US policy in anti-dumping investigations unfair to China

In recent years, in an effort to further assist the repatriation of the US manufacturing industry and consolidate its economic recovery, the US Department of Commerce has made major revisions to the rules for anti-dumping investigations of non-market economies, particularly China. These revisions have placed Chinese enterprises that face actions in a disadvantageous position.

Q: What has been the Department of Commerce’s separate-rate policy recently?

A: Previously, in investigation practice, if a Chinese state-owned enterprise (SOE, even if it was an enterprise in which the state had a controlling interest) satisfied the relevant conditions and submitted the relevant information and documents, it was generally eligible for a separate rate status without any major obstacles. However, the Department of Commerce now implements the relevant criteria more “stringently”. If a Chinese SOE cannot adequately show that it is lawfully and actually independent of the government, it will be ineligible for a separate rate and will instead be subject to the highest punitive anti-dumping rate.

The Chinese passenger vehicle tyre anti-dumping case that concluded in June 2015 is an example. The Chinese enterprises that were refused the 25.3% separate rate will be subject to an 87.99% China-wide rate. This illustrates from another perspective that it is difficult for enterprises controlled by the State-owned Assets Supervision and Administration Commission (SASAC) to be granted a separate rate. Those enterprises in which the state has an equity interest and those in which it does not have a relative controlling interest also have to prepare the relevant supporting documents more carefully and in greater detail, increasing the burden on them.

Q: What are the Department of Commerce’s new market economy purchase rules like?

A: Generally speaking, before the revision of the rules, if a certain raw material of a Chinese enterprise that was facing an action was procured from a supplier in a market economy during the investigated period, the consideration was paid in the currency of a market economy country and the quantity was equivalent to at least 33% of the total procurement volume during the investigated period. The Department of Commerce would use the actual procurement unit price for the raw material submitted by the enterprise to calculate the cost, rather than the surrogate value of a surrogate country.

According to the department’s investigation rules, Indonesia, Thailand, South Korea, India, etc. are not market economies because they subsidize their industries. Furthermore, the department generally does not accept transaction prices between affiliated parties, unless it can be shown that these transactions were carried out “at arm’s length”.

Since September 2013, the department has increased this percentage to 85%, making it difficult for Chinese enterprises that are facing actions to achieve, thus reducing the possibility of securing a lower dumping margin. It is noted that if an enterprise falls below the 85% threshold, the Department of Commerce will calculate a weighted average procurement price based on the respective percentages of the procurement volumes during the investigated period accounted for by the market economy purchases (using the actual price to make the calculation) and the non-market economy purchases (using the surrogate value to make the calculation).

Q: What is the Department of Commerce’s policy on handling export tax refunds?

A: Taking the tyre anti-dumping case mentioned above as an example, notwithstanding the fact that the enterprise involved in the case submitted a large quantity of information and arguments, including importing major raw materials from a bonded zone and therefore not paying value-added tax, submitting from its sales database the amount of actually unrefundable value-added tax calculated by it, etc., the department nevertheless “mechanically” reduced the enterprise’s export price by 8%, namely the difference between China’s value-added tax rate of 17% and the tax refund rate of 9% for the product in question. From this it can be seen that, except for the odd case, the department will generally apply this principle.

It should be noted that in a recent anti-dumping investigation against China, due to the existence of a special business model, we successfully convinced the department to accept the amount of unrefundable value-added tax calculated by the enterprise in question and not mechanically deduct the difference between China’s value-added tax rate of 17% and the tax refund rate of 0% for the product in question from the export price.

Q: What are the most recent rules on the submission of “new factual information”?

A: Being aware of the timeline to submit new factual information is of utmost importance to a responding party facing an action, and its lawyers. This is because the party will usually be unaware of when it will obtain a piece of important information that is of great benefit to it and submit it to the Department of Commerce, or when it becomes aware of the availability of such information and promptly submits it, the time limit specified in law for its submission may have already expired.

In this respect, the department has made some major revisions that are unfavourable to responding parties facing an action: the deadline is 30 days prior to the issuance of the preliminary determination. Taking the defence of the most important surrogate country and surrogate values issue as an example, if, after the department renders its preliminary determination, the selection of the surrogate values is unfavourable to the respondent involved in the action, its counsel will be unable to further submit newer information (unless the department expressly requires that it do so, something which rarely happens), and can only argue on the basis of the existing information that was previously submitted.

Such a scenario is unfair to the counsel of the respondent involved in the action, as it has no way of knowing the department’s stance on the surrogate country and surrogate values, or its selection thereof, until the preliminary determination. Even if the duty rate determined in the preliminary determination is high, counsel has no way to submit new factual information at the legal briefing stage after the preliminary determination in an effort to ameliorate the unfavourable situation. Accordingly, it is extremely difficult to greatly reduce the dumping margin at the final determination.