues that were unknown to most Chinese business leaders but were emphasized in Mergers & Acquisitions in the United States: A Practical Guide for Non-U.S. Buyers, a treatise for CCH/Wolters Kluwer/Aspen coauthored by a team of 27 Baker Hostetler attorneys under his direction. First, he recommended potential Chinese investors to start Greenfield projects, and carefully select origination and destination of their investment to fully utilize preferential tax treatments offered by bilateral investment treaties and U.S. tax laws.

Episodes of failed Chinese investment initiatives in the United States have persuaded many Chinese that national security is a post 9/11 excuse to restrict China in the U.S. economy. However, in Feldman’s view, China’s business leaders have no reason to be deterred by the Committee on Foreign Investment in the United States’ review process. The United States is the most open major economy in the world, and the treatise demystifies how to navigate through this process by providing specific and detailed guidance, through real-world examples.

Additionally, he reminded the Chinese investors not to miss the forest for the trees. For instance, they need to evaluate carefully intellectual property rights, which could be the most valuable asset to be acquired in a deal for a U.S. company. Also, it is prudent and wise to retain the best lawyers and other professionals in conducting due diligence. Although expenses might seem high, it pays off in the long run to engage the best. He alerted the Chinese business community that minimizing potential legal risks is as important as maximizing financial profits in investing in the United States.

At the end of the interview, Feldman advised the Chinese business leaders to adopt the German management model once they set up facilities in the United States. In order to win the hearts and minds of U.S. politicians and people, he suggested Chinese companies hire more U.S. workers and actively engage them in operations.

An Obama Trade Policy Courtesy Of The Tea Party 茶党及奥巴马贸易政策

By Elliot J. Feldman on January 13, 2011 Posted in Trade Negotiations, WTO

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The Trade Situation: Pending Bilaterals

President Barack Obama told his Asian hosts in November that he would like to see the Doha Round of multilateral trade negotiations resume as soon as possible, an extension of the campaign initiated in his first State of the Union Address to double American exports over the next five years. After declaring the midterm elections a “shellacking” due to a slow economic recovery, the President converted his long-planned Asian trip into a quest for jobs that would depend upon market opening for American goods. He tied trade liberalization and trade agreements together with economic recovery by promising to conclude a bilateral Free Trade Agreement with Korea while reconstituting multilateral talks.

The American press blamed China and India for the collapse of the Doha Round eighteen months ago, and the apparent alliance between China and India in trade talks suggested a potentially significant development in world affairs. However, the Doha Round failure should have been ascribed as much to the United States and the European Union as to any of the developing countries. The Doha Round began as the “development round;” when developing countries bordering the Pacific Ocean found the deal on the table unacceptable, above all because of agricultural subsidies on both sides of the Atlantic, it was for the more developed countries to change and adjust, not to assign blame for a global disappointment.

The President enters trade terrain, with his call for resumption of the Doha Round, with little credibility. During his first two years in office, he never asked Congress for, and never seemed particularly interested in, trade negotiation authority. Without it, Presidents have minimal negotiating leverage with foreign governments because presidential signatures on agreements cannot be trusted. Congress retains, and typically delivers, the last word.

President Obama, not deliberately, has proved the point about trade negotiation authority, although by the end of 2010 his profile had improved as it had in almost every domain. He inherited three signed bilateral trade agreements; as he begins his third year in office, he has brought none of them before Congress. He seems to have persuaded Panama to revise its deal to satisfy congressional concerns, but has given no indication when he might present the deal for congressional approval. He left Korea without a revised agreement that he determined he had to have to satisfy Congress, souring the entire Asian expedition, although he seems to have solved these negotiating problems after his return. Nevertheless, the Korean deal must still go before Congress, which can still change it, and more than one prominent Democrat, such as Senator Sherrod Brown (D-Ohio), already has declared it unacceptable. The United Auto Workers have endorsed, but the AFL-CIO has denounced it. And even though some major American manufacturers, such as Caterpillar, have called the Colombian agreement the most important of all for them, there is no hint at all when it might be considered for approval.

The President obviously did not think he could count on a Democratic Congress to pass these trade deals, and while Republicans tout free trade, they are not likely to deliver the Democratic President any immediate trade victories. So, even as the Panamanian and Korean deals may be ready, products of President Obama’s negotiations to satisfy essentially Democratic Party and constituent demands, they were not presented to the extraordinarily productive lame duck Democratic Congress, and could still be rejected in a more Republican session.

The Trade Situation: Doha And Agriculture

When the Doha Round talks fell apart in September 2009, American commentators blamed Asians, especially China and India, but the core dispute was over agricultural subsidies, especially American and European. Some trade analysts think the whole multilateral project is dead, or look to more modest enterprises such as the Trans-Pacific Partnership negotiations, but President Obama specifically said he wanted to reopen the Doha Round, and he may have a significant opportunity to do so, in major if not ironic part courtesy of the shellacking.

President Obama’s first budget, eight months after the collapse of the Doha Round under President Bush, featured an assault on agricultural subsidies. Agriculture Secretary Tom Vilsack emphasized that “direct [farm] payments were never intended to be around this long,” noting that their extension already had cost taxpayers $5.2 billion per year for twelve years. Writing in the Des Moines, Iowa Register, Vilsack assured that “cutting these subsidies does not leave these farmers without a safety net [b]ecause these cuts in farm subsidies do not affect access to other farm programs. . .” Budget Director Peter Orszag emphasized “reducing subsidies to large farmers” in order to save money. When asked how he would cut the growth in the federal deficit, House Financial Services Committee Chairman Barney Frank told the press, “The President proposed cutting back on agricultural subsidies,” but also complained, “some of the great budget hawks in both parties killed that right away.”

President Obama was on the side of China and India, seeking to cut agricultural subsidies. He couldn’t do it because the bipartisan budget hawks often came from rural states and would not give up their bounty. He could not resume the Doha talks, however, without doing something about agricultural subsidies.

The Tea Party To Obama’s Rescue

It is here that the Tea Party may be coming to his rescue. Tea Party members have said they have no more patience for Republicans than for Democrats who do not share their views. Although those views typically are more coincidental with the Republican Party, Tea Party members elected to Congress insist they are as ready to challenge Republicans as Democrats; in the primary elections they toppled several Republican Party incumbents and nominees.

The core of the Tea Party’s views is to cut big government, and to slash government give-aways, of which the biggest long-standing give-away of all is agricultural. Indeed, some in the Tea Party already have declared agricultural subsidies specifically as a target.

During the 2010 campaign, Kentucky and Tea Party Senate candidate Rand Paul told a Kentucky Farm Bureau audience that he wanted to repeal all agricultural subsidies that pay farmers not to farm. He said such a move would save $1 billion annually, and invoked agricultural subsidies specifically as targets to reduce the federal debt. Saying, “I don’t think federal subsidies of agriculture are a good idea,” Paul urged that farmers grow more, not less, and increase exports. He declared support for the trade agreements with South Korea, Panama, and Colombia because they would enable Kentucky farmers to export more food.

Many a Republican ox would be gored by renewal of the President’s assault on money for big farmers. While Paul was attacking agricultural subsidies, his future Kentucky seatmate and Senate Minority Leader Mitch McConnell (R-Ky) said, “I have voted for most of the farm bills, yeah, and I try to help Kentucky agriculture.” Thus, the President and the Tea Party, on this subject, are singing from the same hymnal, which most Republicans find off-key. Both the President and the Tea Party see an opportunity to save money by cutting farm subsidies, and while the Tea Party has said little about international trade, Paul’s statements demonstrate general support, if only to open foreign markets for American products, which is precisely President Obama’s interest. Tea Party adherents would have no objection to a growth in jobs, putting Americans to work, making goods foreigners would buy in more open markets. Those markets will open only with freer trade, and freer trade will be possible, at least through the Doha process, only with reduced American and European agricultural subsidies.

Of course, Europe has shared the American spotlight in spending public money on private farmers. Per capita, European largesse is notably greater than American. But Germany, Europe’s economic engine and principal financier of the Common Agricultural Policy, has long wanted to reduce such contributions. Now that the threatened defaults of Greece, Ireland, Portugal, and Spain all point to Germany to save the Euro Zone, the time for Germany to induce reductions in agricultural subsidies may well have arrived.

As the Doha talks imploded, it became apparent that Europeans would not cut back agricultural subsidies until the United States did. It also became apparent that Europeans could no longer afford them. The United States and Europe, consequently, needed a mutual reduction, and passage of the 2008 Farm Bill in the United States, confirmed by the summary rejection of the Obama budget in 2009, made that step impossible. Now, with non-partisan Tea Party sympathy for the President’s budget-cutting objective, the crucial step may be possible.

It is not as if farm subsidies have not been cut before. There was a significant rollback in the 1996 Farm Bill under President Clinton, but subsidies were restored and expanded twice under President Bush, demonstrating that farm subsidies are more Republican than Democratic. Enhancement of Republican presence in the House of Representatives thus is not likely to help the Democratic President, but the themes of government give-aways, deficit reduction, and restoration of trade opportunities ought to be irresistible to many in both parties.

