On August 5th, the U.S. Treasury labeled China a currency manipulator, a move not taken by the United States since the early 1990s, as China allowed its currency to fall to an 11-year low against the dollar. Although the People’s Bank of China played down the drop, it did link it to the trade tensions with the United States.
Although the Omnibus Trade and Competitiveness Act of 1988 requires the U.S. to engage in negotiations with the International Monetary Fund (IMF) to adjust the rate of exchange, on May 28, 2019, the U.S. Department of Commerce (DOC or Commerce) introduced a draft rule and invited comments for new rules that would considerably change how it addresses countervailing duty (“CVD”) proceedings involving claims that countries have undervalued its currency.
Countervailing duties are anti-subsidy duties. They are imposed after an investigation finds that a foreign country subsidizes its exports, injuring domestic producers in the importing country. Because countries can determine whether domestic industries are in danger and whether foreign countries subsidize the products, the institutional process surrounding the investigation and determinations has significant impact. Countervailing duties in the U.S. are assessed by the International Trade Administration of the DOC which determines whether imports in question are being subsidized and, if so, by how much. If there is a determination that there is material injury to the competing domestic industry, the DOC will instruct U.S. Customs and Border Protection (CBP) to levy duties in the amount equivalent to subsidy margins.
Petitions for remedies may be filed by domestic manufacturers or unions within the domestic industry, but the law requires that the petitioners represent at least 25% of the domestic production of the goods for which competition is causing material injury.
The proposed new rule could put goods from many countries (now China) at risk of higher tariffs. These countries could include Japan, South Korea, India, Germany and Switzerland. All are listed on the Treasury Department’s semi-annual currency report’s monitoring list.
Commerce stated that that these “modifications, if adopted, would clarify how the DOC determines the existence of a benefit resulting from a subsidy in the form of currency undervaluation, and clarify that companies in the traded goods sector of an economy can constitute a group of enterprises for purposes of determining whether a subsidy is specific.”
The proposed rule, if passed, could open the door for a myriad of new Countervailing Duty Investigations and provide a source for enacting addition new duties in Administrative Reviews for existing CVD orders products from China, now that President Trump has followed through with his promise to name China as a currency manipulator.
Crowell & Moring, LLP will be monitoring the rule-making process for these proposed rules and the potential impact to businesses and consumers.