Monday, August 20, 2012

Plaintiffs in GPX Case Argue CVD/NME Law's Unconstitutionality

On Friday, Plaintiffs in the long-running court drama GPX Int'l Tire Corp. v. United States filed with the US Court of International Trade case briefs arguing that the March 2012 law revising US countervailing duty (CVD) law to apply to imports from "non-market economies" like China and Vietnam was unconstitutional.  (The details of the GPX case are far too numerous for tonight, but you can go here for a lot of the backstory.)

The plaintiffs briefs are available here (GPX International Tire Corp.) and here (Tianjin United Tire & Rubber International Co.) if you'd like to read them.  They're actually pretty entertaining, as far as trade court briefs go (hey, stop laughing), but the introductions to each brief lay out the plaintiffs' basic legal arguments and some helpful background, so I'll just quote from them for now.

Tianjin highlights one constitutional violation related to equal protection and the Fifth Amendment and argues that the law's retroactive application to all past CVD investigations of NME imports (dating back to 2006) is not severable from the rest of the law (essentially killing the law and reinstating the Court of Appeals for the Federal Circuit's 2011 ruling in GPX that CVDs cannot be applied to NME imports):
The issue before this Court is whether the New Law is made unconstitutional by the two effective dates in the New Law – one which retroactively applies the countervailing duty (“CVD”) law to non-market-economy (“NME”) countries, and the other which only prospectively applies protections from excessive duties. The New Law violates the equal protection guarantees of the Fifth Amendment because it creates two classifications of companies without a rational relationship to a legitimate governmental purpose. All companies are made subject to the CVD law. But only one classification of companies receives protection from excessive duties resulting from the double-counting inherent in the concurrent application of CVD law and the NME methodology for calculating antidumping duties (“AD”). The other classification of companies is denied equal protection of the law.

This classification distinction is not rationally related to a legitimate governmental purpose for three reasons. First, Congress’s stated intent to “avoid future adverse results” in actions brought before the World Trade Organization (“WTO”) is invalid because the WTO has no statute of limitations. Second, an excessive remedy is contrary to the limited intent of the AD and CVD law to offset unfair competitive advantage. Third, there is no other plausible policy reason for the discriminatory classification.

The offending provision of the New Law cannot be removed without affecting the remainder of the law. Any attempt to do so would be insufficient to result in the application of the New Law to this case. Because the law cannot be construed to avoid constitutional infirmities in this case, this Court must apply the Federal Circuit’s initial opinion barring application of the CVD law to NME countries.
GPX, on the other hand, finds three constitutional violations - a similar equal protection claim, an ex post facto claim and a due process claim - and, contrary to Tianjin, argues in favor of severing the retroactive provisions with the rest of the law (essentially leaving the new law's "double counting" provision in place):
From the moment the U.S. Department of Commerce asserted the right to conduct CVD investigations against China, various parties (including the Plaintiffs in this case) have strenuously and repeatedly argued that Commerce had no such right and that those investigations were unlawful. After almost five years of protracted and costly litigation, the courts finally confirmed that those investigations were in fact beyond Commerce’s authority under the law in effect at that time. The unlawful CVD orders should be terminated.

But instead, Plaintiffs find themselves back in court. Congress decided to change the law. Although Congress can change the law prospectively, Plaintiffs strongly disagree with the way in which Congress has applied parts of its new law retroactively. This selective retroactivity violates three fundamental principles of justice enshrined in the Constitution. First, the retroactivity provision singles out a particular group, and then condemns and punishes conduct by that group not illegal or punishable at the time it was committed, and in doing so violates the Ex Post Facto Clause of Article I. Second, even if the new law is not so punitive as to trigger the Ex Post Facto Clause, the retroactivity provision imposes wholly new taxes that dramatically burden importers with no notice, going back far beyond the limited period of retroactivity typically allowed with or without notice, and in doing so violates due process rights under the Fifth Amendment. Third, the retroactivity provision irrationally discriminates against past importers, refusing to give them the same rights and opportunities given to future importers, and in doing so denies equal protection of the laws also guaranteed by the Fifth Amendment.

