U.S. Options Available to the Department of Commerce to Apply CVDs Against China

The U.S. government does not apply its CVD laws against China because  the Department of Commerce classifies China as an NME country and has  adopted a policy against taking CVD actions against countries so  designated. WTO rules, including relevant provisions of  China’s WTO accession agreement, do not explicitly preclude the United  States from pursuing either alternative. Commerce  could reverse its 1984 position to do this; however, we believe that absent  a clear grant of authority from Congress, such a reversal could be  challenged in court. Moreover, the Statement  of Administrative Action accompanying the Act acknowledged that the  Georgetown Steel ruling stood for “the reasonable proposition that the  CVD law cannot be applied to imports from nonmarket economy  countries.”

	Commerce Would Face Challenges in Applying CVDs against China

Although Commerce could proceed with CVD actions against China, it  would continue to face substantial practical challenges in identifying  Chinese subsidies and determining appropriate CVD levels. However, these approaches would not eliminate the  challenges that such actions would present. Commerce may find employing third-country information or “facts  available” helpful in completing China CVD actions. However, it is unclear whether, on a net basis, applying CVDs  would provide greater protection than U.S. producers already obtain from  antidumping duties. CVDs alone tend to be lower than antidumping duties. If Commerce grants China market economy status, both CVDs and  antidumping duties could be applied simultaneously, but required  methodological changes could well reduce antidumping duties. It is not  clear whether CVDs would compensate for these reductions. Regardless of  China’s status, some duties might need to be reduced to avoid double  counting of subsidies. Commerce lacks clear authority to make such  corrections when domestic subsidies are involved. Based on our analysis, we believe a change to a market  economy methodology would lower AD duties for some Chinese  companies. In the event that (1) Commerce changes China’s NME status or (2)  Congress decides to adopt proposed legislation that would authorize  Commerce to apply U.S. CVD laws to NME countries, including China, we  suggested that Congress provide Commerce clear authority to:  fully implement China’s WTO commitment regarding use of third-country  information in CVD cases, and    make corrections to avoid double counting domestic subsidy benefits  when applying both CVDs and antidumping duties to the same products  from NME countries, in situations where Commerce finds that double  counting has in fact occurred, taking into account Commerce’s analyses of  this issue prepared in response to our recommendation above. GAO-05-474. World Trade Organization: Selected U.S. Company Views about China’s  Membership.
Why GAO Did This Study

Some U.S. companies allege that unfair subsidies are a factor in China's success in U.S. markets. U.S. producers injured by subsidized imports may normally seek countervailing duties (CVD), but the United States does not apply CVDs against countries, including China, that the Department of Commerce classifies as "non-market economies" (NME). In this testimony, which is based on a June 2005 report (GAO-05-474), GAO (1) describes the options for applying CVDs to China, (2) the challenges that would arise, and (3) examines the likely results of applying CVDs on Chinese products.

What GAO Found

There are two alternative paths for applying CVDs to China. First, Commerce could determine that China is no longer a nonmarket economy and apply CVDs against China as a market economy. Commerce has criteria for such determinations but stated that China is unlikely to satisfy them in the near term. Second, it could reverse its 1984 position, which was confirmed by a federal appeals court, and apply CVDs without changing China's NME status. However, absent a clear congressional grant of authority, such a decision could be challenged in court, with uncertain results. The House of Representatives passed legislation that would grant this authority in July 2005, and companion legislation was introduced in the Senate. World Trade Organization (WTO) rules do not explicitly preclude either alternative. Commerce would face challenges, regardless of the alternative adopted. Chinese subsidies remain difficult to identify and measure. Employing third-country information or "facts available" may help but would not eliminate these difficulties. Commerce lacks clear authority to fully implement China's WTO commitment on the use of third-country information in CVD cases. Making CVDs available against China would give U.S. producers an explicit import relief measure that targets unfair government subsidies. However, on a net basis, applying CVDs might not provide greater protection than U.S. producers already obtain from antidumping duties. CVDs alone tend to be lower than antidumping duties. If Commerce grants China market economy status, required methodological changes would reduce antidumping duties for some companies. It is not clear whether CVDs would compensate for these reductions. Regardless of China's status, some duties might need to be reduced to avoid double counting of subsidies. Commerce lacks clear authority to make such corrections when domestic subsidies are involved.