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Thursday, September 30, 2010

Trade Remedy Legislation: Applying Countervailing Action to Nonmarket Economy Countries

Vivian C. Jones
Specialist in International Trade and Finance

Concern regarding the level of low-cost imports from China and other countries and its impact on U.S. firms and workers, combined with China’s limiting of the appreciation of its currency, have led some in Congress to introduce legislation proposing to make countervailing duty laws applicable to China and other nonmarket economy countries.

Countervailing duty laws provide for the assessment of additional duties on imports whose production and/or importation are found to be subsidized by a public entity in their country of origin and are injurious to a U.S. producer of similar merchandise. Antidumping, another kind of trade remedy action, addresses products sold in the United States at less than their fair value (as defined by law) in a similar manner. Although antidumping (AD) and countervailing duty (CVD) laws and procedures generally parallel each other, CVD laws contain no specific provisions for investigations on imports from nonmarket economy (NME) countries, while the AD statute does provide such guidelines.

Initial administrative attempts in 1983 to apply countervailing remedies to allegedly subsidized imports from several NME countries led to determinations by the International Trade Administration (ITA) of the Department of Commerce (the U.S. agency charged with determining the existence and extent of subsidies) that subsidies within the meaning of the countervailing law, cannot be found in nonmarket economies. These ITA determinations were challenged in the U.S. Court of International Trade (CIT), which held that they were “not in accordance with the law,” reversed them, and remanded the cases to the ITA. On appeal, the U.S. Court of Appeals for the Federal Circuit reversed, and reinstated the ITA’s original determinations—thus affirming that the ITA has the discretion not to apply the CVD law to NME countries.

The ITA reevaluated this decision, with respect to China only, during a countervailing investigation on coated free sheet (CFS) paper. On October 18, 2007, the ITA made a final affirmative determination of subsidies in the investigation, finding net countervailable subsidies ranging from 7.40% to 44.25%. Although the International Trade Commission (the U.S. agency charged with determining whether the U.S. industry suffered material injury as a result of the subsidy) made a negative injury determination in the investigation, meaning that no CVD duties were assessed, other industries pursued countervailing investigations as a result of the ITA’s decision. As of this writing, countervailing duties have been placed on 13 products from China, and at least 8 investigations are pending.
Legislation seeking to apply CVD action to NME countries introduced in the 111
th Congress includes H.R. 496 and H.R. 499, both introduced on January 14, 2009.

Date of Report: September 15, 2010
Number of Pages: 20
Order Number: RL33550
Price: $29.95

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