New AD/CVD Regs Tighten Executive Branch's Grip on Trade Policy

The Department of Commerce published regulations yesterday that will expand and strengthen its enforcement of the U.S. Antidumping (AD) and Countervailing Duty (CVD) Laws. I’ve been following the trade remedy laws long enough to have no reason to expect regulatory changes that produce greater balance and objectivity to their administration at the DOC, but that doesn’t mean blatant power grabs, such as the ones codified in these new rules, shouldn’t be called out for aggrandizing the administrative state and reminding us once again that the executive branch, not Congress, continues to makes trade policy by fiat.

In these new regulations, DOC is – among many other things – asserting authority under the Antidumping Law and the Countervailing Duty Law to render judgment about whether different norms, practices, rules, regulations, laws, and enforcement standards in a foreign country constitute a cost of production advantage for their manufacturers and, if so, to measure the value of that advantage and adjust accordingly the costs and prices considered in AD/CVD cases when determining the level of “remedial” duties.

The logic here is that if a foreign government’s commission of a subsidy to a company or industry confers a cost advantage vis-à-vis unsubsidized domestic or foreign firms, then a foreign government’s omission of requirements (failure to enforce, etc.) that producers respect intellectual property rights, curb greenhouse gases, or grant certain labor rights confers a cost advantage, too. I think there’s merit to that argument; commission and omission both can confer discriminatory benefits. But whether and how to do something about such “omission benefits” are entirely different questions. And it should be clear that doing something about it via the AD/CVD regime is thoroughly misguided and revealing of just how far the administration of these laws has drifted away from the alleged purpose (and authority) of the respective statutes.

The AD and CVD laws call for comparisons of foreign companies’ prices in the United States and their prices in the home market, not comparisons of foreign producers’ and U.S. producers’ prices. Nothing about the costs or sales of the petitioning U.S. industry or its constituent companies – or ANY U.S. companies at all – factors into the DOC’s analysis. The behavior under examination is that of the foreign producer and, specifically, whether that producer is charging lower prices in the United States than in its home market. Yes, there is a hierarchy of benchmarks to serve as estimates for “normal value” when there are insufficient home market sales in the “ordinary course of trade” – (1) sales in a third country; (2) cost-based constructed values – and there are “surrogate values” that serve as estimates of normal value in non-market economy cases.

I believe none of those alternatives to comparing U.S. and home market prices comes close to measuring dumping but have opened the door to all sorts of discretionary mischief that has enabled DOC to qualify more and more unobjectionable trade as “unfair.” But, in any event, AD/CVD analyses focus entirely on the costs and prices of the foreign firms, which means any differences in regulatory compliance or social costs or other policy-driven costs of production between U.S. and foreign firms are not germane. The comparative policies, practices, or enforcement tendencies are never under examination because U.S. producers’ costs and prices are not on the record. What is supposed to be under examination is the comparative pricing behavior of individual foreign companies in their home market and the U.S. market.

In other words, if policymakers want to punish foreign companies for the sin of operating in less economically developed countries where the rule of law is less evolved, these are the wrong statutes to use. These new regulations change the meanings and purposes of the laws and, hopefully, the courts will be asked to render judgements soon.