A BRIEF OVERVIEW OF ANTIDUMPING DUTIES AND INVESTIGATIONS

Introduction
 Antidumping duties are special duties assessed by the United States (and other countries) to combat an unfair trade practice known as "dumping." Legislation making dumping a special tariff concept was first enacted by Australia in 1907. The first U.S. civil statute, the "Antidumping Act of 1921," was enacted in that year as part of the Emergency Tariff Act passed in reaction to the international debt crisis after World War I. Many other countries adopted similar legislation. In 1979, as a part of the Tokyo Round of GATT negotiations, an international agreement intended to harmonize all such legislation was established. In response, the U.S. repealed the 1921 Act and adopted new antidumping legislation, as did many other countries. Both the international agreement and the U.S. implementing legislation have since been modified more than once, but the basic concepts remain the same and are internationally recognized, although implemented in different ways in different countries.

 What constitutes dumping, how it is proven, and when and how antidumping duties must be paid on imports to the United States are the topics of this overview. Antidumping investigations are very complicated administrative proceedings. Only the general concepts can be reviewed here, although a general time line is provided at the end of this summary.

What Is Dumping?
 Dumping, for tariff purposes, occurs when exporters from one country cause or threaten to cause injury to an industry making like products in the United States by selling their merchandise to the U.S. market at less than fair value prices. Generally speaking, sales at less than fair value occur when goods are sold in the country of manufacture at prices which are higher than the prices at which the goods are sold to the United States. Before antidumping duties may be imposed, two findings must be made: (1) that sales at less than fair value exist; and (2) that such sales are causing injury to a U.S. industry making a like or competitive product.

What Is Fair Value? 
Fair value or "normal value" is defined as the price in the market of the country of exportation for the first sale of merchandise like that exported to the U.S., generally at the wholesale level. The normal value (home market price) is compared to the price of such or similar merchandise exported to the United States, called "export price" or, if the importer is affiliated with the exporter, "constructed export price." If no sales or inadequate sales exist in the "home" market, the prices for sales to third countries are used for comparison. This is typically what happens with non-market economies such as China. It has been U.S. administrative practice that only if there are no adequate sales of like merchandise in the home market or to any other country, will the constructed value (production cost) of the merchandise be used to establish the fair value. 

Antidumping Proceedings Are Investigations Of Companies Not Governments 
Antidumping proceedings do not involve charges against any foreign government. The pricing practices of manufacturers/exporters in one or more exporting countries are investigated on a country-by-country basis. Thus, an antidumping proceeding might be entitled " Frozen or Canned Warmwater Shrimp and Prawns From Brazil, China, Ecuador, India, Thailand, and Vietnam." It is not, however, directed to the policies of the individual governments mentioned, but rather to the pricing practices of exporters of shrimp from Brazil, China, Ecuador, India, Thailand and Vietnam. Since pricing practices vary from company to company and exporter to exporter, it is possible for some manufacturer/exporters located in a country to be found to be dumping while others are not.  

What Is A Dumping Margin? 

The prices at which each manufacturer has made sales in its home market for a particular period (the "period of investigation") are to be compared to sales prices during that same period to the U.S. market. To the extent that prices charged by a company in its home market exceed those charged to the United States, there will be dumping by that company. The price differential, expressed as a percentage, is called the "dumping margin." If exports from the country at issue (or from that country and other countries) are found to be causing or threatening injury to a U.S. industry, this dumping (margin) percentage will be assessed as a special antidumping duty on subsequent exports. Antidumping duties are almost never assessed retroactively to a period before the investigation was begun.  

Dumping Is Not Necessarily Predatory 
Dumped merchandise is not necessarily sold at less than its production cost, fixed or average variable. A dumping investigation is usually based on a comparison of prices in two markets, not of price and cost. Therefore, although a finding of dumping constitutes a finding of an "unfair" trade practice, it does not amount to a finding of "predatory" pricing as that term is understood in U.S. anti-trust law. The assumption underlying the antidumping law is that the home market producers are protected from foreign competitors by tariff or non-tariff barriers. Such protection allows them to realize high profits on home market sales which can be used to offset scant profits in export markets. This underlying assumption is not open to question in any particular dumping investigation. 

As tariffs and non-tariff barriers among nations decline and markets become more open and "transparent," dumping (except for sales at less than production costs) should also decline. As exporters and importers into the U.S. know, however, this state of equilibrium has not yet been achieved and antidumping investigations are very common in the U.S. 

