AD/CVD and Customs Amendments Included in Recent US Trade Legislation

Three major new pieces of trade and customs legislation were enacted by Congress and signed into law by President Obama in 2015 and early 2016. The first two pieces of legislation, the Trade Promotion Authority (TPA) and the Trade Preferences Extension Act (TPEA) ("Trade Remedies Bill"), were enacted in June 2015. Congress passed the third of these legislative initiatives, the Trade Facilitation and Trade Enforcement Act (TFTEA) ("Customs Bill"), on February 11, 2016, and President Obama signed it into law on February 24, 2016.

These new laws include significant changes in US antidumping and countervailing duty law as well as US customs law. The Trade Remedies Bill, which is the more substantive of the first two pieces of legislation (at least for purposes of trade remedies law) will have several important impacts. It will likely make it easier for US industries to demonstrate material injury in initial injury investigations. It also expands the authority of the US Department of Commerce to disregard prices and costs submitted by respondents in antidumping cases, requires the submission by respondents of cost of production data in all antidumping cases, and provides greater discretion to Commerce to select "adverse facts available" for non-cooperating respondents and to refuse to investigate "voluntary respondents." These US industry-friendly amendments to the trade laws may increase the chances for the imposition of antidumping and countervailing duties, and at higher rates, in US trade cases.

The recently enacted Customs Bill builds on the Trade Remedies Bill and further stiffens enforcement of US antidumping and countervailing duty laws. The Customs Bill includes numerous provisions intended to help Customs and Border Protection (CBP) more efficiently and effectively enforce US trade laws, targeting allegations of evasion of antidumping and countervailing duties and creating a new enforcement division. Notably, a controversial provision seeking to label currency manipulation as a type of countervailable subsidy was removed from the final version of the law, which instead only calls for increased monitoring of currency manipulation.

Changes to AD/CVD Laws in the June 2015 Trade Preferences Extension Act (TPEA) ("Trade Remedies Bill")

On June 29, 2015, President Obama signed into law the Trade Promotion Authority (TPA) and Trade Remedies Bill. Much of the public focus has been on TPA, which implemented a "fast track" procedure allowing the President to enter into free trade agreements with other countries – such as the Trans-Pacific Partnership (TPP)¹ with eleven other countries and the Transatlantic Trade and Investment Partnership (TTIP) that is being negotiated with the EU – and subjecting qualifying agreements to only an up-or-down vote in Congress within a specified period of time and without the opportunity for filibuster or for amendments.

However, the less frequently discussed Trade Remedies Bill significantly amends the main US trade remedy laws that impose antidumping (AD) and countervailing duties (CVD). The Trade Remedies Bill was originally conceived as a vehicle to renew certain trade preference programs, including the Generalized System of Preferences (GSP) and the African Growth and Opportunity Act (AGOA), and trade assistance programs (Trade Adjustment Assistance or TAA). Modifications to the AD/CVD laws were then added through significant lobbying efforts by US domestic industries.

Some of these trade remedy amendments codify existing US Department of Commerce (Commerce) practice, while others are responsive to changes long sought by US industries. The amendments are designed to make it easier for petitioners to demonstrate injury before the US International Trade Commission (ITC) and to afford Commerce additional discretion over certain aspects of AD/CVD cases.

Among the various trade measures are five specific changes to the AD/CVD laws:

• Section 502 affords Commerce additional discretion in identifying adverse facts available (AFA) rates applicable to non-cooperating respondents.
• Section 503 amends the definition of "material injury" in the ITC's injury analysis in AD/CVD investigations.
• Section 504 expands Commerce's authority to disregard home market prices and costs when calculating normal value if it finds a "particular market situation."
• Section 505 requires Commerce to collect cost of production data from respondents in all AD cases, without first requiring evidence of below-cost sales. The section also addresses certain surrogate valuation issues applicable in non-market economy cases.
• Section 506 enhances Commerce's ability to avoid selecting voluntary respondents in AD/CVD investigations and administrative (annual) reviews.

Below we discuss the five specific amendments in greater detail and explain the anticipated impact of the amendments on AD/CVD proceedings. Although these amendments have now been formally passed and signed into law, how the agencies will ultimately interpret and apply many aspects of the new law remains to be seen.

