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April 01, 2007 

Commerce Department Applies CVD Law to Imports From China

In a major change in U.S. trade policy, on Friday the U.S. Department of Commerce (DOC) announced that it would apply the U.S. countervailing duty (CVD) law to imports from China. The decision, made in the CVD investigation on coated groundwood paper from China, marks the first time CVDs will be imposed on imports from a non-market economy. The decision alters a 23-year old policy of not applying the CVD law to non-market economy countries (NMEs).

Since 1984 it has been the policy and practice of the Commerce Department not to impose countervailing duties on NMEs, such as Vietnam and China, because government intervention in a NME is so pervasive that one cannot make meaningful comparisons between market-determined prices and those that have been distorted by government intervention. This decision was sustained by the the U.S. Court of Appeals for the Federal Circuit in Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986).

In response to a request by the Government of the People’s Republic of China, Gold East Paper (Jiangsu) Company, Ltd., and Global Paper Solutions, Inc., for a preliminary injunction to enjoin DOC from conducting a CVD investigation on coated free sheet paper from China, on March 29, 2007, the U.S. Court of International Trade denied the motion for injunction on grounds that it is premature for the court to render a decision. The CIT stated that DOC's authority to initiate the countervailing duty investigation can be challenged once DOC's decision is finalized.

In its preliminary determination, DOC held that the rationale in Georgetown Steel "no longer applies to products from China because of the vast differences between the characteristics of the non-market economies of the 1980s Soviet-bloc countries and China’s economy today."

In announcing its decision, DOC noted that it "
that the basis of our conclusion to apply the CVD law to China may require a review of U.S. anti-dumping methodology for China, particularly at the enterprise-specific level, and is currently considering this issue. Since the possibility of double counting resulting from simultaneous anti-dumping and countervailing duty investigations is dependent on the specific facts arising in such investigations, to the extent that the parties to these proceedings provide evidence on the record of these investigations, Commerce will have to respond to these concerns in the course of our investigations."

DOC is currently scheduled to make its final CVD determination in the coated groundwood case in mid-June 2007, although this deadline can be extended to mid-October 2007.

Separately, the U.S. Congress is considering legislation (H.R. 1229) that would permit the provisions relating to countervailing duties to apply to nonmarket economy countries (see related article below).

DOC's decision to apply the CVD laws to imports from China will certainly embolden petitioners to file countervailing duty petitions on many other products imported from China. However, DOC's determination in the coated groundwood paper case will certainly be appealed by the Chinese respondents to the CIT on grounds that it conflicts with the long-standing decision in Georgetown Steel. Any decision by the U.S. to apply the CVD laws to imports from China will also be appealed by China to the World Trade Organization's Dispute Settlement Body.




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