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TRADE REMEDY LAWS
U.S. trade law contains a number of statutes that provide for specific
remedies when foreign goods are being given an unfair advantage in the U.S.
market or U.S. exports are being discriminated against in foreign markets.
Laws Aimed at Imports
The two most widely known statutes for protecting U.S. industries from
unfairly traded imports are the countervailing duty law (CVD) and the
antidumping law (AD). Both laws require that extra duties be levied on imports
if they are found to be unfairly traded. Both laws contain similar procedures
for conducting investigations, imposing duties, and then reviewing and possibly
removing the duties.
Countervailing Duty Law: The CVD law provides a remedy in the form of
an increased import duty to offset, or "countervail," a subsidy granted to a
foreign product, the sale of which in the United States is injuring a U.S.
producer of an identical or similar good. In most cases the countervailable
subsidies are directly provided by the foreign government, but the law also
applies to indirect subsidies that are identified by the CVD investigation.
A CVD investigation is usually initiated as a result of a petition filed by a
domestic industry with the U.S. Department of Commerce and the U.S.
International Trade Commission (ITC), but Commerce can initiate a case on its
own.
The Commerce Department and the ITC both conduct investigations. Commerce
investigates to determine if a "countervailable" subsidy is being provided,
directly or indirectly in the country or territory or origin, to the
manufacture, production, or export of the product that is the subject of the
investigation.
The ITC investigation determines whether the petitioning U.S. industry is
materially injured or threatened with material injury, or whether the
establishment of an industry is materially injured by reason of imports that are
receiving the subsidies. "Material injury" is defined in the law as harm that is
not inconsequential, immaterial, or unimportant.
For countervailing duties to be imposed, Commerce must find the
countervailable subsidy and the ITC must find injury.
The CVD law also covers "upstream subsidies" -- subsidies given to the
production of the inputs that are incorporated into a final product that is
exported to the United States.
Antidumping Law: Antidumping law is much more widely used than CVD
law. Antidumping duties are imposed on imports when it is determined that the
foreign good is being "dumped" -- sold, or is likely to be sold, in the United
States for "less than fair value." In general, less than fair value means that
the price of the import in the United States -- the purchase price or the
exporter's sales price -- is less than the price of the good in the country of
origin.
As is the case for CVD, antidumping proceedings are initiated either by a
petition filed by an industry or by the Commerce Department.
Commerce must investigate to determine if dumping has occurred. The ITC then
determines if the U.S. industry is suffering material injury or is threatened
with material injury, or if the establishment of an industry is materially
retarded by reason of the import.
The antidumping duties that are imposed when dumping and injury are found
equal the amount by which the "normal value" of the good exceeds the export
price, i.e., the U.S. price, for the product.
The Commerce Department determines the import's "normal value" by one of
three methods. In order of preference, they are: the sale price in the country
of origin; the price of the good in third markets; and the "constructed value,"
the sum of the cost of production plus additions for profits, selling
commissions, and other administrative expenses such as packing. If actual data
are not available, then a "surrogate" for profit and other expenses may be used
to calculate the constructed value.
If two or more countries are named in an antidumping or a countervailing duty
petition, the law requires the ITC to cumulatively assess the volume and effect
of the like imports from the countries named if they compete with each other and
with like products in the U.S. market. If imports from a country under
investigation are found to be negligible, which is generally defined as less
than 3 percent of total imports of the product being investigated, the
investigation is terminated for that country. Certain exemptions from cumulation
rules also are provided, such as those that apply to countries that participate
in the Caribbean Basin Initiative and to Israel.
U.S. antidumping law also allows a U.S. industry to file a complaint about
dumping in third countries. The U.S. industry would file a petition, which must
explain why the dumping is detrimental to U.S. firms, with the Office of the
U.S. Trade Representative (USTR), asking the agency to pursue U.S. rights under
the WTO.
If the USTR determines that there is reasonable basis for the allegation, it
submits a request to the appropriate authorities in the third country asking
that antidumping action be taken on behalf of the United States.
Likewise, under the Uruguay Round Antidumping Agreement, the government of a
WTO member can file a petition with USTR requesting an antidumping investigation
of a product imported into the U.S. market from a third country.
AD and CVD Investigations, Levying of Duties: AD and CVD petitions
have to be filed simultaneously at the Commerce Department and the ITC. If the
case is accepted, then 45 days after the filing date, or after Commerce has
begun an investigation on its own initiative, the ITC must make its preliminary
determination on injury or threat of injury to a U.S. industry.
If the ITC determination is negative, then the proceedings end. If the ITC
issues an affirmative determination, then Commerce makes its preliminary
determination as to whether there is a reasonable basis to believe that a
countervailable subsidy exists or that dumping has occurred.
If Commerce decides that there is a reasonable basis, then in the CVD cases
it estimates a subsidy margin for each firm or country investigated. These
estimates must be made within 65 days of the initiation of the investigation.