Section 502. Consequences of failure to cooperate with a request for information in a proceeding

Under US AD/CVD law, Commerce is permitted to draw an adverse inference when selecting among facts otherwise available against parties who fail to respond to requests for information or otherwise fail to participate to Commerce's satisfaction in an AD or CVD proceeding. Traditionally, Commerce has assigned high adverse fact available (AFA) AD/CVD rates to unresponsive companies as a way to deter noncompliance with its requests for information.

While Commerce has typically enjoyed broad discretion in selecting AFA rates, the law has required that Commerce "corroborate" the AFA rates it applies with the commercial reality of the non-cooperative respondent. Further, in recent years, the US Court of International Trade and the US Court of Appeals for the Federal Circuit have, in some instances, overturned the AFA rates that Commerce has applied. Section 502 relaxes the corroboration requirement and generally grants Commerce greater discretion in selecting among possible AFA rates.

Although this amendment affords Commerce greater discretion in selecting among available AFA rates, the amendment will likely not lead to a substantial change in the rates Commerce selects as AFA. Commerce has traditionally sought to impose high AFA rates, and this amendment appears designed to help insulate Commerce's existing practice from possible legal challenges. In at least one case decided after the Trade Remedies Bill was enacted, Commerce cited the TPEA and noted its increased discretion in selecting AFA rates under the new law.²

Section 503. Definition of "material injury"

In order for a US industry to obtain relief under the US antidumping or countervailing duty laws, the US International Trade Commission (ITC) must find that the US industry has been materially injured, or is facing threat of material injury, as a result of the dumped or subsidized imports at issue. Section 503 amends the definition of "material injury" and the factors the ITC examines when evaluating any actual or potential material injury.

Specifically, the new amendment prohibits the ITC from finding that there has been no injury "merely because that industry is profitable or because the performance of that industry has recently improved." The amendment also expands the factors the ITC may evaluate when looking at possible injury, including factors such as the domestic industry's ability to service debt. Similarly, it broadens the types of profits the ITC can examine including "gross profits, operating profits, and net profits."

The amendments pertaining to material injury will likely make it easier for domestic industries to demonstrate material injury in AD/CVD injury investigations. These amendments may also make it easier for an injury finding to be upheld on appeal to the courts.

It is important to note that these amendments only relate to initial investigations, and not to five‑year sunset reviews, where the ITC looks at a different question, i.e., the likelihood of continuation or recurrence of injury. Although these amendments do not directly alter the ITC's sunset review analysis, they nonetheless may indirectly influence the factors the ITC considers in evaluating likelihood of continued or recurring injury.

Section 504. Expansion of "particular market situation"

At its core, an analysis in an AD investigation consists of a comparison between the price at which a product is sold in the United States ("export price") and the price at which the product is sold in a comparison market, usually the home market ("normal value"). US AD law has an express preference for calculating normal value based on a respondent's sales prices in the home market (i.e., country of manufacture). Prior to the amendment, Commerce could disregard a respondent's home market sales prices when calculating normal value if a respondent does not have a "viable" home market (i.e., home market sales that constitute five percent or more of its sales to the United States), or where a "particular market situation" exists in the home market.

The amendment first confirms that in situations where Commerce determines that a "particular market situation" exists, sales that are made in that market are outside the "ordinary course of trade" and therefore ineligible for use as normal value. Second, the amendment expands the role of "particular market situation" by permitting Commerce to disregard not only sales prices, but also costs of production in a country if a particular market situation exists such that the cost of production in that country "does not accurately reflect the cost of production in the ordinary course of trade." This expansion may result in Commerce examining broader economic considerations, such as government involvement in the industry or in supplying key inputs (such as energy or natural resources), rather than focusing only on aspects of the market specifically pertaining to the sale of the merchandise under consideration.

The United States is not the first country that has sought to expand the scope of "particular market situation" as a means to avoid using price or cost data for certain countries, especially countries whose prices may be heavily distorted by government involvement. For example, the European Union's trade remedies law gives the administrating authority the power to disregard both sales prices and costs of production when the authority has evidence of State intervention. However, the EU's cost adjustment methodology is currently the subject of a challenge brought by Russia before the World Trade Organization (WTO),³ presumably based on the provisions of the WTO's Anti-Dumping Agreement that appears to permit investigating authorities to disregard sales prices, but not costs, when a particular market situation exists. Given such legal challenges, it is unclear how Commerce will implement this new provision in practice.

