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?

Right?

Game On: New CVD/NME Law Faces Early Constitutional Challenge

When we last checked in on the fate of the new US law applying countervailing duties to imports from "non-market economies" like China and Vietnam, the plaintiffs in the court case that started the whole legislative scramble (GPX Int'l Tire Corp v. United States) had filed a brief constitutional challenge to the new law before the Court of Appeals for the Federal Circuit.  The CAFC had requested a response from the parties to the case as to the effects that the new law would have on the proceedings, and the plaintiffs - GPX and Tianjin United Tire & Rubber International Co. - argued, among other things, that the new law's retroactive application to (in some cases) five year-old CVD proceedings violated the Constitution's due process protections.

Even though I expressed extreme sympathy with the plaintiffs' concerns regarding the new CVD/NME law and also have questioned its constitutionality, I noted at the time that it seemed unlikely that the CAFC would actually rule on their claims.  It turns out that I was right on that score, but what I didn't expect was that, instead of dismissing the case outright, the CAFC would remand the case to the lower court that first decided the GPX case - the US Court of International Trade - to hear plaintiffs' constitutional challenge.

But that's just what the CAFC did last week.

The court's ruling is here, if you're interested.  After summarizing the CVD/NME law's scope (overruling the court's decision in GPX and prospectively applying a new "prohibition" against double-counting), the court addressed the plaintiffs' constitutional challenge, which it said had two parts:

(1) it attempts to prescribe a rule of decision for this case after our decision in GPX was rendered; and (2) it improperly creates a special rule applicable only to this case (or perhaps a few others) due to the different effective dates in the two provisions; it thus creates a situation in which both antidumping and countervailing duties may be imposed, without providing a mechanism to account for potential double counting.

The court quickly dismissed the first argument as "without merit," but not the second:

The second issue, however, is a question of first impression as to which we have received only cursory briefing. The government urges that “[t]o the extent that appellees . . . argue that the new law is unconstitutional, such an argument should be decided by the trial court in the first instance.” ... We agree that this issue should be considered by the Trade Court in the first instance.

The CAFC thus ordered that the case be "remanded to the [CIT] for a determination of the constitutionality of the new legislation and for other appropriate proceedings."  In short, the CAFC refused to do what the US government wanted (vacate its earlier decision and effectively end the GPX case), and instead sent the case back to the CIT for a full constitutional hearing.

Fun.

There are some other interesting things going on in this ruling (for example, the CAFC rules in footnote 3 that the CIT's theory that Commerce's "double counting" in prior AD/CVD cases violated US law was "not correct" - oops), but the constitutional remand is, in my opinion, the biggest deal.  I honestly have no idea what the CIT will decide, but assuming the same judge (Restani) who heard GPX's earlier iterations - and expressed extreme skepticism of (and frustration with) Commerce's CVD/NME actions - hears the constitutional challenge, we could be in for a very, very interesting decision.  It'll be several months before that ruling is issued, but, in the meantime, one thing is abundantly clear:

The new CVD/NME law has done very little to clean-up the mess that is the United States' trade remedies policies toward China and other non-market economies.

But I guess we already knew that, now didn't we?

Opposition to CVD/NME Law Tips Its Hand re: a Constitutional Challenge

As I've repeatedly mentioned over the last several weeks, one of the biggest concerns surrounding the recently enacted law allowing the Commerce Department to impose countervailing duties on imports from countries deemed to be "non-market economies" under the US anti-dumping law was the law's retroactive application to the 24 completed CVD/NME investigations (and the collection of duties pursuant to those cases) that Commerce completed without proper legal authority.  That retroactivity raises several possible constitutional issues under, for example, the Due Process Clause and the Takings Clause of the Fifth Amendment and the ban on Ex Post Facto laws under Article I.  Those claims, however, are murky, although it's pretty likely that some US importer or other party harmed by the new CVD/NME law will formally lodge a constitutional challenge to it.

We haven't yet seen such a challenge, but the folks at Law360 report that a party to the original court case which led to the new CVD/NME law, GPX Int'l Tire Corp v. United States, has given us a little taste of at least one legal argument that we might see in any future constitutional challenge:

A new law allowing the U.S. government to apply countervailing duties to imports from nonmarket economies should be found unconstitutional because it applies retroactively, the Chinese tire company at the center of the case that prompted Congress to act told the Federal Circuit on Friday....

Tianjin United Tire & Rubber International Co., the government and the United Steelworkers union responded to a request by the Federal Circuit for briefs about how the legislation enacted March 13 would impact the case over duties on Tianjin's tires.

Tianjin told the court that the legislation should have no effect on the case because it unconstitutionally purports to apply to all proceedings initiated after November 2006. There is no practical reason for such a lengthy period of retroactivity, the company argued....

Tianjin also argued that the law's double counting provisions will be "wholly ineffective," and that the original decision of the Federal Circuit - overturned by the new CVD/NME law - should still stand because it is "unreasonable and unlawful" to concurrently apply antidumping duties and CVDs on non-market economy imports.  Those arguments are interesting and, in my opinion, have merit, but for now I'd like to focus on Tianjin's constitutional argument.

According to their recent response to the CAFC, Tianjin argued that the new CVD/NME law violated the Due Process Clause:

At the outset, we note the retroactivity provisions of Section 1 (b) are unconstitutional. Any retroactivity is "generally disfavored," as at odds "with 'fundamental notions of justice' that have been recognized throughout history." See Eastern Enterprises v. Apfel, 524 U. S. 498, 532 (1998)(citations omitted). Moreover, the severe period of retroactivity here - more than five years - magnifies the grave constitutional concerns as it departs from "customary congressional practice" to confine retroactivity "to short and limited periods required by the practicalities of producing national legislation." US. v. Carlton, 512 U.S. 26,33 (1993) (citations omitted). There are no practicalities inherent in the production of this legislation that warrant so lengthy a retroactive application.

Moreover, the asymmetrical periods of retroactivity in the new legislation are logically incoherent. Section 1 (b) extends the scope of the CVD law to include NNIE countries going far back in time. In contrast, Section 2(b) applies the legislative fix for the "double counting" that results from such extension of the CVD law only prospectively. This inconsistency makes no logical sense. If the application of the CVD law to NME countries requires a fix for double countingas Congress seems to think by passing Section 2(a) - there is no reason to apply that fix only prospectively. This inconsistency cannot reflect any legitimate legislative purpose. For that reason, the retroactivity provisions of Section l(b) must be severed from the new legislation as an unconstitutional violation of due process. A five-year retroactive period that is logically inconsistent with the remainder of the legislation "is far outside the bounds of retroactivity permissible under our law." Eastern Enterprises, 524 U.S. at 550 (Kennedy, J., concurring).

