Trade Remedy Legislation: Applying Countervailing Action to Nonmarket Economy Countries
Prepared for Members and Committees of Congress
Concern regarding the mounting U.S. trade deficit with China (which is designated a nonmarket
economy country according to U.S. trade laws), combined with China’s refusal to allow its
exchange rate to float, has led some in Congress to introduce legislation proposing to make
countervailing duty laws applicable to China and other nonmarket economy countries. This
legislation seeks to provide for the assessment of additional duties on imports whose production
and/or importation are found to be subsidized by a public entity in their country of origin and are
injurious to a U.S. producer of similar merchandise. Antidumping, another kind of trade remedy
action, addresses products sold in the United States at less than their fair value (as defined by law)
in a similar manner. Although antidumping (AD) and countervailing duty (CVD) laws and
procedures generally parallel each other, CVD laws contain no specific provisions for
investigations on imports from nonmarket economy (NME) countries, while the AD statute does
provide such guidelines.
Initial administrative attempts in 1983 to apply countervailing remedies to allegedly subsidized
imports from several NME countries led to determinations by the International Trade
Administration (ITA) of the Department of Commerce (the U.S. agency charged with determining
the existence and extent of subsidies) that subsidies within the meaning of the countervailing law,
cannot be found in nonmarket economies. These ITA determinations were challenged in the U.S.
Court of International Trade (CIT), which held that they were “not in accordance with the law,”
reversed them, and remanded the cases to the ITA. On appeal, the U.S. Court of Appeals for the
Federal Circuit reversed, and reinstated the ITA’s original determinations—thus affirming that the
ITA has the discretion not to apply the CVD law to NME countries.
The ITA has reevaluated this decision, at least with regard to China, arguably in response to
pressure from Congress. In a countervailing investigation on coated free sheet (CFS) paper, the
ITA partially reversed its position with regard to China, and on October 18, 2007 made a final
affirmative determination of subsidies, finding net countervailable subsidies ranging from 7.40 to
44.25 percent. Although the International Trade Commission made a negative determination of
injury in the investigation, since the ITA found in the course of its investigation that it was able to
identify subsidies in China, other industries are expected to pursue this course of action. As of this
writing, there are seven other active CVD investigations on products from China.
Legislation seeking to apply countervailing action to NME countries has been introduced in the th
110 Congress. This legislation includes S. 364 (Rockefeller); H.R. 571 (Tancredo), H.R. 708
(English); H.R. 782 (Ryan/Hunter) H.R. 2942 (Ryan/Hunter) and related bill S. 796
(Bunning/Stabenow); H.R. 1229 (Davis/English) and related bills S. 974 (Collins/Bayh) and S.
1919 (Baucus, introduced August 1, 2007). The Bush Administration has also taken some recent
steps to address the issue.
Backgr ound ..................................................................................................................................... 2
Concerns About China..............................................................................................................3
China’s NME Status..................................................................................................................4
Countervailing Duty Legislation.....................................................................................................4
CVD Investigations of Imports from Nonmarket Economy Countries (1983-1984;
1991) ...................................................................................................................................... 5
1983-1984 ........................................................................................................................... 5
1991 .................................................................................................................................... 8
Court Decisions Regarding Applicability of Countervailing to NME Countries......................9
U.S. Court of International Trade (614 F. Supp. 548-557).................................................9
U.S. Court of Appeals for the Federal Circuit (801 F. 2d 1308-1318)..............................10
Action in Congress.........................................................................................................................11
Application of CVD Laws to NME Countries..................................................................12
Revocation of NME Status...............................................................................................14
Exchange Rate Manipulation Countervailable.................................................................14
Additional Tariff on NME Imports...................................................................................14
Recent Executive Branch Actions.................................................................................................14
Final ITC Determination...................................................................................................16
U.S. - Initiated WTO Consultations on Subsidies...................................................................17
Additional CVD Petitions Accepted.......................................................................................18
Issues and Options for Congress...................................................................................................19
Appendix. Summary of Legislation..............................................................................................21
Author Contact Information..........................................................................................................22
Concerns in Congress regarding the mounting U.S. trade deficit with China, combined with
China’s alleged foreign exchange-rate manipulation (which some regard as a subsidy) and other
unfair trade practices have led to calls for making countervailing duty (CVD) trade laws
applicable to nonmarket economy (NME) countries such as China.
Some in Congress have introduced bills that seek to direct administrative agencies to apply CVD
action to nonmarket economy countries. Legislation seeking to apply countervailing action to th
NME countries has been introduced in the 110 Congress. This legislation includes S. 364
(Rockefeller, introduced January 23, 2007); H.R. 571 (Tancredo, introduced January 18, 2007);
H.R. 708 (English, introduced January 29, 2007); H.R. 782 (Ryan/Hunter, introduced January 31,
2007), H.R. 2942 (Ryan/Hunter, introduced June 28, 2007), and related bill S. 796
(Bunning/Stabenow, introduced March 7, 2007); H.R. 1229 (Davis/English, introduced February
28, 2007) and related bill S. 974 (Collins/Bayh, introduced March 22, 2007); and S. 1919
(Baucus, introduced August 1, 2007). The Bush Administration has also taken some recent steps
to address the issue.
On March 15, 2007, the House Ways and Means Trade Subcommittee held hearings on H.R.
1229, the Nonmarket Economy Trade Remedy Act of 2007. Committee staff indicate that work on
H.R. 1229 and other related legislation will continue, despite recent decisions by administration
officials that it is possible to proceed on countervailing action with regard to China.
The Bush Administration has initiated action against China on two fronts since the end of 2006.
First, on November 27, 2006, the International Trade Administration (ITA) of the Department of
Commerce (the administrative agency tasked with determining whether or not subsidies exist and
to what extent) formally initiated a countervailing duty (CVD) case on coated free sheet paper 1
against China. The agency, which has not initiated a countervailing case against a nonmarket
economy country since 1991, declined to make any determination at that time regarding the
applicability of CVD law to NME countries, but said that would consider that issue during the 2
course of the investigation. On October 18, 2007, the International Trade Administration
announced its final affirmative determination that “countervailable subsidies are being provided
to producers and exporters of coated free sheet (CFS) paper from the People’s Republic of 3
China,” and finding subsidy rates ranging from 7.40 to 44.25 percent.
In the same investigation, on December 15, 2006, the International Trade Commission (ITC) had
preliminarily determined “that there was a reasonable indication that a U.S. domestic industry is
materially injured or threatened with material injury” by reason of allegedly subsidized coated 4
paper from China, which thus refers the case back to the ITA for a determination on subsidies.
On December 7, 2007, however, the International Trade Commission determined that the
1 71 F.R. 68546.
2 Department of Commerce, “Commerce Initiates Countervailing Duty Investigation on Coated Free Sheet Paper from
the People’s Republic of China,” Fact Sheet, November 21, 2006.
3 72 F.R. 60645, October 25, 2007.
4 U.S. International Trade Commission. “ITC Votes to Continue Cases on Coated Free Sheet Paper from China,
Indonesia, and Korea,” News Release 06-120, December 15, 2006. For an overview of CVD procedures, see CRS
Report RL32371, Trade Remedies: A Primer.
domestic industry “was not materially injured, or threatened with material injury, and that the 5
establishment of an industry in the United States is not materially retarded,” due to the imports.
Second, the U.S. Trade Representative (USTR) announced on February 2, 2007 that the United
States had requested consultations with China at the World Trade Organization (WTO) over
China’s use of “what we contend are illegal subsidies.” This is the first step in the WTO dispute
settlement process. On March 20, 2007, China accepted the requests of Mexico, Australia, and
Japan to join the consultations.
On November 29, 2007, USTR Susan Schwab announced that China has agreed to terminate
twelve subsidies that the United States had identified as prohibited. In the Memorandum of
Understanding (MOU) signed by the United States and China, China agreed to end these export
subsidies (mostly on steel, wood products, and information technology) and import substitution
subsidies (designed to encourage Chinese companies to buy Chinese products over imports) by
January 1, 2008.
Countervailing duty (CVD) laws provide relief to domestic industries that have been, or are
threatened with, the adverse impact of imported goods sold in the U.S. market that have been
subsidized by a foreign government or public entity. The relief provided is an additional import
duty placed on the subsidized imports that is equal to the estimated amount of subsidization.
In order for an industry to obtain relief, two things must be determined: (1) the International
Trade Commission must find that the domestic industry is materially injured or threatened with
material injury due to the imports, and (2) the International Trade Administration (ITA) of the 6
Department of Commerce must find that the targeted imports have been subsidized. Prior to the
recent CVD investigation on CFS paper, the ITA had determined not to apply CVD laws to
nonmarket economy countries, including China, because the agency believed that there is no
adequate way to measure market distortions caused by subsidies in an economy that is not based
on market principles. However, the ITA has recently determined that it may be possible to
identify subsidies in China because, even though it is still designated as a nonmarket economy, 7
many industries in the Chinese economy operate according to market principles.
For purposes of the trade remedy laws, the ITA is also the agency responsible for designation of
countries as nonmarket economies, defined by law as “any foreign country that the administering
authority [ITA] determines does not operate on market principles of cost or pricing structures, so 8
that sales of merchandise in such country do not reflect the fair value of the merchandise.” NME
designations are based on the extent to which (1) the country’s currency is convertible; (2) its
5 International Trade Commission, Coated Free-Sheet Paper from China, Indonesia, and Korea (Final), Publication
3695, December 2007.
6 19 U.S.C. 1671 et seq. See CRS Report RL32371, Trade Remedies: A Primer, by Vivian C. Jones.
7 International Trade Administration, “Countervailing Duty Investigation of Coated Free Sheet Paper from the People’s
Republic of China - Whether the Analytical Elements of the Georgetown Steel Opinion are Applicable to China’s
Present-Day Economy,” Memorandum, March 29, 2007.
8 19 U.S.C. 1677(18)(A). The following are ITA-designated NME countries: Armenia, Azerbaijan, Belarus, China,
Georgia, Kyrgyz Republic, Moldova, Tajikistan, Uzbekistan, and Vietnam.
wage rates result from free bargaining between labor and management; (3) joint ventures or other
foreign investment are permitted; (4) the government owns or controls the means of production;
and (5) the government controls the allocation of resources and price and output decisions. The 9
ITA may also consider other factors that it considers appropriate.
The ITA made the determination not to apply CVD action to NME countries in 1983-84 in
connection with countervailing investigations of two cases of alleged subsidization, one dealing
with carbon steel wire rod imported from Czechoslovakia and Poland, and the other with imports
of potassium chloride (potash) from the German Democratic Republic (East Germany) and the
Soviet Union. All of them at the time were treated as nonmarket economy countries.
Total U.S.-China trade rose to $343 billion in 2006. China (an NME country) is the United States’
second largest trading partner, the second largest source of U.S. imports, and its fourth largest
export market. The $232.6 billion (2006) U.S. trade deficit with China and the adverse impact of
Chinese imports on competing U.S. industries and workers, among other things, has led some in
Congress to support more aggressive enforcement of U.S. trade remedy laws against Chinese 10
One area of concern has been China’s alleged use of “illegal” subsidy programs to bolster its
industries and spur export growth. Many U.S. domestic producers have complained for years that
they are adversely impacted by China’s subsidizing its industries, but the 1984 ruling meant that
there was essentially no recourse to deal with the issue. However, China is the chief target of U.S.
antidumping action, with 62 AD duty orders outstanding and 12 AD investigations pending as of
July 20, 2007. In addition, AD duty amounts tend to be higher for Chinese imports, due in part to 11
the methodology employed by the ITA when calculating AD duties for NME countries.
Another related concern involves charges by many U.S. policymakers, business people, and labor
representatives that China’s currency is significantly undervalued vis-à-vis the U.S. dollar, which,
they allege, makes Chinese exports much cheaper than they would be if Chinese exchange rates 12
were determined by market forces. In turn, they argue that the undervalued currency has
contributed to the U.S. trade deficit with China, and has hurt U.S. production and employment in
several manufacturing sectors (such as textiles and furniture) because U.S. companies must 13
compete with “artificially” lower cost goods from China. The issue of alleged Chinese
“currency manipulation” has led to renewed congressional interest in applying countervailing 14
action to imports from China, and in turn, to finding currency manipulation countervailable.
9 19 U.S.C. 1677(18)(B).
10 See CRS Report RL33536, China-U.S. Trade Issues, by Wayne M. Morrison, for a more comprehensive treatment of
11 See Government Accountability Office. U.S. - China Trade: Eliminating Nonmarket Economy Methodology Would
Lower Antidumping Duties For Some Chinese Companies. GAO Report No. GAO-06-231, January 2006.
12 See CRS Report RL32165, China’s Currency: Economic Issues and Options for U.S. Trade Policy, by Wayne M.
Morrison and Marc Labonte for a discussion of this issue.
The applicability of NME classification with regard to China was determined in an ITA
Preliminary Determination of Sales at Less than Fair Value, Greige Polyester Cotton Print Cloth 15
from China (March 1983). On May 15, 2006, the ITA reaffirmed this determination (and more
comprehensively in an August 30, 2006 memorandum) in the context of an investigation on 16
certain lined paper from China. According to current U.S. law, any determination that a foreign 17
country is a nonmarket economy country remains in effect until specifically revoked by the ITA.
Therefore, since the ITA further determined (in December 1983), that subsidies could not be
found in NME countries, countervailing action against China had not been initiated since 1991—
until the ongoing case on coated free sheet paper was presented.
In China’s case, however, the NME designation may only be used for a limited time, because its
World Trade Organization (WTO) accession package specified that the “importing WTO member
may use a methodology that is not based on a strict comparison with domestic prices or costs in
China” for both antidumping and countervailing actions only for 15 years after the date of
accession (or December 11, 2016). After that date, the United States and other World Trade
Organization (WTO) members may no longer use nonmarket economy or “surrogate country” 18
methodology when determining price comparability in CVD or AD investigations.
At the time the 1983-1984 investigations were initiated, the United States had in force two
countervailing duty laws. Both provided for the imposition, on imports of already dutiable (but
not duty-free) products that had been subsidized in their country of origin, of a countervailing
duty in the amount of such subsidization. Both laws also required a determination of the existence
and amount of subsidization to be countervailed, but one of the laws also required a finding that
the subsidized imports have caused or threatened to cause injury to a U.S. domestic industry.
The earlier of the two laws (Section 303 of the Tariff Act of 1930, repealed) was a minimally
modified version of the countervailing law of general applicability, initially enacted by the Tariff
Act of 1897, and at the time of the two cases above applied only to products of countries other
than countries “under the Agreement,” meaning (1) any country to which the GATT Subsidies
and Countervailing Code applied, or (2) had assumed Code-equivalent obligations with respect to
the United States, or (3) the President determined the existence of an agreement with the United
States containing certain relevant provisions specifically spelled out in the statute. This statute—
repealed effective January 1, 1995, by Section 261(a) of the Uruguay Round Agreements Act
(URAA) (P.L. 103-465)—provided for the levying of a countervailing duty (CVD) equal to the
net amount of public or private subsidization (defined as “any bounty or grant, however the same
be paid or bestowed”) without any need for injury determination.
15 48 F.R. 9897.
16 ITA. The People’s Republic of China (PRC) Status as a Non-Market Economy (NME). Memorandum, May 15, 2006.
The ITA conducted a more comprehensive analysis of the issue in Antidumping Investigation of Certain Lined Paper
Products from the People’s Republic of China (“China”). China’s Status as a Non-Market Economy (“NME”).
Memorandum, August 30, 2006.
17 19 U.S.C.1677(18)(C)(I).
18 World Trade Organization. Accession of the People’s Republic of China. WTO Document WT/L/432, p. 9.
Countervailing legislation with much broader country applicability (i.e., to countries “under the
Agreement”) consisted of comprehensive provisions (including detailed procedural provisions)
added by the Trade Agreements Act of 1979 (P.L. 96-39) as Subtitle A of Title VII to the Tariff 19
Act of 1930. That U.S. law implemented the provisions of the international Subsidies and
Countervailing Code agreed to in multilateral trade negotiations under the auspices of the General
Agreement on Tariffs and Trade (GATT) in Geneva in April 1979. Under this legislation, most of
which is still in force in a somewhat amended language, the assessment of a countervailing duty
required—in addition to a determination that a “country under the Agreement” or a private entity
in such country was providing “directly or indirectly, a subsidy with respect to the manufacture,
production, or exportation” of merchandise imported into the United States—a determination that
such imports have caused, or threatened with, injury to an industry in the United States, or that
the establishment of an industry in the United States is thereby materially retarded.
The URAA, in addition to repealing section 303 and omitting subsidies from a private source as
being countervailable, also amended the countervailing duty law of the 1979 Act by incorporating
into it provisions comparable to those of section 303, which do not require injury determination in
countervailing investigations of subsidized imports from countries other than “Subsidies
Agreement countries.” The latter have been defined in the same way—with appropriate updating
technical changes—as the countries under the Agreement under the Trade Agreements Act of 20
Parallel countervailing duty investigations of carbon steel wire rod imports from Czechoslovakia 21
and Poland were initiated on December 13, 1983, pursuant to petitions filed with the
International Trade Administration on November 23, 1983, by four U.S. steel manufacturers. The
petitions alleged that manufacturers, producers, or exporters of the product in question in either
country received public benefits within the meaning of the countervailing law. Specifically, the
petitions for countervailing action alleged that “bounties or grants” were provided in both
countries in the form of a multiple exchange rate system, and a partial hard-currency retention
program for exporting firms. In addition, Czechoslovakia allegedly had in effect a system of
industry-specific trade conversion coefficients for the official exchange rate, and tax exemption
for foreign trade earnings, while Poland provided price equalization payments for losses incurred
due to foreign sales below domestic prices.
Both cases proceeded in parallel, and the determinations on issues they had in common were
identical except for a few minor, country-specific differences. Therefore, page references to the
Federal Register included in this report will be only those dealing with the Czechoslovak case,
unless an issue specific to one country is discussed.
19 19 U.S.C. 1671-1671h.
20 19 U.S.C. 1671(b).
21 Carbon steel wire rod from Czechoslovakia (48 F.R. 56419) and Carbon steel wire rod from Poland (48 F.R. 56419).
In its notices of initiation of investigation, the ITA found both countries to be “countries not under
the Agreement,” and conducted the countervailing procedure according to provisions of Section
303, hence, without the need for determining injury. In addition, the ITA considered both of them
nonmarket economy (NME) countries, but specifically pointed out that it had not yet resolved the
question “whether the countervailing duty law [either Section 303 or the countervailing duty
provision of Title VII] applies to nonmarket economy countries [as such].”
Although this issue had arisen almost a year earlier in connection with a CVD investigation of 22
textile imports from China, it was not resolved then because the CVD petition was withdrawn 23
by the petitioners, meaning that the investigation terminated. The issue, however, was 24
subsequently addressed in the preliminary determinations in the two carbon steel wire rod cases.
In both cases, the ITA found that “nonmarket economy countries are not exempted per se from
the countervailing duty law,” since Section 303, by its statutory terms as well as based on its
legislative history, applied to “any country...”
Weighing its own tentative initial literal interpretation of the country applicability of the provision
and the arguments introduced earlier in the consideration of the China textiles case—focusing on
the difference in the effects of government intervention in a market and nonmarket economy—the
ITA, however, was “dispose[d] to not exclude nonmarket ... economies from its application
without further review in each particular case.” The ITA, consequently, had its “first opportunity
to determine preliminarily whether practices by a government of a so-called nonmarket economy
country confer countervailable benefits.”
Focusing on prices as the key elements of subsidization, the ITA, in the ensuing detailed analysis
of the situation in both countries, pointed out that
[i]n nonmarket economies, central planners typically set the prices without any regard to
their economic value. As such, these prices do not reflect scarcity or abundance. For
example, when a product is scarce in a market economy, its price will increase. In a
nonmarket economy, however, the price of a scarce good will not go up unless the central
planners mandate a new, higher price. Even if we can identify an internally set price, that
price does not have the same meaning as a price in a market economy (49 F.R. 6770).
The ITA then analyzed in detail the alleged subsidization programs by determining, first, whether
they would confer a subsidy in a market economy, and then whether the conclusion would be
different for an NME country. The ITA concluded preliminarily that multiple exchange rates,
currency retention schemes, trade conversion coefficients, and price equalization payments do not
confer a bounty or grant either in market or in nonmarket economies; that the Polish adjustment
coefficient program did not constitute a bounty or grant within the meaning of the law; and that
the agency had not received sufficient timely information on the Czechoslovak tax exemption
program to make a determination. On the basis of these findings, the ITA preliminarily
determined that, while Congress did not exempt NME countries as such from the CVD law, the
alleged Czechoslovak and Polish practices were not providing bounties or grants within the
meaning of the CVD law. As the CVD law required, the ITA continued both investigations into
their final phase.
22 48 F.R. 46600.
23 48 F.R. 55492.
24 Czechoslovakia: 49 F.R. 6773; Poland: 49 F.R.6768.
In the final phase of these two investigations, the ITA focused on the unresolved issue of the
application of the CVD law to nonmarket economy countries. In its detailed and comprehensive 25
final determinations in the two carbon steel wire rod cases, the ITA first concluded “that
Congress never has confronted directly the question of whether the countervailing duty law
applies to NME countries.” It pointed out that Congress did not even debate, much less legislate
on this issue, either in 1974 (when the concept of nonmarket economy countries was introduced
into trade legislation and remedies were provided specifically with respect to imports from them,
and Congress also amended the CVD law) or in 1979 (when the CVD law was thoroughly
restructured, and the application of unfair-pricing remedial legislation was dealt with in detail, but
only with respect to dumping by NME countries).
The ITA found it significant that, in the Trade Act of 1974, Congress enacted remedial provisions
dealing specifically with injurious imports from “State-controlled-economy” or “Communist”
countries—both terms functionally equivalent to that of “nonmarket economy” countries used in
another part of the same Act—in the context of antidumping and “market disruption” (NME-
specific import-relief action) but not with respect to countervailing action. In this, pointed out the
ITA, citing the Senate report on the 1974 Act (S.Rept. 93-1298), Congress recognized the need
for special remedial legislation applicable to State-controlled-economy countries because
traditional fair- or unfair-trade remedies were insufficient or have proven inappropriate or
ineffective because in “State-controlled-economy countries ... supply and demand forces do not
operate to produce prices” and “because of the difficulty of [the] application [of such remedies] to
products from State-controlled economies” (cited at 49 F.R. 19373).
Likewise, in the legislative history of the thorough restructuring of the CVD law by the Trade
Agreements Act of 1979, there was nothing regarding any aspect of the application of the CVD
law to NME countries, although the Subsidies and Countervailing Code of the General
Agreement on Tariffs and Trade, implemented for the United States by that act, in Article 15
“explicitly permits [GATT] signatories to regulate unfairly priced imports from NME countries
under either antidumping or countervailing duty legislation” (49 F.R. 19373).
The ITA also consulted with other U.S. government and academic sources, which, briefly,
concluded that “it is ... only ‘remotely possible’ to identify and quantify subsidies in NMEs;”
“most of the analysis used thus far for ... subsidies, is entirely inapplicable.... Theoretically, any
given sale may be subsidized or not, but since there is no market reference point, it is idle to
speak in such terms.” To one author, the countervailing duty law appears to require identification
and measurement of a resource transfer from the state to the producer, but “this is simply not a
measurable event in the typical nonmarket economy;” and “The extent to which a nonmarket
system ... can be said to be subsidising will always be unclear” (all cited at 49 F.R. 19374).
Claiming broad discretion in this matter earlier recognized by the judiciary the ITA concluded
that a “bounty or grant,” within the meaning of the countervailing duty law, cannot be found in an 26
NME. The ITA also determined that Czechoslovakia and Poland were NMEs, since they
operated “on principles of nonmarket cost or pricing structures so that sales or offers for sale of
merchandise ... do not reflect the value of the merchandise.” Accordingly, the ITA determined that
25 Czechoslovakia: 49 F.R. 19370; Poland: 49 F.R. 19374.
26 49 F.R. 19374.
manufacturers, producers, or exporters in Czechoslovakia and Poland did not receive bounties or 27
grants, and issued, effective May 7, 1984, final negative countervailing duty determinations.
Shortly before the completion of the countervailing duty investigations of carbon steel wire rod,
two U.S. chemical manufacturers filed (on March 30, 1984) petitions alleging subsidization of
potassium chloride (potash) imported from the German Democratic Republic and the Soviet 28
Union, whereupon the respective investigations were initiated as of April 26, 1984. Because of
the subsequent determination in the carbon steel wire rod cases that bounties or grants within the
meaning of the countervailing duty law cannot be found in an NME (and both countries were
determined to be NMEs), the ITA on June 6, 1984, rescinded the two potassium chloride (potash) 29
investigations and dismissed the relevant petitions.
Since the conclusion of the wire rod and potash countervailing duty cases (see next section) the
ITA has not initiated any countervailing investigations of allegedly subsidized imports from NME
countries, with one specialized exception. Based on a petition filed on October 1, 1991, the ITA,
on November 13, 1991, initiated a countervailing duty investigation of Ceiling and Oscillating 30
Fans Imported from China. The petitioner claimed that, while China was an NME country, “the
PRC fan sector operates substantially pursuant to market principles and that the CVD law should
The petition was apparently based on the fact that ITA had, meanwhile, procedurally introduced
into antidumping investigations of imports from NME countries the concept of market-oriented
industry (MOI) as a means of determining whether an industry in an NME country is sufficiently
market-oriented (i.e., free from state control) to enable the ITA to use the economic data provided
by the industry itself (rather than those of a surrogate market-economy country) in determining
fair market value of the imported product subject to the investigation.
The petitioners in the Chinese fan CVD case claimed that the Chinese fan industry was an MOI
with dependable self-provided data (including those relating to subsidization) and, hence, could 31
objectively be subjected to a countervailing investigation. In its preliminary investigation, the
ITA concluded that the prices of several inputs are not market-determined and, hence, the industry
cannot be considered an MOI, but believed that the information used as the basis for the
determination should be verified and did not rescind the investigation. In its final, more
comprehensive phase of the investigation, the ITA concluded that “the prices of several
significant inputs are not market-determined” and therefore “the PC fans industry is not an MOI.”
... “As a result ... the CVD law cannot be applied to the PRC fan industry” and the ITA issued 32
final negative determination in the case.
27 49 F.R. 19374 and 19378.
28 Potassium chloride from the German Democratic Republic (49 F.R. 18000) and Potassium chloride from the Soviet
Union (49 F.R. 18002).
29 49 F.R. 23428.
30 56 F.R. 57616.
31 57 F.R. 10011.
32 57 F.R. 24018.
Following the ITA’s negative determinations in the carbon steel wire rod cases and the dismissal
of the potassium chloride cases, the petitioners challenged those actions in the U.S. Court of
International Trade (CIT). The court consolidated both suits and, on July 30, 1985, held that
“countervailing duty law covers countries with nonmarket economies in light of fact that
governmental subsidies that are target of law may be found in nonmarket economies as well as in
market economies” (p. 548). The CIT reversed the carbon steel wire rod cases and remanded
them to the ITA for determinations consistent with the court’s opinion, and set aside the
rescissions of the potash cases and ordered that their investigations be resumed (p. 557).
The CIT, in its detailed opinion, addressed each of the four grounds on which the ITA had based
its determination of nonapplicability of countervailing procedure to NME countries: (1) the view
that a subsidy cannot be conferred in a nonmarket economy “because a subsidy, by definition,
means an act which distorts the operation of a [free] market” (both italics in the original); (2)
congressional “silence” on the issue and the apparent preference for other trade remedial
procedures; (3) consensus of academic opinion as to nonapplicability of CVD law to NME
countries; and (4) the ITA’s asserted broad discretion to determine the existence or nonexistence
The CIT held that the ITA had made a basic error in interpreting and administering the CVD law
by concluding that, in its opinion, subsidies cannot be found in nonmarket economies. The court
emphasized that, absent clear legislative intent to the contrary, the plain language of the CVD law
must ordinarily be regarded as conclusive (p. 551). Hence, it applies to any country and,
therefore, does not allow for any per se exemptions of any political entity, a fact that the ITA
itself appears to have recognized in its determinations.
The ITA, in the court’s view, “institute[d], by administrative fiat, a major exemption for countries
with nonmarket economies” by redefining the term “subsidy” as “a distortion of the operation
[solely] of a market economy,” thereby attempting to amend the CVD law (p. 552). Although the
ITA had recognized that the CVD law did not allow for per se exemptions (see p. 3), it claimed
that countries with nonmarket economies (i.e., political entities of a certain type) were exempt
because of their NME status, illogically contradicting the meaning of the CVD statute. The
difficulties of the CVD law, said the CIT, are not those of its meaning, but rather problems of
measurement, which are precisely within the expertise of the agency.” The ITA “has the authority
and ability to detect patterns of regularity and investigate beneficial deviations from those
patterns—and it must do so regardless of the form of the economy” (p. 554).
As to the ITA’s argument that Congress’ “silence” on the applicability of the CVD law to NME
countries and its apparent preference for other remedial measures—among them antidumping
33 This report presents the relevant courts’ views in a highly summarized form, and strives not to omit any of their
salient points. However, it is also far from being a legal analysis of such views. If the detail or a legal analysis of the
judicial opinions is required, their actual texts, identified in this report by page references to, respectively, 614 Federal
Supplement, or 801 Federal Reporter 2d, should be consulted. Requests for legal analysis should be addressed to the
American Law Division of the Congressional Research Service.
law, which does contain specific provisions dealing with NME countries—the CIT pointed out
that those measures have been established for remedying specific trade problems other than
subsidization. Moreover, said the court. Article 15 of the GATT Subsidies and Countervailing
Code, implemented for the United States by the Trade Agreements Act of 1979, “clearly gives a
country the choice of using subsidy law or antidumping law for imports from a country with a
state-controlled economy” (p. 556).
The court summarily dismissed the ITA’s recourse to the views of “economic academia” “that the
government of a country with a nonmarket economy cannot show what amounts to favoritism
towards the manufacture, production, or export of particular merchandise. The idea violates
common sense and conflicts with a rational construction of the law” (p. 554-555).
ITA’s alleged assertion of its “broad discretion to determine the existence or nonexistence of
subsidies” (p. 550) was not specifically addressed by the court; it was, however, implicitly
challenged in the lengthy critique of administrative actions that, in the court’s view, were contrary
to law and, in effect, were attempts “to amend the countervailing law ... by administrative fiat” (p.
The U.S. government appealed the CIT decision to the U.S. Court of Appeals for the Federal
Circuit, which—focusing on the potash cases—reviewed in detail the legislative history and
development of relevant trade remedy laws and concluded that the CVD statute under which
these investigations were conducted (Section 303 of the Tariff Act of 1930) had remained
“substantially unchanged from the first general countervailing duty statute the Congress enacted
[in 1897] ....”
Since Congress had not “defined the terms ‘bounty’ and ‘grant’ as used in section 303,” the
appellate court concluded it could not “answer the question whether that section applies to
nonmarket economies by reference to the language of the statute” nor could it, on the other hand,
answer it by concluding that, on the basis of the statutory language, “Congress has not attempted
to exclude nonmarket economies from what the court believed to be the sweeping reach of the
section.” Since “at the time of the original enactment there were no nonmarket economies;
Congress ... had no occasion to address the issue ...” Hence, it remained for the court to
“determine, as best [it could], whether when Congress enacted the countervailing duty law in
Based on the relevant aspects of the potash case, the appellate court concluded that the economic
incentives and benefits provided by the Soviet Union and East Germany to their exports of potash
to the United States did not constitute bounties or grants under the applicable CVD law (p. 1314).
