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.
Thursday, February 23, 2012
Shifts in U.S.-China Countervailing Duty Law
By: Hang Liu '13
In December 2011, the Court of Appeals for the Federal Circuit handed down its opinion in GPX International Tire Corporation v. United States (“GPX IV”), ruling that the U.S. Department of Commerce (“Commerce”) improperly imposed countervailing duties on tires imported by a group of Chinese manufacturers.[1] The Court’s decision appeared in the midst of ambiguous signals from Congress and the executive branch regarding the future of U.S.’ customs policies regarding the People’s Republic of China. While GPX IV upheld a traditional view of American countervailing duty law, the decision may be short lived. Considering America’s current political climate, the federal government may soon implement a considerable shift in its policies toward Chinese imports.
To better understand GPX IV, it is useful to explore existing law regarding China’s current classification as a non-market-economy (“NME”) by Commerce. The Tariff Act of 1930, as currently amended, provides two types of duties for imports injuring domestic industries: countervailing duties (“CVDs”) and antidumping duties (“ADs”). First, Commerce can impose countervailing duties on goods that receive “a countervailable subsidy” from the importer’s
foreign government. Second, Commerce can impose antidumping duties on goods “sold in the United States at less than [their] fair value.”[2] Antidumping duties are supposed to address actions taken by the foreign importer, while countervailing duties are designed to remedy government conduct. While countervailing duty law makes no references to NMEs, antidumping
law deals directly with the problem of exports from NME countries.[3]
Until 2007, Commerce adhered to the policy that countervailing duties were inapplicable to NMEs because subsidies do not exist in economies lacking ordinary market principles.[4] A subsidy (also known as a “bounty” or “grant”)is defined as any action that distorts or subverts the market process, resulting in a misallocation of resources and inefficient production. Due to the fact that the governments of NMEs retain centralized control over the market and extensively involve themselves in price planning, these economies are supposed to lack both a true market and freely allocated resources.[5]
Then, in 2007, Commerce re-evaluated the applicability of this policy toward China. On one hand, Commerce retained China as an NME for the purposes of antidumping law because of the Chinese government’s continued control over the economy through its state-owned enterprises, restriction of worker movement, and insulation of the Chinese currency from market forces. Yet, on the other hand, Commerce also concluded that substantial economic reforms in China now made it possible to identify and measure subsidies for the purposes of countervailing duty law.[6] It then levied both countervailing and antidumping duties against several Chinese companies importing tires into the U.S.
Commerce’s decision sparked a series of litigation. After seven Chinese importers contested the new Commerce policy, the Court of International Trade (“CIT”) consolidated their separate cases into its GPX I and GPX II decisions. The CIT held that Commerce's 2007 interpretation of countervailing duty law was “unreasonable” because of the high likelihood of “double counting” duties for NMEs.[7] The Court of Appeals, while affirming the CIT’s decision, overturned the tire
duties on different grounds; the Court ruled that Congress, in passing and then renewing the Omnibus Trade and Competitiveness Act in 1988 and 1994, had ratified Commerce’s pre-2007 policy of not applying countervailing duty laws to NME countries.[8]
In ruling on GPX IV, the Court of Appeals explicitly acknowledged recent Congressional actions signaling a shift in American policies toward Chinese imports. In 2010, the House of Representatives passed the Currency Reform for Fair Trade Act (the Act), a bill which seeks to implement punitive trade tariffs on countries that obtain an unfair competitive advantage by taking measures as currency manipulation.[9] A House committee report noted that the legislation authorized the imposition of countervailing duties for foreign governments that provide a subsidy by artificially undervaluing its currency.[10]
Commerce, in making its case in GPX IV, raised the Act as evidence of a change in Congressional attitudes toward countervailing duties in regards to China. The Federal Circuit downplayed the argument by stating that the Act lacked sufficient legal weight until the Senate votes on the bill.[11] Yet the Court’s decision recognizes the potential for a considerable shift in American countervailing duty law if the Currency Reform for Fair Trade Act is eventually passed as law. Such action would essentially reverse the Court’s ruling in GPX IV.
The current executive branch has indicated its support for the Act’s policies regarding China. In 2008, then-Senator Barack Obama supported legislation that would have also classified currency manipulation as a countervailable subsidy. Treasury Secretary Timothy Geithner, in his 2009 confirmation hearing, accused the Chinese government of undervaluing its currency to keep Chinese manufacturing costs artificially low, thus underselling American products and injuring
American manufacturing industries.[12] Additionally, the House cited Commerce’s 2007 decision to apply countervailing duties towards China as support for voting in favor of the Act in October 2011.[13]
Furthermore, as the 2012 general election approaches, GPX IV may face continued scrutiny from the executive branch. President Obama’s policy proclamations toward the Chinese economy bear watching. Some observers believe that during the 2008 Democratic primary Obama played to his labor base by downplaying free trade in advocating the renegotiation of the North American Free Trade Agreement and opposing the proliferation of regional and bilateral free trade agreements under George W. Bush.[14]
Currently, trade policy is not listed among the twenty-four priority issues on the White
House website.[15] However, as Americans continue to hear accounts of the U.S.’ trade deficit and of China’s significant holdings of American debt, Obama is likely to face questions concerning his future policies towards the Chinese economy. Presumptive Republican candidate Mitt Romney has already criticized the Obama administration’s “timid complaints” regarding Chinese currency manipulation and has vowed to impose countervailing duties on Chinese imports if elected.[16]
Therefore, despite GPX IV’s decision to overturn a recent policy shift by the Department of Commerce, the nature of American countervailing duty law, particularly with respect to the People’s Republic of China, may experience a fundamental shift. As the U.S. continues to grapple with its trading partnership with the People’s Republic of China as well as address allegations of currency manipulation by the Chinese government, it is clear that the issues raised by GPX IV are far from settled.