That's the entirety of Tianjin's constitutional argument (appropriate considering that the CVD/NME law itself is not being challenged in these proceedings), and, despite seeming like quite a reasonable claim, it's unlikely that the CAFC will act on it (for the same reasons).  However, the excerpt above provides a nice little glimpse of any future litigation where, unlike here, the new law would be directly challenged and far more robust arguments would be made.  Given my very public feelings about the law - some of which are echoed above - I certainly hope that someone throws down the real gauntlet soon.

So stay tuned.

New Op-Ed: "How our 'do nothing' Congress can help US-China trade relations' (and quick analysis of the new CVD-NME bill)

The Daily Caller published a new op-ed of mine on the "CVD-NME" issue that I've been discussing over the last few weeks.  The op-ed is essentially the Cliff's Notes version of my many previous blog posts explaining why legislation amending the US countervailing duty law to expressly apply to non-market economies (and to retroactively apply to existing CVD orders and investigations of NME imports) is a truly horrendous idea and not nearly as urgent or necessary as the White House would have us believe.

A draft of that legislation and a summary of it were released today, and it's just as bad as expected.  (I particularly like the typos and mangled grammar in the summary.)  I plan to blog more on the bill later, but for now I'll just say that it appears to go out of its way to stick it to the foreign exporters and US companies who are caught up in this huge mess.  For example, the bill applies retroactively to all CVD investigations/orders that were conducted without lawful authority, but only prospectively allows Commerce to consider "double counting."  And on the latter issue, the legislation places a likely-impossible burden on foreign exporters to prove that double counting exists, and provides no direction as to how Commerce would re-calculate duties - a task that Commerce has repeatedly admitted could be downright impossible.  In short, the bill is the absolute worst of all worlds, and Commerce doesn't have to lift a finger as a result, even though multiple US courts and the WTO have ruled that the agency's actions were blatantly illegal.  (Gee, it's almost as if the domestic petitioners who benefit from CVDs and double counting wrote the bill or something.)

So let's hear it for the Rule of Law!  Sigh.

But regardless of how awful the draft bill is (and trust me, it is awful), its release means that my new op-ed couldn't be more timely, especially because I basically predicted the legislation's awfulness.  Here's a snippet:

Congress will soon consider legislation to fix a pillar of the president’s China trade policy that has been ruled illegal by federal courts and the World Trade Organization. The bill’s passage will please the White House and the domestic industries and unions that have used the policy to deter foreign competition, but it will do little to solve the underlying flaws in the administration’s approach to China trade. Fortunately, there is a better way forward, and it simply requires Congress to do what it does best: nothing....

Congress is expected to rescue the president, but the “fix” will create far more problems than it solves. First, retroactive application of the revised CVD law to existing orders will cause a legal firestorm, as aggrieved parties sue to recover the millions of dollars in duties that, prior to 2012, the U.S. government had no lawful authority to collect.

Second, the legislative fix will do nothing to resolve the underlying problems with the administration’s current policy. 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. Legislation will not solve this “double counting” problem, and Commerce itself has admitted that a proper solution could be impossible. Chinese and Vietnamese imports will thus continue to be unfairly penalized, leading to more disputes and exposing U.S. exports to WTO-sanctioned retaliation.

Third, the policy will irritate U.S.-China trade relations and keep the United States on the defensive in bilateral negotiations. The administration has many legitimate complaints against distortive Chinese trade practices, but the CVD/NME issue — and the United States’ refusal to comply with adverse court and WTO rulings — undermines those concerns.

Congress should not help President Obama continue down this tortuous road. By doing nothing, it 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.

I then go on to explain why both of these options are better than the administration's chosen approach.  Be sure to read the whole thing here and then go share it with your local congressman or senator (if, you know, they'd ever return your phone calls).

And stay tuned.  More to come.

GPX Update: The Real Pain Imposed by the Administration's Current Policy

Last night, I detailed the holes in the Obama administration's breathless prediction that congressional failure to quickly pass a law expressly applying the US countervailing duty law to "non-market economies" would cause subsidized Chinese (and to a lesser extent Vietnamese) imports to flood into the United States and drown myriad US companies and workers .  In short, we saw that the vast majority of the immediate pain that the White House forecast would actually be neither immediate nor painful.

By contrast, the administration's current CVD/NME policy is currently inflicting real and immediate pain on US companies and workers.

I documented some of these harms when I published an unsolicited email from Robert Sherkin, a founder of the now-bankrupt GPX International Tire Corp (the named Plaintiff in the big US court case on the CVD/NME issue).  Mr. Sherkin described how the now-illegal AD/CVD orders on Chinese tires had bankrupted his company, imperiled the jobs of 200 US workers and cost him personally $20 million. And all the while the Obama administration remained steadfastly committed to its current (and painful/illegal) approach.

Mr. Sherkin, unfortunately, is not alone. Now, we discover that the tiny offshoot of now-bankrupt GPX - Maine Industrial Tire in Red Lion, PA - is also suffering the ravages of the administration's CVD/NME policy, even though they no longer make the tires at issue in the original case.  As a result, the business and about 40 new jobs have been put on hold indefinitely:

The shiny, rust-free glimmer slaps Troy Kline dead in the face as he paces the gritty floors of his 120,000-square-foot tire factory in Red Lion.  The CEO at Maine Industrial Tire shakes his head, watching the $100,000 tire mill sit idle - but not for the reason you might think.  It's not the decline in U.S. manufacturing, an epidemic that recently claimed nearby Yorktowne Cabinetry's decades-old site across Redco Avenue. It's not lagging demand for the company's inventory, either. In fact, Maine Industrial Tire's 50 employees can't keep up with contracts from big names like John Deere, Bobcat, and Caterpillar, clamoring for the company's solid rubber products used on forklifts and construction equipment.

For most manufacturers, it's the stuff of dreams. For Kline and the company's Chairman Bryan Ganz, it's just a long story - one colored by a 5-year-old court battle with the U.S. government over an international trade regulation designed to stop foreign firms from undercutting American manufacturers. They say it's left them waiting on $1.5 million - money granted by a 2010 court decision.  That's money to hire about 40 more employees in Red Lion - money to invest in company infrastructure.

"The issue is," Kline said, "how many more customers are we going to lose because we can't keep up with demand?"

The saga begins in 2007. At the time, Maine Industrial's forerunner GPX International Tires employed 2,600 people at manufacturing operations in Red Lion, Maine, Canada, Europe and - as fate would have it - China. That year, Titan Tire Corp., the United Steel Workers International and Bridgestone Americas Inc. filed suit against GPX, accusing the Massachusetts-based company of "dumping" and "countervailing" from their Chinese factory....

