The past few years have seen an explosion in privately and publicly expressed concern over the surging US imports from, and trade deficit with, China. The resulting political pressure, fueled by the US manufacturing sector's well-documented troubles, is so intense that earnest discussions have begun both inside and outside the government over whether the current arsenal of trade remedy tools is adequate, and in particular over whether there should be a readily usable import remedy (compensation to domestic producers) against Chinese goods that benefit from subsidies. Senior officials in the administration of US President George W. Bush have hinted at a review taking place within the US Department of Commerce (DoC), which administers the principal US trade remedy laws. The review addresses whether the countervailing duty (CVD) remedy (a border tax imposed on injurious, subsidized imports) should be made applicable to goods imported from non-market economies (NMEs) like China.
This review of the CVD law's reach is welcome--indeed overdue. The existing "NME exemption" makes little policy sense and rests on shaky ground. However, the DoC's actual output in the CVD field indicates that, far from narrowing or revoking the NME exemption, the agency is actually bolstering and expanding that exemption. In particular, the decision in Sulfanilic Acid from Hungary, issued by the DoC in 2002, carved a significant additional hole into the CVD law's protection by ruling that large subsidies bestowed in a foreign country prior to its "graduation" from NME status can not be offset even after graduation. This article reviews the decision, its rationale, and potential consequences for future CVD cases involving imports from China as well as Russia and other transitional economies.
The Sulfanilic Acid Decision
Hungary was considered, for the purposes of trade remedy law, to be an NME until its "graduation date" of January 1, 1998, after which the country's lengthy transition from central planning to market-orientation had progressed sufficiently to enable home market prices to be used in determining "normal value" in antidumping cases. In antidumping analysis, normal value is compared with the price at which goods are exported. Under US court precedents, that January 1998 graduation date also marked the beginning of the period in which US industries could obtain CVD relief with respect to subsidized imports from Hungary.
The US producer Nation Ford Chemical filed a CVD petition in September 2001 alleging that subsidized sulfanilic acid products imported from Hungary were causing material injury to the competing US industry. The CVD investigation focused on the 2000 calendar period of investigation and on subsidies to the Hungarian producer Nitrokemia. The DoC straightforwardly handled the subsidy allegations except in regard to two large subsidies bestowed in the latter half of 1997--a July 1997 assumption of environmental liabilities and a November 1997 cash grant. While there was no question that Hungary was a market economy subject to CVD law during the period of investigation examined by the DoC in the 2000 calendar year, these particular subsidy transactions occurred just before Hungary's graduation date. Subsidies are ordinarily allocated and offset through countervailing duties over a period corresponding to the average useful life of renewable assets in the industry involved, in this case 11 years. Therefore, if these 1997 bestowals were indeed subsidies, they would have definitely yielded a benefit in 2000.
The case was a minor one economically, and since neither the US industry nor the Hungarian respondents participated through counsel, the important and novel question posed by the 1997 bestowals was not briefed by any party. The question at hand was whether the DoC in such a case must investigate and remedy all subsidies bestowed in the relevant allocation period, including those bestowed prior to graduation? …