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U.S. Trade Remedy Law: The Canadian Experience
II United States Countervailing Duty Law
2. U.S. Countervailing Duty Law: Procedural Framework
- 4.1 Questionnaires
- 4.2 Facts Available (Best Information Available)
- 4.3 Verification
- 4.4 Treatment of Information
- 4.5 Like Product and Scope Determinations
6. U.S. Definitions of Subsidies
- 6.1 Prohibited (“Red Light”) Subsidies
- 6.2 Actionable (“Yellow Light”) Subsidies
- 6.3 Non-Actionable (“Green Light”) Subsidies
- 6.4 Upstream Subsidies
- 6.5 Subsidies to Prior Owners
7. Calculation of Countervailing Duty Rates
- 7.1 Export Subsidies
- 7.2 Grants
- 7.3 Capital Grants
- 7.4 Equity Infusions
- 7.5 Forgiveness of Debt
- 7.6 Loans
- 7.7 Loan Guarantees
- 7.8 R& D Grants and Loans
- 7.9 Tax Credits and Allowances
- 7.10 Social Welfare Programs and Worker Benefits
- 7.11 Provision of a Good or Service by the Government
- 7.12 Price/Income Supports
- 7.13 All-Others Rate
- 7.14 De Minimis Countervailable Subsidies
- 8.1 Material Injury
- 8.2 Threat of Material Injury
- 8.3 Preliminary Determination
- 8.4 Final Determination
- 8.5 Industry Determination
- 8.6 Captive Production
- 8.7 Regional Markets
- 8.8 Cumulation
- 8.9 Negligible Imports
- 9.1 Administrative Reviews
- 9.2 New Shipper Reviews
- 9.3 Revocation
- 9.4 Changed Circumstances Reviews
- 9.5 Five-Year “Sunset” Reviews
- 10.1 Suspension of Investigations
- 10.2 Critical Circumstances
- 10.3 Termination of Investigations
- 10.4 Anti-Circumvention
11. Judicial Review
U.S. countervailing duty law is designed to protect domestic industries from imports that unfairly benefit from subsidization provided by a foreign government entity. In essence, the U.S. countervailing duty law provides that, if it is determined that:
- a country is providing, directly or indirectly, a subsidy to the manufacture, production or exportation of merchandise imported or sold into the United States; and
- an industry in the United States is materially injured or threatened with material injury, or its establishment is materially retarded by reason of imports or sales of such merchandise;
then a countervailing duty equal to the amount of the net subsidy is imposed upon such merchandise. Simultaneous anti‑dumping and countervailing duty investigations with respect to the same product are regularly undertaken.
1.1 Legislative History and Authority
The original countervailing duty law was contained in section 303 of the Tariff Act of 1930 (19 U.S.C. 1303). The section did not require a finding that the subsidized imports were injuring the domestic industry prior to the imposition of countervailing duties. Section 303 was amended in 1974 to require an injury determination against goods from GATT members or other countries to which the United States accorded Most Favoured Nation (MFN) status.
Title VII, Subtitle A of the Trade Agreements Act of 1979 supplemented section 303 of the Tariff Act of 19301 Title VII implemented the GATT Tokyo Round Agreement on subsides (“Subsidies Code”),2 which created more specific rules on the levying of countervailing duties. Exports from countries that were signatories to the Subsidies Code were investigated under the procedures outlined in Title VII, and were entitled to the benefits of the Code, including an injury determination. Exports of goods from non‑signatory countries were investigated under the procedures outlined in section 303 and were not accorded an injury determination.
Title VII was subsequently amended by the Trade and Tariff Act of 1984, the Omnibus Trade and Competitiveness Act of 1988 and, most recently, the Uruguay Round Agreements Act in December 1994.3 Title II of the URAA implements the provisions of the WTO Agreement on Subsidies and Countervailing Measures (hereinafter “Subsidies Agreement”). The URAA also repealed section 303 of the Tariff Act of 1930. Thus, as of December 8, 1994, the United States maintains only one countervailing duty law: Title VII, Subtitle A of the Tariff Act. However, Title VII holds that goods from states other than Subsidies Agreement countries (defined as WTO members representing countries determined by the President to have assumed obligations with respect to the United States that are substantially equivalent to the Subsidies Agreement, or countries to which the United States has granted unconditional MFN treatment) are not entitled to an injury determination. Regulations detailing the practice and procedures used in countervailing duty investigations were subsequently issued.
2 U.S. Countervailing Duty Law: Procedural Framework
The International Trade Administration of the U.S. Department of Commerce is the “administering authority” with overall responsibility for enforcing the countervailing duty laws, and specific responsibility for determining whether the goods under investigation are being subsidized. The International Trade Commission, an independent federal agency, determines whether the U.S. domestic industry producing that class of products is either injured or threatened with injury by reason of the subject imports.4 The two agencies perform their responsibilities simultaneously and notify each other of any determinations. A negative final determination by either party or a negative preliminary injury determination by the ITC will terminate the proceedings. All determinations must be reported in the Federal Register, with a statement of facts and conclusions of law. An investigation proceeds as follows:
- Within 20 days of the filing of a petition, Commerce determines whether there is sufficient evidence of injurious subsidization to warrant an investigation. Commerce has found very few petitions to be insufficient at the initiation stage. The deadline may be extended to 40 days if it is necessary for Commerce to determine whether there is sufficient industry support for the petition.
- If the petition is accepted, the ITC conducts a preliminary investigation to determine whether there is a reasonable indication of material injury. The preliminary determination must normally be issued within 45 days of the date of filing.
- If the ITC preliminary determination is affirmative, Commerce makes a preliminary determination on the countervailable subsidy. The preliminary determination is normally released within 65 days after an investigation is initiated. Extensions may be requested by interested parties, where the investigation is extraordinarily complicated or where upstream subsidies are alleged. If the determination is affirmative, Commerce establishes estimated net subsidy rates, resulting in the application of provisional duties and the suspension of liquidation of the subject merchandise entered into the United States The ITC then commences its final injury determination.
- Commerce issues its final determination within 75 days of issuing the preliminary determination. The deadline may be extended where the investigation includes allegations of upstream subsidies or a simultaneous anti‑dumping investigation is being conducted.
- The ITC final injury determination must be released before the 120th day after Commerce makes an affirmative preliminary determination or the 45th day after Commerce makes its affirmative final determination, whichever is later. If the Commerce preliminary determination is negative, the ITC’s determination must be made no later than 75 days after Commerce’s affirmative final determination.
- If both subsidy and injury are found, a countervailing duty order is issued by Commerce within 7 days of notification by the ITC of its decision.
- Each year on the anniversary of the issuance of an order, the parties have an opportunity to request an administrative review of the subsidy rate for the most recent annual period.
Countervailing duty investigations are initiated on the basis of a petition requesting an investigation, filed by an interested U.S. party or parties. Petitions are filed simultaneously with Commerce and the ITC.5 “Interested parties” may include:
- a manufacturer, producer, or wholesaler in the United States of a like product;
- a certified or recognized union or group of workers that is representative of an industry engaged in the manufacture, production or wholesale in the United States of a like product; or
- a trade or business association whose members manufacture, produce or wholesale a like product in the United States.6
Commerce is required to initiate an investigation when a petition has been filed “by or on behalf of the domestic industry” and contains the elements necessary for the imposition of a countervailing duty, including all information reasonably available to the petitioner.7 Prior to the URAA, U.S. practice was to assume that the petition was filed on behalf of a domestic industry unless a majority of domestic companies affirmatively opposed the petition.8 Commerce would determine the extent of such opposition only after it was expressed.
In accordance with the standing requirements of the Subsidies Agreement and the URAA, the application is now considered to have been made “by or on behalf of the domestic industry” only if it is supported by those domestic producers or workers who account for:
- at least 25% of the total production of the domestic like product; and
- more than 50% of the total production of the domestic like product produced by that portion of the domestic industry expressing either support or opposition to the application.
Where a petition fails to show the support of domestic producers or workers accounting for more than 50% of the total production of the domestic like product, Commerce generally conducts a poll of the industry to determine whether the petitioner has standing. Under U.S. law, labour has a voice equal to management; if a company’s management expresses direct opposition to the views of its workers, the firm’s production will be treated as neither supporting nor opposing the petition.9
The position of U.S. producers that are importers of the goods in question will be disregarded in the determination of support. Similarly, the position of U.S. producers that are related to a foreign producer shall be disregarded, unless they can demonstrate that their interests as domestic producers would be adversely affected by a countervailing duty order.10 Both Commerce and the ITC are required by regulation to provide technical assistance to small businesses in the preparation of petitions, if so requested.11 The Trade Remedy Assistance Office of the ITC has been established to provide the public with general information on specific U.S. trade laws, and provides technical assistance to eligible small businesses seeking relief under the trade laws.
Prior to the publication of a notice of the initiation of an investigation, Commerce notifies and consults with the representative in Washington, D.C., of the foreign country concerned, as required by the Subsidies Agreement.12
The information needed to determine whether subsidization exists, and to what degree, is obtained by sending the manufacturers, exporters and foreign government(s) concerned requests for information or questionnaires. As business structures have become more complicated, these questionnaires have over time become more detailed and complex. Questionnaires must normally be answered within 30 days, although short extensions may be granted in certain circumstances. Commerce usually examines sales representing between 60% and 85% of the volume of exports to the United States from the subject country. As a result, small producers or exporters may not receive questionnaires, although Commerce has the discretion to accept voluntarily submitted questionnaires from such parties.
