Chapter 2: TRADE REMEDY LAWS

The Antidumping and Countervailing Duty Laws

Two important trade remedy laws are the antidumping (AD) and countervailing duty (CVD) laws. Although these laws are aimed at different forms of unfair trade, they have many procedural and substantive similarities.

COUNTERVAILING DUTY (CVD) LAW: SUBSIDY DETERMINATION

The purpose of the CVD law is to offset any unfair competitive advantage that foreign manufacturers or exporters might enjoy over U.S. producers as a result of foreign countervailable subsidies. Countervailing duties equal equal to the net amount of the countervailable subsidies are imposed upon importation of the subsidized goods into the United States.

Subtitle A of title VII of the Tariff Act of 1930, as added by the Trade Agreements Act of 1979 and amended by the Trade and Tariff Act of 1984, the Omnibus Trade and Competitiveness Act of 1988, and the Uruguay Round Agreements Act of 1994,1 provides that a countervailing duty shall be imposed, in addition to any other duty, equal to the amount of net countervailable subsidy, if two conditions are met. First, the DOC must determine that a countervailable subsidy is being provided, directly or indirectly, "with respect to the manufacture, production, or export of a class or kind of merchandise imported, or sold (or likely to be sold) into the United States" and must determine the amount of the net countervailable subsidy. Second, the ITC must determine that "an industry in the United States is materially injured, or is threatened with material injury, or the establishment of an industry in the United States is materially retarded, by reason of imports of that merchandise or by reason of sales (or the likelihood of sales) of that merchandise for importation." The law applies to imports from World Trade Organization (WTO) member countries, which have assumed obligations equivalent to those of the Agreement on Subsidies and Countervailing Measures, commonly referred to as the Subsidies Agreement, or countries with whom the United States has a treaty requiring unconditional most-favored-nation treatment with respect to articles imported into the United States. A countervailing duty may not be imposed on imports from these countries unless it is established that a countervailable benefit has been imposed and a determination has been made that such subsidized imports injure or threaten to injure domestic producers of that merchandise (i.e., the injury test). However, imports from

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countries which do not fall into one of these three categories are generally not afforded an injury test in CVD cases.

Historical background: prior to GATT rules

The first U.S. statute dealing with foreign unfair trade practices was a CVD law passed in 1897. The provisions of the 1897 statute remained substantially the same until 1979, when the U.S. CVD law was changed to conform with the agreement reached in the Tokyo Round of multilateral trade negotiations.

The law prior to 1979 required the Secretary of the Treasury to assess countervailing duties on imported dutiable merchandise benefiting from the payment or bestowal of a "bounty or grant.” The 1897 law authorized countervailing duties against any bounty or grant on the export of foreign articles. In 1922, Congress amended the provision to cover bounties or grants on the manufacture or production of merchandise as well as on its export. The amount of the countervailing duty was to equal the net amount of the "bounty or grant." Prior to the amendments made by the Trade Act of 1974, the CVD law applied only to dutiable merchandise and afforded no injury test.

The Trade Act of 1974 made two important changes to the CVD law, although the substantive requirements of the CVD law remained virtually the same. First, it extended the application of the CVD law for the first time to duty-free imports, subject to a finding of injury as required by the international obligations of the United States (i.e., duty-free imports from GATT members).

Second, the Trade Act of 1974 made extensive changes in many procedural aspects of the law, which had the effect of limiting executive branch discretion in administering the CVD statute. The responsibilities for CVD investigations were also split, with the Department of Treasury being responsible for subsidy determinations and the U.S. International Trade Commission (ITC) being responsible for injury determinations. In 1979, under President Carter's Reorganization Plan No. 3, the responsibility for administering the subsidy portions of the CVD statute was transferred from the Department of the Treasury to the Department of Commerce (DOC).2 Tokyo Round Subsidies Code

During the Tokyo Round of trade negotiations in the 1970's, a multilateral agreement governing the use of subsidies and countervailing measures was concluded and signed by the United States. In order to enforce obligations with regard to the use of subsidies, the Agreement provided for improved international procedure for notification, consultation and dispute settlement and, where a breach of an obligation concerning the use of subsidies is found to exist, or a right to relief exists countermeasures are contemplated. In addition to the availability of either remedial measures or countermeasures through the dispute settlement process, countries could also take traditional countervailing duty action to offset subsidies upon a showing of material injury to a domestic industry by reason of subsidized imports. The agreement set out criteria for material injury determinations.

