United States Expands and Strengthens Enforcement of Antidumping and Countervailing Duty Laws

On March 25, 2024, the US Department of Commerce (“DOC”) published a final rule revising substantive and procedural aspects of antidumping duty (“ADD”) and countervailing duty (“CVD”) investigations.¹ The changes enter into force on April 24, 2024 and are intended to more effectively address unfair trading practices, especially for what DOC characterizes as new “complexities and challenges in international trade.” Taken together, the reforms may enable DOC to find dumping and subsidization in more investigations and set higher duty rates.

Overview of the regulations

The new regulations expand DOC’s enforcement of the ADD and CVD laws and provide DOC with new analytical tools in ADD and CVD proceedings. Key reforms include new rules (1) to clarify DOC’s authority to declare Particular Market Situations (“PMS”); (2) to incorporate the alleged underenforcement of labor, environmental, and intellectual property protection laws into measurements of price and cost distortions; and (3) to allow DOC to investigate allegations of transnational subsidies.

DOC first proposed the revisions in a May 9, 2023 proposed rule, which described the potential reforms and invited public feedback.² The proposed rule stated that DOC was making the changes to “improve, strengthen and enhance the enforcement and administration of the AD/CVD laws, make such enforcement and administration more efficient, and to address factors which distort costs and prices — factors that make the ‘playing field’ less ‘level’ for domestic interested parties and can contribute to unfair trade.” DOC received 55 comments in response to the proposed rule (as well as 19 responses to an earlier call for input on the PMS proposals³) and made some clarifications and changes in the final rule, though the overall reforms were left intact.

Clarifying authorities for determining Particular Market Situations

Under the existing regulations, DOC has the authority to find the existence of a PMS in an exporting country based on cost-based and price-based distortions, and to adjust an exporter’s reported costs or sales prices to address the perceived market distortions, which may have the effect of increasing the duty rate.

The new regulations provide clarification as to the factors DOC may consider in making such a determination. Previously, the statute and regulations did not define “particular market situation,” and did not explain what information DOC will consider in determining whether a PMS exists. Over the past several years, the courts have overturned a series of affirmative cost-based PMS determinations, limiting DOC’s ability to find PMS and reinforcing the need to clarify how the PMS provision of the statute will be implemented.

The PMS rule also introduces the concept that distortions may result from government inaction and failure to enforce property rights (including intellectual property), human rights, labor and environmental protections that may unduly lower producers’ costs of production. DOC may now consider these factors when determining whether a PMS exists that distorts costs or prices which are not aligned with market principles.

Foreign regulatory inaction in calculations of price and cost distortions

The new regulations also provide that DOC should likewise examine government inaction and failure to enforce property rights (including intellectual property), human rights, labor and environmental protections when (1) selecting surrogate values in establishing normal value in non-market economy (“NME”) ADD investigations, and (2) selecting appropriate benchmark prices in the context of a less than adequate remuneration analysis in CVD cases. Under the new rules, if parties provide evidence of the likely price impacts of government inaction, DOC could disregard surrogate value and benchmark data from the country at issue. DOC argues this change recognizes that the lack of certain legal protections “has real-world impacts on costs of production and prices”. DOC declined to codify any particular parameters for its measure of inadequacy and instead emphasized that such determinations will be fact-specific and made on a case-by-case basis.

For example, DOC explains that, if a company were able to produce goods at cheaper prices than foreign competitors because it followed no workplace safety laws and used forced or child labor, then it would be “logical and reasonable” to reject potential surrogate values derived from sales of those goods in an NME ADD investigation. The rule explains that DOC’s practice is to consider whether prices and costs are distorted, not necessarily aberrational, as a result of inadequate protections for them to be rejected as a surrogate value or benchmark in a less than adequate remuneration analysis.

Introducing a government’s regulatory inaction related to property, human rights, labor and environmental protections as source of price distortion could result in the imposition of higher ADD and CVD rates than in the past.

Making transnational subsidies countervailable

The new regulations withdraw the rule established in Section 351.527 of DOC’s regulations that prohibited the treatment of transnational subsidies (i.e., subsidies provided by a government or public entity in one country that benefit producers or exporters in another country, also known as “cross-border subsidies”) as countervailable subsidies. With the prohibition withdrawn, DOC is now able to investigate and countervail (as appropriate) transnational subsidies.