If the response to an information request is deemed inadequate, the respondent must be promptly informed of the nature of the deficiency, and be provided an opportunity to remedy or explain it. Commerce may not disregard information submitted within the set time limits if the respondent “acted to the best of its ability” to provide the requested information.13
The ITC, like Commerce, uses questionnaires as the principal means of obtaining information. Questionnaires are sent to domestic producers, importers, purchasers and exporters. The questionnaires generally cover a three‑year period and request information concerning a wide variety of economic indicators, including production, capacity utilization, shipments, exports, sales, employment, capital expenditures and prices.
In a provision added by the URAA in 1994, Commerce and the ITC are required to provide consumer organizations and industrial organizations with an opportunity to submit relevant information for consideration. Both Commerce and the ITC are also required to take account of difficulties experienced by parties, particularly small firms and firms in developing countries, in providing requested information. The two agencies will provide such assistance as they consider practicable to avoid imposing an unreasonable burden on the respondent.
4.2 Facts Available (Best Information Available)
If a respondent is unable or unwilling to provide the information requested by Commerce or the ITC within the set time limits and in the form requested, the agencies may rely on the “facts available” (formerly known as “best information available”), including allegations contained in the petition and previous reviews.14 When a respondent refuses to cooperate, Commerce will generally make an adverse inference and impose the most adverse rate possible. Commerce and the ITC may take into account the circumstances of the party, including (but not limited to) the party’s size, its accounting systems and computer capabilities, as well as the prior success of the same firm, or other similar firms, in responding to requests for information. In accordance with the Subsidies Agreement, where “facts available” are relied upon, they must be corroborated where practicable using independent sources.15
Commerce is required to verify all the information it relies upon in making a final determination in an original investigation, administrative review or sunset proceeding. In an annual review, verification will occur if requested by a domestic interested party and if there has been no verification during the two immediately preceding reviews. Otherwise, verification is discretionary. Commerce must obtain agreement from the foreign persons being verified and must notify the foreign government concerned regarding the verification. If the party being examined or the foreign government objects to the verification, Commerce will not conduct the verification and instead will rely on the facts available to make its determination. Commerce produces a report following the verification process, and offers an opportunity for both the petitioners and respondents to make submissions and offer comments.16
4.4 Treatment of Information
Information submitted to either Commerce or the ITC is treated as public unless designated as “proprietary” information. Parties asserting proprietary status for their submissions must justify to Commerce or the ITC why each piece of information should not be disclosed. Non‑confidential summaries of proprietary information must be filed concurrently with the submissions.17
If accepted as proprietary information, the material so designated may be released to certain specified individuals under an administrative protective order (APO). Attorneys or other representatives of interested parties may gain access to proprietary submissions of respondents if they have established a sufficient need for the information and can adequately protect its proprietary status. Violation of APOs may result in sanctions or even disbarment from practice before the agency in question.18
Notices of initiation and suspension decisions, preliminary and final determinations, and reviews (including the facts and conclusions supporting the determinations) must be published in the Federal Register.
4.5 Like Product and Scope Determinations
Issues sometimes arise as to whether a particular product is included within the scope of a countervailing investigation. In such cases, Commerce may issue “scope rulings” that clarify the scope of an order with respect to particular goods.
The rulings are intended to ensure that the imported goods are being compared to similar U.S.‑produced goods or “like products.” A “like product” is defined by the Tariff Act of 1930 as “a product that is like, or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation.” Commerce generally examines the following criteria in like product determination: general physical characteristics; the expectations of the ultimate purchasers; the channels of trade in which the product is sold; the manner in which the product is sold and displayed; and the ultimate use of the merchandise. No single factor is determinative and other relevant factors may be examined.19
While the ITC and Commerce commonly employ the same like product determination, the ITC is not bound by Commerce’s determination. The ITC may define the domestic like product more broadly than the class or kind of imported merchandise defined by Commerce, or the ITC may find two or more domestic like products corresponding to the class or kind of imported merchandise. In defining the domestic like product for purposes of injury, the ITC typically considers the following factors: (1) physical appearance; (2) end users; (3) customer perceptions; (4) common manufacturing facilities; (5) production processes and employees; (6) channels of trade; (7) interchangeability of the product; and (8) where appropriate, price. No single factor is determinative and other relevant factors may be examined.20
5. Determination of Subsidy
Within 85 days of the date of filing of the petition, Commerce must determine whether there is a reasonable basis to believe or suspect that a subsidy is being provided. A preliminary determination is based on the information available to Commerce at the time. At the petitioner’s request, in a case involving upstream subsidies or determined by Commerce to be extraordinarily complicated, the time period may be extended. An expedited preliminary determination may be made based on information received during the first 50 days if such information is sufficient and if the parties provide a written waiver of verification as well as an agreement to have an expedited preliminary determination.
The effect of an affirmative preliminary determination is twofold:
- Commerce must order the suspension of liquidation of all entries of subject merchandise either entered or withdrawn from warehouse, for consumption on or after:
- the date of publication of the preliminary determination; or
- a date 60 days after the publication of the notice of initiation; whichever is later.
Commerce must also order the posting of a cash deposit, bond or other appropriate security for each subsequent entry of the merchandise equal to the estimated amount of the net subsidy. These measures may normally be in place for a maximum of 120 days.
The ITC must begin its final injury investigation, and Commerce must make all relevant information available to the ITC. If the preliminary determination is negative, no suspension of liquidation occurs and the investigation continues. All parties may comment on Commerce’s preliminary determination and on the submitted information. If requested, Commerce will hold an informal hearing where the issues can be discussed. Case briefs and rebuttal briefs may be filed before and after the hearing. All comments received, whether from petitioners or respondents, are addressed in the final determination.
5.1 Final Determinations
As noted, Commerce must normally issue its final determination on whether a countervailable subsidy is being provided within 75 days of the preliminary determination. The final determination must include the factual and legal conclusions on which it is based, and the estimated individual countervailing duty rate for each party investigated.21 Given that Commerce performs an on‑site verification of the questionnaire responses provided by the exporters or producers, it is not unusual for the margins found in the final determination to differ from those found in the preliminary determination. If the final determination is negative, the proceedings are terminated. Suspension of liquidation, if in effect, ceases; all estimated countervailing duties are refunded, and all appropriate bonds or other security are released. If the determination is affirmative, the ITC proceeds to make its final injury determination.
Upon the release of an affirmative final determination by Commerce and an affirmative final injury determination by the ITC, the U.S. Customs Service is instructed to assess definitive countervailing duties and collect cash deposits of estimated countervailing duties on future entries, consistent with rates published in the final determination. The actual duty assessed may vary for future shipments as determined by the results of annual administrative reviews (see below).22
6. U.S. Definitions of Subsidies
Articles 3 through 9 of the Subsidies Agreement set out for the first time international rules delineating which subsidies are countervailable and which are permissible.23 Prohibited subsidies are known as “red light” subsidies; potentially actionable subsidies are known as “amber light” subsidies; and permissible, non‑actionable subsidies are known as “green light” subsidies. The 1994 Uruguay Round Agreements Act amended the U.S. definition of subsidy to conform with the Subsidies Agreement.24
A subsidy exists where an “authority” (i.e. a government or a public entity within the territory of a country):
- provides a financial contribution;
- provides any form of income or price support that operates directly or indirectly to increase exports from, or reduce imports into, the territory of a WTO member; or
- makes a financial contribution through the use of a funding mechanism or private entity, whereby the provision of contributions would normally be controlled by the government and the practice does not differ in substance from normal government practices;
and a benefit is conferred through one of these above acts.25
A “financial contribution” is defined as:
- the direct transfer of funds such as grants, loans, and equity infusions, and the potential direct transfer of funds or liabilities such as loan guarantees;
- forgoing or not collecting amounts due, such as granting tax credits or deductions;
- government provision of goods and services other than general infrastructure; or
- government purchase of goods.
A financial contribution can exist where, rather than acting directly, a government makes payments through a funding agency or entrusts a private body to carry out functions normally vested in the government. The definition of subsidies includes actions by governments at the sub‑national level, such as state or provincial governments.26
To be considered countervailable, a subsidy must not only involve a financial contribution or some form of direct or indirect support, but it must confer a benefit to the recipient. A benefit is conferred:
- in the case of an equity infusion, if the investment is inconsistent with the usual practice of private investors in the country in which the investment is made;
- in the case of a government loan, if the cost of the loan to the recipient differs from the amount the recipient would pay to obtain a comparable commercial loan;
- in the case of a loan guarantee, if the cost of the guaranteed loan to the recipient differs from the amount the recipient would pay for a comparable commercial loan without the loan guarantee; and
- in a case where goods or services are provided by government for less than adequate remuneration, or where goods are purchased for more than adequate remuneration, with adequate remuneration being measured by prevailing market conditions in the country subject to investigation or review.27
In addition to conferring a benefit, in order to be countervailable a domestic subsidy must have been provided to specific companies or industries. Countervailing duties are generally imposed where a benefit accrues to a specific industry, but not where it is generally available and evenly distributed throughout all industries in the economy. This approach is based on what is known as the principle of “general availability.”