Section 505. Procedural changes in allegations regarding distortion of prices or costs

To initiate a cost investigation prior to the amendments, Commerce required petitioners to submit allegations, with supporting evidence, that there are reasonable grounds to believe the product is sold in the comparison market at prices below the cost of production. Unless Commerce initiated a cost investigation based upon petitioners' allegations, Commerce would not require a respondent to submit cost of production data.

Under the amendment, Commerce is required in all AD investigations and reviews, including in market economy cases, to"request information necessary to calculate the constructed value and cost of production" such that Commerce can determine whether there are reasonable grounds to believe the product is sold at prices below the cost of production, even if Commerce has not previously found that the exporter sold at prices below the cost of production.

Section 505 does not contain any specific changes to the AD calculation methodology, but revises Commerce's procedure for collecting cost of production data. Specifically, prior to the amendment, Commerce only collected cost of production data (i.e., "Section D" questionnaire responses) once it had separately initiated a cost investigation. Now Commerce will collect such data early in the proceedings in all AD cases.

The amendment also codifies Commerce's current practice with respect to selecting and calculating surrogate values in cases involving non-market economies (primarily China and Vietnam). Specifically, the amendment permits Commerce to disregard surrogate values where the potential surrogate price or cost values are subsidized or subject to AD or CVD orders.

Section 506. Reduction in burden on Department of Commerce by reducing the number of voluntary respondents

US AD law instructs Commerce to determine an individual dumping margin for each known exporter and producer of the subject merchandise, but permits Commerce to limit its examination to a reasonable number of exporters and producers, if it would not be practicable to examine all known exporters/producers. Exporters and producers who are not selected may request "voluntary respondent" status. Commerce is required to examine voluntary respondents, unless it would be "unduly burdensome" to do so. In recent years, the number of parties seeking voluntary respondent treatment has increased, and Commerce's decisions to reject such requests have resulted in court appeals.

This amendment provides a list of factors that Commerce may consider when declining to examine voluntary respondents. These factors include the complexity of the issues or information presented in the proceeding, Commerce's prior experience in the same or similar proceedings, the total number of proceedings that Commerce is conducting, and broadly, "such other factors relating to the timely completion of each such investigation and review as the administering authority considers appropriate."

The amendment to the voluntary respondent portion of the statute has not resulted in any change to Commerce's practice, but has provided Commerce with additional protection against judicial challenges to its respondent selection decisions.

Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) ("Customs Bill")

The final piece of the 2015-2016 legislative overhaul of trade laws was passed by Congress on February 11, 2016. The Customs Bill makes further amendments to US antidumping and countervailing duty law and contains a variety of customs-related provisions. Some of the provisions in the Customs Bill were deemed too contentious to be included in the trade bills passed last summer. One particularly contentious issue, a provision on currency manipulation contained in the Senate version of the bill, did not make it into the final version signed by President Obama.

AD/CVD-Related Amendments

The Customs Bill both strengthens enforcement of US trade remedy laws, particularly with respect to evasion of US AD/CVD duties, and makes technical revisions to certain key AD/CVD provisions. The following Sections are of particular note.

• Section 411: Creation of Trade Remedy Law Enforcement Division within CBP

The law creates a new "Trade Remedy Law Enforcement Division" within the Customs and Border Protection's (CBP) Office of International Trade to prevent and investigate trade remedy evasion. This division will be the primary contact point for evasion allegations and will facilitate information exchange among the various government agencies regarding evasion.

• Section 412: CBP Access to Information to Detect Evasion

The law authorizes CBP to collect information, through questionnaires if appropriate, for the purposes of issuing a determination whether merchandise covered by antidumping and/or countervailing duties is entering the US through evasion. For purposes of this section, "evasion" is defined as the entering of merchandise into the United States in a way that results in a lower AD/CVD duty being paid on the item. If an importer fails to respond to any such questionnaire or other request for information regarding potential evasion, the bill authorizes the application of an adverse inference regarding whether evasion has occurred. Sections 411 and 412 could impose yet another significant burden on importers, who, because of the possibility of an adverse inference, are now placed in the position of demonstrating that they are not evading US trade remedy law.