Were President Obama to align with the Tea Party over agricultural subsidies as a means to reduce the deficit, he might split Tea Party adherents from the Republican Party while embarrassing Republicans demanding cutbacks in federal expenditures. As in 1996, a Democratic President could restore sanity to the Farm Bill, and as in 1996, American cuts in agricultural subsidies would almost certainly lead to corresponding cuts in Europe. Were both the United States and Europe to make serious reductions in their agricultural programs – the United States to reduce the deficit, Germany to free up resources to rescue the Euro Zone — the Indians and Chinese may find the hope and satisfaction they need. Doha then could be resurrected, and the Obama Administration could discover, courtesy of the Tea Party, that it can fashion a trade policy, one that could satisfy both China and India, after all.

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The Keenest Sorrow: Failing Verification 最沉痛的悲哀：核查失败

By John Clayton on December 30, 2010 Posted in Antidumping

Sophocles wrote, " The keenest sorrow is to recognize ourselves as the sole cause of all our adversities,” which probably applies to the Watanabe Group Companies of China in a recent antidumping determination by the U.S. Department of Commerce (“DOC”).

DOC published in an October 18, 2010 Federal Register notice its preliminary results in Certain Lined Paper Products (“CLPP”) from the People’s Republic of China, for the third administrative review of that antidumping order. DOC imposed a 258.21% dumping rate on Watanabe, based on “adverse facts available,” because DOC believed that Watanabe submitted false documentation at verification.

DOC explained the reasons for the results as follows:

“…petitioner supplied invoices which they claimed correspond to invoices related to third-country sales reviewed at verification and provided as verification exhibits. Specifically, petitioner points to the similarity between the products listed, quantities and other details in the two sets of invoices. However, they note the significant differences in payment amounts between the two sets of invoices. Additionally, petitioner provided documentation demonstrating payment in the amount listed on the petitioner-provided invoice and receipt of that amount as recorded in Watanabe supplied payment documentation at Verification Exhibit 14 at page 1. For three of Watanabe’s third-country sales, petitioner provided documentation demonstrating payment in the amount listed on the invoices petitioner provided and not those provided by Watanabe. This raises a fundamental question about the reliability of the documents reviewed at verification.”

“Regardless of the motives of either party, we preliminarily determine that petitioner has provided credible evidence of misreporting of sales values by Watanabe. The fact that the total revenue associated with the invoiced amounts petitioner submitted tied to the company book and records tends to show that the prices on the invoices reviewed at verification are incorrect, thus fundamentally calling into question the reliability of Watanabe’s records.”

“To ensure that the margin is sufficiently adverse so as to induce cooperation, we have preliminarily assigned to the PRC-wide entity, including Watanabe, the rate of 258.21 percent, the highest rate on the record of this proceeding. This rate was assigned to the PRC-wide entity in the investigation of CLPP from the PRC.”

Background

An antidumping case was filed against Certain Lined Paper Products (“CLPP”) from the People’s Republic of China on September 9, 2006. Lined paper is used as school supplies, such as notebooks, composition books, loose leaf, filler paper, graph paper, and laboratory notebooks, for writing reports and doing homework. The Watanabe Group participated in the original investigation and received a margin of 134%.

In the First Administrative Review, DOC obtained Customs and Border Protection (“CBP”) quantity and value data for the parties for which a review was requested. After assessing its resources, DOC determined that it could reasonably examine only one of the four exporters subject to the review.

On November 7, 2007, DOC selected Lian Li as a mandatory respondent, not the Watanabe Group. Lian Li succeeded in explaining its accounting system and reconciling most of its costs to its financial statement. As a result, Lian Li received an antidumping margin of 22.35%, which was shared by the Watanabe Group, dropping its margin from the 134% of the original investigation

In the Second Administrative Review, DOC determined that facts available with an adverse inference were warranted for Watanabe because Watanabe had submitted an incomplete response to DOC’s initial questionnaire. Watanabe had claimed that, because it did not sell subject merchandise to the United States during the period of review (“POR”), it would not respond to Sections A, C and D of the questionnaire. However, entries of its merchandise in fact had been made during the POR. Because Watanabe refused to supply the requested information and the record contradicted its representations, DOC assigned Watanabe a punitive facts available rate of 258.21 percent in its final results of the Second Administrative Review. Nonetheless, Watanabe still had a chance to turn its situation around, as it had sales during the period to be examined in the Third Administrative Review.

Verifying The Preliminary Results Of The Third Administrative Review

DOC conducted the Third Administrative Review for the period September 1, 2008, through August 31, 2009 with respect to four producers/exporters. This time, Watanabe was examined and everything seemed to be going well, until the petitioners submitted third country invoices (invoices the petitioner obtained from other buyers of the product), which caused DOC to doubt the accuracy of Watanabe’s records. As DOC reported in its Federal Register Notice of the preliminary results:

– Petitioner-submitted invoices appear to establish that the sales and payment values do not tie to Watanabe’s own internal records.

-Watanabe argued the petitioner refers to third country sales, which it claims are irrelevant to the Department’s inquiry into U.S. sales and the mere allegation that such third country sales were diverted to the United States is insufficient.

-Specifically, petitioner points to the similarity between the products listed, quantities and other details in the two sets of invoices. However, they note the significant differences in payment amounts between the two sets of invoices.

-For three of Watanabe’s third-country sales, petitioner provided documentation demonstrating payment in the amount listed on the invoices that were not those provided by Watanabe. This raises a fundamental question about the reliability of the documents reviewed at verification.

-The fact that the total revenue associated with the invoiced amounts petitioner submitted tied to the company books and records tends to show that the prices on the invoices reviewed at verification are incorrect, thus fundamentally calling into question the reliability of Watanabe’s records.

Hence, after the petitioners saw the verification exhibits and compared them to documents they had collected from third parties, they called conspicuous differences to DOC’s attention. They pointed out that verification documents that tied to the third party invoices agreed in total, but the quantities and prices did not. The Petitioners also pointed out that the payment amounts shown on the third country invoices did not match the amounts shown as being paid on those invoices in the accounting records that the respondent presented to DOC at verification.

For a company to improve its margin, it would need to prove higher U.S. sales prices for subject merchandise. In a period of review, the company would have to be selling, therefore, at higher prices than during a prior period. Companies trying to manipulate their records, without in fact making such sales, should expect to be caught and to face the consequences.

It seems that some companies have tried to manipulate their records by appearing to have prices for third country sales that are lower than U.S. sales prices by an equivalent amount (i.e., lowering the reported price on the third country sales by the same amount that they increase the price on the US sale, such that the total remains the same). The total then appears reconciled in the summary totals of the financial statements. Financial statements and invoices appear to reconcile; the antidumping margin falls. The exercise, however, is fraudulent, and the lawyers’ certifications are false. When petitioners present contrary third country prices, the perpetrating companies are caught.

For a successful verification, where DOC officials do not think they are being deceived, financial records must be reconcilable internally and with the answers respondent companies have provided in questionnaires. CLPP is not the first case in which a Chinese company failed in a cloud of distrust generated by inconsistencies exposed in their own documents, but with a growing DOC concern about Chinese respondents generally, it is surprising that Watanabe was apparently not at least more alert about its own records.

The most celebrated and very public example of verification failure involved Crawfish from the People’s Republic of China. DOC officials became suspicious of the documents offered at verification and went to the respondents’ preparation room (typically, respondents will make a well-organized presentation of documents in one room while sorting and assembling them in another) . Although the Crawfish respondent had told the DOC verifiers previously that “the company did not maintain computer records of customers of [sic] business transactions,” the officials found business documents on the computer in use in the preparation room. Following this discovery, things only got worse for the Chinese company. DOC concluded that the respondents were being deceptive and applied punitive adverse facts available, as they did in CLLP. The details of this episode are described in the Crawfish Verification Report.

The respondent Chinese company gave DOC the impression in Crawfish that something was “odd” at verification by its own actions, particularly claiming that computers were not used for maintaining business records while business transactions were found on company computers. In addition, the company’s “accountant” did not have a National “identity” card and apparently was an employee of another crawfish exporter who had been involved in a previous verification for that other company. If these dramatic and unexplained discrepancies were not enough, the electricity did not function during verification in the rooms where DOC was trying to access the company’s computer, leaving DOC officials with little choice but to believe that they were being deceived, as other DOC officials concluded in CLPP.

Trouble Of Watanabe’s Own Making, But In A More Challenging Legal Environment
In the past several months, a pattern has begun to emerge in which DOC has been applying, more often than in the past, “facts available,” and with adverse inferences, to respondents from China. The application of the rules seems to be changing. The DOC and petitioners are more and more suspicious that Chinese companies are falsifying records shown at verification and, therefore, are seeking to confirm the accuracy of those records whenever possible through outside sources. Some petitioners are using former FBI and Scotland Yard investigators to contact companies who supposedly are market economy suppliers of inputs to respondents in China, in order to discredit respondents’ claims of market prices.

