In Need of Enlightenment: The International Trade Commission's Misguided Analysis in Sunset Reviews
King, Jennifer Karen, William and Mary Law Review
The United States is no different than most modern nations that trade products in the international marketplace. That is to say, as a result of its participation in the international trade arena, the United States has an extensive body of laws to regulate its trade with foreign nations. (1) The purpose of trade regulation varies depending upon an individual's philosophic persuasion. One individual may view trade regulation as a synonym for protectionism in which trade with other nations is discouraged, while another may interpret trade regulation as a means to protect domestically manufactured goods from unfair competition. Regardless of one's opinion on the need for trade regulation, its omnipresence in today's international marketplace demands careful analysis.
Trade regulation is not a recent phenomenon, but rather a resilient force whose indiscrete character morphs over time, evolving with changes in the global economy. (2) In the present era, in which the General Agreement on Tariffs and Trade (GATT) (3) takes center stage, nontariff barriers (NTBs) (4) have replaced tariffs (5) as the favored mechanism of trade regulation. (6) According to one commentator, "[t]ariffs no longer matter in international trade law.... Nontariff barriers are what matter in late twentieth and early twenty-first century international trade law, leaving protectionists with few remaining weapons to achieve their goals." (7) As quickly as nations agree to reduce certain barriers to trade, new forms of NTBs emerge to perpetuate the practice of protectionism. (8) Included among the protectionist's arsenal of NTB "weapons" are antidumping and countervailing duty laws. Since the 1980s these laws have been the U.S. "weapon of choice" to protect domestic industries. (9)
Nations justify the existence of antidumping and countervailing duty laws as a means to counterbalance the "unfair" trade practices of dumping (10) and subsidization. (11) In the United States, countervailing duties (CVDs) are imposed to compensate for subsidies received by foreign producers, and antidumping duties (ADs) are imposed to compensate for the sale of imported products at less than their fair market value. (12) Historically, AD and CVD orders established by the United States tended to endure without any scheduled termination. (13) At the conclusion of the Uruguay Round in 1994, (14) however, the United States amended its trade laws to include a mandatory review mechanism for AD and CVD orders, known as a "sunset review." (15)
According to one commentator, "The [Uruguay Round Agreements Act] fundamentally changed the antidumping and countervailing duty section of the amended United States Tariff Act of 1930...." (16) The sunset review provision, however, has not yet led to a widespread discontinuation of AD and CVD orders. (17) In this regard, those who originally envisioned the sunset review as a means to dramatically reduce trade barriers to the U.S. market may well be disappointed. The question, therefore, remains whether the failure of the ITC to revoke a substantial number of AD and/or CVD orders is attributable to either (a) the failure of the URAA to bring about significant substantive changes in the domestic AD and CVD laws or (b) the misinterpretation of the legal standards to be applied during sunset reviews by the Department of Commerce (Commerce), the International Trade Commission (ITC), or both.
This Note analyzes the domestic administrative processes used to establish AD and CVD orders and critiques the review mechanism that can lead to removal of these orders. Essentially, this Note examines the legal standards applied during sunset reviews and concludes that the ITC's interpretation of these standards is misguided and fails to honor the legislative intent underlying sunset reviews. (18)
Using the sunset reviews of AD and CVD orders in Magnesium from Canada (19) as a case example, this Note suggests that the standards of review applied by the ITC in sunset reviews are flawed in three respects. First, the ITC erroneously engaged in prospective analysis of future production volumes of a new Canadian company, Magnola. In its calculation of the potential volume of magnesium imports from Canada, as part of its material injury analysis, the ITC included the manufacturing capacity of Magnola despite the fact that it had not yet begun to produce magnesium in commercial quantities. (20) This Note evaluates how the ITC's inclusion of statistics from a prospective entrant in its analysis defeats the legislative intent of the sunset review mechanism.
Second, in its material injury determination, the ITC failed to fully appreciate the proper causation standard. The ITC's failure to distinguish between the harm to the domestic industry caused by Canadian imports and harm caused by nonsubject imports invalidates its determination that injury to the U.S. domestic industry would likely continue. (21)
Third, the ITC failed to properly apply the theory of "captive production," (22) a term that refers to the process in which a subsidiary produces an input that is consumed, either by another subsidiary or by the parent company, in the manufacture of a downstream product. (23) The production of such inputs is said to be "captive" because it fulfills an internal manufacturing need. By definition, captively produced goods are not sold in the merchant market (24) but rather are consumed internally (25) by the manufacturer. The premise underlying the theory of "captive production" is that imported goods do not compete with internally consumed products. (26) Ultimately, if the imports do not compete with captively consumed products in the merchant market then, by definition, the portion of domestic production that is consumed internally cannot be injured (27) by the imports, regardless of whether the imports are subsidized or dumped.