6.1 Prohibited (“Red Light”) Subsidies
A prohibited subsidy is:
- an export subsidy—in other words, one contingent on export performance as at least one of its conditions; or
- an import substitution subsidy—in other words, one contingent on the use of domestic rather than imported goods as at least one of its conditions
For purposes of countervailing duty law, export subsidies are considered specific and therefore countervailable.
6.2 Actionable (“Yellow Light”) Subsidies
The category of domestic subsidies may also be considered specific in certain circumstances, and thus actionable and countervailable. A domestic subsidy may be specific in law (de jure) or specific in fact (de facto). De jure specificity exists if the authority providing the subsidy expressly limits access to an enterprise or industry. If the government or public entity sets objective criteria or conditions for eligibility for receipt of the subsidy, the subsidy is not specific provided the eligibility is automatic, and the criteria or conditions for eligibility are neutral, set forth in an official document capable of verification, and strictly followed. De facto specificity exists where one or more of the following factors is present:28
- the actual recipients are limited in number when measured by either enterprise or industry;
- one enterprise or industry is a predominant user of the subsidy;
- an enterprise or industry receives a disproportionate share of the subsidy; or
- in granting the subsidy, the authority concerned has exercised discretion indicating that it has favoured one enterprise over another.
The weight given to any of these factors will vary from case to case, and Commerce is no longer required to seek and consider information relevant to all four factors. In particular, Commerce is required to consider the four factors in light of: (1) the extent of diversification of economic activities within the economy in question; and (2) the length of time during which the subsidy program in question has been in operation.29 The issue of specificity with regard to domestic subsidies is controversial and has been heavily litigated both in the United States and multilateral forums. For further discussion of this issue, see “Postscript,” below.
Subsidies that are provided by a state or province and are not limited to a specific enterprise or industry within the state or province are not considered specific and countervailable. Subsidies provided by the central government and limited to an enterprise or industry within a designated geographic region are considered per se specific and actionable. Similarly, state or provincial subsidies that are limited to particular regions within the state or province are specific.
6.3 Non-Actionable (“Green Light”) Subsidies
In addition to subsidies that are generally available, under Article 8 of the Subsidies Agreement and the corresponding U.S. law, certain subsidies, known as “green light” subsidies, are considered non‑countervailable or non‑actionable. The following categories of subsidies are generally permitted:
- Research subsidies to the extent that they are limited to specified costs not exceeding 75% of the cost of industrial research, or 50% of the cost of pre‑competitive development activity, or 62.5% of the cost of combined industrial and pre‑competitive activity. Examples are the cost of staff employed exclusively in the research activity, the cost of equipment, land or buildings used exclusively and permanently for the research activity, or additional overhead costs incurred directly as a result of the research activity.
- Subsidies to disadvantaged regions to the extent that they are not specific within the eligible region (as defined above with respect to actionable subsidies). The subsidies must be granted within a regional development policy in which disadvantaged regions with definable identities are selected on the basis of neutral and objective criteria that include a measure of economic development and set ceilings on the amounts that can be granted to a subsidized project.
- Subsidies to adapt existing facilities to new environmental requirements to the extent that the requirement is imposed by law and places a burden on the recipient. The subsidy must be a onetime non‑recurring payment limited to 20% of the cost of adaptation; it may not cover the cost of replacing and operating the subsidized investment; it must be directly linked and proportionate to the recipient’s planned reduction of pollution, and it must be available to all persons.
A green light subsidy is exempt from investigation under countervailing duty law so long as the WTO member provides advance notification of the subsidy program to the Committee on Subsidies prior to its implementation. The notification has to be updated yearly and must be sufficiently precise so that other WTO members can evaluate the program based on the appropriate criteria. If notification has not been given of the program in question, a country could establish in the context of a dispute settlement proceeding that a particular subsidy satisfies all of the criteria for non‑countervailable treatment.30 Disputes concerning the non‑actionable status of a program may be referred to binding arbitration under the terms of the Subsidies Agreement.
Even if a subsidy program meets the non‑actionable criteria, it may be actionable under Article 9 of the Subsidies Agreement if it has “serious adverse effects” on the domestic industry of another member, causing “damage which would be difficult to repair.” This standard is higher than the normal “serious prejudice or injury” standard. Within 120 days following unsuccessful consultations between the countries concerned, the Subsidies Committee must determine whether the subsidy has caused serious adverse effects. If the Committee makes an affirmative determination and also finds that the subsidizing government should modify its subsidy program, the subsidizing country must act to eliminate the serious adverse effects within six months.
The green light provisions were to expire 66 months after the WTO Agreement entered into force unless there was an agreement to extend their application (December 31, 1999). There was no such agreement and the U.S. provisions expired on July 1, 2000.
There is an additional category of non‑actionable subsidies: Domestic support measures for products listed in Annex 1 to the Uruguay Round Agreement on Agriculture that conform fully to the requirements of Annex 2 of that Agreement are non‑countervailable until the end of 2003, unless the USTR sets a different termination date for a particular WTO member in accordance with the terms of the Agriculture Agreement.
6.4 Upstream Subsidies
U.S. law includes provisions allowing countervailing duties to be imposed against upstream subsidies. Upstream subsidies are domestic subsidies:
- bestowed by a foreign government with respect to “input products” used in the manufacture or production of the goods under investigation;
- that significantly lower the cost of production and thus bestow a competitive benefit on the goods; and
- that have a significant effect on the cost of manufacturing or producing the merchandise.
Each of these three elements must be satisfied in order for Commerce to find that an upstream subsidy exists. The law states that a competitive benefit has been bestowed when the price for the input used in manufacture or production of the merchandise subject to investigation is lower than the price the manufacturer or producer would otherwise pay for the input from another seller in an arm’s‑length transaction. Upon determining that an upstream subsidy exists, Commerce imposes a countervailing duty equal to the amount of any competitive benefit or the amount of the upstream subsidy being bestowed, whichever is less. Where an upstream subsidy is alleged, the preliminary determination may be extended to permit Commerce to investigate the matter. In 1988, a separate, special rule was added to the law with respect to calculating subsidies on certain processed agricultural products.31
6.5 Subsidies to Prior Owners
Provisions were added by the 1994 Uruguay Round Agreements Act to clarify the effect of a change in ownership of all or part of a foreign enterprise or its productive assets on a countervailable subsidy. A subsidy is not automatically extinguished by reason of a transfer of ownership, even if the transaction occurs on an arm’s‑length basis. Where the sale is from the government to the private sector, Commerce has the discretion to determine on a case‑by‑case basis the extent to which privatization eliminates or continues previously conferred subsidies.32
7. Calculation of Countervailing Duty Rates
Calculating the amount and value of a subsidy presents complex accounting issues that cannot be fully discussed in this summary. Once Commerce establishes that a subsidy is countervailable, intricate formulas are employed to determine how the subsidy should be allocated over the production of the like product. In general terms, the per‑unit subsidy is determined by dividing the subsidy by the number of units produced (in the case of domestic subsidies) or exported (in the case of export subsidies). For example, in Softwood Lumber III, Commerce followed the same general formula in each province. The numerator in each province consisted of the calculated benefit per cubic metre (i.e. the difference between administered rates and the benchmark), multiplied by the softwood sawlog harvest. The denominator consisted of the value of softwood lumber shipments plus the value of lumber co‑products, e.g., chips and sawdust. Conversely, the benefits or effects of a subsidy may extend beyond the amount of subsidization. In this regard, in international discussions the United States has argued the desirability of offsetting the full amount of the effects or benefits of subsidies. This is particularly true in the context of research and development subsidies. Indeed, regardless of whether the program under investigation is an R& D measure, in its own countervailing decisions the United States has adopted a practice of imposing a duty designed to fully offset the net subsidy.
7.1 Export Subsidies
Loans provided under the federal Program for Export Market Development (PEMD), which provides interest‑free loans for the purpose of developing new markets, were found to be countervailable in a number of investigations. In such cases, Commerce determined the amount of the assistance provided and divided it by the value of the subject commodity shipped to the United States It should be noted that the amount of assistance provided is, in the PEMD cases, determined by comparing the PEMD loan rates against a benchmark rate designed to approximate the commercial rate applicable during the period under review (normally the Bank of Canada corporate discount rate), and calculating the extent of the preferential treatment accorded.
Since grants represent subsidies by definition under U.S. trade law, the only criterion used in deciding whether they should be countervailed is that of targeting. Targeting may be a matter of intent, as when the legislation concerned specifically singles out certain industries as the only one(s) qualifying for benefits. This de jure specificity has been commonly cited as the cause of countervailability. There are numerous examples in the context of U.S. countervailing cases. For instance, minor and very limited programs have been countervailed because of their specific intent—as happened with the Ontario Greenhouse Energy Efficiency Program (GEEP) in the Certain Fresh Cut Flowers from Canada case. GEEP disbursed grants to greenhouses to alleviate the costs of converting to more efficient energy methods. It affected exports valued at only $40,000.
At the same time, larger and more important grant programs have been determined to be countervailable because of their targeted nature. Among these is the Fishing Vessel Assistance Program, which provides funding of up to 60% of the cost of a vessel, to a maximum of $750,000. In this case the grant contributions were divided over the useful life of a vessel (e.g., 12 years for barges and tugs) and then spread out over the value of Atlantic Canadian groundfish production. The preferentiality of the grant was derived by comparing it to the long‑term Bank of Canada rate in allocating the benefits over time as an approximation to the normal costs of a commercial capital infusion versus an outright government grant (this is the so‑called “declining balance” methodology).