[1] GPX Int'l Tire Corp. v. United States, 2011 WL 6371903, 1 (Fed. Cir. Dec. 19, 2011). [hereinafter GPX IV].
[2] Id.
[3] Id.
[4] See Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986).
[5] Lauren W. Clarke, The Market-Oriented Enterprise Approach: The Best Response to the Questionable United States Trade Practices Scrutinized in GPX International Tire Corp. v. United States, 60 Cath. U. L. Rev. 809, 815-16 (2011). [hereinafter Clarke].
[6] Clarke, 821-22.
[7] See GPX Int'l Tire Corp. v. United States, 645 F. Supp. 2d 1231 (Ct. Int'l Trade 2009) [hereinafter GPX I]; GPX Int'l Tire Corp. v. United States, 715 F. Supp. 2d 1337 (Ct. Int'l Trade 2010) aff'd, 2011-1107, 2011 WL 6371903 (Fed. Cir. Dec. 19, 2011) [hereinafter GPX II].
[8] GPX IV, 1.
[9] H.R. 2378, 111th Cong. (2010).
[10] GPX IV, 7.
[11] Id.
[12] Alexis Early, Where the Rubber Meets the Road: What Chinese Tires Mean for Obama's Trade Policy, 6 Bus. L. Brief (Am. U.) 63, 66 (2010). [hereinafter Early].
[13] GPX IV, 7.
[14] Early, 63.
[15] See The White House, http://www.whitehouse.gov/issues (last visited Feb. 15, 2010) (listing civil rights, defense, education, fiscal responsibility, immigration, taxes and technology as some of the issues).
[16] See Mitt Romney, “China must respect the free-trade system,” Opinion published in the Washington Post, October 13 2011, online at.
In December 2011, the Court of Appeals for the Federal Circuit handed down its opinion in GPX International Tire Corporation v. United States (“GPX IV”), ruling that the U.S. Department of Commerce (“Commerce”) improperly imposed countervailing duties on tires imported by a group of Chinese manufacturers.[1] The Court’s decision appeared in the midst of ambiguous signals from Congress and the executive branch regarding the future of U.S.’ customs policies regarding the People’s Republic of China. While GPX IV upheld a traditional view of American countervailing duty law, the decision may be short lived. Considering America’s current political climate, the federal government may soon implement a considerable shift in its policies toward Chinese imports.
To better understand GPX IV, it is useful to explore existing law regarding China’s current classification as a non-market-economy (“NME”) by Commerce. The Tariff Act of 1930, as currently amended, provides two types of duties for imports injuring domestic industries: countervailing duties (“CVDs”) and antidumping duties (“ADs”). First, Commerce can impose countervailing duties on goods that receive “a countervailable subsidy” from the importer’s
foreign government. Second, Commerce can impose antidumping duties on goods “sold in the United States at less than [their] fair value.”[2] Antidumping duties are supposed to address actions taken by the foreign importer, while countervailing duties are designed to remedy government conduct. While countervailing duty law makes no references to NMEs, antidumping
law deals directly with the problem of exports from NME countries.[3]
Until 2007, Commerce adhered to the policy that countervailing duties were inapplicable to NMEs because subsidies do not exist in economies lacking ordinary market principles.[4] A subsidy (also known as a “bounty” or “grant”)is defined as any action that distorts or subverts the market process, resulting in a misallocation of resources and inefficient production. Due to the fact that the governments of NMEs retain centralized control over the market and extensively involve themselves in price planning, these economies are supposed to lack both a true market and freely allocated resources.[5]
Then, in 2007, Commerce re-evaluated the applicability of this policy toward China. On one hand, Commerce retained China as an NME for the purposes of antidumping law because of the Chinese government’s continued control over the economy through its state-owned enterprises, restriction of worker movement, and insulation of the Chinese currency from market forces. Yet, on the other hand, Commerce also concluded that substantial economic reforms in China now made it possible to identify and measure subsidies for the purposes of countervailing duty law.[6] It then levied both countervailing and antidumping duties against several Chinese companies importing tires into the U.S.
