FEBRUARY 01, 2016

By Dharmendra N Choudhary

THE events over the past six months are a bellwether of the invigorated trade actions against Indian exporters by the US trade authorities. A number of Antidumping (AD) and Countervailing duty (CVD) cases on exports from India have been filed during this period. This article provides an overview of AD and CVD proceedings in USA, and addresses some of the typical questions raised by exporters who are either already ensnared in an AD/CVD proceeding or believe it may be in the offing.

Dumping and Subsidization

The U.S. AD law is designed to counter injurious international price discrimination, commonly referred to as "dumping". When goods are determined to be sold in US market at less than fair value (LTFV), accompanied by a determination and causal connection of material injury or threat of material injury to a domestic industry or that the establishment of a domestic industry is materially retarded, AD duties could be levied. Sales at LTFV most often occur when a foreign firm sells merchandise in the U.S. market at a price lower than the price it charges for a comparable product sold in its domestic market. Absent sales of comparable goods in its domestic market, LTFV may be identified by comparing the foreign firm's U.S. sales price to the price it charges in other export markets or to the firm's cost of production of comparable merchandise. The difference between a company's U.S. sales price and the fair value (or, Normal Value) is called the dumping margin, which often is expressed as a percentage of the U.S. sales price.

Caveat: Dumping is not the sale of foreign merchandise in the United States at a price less than the price charged by U.S. producers of the same merchandise. The fact that a foreign producer's sale price is lower as compared to those charged by the U.S. producers is a relevant factor in the determination as to whether dumped imports have materially injured a U.S. industry.

The CVD law is aimed to counter the benefits received by exporters when foreign governments unfairly subsidize their industries that export to the United States. Not all government actions conferring benefits on their producers are viewed as countervailable subsidies. Instead, subsidization occurs when the financial assistance provided by government to benefit the production or exportation of goods are limited to a specific group of firms or to a firm's export activities.

While AD law focuses upon the pricing conduct of individual exporters, the focus in a CVD proceeding is upon the foreign government's actions/policies in the grant of subsidy.

Agencies involved and Different Stages of AD/CVD Proceedings

Once initiated by U.S. Department of Commerce (DOC), the AD/CVD proceedings move sequentially through the following four stages:

1. Preliminary Injury Phase before U.S. International Trade Commission (ITC)

2. Preliminary AD/CVD Phase before DOC

3. Final AD/CVD Phase before DOC

4. Final Injury Phase before ITC

With the exception of DOC's preliminary determination (stage 2), a negative determination by either DOC or the ITC results in a termination of proceedings at both agencies.

ITC Preliminary Injury Stage

The ITC's investigation in this stage is to determine whether there is a reasonable indication of material injury or the threat of material injury to the domestic industry, by reason of alleged unfairly dumped and subsidized imports from the coutry(ies) being investigated.  The ITC looks at the condition of the domestic industry and import trends over the last three years and analyzes a long list of factors to ascertain whether the domestic industry is suffering material injury by reason of unfair imports, including the domestic industry's

+ decline in output

+ loss of sales

+ loss of market share

+ reduced profits (this factor has been diluted in a recent amendment so that evidence of domestic industry's profit is not a bar to its material injury argument)

+ decline in productivity

+ decline in capacity utilization

+ reduced return on investments

+ price depression or preventing legitimate price increases

+ adverse effects on cash flow, inventories, employment, wages, growth, investments, ability to raise capital, etc.

If the ITC makes a negative injury determination in the preliminary injury phase, the entire AD/CVD proceeding terminates. This rarely occurs because the threshold for a preliminary affirmative injury finding is low. Even so, companies affected by the investigations should actively participate because they can influence several key issues, such as the definition of the domestic industry and the domestic "like product" which competes with the imported merchandise subject to the investigation. It is extremely helpful at this early stage to be able to provide testimony from end users in the United States explaining the reasons as to why imports have increased. If there are reasons unrelated to price, such as quality, consistency, timely delivery, superior customer service, etc., which would explain why the US customer increased sourcing from the target country, then these constitute critical evidence that must be provided to the ITC. Also, the knowledge gained by ITC during this phase could affect the outcome of its final injury determination, where foreign exporters and U.S. importers have a better chance of prevailing.

ITC issues detailed questionnaires to the concerned U.S. producers, U.S. importers, and foreign producers. U.S. producers questionnaires solicit data on capacity, production, inventories, commercial shipments, export shipments, employment, wages paid; financial data, including income - and - loss data on the product in question; data on capital expenditures, research and development expenses; questions regarding the impact of imports on capital and investment sales prices; other price - related information and solicits allegations of lost revenues and lost sales attributable to the subject imports.

Foreign producer questionnaires request data on the firm's capacity, production, home - market shipments, exports to the United States and other markets, and inventories of the subject merchandise.

U.S. producers and importers are required to respond to questionnaires. Foreign producers are not required to respond to questionnaires.  However, in the event foreign producer(s) fail to respond, the ITC will not only rely on the existing record evidence or "facts available", but may also take an adverse inference for noncompliance.