Antidumping Investigations Are Product Specific  
Like almost all matters involving Customs law, antidumping proceedings involve particular products. Those which are covered by the investigation are said to be within its "scope."  Some investigations by the United States Government, such as those involving antifriction bearings or power transmission belts, concern almost all of the products made by an industry. Other investigations, such as tapered roller bearings or carbon steel pressure pipe, involve only certain products, which are very carefully defined and do not constitute the entire output of any manufacturing company. The U.S. antidumping statute allows both "blunderbuss" and "rifle-shot" proceedings. Although the official publication of antidumping notices, findings and orders contain tariff heading and subheading numbers, those numbers are not considered definitive. The actual description of the products given in the petition and adopted by the International Trade Administration, U.S. Department of Commerce (ITA), defines what products are covered by an investigation and by any antidumping duty order which results. The definition specific to the proceeding may cover merchandise which is covered by one tariff heading or it may cover merchandise which falls into several tariff headings. 

The U.S. industry which initiates the proceeding defines what products are covered. For instance, the U.S. bearing industry argued that its description of antifriction bearings included automotive wheel hubs and slewing rings. The foreign manufacturers of slewing rings, which were not specifically mentioned in the petition, managed to convince the U.S. government that those products were not cited by the petitioning U.S. industry. Automotive wheel hubs, however, were specifically mentioned in the petition and so were included in the antidumping order, even though they are usually thought of as auto parts. On the other hand, in the antidumping investigation of power transmission belts, the U.S. industry specifically excluded those for automotive use, even though they were made by the same companies in the same plants and generally on the same equipment. 

Finally, the scope of an antidumping proceeding may include not only the finished products, but also the products in knock-down or kit form or even substantial subassemblies or component parts of the products in question. This was the situation in the investigation of cellular telephones. The reason given is that, if the final antidumping duty applied only to the finished product, foreign manufacturers could set up assembly plants in the United States, import mere subassemblies instead of the finished product, and avoid payment of the antidumping duties, a result U.S. domestic industry clearly did not want.  

Thus, in evaluating whether a product is subject to an antidumping duty investigation or an outstanding antidumping duty order, one must carefully review the product descriptions used by the ITA in its notice of initiation, in the final antidumping finding, and in any subsequent "scope" determination(s). As concerns outstanding antidumping duty orders, an importer, U.S. manufacturer or foreign exporter may ask for a scope ruling from the ITA in order to clarify whether specific products are covered by or excluded from the pending dumping case. If the issue is not clear, the ITA will hold a special scope investigation. 

How Does A U.S. Antidumping Investigation Proceed? 

A Petition is Filed 
An antidumping investigation is usually begun by the filing of a petition. The petitioners are supposed to be a majority of the U.S. manufacturers or wholesalers of specific products like or directly competitive with the imported products about which they are complaining. The petition complains about imports from one or more foreign countries. 

The petition is filed simultaneously with two U.S. government agencies: ITA and the United States International Trade Commission (ITC). Each has a separate function.  

ITA Investigates Sales At Less Than Fair Value 
The ITA determines whether the facts alleged in the petition are sufficient to warrant the commencement of an investigation. If so, and generally they are, the ITA then investigates whether the merchandise is being sold or offered for sale to the United States market at less than fair value. That is, the ITA determines what dumping margins, if any, are applicable to exporters from each country. 

ITA almost always finds the petition sufficient. If it does not, it assists the U.S. industry in correcting any deficiencies. Thus, almost no investigations fail because the petition is insufficient. 

ITA investigates sales at less than fair value in a two step process. The first step relies upon very detailed questionnaires which generally require participating foreign exporters to report all sales of the merchandise in the home market and to the UnitedStates for the six (6) month period prior to the date when the antidumping petition was filed. ITA also sends questionnaires to U.S. importers requiring them to report all sales to themselves of the subject products. The answers to the questionnaires must be made in the computer formats required by ITA. Generally it requires thousands of man-hours to gather and properly format the necessary data. Even for foreign manufacturers with computerized records, difficulties arise in almost every investigation.  

Major factors which cause such difficulties are: 

(1)  the products included in the scope of the investigation are fewer than the foreign manufacturer's complete product line, requiring segregation of sales records in the home market; 

(2)  the products sold in the home market are similar to, but not the same as, those sold to the United States, requiring adjustments to be made for differences in merchandise; 

(3)  the distribution chain in the home market is different from that in the United States, requiring that different deductions be made to reach comparable ex-factory prices; and/or 

(4)  the merchandise is sold in the United States through or only by a wholly-owned subsidiary, in which case "constructed export price," a special and more complicated computation, must be used to determine the price in the United States. 