Ganz said the suit, filed with the international trade commission, wasn't taken seriously initially. "My head would snap off if I tried to sell something below cost," he said. "We did not need to take additional market share. We weren't a start-up company."

In late 2007, the U.S. Department of Commerce began charging GPX customs duties.... These fees amounted to 44 percent of the cost of each off-the-road tire. For example, if a tire cost $100, GPX paid the U.S. government $44 before the item could touch U.S. soil. Duties aside, that same tire would only garner about $25 in profits for the company, Ganz said.

GPX sued the Department of Commerce in 2008, accusing the imposition of both duties as "double-counting," he added. "At the time, there was tremendous anti-China sentiment - a tremendous push in Congress to restrict trade with China."...

GPX asked a judge to suspend the duties until the case could be heard in court. The request was denied, and GPX filed for bankruptcy in October 2009, citing the continued hefty customs costs for its demise. The blow was devastating for Ganz, whose grandfather started GPX in 1922. He teamed up with Kline and other investors to buy a small piece of the company out of bankruptcy - along with the rights to pursue a lawsuit against the Department of Commerce. The business - which no longer makes the products subject to the customs duties - became Maine Industrial Tire.

In August 2009, Chief Judge Jane Restani of the U.S. Court of International Trade ruled that the Department of Commerce erred in charging GPX the countervailing duties. She re-affirmed her decision a year later, following the department's appeal. On Dec. 19, 2011, the Federal Circuit once again upheld Restani's decision, entitling Maine Industrial Tire to $1.5 million in refunded customs duties.

But it didn't quite happen that way, Ganz said. The money is pending, tangled in the wheels of the justice system after the Department of Commerce appealed the decision to the U.S. Supreme Court. 

Meanwhile, Ganz and his colleagues are tired - no pun intended. They worry Congress might retroactively change the international trade law via an expedited process called "unanimous consent" - a move that might interfere with their settlement. "We're at the mercy of the government. At both ends," Kline said. "Whether it's the Supreme Court or the senators."

U.S. Sen. Bob Casey and U.S. Rep. Todd Platts could not be reached for comment.

In the meantime, Kline said his company doesn't have the money to dump into the company and new molds for updated product lines.  Molds range in price from $7,000 to $30,000 each, he said.  The factory produces about four tons per day of inventory.  Capacity permits three times that amount for the site, which has had to eliminate military contracts with Lockheed Martin, Kline said. And that machine - the one that sits idle - could employ six people alone.

For now, it's just a waiting game. "We have the technology to do so much more," Kline said. "We just don't have the funds to do it."

We so often hear about the exaggerated pains imposed by Chinese imports on American companies and workers.  The stories of GPX and Maine Industrial will hopefully cause a few people to realize that protectionist policies impose real pains too (and, of course, restrict individuals' freedom to buy from and sell to whomever they choose).  And let's not forget that there are 22 other CVD orders in place right now and seven more CVD investigations underway.  Each of those measures - or potential measures - can impose similar harms on the US companies and workers who import, consume or otherwise rely on the imported products at issue.

Yet, even with such documented pain and after multiple court and WTO losses, the White House adamantly refuses to change course - a change that undoubtedly would be for the better.  Instead, they just want Congress to swoop in, paper over their repeated losses, and provide them with the express authority to continue down this tortuous road.

Isn't it about time that Congress took a step back and reconsidered the administration's woefully-flawed master plan?

GPX Update: The Administration's False Predictions of Doom

In the coming days, Congress is expected to consider and pass legislation responding to the ruling of the Court of Appeals for the Federal Circuit in GPX Int'l Tire Corp. v. United States and amending the US countervailing duty law to expressly apply to imports from "non-market economies" like China and Vietnam.  I'm thus going to spend some time this week analyzing at the issue in greater detail.  First up is a look at whether the Obama administration's claims that, without congressional action, subsidized Chinese (and to a lesser extent Vietnamese) imports will flood into the United States and drown myriad US companies and workers.  So is that really correct?

In short, no.  And the reasons might surprise you.

As you may recall, last month USTR Kirk and Commerce Secretary Bryson sent an urgent letter asking them to quickly pass legislation correcting the CAFC's ruling.  Their reasoning was straightforward enough:

This matter is ofthe utmost urgency. Absent legislation, should the decision of the court become final, Commerce will be required to revoke all CVD orders and terminate all CVD proceedings involving non-market economy countries, including 24 existing CVD orders on imports from China and Vietnam, as well as five pending investigations and two recently filed petitions.  This would seriously undennine the ability of the United States to remedy the harmful effects of unfairly subsidized imports, and would impair Commerce's ability to ensure that our nation's manufacturers and workers have the opportunity to compete on a level playing field with our trading partners.

The CVD proceedings placed at risk by the court's decision cover a wide range of products in which U.S. manufacturing is most competitive, including steel, aluminum, paper, chemicals, tires, and other products. The annual value of the subsidized imports covered by these CVD proceedings is $4.7 billion. The U.S. petitioning industries that are competing against these subsidized imports include small and medium-sized enterprises and large corporations; family-owned businesses and Fortlme 500 companies. These petitioning industries - representing more than 80 companies - are spread across 38 states and employ directly tens of thousands of manufacturing workers....

[P]rompt legislative action is necessary to clarify the law and avoid harm from injurious, subsidized goods. We stand ready to work with the Congress to enact specific legislation that would remedy the court's flawed ruling.

In short, if Congress doesn't pass legislation amending the CVD law to expressly apply to NME imports, two horrible things will happen: (1) Commerce won't be able to address unfairly subsidized imports from China and Vietname; and (2) the revocation of those 24 CVD orders and 7 pending investigations will obliterate 80 US companies and "tens of thousands" of American workers.

Yet when we dig a little deeper, we realize that both of these claims are, well, incorrect.

First, Congress' refusal to fix the administration's big CVD/NME mess would not prevent Commerce from addressing subsidized imports from NME countries.  It would merely force the administration to (i) stop imposing countervailing duties on NME imports and thus return to DOC's previous policy of addressing Chinese and Vietnamese subsidies through anti-dumping measures; or (ii) designate China and Vietnam “market economies” and address such subsidies via the normal CVD process.

I've discussed my preference for the latter approach and will get more into that in a few days.  For now, I'll just say that designating a country a "market economy" under the US anti-dumping law is entirely at the President’s discretion, so Commerce could basically do it at any time (and then attack Chinese subsidies with CVDs).  But if the administration doesn't want to start using the normal, "market economy" methodology in AD investigations of Chinese/Vietnamese imports, it can still attack subsidies received by the foreign exporters at issue by using the NME methodology in AD cases.

To fully understand this fact, it's important to first lay out the basics.  The NME methodology is a holdover from the bygone days of command-and-control, Soviet-style economies.  Dumping is typically calculated by comparing a foreign exporter’s home market prices with the prices of the same product imported into the United States. Where the former prices are higher than the latter, anti-dumping duties are imposed on the subject imports in the amount of the difference.

