Understanding Customs: Anti-Dumping and Countervailing Duties

U.S. biodiesel producers reached an apparent breaking point in March 2017 when the National Biodiesel Board (NBB) Fair Trade Coalition filed a complaint with the U.S. Commerce Department claiming that biodiesel producers in Argentina and Indonesia were being unfairly subsidized by their governments. The Commerce Department apparently agreed, when it issued a final determination in November 2017 that U.S. producers were being harmed by imports from the two countries, and set the stage for the imposition of penalties.

According to Biofuels Digest, the NBB Fair Trade Coalition filed its petition to address “a flood of subsidized and dumped imports from Argentina and Indonesia that has resulted in market share losses and depressed prices for domestic producers.” In fact, biodiesel imports from Argentina and Indonesia grew by 464 percent from 2014 to 2016, a period in which U.S. market share fell by 18.3 percent.

As a result of the Commerce Department’s determination, anti-subsidy duties were imposed on Argentinian producers ranging from 71.45 percent to 72.28 percent, depending on the degree to which products had been subsidized by the government. Indonesian producers must now pay duties ranging from 34.45 percent to 64.73 percent.

This biofuels case is a classic example of a critical trade issue known as countervailing duties (CVD). Usually referenced in conjunction with anti-dumping duties (AD), countervailing duties refer to instances in which foreign governments are found to unfairly subsidize domestic industries, thus putting U.S. competitors at a disadvantage. Dumping occurs when products are exported by a company and sold in the United States at a below-market price.

U.S. companies and industries that believe they are unfairly disadvantaged by either dumping or illegally subsidized exports may seek relief through the International Trade Commission and the Department of Commerce.

Conversely, U.S. businesses run the risk of purchasing products from an international supplier without realizing the goods may be subject to punitive duties. A U.S. business may think it has procured quite a deal for itself only to have its low-cost products end up costing significantly more after AD/CVD are applied.

Important to note, AD/CVD can be controversial. In the biodiesel case noted above, for example, the decision to impose countervailing duties was condemned by many, including the National Association of Truckstop Operators and the Advanced Biofuels Association. In a statement, David Fialkov of the Truckstop Operators said: “Any outcome that results in cutting off Americans’ access to cleaner-burning fuels, such as biodiesel, from foreign markets is a bad day for Americans.”

Further, a report by public policy think tank The Heritage Foundation criticized the use of anti-dumping duties, noting they are often applied in error and can be confusing and arbitrary. The report also claimed the effect of anti-dumping duties is to “drive up the costs of imported components used by other American enterprises, making their products less competitive in world markets.”

Regardless of one’s position on the use of anti-dumping and countervailing duties, they have been a part of international trade practices and will remain a part. In fact, in its first year in office, the Trump administration initiated 65 percent more anti-dumping and countervailing duty investigations than were filed during the final year of the Obama administration.

The following discussion will help businesses understand the concepts of anti-dumping and countervailing duties, along with possible implications for their import activities. Any business with a more direct interest in AD/CVD is encouraged to contact either the U.S. Commerce Department or a customs professional for more detailed information.

What are Anti-Dumping and Countervailing Duties?

According to U.S. Customs and Border Protection (CBP), dumping occurs when a foreign manufacturer sells goods in the United States at a below-fair-value price, thereby causing injury to the U.S. industry. Anti-dumping cases are company specific, and if a foreign company is found to have committed anti-dumping, duties will be “calculated to bridge the gap back to a fair market value.”

Countervailing duties cases occur when a foreign government provides assistance and subsidies, such as tax breaks, to manufacturers that export goods to the United States that are sold in the U.S. cheaper than domestically produced goods. Countervailing duties cases are country specific, and duties are calculated to negate the impact of the subsidy.

Historical Overview of Anti-Dumping Laws

Dartmouth College Professor Douglas Irwin cites the Antidumping Act of 1921 as the basis for the anti-dumping laws on the books today. According to research by Irwin, the law states: “Whenever the Secretary of the Treasury finds that an industry in the United States is likely to be injured, or is prevented from being established, by reason of the importation into the United States of foreign merchandise, and that merchandise of such class or kind is being sold or is likely to be sold in the United States or elsewhere at less than its fair value, he shall make such finding public…. If the purchase price or the exporter’s sales price is less than the foreign market value, there shall be levied, collected, and paid a special dumping duty in an amount equal to such difference.”

In fact, the Congressional Research Service reports an “absence of statutory direction” on the anti-dumping issue from the period in which the 1921 law was enacted until passage of the Trade Act of 1974. During those intervening 53 years, “the application of anti-dumping law was devised and implemented exclusively through administrative agency action, as the statutes were silent on the matter.”

