Leibowitz: Could the outcome of an AD/CVD case targeting Russian palladium indicate a shift in US trade policy?

A few days ago, I noticed a congressional letter that brought back the disconnect between antidumping and countervailing duty law and the reality of life in a complex economy. The world of tariffs and trade is full of these disconnects. For good or ill, the Trump tariffs have driven the mundane world of traditional “trade remedies” off the front pages. But antidumping and countervailing duty measures are still with us—and new cases are on the upswing lately.

Recently, two members of the House (one D and one R) wrote to the Secretary of Commerce Howard Lutnick about the use of “adverse facts available” in trade remedies. The case involved unwrought palladium from Russia. Palladium is a metal that is widely used in the manufacture of catalytic converters for cars and trucks. It is much in demand around the world. Production in the US does not remotely satisfy domestic demand.

The only producer of palladium in the United States is a company based in South Africa, Sibanye-Stillwater. That company is the leading global producer of palladium. Mines in Montana owned by Sibanye-Stillwater are the only commercial sources for palladium in the United States.

Last year, the company, together with the United Steel Workers (USW) union, filed antidumping and countervailing duty petitions against palladium imports from Russia. None of the Russian producers of the metal participated in the Commerce Department investigation.

Commerce lacks subpoena power to compel companies to cooperate in investigations. Instead, Commerce resorts to “adverse facts available” to penalize non-cooperation.

When the final determination came out in April, Commerce selected an antidumping rate of 132.83%. That figure went along with a final countervailing duty rate (to address alleged subsidies) of 109.10%.

The antidumping petition had asserted a dumping rate of 868%. Commerce did not accept this rate, finding that information not presented in the petition indicated a lower margin. The House representatives—Ro Khanna (D, Calif.) and John Moolenaar (R, Mich.)—wrote to ask if Commerce had changed its practice by using data other than the petitioners’ asserted rate.

There is little doubt that combined antidumping and countervailing duty rates of 242% would stop palladium imports from Russia. An import shipment of palladium valued at $1 million would have faced AD/CVD deposits of $2.42 million. Palladium from Russia could be sent to catalytic converter manufacturers outside the United States to avoid the duties.

Fortunately for US-based producers of converters, a second government agency, the International Trade Commission (ITC), must weigh in before antidumping and countervailing duties can be imposed. If the ITC finds that an industry in the United States is neither materially injured nor threatened with material injury by dumped or subsidized imports, the duties do not go into effect. On May 29, the ITC found neither injury nor threat to the domestic industry by a vote of 3-0.

In their June 10 letter to Secretary Lutnick complaining about the lower “adverse facts available” rate, Reps. Khanna and Moolenaar argued that Commerce should take the rates offered by petitioners without determining whether they are based on accurate or even plausible evidence. Commerce has not responded to the letter. But we can at least hope that the unusual market situation played some role in moderating the “facts available” rate. The Russian producers of palladium would not be harmed by the US banning imports. The US producers of catalytic converters would be.

It is encouraging that Commerce at least implicitly recognized this situation. It has happened before, although Commerce rarely acknowledges that consuming industries matter in trade remedy cases. Antidumping and countervailing duty petitions in 1999 against crude oil from Iraq, Mexico, Saudi Arabia, and Venezuela were killed by Commerce because imposing draconian tariffs on crude oil imports would cause economic and political chaos—much more than the crude oil price increases now as a result of the conflict with Iran.

Given that the palladium case ended with a “no injury” finding, the dumping and subsidy margins don’t matter. The congressional letter instead asked whether Commerce was going to be more lenient in other cases, especially those involving Chinese imports. There is an undercurrent of concern that China AD/CVD cases could be handled more “gently” because of the current relative thaw in US-China relations.

It is appropriate for members of Congress to probe for indications of changing policy. The congressional letter highlights the disconnect between economic reality and the current law. A rational link between the existence of selling too cheaply and the consequences of embargoing a scarce commodity that cannot be supplied from domestic sources would be a welcome change.