The change introduces a fundamental shift in approach because the prohibition on countervailing transnational subsidies has been in place in the United States since 1988. In justifying the change, DOC stated that, it introduced the regulations 25 years ago, government subsidies have increasingly come to include cross-border equity-infusions, fundings and loans that go beyond traditional foreign development aid. DOC maintains this financing is provided to “promote the grantor country as well as the recipient's country manufacturing capacities” and the United States now needs to address such subsidies to remedy unfair trade practices. The previous restriction is derived from legislation generally based on the language of the WTO Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) and it is possible that CVD imposed pursuant to the new regulation will be challenged at the WTO.

Other changes to the regulations

The new regulations make various other changes to the ADD/CVD regulations, mostly related to clarifying administrative procedures and codifying established DOC practices. The changes include:

• Amends Section 351.104 to clarify that “references, citations, and hyperlinks to most documents provided in a submission do not incorporate the underlying referenced information on to the official record.” This was DOC’s interpretation, but it was not previously written in the regulation. Confusion by filers in the past led to exclusion of referenced documents from the public record.
• Codifies in the new Section 351.529 DOC’s existing practice of treating unpaid or deferred fees, fines and penalties as price distortions.
• Clarifies Sections 351.225, 351.226, and 351.227 on scope, circumvention, and covered merchandise in response to questions that have emerged after DOC amended these sections in 2021.⁴
• Changes Section 351.301 for Notices of Subsequent Authority, including allowing for filing of responses. Previous rules did not provide for responsive comments, but the new rules will allow five days for responses after submission.
• Adds an outline of the hierarchy of analysis in Section 351.308 that DOC uses to determine CVD rates when it is using adverse facts otherwise available (“AFA”). The hierarchy follows established DOC practices, entering those practices into the regulation. The law provides that DOC may use (1) a countervailable subsidy rate determined for the same or similar program in a CVD proceeding involving the same country, or (2) if there is no such program, a countervailable subsidy rate for a subsidy program from a proceeding that DOC considers reasonable to use, including the highest of such rates. The hierarchy is intended to lead DOC to select “the highest calculated above-de minimis rate” for the CVD rate.⁵ According to DOC, the purpose behind choosing the highest rate available is “to induce respondents to provide Commerce with complete and accurate information in CVD proceedings in a timely manner.”
• Incorporates various “long-standing practices” into Sections 351.503, 351.505, 351.507, 351.508, 351.509, 351.520, and 351.525. The changes affect the rules for determining ad valorem subsidy rates, attribution of subsidies, adequate remuneration for provision of goods, regulatory compliance costs and how DOC determines the values of certain subsidies, among other issues.
• DOC initially proposed changing Section 351.301 to allow DOC to place previous analysis from another proceeding or segment of the same proceeding onto the record without inviting parties to submit new factual information in response. DOC withdrew this proposal from the final rule because of widespread concern among commenters.

Chiara Phillips (White & Case, Law Clerk, Washington, DC) contributed to the development of this publication.

^{1 “Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws,” 89 FR 20766 (March 25, 2024).
2 “Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws,” 88 FR 29850 (May 9, 2023).
3 “Determining the Existence of a Particular Market Situation That Distorts Costs of Production,” 87 FR 69234 (November 18, 2022).
4 “Regulations To Improve Administration and Enforcement of Antidumping and Countervailing Duty Laws,” 86 FR 52300 (September 20, 2021); and later technical amendments “Administrative Protective Order, Service, and Other Procedures in Antidumping and Countervailing Duty Proceedings,” 88 FR 67069 (September 29, 2023).
5 For original CVD investigations, the hierarchy is applied in the following sequence: (i) If there are cooperating respondents in the investigation, the Secretary will determine if a cooperating respondent used an identical program in the investigation and apply the highest calculated above-de minimis rate for the identical program; (ii) If no such rate exists, the Secretary will determine if an identical program was used in another CVD proceeding involving the same country and apply the highest calculated above-de minimis rate for the identical program; (iii) If no such rate exists, the Secretary will determine if there is a similar or comparable program in any CVD proceeding involving the same country and apply the highest calculated above-de minimis rate for the similar or comparable program; and (iv) If no such rate exists, the Secretary will apply the highest calculated above-de minimis rate from any non-company-specific program in a CVD proceeding involving the same country that the Secretary considers the company’s industry could use.}

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