Commerce Employs a Special Methodology to Calculate China AD Duties

The methodology that Commerce employs in NME cases differs from  Commerce’s usual (market economy) approach in two key ways. India is the  most commonly used surrogate for China. China Has Been the Most Frequent Target of U.S. Antidumping Orders

Over the last 25 years, Commerce has both considered and actually applied  AD duties against China more often than against any other country. Taking all rates into  consideration (including those calculated for individual companies,  weighted averages of these rates, and country-wide rates applied to China)  the average rate applied to Chinese companies in the 25 cases we examined  was about 67 percent—over 20 percentage points higher than the average  rate of 44 percent applied to market economy companies. Ceasing to Apply NME Methodology Would Have Mixed Results

In certain circumstances, Commerce may stop using its NME methodology  in China cases—and thus begin applying its market economy methodology  to determine AD duty rates against that country. Eliminating  country-wide duty rates would likely reduce duty levels for Chinese  companies that are not assigned individually determined rates. Individually  determined rates would likely diverge into two distinct groups, with  companies that do not cooperate in Commerce investigations receiving  rates that are substantially higher than those assigned to companies that do  cooperate. China has actively sought market economy status  among its trading partners, and a number of them have designated China as  a market economy. First, such a step would eliminate NME country-wide duty rates  from China AD orders. Concluding Observations

On average, Commerce’s application of its NME methodology has  produced AD duties on Chinese products that are substantially higher than  those applied to the same products from market economy countries. The duty rates applied to  companies that do not receive individual rates would likely decline. Nonetheless, while the NME  methodology is applied, it appears that the actual trade impact of using this  methodology will decline as the portion of total export trade conducted by  Chinese companies assigned individual rates increases, and as the country- wide rates that largely account for the comparatively high average rates  applied to China decline in importance. Overall,  Commerce agreed with our findings, observing that the report provided  timely and helpful information on the NME methodology and its  application to China. In order to analyze the application of antidumping (AD) duties to China and  compare duty rates applied to China with those applied to market economy  countries (our second objective) and to evaluate the potential impact of  ceasing to apply the nonmarket economy (NME) methodology to China  (our third objective), we collected information from the Department of  Commerce and the International Trade Commission, including notices of  Commerce determinations appearing in the Federal Register. We used this  information to construct a database on all U.S. GAO Comments

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Why GAO Did This Study

U.S. companies adversely affected by unfair imports may seek a number of relief measures, including antidumping (AD) duties. The Department of Commerce (Commerce) classifies China as a nonmarket economy (NME) and uses a special methodology that is commonly believed to produce AD duty rates that are higher than those applied to market economies. Commerce may stop applying its NME methodology if it finds that China warrants designation as a market economy. In light of increased concern about China's trade practices, the conference report on fiscal year 2004 appropriations requested that GAO review efforts by U.S. government agencies responsible for ensuring free and fair trade with that country. In this report, the last in a series, GAO (1) explains the NME methodology, (2) analyzes AD duties applied to China and compares them with duties applied to market economies, and (3) explains circumstances in which the United States would stop applying its NME methodology to China and evaluates the potential impact of such a step. Commerce agreed with our findings, commenting that our report provides timely and helpful information on the NME methodology and its application to China.

What GAO Found

Commerce's methodology for calculating AD duties on nonmarket economy products differs from its market economy approach in that (1) since NME prices are unreliable, it uses price information from surrogate countries, like India, to construct the value of the imported products and (2) it limits eligibility for individual rates to companies that show their export activities are not subject to government control. Companies that do not meet the criteria or do not participate in Commerce investigations receive "country-wide" rates. China has been the most frequent target of U.S. AD actions. On 25 occasions, Commerce has applied duties to the same product from both China and one or more market economy. China (NME) duties were over 20 percentage points higher than those applied to market economies, on average. This is because average China country-wide rates were over 60 points higher than comparable market economy rates. Individual China company rates were similar to those assigned to market economy companies, on average. Commerce can declare China a market economy if the country meets certain criteria, thus ending the use of surrogate price information and country-wide rates in China AD actions. These changes would have a mixed impact. Duties would likely decline for Chinese companies not assigned individual rates. Individual company rates would likely diverge, with those that do not cooperate with Commerce receiving rates that are substantially higher than those that do cooperate. In any case, it appears that the actual trade impact of the NME methodology will decline as the portion of total export trade conducted by Chinese companies assigned individual rates increases and as the country-wide rates that largely account for the comparatively high average rates applied to China decline in importance.