This week the U.S. Department of Commerce (Commerce) published a finalized package of updates to its antidumping and countervailing duty regulations. Below, we summarize several meaningful updates to existing Commerce practice. Although it remains to be seen precisely how Commerce will implement its updated rules, companies impacted by U.S. trade remedies laws should be aware of these changes to adjust business planning and for developing strategies for use in antidumping and countervailing duty proceedings.
Updated Rules Governing Non-Market Economy Practice
In U.S. antidumping law, different rules apply to proceedings involving “non-market economies” (NMEs) (currently the People’s Republic of China, Russia, and Vietnam, among others).
Selecting a “Comparable” Surrogate Country Source
Generally, instead of using an NME respondent’s costs recorded in the company’s financial system, Commerce will calculate costs based on “surrogate values” from economically comparable “surrogate countries.” For many years, Commerce has identified countries having a per-capita gross national income (GNI) closest to the NME country on an annual basis, and designated these as potential surrogate countries. Now, under Section 351.408(b), surrogate country options will be selected based on the per-capita gross domestic product (GDP), rather than GNI comparability to the NME country. Commerce has also asserted its discretion to remove countries from the list of comparable surrogate countries based on “additional factors,” e.g., “significant{} differen{ces}” in “size or structure” of the market economy and the NME. In the event Commerce exercises this discretion, it has committed to “identify th{e} factors and explain {Commerce’s} basis and reasoning for excluding that country from the surrogate country list when it issues that list on the Commerce website.”
Setting Rates in Cases Involving NMEs
In a proceeding involving an NME country, foreign producers are presumed to be part of the countrywide non-market “entity,” and thus subject to the “entity-wide rate,” unless they can establish that the NME country government has neither legal control nor actual control over the entity’s export activities. A company that satisfies this standard will be eligible to receive an antidumping rate separate from the “entity-wide rate.” This overarching NME framework is longstanding, but Commerce has made some noteworthy adjustments.
First, existing practice generally treats companies located in an NME country but owned and headquartered outside the NME country as eligible for a separate rate. Commerce states that it will “consider the evidence on the record in determining on a case-by-case basis whether the exception should apply to a given exporter.” While Commerce will not engage in such scrutiny as a matter of course, its willingness to consider additional evidence opens the door to greater scrutiny, and potential ineligibility of such companies for separate rates.
Second, Section 351.108(a)(3) now establishes that Commerce may assign the NME entity-wide rate to a company located outside of the NME if that company is (1) exporting NME merchandise subject to the antidumping proceeding and (2) directly owned or controlled, in whole or in part, by the NME government. Thus, third country companies exporting merchandise subject to an NME antidumping proceeding are now expressly required to establish their eligibility for a separate rate. In introducing this provision, Commerce noted the ability of NME country governments to exercise leverage on certain exporters outside of the NME country’s borders.
Third, Section 351.108(b) now codifies an expanded list of examples demonstrating control of an entity by the NME country government. In addition to longstanding scenarios such as government authority over export prices, contracting, or export licensing, Commerce has added scenarios where a government representative serves in a position able to make or influence the entity’s commercial or production decisions, or the company is required by law to maintain a government representative in such a position. Commerce’s new regulation furthermore signals openness to such “additional evidence” as an interested party might muster “suggesting that the government has direct or indirect influence over the entity’s export activities.” Incorporating this catch-all provision into the regulatory text can widen the variety of scenarios parties may argue in seeking to establish the existence of de facto control by the NME country government.
Updated Subsidy Rules Enlarge their Coverage
For over ten years, Commerce practice was not to countervail relief from taxes or import charges associated with a company being located “outside the customs territory” of a country (e.g., in an FTZ). Commerce has revised Sections 351.509(a)(1) and 351.510(a) to provide that relief from taxes or import charges may be countervailed even where such relief is the “result of being located in an area designated by the government as being outside the customs territory of the country.” While Commerce did not provide examples of how it intends to apply the revised regulation, it generally places FTZ-related tax and import charge programs on an equal footing with other tax programs that Commerce might investigate.
