The US Department of Commerce (Commerce) has broken with precedent and chosen to apply countervailing duties to imports from a non-market economy (NME) nation. On October 18, 2007, Commerce announced its affirmative final determinations in the antidumping and countervailing duty (i.e., anti-subsidy) investigations of coated free sheet paper imports from Indonesia, Korea, and the People’s Republic of China (PRC). Coated free sheet paper is a high quality paper used primarily in higher-priced publications such as premium magazines, gift books, and art reproductions.
The exporter-specific antidumping duty margins were 8.63 percent for Indonesia, 0.47 to 31.55 percent for Korea, and 21.12 to 99.65 percent for the PRC. The countervailing duty rates were 22.48 percent for Indonesia, zero to 1.46 percent for Korea, and 7.40 to 44.25 percent for the PRC.
Of particular note was the countervailing duty decision with respect to the PRC. The PRC has been considered to be a non-market economy for purposes of US trade remedy proceedings and Commerce’s practice over the last two decades has been to not apply countervailing duties to imports from the PRC and other NMEs. The rationale behind this practice is that government subsidies cannot be measured in economies with pervasive distortions caused by government intervention. Commerce’s practice was supported by the Court of Appeals for the Federal Circuit in Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir.1986). In Georgetown Steel, the Federal Circuit affirmed Commerce’s discretion not to apply the countervailing duty law to NMEs.
Departing from this long-standing practice, Commerce has applied countervailing duties to imports of coated free sheet paper from the PRC. Commerce previously has stated that the Georgetown Steel decision did not prohibit it from applying the countervailing duty law, but allowed for the agency’s continuing broad discretion to determine whether to apply the countervailing duty law to NMEs. Georgetown Steel was framed according to the traditional, Soviet-style economies of the 1980s, which differ from the current situation with respect to the PRC’s economy. Those Soviet-style economies were characterized by both Commerce and the Federal Circuit as economies with a marked absence of market forces. The economy of the PRC, on the other hand, has evolved into a more market-driven economy; albeit one in which the state still plays a significant role. These reforms, according to Commerce, justify this first ever application of the US countervailing duty law to an NME.
As a result of this ruling, US industries seeking to protect themselves from Chinese imports have another weapon in their arsenal. Countervailing duties are typically not as high as antidumping duties; however, the investigations themselves clearly place additional burdens on the Chinese government and exporters. US importers of merchandise from the PRC and other NMEs now face an additional threat from trade remedy actions by competing US industries.
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