Grants can also be found countervailable because of the practical, de facto administration of the program. The exercise of discretion in granting subsidies increases vulnerability to countervail. Perhaps the most striking examples of Canadian programs designed to meet the standard of general availability but found countervailable are the extensive development agreements between the federal and provincial governments. For the most part, these agreements are intended to promote regional development. Such federal–provincial joint programs as General Development Agreements, Agricultural and Regional Development Agreements, and Economic and Regional Development Agreements have all been found countervailable not because they favour specific enterprises or industries, but rather because their benefits are geographically targeted.
7.3 Capital Grants
The question of the recurrence of a grant is also important in calculating the net subsidy to be countervailed. If a grant is found to be non‑recurring, it is treated as a capital infusion, the effects of which can be spread over time. Using the “declining balance” methodology, a non‑recurring grant outside the review period of an investigation can still have an impact on the countervailing duty calculations. Conversely, a recurring grant can be treated much the same as a program expenditure. In such circumstances the entire grant will be expensed to the specific period (i.e. fiscal year) of the grant. In this case a recurring grant falling outside the review period of the investigation would have no impact on the countervailing rate calculations.
7.4 Equity Infusions
In the fall of 1982, Commerce conducted a number of countervailing investigations against steel products from the European Community. These cases provided significant insight into Commerce methodology. This is especially true with respect to government equity. According to these cases, Commerce considers that government equity ownership per se does not necessarily confer a subsidy. A subsidy is conferred only when government equity ownership is on terms inconsistent with commercial considerations.
An example of countervailed equity infusions, and indeed of Commerce policy in this regard, is the Steel Rails from Canada case. The equity infusions to Sydney Steel Co. (Sysco) were found countervailable on the grounds that Commerce determined Sysco to be not only “uncreditworthy” under commercial conditions, but also “unequityworthy.” Commerce considers a company “uncreditworthy” if “it does not have sufficient reserves or resources to meet its costs and fixed financial obligations, absent government intervention.” To determine “uncreditworthiness,” Commerce examines the company’s past operations “as reflected in various financial indicators” calculated from its financial statements. Commerce defines a company as “unequityworthy” if it “is unable to generate a reasonable rate of return within a reasonable time frame.” Once again, this determination is based on an examination of the company’s financial statement “as reflected in various financial indicators,” which reveal that it could not meet its financial obligations.
The particular equity infusions under question here were in the form of the provincial government’s conversion of Sysco’s debt to equity. Normally, Commerce calculates the benefit conferred by government equity infusions inconsistent with commercial considerations by determining the difference between the average national rate of return on equity and the average rate of return on equity of the company in question. From there, Commerce would divide this net benefit over the sales value of the commodity to determine a benefit‑to‑recipient result. However, in this case, Commerce concluded that the calculation of any rate of return for Sysco would be meaningless as the corporation had fully consumed the infusion. Therefore, Commerce treated the equity infusion as a grant.
7.5 Forgiveness of Debt
Where Commerce finds that a government has forgiven an outstanding debt obligation, it treats such forgiveness as a grant to the company equal to the outstanding principal at the time of forgiveness. Where outstanding debt has been converted to equity (that is, where the government receives shares in the company in return for eliminating the company’s obligations), subsidy may also result. The existence and extent of such subsidies are determined by treating the conversions as an equity infusion in the account of the remaining principal of the company debt. In the first softwood lumber case, several interest‑free loans—such as those provided in a number of subsidiary agreements between New Brunswick and the federal government—were forgivable. Since it appeared that all these loans had in fact been forgiven, the benefits were treated as grants. The methodology used in determining the subsidy inherent in such grants was the previously described “declining balance” approach.
As previously noted, the extension of loans by governments is essentially a proprietary function, which might be carried out equally effectively by private entrepreneurs. The most common governmental loan practice giving rise to countervailable subsidies is the offering of preferential rates of interest. Preferential rates may apply when the government itself is the lender, when it directs a private lender to offer such rates, or when it assists in the payment of a commercial rate so that the borrower in effect receives a preferential rate. In such cases, Commerce determines the amount of subsidy by comparing the expenses in principal and interest that the company concerned would incur if it was dealing with a commercial loan, versus what it actually paid as a result of government intervention. There are many instances in which Commerce found such Canadian transactions countervailable. In the 1985 Live Swine and Fresh, Chilled and Frozen Pork case, four different provincial programs were found countervailable because they provided favourable loan conditions. In the Atlantic Groundfish case, seven programs were identified as countervailable because they provided preferential loan terms. In all these cases, and indeed in many others, Commerce applied the same methodology. In most cases, the competitive benchmark rate used was the “national average” or the Bank of Canada corporate discount rate.
Criticism has been expressed of the manner in which Commerce allocates loan benefits over time. In Michelin Tire v. the United States (1981), the U.S. Court of International Trade found fault in the “exaggerated” nature of the determined benefit of the deferral of the principal. The Court saw this decision as “beyond reason” and rejected Commerce’s failure to limit the benefit to a single principal amount. The Court stated, “If benefits exist in years after the year of deferral, they cannot be more than the interest ramifications of an original benefit in the year of deferral. To revive the deferred amount year after year defies reality.” In Bethlehem Steel v. the United States (1983) the manner by which Commerce determined the present‑value calculation of benefits allocated over time was also criticized. These judicial decisions continue to refine the attempts by Commerce to implement administratively its interpretations of U.S. law in the absence of clear legislative guidelines.
Loans can also be found countervailable, even though their terms are compatible with commercial arrangements, if the company in question is considered “uncreditworthy.” If the firm has a history of deep or significant continuing losses and of diminishing access to lenders, there are grounds for suggesting that it could not have obtained any commercial loan without government intervention. In cases such as these, comparisons with commercial rates are deemed inappropriate. Such comparisons alone will not capture the full extent of the benefit conferred. Commerce here considers such actions to be equivalent to equity infusions.
7.7 Loan Guarantees
With loan guarantees, the criteria used are similar to those applied to loans. At issue is a government guarantee of repayment to a private lender. Such a guarantee constitutes a subsidy to the extent that it assures more favourable loan terms than would be available under an unguaranteed arrangement. The amount of the subsidy is calculated in the same manner as it would be for a preferential loan.
Once again, there are numerous instances in which loan guarantees were countervailed. In the Live Swine and Fresh, Chilled and Frozen Pork, and Atlantic Groundfish cases, loan guarantees were found to confer subsidies on four separate occasions.
7.8 R& D Grants and Loans
In the view of Commerce, no subsidy is conferred by grants and preferential loans awarded by governments to research that has a broad application and that yields results made publicly available. Moreover, no countervail is applicable on programs that provide funds to a specific industry to complete research that benefits a whole range of industries. The opposite is true for programs established to finance research affecting only a particular industry or group of industries, and yielding results available only to particular producers in a particular country or group of countries; such programs are considered to confer a subsidy on the products that benefit from the research.
In Aarexco Agricultural Export Co. v. the United States (1985), the U.S. Court of International Trade found that the relevant measure of whether governmentsponsored research and development is in fact a subsidy turns on whether the benefit of such research is targeted to a specific industry. An example of this approach, as practised by Commerce, is the treatment accorded the Canadian Record of Performance (ROP) Program. This program, which was jointly administered by the federal and provincial governments, was designed to help swine producers improve breeding stock and to encourage the production of uniform and high‑quality pork at lower costs. In the 1985 Live Swine and Fresh, Chilled and Frozen Pork case, the ROP was determined to improve the profit margins of a specific industry—Canadian hog farmers—largely at the expense of the federal and provincial governments. Accordingly, it was found countervailable. In the first administrative review of this decision, however, Commerce reached a different conclusion. Since Agriculture Canada publishes ROP’s results and the methodology used in obtaining these results, Commerce found that the benefits of the program are available publicly, not just to the Canadian hog industry, and hence they do not confer unique or special benefit to that industry. Accordingly, Commerce reversed its earlier decision and removed the countervailing duty applied to this program.
7.9 Tax Credits and Allowances
Since taxation is a “sovereign” role of government, the rule used by Commerce to determine countervailability is that of “preferentiality.” On this basis Commerce has countervailed Canada’s Investment Tax Credits as a result of investigations into Atlantic Groundfish, Oil Country Tubular Goods, and the Lumber I and II cases.
As the Canadian rates of Investment Tax Credits vary depending on both the type of property they are applied to and the region they are applied in, Commerce determined them to be countervailable. Commerce calculated the conferred subsidy by its “standard tax methodology.” This methodology is essentially as follows: Commerce allocates an income tax benefit to the year in which the tax return was filed by valuing the taxable property receiving a preferential tax credit (i.e. all the property receiving more than the generally available base tax credit rate, which in Canada is 7%). Commerce then assigns to that property the 7% rate and subtracts the value from the actual property tax levied to calculate the benefit. That benefit is then divided by the subject company’s total sales to calculate net subsidy (benefit to recipient).
