Monday, March 5, 2012

GPX Update: Critical "Deadline" Passes, World Doesn't Implode (Plus Comments on Ways & Means "Facts")

As you may recall, today was the big "deadline" for congressional passage of legislation amending the US countervailing duty law to apply to imports from non-market economies like China and Vietnam.  If Congress hadn't acted by today - so we were repeatedly told by the Obama administration and various Members of Congress - myriad US companies and workers would suffer an onslaught of subsidized Chinese and Vietnamese imports as the Commerce Department was forced to immediately terminate the CVD orders that were protecting them from such viciousness.  Well, the Senate "passed" its version of the bill today (by "unanimous consent," meaning no formal consideration, natch), but the House still hasn't acted.  It's expected to vote as soon as tomorrow, but before it does, are US companies or workers going to suffer?

No, of course not.

So why hasn't the world imploded, you ask?  Well, also as predicted, the Obama administration today petitioned (more here) the Court of Appeals for the Federal Circuit - the court responsible for the "bombshell" ruling in GPX Int'l Tire Corp v. United States that the US CVD law didn't apply to NME imports - for a rehearing.  The court will likely reject that petition in a few weeks, but the ruling will only become "final" (and thus binding on DOC) when all appeal avenues are foreclosed.  Because the administration will just-as-certainly appeal the GPX ruling to the Supreme Court, this means that - and, again, as I've repeatedly explained - the GPX ruling won't be final until the Supreme Court denies the appeal request.  This could quite literally take several months, so those poor little US companies and can rest assured that they have nothing to worry about before then.

So given the fact that the big "deadline" urgently pushed by the bill's supporters has come and gone without an ounce of harm to US businesses and workers, one must ask the obvious question:

On what other issues are they misleading us and much of Congress?

Well, if the new release by the House Ways & Means Committee is any indication, the answer to that question is "a whole helluva lot."  That document purports to respond to the many "myths" being circulated about H.R. 4105 by providing the actual "facts."  Yet even a cursory review of the Committee materials reveals that they are about as factual as the aforementioned "deadline" for urgent congressional action (i.e., not very).  Thus, I've decided to quickly respond to each item with the "actual facts" below. 

So let's get started.

"Myth": "H.R. 4105 Applies Punitive Tariffs"

"Fact": Since 2007, the Commerce Department has applied countervailing duties to Chinese products where it determines that China has provided unfair subsidies that violate its WTO obligations. These duties are not punitive; they counter the unfair Chinese subsidies. In fact, in 2005, Club for Growth President Chris Chocola joined 220 Republicans in voting for a bill that would have done exactly the same thing. The last five RSC chairmen all voted for that bill. Currently, 27 RSC Members are co-sponsors of H.R. 4105 and identical legislation passed the Senate with unanimous support.

ACTUAL FACT: Of course the duties imposed since 2007 are punitive.  That's the whole point of all of the domestic litigation and WTO cases that the administration keeps losing: the simultaneous application of CVDs and anti-dumping duties to NME imports currently offsets (via duties) allegedly unfair subsidies twice because the NME methodology in the anti-dumping investigation already corrects for any potential subsidies.  Because our "unfair trade" laws are only supposed to be remedial (i.e., they're only supposed to remedy the alleged dumping or subsidization taking place rather than punish US importers by taxing them above the level of dumping/subsidization), the current policy of double counting is contrary to both US law and WTO rules.  If the duties weren't "punitive," the US courts and the WTO wouldn't have found them to be illegal.  Duh.

And, of course, H.R. 4105 expressly doesn't apply to the many past instances of double counting - and the millions of dollars of punitive duties paid by US importers and consumers - that have occurred since 2007.

"Myth": "These tariffs don't 'level the playing field'"

"Fact": Chinese subsidies massively distort the free market. Countervailing duties re-establish a free, fair, and competitive marketplace. These duties can be applied only to subsidies that the Commerce Department determines violate China's WTO obligations.

ACTUAL FACT: No one is arguing that Chinese subsidies don't distort markets (of course, so do US subsidies, but that's a fight for another time). The argument here is that anti-dumping and countervailing duties applied to imports from China (as an NME) punish US importers and consumers above and beyond the amount allegedly necessary to supposedly "level the playing field."  As such, current practice - which H.R. 4105 totally protects (see below) - ensures a wholly uneven playing field against US consumers and in favor of a few domestic companies who want to be insulated from foreign competition.  (This is why those few companies and their congressional benefactors are lobbying so hard to keep that sweet, sweet import protection.)