2 Exec. Order No. 12188, January 4, 1980, 44 Fed. Reg. 69273.

The key provisions of the Agreement were as follows: (1) prohibition of export subsidies on non-primary products as well as primary mineral products; (2) description of export subsidies which superseded the requirement that an export subsidy must result in export prices lower than prices for domestic sales, and inclusion of an updated illustrative list of subsidy practices; (3) recognition of the harmful trade effects of domestic subsidies and therefore, the permissibility of relief (including countermeasures) where such subsidies injure domestic producers and nullify or impair benefits of concessions under the GATT (including tariff bindings); or cause serious prejudice to the other signatories; (4) commitment by signatories to "take into account" conditions of world trade and production (e.g., prices, capacity, etc.) in fashioning their subsidy practices; (5) improved discipline on use of export subsidies for agriculture; (6) provisions governing the use and phase-out of export subsidies by developing countries; (7) tight dispute settlement process; (8) greater transparency regarding subsidy practices including provisions for GATT notification of practices of other countries; (9) an injury and causation test designed to afford relief where subsidized imports (whether an export or domestic subsidy is involved) impact on U.S. producers either through volume or through effect on prices; and (10) greater transparency in the administration of CVD laws and regulations.

Congress approved the GATT Subsidies Code under section 2(a) of the Trade Agreements Act of 1979. Section 101 of the 1979 Act added a new title VII to the Tariff Act of 1930, containing the new provisions of the CVD law to conform to U.S. obligations under the Subsidies Code. One of the most fundamental changes made by the 1979 Act was the requirement of an injury test in all CVD cases involving imports from "countries under the Agreement"-countries which either are signatories to the Subsidies Code or have assumed substantially equivalent obligations to those under the Code. For countries that were not "countries under the Agreement," a special section of the CVD statute applied. Specifically, section 303 of the Tariff Act of 1930, as amended, permitted CVD duties to be imposed without an injury test for such countries. In addition, section 303 applied a different definition of subsidy. Other changes made by the 1979 Act included the grant of provisional relief for the first time, reduction of the time periods for investigation, and greater opportunities for participation by interested parties.

Uruguay Round Subsidies Agreement

The Uruguay Round Subsidies Agreement goes beyond the Tokyo Round Code by: (1) providing definitions of key terms such as “subsidy" and "serious prejudice" for the first time in any GATT agreement; (2) prohibiting export subsidies and subsidies based on the use of domestic instead of imported goods; (3) creating a special presumption of serious prejudice for egregious subsidies; (4) defining and significantly strengthening the procedures for showing when serious prejudice exists in foreign markets; (5) creating a "green light" category of government assistance that will be nonactionable and non-countervailable; (6) requiring most developing countries to phase out export subsidies and import substitution subsidies; and (7) applying the WTO dispute settlement mecha

nism, which will end the present ability of the subsidizing government to block adoption of unfavorable panel reports.

In 1994, Congress implemented the Agreement on Subsidies and Countervailing Measures of the Uruguay Round Multilateral Trade Negotiations (Subsidies Agreement) under title II of the Uruguay Round Trade Agreements Act. Part 2 of subtitle B under title II contains the repeal of section 303 of the Tariff Act of 1930 and the new provisions of the CVD law to conform to U.S. obligations under the Subsidies Agreement.

The Act provides for the application of an injury test to all members of the WTO. The definition of a subsidy applicable to nonWTO members was incorporated in section 701 of the Tariff Act of 1930. Accordingly, section 303 was repealed because it was no longer necessary. The Uruguay Round Agreements Act provides a special procedure for making injury determinations for those CVD orders, previously issued under section 303, which apply to goods from a country not a signatory to the Code but now a member of the WTO.