The court also said it followed a precedent which “recognized that the agency administering the
countervailing duty law [i.e., the ITA] has broad discretion in determining the existence of a
‘bounty’ or ‘grant’ under that law” and, further, that it could not “say that the Administration’s
conclusion that the benefits the Soviet Union and the German Democratic Republic provided for
the exports of potash to the United States were not bounties or grants under section 303 was
unreasonable, not in accordance with the law or an abuse of discretion” (p. 1318).
In conclusion, the Court of Appeals on September 18, 1986, vacated the CIT order insofar as it
reversed the ITA’s final CVD determinations in the two wire rod cases, and remanded them to the
CIT with instructions to dismiss the complaint for lack of jurisdictions (because the complaint
was not timely filed). It also reversed the CIT order insofar as it set aside the ITA’s final actions in
the potash cases (p. 1318).
The decision of the U.S. Court of Appeals for the Federal Circuit in the wire rod and potash cases th
triggered immediate reaction in Congress. H.R. 3 of the 100 Congress (Trade and International
Economic Policy Reform Act of 1987; introduced on January 6, 1987), as passed by the House,
provided for the application of the countervailing duty law to nonmarket economy countries to
the extent that a subsidy can reasonably be identified and measured by the administering authority
(the ITA, see section 157). The proposed statute also contained detailed procedural provisions,
including a requirement of injury determination by the U.S. International Trade Commission,
whenever international obligations of the United States required it (H.Rept. 100-40, Part 1, p.
passed language was dropped in conference (H.Rept. 100-576, p. 628; April 20, 1988).
As H.R. 3 was being considered, companion bills S. 770 and H.R. 1687 were introduced on
March 18 and 24, 1987, respectively, to apply CVD provisions to imports from a state-controlled
economy country, but were not further considered.
The application of CVD law to NME countries was addressed again in the 103rd and 104th rd
Congresses. In the 103 Congress, Section 105 of S. 90 (Trade Enforcement Act of 1993,
introduced on January 21, 1993) expanded the definition of “countervailable subsidy” in the
Tariff Act of 1930, as amended by the Uruguay Round Agreements Act (P.L. 103-465), by
applying it to NME countries and prescribing the determination of its amount by using a
surrogate market-economy country method (as used in antidumping investigations). An identical th
provision was included in the 104 Congress as Section 103 in S. 1148 (Economic Revitalization
Act), introduced on August 10, 1995. Both bills died in committee.
In the 106th through 108th Congresses, identical bills (H.R. 3198 in the 106th Congress; H.R. 784 thth
in the 107 Congress; and H.R. 3716 in the 108 Congress) were introduced, applying the CVD
duty law to NME countries and applicable to investigations of subsidies provided on or after the
date of the enactment of the respective act. Virtually identical bills, but applicable to CVD
investigations pursuant to petitions filed on or after the date of the enactment of the respective act, th
were introduced in the 108 Congress (H.R. 3716 and S. 2212). All of these bills died in
Two free-standing bills with identical operative provisions were introduced in the 109th Congress
on March 10, 2005: S. 593 (Collins, Stopping the Overseas Subsidies Act of 2005) and H.R. 1216
(English), providing for application of CV duties to subsidized imports from NME countries,
based on all petitions filed on or after the date of the enactment of the legislation.
In order to assure the consideration of S. 593 in the Senate, Senator Evan Bayh, one of its original
sponsors, on April 12, 2005, placed a hold on the confirmation of then-Representative Rob
Portman as the U.S. Trade Representative until Senate leadership would allow a vote on S. 593;
on April 27, 2005, Senator Bayh proposed amendment S.Amdt. 568, identical with S. 593, to
H.R. 3, but on April 28, 2005, withdrew the amendment and released the hold.
Provisions requiring application of CV action to imports from NME countries were subsequently
included as Section 3 in broader trade-remedial legislation (United States Trade Rights
Enforcement Act), introduced on July 14, 2005 (H.R. 3283, English) and July 19, 2005 (S. 1421,
Collins). In addition to amending Title VII of the Tariff Act of 1930 by subjecting NME countries
to CV action, the legislation sought to provide operational definitions of countervailable subsidy
with respect to China. The bill also would have prohibited double-counting of countervailable
subsidies in any antidumping order on the same product imported from the same country. These
provisions would have applied to a CVD petition filed on or after 30 days after the enactment
date of the act, while the AD double-counting provision would have applied to any subsequently
made AD preliminary, final, or administrative-review determination.
After failing to pass in the House on July 26, 2005 under suspension of the rules (240-186), H.R.
3283 was considered the following day under the provisions of H.Res. 387 (an original closed
rule, reported on July 26, 2005, in H.Rept. 109-187 and agreed to 228-200 on July 27, 2005) and
passed on July 27, 2005 (255-168). The measure was received in the Senate on July 28, 2005, and
referred to the Committee on Finance.
In somewhat simpler language, H.R. 3306 (Fair Trade with China Act of 2005), focused its
findings exclusively on problems in trade with China, but in Section 3 subjected all (including
China) NME countries to countervailing action, effective with respect to CVD petitions filed on
or after the enactment date of the bill. The provision also specified that the application of CV
action to nonmarket economy countries would have in no way affected the NME status of a
country under antidumping provisions of the Tariff Act of l930 (several of which deal specifically
with AD action against NME countries).
Triggered by alleged foreign exchange-rate manipulation by China, Section 3 of H.R. 1498
(Chinese Currency Act of 2005, introduced April 6, 2005, and referred to House committees on
Ways and Means, and Armed Services) sought to define any such manipulation as a
Several bills seeking to apply countervailing duty law to NME countries have been introduced in th
the 110 Congress to date: S. 364 (Rockefeller, introduced January 23, 2007); H.R. 571
(Tancredo, introduced January 18, 2007); H.R. 708 (English, introduced January 29, 2007); H.R.
2007), and related bill S. 796 (Bunning/Stabenow, introduced March 7, 2007); H.R. 1229
(Davis/English, introduced February 28, 2007) and related bill S. 974 (Collins/Bayh, introduced
March 22, 2007); and S. 1919 (Baucus, introduced August 1, 2007).
Eight of the bills (S. 364, H.R. 708, H.R. 782, S. 9, H.R. 2942, and H.R. 1229/S. 974, and S.
1919) seek to direct administrative authorities to apply CVD laws to NME countries. H.R. 571
(Tancredo) seeks to apply an additional across-the-board tariff on imports from NME countries.
H.R. 1229, S. 974 (sec. 2(a)), and S. 1919 (sec. 401(a)) seek to expand the description of
countervailable subsidy to specifically include nonmarket economy countries. H.R. 1229 and S.
974 also would provide a China-specific alternative methodology for determining the amount of
subsidy if special difficulties are found (sec. 2(b)). Whether or not China is designated as a
nonmarket economy country, administrative authorities would be directed to use “methodologies
that take into account the possibility that terms and conditions prevailing in China may not be
applicable as appropriate benchmarks.” In these situations, authorities would be directed to adjust
the terms and conditions prevailing in China before using those prevailing outside of China.
However, if authorities have determined that China is an NME country, they would be directed to
“presume” that special difficulties do exist, that it is not practicable to consider and adjust for
Chinese terms and conditions, and that “terms and conditions prevailing outside of China” (e.g.,
surrogate market economy country or world market data) should be used to calculate the amount
H.R. 708 (sec. 110(a)) would amend the CVD statute by providing methodology that would apply
to all countries, regardless of market economy status. Authorities would be directed on the basis
of a “reasonable indication that a financial contribution” has distorted input prices of the subject
merchandise, or if price data are unavailable, to “measure adequacy of remuneration” by referring
to input prices for similar goods or services from outside the country subject to investigation or
review. Where possible, the data should be adjusted to reflect prevailing market conditions in the
country. This surrogate data methodology would also apply to prices within political subdivisions,
or other dependent territories of countries.
S. 364 (sec. 301) would also apply CVD for all countries, regardless of market economy status. If
there is a reasonable indication that government intervention has distorted prices or other
economic indicators, or if prices or other economic indicators are not available, the administering
authority would be directed to measure the benefit conferred using price and economic data from
a surrogate country or other political subdivision, if applicable.