However, for countries designated as NMEs, domestic prices or costs cannot be used to determine dumping because pervasive government intervention – particularly state subsidies – supposedly makes them unreliable.  Thus, Commerce calculates dumping margins by comparing US import prices with a “price” that has actually been constructed from subsidy-free input costs, expenses and profits from a comparable producer in a comparable “market economy” country like India or Thailand.  As a result, the anti-dumping duty rate on a NME import has nothing to do with an investigated exporter’s actual prices or costs and has, more importantly for our purposes, already eliminated any possible subsidies that the company received.

Indeed, this fact is exactly what creates the "double counting" problem ruled illegal by both the Court of International Trade and the WTO's Appellate Body.  Both bodies found that the simultaneous application of anti-dumping and countervailing duties on NME imports violated US law and WTO rules because the concurrent measures offset the subsidies received by investigated exporters twice (and thus lead to extra, punitive duties on their goods).  As CIT Chief Judge Restani explained in an earlier GPX ruling:

Although the court recognizes that “the exact effect of subsidies on price is difficult to measure,” it also acknowledges that “[t]here is an assumption that CVD remedies equalize the competitive playing field, by raising the price of the good when it is exported into this country.” In NME-designated countries, however, Commerce also “compares a subsidy-free constructed normal value (essentially using information from surrogate countries) with the original subsidized export price to calculate the AD margin.” Thus, any resulting NME AD margin in theory also captures the competitive advantage that subsidies may provide because the constructed NV is subsidy-free, and presumably higher than a subsidized NV, while the U.S. price presumably reflects in some way the price-lowering benefits of the subsidies. Thus, the margin is greater than it would be if subsidies were reflected on both sides of the comparison. These methodologies, therefore, when used concurrently, result in a high likelihood of double counting because they effectively counteract the same behavior twice.

So if Congress doesn't pass a legislative fix in the next few weeks and the Obama administration just can't bear to designate China and Vietnam "market economies," Commerce can still address Chinese and Vietnamese subsidies via its NME anti-dumping measures.  (This was basically what Commerce proposed - and the CIT rejected - when the court first ruled against double counting.)

You'd think that Ambassador Kirk and Secretary Bryson would know this.  But I digress.

Second, the termination of all those CVD orders and investigations would likely have little or no effect on the companies that are currently "protected" by them because every single Chinese and Vietnamese product at issue is subject to a corresponding anti-dumping order or investigation.  The homemade chart below makes this clear (showing the AD and CVD investigation number assigned by DOC to each investigated product):

Every anti-dumping case above utilized (or will utilize) the NME methodology.  And because that methodology (as noted above) already counters subsidies received by the targeted foreign exporters, there is literally no chance that, as Kirk and Bryson claim, congressional inaction will cause "harm from injurious, subsidized goods."  In fact, a quick skim of the final AD duty rates in the completed investigations cited above shows that anti-dumping duties for a lot of the listed Chinese and Vietnamese exporters are around 50% or more - essentially shutting the subject goods out of the US market altogether.  Those prohibitive duties aren't going anywhere, no matter what Congress does (or doesn't do) to the US CVD law.

Congress probably will end up amending the US CVD law to apply to NME imports.  But let's not kid ourselves here, folks.  Failure to do so would not be the end of the world for Commerce or "tens of thousands of manufacturing workers."  

Far from it.

Documenting the Real - and Personal - Harms Imposed by the Obama Administration's Trade Remedies Policies

Over the last few days, I've tried to document the myriad problems surrounding current Obama administration policies related to trade remedies (i.e., anti-dumping, countervailing duty and safeguards) actions against Chinese imports.  I first explained (in admittedly excruciating detail) how the administration's steadfast support, in the face of numerous adverse legal rulings, for imposing CVDs on imports from "non-market economies" (NMEs) like China and Vietnam was undermining US-China trade relations, injecting uncertainty into the US economy, and creating tons of needless litigation in US courts and at the WTO.  I then criticized President Obama's rather, ahem, audacious claims in the 2012 State of the Union Address that his administration's "Section 421" safeguards tariffs on Chinese passenger vehicle and light-truck tires created lots of American jobs and will therefore serve as the poster child for the President's new trade "enforcement" team.

These blog posts follow years of documenting the problems with US trade laws and the immense-yet-mostly-unseen costs that US trade remedies actions - including the Section 421 tariffs and unrelated countervailing duties on Chinese off-road tires - impose on American businesses (e.g., importers, retailers and downstream manufacturers) that consume, import, market or sell Chinese and other imported goods subject to all of those US duties.  Most of these discussions, however, were been based on public statistics and published news reports, rather than firsthand accounts (mainly because most US business owners are unwilling or unable to comment on the record about such things).

Then last night I received an unsolicited email from Mr. Robert Sherkin, currently President and CEO of Dynamic Tire Corp. and a founder of the now-bankrupt GPX International Tire Corp (the named Plaintiff in the big US court case on the CVD/NME issue).  [Note: I don't represent Mr. Sherkin in any capacity.]  He kindly praised my analysis of the troublesome US trade remedies cases against Chinese tires, and then in a subsequent email explained just how these particular trade actions - which have been repeatedly ruled illegal by US courts and the WTO, yet continue to be championed by the Obama administration - destroyed his company (via the aforementioned bankruptcy), eliminated hundreds of US jobs, and personally cost him millions of dollars.  I asked Mr. Sherkin if I could post his email here, and he agreed.  It is copied below, verbatim (with my clarifications in brackets):

From: Robert Sherkin
Date: Thu, 2 Feb 2012
To: Scott Lincicome
Subject: RE: your post 

[Regarding the AD/CVD investigation of off-the-road (OTR) tires and subsequent CVD/NME litigation in US courts...]

We spent millions fighting this battle for 4 years only to lose the company. The process was Orwellian. You go in thinking that truth would prevail and vindication would be the end result. Boy were we wrong... even now with a US Court telling the government 3 times that they are wrong … they still refuse to accept it.

You can’t possibly calculate both AD and CVD in a non-market economy.  The “surrogate cost” inclusion deals with the CVD aspect!  It is DOUBLE COUNTING.

Has the USA really become that weak that they need to have 6 outs per inning where the other side has 3?  Doesn’t anyone want to do the math or are even the “smart guys” on the Hill only capable of focusing on 20 second sound bites from the talking heads.

We spent over $30 Million on a facility in China, employed over 200 people in North America.

Titan Tire launched an AD claim which was subsequently commandeered by Bridgestone, who by the way was brilliant!  Using their aging 40 year old factory in Bloomington Illinois that they haven’t invested much in over the years, they have effectively blocked China from access to their OTR market in USA ($300+ Million per year) which they fill mostly from their factories in Japan... how smart is that!