So, look, if you want to use the CVD law to address distortive Chinese subsidies, go ahead (I guess).  But until you designate China a market economy and stop addressing subsidies via the non-market economy methodology in dumping cases, the application of CVDs to Chinese imports is punitive and thereby biased against American import consumers, many of whom are US manufacturers who need foreign inputs to remain globally competitive.  Indeed, about 55% of all US imports are inputs used by US manufacturers, and about 80% of all trade remedies duties are applied to such goods.  Talk about an uneven playing field.

"Myth": "It will further escalate a trade war with China"

"Fact": This legislation simply allows the United States to continue applying CVD as it has for the past five-years and it is fully compliant with our WTO obligations.

ACTUAL FACT:  First, by gratuitously protecting the Commerce Department's ability to use both CVDs and anti-dumping duties on Chinese (and other NME) imports in a punitive manner, the United States is making it very, very clear that (a) it intends to vigorously fight for the antagonistic policy in US courts and the WTO; and (b) it has no intention of designating China a "market economy" before 2016 (when it is bound to do so pursuant to China's WTO accession protocol).  There is simply no way that the Chinese Government - which has won a key victory at the WTO on this issue - won't take this as a big slap in the face (and it's already grousing about the CVD/NME issue).

Next, it is utterly disingenuous to state unequivocally that this bill is "fully compliant with our WTO obligations," and it raises some serious red flags.  Most importantly, the bill doesn't prohibit Commerce from double counting, which the WTO has ruled is illegal ("We find instead that the imposition of double remedies, that is, the offsetting of the same subsidization twice by the concurrent imposition of anti-dumping duties calculated on the basis of an NME methodology and countervailing duties, is inconsistent with Article 19.3 of the SCM Agreement.").  Instead, the bill merely requires DOC to address double counting where (i) it has been demonstrated by a foreign exporter 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.  As I noted last week, this raises several obvious problems:
  • It could be impossible for a foreign exporter to prove that a tax break (for example) it received has affected its US import prices, and the mere imposition of this burden could violate WTO rules. 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 ("In the same way... as an investigating authority is subject to an affirmative obligation to ascertain the precise amount of the subsidy, so too is it subject to an affirmative obligation to establish the appropriate amount of the duty under Article 19.3."). 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. 
  • Commerce has repeatedly stated, for example before the Court of International Trade, 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.
  • 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.
In short, there are plenty of reasons to think that the bill will not resolve the double counting issue at all.  Of course, it could take years for Commerce to develop it's new double counting methodology, and the WTO to rule against it, so we can all pretend that it's WTO-consistent now and flush that idea down the memory hole if/when the WTO rules against it.  So maybe that's what the Committee means by "fully compliant with our WTO obligations."

The bill also raises serious WTO concerns because it applies to the 24 CVD orders and millions of dollars of related duties that the US government imposed and collected without lawful authority to do so.  Although a WTO panel or the Appellate Body hasn't ruled on whether such "retroactivity" is WTO-consistent, a panel has expressed a distaste for it, and there are several WTO provisions that could apply (e.g., GATT Articles X:2 and XXIII:1(b)).

"Myth": "It harms U.S. importers"

"Fact": Current CVD orders affect less than two percent of trade with China - but they provide targeted relief for those industries that are being affected by China's unfair subsidies - subsidies that violate China's WTO obligations. H.R. 4105 maintains the status quo and ensures that the Commerce Department can continue to apply countervailing duties to non-market economies like China. Not acting could invalidate existing orders that impact over 80 American companies and tens of thousands of American workers in 38 states across this country. Job creators including the Chamber of Commerce, the National Association of Manufacturing, and the National Council of Textile Organizations support H.R. 4105.

ACTUAL FACT:  First, I've already refuted the myth (no, seriously, a real myth) that congressional inaction will "impact over 80 American companies and tens of thousands of American workers in 38 states across this country."  That's just not true.  At all.

Second, please notice how the "facts" above never refute the allegation that H.R. 4105, or current Obama administration policy, harms US importers.  Perhaps that's because I've documented several first-hand accounts of the very real pain that these policies impose on American businesses and workers.  Or the fact that the legislation demonstrates a clear anti-importer bias by applying retroactively to existing CVD orders yet only prospectively for double counting (thereby maximizing duties to the fullest extent possible).  And let's not forget the undeniable fact that this legislation will pull the rug out from under the many American companies who have challenged the current policy via the normal legal process:
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. 
Indeed, it's this very real pain that has caused grassroots groups like the National Taxpayers Union and FreedomWorks to join the free market Club for Growth in opposing H.R. 4105.  Meanwhile, the Ways & Means Committee gets its support from the US textile and steel industries: two groups that are notorious users (and abusers) of US trade laws and more blatant forms of protectionism to prevent fair competition and force US consumers to subsidize (via higher prices) their businesses.

