Current U.S. trade regulations include antidumping and countervailing duty regulations that are abused by special interests. These arbitrary and bureaucratic processes disrupt trade and sometimes cost U.S. importers millions of dollars in retroactive fines.
U.S. federal government engagement with the People’s Republic of China (PRC) mostly involves trade and investment. People and firms in the U.S. contract with people and firms in China to import or export goods and services, or to invest in the production of goods and services. The U.S. Department of Commerce makes rules and regulations regarding commerce between Chinese and U.S. firms.
Trade agreements restrict as well as promote trade and investment in various ways, and are influenced by special interests to advance the agendas of businesses, unions, and environmental groups.
Current and proposed bilateral and multilateral trade and investment agreements are complex and confusing and critics claim the interests of both China and the U.S. would be advanced by reforming or abolishing U.S.Antidumping and Countervailing Duty regulations.
Bill Perry, a Seattle-based trade lawyer explains problems with antidumping and countervailing duty regulations in a August 13, 2016 US/China Trade War post. The Department of Commerce treats China as a NME (nonmarket economy):
Under US Antidumping, Countervailing Duty and Customs laws, the Importer of Record must exercise reasonable care in importing products and in filling out Customs forms. The Importer of Record must correctly state the products’ country of origin and also whether Antidumping and Countervailing duties apply to the imported products. A knowingly false statement on a Customs form constitutes criminal fraud.
If AD or CVD rates go up in a subsequent review investigation, the Importer of Record is retroactively liable for the difference, plus interest. Retroactive liability for AD and CVD cases is a particular problem involving goods imported from China, because the Commerce Department treats China as a nonmarket economy (“NME”) country. Dumping is generally defined as selling products in the United States below their normal value, which generally means selling products in the United States below their prices in the home market or below the fully allocated cost of production.
Since China is a NME, Commerce refuses to use actual China prices and costs to determine whether a company is dumping. It instead uses complicated consumption factors for raw materials and other inputs and multiplies the factors by surrogate values from five to ten constantly changing countries to calculate a cost of production for the Chinese company. All this makes it impossible for the Chinese manufacturer/exporter to know whether it is dumping, never mind the US importer.
Perry then looks at two AD/CVD cases, one involving wooden furniture imported from China and the other involving Chinese mushrooms (along with Columbian straw and cow manure!):
In the Mushrooms from China antidumping case, from the time the antidumping order was issued in 1999 through numerous subsequent yearly review investigations, many antidumping rates were in the single digits because Commerce used India as the surrogate country. But when in 2012 Commerce switched from India to Columbia as the surrogate country, the Antidumping rates went from less than 10% to more than 200% because of surrogate values for straw and cow manure in Columbian import statistics. The Importers of Record then became liable for the difference in the duty rates, plus interest.
The furniture case is similarly bizarre (AD is “Anti-Dumping”):
In the Wooden Bedroom Furniture from China initial investigation… In the initial investigation, the Chinese furniture company received an AD rate of 16%. In the first review investigation, however, Commerce determined that the questionnaire data did not verify and issued the Chinese furniture company an AD rate of 216%.
The US company estimated that the Chinese producer exported $100 million, which created $200 million in retroactive liability for US importers. The Chinese company then decided not to do the second review investigation creating another $200 million in retroactive liability for a total of $400 million in retroactive liability created by just one Chinese company.
Perry notes that Anti-Dumping and Countervailing Duty cases even more financially dangerous when the “False Claim Act” is added to the trade policy mix:
The real hammer against evasion of US AD and CVD orders, however, is the False Claims Act (“FCA”). The FCA ( 31 U.S.C. § 3729) allows people or companies, designated a “Relator”, to file what are termed “qui tam” lawsuits against individuals or companies that directly or indirectly defrauded the Federal government. Through qui tam lawsuits, the informants or “whistleblowers” may recover triple damages on the government’s behalf. Anyone who knows of the fraud, including a competitor company, may file a qui tam lawsuit, and they do.
The most likely to file these lawsuits are your foreign competitors, Chinese competitor, U.S. competitors, U.S. importers, your employee at your Chinese exporting company, your employee at your U.S. importing company. But sometimes they are brought by someone who simply learned of what you are doing. Because the person or company that brings such an action can be awarded millions and even tens of millions of dollars, the incentive to file is huge. If you want to get a better idea of just how lucrative these lawsuits can be, do a Google search for lawyers looking to take on qui tam lawsuits. There are hundreds, if not thousands of lawyers, willing and eager to take such suits. Reportedly the most lucrative Google keyword search is “qui tam”.