Commerce’s decision sparked a series of litigation. After seven Chinese importers contested the new Commerce policy, the Court of International Trade (“CIT”) consolidated their separate cases into its GPX I and GPX II decisions. The CIT held that Commerce's 2007 interpretation of countervailing duty law was “unreasonable” because of the high likelihood of “double counting” duties for NMEs.[7] The Court of Appeals, while affirming the CIT’s decision, overturned the tire
duties on different grounds; the Court ruled that Congress, in passing and then renewing the Omnibus Trade and Competitiveness Act in 1988 and 1994, had ratified Commerce’s pre-2007 policy of not applying countervailing duty laws to NME countries.[8]
In ruling on GPX IV, the Court of Appeals explicitly acknowledged recent Congressional actions signaling a shift in American policies toward Chinese imports. In 2010, the House of Representatives passed the Currency Reform for Fair Trade Act (the Act), a bill which seeks to implement punitive trade tariffs on countries that obtain an unfair competitive advantage by taking measures as currency manipulation.[9] A House committee report noted that the legislation authorized the imposition of countervailing duties for foreign governments that provide a subsidy by artificially undervaluing its currency.[10]
Commerce, in making its case in GPX IV, raised the Act as evidence of a change in Congressional attitudes toward countervailing duties in regards to China. The Federal Circuit downplayed the argument by stating that the Act lacked sufficient legal weight until the Senate votes on the bill.[11] Yet the Court’s decision recognizes the potential for a considerable shift in American countervailing duty law if the Currency Reform for Fair Trade Act is eventually passed as law. Such action would essentially reverse the Court’s ruling in GPX IV.
The current executive branch has indicated its support for the Act’s policies regarding China. In 2008, then-Senator Barack Obama supported legislation that would have also classified currency manipulation as a countervailable subsidy. Treasury Secretary Timothy Geithner, in his 2009 confirmation hearing, accused the Chinese government of undervaluing its currency to keep Chinese manufacturing costs artificially low, thus underselling American products and injuring
American manufacturing industries.[12] Additionally, the House cited Commerce’s 2007 decision to apply countervailing duties towards China as support for voting in favor of the Act in October 2011.[13]
Furthermore, as the 2012 general election approaches, GPX IV may face continued scrutiny from the executive branch. President Obama’s policy proclamations toward the Chinese economy bear watching. Some observers believe that during the 2008 Democratic primary Obama played to his labor base by downplaying free trade in advocating the renegotiation of the North American Free Trade Agreement and opposing the proliferation of regional and bilateral free trade agreements under George W. Bush.[14]
Currently, trade policy is not listed among the twenty-four priority issues on the White
House website.[15] However, as Americans continue to hear accounts of the U.S.’ trade deficit and of China’s significant holdings of American debt, Obama is likely to face questions concerning his future policies towards the Chinese economy. Presumptive Republican candidate Mitt Romney has already criticized the Obama administration’s “timid complaints” regarding Chinese currency manipulation and has vowed to impose countervailing duties on Chinese imports if elected.[16]
Therefore, despite GPX IV’s decision to overturn a recent policy shift by the Department of Commerce, the nature of American countervailing duty law, particularly with respect to the People’s Republic of China, may experience a fundamental shift. As the U.S. continues to grapple with its trading partnership with the People’s Republic of China as well as address allegations of currency manipulation by the Chinese government, it is clear that the issues raised by GPX IV are far from settled.
[1] GPX Int'l Tire Corp. v. United States, 2011 WL 6371903, 1 (Fed. Cir. Dec. 19, 2011). [hereinafter GPX IV].
[2] Id.
[3] Id.
[4] See Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986).
[5] Lauren W. Clarke, The Market-Oriented Enterprise Approach: The Best Response to the Questionable United States Trade Practices Scrutinized in GPX International Tire Corp. v. United States, 60 Cath. U. L. Rev. 809, 815-16 (2011). [hereinafter Clarke].
[6] Clarke, 821-22.
[7] See GPX Int'l Tire Corp. v. United States, 645 F. Supp. 2d 1231 (Ct. Int'l Trade 2009) [hereinafter GPX I]; GPX Int'l Tire Corp. v. United States, 715 F. Supp. 2d 1337 (Ct. Int'l Trade 2010) aff'd, 2011-1107, 2011 WL 6371903 (Fed. Cir. Dec. 19, 2011) [hereinafter GPX II].
[8] GPX IV, 1.
[9] H.R. 2378, 111th Cong. (2010).
[10] GPX IV, 7.
[11] Id.
[12] Alexis Early, Where the Rubber Meets the Road: What Chinese Tires Mean for Obama's Trade Policy, 6 Bus. L. Brief (Am. U.) 63, 66 (2010). [hereinafter Early].
[13] GPX IV, 7.
[14] Early, 63.
[15] See The White House, http://www.whitehouse.gov/issues (last visited Feb. 15, 2010) (listing civil rights, defense, education, fiscal responsibility, immigration, taxes and technology as some of the issues).
[16] See Mitt Romney, “China must respect the free-trade system,” Opinion published in the Washington Post, October 13 2011, online at
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