Overview
Law360, New York (January 31, 2017, 4:29 PM EST) -- On Jan. 18, 2017, Wilbur Ross, President Trump’s nominee to be the 39th Secretary of Commerce, testified before the US Senate Committee on Commerce, Science and Transportation. His testimony covered the extraordinarily wide range of responsibilities of the US Department of Commerce (DOC), which manages issues as diverse as weather satellites, seafood stocks, and global overcapacity in steel and aluminum. He also touched on several issues relevant to the DOC’s administration of US anti-dumping and countervailing duty (AD/CVD) law, and his comments suggest that the enforcement of this area of the law could become more aggressive. The following article reviews three specific aspects of Ross’s testimony related to AD/CVD law and procedures, and discusses how these proposals could impact companies and counsel involved in AD/CVD proceedings.
Increased Willingness to Self-Initiate AD/CVD Investigations
One of the highlights of Ross’s testimony was his statement that he intended for the DOC to “self-initiate” AD/CVD investigations more frequently. Under Sections 702(a) and 732(a)(1) of the Tariff Act of 1930, the DOC has the authority to initiate AD/CVD investigations even in the absence of a petition filed by a domestic industry. Historically, this provision has been rarely used, but Ross signaled an intention to change this precedent:
[The] tool of self-initiation is a very useful one for several reasons. ... [I]ndustries that have a lot of small companies, very hard for them to get the data together, to get the funding together and worst of all it takes a very long time for them to initiate a case. ... [A]nything we can do to shorten it at the front end would be good.
While an increase in self-initiated AD/CVD investigations may provide some assistance to US industries suffering from unfair import competition, in practice, increased self-initiation may not have much impact.
First, the principal legal distinction between a self-initiated investigation and an investigation initiated following the submission of a petition pertains to the industry support requirement. To initiate an AD/CVD investigation upon the filing of a petition, the DOC must determine that the petition is supported by 25 percent of the industry (in terms of production) overall, and by 50 percent of the industry expressing an opinion as to the proceeding. Historically, this has not been a difficult requirement for a petitioning industry to satisfy, as virtually every petition ever filed has met this standard and has been initiated.
More importantly, self-initiation will not solve the resource concerns Ross highlighted. To be sure, self-initiation would reduce the (not inconsiderable) expense required to prepare a petition. But preparing and filing a petition is less than half the battle for a US industry seeking relief under the AD/CVD law. Even if an investigation is self-initiated by the DOC, as a practical matter a domestic industry would be required to participate in the proceeding in order to ensure that its case was properly represented and fully prosecuted. For example, if a domestic industry did not participate in the US International Trade Commission’s injury investigation, even a self-initiated case could fall to a negative injury determination. Some level of activity may also be expected at the DOC in reviewing questionnaire responses, submitting briefs, commenting on scope issues, and the like. In short, self-initiation of an AD/CVD investigation may provide some relief to US companies, but it is certainly not a panacea.
While not specifically mentioned in Ross’s testimony, an increased push to self-initiate investigations could also lead the DOC to activate the “persistent dumping” provision of the act, which has been equally unused. Section 732(a)(2)(A) of the act directs the DOC to develop monitoring programs for certain products for which the DOC has found “persistent dumping,” so the DOC can immediately initiate an AD investigation against the same product from other countries if the DOC concludes that there is “an extraordinary pattern of persistent injurious dumping from one or more additional supplier countries” and that this pattern “is causing a serious commercial problem for the domestic industry.” While developing such programs would require additional resources, Ross indicated that “I'll figure out some way if confirmed to allocate people power [to self-initiation], [and] it will be a much more important activity." This could suggest that, if presented with the request, Ross’s DOC would be willing to consider these monitoring activities in a more favorable light than did his predecessors.
Increased Enforcement of AD/CVD Orders
Ross stated that one area in which he would focus additional attention is the increased collection of AD/CVD duties. In response to a question from Senator Amy Klobuchar, D-Minn., Ross testified:
One of the things that horrified me as I studied about enforcement is that there are literally billions of dollars of countervailing duties that are never collected because the foreigners set up little shell companies here, we impose a duty, there's nobody home when we come time to collect. I think that kind of thing has to be fixed.
Ross’s testimony is supported by a July 2016 study by the US Government Accountability Office, which found that approximately $2.5 billion in AD/CVD duties were uncollected as of July 2015, and that the majority were likely uncollectable. While Ross’s statement is factually correct, his testimony raises a number of other important issues.
