For U.S. producers, successfully bringing an anti-dumping or countervailing duty case can effectively exclude unwanted foreign competition and preserve market share and profitability. Furthermore, there are many factors that can weigh in favor of an anti-dumping petition ultimately being successful, and not all of these necessarily require an unequivocal demonstration of unfair pricing on the part of the off-shore exporter. This article explores some of the advantages U.S. producers have when filing an anti-dumping case should the producer be experiencing significant impact from increasing foreign competition.
To provide some background, “dumping” is defined as the pricing of foreign product sold into the U.S. at below “fair value,” which essentially means below the cost of production, or below the price for the product in its home market. In order for an anti-dumping case to succeed, however, there must be both an affirmative determination that dumping is taking place, and also that the dumping is causing a material injury to a U.S. domestic industry. The U.S. Department of Commerce’s International Trade Administration is responsible for determining whether dumping is occurring, and the U.S. International Trade Commission is responsible for determining whether a U.S. industry is materially injured. If both are established, anti-dumping duties are imposed on the imported products in an amount intended to “normalize” the U.S. price of the products. If both are not established, the case is terminated.
Anti-dumping cases are usually initiated by producers of products in the U.S. that are experiencing a loss of market share or profits due to lower priced imports of foreign like product. Known as petitioners, these domestic producers petition both the Department of Commerce and the International Trade Commission to conduct an investigation on their behalf. The petitioners must also demonstrate that they represent a significant portion of the entire U.S. industry of the producers of the products in question.
One of the first advantages is that the Department of Commerce and the International Trade Commission provide technical support to the petitioners by reviewing draft petitions, offering substantive comments, and pointing out deficiencies that might cause a delay or prevent the initiation of an investigation. This is consistent with the functions of both agencies, which is to offer assistance to businesses seeking relief under U.S trade laws.
Another advantage is that the petitioners provide the initial pricing analysis regarding the dumping allegations. While petitioners are required to obtain objective data to support their allegations of pricing at less than fair value, often the price of the subject products in the foreign home market cannot be accurately determined, nor can cost of production be accurately identified. This can lead to the use of assumptions most favorable to the petitioners in the calculation of the home market pricing or cost of production.
From there, if a determination is made to initiate an investigation, the Department of Commerce issues an extensive questionnaire to the off-shore exporters of the products in order to substantiate the petitioners’ allegations. In many cases the foreign exporters/ producers do not respond to these questionnaires or are otherwise reluctant to provide detailed pricing or cost information leaving the Department of Commerce to base their pricing and cost determinations essentially on the information submitted by the petitioners, almost certainly leading to a finding of dumping.
Another advantage is that the petitioners are responsible for providing the product description, or “scope.” This is critical as the scope defines exactly what is covered under the anti-dumping case and it is in the petitioners’ interest to define the scope as broadly as possible. Products can be identified by HTSUS, but can also be identified by description, regardless of classification. In many antidumping cases the scope of coverage is very broad to include a wide range of finished and semi-finished products.
Another practice that favors petitioners in the U.S. is called “zeroing”, which is a method used when calculating whether a product is being sold at a lower price in the U.S. than in its home market. This occurs when a comparison is made between the goods sold in the US with the price of the goods sold in the off-shore home market. , If the price comparison yields a negative value in the home market – i.e., the home market price is less than the U.S. sales price, this negative value is replaced with a zero. This means that the negative value, which might serve to offset a positive difference in the price in another sample sale, is disregarded. This can result in a finding of dumping where one might otherwise not exist, or serve to increase the margin of dumping once found to exist.
Finally, a factor that bodes well for petitioners is that several years of statistics show that the Department of Commerce ruled in favor of petitioners’ claims in over 99% of petitions submitted, and the International Trade Commission agreed with injury claims in over 70% of the cases. Furthermore, it is not uncommon for anti-dumping duties to average over 100% of the value of the products, which in most cases makes the products prohibitively expensive to import into the U.S.
Initiating an anti-dumping case can be challenging, expensive, and involve the coordination and participation of many interested parties, often competitors, as well as their unions when applicable. However, the process of establishing a case and the advantages available to the petitioner, coupled with the significant benefits afforded by obtaining anti-dumping protection, may make pursuing a case a tangible option for surviving in todays’ globally competitive environment.
By Paul Fudacz, Senior Associate