And if that little fact in and of itself doesn't tell you everything you need to know about this bad legislation, then nothing will.

Finally, there is one thing in this Ways & Means "fact" that is actually true (crazy, I know):  This bill does only affect "two percent of China trade."  So, please someone tell me, why are the US Trade Representative and Secretary of Commerce publicly claiming that congressional inaction "would have substantial adverse economic implications for our country"?  Something doesn't add up here, huh?

"Myth": "It continues WTO-inconsistent 'Double Counting'"

"Fact": The legislation directly addresses potential double counting. H.R. 4105 brings the United States into compliance with an adverse determination by the WTO Appellate Body about the potential for "double remedy" in applying the antidumping and CVD law at the same time to a non-market economy. The legislation requires Commerce to adjust antidumping duties to address any possible double remedy.

ACTUAL FACT: The bill certainly mentions double counting, but, as noted above, it sure as heck doesn't "require[ ] Commerce to adjust antidumping duties" or ensure that the United States will be in compliance with the Appellate Body's ruling.  It literally only requires Commerce to address double counting if (i) foreign exporters meet an almost-impossible burden and (ii) Commerce decides it has the ability to do so.  Those are two loopholes so big you could drive separate freight trains through 'em.  (And if you've ever actually been involved in an AD/CVD investigation, you know full-well that Commerce is extremely willing to don the engineer's cap and drive those trains.)

The bill also doesn't correct for all of the old CVD orders - ones that most definitely used a WTO-inconsistent AD/CVD methodology.  As I said last week:
[T]he 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.
Oh, and it could raise new WTO challenges on other grounds (like retroactivity).

But other than that....

"Myth": "It harms the U.S. negotiating position on legitimate bilateral trade concerns"

Fact: The legislation is fully consistent with U.S. WTO obligations and should not affect other bilateral trade negotiations. In fact, failing to enact this legislation would be a "give-way" to the Chinese as the U.S. would unilaterally drop an important and legal enforcement tool. The CVD law is an important WTO enforcement tool permitted by the WTO to counteract market-distorting Chinese subsidies. Some of our biggest trading partners, including the European Union, Mexico, and India, also apply the CVD law to China.

ACTUAL FACT: Again, the bill isn't "fully consistent" with US WTO obligations, and Commerce could apply CVDs (or address Chinese subsidies via the NME anti-dumping methodology) without congressional legislation.  The agency simply was barred from applying both CVDs and NME/AD measures and thereby penalizing US importers and consumers (and foreign exporters).  And although several countries like the EU apply CVDs law to imports from China, none (that I know of, at least) have done so with concurrent NME anti-dumping measures.  The EU just announced a new CVD case against China which mirrors an earlier NME/AD case (its first ever concurrent AD/CVD cases against China in the EU), and guess what?  China immediately threatened to bring a WTO challenge.

"Myth": "It lets the Obama Administration 'vote present' ... [and] lets the administration avoid the tough choice on China and the "non-market economy" methodology"

"Fact": China is not a market economy. Arguing that it is ignores the massive intervention of the Chinese government in its economy. The bill addresses any potential double counting that arises from simultaneously applying antidumping and countervailing duties to China and brings the United States fully into compliance with its WTO obligations.

ACTUAL FACT:  Ok, one last time: congressional inaction doesn't require designating China as a "market economy" (even though that's a very good idea), and it certainly doesn't resolve the double counting issue.  As I said in a recent op-ed: "By doing nothing, [Congress] can force the administration to make the choice that should have been made years ago: either stop imposing CVDs on NME imports and thus return to the previous policy of addressing Chinese and Vietnamese subsidies through anti-dumping measures, or designate both countries 'market economies' and address their subsidies via the normal CVD process."  This legislation allows President Obama to avoid this choice entirely and to maintain the WTO-inconsistent status quo. It also eviscerates several American companies' valid legal challenges to the existing, punitive policy - a policy that harms US consumers and lines the pockets of well-connected domestic industries seeking government protection from import competition.

And that's a fact.

No comments: