Companies importing products into the United States from China may be unfamiliar with terms such as "non-market economy (NME)," "respondent," and "surrogate values." However, this quickly changes when such companies' imported goods are subject to a U.S. antidumping proceeding.
U.S. antidumping or "AD" cases are complex. This is especially true for "non-market economy" or "NME" cases, including those that involve China. The United States deems China to be a non-market economy in which the Chinese Government is presumed to control all Chinese companies and their pricing decisions. Consequently, the United States does not generally use the Chinese companies' prices in China to determine whether and to what the extent dumping has occurred.
Instead, the United States constructs the sales price of a good in China by valuing the good's factors of production – such as raw materials, labor, energy, and capital costs – with surrogate values from another country at a comparable level of economic development. Historically, India was consistently the default surrogate country for China, but in more recent cases, the U.S. Department of Commerce has selected Brazil, Malaysia, Mexico, Romania, Thailand, Turkey to be the primary surrogate country. The selection of surrogate values can have a huge impact on the dumping margins calculated in China NME cases because they can be significantly higher than the actual cost incurred by the Chinese producers.
Because U.S. antidumping cases move fast, U.S. importers are advised to have a good understanding of their roles during and after the various stages of AD proceedings.
First, assuming no affiliations between the Chinese exporter and U.S. importer, U.S. importers are not the responding or examined parties in U.S. AD cases against China. The U.S. Department of Commerce will select one or more companies for examination – the "respondents" – from the companies in China that exported the products to the United States during the investigation or review period.
Nonetheless, U.S. importers should strongly encourage their Chinese suppliers to take the important first step in an NME AD investigation of applying for a separate rate to demonstrate that the Chinese company is not controlled by the Chinese Government. Such applications must be submitted 30 days from the date on which the NME AD case initiation notice was published in the Federal Register. Submitting the NME "Separate Rate Application" is necessary to ensure the Chinese company does not receive the adverse antidumping margin assigned to the "PRC-Wide Entity."
Second, although U.S. importers are not the respondents in U.S. AD cases, they are the parties liable for paying AD duties on imported products subject to the AD cases. However, such duties will not be conclusively finalized until a subsequent administrative review period concludes. Following an investigation, an AD case's first administrative review will likely conclude over two years from the date on which an investigation's final order is published.
Following the AD investigation's preliminary determination and until an order is issued for an investigation, U.S. importers may post bonds for estimated AD duties on the imported goods. After the order is published, importers must pay cash deposits for estimated AD duties.
Third, U.S. law generally prohibits a U.S. importer's Chinese vendor from paying or reimbursing the importer for antidumping duties the importer must pay. The Department will deduct any such reimbursed duties from a respondent's export price in the AD margin calculation such that the AD margin effectively doubles.
Fourth and (for this blog post) finally, U.S. AD cases on Chinese products wreak havoc on global markets for the goods subject to the AD cases. Chinese companies and their U.S. importers will not know the final AD rates on the products for several years. Because U.S. importers do not definitively know their AD risk exposure in sourcing from particular Chinese companies, they cannot accurately budget for purchasing such companies' goods. This uncertainty often encourages U.S. companies to source goods from other countries or U.S. producers that are not subject to the AD case.
Uncertainty about an instituted AD case and possible liability should not mean indecision. Exactly the opposite is true. In order to ensure that all steps are taken to fully protect U.S. importers' interests concerning purchases from their Chinese suppliers, U.S. importers need to get out ahead of the AD action and encourage their Chinese suppliers to do the same. AD actions move quickly; U.S. importers and their Chinese vendors need to be quicker.
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