AD/CVD Petitioners Rejoice, Respondents Recoil in Response to New Commerce Regulations

The final rule, which will now equip Commerce with the tools to address subsidies stemming from China's Belt and Road Initiative, was met with delight from the domestic industry. Tim Brightbill, partner at Wiley Rein and counsel for AD/CVD petitioners, said in an interview that his "domestic clients are very pleased with these changes," due to their extreme concern about transnational subsidies, particularly via Belt and Road.

Foreign exporters were not as thrilled. Matt Nicely, partner at Akin Gump and counsel to AD/CVD respondents, said that what troubles him most "about what Commerce has done on transnational subsidies is that they haven't provided any structure." The new regulation merely declared that the statute, which previously was read by Commerce to limit the consideration of transnational subsidies, will no longer be read in that limiting way.

"It’s anyone’s guess how this is going to work in practice," Nicely said. It's currently unclear how Commerce will calculate the CVD for transnational subsidies and how it will address questions of the subsidies' specificity. Brightbill believes the new CVD regime will amount to a routine application of existing CVD practice.

Brightbill said he believes the consideration of transnational subsidies is on solid legal footing at the World Trade Organization, despite concerns from the Mexican government that this won't be the case. "The Commerce Department is simply doing what the European Union is already doing: investigating and countervailing transnational subsidies," he said, adding that Commerce has "very carefully vetted these new regulations to ensure that they are WTO consistent."

Another large change to the regulations came in the form of Commerce's clarification of its practice regarding particular market situations. Of particular note, Commerce provided 12 examples of instances in which it would find a PMS, while also removing key words from its regulations.

For example, between the preliminary and final rules, Commerce removed the words "distinct" and "considerably." The term "distinct" was removed because nothing in the governing statutes requires a market situation to be "distinct" from circumstances in other countries or other circumstances, Commerce said. The agency also removed the word "considerably" from its regulation, which initially was used to say that Commerce will consider reports and documentation that indicate "considerably" lower prices for significant inputs. The agency said it dropped these words due to a concern that the courts would impose additional tests on Commerce's findings that don't exist in the statute.

While these changes were met positively by petitioners' counsel, AD/CVD respondents are more wary of the development. "This is taking PMS to a whole new level," an attorney for AD/CVD respondents said. "It’s taking PMS to a level where every other country, particularly developing countries, are effectively being treated as if they are a non market economy.” Though the attorney did note that merely having a complete set of rules set in stone is a positive development.

The last major change wrought by the regulations involves the consideration of weak intellectual property rights, labor and environmental protections in AD/CVD proceedings. Commerce indicated this factor would surface in surrogate and benchmark value calculations, whereby the agency may disregard data sets from nations with weak protections in these areas.

Brightbill dubbed the change "an extremely important issue," adding that his clients "have complained about this issue for more than 20 years." He said that U.S. companies want and have to comply with U.S. protections, "but that foreign competitors either don't face the same laws, or if they do, those laws are not enforced." Nathan Rickard, partner at Pickard Kentz and petitioners' counsel, added that he's "very happy to see Commerce formalize its practice with respect to disregarding values" distorted by weak IP, labor and environmental protections.

While the prevailing sentiment is that consideration of weak protections in these areas will lead to higher AD/CVD, this may not always be the case. Brightbill said that "generally" duty rates will rise, but as shown in a recent case involving Malaysian surrogate labor values, the result was not a higher duty.

Beyond these three marquee developments, Commerce's new regulations also entered into force a host of smaller changes, one of which says that a facts available rate in CVD proceedings must now be above the de minimis mark. Should a company fail to cooperate in a CVD proceeding, they no longer will able to receive a zero percent margin. Brightbill said this change "should help induce more cooperation from parties," which represents a "small but significant change."