ITC holds a public hearing (Staff Conference) chaired by the Director of Investigation. Between short Opening and Closing statements, each side gets one hour at the Staff Conference to present their respective positions, after which the ITC staff asks the parties and their witnesses a series of probing questions. After the conference, interested parties file post-Conference briefs, pursuant to which the ITC issues a detailed Staff report synthesizing information collected through questionnaires, public documents, field visits, staff interviews, and issues raised by the parties at the conference and in briefs. The Staff Report forms the basis for the ITC's preliminary injury findings.

After carefully studying all documents in the record, including the staff report and memoranda, the transcript of the conference, and the briefs, all six Commissioners of ITC vote on the investigation in a public meeting. An evenly divided vote by the Commission represents an affirmative determination in AD/CVD investigations.

DOC Preliminary AD and CVD Stage

If the ITC's preliminary injury determination is affirmative, then the DOC proceeds to stage Two to determine, preliminarily, whether sales made to the U.S. from the target countries are "dumped" or benefit from unfair foreign government subsidies.  In order to do this, the DOC typically selects the two largest exporters from each country as "mandatory" respondents.

The two mandatory respondents receive extensive questionnaires from DOC requesting information, for AD phase, on all sales made to the U.S., all sales made in the home market, and the cost of production of all products sold to the U.S. during the one year "period of investigation".  The comparisons between the foreign firm's Normal value (NV) and its prices in the United States in an investigation are normally done by creating a computer program which compares model-specific weighted average prices. In simple terms, the amount by which NV exceeds the U.S. price is the dumping margin.

For CVD, the mandatory respondents are required to respond to extensive questions related to local and federal government programs they participate in and benefits they receive under those programs. The concerned government also receives a CVD questionnaire.

On the basis of the responses to these questionnaires, if the DOC makes an affirmative preliminary determination, it notifies preliminary AD and CVD rates of duties, specific to each mandatory respondent. Those foreign exporters who are not selected by DOC to be mandatory respondents receive a so-called "all others" rate of duty, which is a weighted average of the rates of duty determined for the mandatory respondents.  At this stage, Customs will suspend liquidation of entries and require the importers to pay a deposit or post a bond equal to the dumping margins calculated in the DOC's determination. Hence, this is the first day that the entries are actually effected by the AD/CVD case.

DOC Final AD and CVD Stage

During this stage, the DOC undertakes a physical verification of questionnaire responses at the mandatory respondent's production facilities, after which the attorneys for the parties (domestic and foreign) file briefs with DOC, arguing their respective positions. This is generally followed by a hearing at DOC, where after the agency issues its Final determination, including the rates of AD/CVD duties to be imposed upon the two mandatory respondents and an "all others" rate.

ITC Final Injury Stage

Assuming that the DOC final AD and/or CVD determinations are affirmative, the ITC conducts its final injury investigation, wherein after soliciting pre-hearing and post-hearing briefs from the attorneys for the respective parties and a public hearing before all six ITC Commissioners, the agency holds a public vote on injury determination.

If both DOC and ITC affirm, DOC issues the AD/CVD Order. This Order is invariably appealed before the Court of International Trade by the losing side. A second level of appeal may follow before the Court of Appeals for Federal Circuit. The AD/CVD Order is subject to an annual administrative review before DOC.

It is important here to underscore a distinguishing feature of U.S. AD/CVD laws. The U.S. system is a retroactive system, i.e. the rates calculated in the investigation are only an estimate of the ultimate AD/CVD duties owed. The definitive duties to be assessed are not calculated until at least 18 months later during the administrative review process. The annual administrative review process is an opportunity for foreign exporters to reduce a high dumping margin from the original investigation or previous review period through proper planning and preparation. In contrast, under most other AD/CVD jurisdictions around the world, the investigation sets definitive duties that are assessed upon entry. No review is necessary unless a company desires to reset the duty rate due to price changes or other changed circumstances.

Additional Points to Note

+ The mere filing of AD/CVD Petition seriously upsets the status quo of international trade, often turning it into a quagmire.

+ Although these proceedings are harrowing and unlike Customs, Excise or Income tax Orders, AD/CVD Orders could be in place in perpetuity, they present a unique opportunity to the exporters who plan for a long term stay in the US market. The exporter with the lowest AD/CVD rate stands to capture a larger share of the US market in a winnowing field.

+ Conversely, these proceedings could also potentially open the doors to top exporters with "all others" duty since these exporters may qualify as mandatory respondents in the ensuing annual administrative reviews, wherein they could obtain their own low rates. Likewise, a new exporter, who is unrelated to the exporters shipping to the US market, could obtain his own AD/CVD rates under a quicker New Shipper Review procedure.

+ Those exporters who want to continue to do business in the US market, need to closely follow the ongoing AD/CVD proceeding, especially on the scope of merchandise and country of origin issues (transshipment, substantial transformation of goods in a third country etc.). How these issues are resolved in a case, significantly impacts exporters' decision regarding the type of product to be exported, planning new investment in another country in order to partly or fully manufacture the subject merchandise.

(The author, an ex-Additional Commissioner of Customs, is a Foreign Trade Counsel at the Washington D.C. office of the international law firm on Customs and International Trade, Grunfeld Desiderio et.al.)