A complete response to ITA's questionnaire must usually be filed within four (4) months of the beginning of the investigation. Parts of it must be filed within one (1) month of receipt. Complying with these deadlines is very difficult for most importers and exporters. In these complicated cases, we find that exporters can easily be overwhelmed by the sheer volume of data which must be compiled. When this happens, the focus of the case tends to shift to gathering the required information instead of developing an overall analysis and presentation which disproves the allegations of dumping or minimizes the dumping margins. Logistical problems cannot be permitted to interfere with devising a responsive strategy. 

After the questionnaires are answered, ITA reviews the responses and informs the respondents of any deficiencies which must then be corrected within very short deadlines, typically two (2) weeks or less. ITA then calculates a "preliminary" dumping margin and orders Customs and Border Protection (CBP) to collect dumping duties provisionally on all subsequent entries of that merchandise until a final dumping order is issued. 

In the second (or "final") stage of its investigation, ITA sends verifiers to both the U.S. importers and the foreign exporters to check the accuracy and reliability of the information supplied. If the information is found to be accurate, ITA relies on it to calculate the final dumping margin for the company involved. If there is no dumping margin, then the company will be excluded from any dumping finding. For those companies with dumping margins, ITA issues the "final" determination of margins. 

If at any point ITA decides the importer or exporter is not cooperating or that the data supplied is inaccurate or otherwise unreliable, it may use the "facts available" to calculate the dumping margin for that respondent. The "facts available" are usually considered to be the information supplied by the U.S. petition, which almost always results in very high dumping margins. 

Not All Foreign Manufacturers Receive Questionnaires 
ITA normally sends its questionnaire to foreign manufacturers who account for 60% of the exports from the foreign country. Thus, it is possible that some foreign companies with smaller U.S. market share will not receive a questionnaire. Unless such a company specifically requests a questionnaire and ITA agrees to send it one and review its data, such a company will be assigned the "all others" dumping margin. The "all others" margin is the weighted average of the margins actually calculated (not based on "facts available") for all companies from the country concerned, except that margins less than 2% are omitted from the computation. Such a company can only be relieved of the "all others" margin at the time of the "first annual review," about two (2) years after the original dumping finding. 

ITC Determines Whether A U.S. Industry Is Injured 
The ITC determines separately from the ITA whether an industry in the United States is injured or threatened with injury because of imports of the allegedly dumped products. The ITC also conducts a two-step investigation. First, it makes a preliminary determination: whether there is no indication that the allegedly dumped products are causing or threatening injury to the U.S. industry.  This inquiry takes place before ITA calculates any dumping margins. The ITC usually finds, based upon information in the petition and some which it collects, there is some indication that the allegedly dumped imports may be causing injury and so it is the rare case where the investigation stops at this point.  

ITC's final investigation is aimed at determining whether the imports which are being sold at less than fair value are, in fact, causing or threatening injury. This final ITC investigation is made after ITA has made its final determination that less than fair value sales are being made. Like ITA, ITC sends questionnaires to U.S. importers and the foreign exporters. They are, however, not as difficult to answer. ITC also holds a very important fact-finding hearing in Washington for each case. Because U.S. law allows the effects of sales at less than fair value from a number of countries to be considered by the ITC, the hearing frequently involves imports of the same or similar products from several countries. 

In making its determination, the ITC considers all of the available economic factors, including supply and demand for the product, underselling by imports or U.S. companies, elasticity’s of supply and demand, capacity utilization in the United States and in the foreign countries, employment and capitalization trends in the industry in question, and the like. There have been occasions in the past where the ITC found no injury even where ITA's investigation showed sales at less than fair value. Therefore, it is always in a company's best interest to participate in the ITC investigation, even if it did not receive a questionnaire from the ITA.  ITC will allow any exporter or importer of the products to appear and participate in its proceedings. 

Final Determination And Antidumping Duty Order 
If ITA determines there are sales at less than fair value and ITC determines that those sales are causing or threatening injury to a U.S. industry, ITA will issue a final antidumping duty order. A separate order will be issued for imports from each country investigated. This order will restate the scope of the investigation and will set out the margin for each company for which a specific margin was calculated. It will also set out the "all others" margin for the remaining companies. This "all others" margin will also be applied to any new shippers selling the product into the U.S. from the country/countries in question. 