In a separate August 12, 2016 post, Bill Perry reports the Department of Commerce seems to rubber-stamp nearly all Anti-Dumping charges:
Commerce finds dumping in 95% of the cases, and the ITC extends antidumping and countervailing duty orders for 20 to 30 years to protect one company US industries. Those policies dramatically increase the perception of international trade victimhood—we US companies cannot compete because all imports are unfairly traded, a perception that is simply false.
The final article in my next blog post will be about the only trade program that works and saves the companies and the jobs that go with them—The Trade Adjustment Assistance for Firms/Companies program. The Article will describe the attempts by both Congress and the Obama Administration to kill the program, which may, in fact, have resulted in the sharp rise in protectionism in the US.
Congress must again restore the trade safety net so that Congress can again vote for free trade agreements and the United States can return to its leadership in the Free Trade area. The Congress has to fix the trade situation now before the US and the World return to the Smoot Hawley protectionism of the 1930s.
Alden Abbott’s Heritage Foundation Backgrounder #3030 on Trade, U.S. Antidumping Law Needs a Dose of Free-Market Competition (July 17, 2015) explains:
Perhaps the best-known category of special tariff is an “antidumping duty,” assessed to counteract export prices that allegedly are set at “unfairly lower” rates than the prices for the same products sold in their domestic market. Thus, for example, dumping of steel bars would occur if Korean steel producers set “unfairly lower” prices for their steel bar exports to the U.S. than they did for steel bars sold in Korea, and an antidumping duty would be assessed on each imported steel bar to raise the import sales prices and counteract the alleged unfairness.
Economists define dumping as international “price discrimination”—the charging of lower prices (net of selling expenses and transportation) in a foreign market than in a domestic market for the same product. Despite its bad-sounding label, price discrimination, whether foreign or domestic, is typically a perfectly legitimate profitable business practice that benefits many consumers.
The fear is of foreign firms that might try to drive U.S. competitors out of business with low prices, then later raise prices dramatically to make up for their earlier losses. Abbott explains:
In reality, harmful “predatory” dumping occurs seldom if ever. In the words of one leading commentator, although “U.S. antidumping law is ostensibly concerned with the kind of international price discrimination that stems from” predation, “one would be hard-pressed to find any real-world example of dumping causing competitive markets to become monopolistic.” Despite this fact, however, antidumping law is a widely invoked staple of U.S. trade policy because it is based on legal standards that have nothing to do with true economic predation. Rather, dumping reflects a set of arcane rules, unmoored from free-market principles, that are designed to shield domestic producers from competitive forces at the expense of American consumers rather than promote competition on the merits.
Antidumping is in fact a form of special-interest cronyism that imposes high costs on Americans and thwarts beneficial competition.
Appendix I of the Backgrounder provides a helpful “Summary of U.S. Antidumping Procedures.”
Mark J. Perry, in his May 25, 2011 post Do Anti-Dumping Tariffs on Furniture from China Create U.S. Jobs? Only for Washington Lawyers, notes that U.S. anti-dumping charges against Chinese furniture companies let many to relocate operations to Vietnam.
In Why Antidumping Duties On Chinese Furniture Don’t Save U.S. Jobs in Forbes (May 15, 2011), Cato Institute’s Dan Ikenson provides some background to the expansion of Chinese furniture manufacturing
At the time this case was initiated, the same U.S. furniture producers who were petitioning for relief from imports from China were investing in furniture operations in other countries. There’s nothing illegal or objectionable about investing in foreign production, but the assertions of the petitioning U.S. producers that their aim was to restore U.S. production and U.S. jobs were clearly false. It is testament to the laughably modest standards for finding a domestic industry injured by reason of dumped imports that duties were ever imposed in the furniture case.
Of course nowhere in all the regulation of furniture imports and concern over U.S. furniture jobs and companies is there recognition that the great majority of Americans are consumers rather than producers of furniture. Lower cost furniture means, for millions of Americans, that they can purchase new rather than used furniture, and can afford high quality and enjoy wider choices.