United States: Federal Circuit Exempts Non-Market Economy Country Exports from US Countervailing Duty Law

Originally published December 22, 2011

Keywords: non-market economy country, NME, Court of International Trade, CIT

The US Court of Appeals for the Federal Circuit has rejected the US government's use of countervailing duties against imports into the United States from so-called non-market economy (NME) countries. In its December 19, 2011 ruling in GPX International Tire Corp. v. United States, 2011-1107-09, the Federal Circuit rejected the US Department of Commerce (Commerce) challenge to decisions by the Court of International Trade (CIT) barring application of countervailing duties against certain Chinese exports—in this case, off-road tires. While it affirmed the CIT's decision, the Federal Circuit issued a much stronger rebuke to the US government. 

Specifically, the court unambiguously held that current US law prohibits application of countervailing duties to exports from a non-market economy. The Federal Circuit reasoned that the US Congress had ratified judicial and administrative rulings barring such duties in subsequent legislation.

On August 4, 2010, the CIT rejected Commerce's remand determination applying countervailing duties against certain Chinese off-road tires. The CIT refused to uphold the determination unless Commerce first demonstrated that antidumping duties and countervailing duties applied to the same goods at the same time would not double count subsidies. Mayer Brown analyzed the 2010 ruling and underlying issues in a previous legal update. This ruling was the CIT's third rejection of Commerce's position.1 In its last remand determination, Commerce complied with the August 4 ruling "under protest." The CIT affirmed this determination on October 1, 2010 in GPX Int'l Tire Corp. v. United States, No. 08-00285, 2010 WL 3835022 (Ct. Int'l Trade Oct. 1, 2010).

Pursuant to the Tariff Act of 1930, as amended, Commerce may place antidumping duties on imports that Commerce determines are unfairly priced. These duties are meant to offset the imports' price advantage. Under its current practice, Commerce applies countervailing duties in the same manner if it finds that imports illegally gained a price advantage through government subsidies. Antidumping and countervailing duties add to existing applicable tariffs. 

For more than 20 years Commerce refused to apply the countervailing duty law to NMEs. In Commerce's view, it could not disaggregate subsidies from other government policies in a centrally planned economy. The Federal Circuit affirmed this logic in Georgetown Steel Corp. v. United States, 801 F.2d 1308, 1314-18 (Fed. Cir. 1986), finding that "[e]ven if one were to label these incentives as a 'subsidy,' in the loosest sense of the term, the government of those [NMEs] would in effect be subsidizing themselves." 

However, in 2007, Commerce decided that although China should remain an NME, it was no longer a "Soviet-style" economy and, therefore, Commerce could separately identify subsidies and determine their benefits to a Chinese exporter.2 Commerce henceforth applied the US countervailing duty law and antidumping law to China.3 Since then, nearly every antidumping petition filed against imports from China has had a matching countervailing duty petition. In 2009, Commerce similarly began applying countervailing duty law to Vietnam, another so-called NME country.

The December 2011 Federal Circuit decision means that Commerce may not maintain its current policy by modifying its methodology, or apply countervailing duties to NME exports based on the countervailing duty law. Commerce may appeal the decision to the Federal Circuit en banc, and ultimately to the United States Supreme Court. Commerce has not said if it will appeal.

Learn more about our Global Trade practice.


1 See, GPX Int'l Tire Corp. v. United States, 645 F. Supp. 2d 1231 (Ct. Int'l Trade 2009); GPX Int'l Tire Corp. v. United States, 587 F. Supp. 2d 1278 (Ct. Int'l Trade 2008).

2 See, "Countervailing Duty Investigation of Coated Free Sheet Paper from the People's Republic of China – Whether the Analytical Elements of the Georgetown Steel Opinion Are Applicable to China's Present-Day Economy" (Mar. 29, 2007), available at http://ia.ita.doc.gov/download/nme-sep-rates/prc-cfsp/china-cfs-georgetown-applicability.pdf

3 See, e.g., "Coated Free Sheet Paper From the People's Republic of China: Amended Preliminary Affirmative Countervailing Duty Determination," 72 Fed. Reg. 60,645 (Oct. 25, 2007).

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