Cumulation of imports

If the anti-dumping (or countervailing duty) case was initiated against several countries, under United States law the Commission will have to decide whether to cumulate (combine) the imports from all the targeted countries when assessing whether the United States industry has been materially injured 'by reason of the imports. Although the Commission has always had the discretion to cumulate imports, the United States Congress made cumulation mandatory in 1984.

Consequently, the Commission will cumulate imports from all targeted countries as long as the following conditions are met: (1) all the targeted imports are subject to investigation under either the anti-dumping or the countervailing duty law; (2) they compete with each other and with the domestic like product; and (3) their marketing is reasonably coincident. If the products from the various countries are all grouped within a single class or kind of merchandise, it is very likely that these criteria have all been met.

Battles over cumulation usually involve the second element, whether there is a sufficient overlap of competition with other imports and with the domestic product. The United States courts have made clear that there need only be a 'reasonable overlap' of competition, which is a pretty low standard. During the Uruguay Round negotiations, one proposal called for a 20% overlap to meet this standard, but the United States felt such a test would be too strict and insisted that this wording be deleted. In practice, the Commission rarely considers an argument against cumulation unless the foreign country can demonstrate a degree of overlap below 5%. Note that this limited overlap can be either with other imports or with the domestic industry. Under the United States statute both elements must be present, so if the foreign company can show the absence of either element, cumulation is not allowed.

When assessing the degree of overlap, the Commission has traditionally considered the following basic factors:

- Degree of fungibility - This factor involves the degree to which the various products can be substituted for each other. The Commission asks customers to indicate whether they believe the various products can be used interchangeably. The more interchangeable the products, the more likely the Commission is to find cumulation.

- Geographic markets - The Commission generally examines the regional pattern of sales, looking at imports into various ports in the United States. If all products are present in all geographic markets (even in very small quantities), the Commission is more likely to cumulate the imports.

- Common distribution channels - This factor relates to the degree of competitive overlaps; products in different and distinct distribution channels do not really compete with each other. The more overlap, the more likely the Commission is to cumulate.

- Simultaneously present - Finally, the Commission considers the timing of imports over the three-year period being investigated. If various imports and domestic products are all being sold throughout the period, the Commission is more likely to cumulate.

Where possible, the foreign company should argue against cumulation. The more imports that are grouped together, the greater the impact on the domestic industry, and the more likely that the Commission will find material injury from the imports. It is very difficult, however, to avoid cumulation. The 1984 changes to the law expanded the scope of cumulation, and made clear that the Commission should apply cumulation broadly.

Since then, the Commission has expanded the doctrine of cumulation to include almost every possible scenario.

The one exception to this expansion of cumulation is the doctrine of 'negligible' imports. If the foreign company has few imports into the United States during the period of investigation, it can argue to exclude its imports from the cumulation of other imports. Reflecting the changes mandated by the Uruguay Round, United States law applies the numerical thresholds set forth in the Anti-Dumping Agreement. If imports from a country account for less than 3% of the volume of all imports over the most recent 12-month period for which information is available preceding the filing of the petition, that country will be deemed negligible and the investigation for that country will be terminated. But if all negligible countries together account for more than 7% of the volume of imports, all of those negligible countries can be recaptured and included in the analysis.

These rules have triggered some intense debates. When the import levels for a particular country are low enough, the foreign countries have often tried to argue to shrink the numerator and increase the denominator enough to fall just below the 3% threshold. There have been several cases in which domestic petitioners thought a country would be above 3%, only to discover that the country was able to escape by making detailed arguments about the precise products that should be included or excluded.

The United States law also provides several specific exceptions to cumulation. First, the Commission cannot cumulate a country for which it has made a negative determination of dumping or subsidies. Second, the Commission. cannot cumulate if for any reason the investigation with respect to that country has been terminated, for example because the petitioner may have withdrawn the petition and effectively 'settled' the case. Third, the Commission cannot cumulate countries that are designated beneficiaries under the Caribbean Basin Economic Recovery Act. Depending on the particular circumstances of a case, one of these exceptions might apply.

Threat of material injury

Even if the foreign company is successful in disproving the presence of material injury, the Commission may find that the domestic industry is threatened with potential material injury by the foreign company. The Commission analyses threat by considering the foreign company's intentions and potential to export to the United States market in the future. In determining whether imports threaten future injury, the Commission looks at:

- The foreign company's excess capacity for producing the imported merchandise;

- Recent and sudden increases in the market share of the imported merchandise;

- Substantial increases in United States inventories of the imported merchandise; and

- Possible price suppressing effects of the imported merchandise, either because of a large market share or because of the general condition of the domestic industry.

The Commission must find that these factors provide evidence that the threat of material injury is real and that actual injury is 'imminent'. An affirmative finding of threat of injury cannot be based on mere conjecture or supposition of injury.

The Commission is most likely to find that the foreign company poses a threat if it has expanded capacity and has no other market. If another substantial market exists - either in the exporter's home market or in some other country- it is harder for the domestic industry to show that the excess capacity will lead to a flood of exports to the United States market. The Commission may perhaps be more reluctant to find threat of injury if the imported merchandise is covered by some multilateral, bilateral, or voluntary export restraint agreement. Such agreements put an indisputable cap on potential exports and refute arguments that unused capacity could be directed at the United States.

Note that there is a special rule for cumulation in threat cases. Unlike cases involving material injury, in which cumulation is mandatory, in cases involving only threat of injury, cumulation is still discretionary. In exercising its discretion, the Commission normally examines the trends in various import sources. If all the trends are similar - particularly the rate of increase in import levels - the Commission is likely to cumulate. In cases where the trends diverge - such as some import sources increasing, but other sources decreasing - the Commission can decide and has decided in some cases not to cumulate.

Material retardation

United States law allows a finding of injury if imports prevent the United States domestic industry from being established. This theory is called 'material retardation' - the notion that the United States industry is being materially retarded in its efforts to establish itself. This approach to injury is less common than either 'material injury' or 'threat of injury'. The Commission usually makes its decision on other grounds, and often does not even reach the issue of material retardation. There have been very few cases in which the Commission has found material retardation.

Critical circumstances

If the Commission finds that the domestic industry is suffering material injury, the domestic industry may argue that 'critical circumstances' exist and that anti-dumping duties should be imposed retroactively. Recall that anti-dumping duties are normally assessed only after the Commerce Department's preliminary determination. A finding of critical circumstances allows the assessment of duties to be retroactive to 90 days prior to the preliminary determination.

Both the Commerce Department and the Commission must find that critical circumstances exist. The Commerce Department examines whether there has been a sudden surge in exports, and whether the foreign company should have known the sales were at unfair prices. The Commission examines whether the foreign company has increased its exports after the petition is filed in an attempt to avoid the effect of the anti-dumping investigation by entering the merchandise into the United States market before the Commerce Department's preliminary determination. If the Commission determines that such imports will prolong or cause a recurrence of material injury to the domestic industry, anti-dumping duties may be imposed retrospectively. As a practical matter, the Commission rarely finds critical circumstances. Although the Commerce Department applies mechanical rules, and is quite willing to find critical circumstances, the Commission has been much more sceptical. Still, if the issue is at stake, the foreign company needs to present complete arguments to avoid being subject to retroactive duties.

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures