An Opportunity for the Department of Commerce

By: Tyler Korff

It seems that China has won the latest round in its prolonged trade war with the U.S. The Federal Circuit issued a decision on December 19, 2011 that effectively precludes the Department of Commerce (“Commerce”) from imposing countervailing duties (“CVDs”) on non-market economies (“NMEs”). Back in October 2010, the U.S. Court of International Trade (“Trade Court”) ordered Commerce not to apply CVDs on pneumatic off-the-road tires from China due to the likelihood of double counting when both CVDs and antidumping duties (“ADs”) were imposed on the same good.[1] The Federal Circuit affirmed the Trade Court’s opinion, but for different reasons. In GPX Int’l Tire Corp., the appellate court held that Commerce could not apply CVDs on any goods from China even in cases where Commerce has not already imposed ADs.[2]
[1] GPX Int’l Tire Corp. v. United States, 715 F.Supp.2d 1337 (U.S. Ct. Int’l Trade 2010).
[2] GPX Int’l Tire Corp. v. United States, 2011 WL 6371903 (Fed. Cir. 2011).

The chief issue for the Federal Circuit was with Commerce’s NME methodology. In Georgetown Steel Corp. v. United States, the American manufacturers’ 1983 case against Czechoslovakia, Commerce determined and the Federal Circuit agreed that Commerce could not impose CVDs on NME countries.[3] This remained the status quo until 2007, when Commerce issued a memorandum stating that the department could apply CVDs on goods from China, an NME country, since the modern Chinese economy was “significantly different from the Soviet-style economies at issue in Georgetown Steel.”[4] For the last four years, then, the U.S. has essentially pretended that China is a market economy for trade purposes, and Commerce has used that determination in order to gain the upper hand in the two countries’ economic feud.
[3] Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986).
[4] Shauna Lee-Alaia and Lawrence Norton, “Countervailing Duty Investigation of Coated Free Sheet Paper from the People's Republic of China—Whether the Analytical Elements of the Georgetown Steel Opinion Are Applicable to China's Present–Day Economy” (Mar. 29, 2007), available at http://ia.ita.doc.gov/download/nme-sep-rates/prc-cfsp/china-cfs-georgetown-applicability.pdf.

Yet while courts ought to give considerable deference to Commerce’s CVD and AD determinations, Commerce itself cannot act in a way that contradicts Congressional intent. In particular, the Federal Circuit found that in passing CVD laws in 1988 and 1994, Congress legislatively ratified the position that CVDs could not be applied to NMEs; therefore, government payments “cannot be characterized as ‘subsidies’ in a non-market economy context.”[5] In the final analysis, Commerce may regret ever appealing the Trade Court’s decision, since the Federal Circuit decision is now binding on future cases (while the Trade Court order was not necessarily precedential). Absent an appeal to the Supreme Court, if Commerce hopes to reinstate its CVD policies, it needs Congress to amend the law.
[5] GPX Int’l Tire Corp. v. United States, 2011 WL 6371903, at *1 (Fed. Cir. 2011).

But perhaps the Federal Circuit decision may be a blessing in disguise. The U.S. media has reported extensively on China’s unwillingness to revalue the Yuan; indeed, if American politicians are to be believed, the controversy with China’s currency is the main reason why relations with China have hit a stumbling block. At the same time, however, these American tariffs are seen, to some, as equally unfair. And China is not alone. In 2009, the U.S. began to pursue CVD investigations against Vietnam, another NME country. If continued, use of CVDs against NMEs may threaten the integrity of the WTO system. More importantly, CVDs pose significant implications for Sino-American trade relations. In the 1980s, a cooperative Sino-American relationship was seen as America’s chief foreign policy success.

While CVDs may help American businesses stay competitive, the Federal Circuit opinion provides the perfect opportunity for Commerce to reevaluate its policies with respect to Vietnam and China.