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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