The US Department of Commerce's current policy of applying both countervailing duties (CVDs) and antidumping duties (ADs) to imports from China and other nonmarket economy (NME) countries, such as Vietnam, will likely come to an end in 2012, but not without further efforts by the government or US producers, to try to save this policy either on appeal or through new legislation. The recent decision of the US Court of Appeals for the Federal Circuit (CAFC) in GPX Int'l Tire Corp. v. United States,1 unambiguously states that Commerce does not have authority to assess CVDs on imports from China where Commerce also determines that China is a NME.

This significant decision provides a measure of certainty to the numerous exporters and importers of goods from NME countries,2 which have faced a state of legal limbo as to the legality or the extent of CVDs that may be assessed in the United States on such imports. While the uncertainty is expected to continue during a possible appeals process, by the end of 2012 parties should know whether the case will be heard by the US Supreme Court or the legal battle has reached an end. Aside from the appeals process, Commerce has recently announced its intention to seek new legislation allowing it to impose CVDs on imports from China and other NME countries.

Background

After almost two decades of a remarkably consistent practice of not applying CVD law to imports from NME countries, Commerce reversed course in 2007 and started to impose CVDs to imports from China, a country which it has long considered to be a NME for the purposes of AD/CVD laws. The legality of Commerce's shift in policy was first tested in the US Court of International Trade (CIT) in 2009, when the CIT found that Commerce's current approach is unreasonable. GPX Int'l Tire Corp. v. United States, 645 F. Supp. 2d 1231, 1242-1243 (Ct. Int'l Trade 2009). The CIT ruled that the prospect of a double remedy is likely when CVD duties are imposed in parallel with NME AD duties. As the CIT explained, "the NME AD statute was designed to remedy the inability to apply the CVD law to NME countries, so that subsidization of a foreign producer or exporter in a NME country was addressed through the NME AD methodology." Id. The CIT instructed Commerce "...to forego the imposition of CVDs on the merchandise at issue or for Commerce to adopt additional policies and procedures to adapt its NME AD and CVD methodologies to account for the imposition of CVD remedies on merchandise from the PRC." GPX Int'l Tire Corp. v. United States, 715 F. Supp. 2d 1337 (Ct. Int'l Trade 2010). Commerce was unable to find a reasonable methodology to prevent the likely double-counting outcome and, under protest, it complied with the CIT's order not to apply CVDs on imports of tires from China, but appealed the CIT decision.

The Federal Circuit Affirms the CIT's Decision in GPX On Broader Grounds

On December 19, 2011, in a unanimous decision, a three judge panel of the CAFC found that “the countervailing duty law does not apply to NME countries,”3 reversing Commerce's current practice of imposing CVDs on imports from China and other NMEs. The CAFC stated: [w]e affirm the holding of the Trade Court that countervailing duties cannot be applied to goods from NME countries” Slip op. at 26. However, the CAFC did not affirm the CIT's judgment by adopting the CIT's rationale of likely double-counting of remedies. The CAFC found this rationale "problematic" explaining that it was not clear to what extent "double-counting" is prohibited by the statute and whether it had occurred. Slip Op. at 11.

Rather, in affirming the CIT’s judgment, the CAFC held more broadly that the legislative history of the US CVD laws, Commerce's longtime practice up to 2007 of not applying CVD law to NMEs, and the CAFC’s 1986 opinion in Georgetown Steel Corp. v. United States, compel the interpretation that the CVD statute cannot be applied to NME countries. The CAFC reasoned that the earlier interpretation was considered and adopted by Congress, when Congress amended the Trade Act of 1930 in the 1988 Trade Act, and again in 1994 when it reenacted most of CVD law while making changes to conform US law to its international obligations as part of the Uruguay Round Agreements Act. The Federal Circuit stated:

We thus find that in amending and reenacting the trade laws in 1988 and 1994, Congress adopted the position that countervailing duty law does not apply to NME countries. Although Commerce has wide discretion in administering countervailing duty and antidumping law, it cannot exercise this discretion contrary to congressional intent.

Slip op. at 26.

It is a broader ruling from several points of view, which, in practice, may succeed in providing more clarity on the issues than if the CAFC had affirmed GPX by adopting the CIT's rationale. First, the CAFC did not distinguish between NME countries, as Commerce did in 2007 when it found that CVD law can be applied to China.4 In essence the CAFC's opinion tells Commerce that it cannot have it both ways: where the agency makes a determination that a country is a NME, it does not have authority to assess CVDs on imports from that country. Second, GPX involved an alleged "domestic subsidy," which generally benefits both domestic and exported goods, as opposed to an "export subsidy" which applies only to exports. Slip Op. at 4. The CIT's opinion in GPX may have not prevented Commerce from countervailing export subsidies in other cases. However, the CAFC's language does not distinguish between subsidies and holds that "countervailing duty law does not apply to NME countries." Third, as noted supra, the CAFC did not adopt the CIT's reasoning of double-counting of remedies. The CIT's reasoning left open the possibility that Commerce may come up with a methodology that somehow eliminates double-counting, while imposing both ADs and CVDs on imports from a NME. The CAFC's decision in GPX closed that possibility by explicitly stating that one cannot apply CVD law to a NME country. In short, had the CAFC adopted the CIT's reasoning in GPX, it is possible that some of Commerce's authority to proceed with CVD investigations– albeit on a much more restricted scale – would have survived. However, the CAFC's decision, once final, will compel Commerce to cease its current CVD practice with respect to countries designated as NMEs.