CLPP is now one of several cases contributing to DOC’s apparently deep and growing mistrust of Chinese data. The Watanabe Group may, or may not, have been trying to deceive DOC, but in the presence of discrepant data, subsequent to misrepresentation in a previous review, and in a developing context of doubts about the veracity of Chinese verification presentations in other cases, the impression governed. The more Chinese companies rely on deception, or appear to be doing so, to get through verifications, the more they can expect to be exposed and find themselves with prohibitive results. Worried about the expense of legal defense, they are finding themselves having wasted both their money and their time because of an apparent lack of due diligence and care in preparing and hosting verifications. To prevail in trade disputes now, before an ever-more vigilant DOC and ever-more suspicious and skeptical petitioners, Chinese respondents will need to rely on facts they can verify, not fabrication or supposition, and they will need legal counsel with sterling reputations before U.S. agencies to avoid regrettable presumptions.

Winning At All Costs

Unfortunately, as the number of trade disputes has diminished, Chinese and U.S. legal counsel have been promising prospective Chinese clients the impossible, and then have done whatever it seems to take to achieve it. Some routinely promise zero margins in antidumping cases before they have seen company books, and base their fees largely on the contingency of such results. Some have represented more than one company, promising each one a better result than the other with both guaranteeing a fee bonus should it get the best result. One of the companies must lose, but the lawyers in such circumstances have to win.

There may not have been a lawyering issue in the CLPP case. The Watanabe Group’s experience may have arisen from simple misunderstandings. Nonetheless, DOC concluded, as manifested by the application of adverse facts available, that there was deception. When there may be doubt, DOC is now sending a signal that benefits of doubts will not be going to Chinese companies, and the troubles Chinese companies face may be all the more painful for being of their own making.

Should the United States Switch to a Prospective System for Assessing Antidumping and Countervailing Duties? – The Department of Commerce Reports to Congress 如何征收双反税率：追溯法与前瞻法之比较

By John J. Burke on December 15, 2010 Posted in Antidumping, CVD

The U.S. Department of Commerce ("Commerce") reported to the U.S. Congress in November 2010 on the Relative Advantages and Disadvantages of Retrospective and Prospective Antidumping and Countervailing Duty Collection Systems. Commerce made no recommendations. It also is unlikely that Congress would have the appetite anytime soon to consider the wholesale revisions to U.S. trade laws that changing to a prospective duty assessment system would entail. Nevertheless, there are several noteworthy items in the report.

All other countries, unlike the United States, rely on prospective systems in their trade laws, as does the WTO. These systems require changes going forward, following an investigation and findings, but do not reach back for penalties. Congress instructed Commerce to address how prospective systems compare to the U.S. retrospective system on the following criteria:
(1) Remedying injurious dumped or subsidized imports;
(2) Minimizing uncollected duties;
(3) Reducing incentives to evade antidumping (“AD”) and countervailing duties (“CVD”);
(4) Targeting high risk importers;
(5) Considering the impact of retrospective rate increases on importers and their employees; and
(6) Minimizing administrative burdens.
Commerce received comments from 40 interested parties, including comments that the editors of this blog submitted on April 20, 2010. Those commentators represented a wide range of industries, petitioning U.S. producers, foreign producers, importers and customers. The U.S. Department of the Treasury and the U.S. Department of Homeland Security ("DHS"), which enforces AD and CVD orders at the ports, previously submitted comments for a study by the Government Accountability Office. Commerce summarizes some of those earlier agency comments in its report.

Commerce noted that the United States is the only country that uses a retrospective system for collecting AD and CVD duties. Advocates of keeping the retrospective system, mostly U.S. petitioners, emphasized the greater accuracy of the system because duties are assessed based on the amount of dumping or subsidization found for the actual imports in question. Commerce acknowledged that advocates of prospective systems argued that such claims of superior accuracy are not achieved consistently in practice because Commerce in recent years has not reviewed more than a couple of companies in administrative reviews, even when many companies requested reviews. Commerce has said it lacks the resources to review all the companies making requests. Commerce also noted the arguments of some commentators that retrospective duties are not very good at remedying the actual injury caused by dumping or subsidies because the duty rates cannot be known when importers and customers are making their pricing and purchasing decisions.

It appears from Commerce’s Report that DHS would prefer a switch to a prospective system. Commerce quoted DHS as saying that "its preferred option would be ‘for Congress to fundamentally alter the United States system by eliminating its retrospective component and make it prospective. This approach would …. [a]lleviate the collection issue faced by DHS due to substantial rate increases since the amount of duties assessed at entry would be the final amount owed.’ "

Advocates of prospective systems emphasized that the retrospective system is bad for business, particularly small business, because it deprives companies of critical information on the full costs of their products before they have to make pricing decisions. Commerce responded to this criticism by pointing out that, because of due process rights in U.S. law, a prospective duty assessment system would not eliminate this uncertainty: the parties to AD and CVD proceedings have a due process right to appeal administrative determinations of Commerce and the United States International Trade Commission to the United States Court of International Trade and eventually to the United States Court of Appeals for the Federal Circuit. The courts routinely enjoin liquidation of the customs entries for the duration of these proceedings. The final duty rates, which could go up as well as down as a result of court decisions, can take years to be known.

Commerce, thus, is correct in questioning the advantage of a prospective system, in light of U.S. legal rights, to achieve accuracy and predictability. The United States is famously a litigious society; trade cases often take many years to work their way through the Court of International Trade, through possible remands by the court back to the agencies (Commerce or the International Trade Commission), and possible further judicial review by the Court of Appeals for the Federal Circuit (with possible remands to the Court of International Trade).

Any party appealing an agency decision would want the court to enjoin the final assessment of antidumping or countervailing duties pending the appeal’s outcome. Otherwise, much of the economic benefit, should the party succeed in the appeal, would be lost. Because of separation of powers and due process requirements of the U.S. Constitution, Congress would not be able to strip the courts of the power to issue such injunctions through a change from a retrospective to a prospective system of duty assessment. Therefore, even were Congress to legislate such a change, the U.S. system would retain retrospective aspects. Under a prospective system, duties could be assessed and collected at the time of importation, but for any case on appeal — for those companies whose shipments are the subject of the appeal, and with respect only to the issues under appeal — the final duty owed would not be known until the court process would reach final decisions.

A prospective system may still be better. In many cases, the potential effect of a judicial reversal of Commerce’s determination can be quantified at the time of the appeal. Companies would be able to account for the risk of judicial reversal when making purchasing and pricing decisions. For example, if the only issue on appeal for a particular respondent were whether to allow a particular adjustment in the dumping calculation, the effect on the margin of allowing or disallowing that adjustment could be calculated at the time when the appeal would first be taken; importers could price their products accordingly. By contrast, under the current U.S. system, at the time of importation, when importers make their pricing decisions, most of the data necessary for a dumping calculation are unknown because Commerce has not yet performed any calculations, verification has not yet occurred, and a myriad of other variables remains undetermined. Thus, even for cases subject to judicial appeal, a prospective system provides more certainty than the current U.S. retrospective system.

Although a switch to a prospective system would not be the panacea that some proponents claim it would be, it would represent an improvement over the uniquely cumbersome U.S. system of retrospective duty assessment for the following reasons:
• Defenders of the status quo claim superiority for the retrospective system because, they say, duty rates are based on a comparison of actual import prices to normal values or subsidies calculated for a contemporaneous period. However, because the prospective system allows the importer to account fully for the antidumping or countervailing duties when making pricing decisions (i.e., where the imports compete with the domestic product), a prospective system may, in fact, do a better job of remedying the injurious effect of dumping or subsidization.
• Prospective systems are better at collecting duties because they collect upon importation. Injured parties do not have to wait through years of administrative and legal reviews and proceedings before unfair competition can be offset.
• Prospective systems are more likely to reduce incentives and opportunities for the evasion of duties because they are clearer in their expectations: normal values or fixed duty rates advise importers in advance of the prices they should apply to goods, information known to authorities with certainty at the time of importation.
• The retrospective system has no reliable way to "target high-risk importers," as it is focused on the prices of goods after they are imported. The prospective system, focused on the price of the goods when they arrive at port, makes the relative "risk" of the importer less relevant.
• The American retrospective system, by creating much more uncertainty in the marketplace, creates competitive advantages for U.S. petitioners (through the advantages of market disruption occasioned by the very filing of trade remedy petitions), but the costs and consequences are visited upon importers, their employees, downstream businesses and their employees, and ultimately U.S. consumers, an inherently unfair distribution of the burdens arising from unfair trade.
• The retrospective system is by far more administratively cumbersome and expensive than the prospective system adopted by every other country and reflected in the principles governing the remedy system of the WTO.
The United States has maintained an expensive and inefficient system unlike any other
country’s. The case for the status quo, the Commerce report shows, is weak and biased in favor of petitioners, against importers, consumers, and rational markets. The systematic analysis of retrospective and prospective duty assessment systems that Congress has invited has been overdue. This report, unfortunately, is not likely to lead to warranted change.

A Comment On Currency Manipulation 操纵汇率之我见

By Elliot J. Feldman on November 19, 2010 Posted in Trade Disputes

Until a couple of weeks ago, China appeared isolated in its denial that it was manipulating the value of its currency to give its exports a competitive advantage in world markets. Then, following an announcement by the Federal Reserve Bank of the United States, it was the United States that appeared isolated in denial of an almost identical complaint, but with even more of the world’s leaders outspoken about it. Derived from the Latin word for “hand,” “manipulate” suggests hands-on activities directed toward specific outcomes, and much of the world seems to have concluded that both China and the United States are guilty of currency manipulation.

