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April 01, 2007 

House Trade Subcommittee Holds Hearing on Application of Countervailing Duties to Nonmarket Economy Countries

By Matthew Apfel*

On March 15, 2007, the U.S. House Ways and Means Committee's Subcommittee on Trade held a hearing on the application of countervailing duties to imports from nonmarket economy countries, with a focus on H.R. 1229, the “Nonmarket Economy Trade Remedy Act of 2007.” H.R. 1229 would authorize the application of the U.S. countervailing duty laws on imports that are state subsidized and originate from countries that are designated as "non-market economies", such as China and Vietnam. Although authorized to do so if necessary, the Department of Commerce has had a long-standing policy of not imposing countervailing duties on non-market economies in the past.

During the hearing, David M. Spooner, Assistant Secretary of Commerce for Import testified that the reasons underlying this policy have rested on methodology grounds. Specifically, he said that “Firms [in non market economies] were not independent, profit-driven allocators of resources and, therefore, could not take into account the impact of government subsidies when making pricing decisions.” Assistant Secretary Spooner further noted that “applying U.S. countervailing duty law to countries like China that are classified as non-market economies for antidumping purposes raises complex issues of policy and methodology, which could have implications for other aspects of Commerce’s trade remedies practice.”

China's growing exports to the U.S. quickly became the focus of the testimony before the committee. For example, one of the witnesses was Representative Pete Visclosky (D-IN), who currently serves as Chairman of the Congressional Steel Caucus. Representative Visclosky accused China of “economic warfare” and “attacks” on the U.S. steel industry. He opined that China’s massive growth, particularly in regards to increases in steel production, “have come during periods of immense (Chinese) government subsidization.” He noted that such subsidies have taken shape in the form of “preferential loans, debt forgiveness, raw material market subsidies, energy subsidies, and direct government ownership.”

In the view of many of the panelists during their collective testimony, it appears that although China maintains a quasi-market economy, in the sense that there is rampant government regulation and intervention in key sectors. However, China’s economy has also developed to such an extent that it would now be easier to determine a clear countervailing duty methodology. For example, James C. Hecht, a partner at the law firm of Skadden, Arps, Slate, Meagher and Flom spoke to this point when he noted that there are already clear grounds under existing law to apply U.S. countervailing duty provisions to non-market economies.” He noted that China’s accession to the WTO and privatization of key state owned enterprises demonstrates that the situation today is quite different from the time when the U.S. Court of Appeals for the Federal Circuit in Georgetown Steel held that the U.S. Government was not under an obligation to impose countervailing duties on non-market economies. As Mr. Hecht stated, “notwithstanding the possibility of a change in regulatory practice, there are good reasons for legislative action to clarify the issue. Legislation such as H.R. 1229 would remove legal uncertainty in this area, would obviate the possibility of future regulatory changes of policy, and would allow Congress to address the manner in which CVD law will be applied to non-market economies.”

The subcommittee also heard testimony from opposing viewpoints. David Phelps, President of the American Institute for International Steel and a board member of the Consuming Industries Trade Action Coalition (CITAC) stated that the application of countervailing duty laws to non-market economies is probably WTO illegal and that H.R. 1229 is "fundamentally unfair to U.S. consuming industries" since it would make industries in other countries more competitive.

It remains to be seen if such legislation will be implemented by Congress and what China’s reaction would be to this so-called “leveling of the playing field” by Congress.

*Mr. Apfel is currently a law student at George Washington University Law School.




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