The CAFC Ruling is Also Broader Than WTO's Findings, Which Also Held That Commerce's Practice Is Contrary to the WTO Subsidies Agreement

Last year, the WTO Appellate Body also reviewed this issue. Mirroring the CIT's reasoning in some respects, the WTO Appellate Body also concluded that Commerce's policy of applying both CVDs and AD duties to products from NMEs with no adjustments to the AD margin is contrary to the obligations of the United States under the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement). See United States – Definitive Antidumping and Countervailing Duties on Certain Products from China, AB-2010-3 (March 25, 2011). The WTO Appellate Body found that "the imposition of double remedies, that is the offsetting of the same subsidization twice by the concurrent imposition of anti-dumping duties calculated on the basis of an NME methodology and countervailing duties, is inconsistent with Article 19.3 of the SCM Agreement," which provides that "[w]hen a countervailing duty is imposed in respect of any product, such countervailing duty shall be levied, in the appropriate amounts in each case..." Id. at 227. Essentially, the WTO Appellate Body reached the same conclusions as the CIT. However, Commerce has not taken any steps to change its practice in response to this unfavorable decision of the WTO Appellate Body.5 If past experience with implementation of WTO decisions is any indication, a change in practice by Commerce in response to a WTO adverse finding can take years. However, Commerce will not have as much time to comply if and when the CAFC's decision in GPX becomes final.

Appeal Timeline

The CAFC's significant decision in GPX is still subject to appeal. Since the GPX decision was issued, Commerce has not ceased existing CVD investigations or responded to parties' requests to terminate such ongoing CVD investigations. The only legal basis for doing so in light of GPX likely is the expectation of an appeal. It is generally anticipated that Commerce and/or the US domestic producers who participated in the GPX appeal before the CAFC, will challenge the CAFC’s decision. They may appeal this decision by seeking a rehearing by the CAFC (either to the panel that originally heard the case or to the CAFC en banc) or review by the Supreme Court through a writ of certiorari.

A petition for rehearing en banc may be filed by any party within 45 days after entry of judgment. A rehearing en banc is granted only when consideration by the full court is necessary to secure or maintain uniformity of its decisions, or when the proceeding involves a precedent-setting question of exceptional importance. If a majority of the circuit judges who are in regular active service agree that an appeal be reheard en banc, they will issue an order granting rehearing.  Such petitions are not granted often. Based on the CAFC’s practice, we note that a decision on whether to grant or deny a request for rehearing may be issued in as little as 2-3 months.

If the CAFC denies the petition for rehearing en banc, the government or the domestic parties will have the opportunity of filing a petition for a writ of certiorari before the Supreme Court. The Supreme Court has judicial discretion in whether to accept review on a petition for a writ of certiorari and will normally grant the petition only where there are compelling reasons. In a civil case, a petition for a writ of certiorari may be filed within 90 days of entry of judgment by the CAFC or the date a timely filed petition for rehearing is denied. Therefore, should the CAFC deny the petition for rehearing en banc, the deadline to file a petition for a writ of certiorari to the Supreme Court is 90 days from the date of denial of the rehearing petition.

The process by which the Supreme Court would decide whether to grant review should be concluded within approximately six months from the date of the denial of the petition for rehearing. If the Supreme Court grants the petition for a writ of certiorari it will then put the case on the calendar and will proceed with the merits. If the Supreme Court denies the certiorari petition, then the CAFC will issue the mandate.

Theoretically, the government/Commerce could decide not to seek rehearing at the CAFC and proceed directly with a petition for a writ of certiorari to the Supreme Court.  However, it seems unlikely that the government/Commerce will have an interest in expediting the appeal process of the GPX decision. Under either appeal route, the estimated timeline would allow for a decision by the Supreme Court on whether to review the decision or not before the end of 2012.

Various reports indicated recently that US Secretary of Commerce John Bryson and US Trade Representative Ron Kirk requested that congressional trade committees move quickly on legislation that would allow Commerce to impose CVDs on imports from NME countries. At the same time, news reports note that as of January 19, 2012, Bryson and Kirk said the administration is still considering its options for appeal. It is quite possible that the administration will seek a legislative “fix” through new legislation in parallel with a possible appeal of GPX.

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.

1 GPX International Tire Corp. v. United States, Appeal No. 2011-1107, 2011 WL 6371903, at *1 (Fed. Cir. Dec. 19, 2011).

2 In the 1986 opinion in Georgetown Steel Corp. v. United States, 801 F. 2d 1308 (Fed. Cir. 1986), a case involving steel imports from Czechoslovakia (a NME at the time), the US Court of Appeals for the Federal Circuit agreed with Commerce's position that CVD duties could not be imposed on NMEs because a subsidy “is 'a device used by governments to distort the signals that the market gives to firms,' and that by definition, subsidies do not exist in NMEs.”

3GPX International Tire Corp. v. United States, Appeal No. 2011-1107, 2011 WL 6371903, at *1 (Fed. Cir. Dec. 19, 2011).

4 Subsequently, in 2009, Commerce also found that CVD law can be applied to Vietnam, also a country that had long been designated as a NME.

5 Congress has provided a procedure through which Commerce may change a regulation or practice in response to WTO reports. 19 USC 3533(g). With respect to the WTO Appellate Body Decision of March 25, 2011, the United States has not yet employed this statutory procedure to implement the Appellate Body‘s finding. The implementation time for each case can be very long. In this case, the United States and China agreed to a nearly one year implementation time. Therefore, the United States will likely not do anything about this case until February 2012.