Wednesday, February 29, 2012

GPX Update: The Fake Pressure to Pass a Bad Bill (UPDATED)

With the House and Senate furiously trying to pass the CVD/NME "fix" legislation (H.R. 4105) that was formally introduced this morning, now's a perfect time to examine the bill and ask one simple question:  Why the heck is everybody on the Hill and in the White House in such a rush to sign this puppy into law without formal analysis and consideration of its substantial weaknesses? 

Such a question might seem obvious to most lay people, but it's particularly important in this case.  You see, a quick review of the bill's text reveals quite plainly that, despite congressional claims otherwise, it is extremely biased agains US importers and consumers and doesn't solve any of the serious problems - including "retroactivity" and "double counting" - that the CVD/NME issue raises. 

Since 2007, these US importers have paid millions of dollars in duties that, according to the Court of Appeals for the Federal Circuit, the US government had no legal authority to collect.  Thus, right now, those companies (particularly the plaintiffs in the original GPX case) have a very legitimate and hard-fought right to compensation from the government (e.g., refunds of all those illegal duties paid).  Such compensation could keep their businesses afloat or even fund expansion (and jobs!).  Yet congressional legislation could invalidate their legitimate legal claims (and the millions they're owed), and cost them millions more in duties and legal fees.  Maybe I'm crazy, but I think a proper analysis is in order, don't you?

So let's get started.


As mentioned last night, the proposed legislation would be "retroactive" to November 2006 - the date of DOC's first initiation of a CVD case against NME imports (Coated Paper from China). In particular, the bill states:
(b) EFFECTIVE DATE.—Subsection (f) of section 701 of the Tariff Act of 1930, as added by subsection (a) of this section, applies to— (1) all proceedings initiated under subtitle A of title VII of that Act (19 U.S.C. 1671 et seq.) on or after November 20, 2006; all resulting actions by U.S. Customs and Border Protection; and (3) all civil actions, criminal proceedings, and other proceedings before a Federal court relating to proceedings referred to in paragraph (1) or actions referred to in paragraph (2).
As I've repeatedly noted, this means that all existing CVD orders and pending investigations related to imports from China and Vietnam - totalling billions of dollars in annual trade - would continue, even though the federal government had no lawful authority at the time to initiate the investigations, impose the measures or collect the duties.  As a result, it is all but certain that foreign exporters, US importers and the Chinese and Vietnamese governments will challenge the "newly-legal" measures in US courts and the WTO (and they might have a decent shot at prevailing).  US importers will have particular motivation to sue: they've paid millions of dollars in duties that, prior to this year, should never have been collected.  (Remember, kids, American companies, not the Chinese government, pay duties on imports.  And in these cases they often have no control over the amount owed.)

Another thing worth noting is section (3) above, which makes clear that the legislation will invalidate any legal challenges to the previous (and formerly illegal) CVD-NME policy.  Thus, foreign exporters, and US importers/consumers will have spent five years and millions of dollars on lawyers pressing - and winning! - legal complaints against the US government related to the abject illegality of the 2007-2012 CVD-NME policy, but now - and maybe in the absence of formal House/Senate consideration - Congress intends to simply decree that all of their time and expense is worthless.  Ouch.

Double Counting

If you were to listen to certain members of Congress, you'd think that the legislation introduced today totally resolves the "double counting" problem that exists with respect to the concurrent anti-dumping and countervailing duties on NME imports.  (The U.S. Court of International Trade and the WTO’s Appellate Body have ruled that combined duties on NME products are artificially high because alleged subsidies are offset twice — once in the CVD calculation and again in the dumping calculation.)  And while it's true that the legislation references double counting, such language hardly resolves the issue (and may even raise new problems).

First, the legislation's double counting provisions only apply prospectively from the date that the bill becomes law.  This means that the provisions won't apply to all of the old cases in which anti-dumping and countervailing duties included double counting, and that Commerce will not go back and recalculate any of those duties, even though the bill's general CVD/NME provisions apply retroactively to them.  (This retroactive/prospective discrepancy is a prime indicator of just how biased against US importers/consumers the bill is.)  The only exception to this rule are the four cases (of 24 total) on which China challenged and won at the WTO.  Thus, there are 20 other cases and many duties that will remain artificially (illegally) high via double counting, and that could be - and very likely will be - challenged at the WTO.

Second, the bill doesn't necessarily correct for double counting on a prospective basis either.  It only authorizes DOC to try to fix the double counting problem - a solution that DOC has repeatedly admitted could be impossible.  Here's the bill language:
(1) IN GENERAL.—If the administering authority determines, with respect to a class or kind of merchandise from a nonmarket economy country for which an antidumping duty is determined using normal value pursuant to section 773(c), that—
(A) pursuant to section 701(a)(1), a countervailable subsidy (other than an export subsidy referred to in section 772(c)(1)(C)) has been provided with respect to the class or kind of merchandise,

(B) such countervailable subsidy has been demonstrated to have reduced the average price of imports of the class or kind of merchandise during the relevant period, and

