U.S. Trade Preferences Extension Act (TPEA) of 2015 Could Lead to Increased Use of “Particular Market Situation” in Calculating Normal Value in Anti-Dumping Cases

Abstract

At the end of 2016, China’s Protocol of Accession (POA) to the World Trade Organization (WTO) will require a change in the way WTO members calculate normal value in anti-dumping (AD) proceedings involving China.1 Although no organ of the U.S. government has officially acknowledged that Paragraph 15 of China’s POA will require the U.S. Department of Commerce (USDOC) to abandon its current non-market economy (NME) surrogate value method for calculating normal value for Chinese respondents post-2016, there is no question that some change in practice must take place in order to comply with the expiration of a key provision of that Paragraph that occurs effective December 12, 2016. Ultimately, it is quite possible that the WTO Dispute Settlement Body (DSB) will interpret the provision as requiring that members subject China to the “default” rules set forth in Article 2 of the WTO Anti-Dumping Agreement (ADA). What remains a mystery, however, is just what those default rules permit in terms of the flexibility afforded to investigating authorities in dealing with economies like China, where the state’s role in the economy remains pervasive, even if to a lesser degree than it was in the past. It will also be interesting to watch how these new rules might be applied to traditionally market economies (MEs) whose governments, although not formerly communist, may be sufficiently involved in a particular market to also justify application of Article 2 in a manner that, to date, has not been widely adopted by USDOC or any other investigating authorities. These inquiries are not merely the idle musings of the authors, but draw on action already taken by the U.S. Congress and the European Commission. In amendments to its AD laws, known as the Trade Preferences Extension Act (TPEA), passed during the summer of 2015 as part of granting the Obama Administration Trade Promotion Authority,2 the U.S. Congress added language that expands USDOC’s discretion to treat certain transactions as outside the ordinary course of trade (OCOT). Although no legislative history accompanied these amendments, they appear, at least in part, tailored to a post-NME normal value calculation paradigm, in which a respondent’s costs can be disregarded and replaced with an alternative that may well approximate the NME methodology that China hoped would be eliminated as a result Article 15 of its POA. Meanwhile, the European Commission has adopted a practice that uses similar tools—so far only for MEs—where a respondent’s transactions are deemed outside the OCOT. Together, the new U.S. law and recent European action both suggest a movement toward more flexible rejection of AD respondents’ own data and replacement with data that look eerily similar to NME surrogate methodologies—for respondents in any country. But, stay tuned, as these efforts are currently under WTO review, and one dispute settlement panel has indicated that Europe’s practice may have gone too far.