CBP will continue to demand deposit of antidumping duties on all products within the scope of the order imported from each country for which an order is outstanding at the dumping margins published in the final order. CBP will ordinarily not liquidate these entries before the results of the first annual review of the dumping order. If CBP does liquidate by mistake, the importer must nevertheless protest assessment of any antidumping duties made at liquidation. Protests must be filed within the time frame called for in 19 U.S.C. 1514. 

Annual Reviews Of Antidumping Duty Orders 
On the anniversary date of the publication of each final antidumping duty order, the U.S. manufacturers who petitioned, the U.S. importers, or the foreign exporters may ask ITA for an annual review of the order. The ITA conducts the annual review in the same manner in which it conducted the original investigation: it sends questionnaires to each importer and exporter who participated in the original investigation and to any other importer or exporter who requests a questionnaire. Each exporter and importer has the right to receive its own questionnaire in an annual review proceeding so that, no matter how small its market share, a specific margin may be determined for it. A "new shipper," one which has not exported to the U.S. during the period of investigation and which is not related to any company which did, may request a review of its exports six (6) months after the final antidumping duty order and thereby establish its own margin. 

Again, the ITA questionnaire must be answered in the required computer format. As in the original investigation, collection of the information is time-consuming and costly. ITA also usually does not finish its "annual" review within a year. It is, therefore, possible for a company to be in the process of two reviews at once (although they will usually be in two different stages). Consultation beforehand with Customs attorneys experienced in antidumping proceedings can, however, prepare a company to request a review and provide information with a minimum of disturbance to normal company functions. Advance preparation can also help a company that has an "all others" margin or has newly entered the market to determine whether it should request an annual review of its imports. 

Final Assessments Of Antidumping Duties 
If no one requests an annual review, the ITA will order CBP to liquidate the entries upon which antidumping duties have been deposited at the rate of deposit for the prior period and to continue all prior deposit rates for the next year. The following year companies may again request an annual review. Again, if no such request is made, CBP will liquidate the entries from the previous period and demand deposit at the existing rates. If a company requests an annual review and shows that it is no longer selling at less than fair value, its margin will be reduced to zero. 

Under current U.S. law, the antidumping duty order will march forward for five (5) years even if no party requests an annual review. At that point, the ITA and the ITC will conduct a sunset review to determine whether revocation of the order would be likely to lead to continuation or recurrence of dumping. 

Practical Advice for Importers and Exporters 
Because the statutory calculation of a dumping margin is very difficult, some exporters do not know whether they are making sales at less than fair value. If the final margin in any proceeding is less than 10%, it is very possible the exporters did not know they were selling at less than fair value. Likewise, some exporters who know they are selling to the U.S. for less than their home market price may be under estimating the dumping margin, it could even be by a considerable amount. They may be doing so, because the price in the U.S. market is being offered to meet competition or to undercut it by only a few percentage points. Exporters and importers must always remember that selling at less than fair value is not the undercutting of competitors' prices in the U.S. market. It is selling in the U.S. market at a price less than that obtained in the exporter's home market. Thus, if the price offered in the U.S. market is less than the prevailing price offered by U.S. producers, but more than price in the exporter's home market, no dumping exists. 

If an exporter wishes to know whether it is selling at less than fair value, experienced counsel can explain the procedures used by U.S. government agencies in such investigations and the company can make its own informed calculations. Such preparation will enable a company to know its position and to answer any antidumping questionnaires quickly and accurately. 

If a company wishes to export a product to the United States, but finds that an antidumping duty order is outstanding against that product from its country, it will need to ascertain the "all others" margin and make an assessment of whether it can enter the market and eventually reduce the antidumping duty by requesting a review and obtaining its own margin. 

Finally, an importer or a foreign manufacturer may avoid an antidumping duty assessed on merchandise from one or more countries by sourcing the merchandise in a country that is not subject to an antidumping duty order. This sometimes is possible as some U.S. industries which bring antidumping petitions have their own factories abroad from which they sell at least part of their output to the United States. They usually omit such countries from the list of those against which an antidumping duty petition is filed. 

