U.S.-China Trade:
Commerce Faces Practical and Legal Challenges in Applying Countervailing Duties
GAO-05-474: Published: Jun 17, 2005. Publicly Released: Jun 17, 2005.
Additional Materials:
- Highlights Page:
- Full Report:
- Accessible Text:
Contact:
Some U.S. companies allege that unfair subsidies are a factor in Chinese success in U.S. markets. U.S. producers injured by subsidized imports may normally seek countervailing duties (CVD) to offset subsidies, but the United States does not apply CVDs against countries, including China, that the Department of Commerce classifies as "nonmarket economies" (NME). In this report, GAO (1) explains why the United States does not apply CVDs to China, (2) describes alternatives for changing this policy, (3) explores challenges that would arise in applying CVDs, and (4) examines the implications for duty rates on Chinese products.
The current Commerce policy of not applying CVDs to NME countries (including China) rests on two principles advanced in 1984 and confirmed by a federal appeals court. These are that Commerce (1) lacks explicit authority to do so, and (2) cannot arrive at meaningful conclusions regarding subsidies in such countries due to government intervention in the economy. Commerce could reclassify China as a market economy or individual Chinese industries as "market oriented" and apply CVDs against China as a market economy. Commerce has criteria for such determinations, but said that China is unlikely to satisfy them in the near term. It could also reverse its 1984 position and apply CVDs without any change in China's NME status. However, absent a congressional grant of authority, such a decision could be challenged in court, with uncertain results. World Trade Organization (WTO) rules do not explicitly preclude either alternative. Commerce would face challenges, regardless of the alternative adopted. Chinese subsidies remain difficult to identify and measure. Employing third-country information or "facts available" may help, but would not eliminate these difficulties. Commerce lacks clear authority to fully implement China's WTO commitment on use of third-country information in CVD cases. It is unclear whether, on a net basis, applying CVDs would provide greater protection than U.S. producers already obtain from antidumping duties. CVDs alone tend to be lower than antidumping duties. If Commerce grants China market economy status, both CVDs and antidumping duties could be applied simultaneously, but required methodological changes could well reduce antidumping duties. It is not clear whether CVDs would compensate for these reductions. Regardless of China's status, some duties might need to be reduced to avoid double counting of subsidies. Commerce lacks clear authority to make such corrections when domestic subsidies are involved.
Matters for Congressional Consideration
Status: Closed - Implemented
Comments: The House of Representatives passed the United States Trade Rights Enforcement Act on July 27, 2005. The legislation incorporated provisions giving the administration the authority to take account of third-party information in CVD cases involving China and to ensure that any countervailable subsidy is not double counted in an antidumping order. GAO's report was cited during the Congressional debate of this legislation. The bill was referred to the Senate Committee on Finance the following day. The Senate took no further action on the bill.
Matter: In the event that (1) Commerce changes China's NME status or (2) Congress decides to adopt proposed legislation that would authorize Commerce to apply U.S. CVD laws to NME countries, including China, Congress may wish to consider adopting legislation to provide Commerce clear authority to fully implement China's WTO commitment regarding use of third-country information in CVD cases.
Status: Closed - Implemented
Comments: The House of Representatives passed the United States Trade Rights Enforcement Act on July 27, 2005. The legislation incorporated provisions giving the administration the authority to take account of third-party information in CVD cases involving China and to ensure that any countervailable subsidy is not double counted in an antidumping order. GAO's report was cited during the Congressional debate of this legislation. The bill was referred to the Senate Committee on Finance the following day. The Senate took no further action on the bill.
Matter: In the event that (1) Commerce changes China's NME status or (2) Congress decides to adopt proposed legislation that would authorize Commerce to apply U.S. CVD laws to NME countries, including China, Congress may wish to consider adopting legislation to provide Commerce clear authority to make corrections to avoid double counting domestic subsidy benefits when applying both CVDs and antidumping duties to the same products from NME countries, in situations where Commerce finds that double counting has in fact occurred, taking into account Commerce's analyses of this issue prepared in response to our recommendation above.