In the sunset review involving Canadian magnesium, despite the internal consumption of a large percentage of U.S. produced magnesium, (28) the ITC found that the U.S. magnesium industry was materially injured by the Canadian imports. (29) This Note examines the legal reasoning employed by the ITC to justify its apparent disregard for the domestically produced magnesium that was captively consumed.
The ITC's expansive construction of the statutory language establishing sunset reviews eliminates any notion of predictability or consistency in its determinations and defeats the intended objectives of the provision. Ultimately, the standards of review must be clarified in order for the United States to achieve the outcomes Congress intended in adopting the URAA and to meet its obligations under international law as established in the Uruguay Round negotiations.
The first section of this Note provides background on a case that will be analyzed throughout the Note by explaining the importance of magnesium. (30) The second section explains the basic theoretical principles of subsidization and dumping and how such practices injure domestic markets. (31) The third section provides a statutory and factual overview of U.S. AD and CVD laws that are designed to counterbalance the effects of dumping and subsidization, with an emphasis on the processes by which AD and CVD orders can be established and removed. (32) The fourth section examines the 1994 Uruguay Round Agreements Act that amended U.S. domestic trade law and created the "sunset review." (33) The fifth section of this Note introduces the case study of Magnesium from Canada. In particular, this section critiques the ITC's analysis during the sunset review of the AD and CVD orders on magnesium from Canada in light of prior case law and the legislative intent of the URAA. This section also proposes alternative interpretations of the legal standards established for sunset reviews, suggesting that the AD and CVD orders on magnesium from Canada should have been terminated. (34)
IMPORTANCE OF MAGNESIUM
In addition to illustrating the ITC's flawed analysis, the case study of magnesium provides for a discussion of how magnesium is poised to revolutionize the automobile manufacturing industry. Although the standards applied by the ITC are extremely important in the context of international trade, the importance of magnesium metal itself should also be highlighted. Given the strict emissions standards with which auto manufacturers must comply, automobile manufacturers constantly strive to minimize the weight of their vehicles. The ability of auto manufacturers to replace aluminum parts with those made of magnesium is exactly why magnesium is so highly valued. General Motors and Ford both plan to incorporate a greater percentage of magnesium into their automobiles, especially their SUVs, in the near future. (35) These lighter-weight vehicles will require less gasoline, thereby reducing auto emissions and enhancing the overall air quality.
The realization of these environmental benefits, however, depends on the reliability and quality of the magnesium supply. Although magnesium is the third most abundant mineral on earth, the extraction, purification, and manufacturing processes are extremely fragile. (36) Given the sensitivities of the manufacturing process of magnesium, the ITC's determination not only prevented the removal of the AD and CBD orders on magnesium from Canada, it also complicated the procurement of magnesium for American manufacturers, and has placed automobile manufacturers' architectural visions on hold.
SOURCES OF UNFAIR COMPETITION: SUBSIDIZATION AND DUMPING
To better understand the mechanics of AD and CVD orders it is helpful to examine the rationale for imposing such barriers on imports. It is well-established that AD and CVD laws are remedial in nature. (37) The purpose of such laws is "to equalize competitive conditions between the exporter and American industries affected." (38)
When a foreign product is subsidized (39) or dumped, (40) the domestic product with which it competes is disadvantaged by virtue of the import's artificially lower price. To counteract the effects of these practices, the United States imposes duties on foreign products to proportionately compensate for the disadvantage created by the dumping or subsidization. (41)
In a simplified analysis, subsidization demands a remedy because a subsidy provides a tangible economic advantage for a foreign producer, which in turn can be passed along to consumers in the form of lower prices. Similarly, the dumping of imports demands a remedial because, by definition, dumping involves artificially reducing prices in order to compete with domestically manufactured products. Ultimately, imports that are dumped or subsidized can harm the domestic industry by decreasing the domestic products' volume of sales or forcing the price of domestically manufactured goods downward, thus reducing profits. When domestic manufacturers demonstrate that they have harmed by either dumping or subsidization, AD and CVD duties are intended to create a "fair" market in which U.S. domestic industries can continue to compete.
Petitions, Investigations, and Orders: The Respective Roles of the Department of Commerce and the International Trade Commission in AD and CVD Cases
Although the practices of dumping and subsidization are mechanically very different, the standards used to establish AD and CVD orders are quite similar. (42) The Tariff Act of 1930 (Tariff Act) (43) created the administrative …
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Publication information: Article title: In Need of Enlightenment: The International Trade Commission's Misguided Analysis in Sunset Reviews. Contributors: King, Jennifer Karen - Author. Journal title: William and Mary Law Review. Volume: 43. Issue: 5 Publication date: April 2002. Page number: 2151+. © 1999 College of William and Mary, Marshall Wythe School of Law. COPYRIGHT 2002 Gale Group.
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