When measuring the amount of subsidy in nonmarket economy countries, H.R. 782, H.R. 2942,
and S. 796 (sec. 102(b)) would direct the administering authority to use methodologies that take
into account the possibility that “prevailing terms and conditions” are not available, or are
inappropriate benchmarks. In such cases, unless it can be demonstrated that these conditions can
be adjusted to serve as appropriate benchmarks, the administering authority should use terms and
conditions prevailing outside the NME country. These bills would also direct the administering
authority to use “facts otherwise available” and draw “adverse inferences” if a party is in
possession of information necessary to identify the amount of subsidy does not provide it for the 34
record in a timely manner.
34 The terms in quotes allude to specific methodology provided in U.S. trade remedy laws. When sufficient data are
available from the respondent in an AD or CVD investigation, the ITA generally uses these data to calculate AD or
CVD duties—in which case, the duties assessed are generally the most favorable to the respondent. If these data are not
available, the ITA may use “facts available” (including data gathered from the petitioner or other external sources)
which may result in less favorable (higher)duty margins than if the respondent’s data were used. An “adverse
inference” may be drawn if the ITA finds that the respondent is obstructing or not cooperating with an investigation. In
these cases, the ITA may use the least advantageous figures among the facts available when calculating the duty
amounts, which generally results in much higher AD or CVD duties. (See Department of Commerce. Import
Administration Antidumping Manual, Chapter 6—“Fair Value Comparisons,” p. 11, http://ia.ita.doc.gov/admanual/
H.R. 708 (sec. 118), S. 364 (sec. 206), and H.R. 1229 (sec. 3) in similar (but not identical)
language, seek to amend current law so that a country’s NME status is revoked by (1) a
determination by the administering authority and (2) a joint resolution of Congress. In each
proposal, the President is directed to notify the committees of jurisdiction if the administering
authority has made such a determination, after which the joint resolution would be introduced.
The bills also specify procedures and time limits for debate in both houses. S. 364 (sec. 206(d))
and H.R. 708 (sec. 112(d)) also propose specific legislative language for the joint resolution.
S. 364 (sec. 302) and H.R. 782, H.R. 2942, and S. 796 (sec. 103(b)) would provide for the
treatment of foreign exchange-rate manipulation (“misalignment”) as a countervailable subsidy
and seek to amend current law to include specific definitions and factors for administering
authorities to consider when determining its existence.
H.R. 571 (Tancredo, introduced January 18, 2007) seeks to apply an additional across-the-board
tariff on imports from NME countries and proposes to direct the additional duty revenue to
designated Social Security Trust Funds.
In response to the concerns of domestic manufacturers of import-competing products and some in
Congress, the Bush Administration has taken two steps in dealing with China’s trade practices
since late 2006—first, by carrying out a CVD investigation on a product from China, second, by
initiating talks in the WTO on China’s subsidy regime, and third, by accepting several other CVD
petitions against products from China.
On November 27, 2006, the ITA announced that it had initiated a CVD investigation (on coated
free-sheet (CFS) paper) against China. In the first phase of the investigation, the International
Trade Commission (ITC) preliminarily determined on December 15, 2006, “that there was a
reasonable indication that a U.S. domestic industry is materially injured or threatened with
material injury” by reason of allegedly subsidized coated paper from China—thus referring the
case back to the ITA for a preliminary determination on subsidization. If the ITC had made a
negative determination, the investigation (including any ITA determination of the applicability of
CV action to NME countries within the context of the investigation) would have terminated at
On March 30, 2007, the ITA also announced an affirmative preliminary determination of subsidy
in the CVD investigation. Preliminary estimates of net countervailable subsidy rates were set, 35
ranging from 10.9 to 20.35 percent.
The next phase of the CVD investigation continued at the ITA. In mid-October, the ITA made its
final determination that “countervailable subsidies are being provided to producers and exporters 36
of coated free sheet (CFS) paper from the People’s Republic of China.” Final subsidy amounts
ranged from 7.40 to 44.25 percent.
In the course of its preliminary investigation on CFS paper, the ITA concluded that “while China
has enacted significant and sustained economic reforms, the PRC government has preserved a 37
significant role for the state in the economy.” Even though the ITA stood by its previous
decision reaffirming China’s status as an NME country, the agency also found that China’s
present-day economy is “significantly different” from the “Soviet-style economies” at issue in the
Georgetown Steel case where
(p)rices are set by central planners. ‘Losses’ suffered by production and foreign trade
enterprises are routinely covered by government transfers. Investment decisions are
controlled by the state. Money and credit are allocated by the central planners. The wage bill
is set by the government. Access to foreign currency is restricted. Private ownership is 38
limited to consumer goods.
In contrast, the ITA determined in its March 29, 2007 analysis that market forces actually
determine the prices of more than 90% of products in China, that wages seem to be negotiated, as
opposed to government-set, foreign currency is more accessible, and private ownership rights are 39
acknowledged by the Chinese government. At the same time, “the current PRC government has
instead opted to shrink the role of the state in some areas while preserving it in others, but never 40
ceding fundamental control over the economy to market forces completely.” Therefore, the ITA
concluded, even though China remains an NME country, the current state of China’s economy
permits the agency to determine whether the Chinese government has bestowed a benefit on 41
Chinese producer, and whether any such benefit is specific.
On January 9, 2007, the government of China filed suit in the Court of International Trade in an
effort to prevent the ITA from continuing with the CVD investigation, alleging that the decision
35 72 F.R. 17484.
36 72 F.R. 60645.
37 Department of Commerce, International Trade Administration. “Countervailing Duty Investigation of Coated Free
Sheet Paper from the People’s Republic of China—Whether the Analytical Elements of the Georgetown Steel Opinion
are Applicable to China’s Present-Day Economy.” Memorandum, March 29, 2007. (Hereinafter ITA March 29, 2007
38 Carbon Steel Wire Rod form Poland; Final Negative Countervailing Duty Determination, 49 F.R. 19375.
39 ITA March 29, 2007 Memorandum, pp. 5-9.
40 ITA March 29, 2007 Memorandum, p. 9.
41 ITA March 29, 2007 Memorandum, p. 10.
by the Court of Appeals for the Federal Circuit held “unequivocally” that the applicable statute
did not allow application of the CVD law to NME countries. On March 29, 2007, the Court ruled
that it did not have jurisdiction to hear the case because no final determination had been made.
Although the Court did not rule on whether the ITA has the legal authority to apply CVD law to
NMEs, it did state that “it is not clear that Commerce is prohibited from applying countervailing 42
duty law to NMEs.”
On September 14, 2007, China requested WTO dispute settlement consultations with the United
States on its preliminary antidumping and countervailing duty determinations on CFS paper. The
U.S. Trade Representative announced the move and requested comments from the public on 43
October 10, 2007.
On December 7, 2007, the ITC announced its negative determination of injury in both the 44
countervailing and antidumping investigations on CFS paper. A summary of the reasons for this
Given the modest imminent increase in production capacity in China and Indonesia, the
absence of any potential for product shifting, the lack of evidence of significant price
effects from these imports during the period examined, the moderate inventories of the
subject merchandise, the absence of negative effects of the subject imports on the
development and production efforts of the domestic industry, and our conclusion that the
domestic industry is not vulnerable, we find that material injury by reason of subject
imports will not occur absent issuance of antidumping and countervailing duty orders
against subject imports from China and Indonesia. We therefore conclude that the
domestic CFSP industry is not threatened with material injury by reason of imports from 45
China and Indonesia.
Since the ITC issued a final negative CVD determination, the investigation was terminated and
all estimated duties deposited or bonds posted as a result of the investigation were (or are in the 46
process of being) refunded or canceled.
The most significant actions in this case, however, were the ITA’s determinations that it was able
to measure subsidies in China. As of this writing, there are at least seven additional CVD
investigations being conducted on products from China (see below).
42 U.S. Court of International Trade, Government of the People’s Republic of China v. United States, Slip Opinion 07-
50, March 29, 2007.
43 72 F.R. 57607.