Highlights of the Uruguay Round Subsidies Agreement and CVD Statute

Definition of a subsidy.-Section 251 of the Uruguay Round Agreements Act provides that a subsidy is determined to exist if there is a financial contribution by a government or any public body, or any form of income or price support, which confers a benefit. Examples of financial contribution include a direct transfer of funds (e.g., grants, loans, equity infusions), a potential direct transfer (e.g., loan guarantees), the foregoing of revenue otherwise due (e.g., tax credits), the provision of goods or services, other than general infrastructure, or the purchase of goods. This may also include cases where a government entrusts or directs a private body to carry out these functions. The Uruguay Round Agreements Act also provides guidelines for determining when there is a "benefit to the recipient" in the case of an equity infusion, a loan, a loan guarantee, or provision of goods or services.

Specificity. In determining whether a countervailable subsidy exists, the statute provides that a subsidy will be deemed to be "specific" if it is provided in law or in fact to a specific enterprise or industry, or group of enterprises or industries. Export subsidies (i.e., those contingent upon export performance), import substitution subsidies (i.e., those contingent on the use of domestic over imported goods), and certain domestic subsidies if provided to a specific enterprise or industry, or group of enterprises or industries are included. A subsidy limited to certain enterprises within a designated geographical region is considered specific.

Prohibited "red light" subsidies.-The Agreement identifies two types of subsidies that are prohibited under all circumstances: (1) subsidies based on export performance and (2) subsidies based on the use of domestic rather than imported goods. Article III includes those covered in the illustrative list of export subsidies provided in annex I to the Agreement such as more favorable transport and freight terms for exports, special tax deductions based on export, and export credit guarantees or insurance programs providing rates that are inadequate to cover long-term operating costs. The

Uruguay Round Agreements Act establishes procedures for investigating prohibited subsidies; if Commerce has reason to believe that foreign goods are benefiting from a prohibited subsidy, USTR will then determine whether to initiate a section 301 investigation. Non-actionable "green light" subsidies.-The Agreement identifies three types of non-countervailable or "green light" subsidies: (1) certain research subsidies (excluding those provided to the aircraft industry); (2) subsidies to disadvantaged regions; and (3) subsidies for adaptation of existing facilities to new environmental requirements. The provisions on non-actionable subsidies apply for 5 years, unless extended or modified. The Uruguay Round Agreements Act provides expressly that the "green light" provisions on research and pre-competitive development activity do not apply to civil aircraft products.

Enforcement of U.S. rights.-Sections 281 and 282 of the Uruguay Round Agreements Act set forth a mechanism for enforcing U.S. rights under the Uruguay Round Subsidies Agreement, reviewing the operation of provisions in the Agreement relating to green light subsidies, and ensuring prompt and effective implementation of successful WTO dispute settlement proceedings.

Section 282 of the Uruguay Round Agreements Act 3 provides for an ongoing review of the Subsidies Agreement and establishes objectives for that review, including the creation of a mechanism that will provide for an ongoing review, within the framework of the Subsidies Agreement, of the green light subsidies. Footnote 25 of the Subsidies Agreement requires that the Subsidies Committee review the operation of the green light category of research subsidies within 18 months from the date of entry into force: January 1, 1995. Under section 282, the Administration is required to include all green light subsidies in its review. Section 282(c) provides that the green light subsidies and the subsidies deemed to cause serious prejudice provisions expire 66 months after the entry into force of the WTO unless extended by Congress. USTR is directed to consult with the appropriate congressional committees and private sector, and then submit legislation to implement the agreed extension. A bill to provide such an extension would be considered under "fast track" procedures.

Rules for developing countries.-The Uruguay Round Agreements Act provides different treatment for developing country subsidies because the Subsidies Agreement provides an 8- to 10-year window for developing countries with annual GNP per capita at or above $1,000 to phase out all export subsidies. For least developed countries and countries with GNP per capita below $1,000, the phaseout period for export subsidies for competitive products is 8 years. Developing countries are allowed a 5-year phase-out period, and the least-developed countries an 8-year period, to eliminate prohibited import substitution subsidies.

Subsidy determinations

As noted above, section 701 of the Tariff Act of 1930, as amended,4 provides for the imposition of additional duties whenever a

3 Public Law 103-456, 19 U.S.C. 3572.

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