05.19.2008 Highlights in International Trade and Commerce HIGHLIGHTS:
1. Commerce Seeks Comments on Targeting and Sales Below Cost.
2. U.S. Supreme Court Will Hear Appeal of Antidumping Duty Case.
3. Colombia FTA Seeks to Overcome Roadblocks.
4. USTR Reviews Tariff Preferences Favoring Less Developed Countries.
1. Commerce Seeks Comments on Targeting and Sales Below Cost:
On May 9th, the Commerce Department published Federal Register notices seeking comments on two aspects of its antidumping methodology: "targeted" sales and the appropriate period for averaging production costs.
"Targeting" refers to the statutory provision that permits Commerce to use prices on sales to a particular customer as the basis for calculating antidumping margins. Generally, antidumping margins are based on the difference between average export prices and average home market prices over a one-year period (or a six-month period in the case of non-market economy countries such as China). Under the statute, Commerce may compare transaction-specific export prices with average home market prices whenever the export prices show a pattern that differs significantly by customer, region or period of time. In other words, the statute permits Commerce to use individual prices to calculate dumping margins when importers have "targeted" particular customers, regions or selling seasons. Because of "zeroing," this methodology has been relatively unimportant in the past. If Commerce cannot "zero," however (see Highlights dated Feb. 5, 2007), the use of targeting dumping becomes very important to the size of the resulting antidumping duties. The methodology is controversial, and Commerce has used different methodologies in recent cases. The agency has announced an intention to rely upon a statistical measure (one standard deviation) as the benchmark for a significant difference in price, but it has adopted an arbitrary percentage with regard to how often the "targeted" prices must occur. The outcome is likely to have a substantial impact on the magnitude of antidumping margins and antidumping duty rates.
In a second notice, Commerce is seeking comments on its practice of calculating production costs on an annual basis. Under the antidumping law, home market prices are typically the basis for determining dumping (i.e., "normal value"). However, if home market prices are below cost, those prices may be disregarded. Commerce is concerned that when there are "significant cost changes" during the period under investigation, it might be appropriate to use a period different than one year. For example, where raw materials prices were rapidly increasing and the sales contracts provided that such increases would be passed through to customers, Commerce has adapted its methodology to average production costs over a shorter period. Given current increases in energy and raw materials costs, this approach has the potential to change the outcome when home market sales are compared with average production costs.
Comments on both notices are due by June 9.
2. U.S. Supreme Court Will Hear Appeal of Antidumping Duty Case:
On April 21st, the U.S. Supreme Court announced that, sometime after October 2008, it will hear the appeal of a controversial Federal Circuit decision involving antidumping duties. In Eurodif, the Federal Circuit found that contracts for processed forms of uranium used as fuel known as separative-work-units ("SWUs") are a service and not a good subject to antidumping duties. The Nuclear Energy Institute and numerous U.S. utility companies that rely on imports of foreign uranium products applauded this outcome. Opposing this result, however, Senators Mitch McConnell (R-KY) and Jim Bunning (R-KY), and Rep. Ed Whitfield (R-KY), together with officials from the Departments of Defense, State and Commerce and the National Nuclear Security Administration, have supported pending legislation designed to ensure that U.S. trade remedy law specifically covers SWUs. The question now arises whether Congress will pass such legislation before the Supreme Court hears the Eurodif appeal. In a related development, responsive to the Federal Circuit decision in Eurodif, Commerce on March 28th published a notice withdrawing its regulation with respect to the status of "toll producers" in antidumping cases. Commerce now intends to define "manufacturers and producers" on a case-by-case basis, without a regulation. One implication of the notice is that the purchaser in a tolling arrangement may be able to obtain a different antidumping duty rate than the company that performs the toll processing. Or, a new company that supplies raw materials to a subcontractor for certain processing steps may be treated as a "new shipper." In essence, by withdrawing the existing regulation, Commerce has increased the uncertainty that attends contract manufacturing arrangements. Commerce is now reviewing comments, which were due April 28th.
3. Colombia FTA Seeks to Overcome Roadblocks:
On April 8, 2008, President Bush transmitted the Colombia Free Trade Agreement to Congress for ratification, setting in motion a 90-day limit on action on the bill. On April 10, 2008, however, the House of Representatives voted to delay a final vote on the Agreement indefinitely. According to sources, Congressional Democrats were upset that the Administration abandoned discussions of how to improve Trade Adjustment Assistance, a program that provides relief to workers who become unemployed as a result of foreign imports. Labor unions largely oppose the Agreement because of violence against Colombian labor leaders. Conversely, most agricultural groups widely support the Agreement, as it would provide duty-free treatment to many products. It is unclear when (or if) the Agreement will be brought back to a vote. Those with a stake should double up efforts to ensure that a vote is scheduled.
4. USTR Reviews Tariff Preferences Favoring Less Developed Countries:
On May 15, the Office of the U.S. Trade Representative ("USTR") initiated its 2008 Annual Generalized System of Preferences ("GSP") Product and Country Eligibility Practices Review. As explained in previous HIGHLIGHTS, the GSP encourages foreign investment in less developed countries by granting tariff preferences in favor of products imported from them to the United States. In some cases, GSP treatment enhances the competitiveness of imports over domestic goods. As it does each year around this time, the USTR has again invited petitions to modify the list of products eligible for duty-free treatment under the GSP and to modify the GSP status of certain GSP beneficiary developing countries because of country practices. Petitions are due June 18.
If you have any questions concerning the subject matter addressed above, please feel free to contact one of our International Attorneys.
Highlights in International Trade and Commerce by Williams Mullen is prepared for information purposes only and does not constitute legal advice. Persons seeking legal advice concerning the issues addressed in this issue are encouraged to contact competent legal counsel.