First, while Ross may want to increase the collection of AD/CVD duties, the fact is that the DOC has little role in that activity; the responsibility for collecting AD/CVD duties falls squarely on the shoulders of US Customs and Border Protection. Indeed, the 2016 GAO study focuses solely on actions that CBP can take to reduce the incidence of nonpayment, such as the use of statistical methods to assess risk of nonpayment for particular importer groups.
Second, any steps taken toward increased security for AD/CVD payment should bear in mind that the underpayment of AD/CVD duties might just be the result of a few bad apples. The 2016 GAO study found that the incidence of uncollected duties was highly concentrated: 97.5 percent of all importers paid their bills fully, with the remaining 2.5 percent responsible for the $2.3 billion still outstanding. And of the 818 importers with outstanding balances, 20 of them were responsible for half of these uncollected duties.
In the past, CBP has found it difficult to address the issue of AD/CVD duty under-collection. In 2005, CBP embarked on an ill-conceived effort to increase the collection of AD/CVD duties by increasing the bond requirement for imports of frozen shrimp subject to AD orders. This effort resulted in a series of adverse decisions from the US Court of International Trade, which held that CBP unfairly and inequitably targeted imports of shrimp products, which (along with an adverse WTO decision) led CBP to withdraw its enhanced bonding requirement. If CBP is to take some type of enhanced enforcement action again, it will need to ensure that its efforts are more carefully considered, targeted and supported to the actual problem faced.
Even if the DOC does not have a role in this process, Ross’s comments, along with the continuing reports from the GAO, strongly suggest that importers should expect to see some efforts made to reduce the risk of AD/CVD duty under-collection. At best, these efforts will focus (as the GAO has suggested) on high-risk importers, but all importers should be alert to the possibility that CBP may try to impose a broader plan as part of its enforcement effort. Depending on the specifics of that effort, US importers may find it considerably more difficult to import goods subject to AD/CVD orders if security requirements are increased substantially.
More Rigorous Administration of AD/CVD Proceedings
Finally, Ross indicated his intention to tighten up the conduct of AD/CVD proceedings:
[I]f we're also stricter about not granting extensions to the perpetrators … historically, the people who have been the dumpers refuse to comply on a timely basis with requests for information. ... [I]f confirmed, I would not look very kindly on the perpetrators deliberately delaying cases by not providing information.
These comments reveal a lack of complete familiarity with the DOC’s investigatory process. Foreign producers who fail to comply to the best of their ability with requests for information in a timely manner normally do not benefit from that strategy. Rather, they face the application of adverse “facts available,” which is an adverse inference imposed by the DOC as a punishment for failing to abide by DOC deadlines. Particularly in light of recent statutory amendments giving the DOC even greater discretion in the application of adverse “facts available,” adopting a strategy of deliberately withholding requested data would be nothing short of suicidal.
Moreover, the DOC has already taken steps to accelerate its AD/CVD proceedings by dramatically advancing the deadlines for the submission of “new factual information.” These regulations, adopted in 2013, substantially moved forward the deadlines for the submission of so-called “new factual information.” As a consequence, parties are even more incentivized to submit information as early in a proceeding as possible.
Where parties might see some acceleration of the schedule relates to the DOC’s practice of extending the deadlines in AD/CVD proceedings to their maximum length. For example, the DOC is directed to make its preliminary determination in an AD investigation no later than 140 days after the initiation of the investigation. However, where a case is “extraordinarily complicated,” the DOC has the authority to extend the deadline for the preliminary determination by an additional 50 days. The use of the term “extraordinary” would suggest that such extensions are rare, but in nearly every case in which a foreign producer actively participates, the DOC finds the investigation to be “extraordinarily complicated” and extends this deadline. If confirmed, Ross might encourage the relevant DOC personnel to avoid extending proceedings to their fullest extent.
While it is unclear how many of these steps he will be able to implement, Ross’s testimony strongly suggests that the DOC will be adopting a more aggressive posture toward the prosecution and enforcement of AD/CVD proceedings. If true, participation in AD/CVD proceedings could become even more difficult, particularly for foreign producers of merchandise subject to these proceedings and for US importers of those products.
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Eric C. Emerson is a partner in the Washington, DC, and Beijing offices of Steptoe & Johnson LLP. In his capacity as co-chairman of the US Government Relations Committee of the American Chamber of Commerce in the People’s Republic of China (AmCham China), he works with members of the US business community in Beijing and with key decision makers in both the US and Chinese governments and represents AmCham China in its annual visit to Washington to present the views of the US business community in China to US policy makers. Previously, Emerson served a three year term as general counsel to AmCham China.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