Congressional discretion does not justify violations of the Constitution. The effort to impose wholly new and discriminatory penalties going back more than five years to November 2006 must be struck down as unconstitutional.
Although these legal arguments (obviously) will form the basis for the CIT's eventual ruling, I especially enjoyed GPX's reiteration of the facts surrounding the CVD/NME law's passage - facts that highlight not only how Kafka-esque the entire process was/is, but also the immense lengths to which the US government has willfully and repeatedly gone - in the face of multiple adverse US court and WTO rulings - to impose additional taxes on US consumers of imports from NME countries like China and Vietnam.  This distressing fact is briefly referenced in the summary, but the following excerpt from GPX's brief really hits it home (citations omitted):
Other than letters and press releases, there is virtually no other legislative history for this new law. There were no House or Senate hearings. There were no House or Senate reports. Other than a CBO analysis that the new law would increase revenues by $160 million over the 2013-2022 period, there was no other formal analysis of the new law. S. 2153 passed the Senate by unanimous consent. H.R. 4105 passed the House under suspension of the rules. The Senate then passed H.R. 4150 by unanimous consent.

There was no debate at all in the Senate and only very limited debate in the House. During a brief 32 minute period before the vote, several House Members offered brief floor statements on the legislation. These statements criticized the CAFC decision, and repeatedly singled out China. Representative Camp stressed that “China distorts the free market.” Representative Levin emphasized the need “to hold China and other nations accountable” and “to rein in China’s abusive trade practices.” Representative Rohrabacher elaborated that China “supports every rogue enemy of the United States.” Beyond this focus on China, there was also repeated condemnation of illegal subsidies by Representative Pascrell, Representative Michaud, and Representative Slaughter. There was much discussion of the need to apply the CVD law to China to address these “illegal” subsidies, and occasional acknowledgement of the need to make adjustments for double-counting to comply with the WTO, but no discussion or acknowledgement of the asymmetrical provisions on retroactivity.

Although several Members suggested that should existing CVD orders be terminated because of the CAFC decision, U.S. industries would be vulnerable to imports from China none of these statements mentioned the parallel antidumping orders against these same imports. Each of the 23 then outstanding CVD orders against China had and still have a companion AD order. For 96 of the 114 calculated AD rates in these orders, the AD rate imposed was higher than 15 percent, resulting in a practical exclusion of those Chinese suppliers from the U.S. market. In this particular case, the AD order against plaintiffs GPX and Starbright imposes duties of 19.15 percent – market preclusive duties that have virtually eliminated plaintiffs’ exports to the United States. In short, since imports from China were already subject to high AD duties, termination of the CVD orders would have very little if any effect on the imposition of relief for U.S. industries. There is not even a hint of this issue in the limited House debate.

It thus took Congress just nine days to introduce, pass, and present the legislation to the President for his signature on March 8, 2012. The President signed the new legislation into law on March 13, 2012.
Pretty ridiculous when you lay it all out like that, eh?  It would be funny if it weren't so sad: this ridiculousness has not only maintained hefty, punitive (and formerly illegal) duties on billions of dollars worth of Chinese and Vietnamese imports, but also bred more litigation, undermined US-China trade relations, and, of course, denied the "victorious" plaintiffs in GPX a small fortune in refunded duties that they rightly won after years of hard-fought legal battles.

Talk about a due process violation.

But I digress.  If you're at all interested in US trade remedies or want to better understand one of the bigger thorns in the US-China trade relationship, I highly recommend skimming both briefs.  They really are quite interesting (and frustrating!).  The US government has until October to file its brief, but there's no time frame for the CIT's final ruling.  And, because this is a very novel issue of law, there's really no way of knowing who will ultimately prevail in the case.  So stay tuned.

That said, there is one thing in this process that does appear certain: if the plaintiffs win, you can pretty much guarantee that the US government will again appeal its loss to the CAFC.  And if the government again loses there, well, there's always the Supreme Court. And, hey, if all else fails they could just quietly and quickly pass another bad law denying plaintiffs another victory and again kicking the can further down the road.

I mean, China will stop being an NME in 2016, so at some point this stuff has to end, right?


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