American Trade Enforcement Effectiveness Act makes U.S. trade laws unfair for U.S. importers & foreign producers/exporters.
The "American Trade Enforcement Effectiveness Act" is terrible for U.S. importers and foreign producers/exporters, and ultimately will have negative consequences for U.S. exporters. The new law is old-fashion protectionism. It addresses discreet areas of the law where the U.S. Department of Commerce (DOC) has been frustrated by limitations imposed by the AD/CVD law and enforced by the courts. The sure consequences for U.S. domestic industries will the form of retaliatory trade measures that make it harder for U.S. companies to export merchandise to other countries.
The law has five substantive sections. First, the new law functionally converts the AD/CVD law from remedial to punitive. Second, the new law makes finding injury easier. Third, the new law develops a mechanism will be used to extend application of the non-market-economy methodology for calculating antidumping duties (NME AD) in China well beyond the end of 2015 (when China is scheduled to be designated a market-economy country). Fourth, the new law increases the cost on foreign producers/exporters to defend themselves. And, fifth, the new law eliminates any requirement that the U.S. Department of Commerce select voluntary respondents. While each of the substantive sections may appear reasonable, they will be used for unreasonable ends. Mark my words!
1. PUNITIVE, NOT REMDIAL. First, the new law functionally converts the U.S. AD/CVD law from "remedial" to punitive. Section 502 of the new law removes the requirement that Commerce make any adjustments for information that an uncooperative party would have provided. While this seems reasonable on its face, it will be applied by Commerce in an unreasonable manner. I expect that DOC will completely verify several aspects of a foreign company's response, but then find errors elsewhere that cause DOC to label the company as uncooperative. Once the company has this label, DOC will then discard all information previously verified as complete and accurate, and apply "adverse facts available" (AFA) as adversely as possible. Further, section 502 eliminates the reins used to temper the adverse effect of AFA: it eliminates any need to corroborate the margin calculated on the basis of adverse information, reference an estimate of what the uncooperative party's margin would have been if they had cooperated, or tether the AFA rate to any concept of "commercial reality." Corroboration, estimated margins, and commercial reality have been bedrock principles protecting foreign exporters from DOC's otherwise unbridled protectionism.
Indeed, a DOC official once said that AFA - as incentive to the foreign exporter to cooperate in the future - provides more incentive to cooperate as the rate is raised higher. Thus, despite industry dumping margins ranging from 5% to 15%, the official advocated an AFA rate significantly higher than 100%+ rate already proposed! All such a rate does, however, is close the U.S. market to the foreign exporter involved, thus providing more protection to the U.S. industry. While there are occasional extreme cases of truly uncooperative foreign exporters, those occasions are few and far between. This new law will be quoted, however, every time the severity of the AFA rate is questioned in court. Indeed, I doubt there will ever be another successful challenge to an AFA rate on the basis that it is unfairly punitive.
A side effect of this shift in application of AFA is that courts may no longer give DOC the benefit of administering a "remedial" law, rather than a "punitive" law. The distinction may remove some of DOC's discretion in its future rule-making. But that remains to be seen.
2. Easy Injury. Next, the new law makes it much easier for U.S. industries that are not hurting to claim, successfully, that they are injured. Specifically, if a U.S. industry has 30% profit margins, they are going bananas! How can an industry making so much profit be injured? It doesn't matter. Now, the ITC "may not" decline to find injury just "because the performance of that industry has recently improved." So, despite the fact that the U.S. industry has weathered economic downturn or competition from foreign producers, and is increasing production, employment, profitability, etc., these economic improvements may not be used by foreign exporters to argue against the imposition of AD/CVD duties -- even if the U.S. industry dominates the market, holding 80% or 90% market share!
3. NME AD Methodology Lives On. Third, the new law develops a mechanism will be used to extend application of the non-market-economy methodology for calculating antidumping duties (NME AD) in China well beyond the end of 2015 (when China is scheduled to be designated a market-economy country). DOC does this by amending the definition of "Particular Market Situation" to include any time when DOC believes that "the cost of materials and fabrication or other processing of any kind does not accurately reflect the cot of production in the ordinary course of trade." Essentially, if DOC does not believe that the value of factors of production are market-based, it will throw them out and use "any other calculation methodology" (read: the NME AD methodology). So, abandon hope of DOC calculating Chinese dumping margins fairly - it's not going to happen.
4. Unnecessary Additional Costs. Fourth, the new law increases the cost on foreign producers/exporters to defend themselves by requiring an investigation into whether the exporter is selling its goods at above the cost of production. This is a "cost investigation," which requires a response to a DOC questionnaire. To respond to the DOC questionnaire about costs requires the services of an accountant with specialized expertise. Before this law, cost investigations only occurred if the U.S. industry alleged that sales were made at below the cost of production. The new law means demand for cost-accountant services has skyrocketed, but the number of qualified cost accountants has not increased. Whereas good cost accountants charged $50,000 to $75,000 before, now they charge $100,000 to $150,000. That is just the iron-clad law of supply and demand. How does this law improve the effectiveness of the AD/CVD law? It doesn't. It just makes it more expensive for companies that are required to participate.
5. No More Voluntary Respondents. Finally, the new law will eliminate voluntary respondents. Under DOC is only required to accept voluntary respondents if it would not be "unduly burdensome." But now "unduly burdensome" can mean that the total number of investigations and reviews conducted by the DOC is too great. With this excuse, if it applies in one case, it applies in all. In my view, this means it will be a rare case when DOC accepts voluntary respondents in the future.