Titan on the other hand claimed they couldn’t compete in USA but purchased more USA assets with the goal of attaining 50% of their revenue on an export basis... how can they compete with China outside of USA if they need AD/CVD protection inside USA?  Ridiculous argument but the DOC and ITC lap it up.

[Regarding the Section 421 safeguards duties on fairly-traded Chinese consumer tires...] 

The latest one we are currently suffering with is the 421 ruling on consumer tires... what I call Obama’s $6 Billion Tax on the US consumer... not one new job was created as a result despite the state of the union lie!  This 421 ruling will have had the effect of increasing the cost of automotive tires to the US consumer by not less than $6 Billion over the 3 years [that it will be imposed]… and imports during the last 2 ½ years have not reduced, they only shifted from China to Taiwan, Malaysia, Thailand, Korea and others.  The USW (not one industry participant) claimed that the 421 “relief” was needed to address market disruption caused by the surge of tires imported from China.

So the US consumer pays the price for the USW to the thump their chest, to the tune of $6 Billion.  Priceless!  Something tells me that there are a lot of better ways to spend this amount of funds!

Sorry for my rant….. I feel a little better now! --- getting kicked in the teeth by the US Government for over $20MM personally gets one a little agitated sometimes!

I don't know about you, but there seem to be plenty of reasons for Mr. Sherkin to get "a little agitated" about (and no reason for him to apologize for) how he, his company and its employees were treated by the Obama administration and its strong commitment to maintaining the problematic status quo on US trade regulations.

The loss of a small business, 200 jobs and $20 million can certainly cause a guy to get a little ranty.

In a great new video, Senator Jim DeMint (R-SC) explains how US regulations are destroying American entrepreneurs' ability to compete and succeed in the global economy.  As I (and others) have frequently noted, US trade remedies laws - and the litigation arising therefrom - are precisely the types regulations that can, if poorly crafted or administered, strangle American businesses - particularly those that consume or otherwise rely on imports.  Unfortunately, many politicians - even supposed champions of the free market - seem to forget that US "unfair trade" regulations can impose very real costs on many American businesses (US tariffs are paid by Americans, afterall) and often on very "unfair" terms.  Maybe Mr. Sherkin's story will help them remember (or discover) that fact.

And if more of this is the future of the Obama administration's China trade policy, then heaven help us.

On China Trade, the Obama Administration Just Can't Stop Digging

When I first reported on the "bombshell" ruling of the US Court of Appeals for the Federal Circuit (CAFC) in GPX Int'l Tire Corp. v. United States that the US countervailing duty law did not apply to China and other "non-market economies," I noted that the court decision would likely cause a lot of legal and political scrambling by the Obama administration as it rushed to clean up the big mess that its CVD/NME policies (admittedly begun by the Bush administration) had caused.  I also noted at the time that the administration could easily extricate itself from the deep CVD/NME hole that had been dug - in the US courts and at the WTO - if it did the smart, strategic thing and designated China a "market economy" under the US anti-dumping law.

It appears, however, that the administration has unsurprisingly decided not to take my advice, and instead is content to keep on digging, regardless of how deep and dirty their hole could get.

Late last week, USTR Ron Kirk and Commerce Secretary John Bryson sent an "urgent" letter to the heads of the House Ways & Means Committee and the Senate Finance Committee asking them to act quickly to pass legislation modifying the US CVD law to "clarify" that it applies to NMEs like China and Vietnam.  The full text of the letter isn't available at the USTR or Commerce website (most transparent administration ever!), but here are the highlights (and here's a nice summary of the letter by the FT's Alan Beattie):

Absent legislative or judicial action, the court's ruling will take effect shortly after February 2, 2012.  Should this occur, it would have substantial adverse economic implications for our country.

Accordingly, the Administration stands ready to work with Congress to enact legislation clarifying that the CVD law can be applied to subsidized goods from non-market economies, that CVD proceedings Commerce has already initiated on products from non-market economies are to continue, and that CVD determinations Commerce has made with respect to such products are to remain in effect.

This matter is of the utmost urgency.  Absent legislation, should the decision of the court become final, Commerce will be required to revoke all CVD orders and terminate all CVD proceedings involving non-market economy countries, including 24 existing CVD orders on imports from China and Vietnam, as well as five pending investigations and two recently filed petitions....

The CVD proceedings placed at risk by the court's decision cover a wide range of products in which U.S. manufacturing is most competitive, including steel, aluminum, paper, chemicals, tires, and other products. The annual value of the subsidized imports covered by these CVD proceedings is $4.7 billion. The U.S. petitioning industries that are competing against these subsidized imports include small and medium-sized enterprises and large corporations; family-owned businesses and Fortune 500 companies. These petitioning industries - representing more than 80 companies - are spread across 38 states and employ directly tens of thousands of manufacturing workers.

The Administration is fully committed to enforcing our trade laws and to addressing unfair trade practices in accordance with our statutes, regulations, and international obligations. As our staff discussed with your staff soon after the court's ruling, we are currently reviewing all options, including a request for a rehearing by the full appellate court, as we believe the court's decision misreads the CVD statute, precedent, and Congressional intent and historic bipartisan support of strong CVD laws. Notwithstanding the strength of our legal position, prompt legislative action is necessary to clarify the law and avoid harm from injurious, subsidized goods.

There's way too much going on here for one blog post, so for now I'll only briefly mention the letter's rather ridiculous policy aspects.  Most notably, Kirk and Bryson accept as gospel the notion that removing duties on Chinese imports would be a net loss for the US economy, and, in a similar vein, completely ignore the harms that such (illegal) duties have on American companies and consumers - a problem that's long been chronicled by Cato's Dan Ikenson.  Also, as Ikenson notes in a new blog post, the current NME methodology used by DOC in anti-dumping cases is neither precise nor reasonable, so the idea that it is this precious thing that must be protected by urgent congressional action is downright laughable.  Finally, the joint letter's one-sided nature provides an extremely troubling preview of President Obama's proposed trade agency consolidation.  While I've expressed serious doubts that Obama's "plan" will ever go anywhere, the Bryson/Kirk letter should be extremely distressing for anyone who was hoping that the new trade super-agency would retain USTR's broader, more-balanced trade policy perspective (as opposed to DOC's more blatant and forceful mercantilism).

With the (bad) policy out of the way, I'd like to focus tonight on the letter's procedural, legal and political aspects.  The letter makes clear that the Obama administration plans to pursue a two-track approach with respect to the GPX decision: (1) appeal it to the CAFC for a re-hearing or en banc review (i.e., a review by all of the circuit's judges instead of the typical three-judge panel); and (2) simultaneously seek congressional legislation that would ideally do three things: (a) "clarify" that the CVD law may be applied to imports from NME countries; (b) let the seven pending CVD investigations of NME imports continue; (c) and mandate that 24 previous CVD-NME determinations remain in force.

