Applying countervailing duties to non-market economies (especially China)

The Congressional Research Service has released a report by Vivian Jones on Trade Remedy Legislation: Applying Countervailing Action to Nonmarket Economy Countries (December 6, 2007). 

Countervailing duty law allows the U.S. to impose tariffs on imports in certain circumstances to offset subsidies received by a foreign firm.  Countervailing duty actions haven't been taken against non-market economies because of the difficulties of estimating subsidies in the absence of markets.  China is a non-market economy - but not like it once was, and last year the ITA decided that it could tease out relevant subsidies in the case of coated free sheet paper.

Jones reviews the background to this issue, and surveys recent Congressional and Admininstrative actions.  Here's the abstract:

Concern regarding the mounting U.S. trade deficit with China (which is designated a nonmarket economy country according to U.S. trade laws), combined with China's refusal to allow its exchange rate to float, has led some in Congress to introduce legislation proposing to make countervailing duty laws applicable to China and other nonmarket economy countries. This legislation seeks to provide for the assessment of additional duties on imports whose production and/or importation are found to be subsidized by a public entity in their country of origin and are injurious to a U.S. producer of similar merchandise. Antidumping, another kind of trade remedy action, addresses products sold in the United States at less than their fair value (as defined by law) in a similar manner.

Although antidumping (AD) and countervailing duty (CVD) laws and procedures generally parallel each other, CVD laws contain no specific provisions for investigations on imports from nonmarket economy (NME) countries, while the AD statute does provide such guidelines.

Initial administrative attempts in 1983 to apply countervailing remedies to allegedly subsidized imports from several NME countries led to determinations by the International Trade Administration (ITA) of the Department of Commerce (the U.S. agency charged with determining the existence and extent of subsidies) that subsidies within the meaning of the countervailing law, cannot be found in nonmarket economies. These ITA determinations were challenged in the U.S. Court of International Trade (CIT), which held that they were "not in accordance with the law," reversed them, and remanded the cases to the ITA. On appeal, the U.S. Court of Appeals for the Federal Circuit reversed, and reinstated the ITA's original determinations -- thus affirming that the ITA has the discretion not to apply the CVD law to NME countries.

The ITA has reevaluated this decision, at least with regard to the People's Republic of China, arguably in response to pressure from Congress. In a countervailing investigation on coated free sheet paper (CFS), the ITA reversed its position with regard to China, and on October 18, 2007 made a final affirmative determination of subsidies, finding that Chinese producers/exporters received net countervailable subsidies ranging from 7.40 to 44.25 percent. The investigation continues at the International Trade Commission, where a final injury determination is expected in mid-January.

Legislation seeking to apply countervailing action to NME countries has been introduced in the 110th Congress. This legislation includes S. 364 (Rockefeller); H.R. 571 (Tancredo), H.R. 708 (English); H.R. 782 (Ryan/Hunter) H.R. 2942 (Ryan/Hunter) and related bill S. 796 (Bunning/Stabenow); H.R. 1229 (Davis/English) and related bills S. 974 (Collins/Bayh) and S. 1919 (Baucus, introduced August 1, 2007). The Bush Administration has also taken some recent steps to address the issue.

Comments

[Imran Khan]

This makes great sense...