Commerce Issues Final AD/CVD Regulations, Allows for Countervailing of Transnational Subsidies

Most notably, the agency lifted the prohibition on Commerce's ability to countervail transnational subsidies "in awareness of changes in the world economy"; addressed the steps Commerce can take to find the existence of a particular market situation; and declared that it can consider "nonexistent, weak, or ineffective property (including intellectual property), human rights, labor, and environmental protections" that can distort benchmark and surrogate value picks in setting AD/CVD rates.

In lifting the prohibition on the consideration of transnational subsidies, Commerce said that "there are complexities and challenges in international trade which did not exist, or did not exist in the same manner or to the same degree, when previous regulations were issued." A Commerce official, speaking during a March 21 interview about the new regulations, noted that China's Belt and Road Initiative and certain subsidies from the EU outside led the agency to make the change.

In comments on the proposed regulations issued last year, Mexico argued that the consideration of transnational subsidies would violate the U.S. government's World Trade Organization commitments, since the Agreement on Subsidies and Countervailing Measures doesn't cover the subsidy types (see 2305180051). In response, the Commerce official said the agency believes the regulations comply with the government's WTO commitments, adding that it was not a congressional mandate that barred the consideration of transnational subsidies, but an internal Commerce regulation.

Another Commerce official said the agency is expecting the U.S. industry to participate in new AD/CVD proceedings involving the consideration of transnational subsidies, noting that the consideration of transnational subsidy allegations will occur on a case-by-case basis.

Commerce's final rule also outlines the agency's authority to address a subject country's weak labor, environmental and IP protections in AD/CVD proceedings. The agency codified its ability to countervail a foreign government's failure to collect a penalty for a company's violation of various labor, environmental or IP laws. Paving new ground, the agency said it can consider a nation's weak protections on these fronts in rejecting surrogate nations or certain benchmark data and in finding cost-based particular market situations.

In its final rule, Commerce noted that some commenters "expressed overarching concerns" with this change, "claiming that Commerce did not have the appropriate expertise or statutory authority to address the lack of various 'social' protections in its analysis." The agency disagreed, saying it "has the statutory and inherent authority to consider the impact of weak, ineffective, or nonexistent protections on its analysis of surrogate values, benchmark prices, and costs of production in its PMS analysis."

Regarding its changes to its cost-based PMS regulations, Commerce noted the varying mandates the agency received from the Court of International Trade regarding when its cost-based PMS decisions are proper. In response, the agency outlined 12 examples in its proposed rule of whether Commerce might make a cost-based PMS finding along with other clarifications regarding its PMS regulation. The agency noted that most of the comments it received on its proposed rule concerned the PMS regulation.

In its final rule, the agency defended its right to be able to address cost-based PMS, adding that the Trade Act of 1930 allows the agency to address a cost-based PMS without also addressing a sales-based PMS. Commerce did make small changes to its proposed rule to clarify its regulations, including by updating the language on what factors make a market situation "particular" so the rule equally applies to "both sales-based and cost-based particular market situations."

Addressing the agency's ability to make PMS adjustments, Commerce said it made significant revisions to the proposed rule, adding three provisions. The first says that if the agency finds that a PMS exists in the subject nation, Commerce "may adjust for those distortions in its cost of production calculations." The second says that if the agency "cannot precisely quantify the distortions in the cost of production" after considering the information on the record, it can use "any reasonable methodology to adjust its calculations." The third said that Commerce can also find that a cost of production calculation adjustment is "inappropriate based on record information."