Recommendations for Executive Action
Status: Closed - Not Implemented
Comments: Commerce disagreed with GAO?s recommendations and declined to take actions to implement them. Commerce officials believed it would be inappropriate to provide such information outside of a formal countervailing duty investigation. After GAO's report, Commerce began to accept countervailing duty petitions against China and issued its first such ruling in October 2007. The issues that GAO identified as needing clarification were the subject of debate during the litigation of that and subsequent cases.
Recommendation: In order to provide Congress and the Department of Commerce with better information about the implications of taking actions that would result in application of U.S. CVD laws to China, the Secretary of Commerce should analyze and report to Congress on Commerce's ability to identify and measure subsidy benefits at the present time, based on its knowledge of significant Chinese subsidy programs.
Agency Affected: Department of Commerce
Status: Closed - Not Implemented
Comments: Commerce disagreed with GAO's recommendations and declined to take actions to implement them. Commerce officials believed it would be inappropriate to provide such information outside of a formal countervailing duty investigation. After GAO?s report, Commerce began to accept countervailing duty petitions against China and issued its first such ruling in October 2007. The issues that GAO identified as needing clarification were the subject of debate during the litigation of that and subsequent cases.
Recommendation: In order to provide Congress and the Department of Commerce with better information about the implications of taking actions that would result in application of U.S. CVD laws to China, the Secretary of Commerce should analyze and report to Congress on broadly applicable methodologies that Commerce might employ to complete CVD actions against Chinese products, if called upon, including how it might respond to potential double counting of domestic subsidy benefits when applying both countervailing and antidumping duties to the same products.
Agency Affected: Department of Commerce
Explore the full database of GAO's Open Recommendations
»
Dec 9, 2020
-
International Trade:
Observations On Whether Women's Rights and Economic Interests Are Protected or Promoted by U.S. Trade Preference ProgramsGAO-21-190: Published: Dec 9, 2020. Publicly Released: Dec 9, 2020.
Dec 2, 2020
-
Foreign Assistance:
USAID Should Analyze Data on the Timeliness of ExpendituresGAO-21-51: Published: Dec 2, 2020. Publicly Released: Dec 2, 2020.
Nov 19, 2020
-
Global Food Security:
Information on Spending and Types of Assistance Provided by the United States and Other DonorsGAO-21-47R: Published: Nov 19, 2020. Publicly Released: Nov 19, 2020.
Nov 9, 2020
-
Human Trafficking:
Agencies Have Taken Steps to Strengthen International Anti-trafficking ProjectsGAO-21-53: Published: Nov 9, 2020. Publicly Released: Nov 9, 2020. -
Rule of Law Assistance:
State and USAID Could Improve Monitoring EffortsGAO-21-14: Published: Nov 9, 2020. Publicly Released: Nov 9, 2020.
Oct 27, 2020
-
Forced Labor Imports:
DHS Increased Resources and Enforcement Efforts, but Needs to Improve Workforce Planning and MonitoringGAO-21-106: Published: Oct 27, 2020. Publicly Released: Oct 27, 2020.
Oct 2, 2020
-
Combating Wildlife Trafficking:
Agencies Work to Address Human Rights Abuse Allegations in Overseas Conservation ProgramsGAO-21-139R: Published: Oct 2, 2020. Publicly Released: Oct 2, 2020.
Sep 22, 2020
-
Cyber Diplomacy:
State Has Not Involved Relevant Federal Agencies in the Development of Its Plan to Establish the Cyberspace Security and Emerging Technologies BureauGAO-20-607R: Published: Sep 22, 2020. Publicly Released: Sep 22, 2020.
Sep 15, 2020
-
Steel and Aluminum Tariffs:
Commerce Should Improve Its Exclusion Request Process and Economic Impact ReviewsGAO-20-517: Published: Sep 15, 2020. Publicly Released: Sep 15, 2020.
Sep 14, 2020
-
Conflict Minerals:
Actions Needed to Assess Progress Addressing Armed Groups' Exploitation of MineralsGAO-20-595: Published: Sep 14, 2020. Publicly Released: Sep 14, 2020.
Looking for more? Browse all our products here