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Highlights

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.

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Recommendations

Matter for Congressional Consideration

Matter Status Comments
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.
Closed - Implemented
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.
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.
Closed - Implemented
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.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Commerce 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.
Closed - Not Implemented
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.
Department of Commerce 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.
Closed - Not Implemented
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.

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