Trade Cases

Leibowitz: A Reprieve for Importers in Countervailing Duty Cases

Written by Lewis Leibowitz

Since 1997, the US Department of Commerce has had a regulation permitting an “expedited review” of subsidy determinations in countervailing duty investigations. The importers of subject merchandise in these cases are often denied individual subsidy rates because Commerce lacks the resources to investigate every company. 

IN PROGRESS... Leibowitz:To compensate for the department’s insufficient resources, any company not investigated, as long as it has not failed to cooperate in the investigation, may request an expedited review of that company’s actual subsidy margins. The 1997 Commerce regulation requires that the exporter request the review within 30 days after the publication of the countervailing duty order in question. The review will then be initiated in the following calendar month. 

Without this expedited review regulation, exporters would be unable to request a review until one year after the entry of the countervailing duty order. In the interim, countervailing duty deposits would be required on all entries at the “all others” rate, which is frequently well above the rate that would be applied if an individual company investigation had been conducted.

In the most recent softwood lumber investigation (there have been half a dozen countervailing duty cases on softwood lumber from Canada), several Canadian exporters requested expedited reviews under the Commerce rule. The domestic petitioners contested those expedited reviews, contending that the Uruguay Round Agreements Act, passed by Congress in December 1994, did not authorize Commerce to conduct expedited reviews. In an unusual move, Commerce did not defend its own regulation, effectively siding with the petitioners. After a remand from the Court of International Trade (CIT), Commerce simply caved. The CIT declared the expedited review regulation unlawful. 

The Canadian plaintiffs appealed the CIT decision to the Court of Appeals. On April 23, the Federal Circuit reversed the CIT and reinstated the regulation and the sharply lower individual countervailing duty rates that the expedited review found. Indeed, several of the Canadian exporters showed that they received no countervailable subsidies on their exports. 

The Federal Circuit conducted a legal review and found a basis in the Uruguay Round Agreements Act for the expedited review regulation, although there was no explicit authorization for expedited reviews countervailing duty cases. In brief summary, the court found that 19 U.S.C. § 1677f-1(e)(2) authorizes Commerce to calculate an individual rate for each exporter. The expedited review regulation falls within that general authorization. 

Admittedly, the statute does not clearly authorize expedited review. Instead, the principle that exporters not investigated individually should have an opportunity to obtain an accurate rate without waiting more than a year. 

This may seem a small matter—but it is more significant than it seems, both because of its commercial significance and the position of the government in failing to defend its own regulation. 

Commercially, softwood lumber from Canada is a significant factor in home construction in the United States, accounting for $5 billion in sales. Canada’s lumber sector is export-oriented. More than 50% of Canada’s lumber production is exported to the US alone—globally, more than 70% of Canada’s production is exported. 

In trade circles, softwood lumber is an issue that keeps lots of lawyers employed. Over the last 40 years, the dispute between the US and Canada on softwood lumber has taken up WTO cases, US court cases, and three international agreements that imposed quotas. The last one expired in 2016, and the most recent series of antidumping and countervailing duty cases commenced the following year. 

Canada has vast forests and few people. The US has fewer forests and lots of people. It is natural that Canada would export lumber to the US rather than the other way around—but the US claims that Canada is subsidizing exports by undercharging for the right to cut timber in Canada’s vast forest lands, most of which are owned by the Crown. 

The beneficiaries of Canada’s lumber regime include consumers in the United States, who can buy homes more cheaply than they could otherwise. The victims include US lumber producers, who claim that Canadian imports undercut prices. It is a chronic and so far unresolvable argument. 

On the government side, it is unusual for a government agency to concede that a regulation it wrote and published is not lawful. It happens, but it is noteworthy when it does. In handling the case, the US government failed to defend the regulation in the CIT, and then dropped out of the case when Canadian exporters appealed. The US government’s actions in the CIT case were unusual. Perhaps the government did not join in the appeal in recognition of the unfairness of making Canadian exporters wait a year to prove their case. That is my take on it—the government has not commented. 

For now, the expedited review regulation is back on the books for countervailing duty cases involving any product, not just lumber. If an exporter was not investigated, and receives the “all others rate,” it can request an expedited review within 30 days after the order is published, and the review will be initiated the following month. An expedited review is a bit different from a regular administrative review, in that it will cover exports only during the initial period of investigation. If an exporter receives a lower rate, US entries after that decision will be subject to the lower rate. If the review finds no countervailable subsidies, the order will not apply to that exporter and previous cash deposits will be refunded. 

The trade remedy laws (antidumping and countervailing duty) feature a number of techniques to deter imports without a full investigation (“adverse facts available,” circumvention, and others). The provision for expedited reviews goes in the other direction and so is notable. 

Lewis Leibowitz 

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