By Daniel B. Pickard
U.S. manufacturers who have been harmed by low priced imports can obtain meaningful relief under one of two U.S. trade remedy laws. The first article in this series covered the U.S. antidumping law. This second article will provide an overview of countervailing duty investigations, which give relief to U.S. manufacturers and their workers who have been injured by unfairly subsidized imports.
General Overview of U.S. Countervailing Duty Law
Under the countervailing duty (CVD) statute, members of a particular domestic industry may petition the U.S. government to investigate imports of similar foreign goods and to impose compensating duties where two threshold requirements are met: (1) imports are being subsidized by the government of the exporting country; and (2) the subsidized imports are a cause of (or threaten) material injury to the domestic injury.
Generally, CVD investigations are conducted along with an antidumping investigation on parallel tracks before both the U.S. International Trade Commission (“ITC” or “Commission”) and the Department of Commerce (“Commerce” or “Department”). The ITC – an independent, quasi-judicial, federal agency – determines whether a domestic industry is materially injured or threatened with material injury by subsidized imports. In a CVD case, the Department is responsible for determining the nature and extent of the government subsidies.
The countervailing duty statute authorizes the imposition of compensating duties to “countervail” subsidies paid by foreign governments to their country’s exporters. A countervailing duty is immediately imposed on all imports of the suspect products following positive preliminary determinations from the ITC and the Department.
For many years, a CVD investigation was not available for communist countries (referred to as “non-market economies” or an “NME” by the Department), however that position was reversed more than a decade ago. Currently, China – an NME country – is the most frequent target of CVD investigations.
The threshold issue in a CVD investigation is whether a foreign government subsidizes the production or export of merchandise that is then imported into the United States. Subsidizing occurs when a foreign government provides financial assistance to benefit the production, manufacture, or exportation of a good. Subsidies can take many forms, such as direct cash payments, credits against taxes, and loans at terms that do not reflect market conditions. The CVD statute and accompanying regulations establish standards for determining when an unfair subsidy has been conferred. The amount of subsidies the foreign producer receives from the government is the basis for the subsidy rate by which the subsidy is offset through higher import duties.
Before imposing countervailing duties, the ITC must first find that the imports are a cause of material injury (or threat thereof) to the U.S. industry. The ITC will primarily examine 3 factors, namely (1) whether imports have increased absolutely and/or have taken market share from U.S. producers; (2) whether imports undersell US-produced product or otherwise depress prices in the United States; and (3) whether imports have had a negative impact on U.S. producers profits, production, capacity utilization, sales, or profit margins.
Relief Provided to U.S. Companies
A successful trade remedy investigation will result in the issuance of a countervailing duty order. The order will require payment of duties for all covered imports from all producers in the subject countries in an amount to offset the unfair pricing. The countervailing duty order is issued for a five-year period but which can be re-issued for subsequent five-year periods through a “sunset review” process. Trade remedy investigations frequently result in U.S. manufacturers regaining lost market share, increased pricing levels in the United States, and improved operating profits and profit margins.
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For more information regarding the U.S. antidumping and countervailing duty laws, please do not hesitate to contact Daniel B. Pickard, a partner in the International Trade practice of Wiley Rein LLP, in Washington DC. He can be reached at 202.719.7285 or via email at [email protected].
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