Bridges Weekly Trade News DigestVolume 16Number 9 • 7th March 2012

US Congress Takes Aim at Beijing, Preserves Anti-Subsidy Tariffs

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Washington lawmakers in both chambers of Congress passed legislation this week that will allow the US Department of Commerce to continue applying countervailing, or anti-subsidy, duties to imports from non-market economies such as China. The legislation - which was quickly lambasted by Chinese officials - overrides a 2011 ruling by a federal court that held that US law did not permit such a practice.

In a rare display of bipartisanship, lawmakers from both parties backed the bill, which passed easily in the Senate on Monday and in the House of Representatives on Tuesday.

“This legislation preserves our ability to fight unfair subsidies granted by countries like China that injure our industries, cost US jobs, and distort the market,” said Dave Camp, the Republican Chairman of the Ways and Means Committee.

“With this bill we are making clear that the Federal Circuit’s decision was wrong and it cannot stand,” added Sandy Levin, the top Democrat in the same committee.

The bill next goes to US President Barack Obama, whose administration helped craft the legislation.

“Congress has taken a clear stand against the unfair trade practices that have put countless American jobs in jeopardy,” said Vice President Joe Biden on Tuesday, foreshadowing White House approval.

Obama had not yet signed the bill as Bridges went to press.

China in the spotlight

The House and Senate votes drew a quick rebuke from Chinese officials. Speaking to reporters in Beijing, Chen Deming, China’s Minister of Commerce, referred to the US law as “pointing fingers” and coloured it as out-of-line with WTO rules.

“Let me be clear: there are no prohibitive subsidies handed down by the Chinese central government,” he said.

“We follow the rules of the WTO, but we have no obligation to follow domestic laws or regulations in any specific country that go beyond international rules,” Chen said at a Wednesday news conference.

Chen also argued that the US is responsible for closing its own trade deficit; the US trade deficit with China reached US$295.5 billion in 2011, according to data released last month by the US government.

Legislation overrides federal court ruling

For a long time, the US Department of Commerce did not impose countervailing duties on non-market economies. However, the administration of former US President George W. Bush began imposing these duties in 2007.

In December 2011, the US Court of Appeals for the Federal Circuit struck down the Bush-era policy and found that, since “the notion of a subsidy is, by definition, a market phenomenon,” government payments cannot be characterised as subsidies in a non-market context.

Without the new legislation, the federal court ruling would have made illegal 23 countervailing duty orders - worth approximately US$4 billion in trade - that the Department of Commerce currently has against products from mostly China, along with Vietnam, both of which the US classifies as non-market economies.

The court’s decision had also put in jeopardy ongoing anti-subsidy investigations involving solar panels from China and wind turbine towers from both China and Vietnam (see Bridges Weekly, 6 February 2012 and 16 February 2012).

WTO context

Beijing and Washington have previously sparred over countervailing duties at the global trade body, with the WTO’s highest court deeming in 2011 that the US had over-penalised Chinese imports in four sets of anti-dumping and countervailing duty investigations (DS379).

WTO rules allow for treating goods from non-market economies differently for the purpose of calculating anti-dumping duties, which punish the practice of selling goods in foreign markets below cost. The US uses a surrogate country to determine what constitutes a ‘normal’ market price for the goods in question, on the grounds that Chinese prices are distorted by government involvement in the market.

However, certain calculation methodologies for anti-dumping duties can result in a “double remedy” situation in cases where both anti-dumping and countervailing duties are being applied on a product, if the subsidies being targeted by the latter duties are also responsible in part for the dumping.

Beijing had argued that applying two penalties - or “double remedies” - for essentially one violation meant the US was violating WTO rules. The Appellate Body ultimately backed Beijing in this regard, finding that the US could not simultaneously impose both countervailing duties and anti-dumping duties without having assessed whether the extra duties amounted to double remedies. (See Bridges Weekly, 16 March 2011)

The court deemed that Washington’s use of the ‘non-market economy’ methodology for calculating such trade remedies “without having assessed whether double remedies arose from such concurrent duties” meant the US had acted inconsistently with its WTO obligations.

According to the Ways and Means Committee, the US law seeks to avoid the double remedy problem raised in the WTO case, specifically by requiring that the price margins used for calculating an anti-dumping duty be adjusted in cases where a subsidy is partially causing the low price of the import.

ICTSD reporting; “US ‘Pointing Fingers’ With Trade Bill: China,” BLOOMBERG, 6 March 2012; “US duty violates international rules - minister,” CHINA DAILY, 7 March 2012; “US Congress plans to override court on tariffs,” FINANCIAL TIMES, 29 February, 2012; “Congress acts to overturn court ruling that disallowed punitive tariffs against China,” CHICAGO TRIBUNE, 6 March 2012; “Senate Oks bill aimed at China subsidies,” REUTERS, 5 March 2012; “UPDATE 1-US House passes China subsidy bill, sends to Obama,” REUTERS, 6 March 2012; “Bill targeting Chinese subsidies goes to Obama,” REUTERS, 6 March 2012; “China lambasts U.S. trade bill, won’t adjust yuan,” REUTERS, 7 March 2012.

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