(C) the administering authority can reasonably estimate the extent to which the countervailable subsidy referred to in subparagraph (B), in combination with the use of normal value determined pursuant to section 773(c), has increased the weighted average dumping margin for the class or kind of merchandise, the administering authority shall, except as provided in paragraph (2), reduce the antidumping duty by the amount of the increase in the weighted average dumping margin estimated by the administering authority under subparagraph (C).
To translate this into human English: under the law, DOC must address double counting where (i) it has been demonstrated by a foreign exporter (according to the bill's summary) that the subsidies at issue have lowered its U.S. import prices; and (ii) DOC has determined that it can "reasonably estimate" the extent to which those subsidies have affected the anti-dumping duty on the same imports.  This raises two obvious problems:
  • First, it could be impossible for a foreign exporter to prove that a tax break (for example) it received has affected its US import prices. (Seriously, how on earth does a big manufacturing company with tons of costs and revenues prove that a little tax break affected import prices?)  And if this burden is found to be unreasonable, it might be illegal. [UPDATE: Recall that the WTO Appellate Body ruled that DOC and other national authorities have an affirmative obligation to ensure that double counting does not take place in AD/CVD investigations; by placing part of the burden to establish and then remedy double counting on foreign exporters (indiead of on DOC alone), this provision would seem to directly contradict the Appellate Body's ruling.];
  • Second, as noted above, Commerce has repeatedly stated that it has no idea how to "reasonably estimate the extent to which the countervailable subsidy... has increased the weighted average duty margin."  And even if Commerce does figure something out, nobody has any idea whether the WTO or the courts would find Commerce's methodology to be legal.
Thus, all this legislation really does is authorize Commerce to (maybe - if exporters meet their burden) try to address double counting, and it does so for only new cases.  It provides no guarantee that foreign exporters or Commerce will be able to do any of this, and it certainly doesn't address the myriad past instances of illegal double counting. [UPDATE: The bill also doesn't ensure that Commerce's new methodology, assuming the agency determines that it actually can develop one, will address the full extent of double counting, instead of a small fraction of it.]

Quite the "fix," eh?

So, given these problems and many others (some of which are noted by Cato's Dan Ikenson in this great new blog post), why on earth is Congress trying to "fast-track" this legislation through both chambers and onto the President's desk?  Well, if you listen to the administration and certain members of the House and Senate, it's because Congress supposedly has only a few days before the CAFC ruling invalidating the current CVD/NME policy becomes "final" and thus forces the administration to terminate all of the existing CVD orders and pending investigations.

But that's just not true.

Earlier this week I explained why the immediate termination of all of these duties/investigations would not cause serious and irreparable harm to the US companies and unions who had petitioned for the imposition of CVDs on NME imports. (In short, the products are also covered by very high anti-dumping duties.)  But even if the termination of all CVD orders and investigations actually would lead to a flood of subsidized Chinese and Vietnamese imports (and, again, it won't), that "disaster" wouldn't actually happen for a long, long time.  There are two basic reasons why:

First, and as I've already explained, DOC and the Customs Department wouldn't have to act until the CAFC's ruling became "final," and because the Obama administration plans to appeal, the ruling won't become final for months (as late as October 2012).  Some have tried to argue that, even if the US government appeals, the deadline for congressional action is much sooner because the CAFC might not grant a "stay" of its ruling pending the outcome of a Supreme Court appeal.  This idea, however, appears to be incorrect because a CAFC ruling in Fujitsu v. United States, 283 F.3d 1364 (Mar. 20, 2002) makes clear that any trade-related court ruling appealed to the Supreme Court will not become "final" until the Supreme Court appeal process is complete (emphasis mine):

[W]e agree with the Court of International Trade that the suspension of liquidation was removed on October 1, 1996, when the time for petitioning the Supreme Court for a writ of certiorari expired.  In Timken, 893 F.2d 337, we addressed the question of whether a decision of the Court of International Trade that was on appeal to the Federal Circuit was “final” for purposes of 19 U.S.C. § 1516a(e).  Answering the question we stated: “We are of the opinion that an appealed CIT decision is not a ‘final court decision’ within the plain meaning of § 1516a(e).” Id. at 339. We explained that, in section 1516a(e), the term “final court decision” must be read together with the words that follow it: “in the action.” We reasoned that “[a]n ‘action’ does not end when one court renders a decision but continues through the appeal process.” Id. We see no reason not to extend the logic of Timken to the question before us in this case. FN12 We do not think that, for present purposes, the “appeal process” in a case is completed until all possible appeals are exhausted. Thus, there is not a “final court decision” in an action that originates in the Court of International Trade and in which there is an appeal to the Federal Circuit until, following the decision of the Federal Circuit, the time for petitioning the Supreme Court for certiorari expires without the filing of a petition.
As I've mentioned, it's highly unlikely that the Supreme Court will agree to hear the appeal, but its rejection wouldn't occur for several months.  Thus, the the CAFC's decision won't become a "final court decision" - and Congress won't have to act - until then.

Second, even when the CAFC ruling becomes final, it very likely will only apply to the case at bar (related to Chinese tires).  Assuming Commerce doesn't just voluntarily terminate all of the other CVD orders and investigations (and it never, ever volunteers for stuff like that), foreign exporters and/or US importers will have to ask the courts to mandate such termination.  Given all of the legal wrangling that's possible here, that means that the total revocation of all CVD orders and investigations could take years, not days.

Given these facts, the serious weaknesses in the current legislation and the other, better options that exist on the CVD/NME issue, one must again wonder why the Obama administration and Congress (especially free trade Republicans) are so desperate to eschew debate and pass the current bill.

Maybe they just think we should pass the bill in order to find out what's in it?

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