7.10 Social Welfare Programs and Worker Benefits
The provision of social welfare programs and worker benefits is again a “sovereign role” of government; for countervail to be applicable, there must be preferential benefits for workers in a specific industry or region. Commerce practice has been to determine preferentiality by looking at both program eligibility and participation.
Even when provided to workers in specific industries, such benefits are countervailable only to the extent that the benefits relieve the firm of costs it would ordinarily incur. An example would be government assumption of a firm’s normal obligation to partially fund worker pensions. Such labour‑related subsidies are generally conferred in the form of grants and are accordingly treated as untied grants.
In a number of cases, U.S. petitioners have attempted to persuade Commerce to find Canadian labour‑based social programs countervailable. Commerce has yet to determine any such program countervailable. In the first Softwood Lumber case, Commerce found that the federal Local Employee Assistance and Work Sharing Programs and the British Columbia Employment Bridging Assistance Program were not countervailable as the benefits were of an inconsequent magnitude or were not provided in the review period. In the Atlantic Groundfish case, section 146 of the Unemployment Insurance Act was alleged to preferentially treat selfemployed Atlantic fishermen. Commerce concluded that section 146 authorizes the Canada Employment and Immigration Commission to establish an unemployment insurance scheme for self‑employed fishermen, but it also concluded that the benefits of the scheme do not result in preferential treatment. In the final determination Commerce stated, “While terms of the unemployment insurance for selfemployed fishermen and general contract workers are very similar, they are not identical.” It added, however, “Comparing the terms of the unemployment insurance provided under the Fishermen’s Regulations for self‑employed fishermen to those provided under the Unemployment Insurance Act and Regulations, we determine that the unemployment insurance provided to self‑employed fishermen is not provided on preferential terms and therefore is not countervailable.”
7.11 Provision of a Good or Service by the Government
Provision of a good or service by a government can be found to be a countervailable subsidy if the good or service is provided at a rate more favourable to one industry than another. In the first Softwood Lumber case, Commerce outlined this preferentiality provision for government‑supplied goods or services as “the more favourable treatment to some within the relevant jurisdiction than to others within that same jurisdiction: it does not mean that it is inconsistent with commercial considerations.”
Since then, however, it appears that Commerce has re‑interpreted this concept of preferentiality. In cases where the provision of goods or services is limited, Commerce has used alternative benchmarks to evaluate preferentiality. The first such instance of the new interpretation was in an administrative review of a countervailing duty order of Carbon Black from Mexico (the Cabot case). In that case, Commerce determined that given the limited number of users of carbon black, its standard test for evaluating preferentiality was not appropriate. Commerce therefore considered alternative benchmarks and described them in a so‑called “preferentiality appendix.”
The usual and preferred test of preferentiality employed by Commerce examines “whether the government (or government directed suppliers) provides a good or service to the producer(s) of a product at a price that is lower than the price the government charges to the same or other users of that product within the same political jurisdiction.” This test in effect assesses whether the foreign government practises price discrimination for the good within the domestic economy. However, the choice of the appropriate benchmark to measure preferentiality has been a contentious issue, especially where two‑tier pricing policies are involved in the investigation or when the good in question is limited to a few actual users.
From the result of an administrative review of Carbon Black from Mexico, Commerce proposed four alternative tests to measure preferentiality in cases where the producers under investigation are the only users within the foreign jurisdiction. It has since introduced a fifth test. In order of preference, the tests33 are the difference between the price charged by the government for the good and:
- the price charged by the government to the same or other users of the good within the same political jurisdiction;
- the price charged by the government for a similar good, adjusted for quality differences;
- the price charged by private sellers in the same political jurisdiction;
- the government’s cost of producing the good (although cost is inappropriate for natural resources); and
- the price paid for the identical good outside the political jurisdiction.
The ranking of these alternative tests reflects Commerce’s stated belief that comparisons of prices within the foreign jurisdiction are the most appropriate measures of preferentiality. The use of external prices is considered the “least desirable and most deficient because regardless of which external price is chosen for its effect on the domestic market, this test does not measure preference within the economy.” In Lumber II, Commerce accepted the petitioners’ argument that not only was government discretion widely used in the allocation of stumpage rights (i.e. the rights to harvest timber), but also the original conclusion of de facto non‑specificity was no longer assured. Commerce instead determined that stumpage was provided de facto to a specific industry and accordingly was countervailable. The amount of the subsidy, and degree of preferentiality, was calculated using the fourth benchmark from the Preferentiality Appendix (as outlined above). Commerce chose this because it determined that there was no “generally available” benchmark price for stumpage fees.
The countervailable net subsidy was therefore calculated by subtracting all government revenue (i.e. stumpage fees) received in return for provision of this good from government costs associated with forestry maintenance and management. This methodology was essentially the use of a cost‑to‑government approach.
7.12 Price/Income Supports
Government price and income support programs have not escaped U.S. countervailing action despite Canadian arguments that price or income support does not affect price, production or investment decisions, but rather merely guarantees a minimum price or income level. In the 1985 Live Swine and Fresh, Chilled and Frozen Pork case, and again in the 1989 Fresh, Chilled and Frozen Pork decision, an income support program was investigated and determined to confer a countervailable subsidy by Commerce.
7.13 All-Others Rate
Commerce normally calculates individual countervailing duty rates for all known foreign exporters and producers of the subject goods. Future and unknown exporters and producers from the same country are subject to an “all others rate.” This rate is calculated as the weighted average of the individually determined countervailable subsidy rates, excluding zero or de minimis rates, or rates based entirely on facts available.34 However, as discussed below, individual exporters and producers are entitled to an expedited review to establish an individual rate if they were not actually investigated prior to inclusion in the countervailing duty order. If there are too many exporters or producers to make calculation of individual rates practicable, Commerce may choose to set the rate by: (1) using a statistically valid sampling technique; (2) examining only exporters and producers responsible for the largest volume that can be reasonably examined; and (3) calculating a country‑wide countervailing duty rate.35
7.14 De Minimis Countervailable Subsidies
In accordance with Article 11.9 of the Subsidies Agreement, the Tariff Act of 1930 has been amended to provide that a countervailing duty margin found to be less than 1% ad valorem in the case of merchandise from developed countries will be considered to be de minimis and non‑countervailable. These de minimis standards are applied on an aggregate rather than a program‑by‑program basis. Commerce, however, has interpreted Article 11.9 as applying only to original investigations. For reviews, Commerce has retained the pre‑Uruguay Round practice of considering a margin to be de minimis only if it is below 0.5% ad valorem.36
8. ITC Injury Analysis
As noted above, the role of the ITC in countervailing duty investigations is to determine whether the U.S. domestic industry producing like products is materially injured or threatened with material injury, or whether the establishment of an industry in the United States is materially retarded by reason of the subsidized imports. The ITC is composed of six members appointed by the President, no more than three of whom can be from the same political party. Determinations are made on the basis of a majority vote. If the members split evenly in a vote on material injury or threat of injury, the ITC will be deemed to have made an affirmative determination.
The ITC determination of injury involves a two‑pronged inquiry: first, with respect to the fact of material injury; and second, with respect to whether the subsidized goods are the cause of such material injury.
8.1 Material Injury
Material injury is defined as “harm which is not inconsequential, immaterial, or unimportant.” In determining whether the domestic industry is materially injured by reason of the investigated imports, the ITC is directed by statute to consider:
- the volume of imports and, more specifically, whether the volume of subject imports (either in absolute or relative terms) is significant;
- the effect of imports on U.S. prices of like merchandise, including evidence of price underselling or price depression attributable to the imports; and
- the effects that imports have on the U.S. facilities of domestic producers of like products, including but not limited to:
- actual and potential decline in output sales, market share, profits, productivity, return on investment or utilization of capital;
- factors affecting domestic prices;
- actual and potential negative effects on cash flow, inventories, employment, wages, growth or ability to raise capital;
- actual and potential negative effects on the existing development and production efforts of the domestic industry to develop more advanced versions of the domestic like product; and
- the magnitude of the margin of subsidy.37
The ITC is not restricted to these factors, however, and in past cases has considered other economic indices.
8.2 Threat of Material Injury
In determining whether an industry is threatened with material injury by reason of the subject imports, the ITC considers whether “on the basis of evidence . . . the threat of material injury is real and . . . actual harm is imminent.” Such a determination “may not be made on the basis of mere conjecture or supposition.”38
The ITC considers, among other relevant economic factors:
- information provided by Commerce as to the nature of any countervailable subsidy involved;
- any existing or imminent increase in production capacity, which would be likely to result in increased imports to the United States;
- any significant rate of increase in the volume or market penetration of imports of the subject goods, indicating the likelihood of substantially increased imports;
- whether imports are likely to have a significant depressing or suppressing effect on U.S. prices, and are likely to increase demand for further imports;
- inventories of the subject merchandise;
- the potential for product shifting if foreign production facilities currently producing non‑subject merchandise can be used to produce subject merchandise;
- the likelihood of increased imports, by reason of product shifting, of either raw or processed agricultural products already subject to investigation;
- the actual and potential negative effects on existing U.S. industry efforts to develop a derivative or more advanced version of the product under investigation; and
- any other demonstrable trends indicating the probability that the subject merchandise will cause material injury.
Petitioners may also allege that the establishment of an industry in the United States is materially retarded by reason of imports (or the likelihood of imports) of the subject merchandise. Such allegations have been uncommon.