This deadline can be extended to 130 days.
In AD cases, after the preliminary affirmative determination, Commerce
estimates the weighted-average dumping margin -- the amount by which the normal
value of the foreign product exceeds the export price. This determination is
made 140 days after the initiation of the investigation, although this can be
extended to 190 days.
In both cases, after preliminary affirmative determinations are made, the
importer of the product must post a bond or cash deposit equal to the estimated
net subsidy or dumping margin with the U.S. Customs Service.
If Commerce's preliminary determination is negative, cash deposits are not
taken, but both the Commerce and ITC investigations continue to the final
determination step.
There are provisions for entering into an agreement to suspend both the AD
and CVD investigations if certain conditions are met.
Within 75 days of the preliminary determination, under normal circumstances,
Commerce makes its final determination in both AD and CVD cases, although this
can be extended to 135 days. If the final Commerce determination is negative,
the proceedings end and the bond or cash deposit is refunded. If the final
Commerce determination is affirmative, then the ITC has to make a final injury
determination.
The ITC's final determination must be made by the 120th day after Commerce
makes its affirmative preliminary determination, or by the 45th day after
Commerce makes its affirmative final determination.
If the final ITC determination is affirmative, then Commerce issues a CVD or
AD duty order within seven days of the notification of the ITC's determination.
It should be noted that the final duties that must be paid for imports subject
to the order can be considerably higher than the cash deposit amount.
Upon request, Commerce must review, as often as every 12 months, the amount
of the net countervailable subsidy or dumping margin for merchandise under an
outstanding countervailing or antidumping order. Commerce, upon request, must
also review suspended investigations to determine the status of and compliance
with the agreement, as well as the underlying net countervailable subsidy or
dumping margin.
The Uruguay Round Agreements Act requires that the Commerce Department and
the ITC initiate "sunset reviews" within five years after the issuance of an
order to determine whether the revocation of the relevant order would likely
lead to continuation or recurrence of dumping or countervailable subsidies and
material injury.
Revocation of the dumping order or termination of the investigation can occur
if the ITC determines that revocation or suspension is not likely to lead to a
continuance or recurrence of material injury, and Commerce determines that there
will be no continuation or recurrence of the dumping or the countervailable
subsidy.
Parties dissatisfied with the final Commerce or ITC determinations in AD or
CVD cases may file to seek a judicial review in the U.S. Court of International
Trade in New York. If the determinations involve merchandise from Canada or
Mexico, the parties can seek a review from the binational panel formed as part
of NAFTA or can appeal to the Court of International Trade.
There are certain provisions of the law for so-called "critical
circumstances" that allow petitioners to seek rapid action against a flood of
imports that threaten a domestic industry.
Section 201-204, Adjusting to Imports: Sections 201-204 of the Trade
Act of 1974 authorize the president to take action when a certain product is
being imported into the country in such increased quantities as to cause serious
injury, or threaten serious injury, to a domestic industry. This authority can
be used even if the import is not priced unfairly.
The ITC conducts investigations in response to petitions filed by bona fide
industry representatives, upon request by the president or by the USTR, upon
receiving a resolution from the House of Representatives Ways and Means
Committee or the Senate Finance Committee, or by its own decision.
The ITC has 180 days from the day on which the petition, request, or
resolution is received to conduct its investigation and report its determination
and any recommendations to the president. The investigation has two phases, a
phase to determine if there is injury, which generally must be completed in 120
days, and a remedy phase, if that is necessary. If the ITC makes an affirmative
injury determination, then it recommends to the president the action that will
facilitate the industry's adjustment to import competition. This could involve
an increase in duties, the imposition of a tariff-rate quota, quantitative
restrictions, adjustment measures, or a combination of measures. In the case of
NAFTA partners, the ITC must also find whether the imports from Mexico or Canada
account for a substantial share of total imports and are contributing
importantly to serious injury to the U.S. industry.
The ITC must also hold public hearings in conjunction with the injury and
remedy phases of its investigation.
Upon receipt of an ITC report containing an affirmative injury determination
and remedy recommendation, the president has 60 days to decide what to do. The
president is not bound by the ITC's recommendations. He may implement the ITC's
recommendations, implement relief of some other form within his authority, or
take no action. The president must report to Congress on the action he is
taking. If such action is different from that recommended by the ITC, he must
explain the reasons why. Congress may, through a joint resolution within 90
days, direct the president to proclaim the action recommended by the ITC.
There are special provisions that allow "provisional" relief to be provided
on an expedited basis pending completion of the investigation process.
Relief may be provided for an initial period of up to four years and may be
extended, but the total period of relief may not exceed eight years. When relief
is granted, the ITC monitors developments in the industries that are the
beneficiaries of the action. When the relief action exceeds three years, the ITC
must submit a report to the president and Congress on the situation of the
industry not later than the midpoint of the relief period.