We have reviewed the general concepts explained above and find them accurate as of the date hereof. However, as explained, the calculation of the normal value and the export price (or constructed export price) in an antidumping proceeding is a difficult matter. The object is supposed to be able to deduct all costs on both sides of the equation to arrive at an ex-works price for the merchandise sold in the home market and that sold for export to the United States. However, the calculation is weighted in favor of finding a dumping margin. The most flagrant example is the fact that sales in the home market and to the United States are compared on a month-by-month basis. A margin is calculated for each sale. Then, the margins for each sale are averaged to obtain a weighted average margin. However, sales at a negative dumping margin (i.e., the price to the U.S. is higher than the price in the home market) are zeroed out in calculating the final weighted average margin. Therefore, if there is dumping on any sales, there will always be a dumping margin. For example, if there are 10 sales of 100 widgets each and there is a dumping margin of 10% on five of them, and a dumping margin of -10% on five of them, the weighted average dumping margin is 5%, not 0%. For these reasons, advice from experienced counsel that is specific to a company's sales practices needs to be obtained in order to make proper estimates. 

We should also point out that, in general, a U.S. industry will not initiate an antidumping duty investigation until the foreign market share is about 7%, unless it is an industry with a history of fighting unfairly priced imports, e.g., steel, bearings, machine tools, textiles. Further, if prices have been rising in the U.S. market and U.S. industry profits are high, the industry will also ordinarily not initiate an antidumping investigation. However, U.S. industries have become very adept at initiating "rifle-shot investigations, where they believe, for instance, that their low-end products are meeting competition from dumped imports, even though they remain profitable as a result of sales of their high-end products, or vice versa. They merely define one set of products as a separate industry. U.S. dumping law, as explained above, allows such manipulation of the industry and product definitions. 

ITC has also published a good summary of its procedures entitled Antidumping and Countervailing Duty Handbook, Eleventh Edition, January 2005, which can be downloaded from the ITC website at:  http://www.usitc.gov/publications/webpubs.htm 

Cycle of an Antidumping Case

Step 1: Filing a Petition

Ø     Self-initiation by Commerce

Ø     Initiated by an interested party alone or simultaneously with Commerce and ITC

Ø     Early termination due to withdrawal of petition or conclusion of suspension agreement

Step 2: Commerce and the Sufficiency of the Petition

Ø     Petition must allege elements necessary for the imposition of a dumping margin

Ø     Petition must contain information reasonably available to petitioners

Ø     Petition must have been filed by or on behalf of the industry

If these determinations are negative, the case terminates.  

Step 3: ITC’s preliminary injury determination

ITC renders a preliminary determination as to a reasonable indication of injury. If negative, the petition is dismissed. 

Step 4: Commerce’s preliminary dumping margin determination

Ø    After ITC’s affirmative preliminary injury determination, Commerce renders a determination as to whether there is a reasonable basis to believe the subject merchandise is sold at less than fair value.

Ø   Whether that determination is affirmative or negative, the case proceeds. 

Step 5: Commerce’s final dumping margin determination

Ø    Affirmative determination of preliminary dumping margin:

(1)        Determination of final margin by Commerce

(2)        Suspension of liquidation of entries

(3)        Deposit of estimated antidumping duties

Ø    Negative determination of preliminary dumping margin, Commerce proceeds with determination of final margin. 

Step 6: ITC’s final injury determination

Ø    Affirmative determination of final dumping margin by Commerce, ITC renders a final injury determination.

Ø    Negative determination of final dumping margin:

(1)        Dismissal of petition

(2)        Suspension of liquidation of entries

(3)        Refund of estimated duty deposits  

Step 7: Commerce’s Antidumping Duty Order

Ø  Affirmative determination of final injury by ITC, Commerce issues an antidumping order.

Ø    Negative determination of final injury by ITC:

(1)        Dismissal of petition

(2)        Lifting of suspension of liquidation

(3)        Refund of estimated duty deposits 

Step 8: Appeal of Antidumping Duty Order

Ø    To the Court of International Trade and Court of Appeals for the Federal Circuit

Ø    To a NAFTA panel, if a NAFTA party is involved 

Step 9: Review of Antidumping Order

Ø    Annual administrative review

Ø    Changed circumstances review

Ø    Sunset review 

Step 10: Circumvention of Antidumping Duty Order

Commerce may expand an antidumping order to avoid circumvention by:

Ø      Assembly of imported subject merchandise in the U.S. or a third country

Ø      Alteration of subject merchandise in a minor way

Ø      Development of “later-developed” merchandise