Manipulate: v.t. Handle, treat, esp. with skill by dextrous (esp. unfair) use of influence, etc. (The Concise Oxford Dictionary); to manage or control artfully or by shrewd use of influence, often in an unfair or fraudulent way (Webster’s New World Dictionary).

On the eve of the G-20 summit in Seoul, the decision of the Federal Reserve Bank of the United States to engage in $600 billion worth of “Quantitative Easing” (being called “QE-2,”) unleashed a torrent of criticism, mostly from China, Germany, Brazil, and Japan, but also from the Republican Party and even fiscal conservative Democrats in the United States. The announcement came not long after the U.S. House of Representatives passed a bill attacking China’s management of its currency (not likely to be approved in the Senate) and while U.S. Treasury Secretary Timothy Geithner was trying to broker an international agreement that would avert mutually assured destruction by currency devaluation among the world’s leading economic powers. The Federal Reserve Bank, by law and practice, acts independently of the Administration, but President Obama rushed publicly to the Bank’s defense with a letter to his G-20 partners, effectively endorsing the Bank’s plan.

By the dictionary definitions of “manipulate,” neither China nor the United States could be held accountable for currency manipulation. Neither one has been particularly shrewd or artful in their monetary management. China has tied its currency valuation to the dollar and has let it rise and fall accordingly. The United States has managed its money supply, entirely aware of the basic rules of supply and demand and their impact on price (or, for currency, valuation). QE-2 will add 600 billion dollars, although technically not into circulation, “easing” the quantity of available cash or at least credit. Had the value of the U.S. dollar been rising since September 2008, China might have been guilty of a serious miscalculation, but not of manipulation. Yet, had the dollar’s value been rising, there could have been even more reason at the Federal Reserve to dilute it.

The American interpretation of China’s actions, perhaps not incorrect, is that China has wanted its currency to fall in value in order to support the export-driven economy. For all that China has articulated what the United States has wanted to hear – that it would rebalance its economy by encouraging domestic consumption and reducing dependence on exports – the effective devaluation of its currency has made it more expensive for Chinese to purchase foreign goods while Chinese exports remain cheap in foreign markets.

For the United States, quantitative easing means priming the economic pump: more money ought to make more credit available, encouraging Americans to spend and invest. The intent, most economists agree, is not to weaken the dollar, but no one can deny the consequence, a 7 percent drop against the euro between the first hint of such a policy in late August and the announcement in November.

Both China and the United States, then, deny that their respective policies are for the purpose of weakening their currencies and enhancing the affordability of their exports. Yet, the actions of both – tying the renminbi (“RMB” or “yuan”) to the dollar while the dollar’s weakening is enhanced by the Federal Reserve Bank’s quantitative easing – have the same consequences and are interpreted by other countries the same way. The game becomes zero-sum: a weaker dollar, or a weaker yuan, has to mean a stronger something else and, in most instances, a stronger everything else. For Brazil and India and Korea and Japan and Germany, it means less competitive exports at the crucial time when everyone would like to export their way out of recession.

China is not alone in tying its currency to the dollar. Some countries, such as Ecuador, use the dollar as their currency and have no currency of their own. The American objection (supported until November 7 by most of the world’s leading economies) has been that China’s export-driven recovery, outstripping the United States and Europe, especially, has been enabled by a sinking in value of the RMB at the very time that market forces would have had it rise. However, had the American recovery been more robust, the dollar might have been rising instead of sinking and the Chinese currency would have been rising with it. Alternatively, had an underpriced Chinese currency not been in play to aid Chinese recovery, perhaps the Chinese recovery would have been less impressive. China argues that the whole world has benefited from its swift recovery, and most economists agree. But most economists agree, too, that a global recovery led by China without the United States is not a durable global recovery.

The underlying complaint, then, is that when the global financial system failed, China acted quickly and fully to sustain its economy while most other countries, especially the United States and the European Union, hesitated before, in instances such as Greece, maybe Ireland, being lost. Many economists, such as Paul Krugman, are convinced that the resources committed by the United States for economic recovery were a mere fraction of what were needed, enough to keep the economy on life support, but not enough to create jobs, restore credit, and secure financial institutions.

Even as Krugman leads the complaints about China, his indictment of American policy in the financial crisis implies an acquittal. Had the United States done what Krugman recommended (above all, a much bigger infusion of capital, but also nationalization of the banks), Krugman probably would have to admit that the United States would have been attracting investment, American corporations would be investing, the dollar would be worth more, and so, as night follows day, would the RMB. Alternatively, had the United States followed Krugman’s advice and it did not work, Krugman would have had to look elsewhere for an explanation. Hence, China’s conduct has been disturbing to the United States (and Europe, Korea and Japan) only because China recovered substantially while the United States did not, in significant measure because China did what Krugman recommended (especially in massive government investment), while the United States did not. The American failure was not initially caused by Chinese conduct, although there may be a causal link to the contrast between Chinese and American economic trajectories following the opening bells.

Nothing could have undone President Obama’s position during his trip to Asia more than the Federal Reserve Bank’s announcement of QE2. Some think the timing of the announcement was too uncanny to have been uncoordinated between the White House and the Federal Reserve, especially given the swift presidential endorsement. Others, however, surmise that the independence of the Federal Reserve has not been compromised. Regardless, President Obama defended the Bank’s action as being good for the U.S. economy and therefore necessarily good for the world. However much world leaders might agree that U.S. economic recovery is good for everyone, and that QE2 may be driven much more by domestic necessity than by competitive advantage in exports, they nonetheless interpreted the development and its timing as hypocritical: China has defended its disinclination to revalue currency in almost identical terms, that China’s policy is good for China and China’s economic stability is good for the world. Contrary to Adam Smith, when everyone acts out of their own self-interest, the common good does not necessarily emerge.

Thinking About Subsidized Cars 汽车工业补助

By Elliot J. Feldman on October 25, 2010 Posted in CVD

General Motors And Subsidies

Just one year after investing $51 billion and acquiring a majority (61 percent) stake in General Motors, the Obama Administration, through the company’s Securities and Exchange Commission (“SEC”) filing on August 18, announced plans to begin selling the government’s stock and return the company to private control and ownership. The announcement was a cause for celebration on many fronts: the investment appears to have paid off, saving the company and its workers from bankruptcy and unemployment; returning capital to the American taxpayer ($6.7 billion having already been repaid); avoiding the multiplying effects of a failed corporation with thousands of suppliers themselves employing tens of thousands of workers all over the United States.

Some of the celebration was muted. There were doubts whether the stock sale would recoup all of the taxpayers’ money. The sale of shares will be gradual and the government will continue as a major (but not majority) shareholder. There remained no guarantees that General Motors would ever fully recover from its near-death experience. New General Motors leadership, although coming from the top ranks of major companies (the new CFO was CFO at Microsoft, for example), has no automotive experience.

The most serious concerns are that General Motors’ future depends, above all, on sales in China and Brazil, while its principal innovation, the all-electric Chevrolet Volt, is due to be introduced at a high price and with boundless uncertainty this year. The SEC filing acknowledges that the Volt depends on a battery technology “that has not yet proven to be commercially viable.”

Both the celebration and the concerns resonate with the trade law. They also present new political and diplomatic challenges for the Obama Administration. U.S. trade law and policy, dating back to the 1988 Omnibus Trade and Competitiveness Act, treat government equity infusions into private enterprises as subsidies.

In the highly publicized infusions of capital into General Motors, the United States was rescuing a company that the United States said would have gone bankrupt. The free market premises of the trade law dictate that a company that would go bankrupt without government help produces nothing but subsidized products thereafter. The subsidies could be extinguished only through market transactions eliminating all of the government equity, and even then an argument remains that no new merchandise would have been produced but for the government intervention. For the last year, GM has been unmistakably a state-owned enterprise, and the American interpretation of the WTO’s Subsidies and Countervailing Measures Agreement may permanently handicap GM’s international sales.

An American State-Owned Enterprise In China

The challenge for GM is acute in China, which has become GM’s leading market and the focus of its projected growth. The Obama Administration on August 26 proposed fourteen regulatory changes in the Department of Commerce’s Import Administration, including seven aimed directly at non-market economies and one that would make the products of state-owned enterprises almost automatically subject to allegations of unfair subsidies. Most of China’s automotive production is state-owned, and GM’s largest effort in China is in a joint venture with a state-owned enterprise. GM has been for the last year, unmistakably, a state-owned enterprise itself.

Were China and the United States developing and producing automobiles and parts only for their own markets, they might each choose to ignore the implications of state ownership and equity infusions. They might be subject to WTO complaints from the private makers of cars in other countries trying to compete in China and the United States because, as third country competitors, they would be disadvantaged, but such complaints are rare and difficult. China and the United States, however, are not circumscribing their own ambitions. Both are trying to claim green high ground, developing automobiles and components that will be more environmentally friendly. They are competing with one another to this end, but also cooperating. Both, separately and together, want to market their products around the world. The rest of the world could reasonably treat these products as unfairly subsidized.

