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US-China Trade


Court rebukes US Department of Commerce on anti-China tariffs

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Court rebukes US Department of Commerce on anti-China tariffs
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Dec 20, 2011

Bills to punish China for not revaluing the yuan get lots of press attention, but the real protectionist damage to US-China trade in recent years has come from old-fashioned antidumping and countervailing duty cases. So a court ruling Monday in Washington that forces the US Commerce Department to rethink the way it handles such matters is welcome.

The ruling, by a three-judge panel of the Court of Appeals for the Federal Circuit, invalidates a methodological trick that Commerce has deployed since 2007 to jack up duties on imports from China and Vietnam. While the case is likely to stay tied up in appeals for some time, the decision is a win for the rule of law and economic good sense.

The case centers on whether Commerce can treat China and Vietnam as both "market" and "nonmarket" economies at the same time. Those terms of trade-law art pack a big punch. Antidumping laws allow Commerce to impose duties on goods that are sold in the US at prices lower than the home-country prices. By designating these two countries nonmarket economies, Commerce gets to measure the "home-country price" by using proxy values from some third country, such as Indonesia or the Philippines, on the theory that prices in a nonmarket economy are meaningless.

Yet at the same time, Commerce pretends China and Vietnam are market economies to apply countervailing duties to punish subsidies. Such duties can't be applied to nonmarket economies on the theory that in nonmarket settings subsidies are so endemic they're impossible to measure.

The result of this legalese has been higher duties on billions of dollars' worth of imported steel, tires, and other products on which many American businesses and consumers depend. Using a nonmarket-economy procedure for antidumping cases often leads to higher duties than might be the case if Commerce based duty rates solely on the actual costs of production in China or Vietnam.

Meanwhile, if Commerce can't treat them as market economies under the antisubsidy laws, the countervailing duties would completely disappear. Over the past four years, Commerce has used the market-nonmarket trick to impose countervailing duties in 23 cases, with four more currently under investigation.

If this sounds unfair, well, it is. The World Trade Organization has ruled the practice out of bounds, and Commerce itself used to agree. For at least the 25 years before 2007, the department argued it had to pick one designation or the other for trade cases related to countries in the former Soviet bloc or China and Vietnam. The same appeals court that heard this case ruled in the 1980s that Commerce was right then, a view Congress implicitly accepted when it passed 2 trade-law revisions in the 1980s and '90s that declined to change the law to allow what Commerce now wants to do.

Commerce charged ahead anyway in 2007 with its own creative interpretation of the law aimed at fast-growing, politically contentious imports from China and Vietnam. The court has now put the brakes on that, finding that if Commerce wants to play this game, it will need Congress's explicit permission first.

There's always the danger that protectionists in Congress will try to do exactly that, although given the high costs to the US economy, it would be foolish to do so. Meanwhile, at least Chinese companies subject to such duties can take comfort from a court ruling that says not even the Commerce Department is above the rule of trade law.



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