Countervailing Duties and Non-Market Economies
Written by: Peter Brebach, CEO Iron Angels of Colorado
Many of you probably saw the recent brouhaha over a decision by the US Court of Appeals for the Federal Circuit, which confirmed that it is illegal for the US to slap countervailing duties on imports from so-called non-market economies (such as the formerly communist countries of Eastern Europe, as well as today's Peoples' Republic of China or Vietnam).
A little historical background might be helpful to better understand the implications of this decision.
Not applying CVDs to non-market economies had been the practice of the US (e.g. the Department of Commerce and related agencies) for many years. The main reason was that since in almost all trade cases against such countries, anti-dumping suits were filed along with the countervailing duty suits, and since solid, reliable data were hard to come by in these countries, the danger of double-counting was just too high. Since the governments in these NME countries set most cost and price figures, how does one know whether such artificial prices also benefit from clearly separately definable subsidies? And for the record, the WTO position on this subject is exactly the same.
It needs to be added that the dumping duty rates resulting from trade cases against NMEs are usually so prohibitive (20% and much more) that adding countervailing duties would amount to nothing but kicking a dead horse - there would be absolutely no commercial benefit for the plaintiffs.
To add to the intrigue, Congress had on several occasions reviewed US trade laws, but had always left the question of CVDs on NMEs alone, thus certifying the practice of not applying such CVDs and confirming the understanding that it was illegal.
However, for reasons only they will know or understand, the US Department of Commerce in 2007 changed their position and started accepting CVD cases against China, some of which actually resulted in CVD rates being set and applied - against imports of Chinese tires and steel and paper products, among others. Several Chinese tire manufacturers then sued the US DOC before the US Court of International Trade and won, thus reconfirming the old practice. In an amazing display of stubbornness (and in total disregard for taxpayer money), the DOC turned around and appealed, lost, and appealed again.
That's how this case ended up before the Court of Appeals in D.C.
Both sides paraded impressive armies of lawyers, some of which were hired by the feuding parties, and some of which were not, but filed briefs as so-called "friends of the court" - to no avail. The appeals court reaffirmed the lower court's ruling, and the appeals court's decision can only be challenged before the US Supreme Court. Given the fact that the latter clearly have more important things on their agenda, it is HIGHLY unlikely that they would accept such case.
The response by both the various industries involved and their lawyers was predictable, if not overblown.
While nobody likes to lose a court case, especially one of such far-reaching implications, the defendants (DOC et al) had this one coming. Once again, it's no skin of my back if some company wants to waste their money and pay their trade lawyers' outrageous legal fees on a hopeless and almost frivolous case like this one, but the the lawyers working for the defendants (DOC et al) are charging equally outrageous fees, and those are coming out of my taxes, and I resent that.
I also wonder how the folks over at the AISI would feel if some appeals court judge would tell them how to run their steel companies and criticize their decision-making (e.g. "to build this new blast furnace is clearly an erroneous decision"). Furthermore, their claim to be on the same page with the WTO on this subject is incorrect.
And when Mr. Schagrin, one of the trade lawyers who filed a friend of the court brief, laments that "it was a bad decision, bad justice and pathetic policy, and that this is horrible for the millions of jobs lost to China", then that amounts to nothing but bluster. After all, Mr. Schagrin now has to explain why he encouraged his clients to step up to the plate once again in such useless and expensive endeavor. It could be called a bad decision only if China were a different type of non-market economy, which however they are not.
And while I am no fan of how China exploits weaknesses in our system to further its own mercantilistic agenda, it is NOT the business of this appeals court to change the rules.
As to the alleged "pathetic policy", it is up to the US Congress to change our trade laws, and if they had felt this to be necessary, they had plenty of opportunity to do so. But they did not, and once again, it is NOT the court's business to change our trade laws.
Finally, let's talk about lost jobs. There are two types of jobs that the US loses to China (and others). First, there are those that get lost because companies like Wal-Mart and GE outsource them - a euphemistic way of saying they close factories in the US and have the goods produced in China instead. The other jobs get lost because Chinese producers are able to ship their products to the US because their prices are much cheaper. However, that in itself is not illegal. It is so only if those prices and practices violate our trade laws, and then US producers have the right to defend themselves by filing dumping suits.
Reinstating the CVDs, which had been slapped on Chinese and other products, would not bring back a single job, mainly because those same products also are also subject to substantial dumping duties, which would make it prohibitive for the Chinese or other exporters to try to resume such shipments.