The thirteen-year-old joint venture between GM and state-owned S.A.I.C. Motor Corp. of China (the former Shanghai Automotive Industry Corp.) is planning to develop small, fuel-efficient automobile engines and advanced transmissions. The joint venture for engines and transmissions, part of GM’s strategic plan to become greener, is aimed expressly at the Chinese market, but the joint venture is also planning to manufacture small cars together in India, and to market the engines and transmissions around the world.

Using Green To Buy Green

However worthy the green cause may be, and however dependent its success may be on government help, the products of the GM-SAIC joint venture are subsidized and probably in violation of WTO agreements. Nor is the problem limited to engines and transmissions, or even whole cars. On September 12, U.S. Energy Secretary Steven Chu traveled to Livonia, Michigan to tout the success of government financial support for A123 Systems, a manufacturer of lithium ion batteries destined for electric cars. At least $550 million of the government’s $789 billion stimulus program has gone to plants making such batteries, the leading edge of $2.4 billion committed to electric car development. The CEO of the company in Livonia volunteered, “This money was instrumental in the decision to put manufacturing in North America. We think that without this, it’s very unlikely that plants of this size and nature would have been happening in the U.S.” He might just as well have hung a sign around his neck with an arrow to the plant reading, “This way to our subsidized products.”

China committed in 2010 to a program of “indigenous innovation” that features attracting new technologies from other countries. It welcomes the innovations from GM in its joint venture, but also wants to convert American ingenuity into Chinese ownership. GM, now selling subsidized vehicles vulnerable to WTO challenge, may have no choice but to transfer technology to China in order to remain prosperous in the Chinese market.

China’s fourth largest automobile manufacturer began as a producer of batteries. BYD believes that its battery-driven electric vehicles will claim first place in the world market because of its leadership in developing batteries. BYD is not likely to welcome the Chevrolet Volt, GM’s highly subsidized battery-driven car, nor GM-SAIC products incorporating American batteries, into the Chinese market. Yet, BYD may be a beneficiary of the joint China-U.S. program for the development of electric cars, launched during President Obama’s visit to Beijing in November 2009. That program began with more than $150 million from the two governments.

Solving The Subsidies Problem

We warned in December 2008 that massive U.S. government bailouts of banks beginning in September 2008 demanded a change in thinking about countervailable subsidies. Practically every major American bank had been deemed uncreditworthy and was lending money borrowed from or granted by the federal government. All such loans arguably were subsidies countervailable on goods an American producer borrowing from those banks might sell abroad.

The bailout of the U.S. automobile industry was an even more direct subsidy, financial contributions committed to the very survival of companies. And in looking forward, subsidies were targeted as much as possible on green technologies, on innovation, on reducing carbon footprints. There was no bigger target, because of the environmental damage it does, the jobs it provides, and the financial difficulty it was in, than the automobile industry. And within the automobile industry there was nothing more promising than electric cars.

When Premier Hu and President Obama met in September 2009 in Beijing, one of their few achievements was to create a joint foundation, jointly funded, for the development and promotion of electric vehicles. Since that time, however, there is no indication that either country has put up its share of the money, or agreed on where the foundation should be located, exactly what it should do, and who should lead it. Like the temporarily calming effect of another cooperative agreement between China and the U.S., the electric car agreement may have muted the Chinese subsidies investigation into U.S. cars, but appears a year later to have done nothing to advance the agreement’s public and official objectives.

Contradictions now litter the trade battlefield, particularly over subsidies and green technologies. While the Obama Administration applauds achievements through subsidies to the automobile and battery industries, especially celebrating the implications for the development of green technologies in Michigan, House Ways and Means Committee Chair Sander Levin (D-Mich) is pressuring the Administration to launch a WTO case, upon a petition from the United Steelworkers, alleging Chinese subsidies to green technologies.

Japan seems to have beaten Levin, indirectly, to the punch. In mid-September, Japan challenged the Province of Ontario’s Green Energy Act at the WTO, alleging unfair subsidies for the development of solar and wind power. It is a direct challenge to national policies favoring local companies in their quest for a reduction in greenhouse gas emissions, what the Steelworkers are asking the United States to challenge in China, and what China could surely then challenge in the United States, particularly in the cash infusions in Levin’s own Michigan.

China and the United States might want to reach an accommodation, a mutual recognition of subsidies for automobiles, especially electric cars and their components, but also for other green technologies. Without such accommodation, GM faces a potential threat of effective banishment from the Chinese market, and potential loss of its joint venture once its technology has been transferred. Accommodation on the trade law, however, requires political and strategic accommodations, which may not be forthcoming.

China denies any correlation between state ownership and subsidies, and the United States insists that the temporary infusion of equity, whether into banks or GM, was a limited, temporary market transaction in which corporate management remained private. Both China and the United States insist that their automobile manufacturers operate independent of state direction, on market principles. An accommodation accounting for WTO rules would require each to admit that state ownership and equity infusion probably have violated the SCM. Otherwise, no accommodation would be necessary. Neither is likely to contemplate such an admission, however, and so both must continue to live under threats, the United States menacing state-owned Chinese enterprises and Chinese policies and practices enhancing exports, the Chinese launching investigations into U.S. subsidies while advancing an industrial policy of “indigenous innovation” promoting joint ventures as long as they deliver to China new advantages in technological change.

Either cooperation to reduce greenhouse emissions, or Japan’s initiative against Canada, will define the future. Either state intervention will be condoned in a financial crisis, or will be punished under world trade rules. There is an urgent need to address these questions before, one by one, technological innovations and world trade initiatives are derailed by the very international trade agreements intended to encourage both.

Is China Manipulating Its Currency For A Trade Advantage? 中国操纵汇率以促进出口吗？

By Baker Hostetler Guest Author on October 11, 2010 Posted in CVD

Editor’s Note: Amelia Lo, the author of this article, is a Chinese law student in Hong Kong who was a foreign intern at Baker & Hostetler LLP during the summer, 2010.

According to United States Senator Charles Schumer (D-NY), a strident critic of China’s currency policy, “[the] most important issue in the Chinese-American relationship is currency.” Schumer and other American critics often have used the term “currency manipulation”, fraught with negative connotation, when referring to China’s currency policy. To appreciate the perspectives of two distinct sides in this debate, it is probably better to find more neutral language. Governments may control the value of their currency, whether through the money supply (the actions of the American Federal Reserve Bank) or by floating on world currency markets. Consequently, reference to “currency control” instead of “currency manipulation” might facilitate a dialogue that, to date, has been confrontational and full of accusations.

An Overview
China pegs its currency to the U.S. dollar at about 6.827. In May, 2010, the trade deficit between China and the US was “the largest imbalance with any country”. In June, the US trade deficit had reached nearly $50 billion, the largest figure in two years.

During 2010, there have been a number of bilateral meetings between Premier Hu of China and President Obama of the United States. On June 19th, China’s central bank announced that it would reform “the formation mechanism of the Yuan exchange rate to improve its flexibility”. The United States interpreted this announcement as an important Chinese concession, and looked forward to a significant and rapid adjustment in the exchange rate between the yuan (or “renminbi”or “RMB”) and the dollar. There may have been exaggerated expectations of instant and significant market changes following China’s announcement, but only two small adjustments have occurred since June 19 and it may be too early to evaluate China’s new exchange rate policy.

The U.S. Point Of View
There seems to be an American consensus that China is manipulating the exchange rate of its currency, preventing it from floating free on world markets, to gain a trade advantage for an export-led economy. The mainstream American media project this view, consistent with frequent expressions of American politicians, that China is manipulating its currency by maintaining a very low value for the yuan in trading with the dollar and other currencies. Some, like Rep. Sander M. Levin (D-Mich.), even blame the unemployment problem in the U.S, perhaps the leading issue in the midterm elections, on China’s currency policy.

Although President Obama and Treasury Secretary Timothy F. Geithner have urged China “to allow the yuan to float higher,” they have been sensitive to potential Chinese reaction and value the U.S.-China relationship enough to avoid directly naming China as a currency manipulator in their annually mandated report to Congress. They postponed delivery of the report until China had indicated some movement on the currency, enabling them to soften the criticism they otherwise were encountering. They welcomed China’s June 19 announcement, but were concerned about how China’s promise to make its currency more flexible would affect U.S. China trade in practice. On 16 September, 2010, Secretary Geithner promised Congress that they, with other countries, will put pressure on China for “trade and currency reforms” in the next G20 summit in November in Seoul.

Although they have proposed different solutions to combat alleged currency manipulation, some more drastic than others, at least 130 US senators and representatives, Democrats and Republicans alike, disagree with China’s currency policy. Senator Charles E. Grassley (R-Iowa), the ranking member of the Senate Finance Committee, urged the Administration to name China as a currency manipulator. Going a step further, Congressman Levin (D-Mich.), Chairman of the House Ways and Means Committee, urged the Administration to monitor closely China’s progress and take appropriate action by filing a complaint against China at the WTO alleging violation of Article XV of the General Agreement on Tariffs and Trade.

While Levin and Grassley, key Democratic and Republican members in Congress, agree that the Administration should do more to influence China to take more significant steps to appreciate its currency, Senator Schumer and Reps. Tim Ryan (D-Ohio) and Tim Murphy (R-Pa.) have sponsored bills in the Senate and the House, such as the Currency Exchange Rate Oversight Reform Act 2010, intended to force the U.S. Commerce Department to obtain a trade remedy against China if its currency is undervalued.

