In “Unprecedented Action,” Commerce Applies “Particular Market Situation” Provision of Trade Preferences Extension Act of 2015 in Antidumping Proceeding

International Trade Update

Date: April 20, 2017

Key Notes:

  • The Department of Commerce (Commerce) recently determined in the final results of an annual administrative review of the antidumping duty order on imports of oil country tubular goods (OCTG) from Korea that a “particular market situation” sufficiently distorted the Korean market price to require the implementation of Section 504 of the Trade Preferences Extension Act of 2015 (TPEA) for the first time, which increased the dumping margin.
  • Commerce stated that the “particular market situation” analytic tool can help to identify market distortions enabling and facilitating dumping practices.
  • Commerce acknowledged that its application of this tool is new and that it will continue to develop and refine it.

Overview

On April 11, 2017, as part of its final results of the annual administrative review of the antidumping duty order on imports of Korean OCTG, Commerce announced that it was increasing antidumping duties on these imports, in part, because a “particular market situation” sufficiently distorted the market price in Korea to require the implementation of section 504 of the TPEA for the first time. Section 504 provides Commerce the authority to address market distortions in the production of foreign merchandise as part of its calculation of dumping margins in antidumping proceedings. Heralding this “unprecedented action” in an accompanying press release, Secretary of Commerce Wilbur Ross said, “There is fair and unfair trade, and the distinction is not very hard to make. We will not stand for the distortions in foreign markets being used against U.S. businesses. The Trump Administration will continue to employ all of the tools provided under the law to take swift action against harmful trade practices from foreign nations attempting to take advantage of our markets, workers, and businesses.”

Commerce’s Application of Section 504 of the TPEA

Section 773(e) of the TPEA states that “if a particular market situation exists such that the cost of materials and fabrication or other processing of any kind does not accurately reflect the cost of production in the ordinary course of trade, the administering authority may use another calculation methodology under the subtitle or any other calculation methodology.” Recently-added section 504 of the TPEA introduces the concept of a “particular market situation” in the definition of “ordinary course of trade” for constructed value under section 773(e) and for cost of production under section 773(b)(3). These legislative changes authorize Commerce to make an adjustment whenever a “particular market situation” is found and expressly expand the consideration of a particular market situation to calculations of constructed value and accompanying cost calculations. In practice, Commerce may deviate from producers’ actual costs when calculating their dumping margins in a manner similar to Commerce’s methods for calculating dumping margins for companies in non-market economy countries like China and Vietnam.

In this review, the Korean producers were purchasing Chinese hot-rolled steel to produce OCTG. Before this proceeding, the acquisition price of the Chinese hot-rolled steel would have been used in determining the cost of production, but Commerce here found that the cost of the Chinese steel could be disregarded and a higher price used. This higher cost of production significantly increased the dumping margin.

Commerce analyzed four “particular market situation” allegations and concluded that none of the four individually reflected a cost of production outside the ordinary course of trade. Section 504 of the TPEA does not indicate whether the allegations should be considered individually or collectively; Commerce, therefore, for the final results, analyzed the four allegations collectively and found that a “particular market situation” did exist in Korea. Acknowledging that this was the first review to raise “particular market situation” allegations since the enactment of the TPEA, Commerce indicated that it will continue to develop the concepts and types of analysis necessary to address future allegations of particular market situations under section 773(e) of the TPEA.

Impact on Trade

Commerce’s use of the “particular market situation” analytic tool in antidumping proceedings will provide the agency and petitioners additional ways to increase dumping margins for foreign producers and prices for their U.S. importers. In a typical antidumping proceeding, Commerce compares a foreign producer’s home market prices to the foreign producer’s cost of production and generally eliminates below-cost sales from the sales database. Since the dumping calculation is a comparison of prices (U.S. prices for a foreign good that are lower than the home market prices for the same good are considered dumped), removing lower-priced home market sales generally increases the margin. Before this review, Chinese producers were “safe” from the U.S. antidumping laws when they sold into third-country markets. This review – indirectly – applied antidumping duties on Chinese hot-rolled steel when used in downstream products. As a result, the dumping margins, or the rate at which the imported materials were sold below fair value in the United States, were found to range from 2.76 percent to 24.92 percent.

For global manufacturers, this new policy must be considered when making purchasing decisions. While Chinese products may be less expensive, using these products will increase the risk of higher antidumping duties. For U.S. producers, this new policy will significantly increase the effectiveness of the trade laws. In the past, after the U.S. government imposed a trade remedy order on Chinese goods, Chinese producers would often transfer production to other countries and U.S. producers would be faced with dumped imports from third countries in a relatively short period of time. This new policy will make that more difficult. It is also possible that Commerce will expand this policy to cover products from third countries without a dumping investigation. Overall, this new policy increases the risk to any global producer using inputs from China that the goods they export to the United States could be subject to increased duties.

FOR MORE INFORMATION

For more information, please contact:

Mark Lunn
202.263.4115
Mark.Lunn@ThompsonHine.com

David M. Schwartz
202.263.4170
David.Schwartz@ThompsonHine.com

Karyna Valdes*
202.263.4183
Karyna.Valdes@ThompsonHine.com

Scott E. Diamond
Senior Legislative & Regulatory Policy Advisor
Not licensed to practice law
202.263.4197
Scott.Diamond@ThompsonHine.com

or any member of our International Trade group.

*Karyna is not admitted to practice in the District of Columbia. She is admitted to practice only in Florida. Her work is supervised by principals of the firm.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

© 2017 THOMPSON HINE LLP. ALL RIGHTS RESERVED.