An industry receiving relief may request an extension of relief by submitting
a petition six to nine months before the end of the relief period if it plans to
seek an extension.
Section 337, Protection of Intellectual Property: Section 337 is
primarily used to combat intellectual property infringement in imports. It
declares as unlawful infringement of intellectual property such as a valid and
enforceable U.S. patent, registered trademark, copyright, or registered mask
work of a semiconductor chip product. Section 337 prohibits unfair methods of
competition and unfair acts in the import and sale of products in the United
States, the threat or effect of which is to destroy or substantially injure a
domestic industry or to restrain and monopolize trade and commerce in the United
States.
A Section 337 investigation is begun on the basis of a complaint or by the
ITC on its own initiative. In general, if the ITC finds against the import, it
may issue an order to exclude the product from entry and can order the domestic
parties involved in the case to stop engaging in certain unlawful practices. If
the product is an intellectual property product, no injury test is required.
The president may disapprove an ITC order within 60 days of its issuance for
"policy reasons."
Laws to Assist Exports and to Enforce Trade Agreements
Section 301 of the Trade Act of 1974 is the principal U.S. law to enforce
rights for U.S. firms under existing trade agreements, to obtain increased
foreign market access for U.S. goods and services, and to respond to certain
foreign practices such as infringement of intellectual property rights.
The law sets up a procedure for the Office of the U.S. Trade Representative
to investigate foreign practices and hold consultations with a foreign
government to seek a resolution of disputes, which may be an agreement by the
government to eliminate the offending practice or to provide compensatory
benefits to the United States.
If there is no satisfactory agreement, the law requires that USTR use the
dispute settlement procedure available under the applicable trade agreement. In
1996, for example, the nine Section 301 cases initiated were referred to the
WTO's dispute settlement procedures. If this step still does not bring a
satisfactory resolution of the dispute, USTR may take other actions, which can
include suspending the trade agreement's concessions, imposing duties or other
import restrictions, and imposing fees or restrictions on services.
The impetus for Section 301 cases can be from a domestic petition or by the
USTR on its own initiative.
The Congress requires that USTR conduct an annual review of overseas
barriers, which is published on March 31 each year as the "National Trade
Estimate Report on Foreign Trade Barriers," also known as the NTE Report.
Super 301: The NTE Report is used to establish the so-called "Super
301" list of priority country practices, which is essentially a list of
countries likely to be the subject of 301 actions.
Created in the 1988 Omnibus Trade and Competitiveness Act, Super 301 expired
in 1990, but President Bill Clinton has revived it by successive executive
orders, the latest of which expires at the end of 1997. The executive order
requires that within six months of the submission of the NTE Report, the USTR
shall identify those priority foreign country practices that, if eliminated,
would likely have the most potential for increasing U.S. exports. USTR is also
required to report to the Senate Finance Committee and the House Ways and Means
Committee on any such practices. Within 21 days after the report is submitted,
the USTR must initiate Section 301 investigations of any priority foreign
country practices identified in the report. No priority foreign country
practices have been designated under Super 301 since 1989.
Special 301: A second expansion of Section 301 is "Special 301," which
requires USTR to identify countries that deny adequate and effective protection
for intellectual property rights (IPR), or that deny fair and equitable market
access for persons who rely on IPR. Countries that have the most onerous or
egregious acts, policies, or practices, or whose acts, policies, or practices
have the greatest adverse impact (actual or potential) on relevant U.S.
products, and are not engaged in good faith negotiations to address these
problems, must be designated as "priority foreign countries."
USTR must decide which countries to identify each year within 30 days after
issuance of the National Trade Estimate Report. If a trading partner is
identified as a "priority foreign country," USTR must decide within the next 30
days whether to initiate an investigation of those acts, policies, and practices
that were the basis for the identification as a priority country. Countries so
designated are potentially subject to Section 301 actions.
Though not part of Special 301 legislation, USTR maintains separate
categories of countries in which concerns about intellectual property protection
remain. Countries with practices that have less of an impact, but that are still
very serious, are placed on either a "priority watch list" or "watch list."
Countries placed on the priority watch list are the focus of increased bilateral
attention concerning the problem areas. Countries are usually designated, moved
to a different list, or completely removed from the lists as a result of USTR's
annual Special 301 review.
On April 30, 1997, USTR announced that 10 countries would be placed on the
priority watch list and that 36 others had been designated for the watch list.
USTR also announced that as a result of the annual Special 301 review, the
United States would initiate WTO dispute settlement actions against four
countries, bringing to 10 the number of IPR-related WTO cases initiated by the
United States. No countries were designated priority foreign countries.
"Out of cycle" reviews can be, and often are, conducted at any time during
the year, as a result of which countries can be added or removed from the watch
lists.
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