On the appeal front, the letter's "urgent" February 2 deadline is based on the 45-day deadline for seeking a re-hearing or en banc review before the CAFC, but the breathless air of urgency here is somewhat overblown.  In fact, Congress probably has several months to draft and pass this legislation because the GPX ruling won't actually be "final" until all appellate avenues - at the CAFC and the Supreme Court - are foreclosed.  The CAFC typically takes around 20 working days to act on a panel rehearing request and as much as 60 working days to act on a en banc rehearing request.  Granting such a request is extremely rare, and it's highly unlikely that the court in this case will grant either request because the original decision was unanimous and the full court already had a chance to review it prior to publication.  But even if both requests are denied, these long-ish deadlines mean that the Obama administration might be able to stretch out the appeals process at the CAFC until early May.

At that point, Congress might have to act, but only if the administration also hasn't decided to appeal the GPX decision to the Supreme Court.  The joint letter doesn't mention that possibility, but my guess is that DOC and USTR are just focusing on the CAFC for now because the 90-day deadline for petitioning the Supreme Court for a writ of certiorari (by which the Court would accept the appeal) won't actually start running until the CAFC has rejected the administration's rehearing/en banc request(s) in early May.  The Court typically decides whether to hear an appeal in 6-8 weeks, but this can be delayed where petitions are filed near or during the Court's summer recess in late June/early July.  In that case, the Court wouldn't announce that it was denying certiorari - the most likely outcome in this case, as I've already explained - until the first Monday of October.  So if DOC petitions the CAFC for an en banc re-hearing, then appeals the case to the Supreme Court after the CAFC rejects the re-hearing request, all possible appeals might not be foreclosed - and Congress might not be forced to act - until October 1, 2012!

Meanwhile, DOC will continue to act as if nothing has happened.  The existing, now-illegal CVD orders will remain in place and duties will continue to be collected; the pending investigations will continue apace; and DOC will initiate new investigations upon receipt of a proper petition (as it just did in the new CVD investigations of wind turbines from China and steel hangers from Vietnam).  ("Move along, nothing to see here.  Please don't look at that joint letter to Congress behind the curtain.")  For this reason alone, I expect every appeal possibility to be fully explored and utilized unless Congress acts in the meantime.

Congressional action, however, is probably going to be tricky.  First, any legislation that applies retroactively to those 24 existing CVD orders - which the joint USTR/DOC letter expressly requests - could raise legal issues under US law and WTO rules.  Although the law is unsettled in both jurisdictions, I'd be amazed if several US and/or Chinese companies didn't try to challenge the new law's retroactive application (and the collection of millions of dollars-worth of illegally-collected duties) in US courts, and/or the Chinese government didn't at least request consultations pursuant to WTO dispute settlement.

Second, and far more troubling, the likelihood that any legislation on China and CVDs can make it through both chambers of Congress during a contentious election seasons without attracting all sorts of nasty protectionist amendments - including one applying CVDs to imports of countries with "misaligned" or undervalued currencies - seems slim.  While the GOP-controlled House might be trusted to produce and pass (trade remedies bills have broad bi-partisan support) a clean measure, the same very likely cannot be said of the Democrat-controlled Senate - the same Senate that passed a stand-alone currency bill by a strong margin only a few months ago and whose leaders, Harry Reid and Chuck Schumer, just love to force Republican Senators to vote on protectionist legislation during election years.  And when a clean House bill and a currency-laden Senate bill get to a conference committee, do we really trust the conferees - including Ways & Means Chairman Dave Camp who is from trade-skeptical Michigan and up for re-election in November, and voted for a similar currency bill in September 2010 - to exorcise any offending currency language from a final bill?

I sure don't.

Moreover, if a CVD/NME/currency bill did emerge from the conference, strong bi-partisan support is all but certain in an election year, especially given the strong, vocal support for such a measure from GOP frontrunner candidate Mitt Romney.  And let's face it: the chances that President Obama would veto that bill in the fall of 2012 - contrary to much of his own party, US labor unions and his own rhetoric - seem remote (particularly, again, given Romney's aggressive position on China trade).

As I've repeatedly mentioned here, any new currency law would be a real problem for the United States, as it would likely violate WTO rules, provoke retaliation and open the floodgates to US duties on imports from other countries (like Korea) who engage in currency policies similar to those of China.  Maybe the possibility of the CVD/NME bill becoming a protectionist Christmas Tree is why Kirk and Bryson's letter has that exaggerated sense of urgency - maybe they know that the closer we get to November 2012, the more difficult it will be to prevent currency language from being included in any bill and thus to avoid a major trade conflagration between the United States and China (and several other distressed US trading partners).  Of course, both the administration and Congress are very well aware of the fact that February 2 isn't the real deadline for action, so delay of any CVD/NME bill seems pretty inevitable, particularly given the current political climate.

Meanwhile, DOC will keep acting as if nothing ever happened, US importers and consumers will continue to pay illegal duties, and China will - for very good reason - keep complaining about US "protectionism" at every possible opportunity.

In short, the CVD/NME issue is shaping up to be a complete debacle - one that the Obama administration seems perfectly willing to continue, yet probably could be avoided if the United States just moved to designate China a "market economy" under the US anti-dumping law and/or ditched the problematic NME methodology altogether.  Depending on the scope of any such effort, it could cause many, if not all, of the United States' CVD/NME problems to disappear.  Pending CVD investigations of Chinese (and maybe Vietnamese if the whole methodology was scrapped) imports could continue, and new CVD investigations could be initiated, without any concern as to whether those proceedings violated US law or WTO rules.

DOC also could recalculate previous anti-dumping and countervailing duty decisions pursuant to standard "market economy" methodologies - a move that not only would eliminate the United States' need to meet the February  late April 2012 deadline [note: it was just recently extended] for complying with the WTO Appellate Body's 2011 ruling against DOC's CVD/NME methodology, but also might (maybe) avoid further litigation related to the retroactive application of the CVD/NME law to those 20-plus CVD orders already in place.  Even if that move weren't perfectly legal, the Chinese and Vietnamese governments value the elimination of the NME stigma so much that they might be willing to look the other way.  (And, as I've previously mentioned, they also might be willing to make other concessions on issues like market access and IPR in exchange for the "market economy" designation.)

Such moves would greatly diminish the necessity and urgency of potentially-problematic, pre-November legislation "clarifying" US CVD law to apply to NMEs.