With respect to the issue of causation, it is important to note that while the importation of the subsidized goods must be an important cause of injury, it need not be the only such cause, nor need it be more significant than any other cause of injury.
8.3 Preliminary Determination
In its preliminary determination, the ITC must determine, on the basis of information available to it at the time, whether there is a “reasonable indication” that a domestic industry is materially injured, or threatened with material injury, by reason of the allegedly subsidized imports. While a negative preliminary determination results in termination of the investigation, such a finding is relatively infrequent. The ITC is usually inclined to give the petitioners the benefits of the full process unless the complaint is unsubstantiated.39 The petitioner bears the burden of proof with respect to the injury issue.
8.4 Final Determination
A higher standard of evidence is required in the final determination. The ITC must determine whether a U.S. industry is materially injured or threatened with material injury “by reason” of the subject imports. As part of the determination process, a public hearing is held, usually lasting one day. Parties to an ITC proceeding may file substantial pre‑hearing submissions, and have an opportunity to analyse and comment upon the data and analysis compiled by the ITC investigatory staff. The hearing process is investigatory rather than adjudicatory in nature, and offers no opportunity for oral argumentation and only very limited opportunity for cross‑examination. Following the hearing and deliberations by the Commissioners, the ITC issues a report containing its decision. A negative final determination results in the termination of the investigation and the release of all bonds or other security.
8.5 Industry Determination
The ITC is responsible for defining the domestic industry engaged in production of the like product. According to the Tariff Act of 1930, the domestic industry is “the domestic producers as a whole of a like product, or those producers whose collective output of the like products constitutes a major proportion of the total domestic production of that product.”40 U.S. producers of the like product who are related to the exporters or importers, or who are themselves importers of the allegedly subsidized goods, may be excluded from the consideration of the domestic industry “in appropriate circumstances.” Parties are considered to be related if one party exercises direct or indirect control over the other party. The ITC’s concern in a related‑party situation is whether the relation of the producers to the exporters or importers of the subject goods gives them an unusual or sheltered position in the market as compared to other producers.
8.6 Captive Production
The Uruguay Round Agreements Act of 1994 introduced the concept of “captive production” into U.S. methodology for determining material injury in antidumping and countervailing duty investigations. The concept was based on the fact that some products subject to trade remedy investigations may be sold both as end products (“the merchant market”) or for use in further manufacturing processes. For example, in the flat‑rolled steel sector, hot‑rolled coils may be sold and used as end products or may be further processed into cold‑rolled or corrosion‑resistant steel. The issue arises as to whether injury should be assessed on the basis of total production of the product in question or only that portion sold in the “merchant market.” In the former case, dumped or subsidized imports would represent a lesser share of total consumption than they would if captive production was included. Accordingly, it could be more difficult for domestic industry to demonstrate injury by dumped or subsidized imports if captive production is included.
The URAA set out criteria41 for determination of the existence and treatment of captive production. The ITC will normally examine the condition of the U.S. producers of the domestic like product as a whole when determining whether material injury resulted from unfairly traded imports. The ITC will consider the effect that subsidized or dumped imports have had on the total production of the domestic like product. However, if certain conditions are determined to exist, the ITC will focus primarily on the merchant market in determining injury.
8.7 Regional Markets
For purposes of injury determination, the domestic industry may be limited to producers of like products in isolated or regional markets within U.S. territory, even if the domestic industry producing like products as a whole is not suffering injury. A party may request that a regional analysis be performed, although the decision is left to the ITC’s discretion. In order to establish that a regional market exists, it must be demonstrated that:
- the producers within the regional market sell all or almost all of their production in that market; and
- the demand in the regional market is not supplied to any substantial degree by producers located elsewhere in the national territory.
Once a regional market is found to exist, several additional criteria are examined to determine whether the U.S. industry has suffered injury. Before an affirmative determination may be issued, it must be established that:
- there is a concentration of subsidized imports into the regional market; and
- the subsidized imports must be the cause of injury to the producers of all or almost all of the production within that regional market.
The ITC is directed to cumulatively assess the volume and effect of imports of like products from two or more countries if such imports compete with each other and the domestic like product. Only imports with respect to petitions filed on the same day and for which Commerce has made an affirmative preliminary determination may be cumulatively assessed. For injury determinations, the ITC must cumulate imports if: (1) the countervailing duty margin for each country is more than de minimis; (2) the volume of imports from each country is not negligible; and (3) all such imports compete with each other and with the domestic like products on the U.S. market. With respect to determinations of threat of material injury, the ITC retains the discretion to cumulate imports.42
The amended U.S. law is silent with respect to the ITC’s practice of “crosscumulation,” in which the ITC cumulates imports subject to both anti‑dumping and countervailing duty investigations. However, in practice, “cross‑cumulation” is standard.
8.9 Negligible Imports
If the ITC finds that imports from a country under investigation are negligible, the investigation is terminated. Imports are considered negligible if they account for less than 3% of the volume of all subject merchandise imported into the United States in the most recent 12‑month period prior to the filing of the petition. However, if the aggregate volume of subject imports from all concurrently investigated countries with negligible volumes exceeds 7% of the volume of all subject imports, these imports will not be considered negligible.
9.1 Administrative Reviews
Administrative reviews of countervailing duty orders and suspension agreements are normally conducted by Commerce once during each 12‑month period beginning on the anniversary of the date of the order, if requested by an interested party. The administrative reviews determine actual duty owing for the period under review, and establish an estimated duty deposit rate for future entries. If duty deposits collected during the period of review (based on the previously estimated duty deposit rate) exceed the actual duty payable for that period as determined by the administrative review, the overpayment is refunded with interest. If the reverse occurs, the U.S. Customs Service will collect any money owing with interest. Procedurally, reviews are conducted in a manner similar to original countervailing duty investigations. No further injury determination is required in an administrative review.
Commerce may decline to investigate an alleged subsidy where it has previously determined that the benefit is not countervailable and the party requesting re‑examination of the issue has failed to supply new evidence justifying re‑examination. Commerce may not impose an increase in the rate of a countervailing duty without making a specific finding on the record that the subsidy is countervailable.
In accordance with Article 24.4 of the Subsidies Agreement, Commerce must complete its preliminary administrative review determination within 245 days after the last day of the anniversary month of the order (or suspension agreement) under review. The final determination must be released within 120 days after the date of publication of the preliminary determination. The deadlines may be extended by Commerce in certain circumstances.43
9.2 New Shipper Reviews
Countervailing duty orders are usually applied on a nationwide basis. As under pre‑Uruguay Round practice, new shippers (who did not export subject merchandise, or did not export it in sufficient quantities during the period of investigation, or were not specifically investigated) are subject to the “all others” rate. Upon request, Commerce will now conduct an “accelerated” review (normally to be completed within 270 days of initiation) of new shippers unaffiliated with producers subject to a countervailing duty, in order to establish individual duty rates for such shippers. However, new shipper reviews may be initiated only at the end of the month following the completion of six months from the date of the original order, or at the end of the month of the anniversary of the date of the order, whichever is earlier.44
Commerce has the discretion to terminate a suspended investigation or revoke an order in whole or as it applies to a specific exporter or producer, as the result of an annual review or a changed circumstances review. The order as a whole may be revoked upon a finding that the government of the affected country has abolished all programs found to be countervailable for a period of at least three years, and is not likely to resume such programs or substitute other countervailable programs for the affected merchandise. The order as a whole may also be revoked upon a finding that all the producers and exporters covered at the time of revocation have not applied for or received any net subsidy on the merchandise for a period of at least five consecutive years, and it is not likely that those persons will in the future apply for or receive any net subsidy on the subject merchandise.
The order may be revoked in part if an exporter or producer covered by the order has not applied for or received any net countervailable subsidy on the subject merchandise for at least five years, and it is not likely that the person(s) will in the future apply for or receive any net subsidy on the subject merchandise. The party or parties subject to revocation must agree in writing to the immediate reinstatement of the order if it is determined that the exporter or producer, subsequent to revocation, has received any net countervailable subsidy on the subject merchandise.45 These factors are not determinative, and Commerce may request and consider additional relevant evidence in making its revocation decision.
9.4 Changed Circumstances Reviews
A party subject to a final countervailing duty order or suspension agreement can seek its removal by establishing that there are changed circumstances in the U.S. industry sufficient to warrant the revocation of the countervailing duty order or suspension agreement. The ITC must determine whether the revocation of the order or termination of the suspended investigation is likely to lead to the continuation or recurrence of material injury. The party seeking the revocation has a burden of persuasion, and must convince the ITC and Commerce that revocation is appropriate.46 In countervailing duty reviews, the ITC must take into account:
- its prior injury determination;
- whether improvements in the state of the industry are related to the order or suspension agreement; and
- whether the industry is vulnerable to material injury if the order is revoked or the suspension agreement terminated.47
Regulations also specify the relevant economic factors and price effects associated with revocation that must be considered by the ITC. The ITC may also conduct a changed circumstances administrative review or revoke an order if it determines that the order is no longer of interest to the petitioner or interested parties.48 In addition, should Commerce conclude that expedited action is warranted, the notices of initiation and preliminary results may be combined.