44 International Trade Commission, Coated Free-Sheet Paper from China, Indonesia, and Korea (Final), Publication
3695, December 2007. The countervailing investigation was initiated only against China, but the antidumping
investigation determination voted on at the same time involved imports from Indonesia and South Korea as well.
45 Ibid., page 26.
46 72 F.R. 60647.
On February 2, 2007, the USTR announced that the United States had requested WTO dispute 47
settlement consultations with China over its use of “what we contend are illegal subsidies.” This 48
is the first step in the WTO dispute settlement process. On March 9, 2007, USTR Susan Schwab
announced that China had agreed to terminate one of the nine challenged subsidy programs—a
regulation implemented by China’s central bank that allowed large exporters to take advantage of 49
discounted loans not available to other companies.
In its formal request for consultations, the United States pointed to several tax laws (including
nine specifically cited laws) and other measures that appear to be used by the Chinese
government in order to provide tax refunds or exemptions to Chinese businesses if they purchase
domestically produced goods instead of foreign products, provided they meet certain export 50
performance criteria. The USTR stated that these subsidies “can distort trade conditions for U.S.
manufacturers, small and medium-sized enterprises (SMEs) and their workers in multiple
industries. They are available across manufacturing sectors, so they can inhibit U.S. exports of a
huge range of products to China, and provide an unfair advantage to China’s exports in the United 51
States and around the world.”
On February 28, 2007, Mexico also requested talks with China on the same list of subsidies.52 On
March 20, 2007, China accepted the requests of Australia, Japan, and the United States to join in
consultations with Mexico on the subsidies issue, as well as the request of Australia, Japan, and 53
Mexico to join with the United States in consultations. If the issues are not resolved through
consultations, the United States may request a dispute settlement panel after the consultations
period ends in early April. Article 9 of the WTO Dispute Settlement Understanding provides that
when more than one WTO Member requests a panel related to the same matter, a single panel
may be established to examine the complaints. It is unclear as of this writing, however, what
course of action the United States and other complainants may take.
On November 29, 2007, USTR Schwab announced that China had agreed to terminate all
subsidies that the United States alleged were illegal under WTO rules by January 1, 2008. China
47 U.S. Trade Representative. Remarks by USTR Susan C. Schwab Regarding U.S. Request for WTO Consultations on
China’s Prohibited Subsidies. February 2, 2007.
48 See CRS Report RS20088, Dispute Settlement in the World Trade Organization: An Overview, by Jeanne J.
49 USTR. “Schwab Laud’s China’s Move to Halt Subsidized Loans Challenged by the United States in WTO Case.”
Press Release, March 9, 2007.
50 Specifically, the United States alleges that China is in violation of Article 3 of the Agreement on Subsidies and
Countervailing Measures (SCM Agreement), Article III.4 of the General Agreement on Tariffs and Trade 1994, and
Article 2 of the Agreement on Trade Related Investment Measures (TRIMS Agreement). According to the United
States, these measures also appear to be in violation of China’s obligations under its WTO accession protocol. WTO.
China—Certain Measures Granting Refunds, Reductions or Exemptions from Taxes and Other Payments. Request for
Consultations by the United States. Request for Consultations, February 2, 2007. WT/DS358/1.
51 U.S. Trade Representative. WTO Case Challenging Chinese Subsidies. Fact Sheet, February 2, 2007.
52 WTO. China—Certain Measures Granting Refunds, Reductions or Exemptions from Taxes and Other Payments,
Request for Consultations by Mexico, February 28, 2007. WT/DS359/1.
53 WTO. China—Certain Measures Granting Refunds, Reductions or Exemptions from Taxes and Other Payments.
Acceptance by China of the Requests to Join Consultations. March 8, 2007 (WT/DS/358/6); March 20, 2007
signed separate Memoranda of Understanding (MOU) with the United States and Mexico
promising to permanently eliminate the WTO-prohibited subsidies. The United States reserved 54
the right to re-initiate the dispute if China does not meet its MOU commitments.
U.S. producers of at least seven other products have petitioned for relief from Chinese imports
under the CVD laws. In each instance, the ITA (and ITC) have initiated investigations. These
products (and current status) include:
• Sodium Nitrite: ITA initiated December 5, 2007 (72 F.R. 68563). ITC
preliminary affirmative determination December 26, 2007 (73 F.R. 2278); ITA
postponement of preliminary determination, January 14, 2008 (73 F.R. 2213);
ITA preliminary determination expected no later than April 7, 2008.
• Lightweight Thermal Paper: ITA initiated October 29, 2007 (72 F.R. 62209). ITC
preliminary affirmative determination December 11, 2007 (72 F.R. 70343); ITA
postponement of preliminary determination, December 11, 2007 (72 F.R. 70303);
ITA preliminary determination expected no later than March 7, 2008.
• Circular Welded Carbon Quality Steel Pipe: ITC initiated June 7, 2007 (72 F.R.
328622); ITA initiated July 5, 2007 (72 F.R. 36668); ITC affirmative preliminary
determination, August 3, 2007 (72 F.R. 43295); ITA postponement of preliminary
determination, November 6, 2007 (72 F.R. 62626); ITA affirmative preliminary
determinations of CVD and of critical circumstances, November 13, 2007 (72
• Light-Walled Rectangular Pipe and Tube: ITC initiated June 28, 2007 (72 F.R.
36479); ITA initiated July 24, 2007 (72 F.R. 40281); ITC affirmative preliminary
determination, August 22, 2007 (72 F.R. 49310); ITA postponement of
preliminary determination, August 20, 2007 (72 F.R. 48618) - ITA preliminary
affirmative determination, November 27, 2007 (72 F.R. 67703).
• Laminated Woven Sacks: ITC initiated June 29 2007 (72 F.R. 36720); ITA
initiated July 25, 2007 (72 F.R. 40839); ITC affirmative preliminary
determination, August 14, 2007 (72 F.R. 46246); ITA postponement of
preliminary determination, September 10, 2007 (72 F.R. 51615) - ITA
preliminary determination November 27, 2007 (72 F.R. 67893).
• Certain New Pneumatic Off-the-Road Tires: ITC initiated June 19, 2007 (72 F.R.
34478); ITA initiated August 7, 2007 (72 F.R. 44122); ITC affirmative
preliminary determination, August 27, 2007 (72 F.R. 50699); ITA postponement
of preliminary determination September 19, 2007 (72 F.R. 52859); ITA
preliminary determination December 17, 2007 (72 F.R. 71360).
• Raw Flexible Magnets: ITC initiated September 28, 2007 (72 F.R. 55248); ITA
initiated October 18, 2007 (72 F.R. 59076); ITC affirmative preliminary
determination, November 2, 2007 (72 F.R. 63629); ITA postponement of
54 U.S. Trade Representative. China to End Subsidies Challenged by the United States in WTO Dispute, Press Release,
November 29, 2007.
preliminary determination, December 3, 2007 (72 F.R. 67911); ITA preliminary
determination expected no later than February 19, 2008.
Since the CFS paper investigation signaled that the ITA is now willing to initiate—as well as
make affirmative determinations of countervailable subsidies—on products from China, it is
likely that U.S. domestic manufacturers of many other products will seek this “new” avenue of
Despite the ITA’s affirmative determination that it is able to identify the existence of subsidies in
China, House Ways and Means Committee Chairman Rangel and Trade Subcommittee Chairman
Levin are among those who have indicated that they intend to move forward with legislation to
“ensure we are combating all unfair trade—whether it is dumping or subsidies—that puts 55
American workers, farmers and businesses at a disadvantage.” Congress may want to consider
some of the following issues as it continues to address application of trade remedies to China.
First, the ITA’s decision that it can identify subsidies in China has no effect on China’s standing
as a nonmarket economy country, or on the NME designations of other countries. It also does not
affect ITA’s ruling that it is unable to find subsidies in NME countries other than China.
Therefore, Congress may want to consider language (i.e., that in H.R. 782, H.R. 1229, and S.
796) to ensure that the CVD laws and actions specifically apply to other NME countries as well
as China. Vietnam, another U.S. trading partner of increasing significance, is also an NME
country. There are two antidumping orders against products from Vietnam as of this writing—on 56
frozen fish filets and frozen or canned warmwater shrimp.
