Resolving the Double Remedy Dispute: A Critique of the WTO Appellate Body’s Decision in United States - Definitive Anti-Dumping and Countervailing Duties on Certain Products from China

Abstract

On March 29, 2007, the United States Department of Commerce (Commerce) reversed its long-standing policy prohibiting the application of countervailing duties against non-market economy countries. Consequently, Commerce began to apply countervailing duties to products from China and Vietnam that were also subject to antidumping duties. China challenged the new U.S. practice before a World Trade Organization (WTO) panel. China argued that Commerce’s actions were inconsistent with the United States’ WTO obligations under the General Agreement on Tariffs and Trade 1994 (GATT 1994), the Agreement on Subsidies and Countervailing Measures (SCM Agreement), the Antidumping Agreement (AD Agreement), and the Protocol on the Accession of the People’s Republic of China (Accession Protocol). China argued that Commerce’s application of both countervailing and antidumping duties resulted in a “double remedy” for the U.S. industry, specifically that the effect of Commerce’s methodology for determining antidumping duties against non-market economy countries was to offset the same instance of subsidization twice — once through the imposition of the countervailing duty and again through the application of the antidumping duty. Although the Panel found that a double remedy was “likely,” it held that “China did not establish that the United States acted inconsistently with its obligations under … the SCM Agreement.” China appealed the latter conclusion, along with other aspects of the Panel decision, to the WTO Appellate Body (AB). The AB reversed the Panel Report’s conclusion — but haphazardly provided an attempted solution to the double remedy dispute in a section, titled “The Completion of the Analysis”. This Note is about the AB’s decision, particularly the “Completion of the Analysis” section. The AB held that the application of concurrent duties that offset the same subsidization twice is not consistent with Article 19.3 of the SCM Agreement because that article requires that an investigating authority collect countervailing duties “in the appropriate amounts.” But in doing so, the AB concluded that an investigating authority has an affirmative obligation under the SCM Agreement to ascertain the amount by which a countervailed subsidy lowers the export price of a product, which depends on whether and to what extent domestic subsidies have “passed through” to the export price. As such, the investigating authority has to take the necessary steps to adjust its methodology to take account of this factual situation, including the degree of pass-through of the subsidy. The AB’s decision has had a powerful and ongoing effect, leading to the United States Congress’s March 2012 passage of “An Act to Apply the Countervailing Duty Provisions of the Tariff Act of 1930 to Nonmarket Economy Countries, and for Other Purposes” and extensive changes in Commerce’s administrative practice for extant and newly filed trade cases. The new controversial practices are now again before the WTO’s AB to determine their consistency with the decision that this Note addresses. The AB’s Completion of the Analysis poses several questions. Must an investigating authority adjust for pass-through in both the countervailing and antidumping calculations, the countervailing duty set equal only to the portion of the subsidy passed through to export price, the antidumping calculation then adjusting for the double remedy still represented in a diminished countervailing duty? Does the AB’s decision account for the U.S. law that requires that the amount of the countervailing duty must be equal to the amount of subsidy that is found to exist, making a countervailing duty adjustment under U.S. law impossible? In order to meet its WTO obligations, should the United States return to its long standing policy of prohibiting the imposition of countervailing duties to non-market economies? This Note argues that the Completion of the Analysis neither factually nor legally solves the double remedy dispute. Part II provides background on U.S. countervailing and antidumping duty law. Part III introduces the double remedy dispute in greater detail, examines the AB’s analysis of the double remedy issue, and illustrates its failure to factually and legally solve the double remedy dispute. Part IV suggests three adjustments to the United States’ countervailing and antidumping methodologies that might resolve the double remedy dispute. Part V concludes.