The big policy change also would give the United States some moral high ground in bilateral trade negotiations with China.  The US has many legitimate complaints against unfair or distortive Chinese trade practices, but the CVD/NME issue - and the United States continued refusal to comply with adverse court and WTO rulings - undermine the strength of those very valid concerns and expose US exports to potential retaliation.  And the United States will be required to relinquish China's NME status in December 2016, as stated in China's WTO Accession Protocol, so time is running out anyway. (Ikenson has more on these points here.)

In short, there's a very simple way to avoid most, if not all, of the economic, legal and political problems raised by the current CVD/NME mess, and the move makes lots and lots of sense regardless of the CAFC decision.

And yet the Obama administration just keeps on digging.

UPDATE:  Ikenson throws in a nice little "told you so" on Cato's blog, noting that if the Obama administration had just taken our (admittedly unsolicited) advice three years ago, they could have avoided all of this.  Alas.

UPDATE2: I have more updates on timing and other fun stuff here.

Meet the New Year, Same As the Old Year

One of the big trade developments of 2011 was the continuing tit-for-tat protectionist battle (I refuse to say "trade war") between the United States and China via national trade remedies laws and WTO dispute settlement.  Particularly contentious were disputes over allegedly-subsidized "green" technology products, China's apparent retaliation to unilateral US trade actions via its own trade remedies laws, and the United States' simultaneous application of its CVD law to China (and Vietnam), while treating them as as "non-market economies" in anti-dumping investigations - something that both the WTO's Appellate Body and the US Courts have found to be illegal.  These three issues resulted in a year of a lot of litigation and ultimately a lot of duties against US and Chinese imports in (much to consumers' and exporters' dismay, natch).

And if December is any indication, 2012 will likely see more of the same.  Maybe a lot more.

In the middle of last month, China's Ministry of Commerce (MOFCOM) announced that it was imposing anti-dumping and countervailing duties on US imports of large automobiles and SUVs - the result, as you may recall, of an investigation initiated in response to the Obama administration's 2009 decision to impose duties on Chinese tires under "Section 421" of US trade law.  As the FT neatly explains, MOFCOM's announcement is part of a growing trend of Chinese "retaliation" against the US and other countries via national trade remedies laws - something that Chinese law uniquely allows:

In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday.

In addition to the two German premium brands, the ministry is also targeting models manufactured by General Motors, Ford Motor, Chrysler and Honda’s US unit. The individual duties will range from 2 per cent to 21.5 per cent and be imposed for two years on imported cars and SUVs with engines larger than 2.5 litres....

The move is however the latest in a flurry of legal actions between the US and China, in which each country accused the other of supporting domestic industry with illicit state subsidies and challenged each other’s use of emergency blocks on imports.

Last week the US said it was taking a case against China to the World Trade Organisation, arguing that Beijing’s use of anti-dumping measures against US poultry exports was illegal under global trade rules. Washington also has a similar WTO case pending against China for blocking steel imports from the US. “We are very disappointed in this action by China,” said Andrea Mead, a spokesperson for the US trade representative’s office.

China started the process of imposing anti-dumping duties on American poultry and cars in 2009, shortly after the US for the first time used a special measure to block imports of tyres from China. Beijing subsequently challenged the US’s action to block tyre imports at the WTO, but lost the case after a judicial panel ruled that Washington had acted correctly within the law.

As I told the FT in that same article, because Chinese law does not require MOFCOM to announce the receipt of a trade remedies petition from its domestic industry or to decide whether to initiate an investigation within a specified timeframe, “China can quickly initiate ‘surprise’ investigations in response to unilateral trade actions by the United States and other trading partners that it doesn’t like.”  Moreover, Chinese law doesn't require MOFCOM to immediately impose duties upon reaching final determinations in AD/CVD investigations that subject imports are dumped/subsidized in the Chinese market and injuring the domestic industry.  Both aspects are different from US law, and the latter provision allows the Chinese government to announce final AD/CVD duties without actually imposing them.  Thus, the un-imposed duties can act as a "threat" of sorts hanging over the head of US and other exporters (and, of course, the US government).  This delay happened in the automobiles case.  The final measures were announced in May 2011 but not imposed until mid-December - the week after MOFCOM blasted a unanimous decision by the US International Trade Commission to continue a highly controversial AD/CVD investigation of Chinese solar panels.  This little coincidence has led some to speculate - with some justification, it seems - that China finally decided to impose the automobile duties as a response to the ITC's decision. (I, however, have no idea if that's really the case.)

Based on USTR Ron Kirk's rather disgruntled response to MOFCOM's announcement, it's quite possible that the US will also challenge the automobile duties at the WTO - the third such dispute (as the FT notes).  So this bilateral fracas should continue to work itself out throughout 2012 - the only question, really, is whether China will initiate any more AD/CVD investigations against US imports in 2012 or impose new duties on those products as a result. (My guess: probably yes, but it could depend on future US antagonism.)

Of course, the United States isn't only on the receiving end of questionable trade remedies actions - something that the aforementioned WTO and court cases make clear.  In fact, last Thursday, the US wind industry filed anti-dumping and countervailing duty petitions against imports of wind towers from China and Vietnam - both still considered "non-market economies" under US anti-dumping law.  Bloomberg reports on the petitions:

Wind-tower producers from China and Vietnam are selling their renewable-energy equipment below cost in the U.S., according to an attorney for American producers that petitioned the U.S. to impose anti-dumping duties...

The wind-tower complaint was filed by Broadwind Energy Inc. (BWEN); Otter Tail Corp. (OTTR)’s DMI Industries; a unit of Trinity Industries Inc.; and Katana Summit, Price, who is based in Washington, said in an interview.

The wind-tower companies also filed a countervailing-duty complaint against China. The U.S. uses more than 300 anti- dumping and countervailing duty orders to shield American-made goods, from honey to bedroom furniture, against global competition it deems unfair and damaging to U.S. companies. About half the orders target iron and steel products. Anti-dumping duties apply to goods sold overseas at or below the price in the home country. Towers from China sell at 64 percent of their normal value and those from Vietnam at 59 percent, according to the petition by the U.S. companies....

China accounts for a third of all U.S. actions on imports, the most of any country, including about 100 anti-dumping and more than two dozen countervailing duty orders, according to the U.S. trade commission....

Bloomberg's article also helpfully notes that the wind tower petitions are part of a growing trend of trade disputes - including the aforementioned solar panels investigations - between the US and China over "green" products. The wind towers case thus adds to rapidly expanding volume of green trade disputes around the world - something I've repeatedly noted (and predicted) over the last couple years.