Some American manufacturers argue that the Chinese yuan “is undervalued by as much as 40 percent” and that the undervaluation acts as an unfair subsidy to Chinese goods. Scott Paul, the executive director of the Alliance for American Manufacturing, has called on Congress to pass “strong legislation to penalize China’s currency manipulation”, believing that such congressional action would decrease the U.S. trade deficit. Another lobbying group, the Committee to Support U.S. Trade Laws, along with some 47 manufacturing groups and unions that make up the “Fair Currency Coalition”, support Senator Schumer’s legislative efforts to pass “an effective, WTO-consistent trade remedy without further delay.”

Despite the congressional pressures and pressure from American manufacturers, China is not without defenders in the United States. The US-China Business Council and the U.S. Chamber of Commerce agree that the exchange rate is a serious problem, but both contend that legislation treating currency control as a subsidy subject to countervailing duties is not a good way to achieve the goal of rebalancing the yuan. These associations think it wiser for the Administration to continue “its current approach of using multilateral and bilateral persuasion to achieve Chinese exchange rate reform” and to wait and observe the results. The Commerce Department’s recent ruling in late August, 2010 that China’s yuan value cannot be “considered a direct subsidy to Chinese exporters” is a wise move as it avoided the direct confrontation of trade and currency issues.

China’s Point Of View
The Chinese Government strongly denies allegations of currency manipulation and rejects claims that the yuan is undervalued. Premier Wen Jiaobao and the Chinese Foreign and Commerce Ministries are all of the view that China’s goal of a stable currency benefits the world at large, especially during the financial crisis.

Premier Wen maintains that China aims to continue to provide a stable currency and “steadily advance the reform of the formation mechanism of the RMB exchange rate under the principle of independent decision-making, controllability and gradual progress.” Wen emphasizes that, while “some countries [are applying double standards when they demand the appreciation of the yuan] but at the same time [practice] trade protectionism against China,” China will continue in its goal to work towards trade balance, rather than surplus.

To illustrate the advantage of a stable yuan-dollar exchange, Wen refers to the popular view that “China’s efforts to maintain a stable yuan-dollar exchange rate [despite pressure to devalue] during the 1998 Asian financial crisis helped the world.” China’s decision to keep its currency stable gave its currency credibility and ensured China’s financial stability after the crisis as “the nation [was able to] focus on improving productivity, quality and cutting costs.”

Foreign Ministry spokesman Qin Gang thinks that the U.S. politicizes the currency issue too much, and in a destructive and negative way. He argues that, contrary to what U.S. congressmen may expect, “the appreciation of the yuan will neither root out the U.S. trade deficit to China nor solve the low U.S. savings rate or unemployment” problems. Members of the Commerce Ministry, including Commerce Minister Chen Deming, Vice Commerce Minister Zhong Shan, and Commerce Ministry Spokesman Yao Jian, have reiterated consistently that the U.S. trade deficit will not be solved by a change in China’s currency policy. Yao ascribes reasons other than the currency policy, such as globalization, for China’s trade surplus.

According to Zhong, the U.S. China trade deficit “is caused by the shift in international division of labor and of industries against the backdrop of globalization.” This theory, he says, was demonstrated in March, when China’s trade surplus briefly fell into a trade deficit under a basically stable exchange rate. While Yi Gang, head of the State Administration of Foreign Exchange and Deputy Governor of the People’s Bank of China, contended that an official timetable for currency reform was not viable due to unbalanced development in China, he emphasized that China’s major goal in exchange rate reform is to make the yuan a “convertible currency”, one that can flow freely.

According to China’s Yuan Stress Test in March 2010, “half of China’s textile firms may [go] bankrupt if the value of the [Yuan] rises 5 percent against the U.S. dollar, given the industry’s thin profit margins.” Such job losses could affect as many as 20 million civilians directly engaged in the textile industry, and another 140 million working in cotton farming. Such indicators lead Chinese authorities to insist that the yuan’s convertibility is an internal affair, and that China will not sacrifice its domestic interests under foreign pressure.

Selected Points Of View Of Scholars
There is a variety of views on this subject: while some support China, many are those who strongly believe that the yuan is undervalued.

Supporters of China’s currency policy include Nobel Prize Laureate Robert A. Mundell, “father” of the Euro. He remarked in June 2010 that he did not think that China should have a large appreciation in the current situation and that too much appreciation would hurt China’s economy. Another Nobel Laureate, Joseph Stiglitz, contends that the “US’s [act of forcing] China to revalue the RMB is a manifestation of protectionism” and that “the United States putting pressure on China for Yuan appreciation is [not a good idea as it risks] shaking up the foundation of world economic recovery.”

Economist Bai Chong-en of Tsinghua University in Beijing thinks that the yuan is not seriously undervalued. He further contends that outside pressure on China to reform its exchange rate may do more harm than good in convincing China to allow its currency to appreciate, as “people don’t like to be forced to change things.” Xia Bin, economist and counselor of the State Council, asserts that the US deficit is caused by the “defective economic structure” of the US but not China’s yuan value. Huang Yiping, a professor at Peking University, who considers himself “a strong advocate of greater exchange rate flexibility in China”,disapproves of Nobel Laureate Paul Krugman’s advice to the US government to blame, finger point and confront China for global problems and job losses.

There are strongly-held, contrary views from other leading economists. Krugman, Fred Bergsten, Director of the Peterson Institute for International Economics, and Robert E. Scott , Senior Economist of the Economic Policy Institute, have repeatedly urged the U.S. government to adopt more aggressive policies such as ‘naming and shaming’ and retaliatory measures against China. All three scholars blame China for US job losses, though the values they allege vary from about 1.5 million to 3 million.

Krugman has accused China’s “undervalued” yuan of being a “significant drag on global economic recovery,” and has referred to China’s exchange rate policy as “most distortionary” and “[damaging]” and China’s manipulation to be “self-evident”. To Krugman, and to Scott, the United States has the upper hand over Chinese exports and the U.S. government should not be afraid to force China into action on the currency.

Bergsten thinks the yuan is undervalued by between “[at least] 25 and 40 percent”. He claims that China’s 2005 appreciation was not a real appreciation due to China’s increase in productivity. Although Bergsten acknowledges that macroeconomic forces contribute to China’s undervalued currency, he blames the Chinese government for manipulating its currency by “[buying] about $1 billion daily in the exchange markets to keep [its] currency from rising”, and claims these purchases to be the main cause of the exchange problem, in addition to a form of protectionism.

Would An Appreciation Of The Chinese Currency Actually Help The United States?
All things being equal, as economists like to say, an appreciation of the Chinese currency would make Chinese goods more expensive in the US and US goods cheaper in China. Logically, an appreciation of the yuan therefore would decrease the US trade deficit with China, increase exports, and thus create jobs in the US. China’s policy helps China in the long run. But does it help China in the short run, as it may inhibit Chinese manufacturers’ desire to improve the quality of their products, such that they may have a quality advantage in addition to a cost advantage in the future? Will other countries regard China as a market economy were it to adopt a fixed rather than floating rate?

Concluding Thoughts
The Peterson Institute for International Economics defines one of the criteria for “manipulation” to be “large intervention in one direction over a sustained period that frustrates balance of payments adjustments.” If that definition were adopted generally, many countries in the world, including the U.S., could arguably fit the description of currency control or manipulation at first glance. Liam Halligan, a UK-based economist and commentator, argues that “America’s long standing ‘weak dollar’ policy,” which “[allowed] its currency to depreciate in order to lower the value of its foreign debt,” “[amounted] to the biggest currency manipulation [and protectionism ] in human history.”

As Treasury Secretary Geithner wisely understands, the US cannot “force” China to revalue its currency in order “to create a level playing field for American exporters.” Relentless pressure on China to revalue could harm the U.S. China relationship, which the Administration seems to value more than the narrower issue of currency exchange. At the same time, the Chinese government should take into account the concerns of the US and conduct more dialogue with the US while it improves the flexibility of its currency.

According to Brookings Institution Senior Fellow Barry Bosworth, focusing exclusively on the exchange rate issue is “a mistake”. The US government should focus on expanding US exports. Rather than blaming China for its economic problems, the US government should work within its own scope of influence, to formulate strategies that enhance the production capacity of manufacturers, to implement tax saving incentives to encourage employment and help small businesses.

We should not forget that US consumers have benefited from the diversity of low-cost Chinese imports. If the US were to impose trade restrictions on China’s goods, US consumers would likely have fewer choices.

Time is required for an economy like China’s to transform from being export-oriented to market-based. Both China and the U.S. are concerned about unemployment. On June 20th of this year, the Chinese government made a promise. The U.S. should be patient and wait to see the results of China’s promise. According to recent measurements, the value of the yuan “has risen about 1.5 percent, most of that over the course of [the week before the 15th of September]”, which is quite a promising figure. Instead of striving for actions that involve blaming, shaming and retaliating, the U.S. government can initiate acts of cooperation, trust and tolerance such as by increasing dialogue at the top, the middle and grass root levels with China so that it can understand China’s plan and policy better, and allow China to understand American concerns. By working together sincerely and communicating honestly and openly, the leaders of the two governments are likely to be able to reach a successful compromise and consensus on the currency issue.