On the other hand, the amount of trade with the other remaining NME countries (Armenia,
Azerbaijan, Belarus, Georgia, Kyrgyz Republic, Moldova, Tajikistan, Turkmenistan, and
Uzbekistan) is not particularly significant at present, and to date, there are no outstanding AD
orders or other significant trade disputes with these countries.
Second, there are currently no specific factors to consider or methodologies provided for
administrative authorities to use when identifying subsidies in nonmarket economies. In contrast,
the antidumping statute does provide such methodology for determining normal value in NME
countries—including the authority to calculate expenses using inputs and factors of production in 57
a market economy country “considered appropriate to the administering authority.” Therefore,
Congress may consider such methodologies as in H.R. 782, S. 364, and S. 796 to apply to all
NME countries, as well as China, possibly including guidelines similar to those in the
It is important to note that making CVD procedures available to U.S. industries is not without its
trade-offs. AD duties tend to be higher than CV duties in general, and AD duties on imports from
55 House. Committee on Ways and Means. “Rangel and Levin Respond to Commerce Subsidy Investigation,” press
release, March 30, 2007.
56 Vietnam’s total trade with the United States amounted to about $9.6 billion in 2006, with total U.S. exports of $1
billion and imports of $8.6 billion.
57 19 U.S.C. § 1677b(c).
nonmarket economy countries tend to be even higher, in part due to the use of the third-country 58
data methodology to calculate the amount of dumping. If China retained its NME status and
subsidies were found on targeted merchandise for which AD duties were already in place, some
of the companion AD duties might have to be revised downward in order to avoid “double
counting” (or the possible inclusion of export subsidy amounts in certain AD duty calculations).
In a June 2005 report, the Government Accountability Office (GAO) stated that this consideration
“introduces a level of uncertainty about the magnitude of the total level of protection that would
be applied to Chinese products,” and “may result in combined rates that are lower than might be 59
Therefore, a determination by ITA that it can target subsidies in China, or legislation amending
the statute, could result in the unintended consequence of an overall reduction in the amount of 60
protection provided. However, since the two remedies address substantially different forms of
price manipulation, it is also possible that some U.S. industries that had previously not been able
to obtain relief through the AD statute may be able to do so through CVD procedures.
58 Government Accountability Office. U.S. - China Trade: Eliminating Nonmarket Economy Methodology Would
Lower Antidumping Duties For Some Chinese Companies, January 2006, GAO-06-231.
59 U.S. Government Accountability Office. U.S. China Trade: Commerce Faces Practical and Legal Challenges in
Applying Countervailing Duties, June 2005, GAO-05-474.
S. 364 (Rockefeller, introduced January 23, 2007)
Strengthening America’s Trade Laws Act. With respect to nonmarket economies, the bill seeks
(sec. 206) to amend current law to provide nonmarket economy status will remain in effect until
(1) the administering authority (currently the ITA) determines to revoke the NME status, and (2)
Congress passes a joint resolution (with specific language and time limits for debate) to that
effect. The bill would direct the President to (1) notify the House Ways and Means and Senate
Finance committees of such a determination within 10 days of its publication in the Federal
Register, and (2) transmit to Congress a request that a joint resolution should be introduced. The
bill (sec. 301) also seeks to expand the applicability of countervailing duties to NME countries
and directs the administering authority to use surrogate country (or political subdivision, as
applicable) pricing and data if that information is distorted or otherwise unavailable. In addition,
section 302 seeks to provide for the treatment of exchange-rate manipulation as a countervailable
subsidy. Referred to Committee on Finance.
H.R. 571 (Tancredo, introduced January 18, 2007)
Seeks to require that additional tariffs (5 percent ad valorem during the one-year period after
enactment of the bill and 1 percent additional duty each year thereafter) be imposed on products
of any nonmarket economy until the President certifies to Congress that the country is a market
economy country. The definition of nonmarket economy country would apply to (1) countries
specifically designated (Albania, Armenia, Azerbaijan, Belarus, Cambodia, Georgia, Kyrgyzstan,
Laos, Moldova, China, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and Vietnam); (2) Cuba
and North Korea; (3) any other country that the President determines is a nonmarket economy
country as defined in section 771 of the Tariff Act of 1930 (19 U.S.C. 1677). The bill further
seeks to place the additional tariff revenues in designated Social Security Trust Funds. Referred to
Committee on Ways and Means.
H.R. 708 (English, introduced January 29, 2007)
Trade Law Reform Act of 2007. With respect to NME countries, section 112 seeks to amend
current law to provide that a country’s nonmarket economy status must be revoked only by a joint
resolution of Congress approving a determination by the administering authority (currently the
ITA). Directs the President to notify the House Ways and Means and Senate Finance committees
of such a determination within 10 days of its publication in the Federal Register. The bill provides
specific language for the resolution and time limits and conditions for debate. Section 113 seeks
to require the application of countervailing procedures to imports from nonmarket economy
countries. Referred to Committee on Ways and Means and Committee on Rules.
H.R. 782 (Ryan/Hunter, introduced January 21, 2007), S. 796 (Bunning/Stabenow,
introduced March 7, 2007), H.R. 2942 (Ryan/Hunter)
H.R. 782/S. 796: Fair Currency Act of 2007; H.R. 2492: Currency Reform for Fair Trade, 2007.
With respect to nonmarket economy countries, Section 102 seeks to apply CVD action to NME
countries. When measuring the amount of subsidy in NME countries, these bills seek to direct the
administering authority to use methodologies that take into account the possibility that
“prevailing terms and conditions” are not available, or are inappropriate benchmarks. In such
cases, unless it can be demonstrated that these conditions can be adjusted to serve as appropriate
benchmarks, the administering authority, terms and conditions prevailing outside the NME should
be used. Also directs the administering authority to use facts otherwise available, and draw
adverse inferences if a party is in possession of information necessary to identify the amount of
subsidy does not provide it for the record in a timely manner. Seeks to provide for the treatment
of exchange-rate “misalignment” as a countervailable subsidy.
H.R. 1229 (Davis/English, introduced February 28, 2007), S. 974 (Collins, introduced March
H.R. 1229: Nonmarket Economy Trade Remedy Act of 2007; S. 974: Stopping Overseas Subsidies
Act. These bills seek to amend the general rule governing imposition of countervailing duties to
specifically apply to nonmarket economy as well as market economy countries. The bills provide
a China-specific methodology for determining the amount of subsidy if special difficulties are
found. Whether or not China is designated as a nonmarket economy country, administrative
authorities are directed to use “methodologies that take into account the possibility that terms and
conditions prevailing in China may not be applicable as appropriate benchmarks.” In these
situations, authorities are directed to adjust the terms and conditions prevailing in China before
using those prevailing outside of China. However, if authorities have determined that China is an
NME country, they are directed to “presume” that special difficulties do exist, that it is not
practicable to consider and adjust for Chinese terms and conditions, and that “terms and
conditions prevailing outside of China” (e.g., using surrogate market economy country or world
market data) should be used to calculate the amount of subsidy. Also would amend current law to
provide that a country’s NME status may be revoked only if a joint resolution of Congress
approves a determination by the administering authority. Directs the President to notify the
relevant committees of such a determination within 10 days of its publication in the Federal
Register. The bills provide specific ftlinelanguage for the resolution and time limits and
conditions for debate. They seek to requires an annual report by the International Trade
Commission on China’s use of government intervention to promote investment, employment, and
exports. House Ways and Means Trade Subcommittee hearings held on H.R. 1229, March 15,
S. 1919 (Baucus, introduced August 1, 2007) With respect to nonmarket economy countries,
this bill seeks to amend the Tariff Act of 1930 to specifically apply countervailing duty provisions
to nonmarket economy countries. The bill also seeks to clarify the determination of material
injury (applicable in both antidumping and countervailing duty investigations) to ensure that the
ITC’s injury determination is made (1) “whether other imports are likely to replace the subject
merchandise,” or (2) “regardless of the effect of a potential order on the domestic industry.”
Vivian C. Jones
Specialist in International Trade and Finance