In a landmark decision issued yesterday by the U.S. Department of Commerce, the Bush Administration issued a preliminary determination that subsidies provided to certain manufacturers/exporters in China could be subject to countervailing duties (CVD) imposed by the United States on imports from that country. The decision breaks a quarter century old precedent, followed by both Republican and Democratic administrations, that so-called “non market economies” such as China could not be subject to CVD investigations under the school of thought that the extent of such subsidies can not be accurately identified or measured.
The April 2 decision by the Commerce Department could potentially open the gates for a flood of unfair trade petitions by an array of U.S. interests. Indeed, if the preliminary determination is confirmed in a final decision expected later this year, the use of CVD laws against Chinese targets may well present one of the more formidable weapons in the arsenal of U.S. companies seeking redress from Chinese competition.
As Members are aware, under U.S. trade law, domestic companies can file a petition with the U.S. government that claim that they are suffering “material injury” or are threatened with material injury due to unfairly priced imports from foreign competitors. The majority of these trade petitions claim that imports are being “dumped” in the U.S. market, meaning that the products are being sold in the United States at a lower price than they are being sold in the foreign manufacturers’ home market. CVD proceedings differ slightly in that the subject of such investigations are the provision of financial subsidies – such as loans at below-market rates – by the foreign government to manufacturers in order to assist export operations. The Commerce Department’s decision was made in the context of a petition filed last fall by an Ohio-based manufacturer of glossy paper. The preliminary CVD rates established by Commerce range from approximately 10 to 20 percent, depending on the specific Chinese manufacturer involved.
This decision is weighted with political implications, as the U.S. trade deficit with China has exploded in recent years, and as the Democratically-controlled Congress increases its pressure on the Bush Administration to take a firm and tangible stance against a wide range of Chinese imports.
Although the current action by the Commerce Department affects only this particular investigation on imported paper products, its implications are far-reaching and it has the potential to prompt a high number of petitions by a wide range of domestic companies across many economic sectors. Obviously, Members that import product from China should be cognizant of this new and potentially formidable development. Likewise, Members that import product from countries that are competitors of China should likewise be aware that this development could play out in ways that have an indirect, yet pronounced, impact on their importing operations and pricing.