China’s Status As A Non-Market Economy 中国的非市场经济体地位

By Elliot J. Feldman on September 21, 2010 Posted in CVD, WTO

China’s goals of international recognition during the last decade, in addition to accession to the World Trade Organization (“WTO”), include most prominently acceptance by the United States as a market economy. There have been at least two motivations: to have its creation of a market, “with Chinese characteristics,” recognized and approved around the world; and to be liberated from the trade remedy methodology tailored specifically for non-market economies. The former is more psychic; the latter is pragmatic.

Non-Market Economy Status

World trade rules are built around principles of free trade. Free trade as an ideal type refers to unimpeded private market transactions where governments, monopolies, and state enterprises do not have enough influence to distort the conduct or outcomes of private enterprise competition. The free private enterprise system assumes, as did Adam Smith, that the selfish private acts of individuals and their organizations will yield, out of their competition and interaction, a greater public good. The market, not government, defines and produces the public good. It also assumes that governments and monopolies, when regulating or controlling private transactions, distort markets and thus are harmful to the public good.

The role of government in the ideal free private enterprise system is limited, mostly to regulating anticompetitive behavior and breaking up excessively large conglomerates and monopolies that prevent free competition. Of course, such limited government is a fiction. Governments have many roles in civil society, and all impact the economy.

All governments raise revenue through taxes. They make judgments about who most can afford to pay. Despite the periodic calls in the United States for a “flat tax” imposed on everyone equally, taxes everywhere are “progressive,” graduated according to the perceptions of what can be afforded and by whom, including business enterprises as well as individuals. Taxes on transactions – sales taxes or value added taxes – are also common. The form of taxation, the extent to which taxes are graduated, and the taxpayers (corporate or individual) all express public policies favoring some over others. A core public policy in the United States favors private home ownership, which has produced special tax provisions affecting everything from bank loans to construction materials. All such government interventions and taxes distort markets in one way or another. Yet, like death, taxes are inevitable and are the most obvious form of government intervention in markets.

Governments play additional roles. Every free market system assigns governments a role in forbidding the formation and operation of anticompetitive monopolies and trusts. Governments may regulate to protect the health, safety, and welfare of citizens. Such regulations typically raise costs of production for private enterprise, and impose certain manufacturing methods and ways of doing business. Hence, despite the ideal type, governments everywhere intervene in the free market.

Corporations rhetorically champion free enterprise, but in practice they seek competitive advantages that inevitably translate into limitations on competition. Governments regulate to limit or eliminate such corporate behavior. The nature of competition is to seek an advantage and a superiority over others. Such advantages are defined by reducing the competitive abilities and positions of others. Individuals and corporations idealize competition only to the extent that competition can improve their situations, which by definition requires the degrading of the competitive positions of others. Consequently, free private enterprise systems foster competitors whose objective is always to reduce competition. Governments overseeing such systems endeavor to maximize competition, while protecting against the release into the stream of commerce of products and practices inimical to the health and safety of individuals and society.
This ideal type of free enterprise system is the theoretical antithesis of a state-controlled or command economy. In the ideal type, government intervenes only as required, reluctantly, and while trying to guarantee free competition. In a command economy, government seeks to direct all economic activity, deciding what needs to be manufactured, to whom it should be distributed, and at what price. Government extracts rents from this production and, therefore, in control of the entire economy, can raise revenues anyway it likes. Markets function only to the extent that governments permit, in any particular sector, the interaction of willing buyers and willing sellers. Mostly, demand is regulated by supply, the latter controlled entirely by the government.

The United States, since the ascension to power of Mao Tse-Tung, has treated China, dominated by state-owned enterprises and with a tax system dictated by government (rather than negotiated among competing interests), as a non-market economy. However, China, since the “opening” of Deng Xiaoping, no longer regards itself as a non-market economy. Instead, China thinks of itself as a capitalist, market economy, albeit with “Chinese characteristics.”

There are many indicia supporting China’s self-image because substantial competition has grown up in China. Capitalist goods are everywhere and are sold competitively throughout the country. There are advertisements promoting different prices for the same or comparable goods. People decide what to buy, from food to cars, such that supply does not control demand, and the government does not control supplies. Labor has become mobile, with people moving from one part of the country to another, from one kind of job to another, from one corporate entity to another making or selling the same product. Prices vary with supply and demand, not dictated by government.

There are many indicia that China remains a command economy. The government owns and controls the supply and prices of natural resources and public utilities. The government controls banks and insurance, lends money through the banks according to government policy and rates, controls the currency and its value. The most important economic sectors, such as steel production, are dominated, when not exclusively captured, by state-owned enterprises. Through the control of money and loans and prices, the government dictates the supply and demand for the most important products and services.

The global economic meltdown with the fall of Lehman Brothers in September 2008 made the United States look more like China than the other way around. The U.S. government took effective control of major banks and insurance companies, bought out one of the leading economic sectors – automobile manufacturing – and shaped subsidy programs throughout the economy designed to assure the success or survival of enterprises chosen by the government. Yet, while insisting that it is the world’s leading capitalist economy, the United States denied China’s claim to be recognized as a market economy.

Symbolism Of Market Recognition

China, as a matter of national pride and self-respect, has resented the American insistence that massive American subsidies and market intervention preserved a capitalist, market, free enterprise system, while identical conduct in China guaranteed that China would be considered outside the mainstream, along with Cuba and Vietnam and North Korea, as a non-market economy. The more China has insisted that the United States should recognize it as a market economy, the more the United States has resisted. Excuses have become cumulative, most prominently in the American complaint over China’s refusal to float fully the value of its currency, notwithstanding that U.S. currency did not float freely until 1971, and the United States certainly was not considered a non-market economy before then.

Recognition as a market economy has come to mean, for China, fulfillment of a promise it perceives was made in 2001 when China acceded to the WTO. Even though the WTO agreement projected recognition as a market economy by 2016, and then only upon the satisfaction of various criteria, China’s Commerce Minister now insists that the United States agreed to recognize China’s market economy status by 2010 and offers a sense of betrayal that recognition has not happened.

The Practicalities Of Market Economy Status

In only one significant respect does recognition as a market economy matter: when complaints are brought that Chinese goods are dumped in the United States, the methodology for determining whether there is dumping, and if so, how much, is different for non-market economies. This distinct methodology gives the United States Department of Commerce more discretion and flexibility to find dumping, and to inflate the dumping “margin,” the measure of how much dumping and consequently how much duty will be owed for the merchandise to be imported into the United States.

Dumping is determined in one of two ways: either a good is sold abroad for a price lower than the price at home, or the costs to produce the good exceed the price at which the good is sold abroad. When Chinese goods are subjected to this second measurement, the cost of production, the non-market economy methodology becomes critical.

Non-market economy status presumes that, in the absence of markets, there are no market prices. It is then theoretically impossible to determine the cost of production because it is impossible to determine the costs of any of the inputs. There are no market wages; no market rents; no market utilities. Raw materials have no market prices, nor do any component parts.
When the inputs are imported from a market economy, dumping analysts use the price the Chinese manufacturer has paid for those inputs. But when the inputs are domestic products, analysts assume there is no market price for them. The analysts then seek and apply “surrogate” prices – prices of the same input in a “market” economy that, supposedly, is at a similar level of development as China. Surrogate values may come from many different countries, but American official analysts have favored (for China) India, Bangladesh, Indonesia, and occasionally other countries.

The selection of surrogate values is highly contentious and is decided, in the end, by U.S. government officials. They have decided that freight costs, for example, could not be used if derived from a Chinese-flag ship. They have chosen, instead, some of the highest shipping rates in the world.

Subsidies And Market Economy Status

Until November 2006, treatment of China as a non-market economy did have advantages for China. A “subsidy” in international trade is a financial contribution from a government that is market-distorting. Where there is no market, there is nothing to distort. Therefore, until November 2006, the United States had never brought a subsidies (countervailing duty) case against China. Subsidies could not be alleged; they had to be treated as costs of production susceptible to the application of surrogate values.

It was always thought that China could not and would not be exposed to countervailing duty allegations unless and until it might be recognized as a market economy. The Chinese Government, consequently, stayed out of trade remedy disputes, as dumping is the business of business, not government. Dumping is determined by prices, and companies, not governments, set prices. Moreover, it was exceedingly difficult to address some of the “inputs” this way for a cost-of-production analysis.

The 2006 mid-term elections delivered a significant Democratic majority pressuring the Administration to get tough on China, especially as to alleged subsidies. A petition alleging subsidies to coated free sheet paper was pending. The Department of Commerce, soon after the elections, decided to initiate a countervailing duty investigation, while refusing, still, to recognize China as a market economy.

China protested the apparent anomaly – a non-market economy subjected to a countervailing duty investigation – but to no avail. Various legal issues emerged and several are still the subject of WTO proceedings initiated by China. None has been resolved by the WTO, and meanwhile the United States has found subsidies and imposed countervailing duties in 12 cases already. All of these cases were accompanied by antidumping petitions, and a cumulation of dumping and subsidies duties have been imposed in 26 cases since 2007. Petitioners complaining about unfair competition from China now routinely file simultaneously antidumping and countervailing duty petitions.