A brief historical overview of anti-dumping statutes and regulatory actions includes:

• 1954: Congress shifted responsibility for injury determination from the Treasury Department to the International Trade Commission.
• 1960s: The implementation by the Treasury Department of the “surrogate country” approach, whereby, CRS explains, comparable prices and costs from third countries were used to determine fair value market in considering feasibility of dumping claims.
• Trade Act of 1974: The act formalized the surrogate process into law.
• 1975: It wasn’t long before problems began to surface with the surrogate method, namely instances in which comparable third countries were not available. In response, the Treasury Department adopted a new method, the “factors of production” approach, whereby input values from “a market economy country considered to be at a comparable stage of economic development” were used to assess dumping claims.
• Trade Agreements Act of 1979: The act formalized the use of the “factors of production” method when surrogate countries were not available. Also, transferred responsibility for dumping determinations from the Treasury to the Commerce Department.
• Omnibus Trade and Competitiveness Act of 1988: Several anti-dumping reforms were enacted, including a definition of a non-market economy, as a country that “does not operate on market principles of cost or pricing structures so that sales of merchandise in such countries do not reflect the fair value of the merchandise.”

The legislation also set standards for the Department of Commerce to use in determining if a specific country meets the definition of a non-market economy. (For example, in October 2017 the Department of Commerce affirmed its categorization of China as a non-market economy, with regard to evaluating anti-dumping cases involving China).

• 1995: U.S. anti-dumping law was modified via the “Uruguay Round Agreements,” which amended key provisions of GATT’s Article VI Anti-Dumping Agreement. In addition, the URA established the World Trade Organization and also provided for “sunset reviews” to determine whether antidumping orders should be revoked after five years.
• 2015 Trade Preferences Extension Act (Trade Remedies Bill): This act amended existing law to “make it easier for petitioners to demonstrate injury before the U.S. International Trade Commission and to afford Commerce additional discretion over certain aspects of AD/CVD cases,” according to legal analysis by Arnold & Porter.
• 2016 Trade Facilitation and Trade Enforcement Act (TFTEA/Customs Bill): This law builds on the Trade Remedies Bill and adds numerous provisions to assist CBP in more efficiently enforcing U.S. trade law.
• March 2017: President Donald Trump signed two trade-related executive orders including: The Presidential executive order regarding the Omnibus Report on Significant Trade Deficits directs the Commerce Department and the United States Trade Representative to conduct a broad review of causes of the federal budget deficit. The order also calls for an assessment of injurious dumping.
• The Presidential executive order on Establishing Enhanced Collection and Enforcement of Anti-dumping and Countervailing Duties and Violations of Trade and Customs Laws seeks to strengthen anti-dumping rules and enforcement, and it calls for Customs and Border Protection (CBP) to develop a plan to address the nonpayment of AD/CVD. According to CBP, uncollected AD/CVD during fiscal year 2015 exceeded $2.3 billion.

Meanwhile, anti-dumping protocols were also established on a global level, beginning with the 1948 formation of the General Agreement on Tariffs and Trade (GATT). Key dates and milestones include:

• During negotiations to establish an International Trade Organization, the United States submitted a draft proposal on dumping, based on its 1921 anti-dumping legislation. This proposal formed the basis for Article VI of the General Agreement on Tariffs and Trade (GATT), which established international standards and remedies for anti-dumping practices. GATT Article VI was refined on several occasions during the 1948-94 period of GATT’s existence.
• Changing world conditions, including increasingly complex and substantive global trade, made it clear by the early 1980s that GATT was “no longer as relevant to the realities of world trade as it had been in the 1940s.” In 1986, a round of GATT talks commenced – the Uruguay Round – which eventually led to the 1995 creation of the World Trade Organization.

It was agreed that any country choosing to become a member of the WTO would automatically be subject to the GATT Antidumping Agreement of 1994. Today the WTO has 164 member countries and is the preeminent international body for establishing trade agreements and adjudicating disputes.

Historical Overview – Countervailing Duties Legislation

U.S. legislative efforts to address instances of foreign governments subsidizing domestic industries date back to 1897. The U.S. International Trade Commission (ITC) reports that key tenets of the 1897 legislation remained largely intact, with slight modifications, until 1979 when changes were made to conform with the GATT Tokyo round of multilateral trade negotiations.

Congress passed the Trade Agreements Act of 1979, which included provisions of agreements reached in Tokyo. According to the ITC, “one of the most important changes made by the 1979 Act was the requirement of an injury test, along with a shift in responsibility for administering countervailing duty law from the Treasury Department to the Commerce Department.”

Since then, changes to anti-dumping statutory and regulatory oversight have largely paralleled changes made to enforce dumping claims. Key pieces of legislation have included:

• Trade and Tariff Act of 1984
• Omnibus Trade and Competitiveness Act of 1988
• 1995 Uruguay Round Agreements (GATT)
• 2015 Trade Preferences Extension Act (Trade Remedies Bill)
• 2016 Trade Facilitation and Trade Enforcement Act (TFTEA/Customs Bill)

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