9.5 Five-Year “Sunset” Reviews
As required by Article 21.3 of the Subsidies Agreement, U.S. law now stipulates that countervailing duty orders and suspension agreements must be reviewed by Commerce and the ITC every five years, and terminated unless it can be demonstrated that subsidization and material injury would be likely to continue or recur within a reasonably foreseeable time.49 Determinations will normally be made on an order‑wide, as opposed to a company‑specific, basis, although there is a firmspecific revocation process. Under the pre‑Uruguay Round U.S. regulations, there were no sunset provisions and countervailing duty orders sometimes stayed in place for over 20 years. Special transition sunset review provisions for current orders allow for the grouping and consolidation of reviews in order to achieve efficiency and consider similar products together. These transition orders were reviewed in a staggered fashion beginning July 1, 1998, with the last review initiated on December 1, 1999.
Commerce must inform interested domestic parties of their right to participate in the review. If there is no response, the order will be revoked (or the suspended investigation terminated) within 90 days of the initiation of the review. If, in Commerce’s discretion, there is an inadequate level of response from interested domestic parties, Commerce will conduct an expedited review based on the facts available. Full reviews are conducted if there is sufficient willingness to participate and adequate indication that parties will submit the requested information.
In determining the likelihood of continuation or recurrence of a countervailable subsidy, Commerce will consider:
- the net countervailable subsidy determined in the investigation and subsequent reviews; and
- whether, in the program giving rise to the net countervailable subsidy determined in the investigation and subsequent reviews, any changes have occurred that are likely to affect the subsidy.
Where a company has a long track record of not using a subsidy program, Commerce will normally determine that the mere existence of the program does not, by itself, indicate likelihood of continuation or recurrence of a countervailable subsidy. If good cause is shown, Commerce may consider programs found to provide countervailable subsidies in other investigations or reviews, but only if the possibility exists that they can be used by the exporters or producers subject to the sunset review, and if they did not exist when the order was issued or suspension agreement accepted. Commerce may also consider programs newly alleged to provide countervailable subsidies, but only to the extent that Commerce makes an affirmative countervailing duty determination with respect to such programs and with respect to the exporters or producers subject to the sunset review.
Commerce will provide the ITC with the net countervailable subsidy that is likely to prevail if the order is revoked or the suspended investigation terminated. The amount of subsidy provided is normally from a recent review or the original investigation. Commerce must complete its review within 240 days of initiation. There are provisions for extension of time in extraordinarily complicated cases.50
9.5.2 International Trade Commission (ITC)
In five-year reviews, the ITC first determines whether to conduct a full review (which includes a public hearing, the issuance of questionnaires, and other procedures) or an expedited review (where a determination is made based on the facts available, with no hearing or further investigative activity). Specifically, the ITC determines whether individual responses to the notice of institution are adequate and, based on these individually adequate responses, whether the collective responses submitted by two groups of interested parties—domestic interested parties (such as producers, unions, trade associations or worker groups) and respondent interested parties (such as importers, exporters, foreign producers, trade associations, or subject country governments)—show a sufficient willingness to participate and provide the requested information, and if not, whether other circumstances warrant a full review.
The legislation states that, in a sunset review, the ITC shall determine whether revocation of an order or termination of a suspended investigation would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time. The URAA Statement of Administrative Action indicates that under the likelihood standard, the ITC will engage in a counter‑factual analysis: it must decide the likely impact in the reasonably foreseeable future of an important change in the status quo—the revocation of the order “and the elimination of its restraining effects on volumes and prices of imports.”51 Thus, the likelihood standard is prospective in nature.
Although the standard in five‑year reviews is not the same as that applied in original investigations, it contains some of the same elements. The ITC is directed to consider whether the likely volume, price effect and impact of imports of the subject merchandise on the domestic industry would be significant if the order is revoked, considering all economic factors. The ITC must take into account its prior injury determination, whether any improvement in the state of the industry is related to the order under review, and whether the industry is vulnerable to material injury if the order is revoked. The ITC may also consider the magnitude of the net countervailable subsidy.
The ITC may cumulatively assess the volume and effect of imports of the subject merchandise from all countries with respect to reviews initiated on the same day if such imports would be likely to compete with each other and with domestic like products in the U.S. market. If Commerce makes an affirmative final determination, the review by the ITC must be completed within 360 days of initiation. There are provisions for extension of time in extraordinarily complicated cases.52
Of the 15 anti‑dumping and countervailing duty orders in place on imports from Canada subject to sunset review as of January 1, 1995, five orders were continued (iron construction castings, brass sheet and strip, steel rails, magnesium and corrosion‑resistant steel) while the other 10 were revoked.
10. Other Procedural Issues
10.1 Suspension of Investigations
Rather than terminate an investigation, Commerce may suspend it prior to a final determination upon the conclusion of an agreement or agreements meeting certain statutory requirements. Two types of agreements (or “undertakings”) are authorized:
- The foreign government or those exporters or producers who account for “substantially all of the merchandise” (interpreted by Commerce to mean at least 85%) under investigation agree to eliminate or offset completely the net subsidy, or to cease exports of subsidized goods.
- When the case is complex and extraordinary circumstances exist such that a suspension of agreement will be more beneficial to the domestic industry than continuation of the investigation, an agreement is reached to eliminate the injurious effect of imports. Such an agreement must include either:
- assurances that the suppression or undercutting of price levels of domestic products by imports will be prevented, and at least 85% of the net subsidy will be offset; or
- an agreement by a foreign government to restrict the volume of imports of the subject merchandise, subject to consultation with potentially affected U.S. parties.
A suspension agreement must be requested 45 days before the expected date of the final determination. A copy of the proposed agreement must be made available to the petitioner and interested parties, who may submit their comments. However, Commerce may proceed over the petitioner’s objections. Commerce may proceed with an agreement only if it is deemed to be in the public interest and can be effectively monitored. If the subsidizing government eliminates the subsidy of its own accord and without negotiations, Commerce is required to suspend the investigation when suspension serves the public interest and the domestic industry affected.53 Suspension agreements may also be entered into where the ITC has determined to investigate the domestic industry on a regional basis if the exporters who account for substantially all exports for sales in the region offer to enter an agreement.54
With respect to an agreement to eliminate the injurious effect of imports, an interested party may file a petition with the ITC seeking review of the suspension. Within 75 days after the petition is filed, the ITC determines whether the injurious effect of the imports is eliminated by the proposed agreement. If the injurious effects are not completely eliminated, the investigation is resumed. If Commerce’s determination is negative, the agreement is set aside and the investigation is resumed.
If Commerce determines that a suspension agreement is being violated, it may without comment retroactively suspend liquidation of all entries of the subject merchandise and issue a countervailing duty order. Furthermore, if incomplete, the investigation may be resumed and a countervailing order issued.55
10.2 Critical Circumstances
At any point at least 20 days prior to Commerce’s final determination, the petitioner may allege that “critical circumstances” exist that warrant the retroactive suspension of the liquidation of entries of the subject merchandise either entered or withdrawn from warehouse during the 90 days prior to the preliminary determination. To ascertain whether critical circumstances exist, Commerce determines:
- whether there have been massive imports of the subject merchandise over a relatively short period of time, by comparing the periods immediately before and immediately after the filing date of the petition; and if so,
- whether the alleged countervailable subsidy is inconsistent with the Subsidies Agreement.56
To be considered “massive,” imports must have increased by at least 15% over the preceding period of comparable duration. A “relatively short period of time” is generally the three‑month period starting from when the investigation begins. If an affirmative critical‑circumstances determination is reached, the subject merchandise is liquidated regardless of whether or not the preliminary determination was affirmative.
The ITC may also consider whether critical circumstances exist without making a separate material injury determination regarding the surge in imports. The ITC includes such evidence in its final injury determination. The ITC must determine whether the surge in imports prior to the suspension or liquidation is likely to seriously undermine the remedial effect of any order that may be issued, taking into account: (1) the timing and value of the imports; (2) any rapid increase in inventories of the imports; and (3) any other relevant circumstances.
10.3 Termination of Investigations
Commerce may terminate an investigation at any point during the investigation upon withdrawal of the petition, or for lack of interest on the part of the domestic industry. If no interested party has requested an administrative review of the order for four consecutive years, the order will automatically be revoked provided no objection is made. If the termination is based on an agreement by a foreign government to limit the volume of imports entering the United States, Commerce must determine whether such a termination is in the public interest by taking into account:
- whether the agreement would affect U.S. consumers more adversely than would the imposition of countervailing duties;
- the relative impact of U.S. international trade interests; and
- the relative impact on the competitiveness of the U.S. domestic industry.57
The ITC may also terminate an investigation upon withdrawal of a petition, but not before the preliminary determination by the ITC.58
Circumvention issues normally arise when finished products from a country are subject to a countervailing order. In order to avoid paying the required duties, an exporter located in the country subject to the order may send its component parts to a third country or to the United States for final assembly. Circumvention issues may also arise where subject merchandise has been slightly altered in form or appearance so as to avoid attracting countervailing duties.
Anti-circumvention provisions were first enacted by the United States in 1988 as part of the Omnibus Trade and Competitiveness Act, and were amended in 1994. Under the U.S. anti‑circumvention rules, the finished product exported from the third country or the component parts shipped to the United States for assembly may also be subject to the countervailing duty order if certain conditions are met.59 To be included under the order: (1) the parts or components must be produced in a country subject to an anti‑dumping order; (2) the process of assembly or completion in the United States (or a third country) must be minor or insignificant; and (3) the value of the parts imported into the United States (or a third country) from the country subject to the order is a significant proportion of the total value of the finished product.60
In determining whether the process of assembly or completion is minor or insignificant, Commerce will consider:
- the level of investment in the United States;
- the level of R&D in the United States;
- the nature of the production process in the United States;
- the extent of the production process in the United States; and
- whether the value of processing in the United States (or the third country) represents a small proportion of the total value of the merchandise sold in the United States.
