While trade litigation cases are still far fewer in frequency than their heyday in the 1980s and 1990s, anecdotal evidence suggests that there has been an increase in activity and interest on the part of domestic producers to initiate trade actions against foreign producers. What is going on and what can importers expect in 2012?

A review of recent activity indicates that only one investigation was initiated between May 2010 and April 2011. Some argue the dearth of cases was due to circumvention issues (foreign producers simply avoiding the orders in place) which created a perception that that antidumping and countervailing duty (AD/CVD) is a weak remedy, but most likely the paucity of case filings was due to a significant decline in imports during the recession and the uncertainty over the future use of “zeroing” as a calculation methodology in antidumping investigations. As important, the globalization of manufacturing business has whittled away at the incentives to bring cases as the calculus for protecting a market has gotten more complex with global sourcing.

But, starting in April 2011, we had the first stirrings of new activity, as five new cases were filed in two days, including a very large antidumping and countervailing duty action brought by Whirlpool against refrigerators from South Korea and Mexico targeting LG and Samsung products. These were followed by a half dozen more cases toward the end of the year, including a traditional pipe case against four countries, and the high profile solar panels AD/CVD case against China. And rumors of more cases in 2012 are appearing more frequently.

So, what is driving the decision to bring new cases?

1. It’s the Economy! There was not much to gain from bringing trade actions during the early stages of the recession. Imports fell dramatically during late 2009 and into 2010. With imports falling it is hard to make a persuasive case that imports are causing injury. Further, the benefit to be gained from initiating a case may not be present. Even if a trade action is successful, the petitioner still faces the same problem – low domestic demand during a recession.
   
   With the economy starting to recover in 2011, however, we have a different picture. Imports have been increasing in several categories, strengthening a case that imports are causing injury to a domestic industry. Further, with demand recovering, there is much better incentive to bring a case – reducing the role of imports allows the domestic industry to participate more robustly in the recovering market. To some extent we are seeing both these phenomena play out, for example as demand for white goods such as refrigerators and washing machines increase.
   
   
2. Targeted Dumping – the Replacement for “Zeroing” to Generate Dumping Margins. After several adverse WTO decisions going back to 2007, and a North American Free Trade Agreemnt (NAFTA) panel decision which found the practice inconsistent with the WTO and U.S. law, the US. Department of Commerce stopped using “zeroing” in antidumping investigations. “Zeroing” refers to a practice in which Commerce set values of negative dumping margins to zero when such margins were added to positive dumping margins in order to calculate the overall margin. This methodology increased the overall dumping margin when there were negative dumping margins because you could not “average out” the negative and positive margins. Without zeroing, many dumping margins would likely be reduced, so the incentive to bring new cases was reduced.
   
   But never fear, while “zeroing” in investigations has ended, Commerce has found a substitute, called “targeted dumping” which allows them to continue its “zeroing” practice. Recent case determinations indicate that Commerce is actively applying this new methodology, improving the petitioners’ potential for finding dumping margins.
   
   So how does targeted dumping work? In investigating a case, Commerce will evaluate whether there is a pattern of pricing the products under investigation in the United States that differ significantly depending on regions, purchasers, or periods of time. For example, foreign producers may provide special discounts to certain customers or during a promotional period. If such a pattern is found, and Commerce determines that the traditional average-to-average comparison methodology is masking targeted dumping, then Commerce can use a different methodology to determine dumping, known as the average-to-individual transaction comparison. When calculating the overall dumping margin using the average-to-individual transaction comparison, Commerce is continuing its “zeroing” practice. The targeted dumping analysis and subsequent dumping calculation using “zeroing” generates higher marginswhen there were negative dumping margins, which could be contributing to the new cases.

Given the developments in the economy and with the application of targeted dumping, we anticipate a continued resurgence of cases in 2012. Prime candidates include traditional targets in the steel and chemicals industries.

Should you have any questions regarding this Alert, please contact members of Arent Fox’s International Trade Group, or the Arent Fox attorney who handles your matters.