New Commerce Rules Could Lead to Many New AD/CVD Cases, May Violate WTO Rules, Firm Says

The Commerce Department's new proposed regulations covering trade remedy proceedings may lead to a "significant number of new allegations and arguments in AD/CVD proceedings," Sidley Austin said in a client alert this week. Highlighting three of the potential new tools to be added to the agency's toolkit in the proposed rules, Sidley added that one of the mechanisms -- Commerce's removal of the regulation barring it from countervailing transnational subsidies -- may violate World Trade Organization commitments.

Commerce said its proposal on transnational subsidies allows the agency to address unfair practices pertaining to foreign direct investment initiatives and instances in which a country grants a subsidy to an exporter or producer located in another country. Sidley said this mainly seems to help Commerce target China's Belt and Road Initiative and would not stop the agency from countervailing a subsidy issued by China to a Vietnamese producer.

Sidley said this tool bears questionable footing in WTO law. Congress proposed amending the statute two years ago to explicitly allow Commerce to impose these types of duties, but now the agency seems to think that the existing statute allows these duties. "If the removal of 19 C.F.R. § 351.527 is included in Commerce’s final regulations and Commerce does eventually countervail transnational subsidies, the issue of Commerce’s authority to do so may be ripe for litigation in the U.S. courts as well as at the WTO," the firm said.

Another tool Commerce proposed allows the agency to consider the impact of weak, ineffective or nonexistant property, IP, human rights, labor and environmental protections on the prices and costs of products under investigation. Commerce said evidence of this lack of protection can be used to countervail a new subcategory of subsidies, set benchmarks for countervailable subsidies related to the provision of goods and services, disregard information when picking surrogate values in non-market economy AD cases, and find that a particular market situation exists in AD cases.

"The message conveyed by these new tools is clear: There will be consequences if companies and countries seeking to export to the U.S. market do not maintain property rights, human rights, labor, and environmental protections consistent with the values of the United States," Sidley said.

The last tool highlighted by Sidley involves Commerce's proposed ability to address concerns related to overcapacity or oversupply of key materials that can distort the cost of making the subject merchandise. The regulations say the agency can find that a PMS exists if Commerce is given evidence that the supply of a significant input used to make the subject merchandise is greater than the demand in international markets. Commerce has previously attempted to use overcapacity as a factor in establishing a PMS, but has been rebutted by the Court of International Trade on this front (see 2210240069). The court has not directly ruled, however, that overcapacity will never stand as a valid PMS factor.

The firm said that overall, these "tools may result in new investigations, more rigorous administrative proceedings with higher burdens, and substantially increased AD/CVD rates in future proceedings." Interested parties can comment on the regulations by July 10.