Separately, U.S. law requires that a subsidy not be countervailed unless it is “specific” (i.e., not generally available). Per the governing statute, specific subsidies include, among others, those that are “expressly limit{ed}…to an enterprise or industry,” and those that are actually received by a “limited number” of industries. Nevertheless, for several decades Commerce’s regulation included two carve-outs to the specificity requirement related to: (1) the agricultural sector generally, or (2) small or medium enterprises (SMEs). Commerce has now amended its regulation to remove both exceptions, reasoning that blanket exceptions are inconsistent with Commerce’s statutory obligation to make specificity determinations on a case-by-case basis. While Commerce cautions that this “should not be construed as a change in the agency’s policy or practice” and does not “imply a renewed emphasis on pursuing” agricultural subsidies, it nevertheless opens a potential pathway to establishing specificity in cases that were previously outside the scope of the regulations.
As a practical matter, however, Commerce’s removal of the agricultural exception is likely to be more meaningful than its removal of the SME exception. Commerce states that merely alleging that a subsidy program is limited to SMEs “would not normally be sufficient” and Commerce “would also normally expect that the interested party explain why there would be a reason to believe or suspect that an SME program would be de facto specific,” e.g., based on the number of recipient firms or industries. By contrast, a subsidy program targeting the agricultural sector may be more likely to satisfy the specificity requirement on that basis, except for highly agrarian economies. Time will tell, as Commerce implements these rules in practice.
Finally, in Section 351.512, Commerce has issued its first-ever regulation setting out the framework the agency intends to use in evaluating alleged government purchases of goods for more than adequate remuneration (MTAR). Commerce will base its benchmark for “adequate remuneration” on:
- (Preferably) “market-determined price for the good based on actual transactions, including imports, between private parties in the country in question;” or
- (If #1 is not available) “to a world market price” (or an average if multiple world market prices are available); or
- (If neither #1, nor #2 is available) “any premium provided to domestic suppliers of the good” based on “the government’s procurement regulations and policies” or bidding docs; or another “reasonable methodology” such as the recipient’s cost of production, plus reasonable profit margin.
New to the final regulation, Commerce added Section 351.512(a)(2)(iii), which provides that Commerce may decline to rely on prices in the home and/or world market where evidence demonstrates such prices are likely impacted by government actions, laws, or policies. Named examples include mandatory domestic-content requirements, price controls, and production mandates. Commerce otherwise stated that it would consider additional price-distorting issues (e.g., anticompetitive actions among private firms) on a case-by-case basis.
The foregoing benchmark, once established, will be compared to the price paid by the government authority for the good in question, on an ex works basis, with due consideration of any possible price manipulation if the government pays for both a service (e.g., delivery) as well as the good. In general, the difference between the benchmark and the government price will determine the magnitude of the benefit to the recipient, with a separate analysis set aside for instances where the government both sells and purchases a good (e.g., electricity). Although purchases of goods for MTAR is not a commonly alleged subsidy, it has arisen in cases involving aluminum extrusions, brass rod, uranium, and supercalendered paper. This regulation provides greater certainty in how Commerce will analyze such allegations, and where interested parties should focus their arguments.
Conclusion
The updated regulations were published in the Federal Register on December 16, 2024, and will become effective 30 days thereafter. In addition to the changes profiled above, Commerce has updated more than a dozen other provisions. In general, the remaining amendments codify existing agency practice, update regulatory text to mirror intervening statutory amendments, concern technical details of Commerce’s calculations (of greater interest to practitioners than to the business community), or address less common scenarios in Commerce’s trade remedies practice.
Cassidy Levy Kent has deep familiarity with all aspects of the administration of U.S. antidumping and countervailing duty laws. We assist companies every day to ensure that U.S. law is fairly applied to their circumstances.