• Section 421: Investigations of Claims of Evasion of AD/CVD Duty Orders

The law also provides that the CBP must initiate an investigation if it receives an allegation of evasion of antidumping and countervailing duty orders. An allegation need only be filed by an interested party (which includes, among others, foreign manufacturers of covered products, US manufacturers of like products, and US trade associations and unions) and be accompanied by reasonably available information to trigger this mandatory investigation. CBP must initiate an investigation within 15 days of receiving an allegation of evasion, and it must make a determination within 300 days on whether covered merchandise entered the US through evasion. To make this determination, Section 421 authorizes CBP to issue questionnaires, conduct on-site verifications, and impose an adverse inference should an investigated company fail to cooperate.

• Sections 414 and 415: Cooperation with Foreign Countries on Preventing Evasion

The Customs Bill also elevates trade remedy evasion concerns to a priority in the negotiation of international agreements. Section 414 directs CBP to enter into agreements with foreign countries to increase cooperation in combating evasion. These agreements should include information-sharing provisions both to determine whether evasion has occurred and to verify any information provided. Section 415 also makes obtaining these agreements a negotiating objective for all current trade agreements under negotiation, as well as for future agreements.

Other Provisions

The balance of the Customs Bill includes a number of other noteworthy amendments to current US trade law:

• Sections 302 and 303 authorize CBP to share information with intellectual property rights holders to determine whether suspicious goods crossing the US border violate a copyright or trademark. They also authorize seizure and direct notification to the rights holder should "CBP determine suspect merchandise is a circumvention device."
• Section 603 creates an "import monitoring tool" on the CBP's website"to allow the public access to data on the volume and value of goods imported to the United States for the purpose of assessing whether such data has changed with respect to such goods over a period of time."
• Section 604 creates an Interagency Center on Trade Implementation, Monitoring, and Enforcement within USTR.
• Section 611 establishes a Trade Enforcement Trust Fund in the Treasury. Funds can be used by federal government agencies to seek to enforce provisions under WTO Agreements and free trade agreements, to monitor implementation of agreements by foreign countries, to thoroughly investigate and respond to petitions, and to support capacity-building efforts.
• Section 901 raises the de minimis threshold from US$200 to US$800, to reduce paperwork requirements for low-value shipments. This measure aligns the de minimis threshold for goods brought back to the US by travelers abroad with the one for goods shipped into the United States, erasing an inconsistency and benefiting both consumers and corporate carriers now able to import products duty-free with up to four times greater value than in the past.

Currency Manipulation

Perhaps the most controversial part of the Customs Bill, a provision on currency manipulation, did not survive in the final version. Section 702 of the Senate version of the bill elevated currency manipulation to a type of countervailable subsidy, so it could trigger additional customs duties. The provision instructed the Department of Commerce to initiate an investigation upon receipt of a petition alleging that currency undervaluation is providing a countervailable subsidy to a particular foreign product entering the United States. This measure would have increased the United States' options for combating currency manipulation in very significant ways.

President Obama announced his strong opposition to this approach to punishing currency manipulation, but he did not directly threaten to veto the bill if it was included.⁴ The Conference Committee ultimately removed the provision. Section 701 of the final version of the legislation instead only requires increased government monitoring and reporting on possible currency manipulation. Section 702 of the legislation also establishes a nine-member advisory committee to counsel the US Department of Treasury on currency issues, with members appointed by the Senate, House, and president. Many lawmakers and members of the public have expressed disappointment that the final bill moderated the original more aggressive stance on currency manipulation.

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The foregoing does not attempt to provide a complete summary of the Customs Bill's provisions, since the legislation covers a wide range of topics beyond trade remedies and customs amendments, from immigration to greenhouse gases. Nevertheless, importers facing stricter enforcement and additional requirements in order to sell imported goods in the United States will certainly feel the combined impacts of the Customs Bill and Trade Remedies Bill.

Phyllis Derrick is not admitted to the practice of law. Amanda Johnson also contributed to this Advisory. Ms. Johnson is admitted only in Virginia; practicing law in the District of Columbia during the pendency of her application for admission to the DC Bar and under the supervision of lawyers of the firm who are members in good standing of the DC Bar.