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Disputes over dumping -- selling products in the U.S. market at prices below the cost of production or for less than what the products are sold in the home market -- are a major thorn in the side of companies wanting to do business internationally. The United States enacted the antidumping law to protect U.S. manufacturing companies from “unfair” imports, but the real impact of the law is to bankrupt legitimate U.S. companies and destroy U.S. jobs.
Antidumping actions have spread to cover imported home-building material products, especially from China, ranging from wood flooring, steel nails, steel sinks and solar cells to ironing tables, kitchen shelving, wooden bedroom furniture (WBF), lock washers, steel pipes/fittings and hand tools, just to name a few.
People may argue that the antidumping law is protecting U.S. industries from unfairly dumped imports. To win an antidumping case, a U.S. industry -- which can be a single company -- needs to convince the U.S. Commerce Department that foreign exporters are dumping, and the U.S. International Trade Commission (ITC) that the practice has injured the U.S. industry.
But the Commerce Department finds dumping in 95% of cases. With 30 years of work in this area since 1980, first in the government and later in private practice, I can count on one hand the number of times the Commerce Department has made a no-dumping determination and stopped the case. The Commerce Department has defined dumping in such a way that any U.S. company that imports a product -- especially from China -- is considered to be dumping. Since antidumping cases against China represent more than 90% of U.S. cases, it is important to understand that pursuant to the Commerce Department's methodology, almost all Chinese companies are considered to be dumping with no evidence they are doing so. Although more than 100 Chinese companies may be exporting the subject products to the United States during a period of investigation, the Commerce Department will examine individually only two or three “mandatory” respondents, which get their own dumping rates. Only those two to three companies can prove that they are not dumping. The Commerce Department presumes that all other Chinese companies are dumping and gives them a dumping rate.
The real damage of an antidumping action, however, is not to foreign/Chinese companies, but to U.S. companies -- importers, distributors and downstream producers. Chinese companies do not pay antidumping duties. U.S. import companies by law are liable for antidumping duties, and the importers can be retroactively liable if those antidumping duties go up in subsequent review investigations, which they often do.
Moreover, the Chinese company, never mind the U.S. importer, simply cannot know whether it is dumping because the Commerce Department does not use Chinese company’s actual prices and costs to determine dumping. The Commerce Department, in fact, treats China worse than Iran and considers China to be a nonmarket economy country (NME). As an NME, instead of using Chinese prices/costs to determine dumping, the Commerce Department constructs a cost of production from consumption factors in China times prices/values in a third surrogate country. Thus, in the Solar Cells antidumping case, the big issue is whether to use prices in India or Thailand to construct a Chinese cost of production. This is truly Alice in Wonderland.
Because of this NME methodology, it is impossible for a Chinese company to know whether it is dumping, not to mention U.S. importers. In contrast to the rest of the world, however, where antidumping duties are prospective, in the United States, importers are retroactively liable for antidumping duties. When an importer imports under an antidumping order, it does not post the duty, but the cash deposit. The actual antidumping duty is calculated in a future review investigation. If the duty goes up, the U.S. importer is retroactively liable for the difference between the cash deposit plus interest.
Antidumping duties go up in review investigations all the time. In the Wooden Bedroom Furniture case, for example, many U.S. importers were forced into bankruptcy because of high antidumping rates. In one case for Star Furniture, for example, the rate went from 16% in the initial investigation to 216% in the first review investigation, creating an estimated $200 million in liability for U.S. importers.
Companies may think, however, that antidumping cases soon go away. In fact, antidumping orders can stay in place for five to 30 years.
More importantly, antidumping cases do not help U.S. companies injured by imports. Importers simply go to another country, such as Vietnam. As ITC Commissioner Pearson stated in the December 2010 ITC Sunset determination in WBF from China case, “In this particular investigation, additional costs and distortions have been added by the use of the administrative review and settlement process, with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer or the U.S. taxpayer.”
At the same time, estimates are that U.S. furniture importers have paid more than $500 million in retroactive antidumping duties because of this case. In the Ironing Tables case, another U.S. importer went bankrupt because it imported ironing tables from a company with a 0% cash deposit rate only to see the rate go to 157% in a review investigation, creating millions of dollars in liability for the U.S. company.
Antidumping cases have become the international approved form of protectionism adopted by countries all over the world. Instead of protecting domestic industries, however, all these cases do is injure U.S. importers, destroy jobs and cause prices to rise.
About the author:
William E. Perry is an international trade law partner at Dorsey & Whitney. From 1980 to 1987, Perry was an attorney in the antidumping area at the ITC and the Commerce Department. Since leaving government, he has won more than 40 antidumping cases and is presently representing U.S. import companies in the wood flooring, steel sinks, solar cells and ironing tables antidumping cases.