Legal Q&A: Antidumping

How do we compete with foreign governments for our automotive parts?


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Q. We find ourselves in the unusual position of competing with foreign governments for our automotive parts. What can we do about it?

A. Antidumping and countervailing duty petitions are a powerful weapon for U.S. industries that find themselves materially injured by dumped or subsidized imports. This was illustrated most recently on August 10, 2015, when the US Department of Commerce issued a final order imposing countervailing duties on certain Passenger Vehicle and Light Truck Tires (PVLT Tires) imported from China.

Several other significant antidumping and countervailing petitions have since been filed. Domestic producers of corrosion-resistant steel products, cold-rolled steel, hot-rolled steel, certain welded carbon steel pipes and of several chemical products have filed for trade relief against imports from countries including Australia, China, India, Japan, Korea, Mexico, the Netherlands, Turkey and the United Kingdom, among others. Among these, China is the most frequent target, as overcapacity in a number of Chinese industries has led to numerous exports that underprice U.S. production. The recent depreciation of the Chinese currency can only be expected to exacerbate the trend.

Historically, the unique supplier relationships and specialized product design elements of the automotive parts industry have tended to reduce trade cases in this sector. The PVLT Tires outcome, however, suggests that there may be opportunities for such actions, especially in areas where products are sufficiently generic, Chinese market share is increasing and U.S. producers are in difficult straits. For those auto parts-producers that are unable themselves to move to China or Mexico, restrictions on the sale of dumped or subsidized substitutes may be the only remaining path to survival for their U.S. operations.

The process for pursuing antidumping and countervailing duty claims, and the determination of remedies if the claim is upheld, is summarized below:

 

Principal Features of the U.S. Antidumping Law

The Antidumping Law provides a mechanism for U.S. producers that are injured by certain unfairly traded imports to petition the U.S. Government for rapid, effective tariff relief. The tariff is the difference between the fair price of the goods (normal value) and the dumped selling price in the United States. To win an antidumping case a U.S. producer or group of producers comprising more than half of U.S. production must demonstrate that:

it produces a product “like” the imported product;

there are less than normal value (“dumped”) sales of the import product in the United States; and

the U.S. industry producing the like product is suffering or is threatened with “material injury” because of the dumped imports.

A like product is a product which is identical to the imported product. If, however, there are no identical products, it is the product most similar in characteristics and uses.

Material injury is measured by declining sales, market share, profits, capacity utilization, employment and so on. There is no set formula; each case is examined on its own merits by an independent U.S. Government agency, the U.S. International Trade Commission (ITC). Material injury is determined with reference to the aggregate U.S. company segments producing the goods in question, not the performance of the overall companies. Dumped imports need not be the most important cause of injury, only not an unimportant, immaterial or insignificant cause. It is also possible to demonstrate a real and imminent threat of material injury.

Dumped sales are calculated by a different government agency: the U.S. Department of Commerce (DOC). DOC compares the net ex-factory prices of the foreign producers’ U.S. and home market sales of the subject merchandise. This is accomplished by subtracting from the sales prices to unrelated customers in each market applicable expenses such as freight, brokerage, commissions, customs duties and so on. Adjustments are also made for differences in the merchandise to arrive at normal value. Most simply stated, there is dumping if the net return on sales is lower than the average return on home market sales of the subject merchandise. In addition, there is a special way to calculate normal value for non-market economy countries like China. Because Chinese home market prices do not reflect market forces, DOC takes the production inputs in China (materials, labor, energy), assigns to them the prices for comparable inputs in a market economy country such as India, and then adds up these input costs. This methodology is usually quite favorable for petitioners.

Procedurally, an antidumping case takes less than one year. An investigation is initiated upon the filing of a petition by the domestic industry. The ITC determines whether there is a reasonable indication of material injury within 45 days of filing the petition. DOC calculates preliminary dumping margins within 160 days of the filing. If dumping is found, potential liability for dumping duties attaches at the point. DOC’s final determination is made within another 75 days, or 235 days after filing. (There are provisions for extensions of up to 110 days in certain circumstances). The ITC then reexamines material injury and makes its final determination within an additional 45 days, or 280 days after filing.

If there are dumped sales and material injury, a dumping order is put into effect. Importers of dumped merchandise must pay a duty equal to the margin of dumping. Because this margin is subject to change based on annual review investigations, and depends on such factors as foreign market costs and prices, importers face great uncertainty when buying products subject to a dumping order, as they do not know what the final duty bill will be, and won’t know until months or even years after importation. This has an obvious chilling effect on importers’ willingness to continue buying the merchandise from abroad.

An antidumping case differs from routine litigation.

There is a result within a fixed time period.

The effect on the market is rapid, usually within 160 days after filing.

The respondents are not permitted to take legal discovery of the petitioner (through written interrogatories, oral depositions, or requests to produce documents); respondents, however, must answer a detailed questionnaire, and their answers are subject to an on-site audit type procedure (verification) by DOC investigators.

Once a case is initiated, it becomes a U.S. Government investigation; much of the burden and cost of the case is carried by the government staff, not the petitioner.

A dumping order, once entered, and the risk of higher duties for importers, continues in effect usually for a minimum of five years, and in most cases for ten years or longer. Respondents are required to answer a comprehensive questionnaire every year.

When high dumping duties are imposed, foreign producers often abandon the U.S. market.

The Countervailing Duty Law is a similar procedure that provides relief from imports of goods whose producers benefit from subsidies in their home countries or upon export. U.S. law now enables the filing of antidumping and countervailing duty petitions simultaneously, and that has become routine, especially against imports from China because Chinese goods often benefit from a vast array of subsidies.

This is an extremely complicated area and you should contact us or other legal counsel experienced in this area if you are considering pursuing this activity.   

 

Originally published in the January 2016 issue.

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