Why Non-Market Economy Status No Longer Has Practical Meaning

The decision to investigate subsidy allegations and impose countervailing duties while still treating China as a non-market economy rendered the non-market economy status practically meaningless. It is not as if, were China tomorrow to be recognized as a market economy, anything of practical value would change.

The United States has been applying surrogate values for subsidy allegations against China throughout the economy. For the allegation that China was not charging enough money for the commercial use of land in rural Shandong Province, the Department of Commerce used land values from suburban Bangkok. The Commerce Department ignored entirely expert testimony that the use of such values was nonsensical from the perspective of economics and land use. And Commerce treated any input supplied by a state-owned enterprise as a subsidy, the value of which was to be determined by selection of a surrogate value in a market economy.

The rationale for the application of surrogate values is based on Certain Softwood Lumber from Canada. Even though a WTO panel found the use of such values improper in the case of Canada and a NAFTA panel found it illegal, the Commerce Department dismissed the NAFTA panel as having no precedential authority and the WTO panel as ambiguous. Beginning with coated free sheet paper, the Commerce Department has cited its own administrative determination in the softwood lumber case as the basis for its treatment of China.

The Commerce Department argues that, even though Canada is indisputably a market economy, Canadian provincial governments own so much of the forests that any price for standing timber cannot be a market price. It did not matter that nearly twenty-five percent of the standing timber sold in Quebec is private, as is more than fifteen percent in Ontario. It did not matter that the pricing scheme for public forests in Quebec was based entirely on the prices in the private forest. The Commerce Department reasoned that the public sector was so large compared to the private sector that the private sector prices were driven by the public sector and therefore could not be used. It reasoned that the residual value methodology applied by Ontario, whereby the market price of manufactured lumber required certain pricing of the raw material, could not be used because most of the natural resource was in public hands. It did not matter that the NAFTA and WTO panels disagreed, as did a number of notable experts.

China, over the course of three years, has failed to successfully challenge any of the Commerce Department surrogate value applications in U.S. courts. [confirm] Consequently, the Commerce Department has been laying a foundation of subsidy findings as “administrative practice,” upon which it can rely for virtually anything that may arise in the Chinese economy. Bank loans, even from commercial banks, can be treated as non-market rates because of the alleged dominance of state-owned banks setting the market rates; prices for inputs from private companies can be set aside as long as there are state-owned enterprises in the same business. It will be very difficult for China to prove that the state is not dominant in one sector or another, and the burden of proof will fall on China.

The United States can recognize China as a market economy and continue to apply surrogate values and non-market economy methodologies in trade remedy disputes because China has focused on the issue of market economy status instead of on the methodology the United States developed in the softwood lumber dispute with Canada. The core issue remains not the nomenclature, but the predominance of state-owned enterprises.

The Strategic And Economic Dialogue

The Strategic and Economic Dialogue in Beijing in May 2010 seemed to produce only one Chinese headline: that the United States was going to recognize China as a market economy. The expectation was variously seen as fulfillment of a promise and as an essential American concession, a Chinese victory of sorts. The United States, as it happens, did not provide such recognition, only promising to continue a discussion about it. Consequently, the United States now knows it is holding something that China values highly, and yet is not worth very much, an enviable negotiating position. China, for its part, needs to recognize how little such recognition means, and move on to more meaningful discussions.

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History Shows That It Pays Respondents To Participate In Trade Disputes At The U.S. International Trade Commission 历史证明应积极参加美国国际贸易委员会调查

By John Clayton on September 17, 2010 Posted in Antidumping, ITC, Trade Disputes

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.

US Court Tells Commerce Department It Cannot Impose Countervailing Duties When It Uses The Non-Market Economy Methodology In A Companion Antidumping Case 美国法庭否决美国商务部双重征税计算方法

By John J. Burke on August 30, 2010 Posted in Antidumping, CVD

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Chief Judge Jane A. Restani of the United States Court of International Trade (“CIT”) on August 4, 2010 ordered the United States Department of Commerce (“DOC”) to forego the imposition of countervailing duties on pneumatic off-the-road tires from the People’s Republic of China. Her decision, in GPX International Tire Corporation v. United States, was based on her ruling that US law prohibited DOC from imposing duties higher than the amount needed to offset subsidies on imported products.

The problem for DOC, inherent in the case and as posed by Judge Restani, is that DOC uses surrogate values presumed to be unsubsidized, rather than a company’s actual production costs, to calculate Normal Values. DOC compares these Normal Values in its non-market economy antidumping methodology to the export price, a methodology that should, at least in theory, offset any subsidies on the production of the merchandise (because the comparison has been taken against unsubsidized inputs through surrogate values). If DOC were to impose countervailing duties to offset subsidies that benefit the production of the merchandise, then it would be offsetting the same subsidies twice.

Double counting of subsidies does not occur with DOC’s market economy dumping methodologies (19 C.F.R. §§ 351.405 & 351.406) because, in those cases, Normal Value is calculated based on actual prices in the foreign market and actual costs incurred in that market. Thus, if there were any subsidies imbedded in those prices or costs, they would not be offset by the antidumping methodology and would need to be addressed separately in a countervailing duty investigation.

Judge Restani’s August 4, 2010 decision followed an earlier decision in the GPX case where she sent the matter back to DOC to find a way to avoid the double counting problem. In the earlier case, Judge Restani found that, while DOC had discretion to impose countervailing duties on Chinese merchandise while still considering China to be a non-market economy (the central issue in dispute), DOC had to avoid double counting of subsidies when it applied the countervailing duty law and the antidumping non-market economy methodology to the same products at the same time.

DOC interpreted Judge Restani’s earlier decision as giving it three options: (a) not apply the countervailing duty law; (b) apply the market economy antidumping methodology in that case; or (c) lower the cash deposits imposed in the antidumping case by the amount of cash deposits imposed in the countervailing duty case. DOC decided to lower the antidumping deposits by the amount of the countervailing duty deposits. Judge Restani found that option contrary to US law because there is no provision in the antidumping statute to lower duties by the amount of countervailing duties and because that option is unreasonable as it requires the parties to go through the expense of countervailing duty proceedings that are essentially useless.

Judge Restani ordered DOC to forego imposing countervailing duties on off-the-road tires from China because DOC demonstrated in that case that it did not have the ability to determine the degree to which double counting was occurring in its non-market economy language and offset it directly within that methodology. Thus, the CIT has left open the option in future cases for DOC to try new methodologies to eliminate the double counting within the antidumping nonmarket economy methodology. DOC continues to have the option of imposing countervailing duties to products from China in cases without a companion antidumping case on the same products, or in cases in which it uses its discretion to recognize a market-oriented industry (“MOI”). In that latter instance, considering MOI status, it could continue its general policy of not recognizing China as a market economy while using a market economy methodology for a particular industry. DOC has never recognized an industry in China as “market-oriented,” but it does have the statutory authority to decide to apply market economy methodologies on a case-by-case basis.

DOC, or the petitioners in the GPX case, have the right to appeal Judge Restani’s decision to the Court of Appeals for the Federal Circuit (“CAFC”). Should they do so, that higher court could overturn Judge Restani’s decision, affirm it, or modify it. Were the CAFC to overturn the decision, DOC would be free to apply countervailing duties to the same products on which it used the non-market economy antidumping methodology. In deciding whether to appeal, however, DOC must consider the risk of appealing and losing. Right now Judge Restani’s decision is binding on DOC only in the GPX case: it does not set precedent that DOC would be forced to follow in all future cases. Were DOC to appeal and have the CAFC affirm Judge Restani’s decision, that affirmation would be binding precedent, prohibiting DOC from applying both the CVD law and the non-market economy methodology to the same merchandise.

Judge Restani’s decision was based solely upon US law. However, China has challenged at the World Trade Organization, on the same grounds of double-counting, the application to China of the countervailing duty law while DOC refuses to recognize China as a market economy. Judge Restani’s decision in GPX demonstrates the value, at least to the companies involved, of appealing to the US court, rather than relying solely on WTO challenges. As we noted in earlier articles on this blog (US Court Decision Ought to Change Chinese Thinking and WTO Challenges Not Always a Panacea for Respondents in Trade Litigation), the WTO process is designed to vindicate governmental interests, but does not often provide much comfort or relief for commercial interests. Appeals in the US courts, by contrast, are a right belonging to the companies themselves that have been hurt by the agency’s challenged actions and, when those companies win in U.S. courts,, the remedy can provide immediate retroactive relief.

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China-U.S. Trade Law

Insights & commentary on active trade disputes between China and the U.S.

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China’s Status As A Non-Market Economy 中国的非市场经济体地位

History Shows That It Pays Respondents To Participate In Trade Disputes At The U.S. International Trade Commission 历史证明应积极参加美国国际贸易委员会调查

US Court Tells Commerce Department It Cannot Impose Countervailing Duties When It Uses The Non-Market Economy Methodology In A Companion Antidumping Case 美国法庭否决美国商务部双重征税计算方法