Bloomberg fails to mention, however, the huge mess that is the current legal status of the US CVD law with respect to the NMEs China and Vietnam.  For both of our sakes, I won't again get into those weeds tonight, but recent events in US courts and the WTO will likely cast a rather conspicuous shadow over DOC's initiation of this investigation (although I have no doubt that DOC will act as if nothing's going on).  And, considering China's rather loud response to the latest court decision ruling CVDs on Chinese imports illegal,  further litigation over all of these investigations is extremely likely in 2012.

So to recap: last year we saw both the US and China engage in questionable trade remedies actions against the other's imports and then challenge those actions at the WTO (and, in China's case, in US courts).  We're only two days into 2012, and it looks like this year will follow a very similar storyline.

Stay tuned.

(And Happy New Year!)

Bombshell: CAFC Rules US CVD Law Cannot Apply to China & Other "Non-Market Economies"

Well, this was unexpected.  Today, the US Court of Appeals for the Federal Circuit (CAFC) affirmed a decision from the lower US Court of International Trade (CIT) that the Commerce Department's current method of applying countervailing and anti-dumping duties on imports from China and other "non-market economies" (NMEs) like Vietnam was invalid because it led to "double counting."  I've previously commented on the CIT decision - GPX Int’l Tire Corp. v. United States - and it was a pretty big deal.  But it was somewhat limited because it applied to only Commerce's methodology for applying anti-dumping and countervailing duties simultaneously on the same NME-origin product.

The CAFC, on the other hand, went a whole lot further than the CIT, finding that, under current US law, "government payments cannot be characterized as 'subsidies' in a non-market economy context, and thus that countervailing duty law does not apply to NME countries."  So instead of ruling on the discrete "double counting" issue, the CAFC essentially said that the entire CVD law doesn't apply to Chinese and other NME imports.

That's an even bigger deal.

I'll likely get further into the weeds of the CAFC decision later, but here's the gist.  In the 1986 case Georgetown Steel Corp. v. United States the CAFC agreed with Commerce that the US CVD law didn't apply to NMEs (in that case, Czechoslovakia).  However, in the 2007 investigation of Coated Free Sheet Paper from China (full disclosure: I represented the Chinese exporters in that case but no longer represent any Chinese exporters or the Chinese government), Commerce ruled that Georgetown Steel didn't apply to Chinese imports because China's economy was totally different from the Soviet-style economies to which Georgetown Steel applied.  Since then, dozens of CVD petitions have been filed by US producers and unions, and duties have been imposed in almost all cases, including off-road tires.  GPX appealed that decision to the CIT, and, after several remands, the CIT issued the aforementioned decision.

In this case, the CAFC essentially found that Congress had "ratified" Georgetown Steel's CVD/NME prohibition because legislative history of trade laws passed in 1988 and 1994 showed that Congress (i) was well aware that the CAFC's decision constituted "existing law"; and (ii) did not wish to alter this "existing law" to apply CVDs to imports from NMEs.  So Congress knew about the CAFC decision and didn't do anything to change it, thereby "ratifying" the CVD/NME prohibition into US trade law.  The CAFC thus concluded:

[I]n amending and reenacting the trade laws in 1988 and 1994, Congress adopted the position that countervailing duty law does not apply to NME countries.  Although Commerce has wide discretion in administering countervailing duty and antidumping law, it cannot exercise this discretion contrary to congressional intent. We affirm the holding of the [CIT] that countervailing duties cannot be applied to goods from NME countries. As we concluded in Georgetown Steel, if Commerce believes that the law should be changed, the appropriate approach is to seek legislative change.

In short, Commerce violated existing US law by applying CVDs to imports from China and other NMEs since 2007, and if Commerce wants to apply CVDs to NME imports, then Congress has to pass a new law, overruling Georgetown Steel.

So why is this a big deal?  Well, according to the latest figures from Commerce, CVDs are currently being imposed on 23 different Chinese imports into the US, totaling billions of dollars in annual trade.  There's also one CVD order on imports from Vietnam, and there are a few pending CVD investigations against China and/or Vietnam, including the highly controversial case on Chinese solar panels.  And according to the CAFC - the second highest US court for trade cases - Commerce violated US law in every single one of the finished cases and has no authority to impose CVDs on NME goods in new or pending investigations until Congress amends the law.

Oof.

So what happens to all of these CVD orders and investigations?  Well, it seems somewhat likely that Commerce and/or the domestic industry will appeal the CAFC's decision to the Supreme Court if only to keep all of the existing orders in place for a while, but the chances of the Supreme Court hearing the case (via a writ of certiorari) seem pretty low.  Chief Justice Roberts' court is notoriously stingy about granting cert, especially on highly technical stuff like this.  It's not impossible, but I definitely wouldn't bet on it.

But say there's no appeal (or the SCOTUS denies cert), then what?  Sure, Congress can - and almost certainly will - amend US law to expressly allow for the imposition of CVDs on NME imports, and any such legislation would pass by big bi-partisan margins because both trade remedies measures and anti-China measures have broad congressional support (hooray bi-partisanship... sigh).  But can the existing orders remain in force or the pending investigations stay pending?  The CAFC's decision is much broader and more fundamental than the lower CIT's decision which only applied to DOC's methodology.  If the CIT ruling had merely been affirmed, then DOC could have theoretically kept the orders in place and merely recalculated the duties.  The CAFC, however, ruled that existing US law prohibits any and all imposition of CVDs on NME imports.  So if/when Congress amends US CVD law, can it be applied retroactively to previously-decided (or initiated) cases that were, according to the CAFC, fundamentally contrary to US law?

I know that there are some pretty significant loopholes regarding the Constitution's express ban on ex post facto laws, but even if the Congressional amendment of US CVD law were not found to be an unconstitutional ex post facto law, it would seem that it could still run up against a pretty reasonable challenge by US importers.  For example, would they deserve to reimbursed for all of the duties illegally collected on affected Chinese goods since 2007?  I (clearly) have no idea, but I'll bet that we're going to find out soon enough.

And what will the CAFC's decision do to the United States' ongoing implementation of the WTO Appellate Body's ruling in DS379 that Commerce's simultaneous application of anti-dumping duties and countervailing duties in four US investigations of Chinese goods violated WTO rules?  That implementation process is well underway, and Commerce's "Section 129" decision there is due in late February 2012.  The CAFC's decision could make that process - and China's scrutiny of it - even more complicated, wouldn't you think?

(And, of course, there's the proposed US legislation and angry campaigning politicians targeting China's currency practices via the US CVD law.  Oops.)

What a mess.  Clean-up is not going to be easy, unless, of course, the United States did the rational thing and simply designated China a "market economy" and began applying a standard, perfectly legal AD/CVD methodology in current and future investigations of Chinese imports. [UPDATE: See this earlier blogpost on why granting ME status for China should be a no-brainer.]

Unfortunately, that outcome seems far less likely than another few years of confusion, litigation and market uncertainty.