No factor is controlling and the provisions are not intended to create rigid numerical standards. In determining whether to include parts or components within the scope of the order, Commerce will consider:
- the pattern of trade, including sourcing patterns;
- whether the manufacturer or exporter of the parts or components is affiliated with the person who assembles or completes the merchandise sold in the United States (or the third country); and
- whether imports of those parts or components have increased since initiation of the investigation resulting in the relevant order.
11. Judicial Review
11.1 U.S. Domestic Court
An interested party who is dissatisfied with a Commerce or ITC final determination may file an action with the U.S. Court of International Trade for judicial review. To obtain judicial review of an administrative action, a summons and complaint must be filed concurrently within 30 days of publication of the final determination. The standard of review used by the Court is whether the determination is supported by “substantial evidence on the record” or is “otherwise not in accordance with law.” Decisions of the Court are subject to appeal to the U.S. Court of Appeals for the Federal Circuit.
11.2 NAFTA Panel Review
Under the provisions of Chapter 19 of the North American Free Trade Agreement, final determinations by Commerce or the ITC concerning products from NAFTA countries may be appealed to five‑member binational panels as an alternative to domestic judicial review. Binational panels determine whether a final determination is in accordance with countervailing duty laws of the NAFTA country in which the decision is made. If a panel finds that the determination was in accordance with the domestic law, the determination is affirmed. Otherwise, the panel remands the case with instructions to the investigating authority for further action. NAFTA Article 1904 stipulates that a panel must be requested within 30 days of the date of appeal of the administrative action. Panel rules are designed to result in final panel decisions within 315 days of the date on which a request for a panel is made. Within the 315‑day period, strict deadlines have been established relating to the selection of panel members, the filing of briefs and reply briefs, and the setting of the date for a hearing.
Annex 1904.13 of the NAFTA provides for an “extraordinary challenge procedure” if either NAFTA party involved in the panel alleges, within a reasonable time, that the integrity of the review process is threatened and that the decision was affected by panellist misconduct, procedural violations, or action manifestly exceeding the power, authority or jurisdiction of the panel. The panel’s decision is appealed to a three‑member committee of judges or former judges. Within 15 days of the request, the committee must convene and make a prompt decision to affirm, vacate or remand the panel’s decision.
NAFTA Article 1903 allows a NAFTA party to request that an amendment to another party’s anti‑dumping statute be referred to a panel for a declaratory opinion on whether the amendment is consistent with the WTO and the NAFTA. In order for changes to a NAFTA country’s anti‑dumping or countervailing duty statutes to apply to the other NAFTA countries, the other parties must be identified in the amended statute.
Postscript: History of the Specificity Test
Over the past several decades there has been considerable controversy surrounding Commerce’s interpretation of the specificity test. Prior to 1985, Commerce determined whether a subsidy was countervailable by analyzing whether the benefit was on its face de jure generally available to all businesses, rather than preferentially available to a specific industry or group. In a 1983 decision concerning Canadian softwood lumber (Softwood I), Commerce held that Canadian stumpage programs were available within Canada on similar terms regardless of the industry or enterprise of the recipient, and that any limitations on the kinds of industries using these programs resulted from the inherent characteristics of the natural resource rather than government action. Thus, in the opinion of Commerce, these programs were generally available and non‑countervailable.61
In the 1985 decision on Cabot Corporation v. United States,62 the U.S. Court of International Trade held that Commerce’s interpretation of the specificity test “is not an acceptable legal standard for determining the countervailability of benefits.” According to the Court, the appropriate standard required Commerce to apply a de facto analysis of effect of the benefits provided under a particular program, rather than their nominal general availability. Accordingly, after this decision, Commerce began to examine the extent to which benefits were used by a wide range of industries or only a narrow group.
The Cabot interpretation of the specificity test was applied by the ITA in the second Canadian Softwood Lumber case in 1986 (Softwood II). In contrast to the 1983 decision, it was found that Canadian stumpage programs were being provided to a specific group of industries notwithstanding the fact that they were nominally generally available and were actually used by more than one industry.63 In the 1991 softwood lumber investigation (Softwood III), Commerce again concluded that a program was specific if there are limitations created by the characteristics of the product such that it can only be used by an enterprise or industry, or a group of enterprises or industries. Since the Softwood II case, the use of de jure availability of a subsidy to determine the non‑existence of a benefit to a specific industry has been prohibited by the U.S. Congress, and the tenets of the Cabot interpretation of specificity have been codified in U.S. law—first by the Omnibus Trade and Competitiveness Act of 1988 and more recently by the 1994 Uruguay Round Agreements Act. As discussed above, Commerce is now required to determine whether a domestic subsidy is de facto specific even though under the relevant law or regulation it is nominally available to industries in general.
1Amendment contained in Title I, section 101 of the Trade Agreements Act of 1979.
2Agreement on Interpretation and Application of Articles Vl, XVI, and XXIII of the General Agreement on Tariffs and Trade (relating to subsidies and countervailing measures).
3Pub. L. 103-465, 108 Stat. 4809, Dec. 8, 1994.
4See 19 U.S.C. §§ 1330-13341 for the general organization and powers of the Commission.
5While Commerce may itself initiate countervail investigations, it rarely does so. See 19 U.S.C. § 1573a (a) (1).
619 U.S.C. 1677 (9).
719 U.S.C. §1673a (b) (1).
8See 3.5”Microdisks from Japan, U.S. 54 Fed. Reg., 6435, (February 10, 1989).
919 U.S.C. § 1673a (c) (4) (A) (1994).
1019 U.S.C § 1673 (c) (4) (C), (B) (ii), (B) (i).
1119 CFR § 353.12.
1219 U.S.C. 1671a (b) (4) (A); 18 CFR 355.12 (j).
1319 U.S.C. § 1677m (e) (4) (1994).
1419 U.S.C. § 1677e (1994).
1519 U.S.C. § 1677c (c) (1994).
1619 U.S.C. § 1677e (b) (1994).
1719 U.S.C. § 1677f (b)- (d) (1994).
1819 C.F.R. 355.34.
1919 U.S.C. § 1677 (10).
2019 U.S.C. § 1677 (4) (A).
2119 U.S.C. § 1971b (d).
2219 U.S.C. § 1671d (c).
23Articles 1, 2, 8, 14, Subsidies Agreement.
2419 U.S.C. § 1667 (5).
2519 U.S.C. § 1677 (5).
2619 U.S.C. § 16779 (5) (C).
2719 U.S.C. § 1671 (5) (E).
2819 U.S.C. 1677 (5A) (D) (iii).
2919 U.S.C. 1677 (5A) (D) (iv).
30As required under Article 8.3 the Subsidies Agreement.
3119 U.S.C. § 1677‑1.
3219 U.S.C. § 1677 (5) (F).
33Proposed regulations, 54 Fed. Reg. at 23, 381‑82; Preferentiality Appendix, 51 Fed. Reg. at 13, 273.
3419 U.S.C. § 1671d (c).
3519 U.S.C. § 167d (c) (B) (1994).
3619 U.S.C. § 1671b (b) (4).
3719 U.S.C. § 1677 (7) (B) (i).
3819 U.S.C. § 1673d (b) and 1677 (7) (F) (i).
3919 U.S.C. § 1673b (a). ITC procedures are contained in 19 CFR 207.
4019 U.S.C. § 1677 (4) (A).
4119 U.S.C. § 1671 (c) (iv).
4219 U.S.C. § 1677 (7) (G) (ii) (I)- (II).
4319 U.S.C. § 1675 (a) (3) (1994).
4419 U.S.C. § 1675 (a) (2) (B) (1994).
4619 U.S.C. § 1675 (b).
4719 U.S.C. § 1675a.
4819 CFR 353.25 (d) (2).
4919 U.S.C. § 1675 (c) (1) (1994).
5019 U.S.C. § 1675 (c) (1) (1994).
51URAA SAA, H.R. Rep. No. 316, 103d Cong., 2d Sess., vol. I at 883‑84.
5219 U.S.C. § 1675 (c) (1) (1994).
5319 U.S.C. § 1671c.
5419 U.S.C. § 1671c (1).
5519 U.S.C. § 1671c (i).
5619 U.S.C. § 1671b (e), 19 CFR 355.16.
5719 U.S.C. § 1671c, 19 CFR 355.17.
5819 U.S.C. § 1671c, 19 CFR 355.17.
5919 U.S.C. §§ 1677j (a)91) (c) and (b) (1) (c).
6019 U.S.C. §§ 1677j (a) (1) (a)- (D) (1994).
61Final Negative Countervailing Duty Determination: Certain Softwood Products from Canada, 48 Federal Register, 31 May 1983, 24159, 24167.
62F. Supp. 722 (CIT 1985).
63Preliminary Affirmative Countervailing Duty Determination: Certain Softwood Lumber Products from Canada, 51 Federal Register, 22 October 1986, 37453.
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