During the course of an anti-dumping or countervailing duty investigation, many companies ask whether there is some way the case can be settled. Usually, the answer is no. There is a mechanism under United States law to enter into what is called a suspension agreement, by which the respondents agree with the Commerce Department to undertake certain actions in lieu of an order. However, the law makes it very difficult for these agreements to be reached. When the law was being drafted, United States industry representatives expressed concern that the use of these agreements could lead to the settlement of cases for political reasons wholly unrelated to the existence or absence of dumping or subsidies. They therefore insisted that the ability to settle anti-dumping or countervailing duty cases be subject to numerous and sharp restrictions. As a result, agreements to settle dumping and countervailing duty cases short of the imposition of additional duties have been few and far between. Often, the only reason such agreements are signed is because the President and his staff have decided that doing so is in the broader global interests of the United States, notwithstanding the objections of the United States industry.

 

Suspension agreements in anti-dumping cases

 

Up until 1980, while the United States Treasury Department had jurisdiction over dumping and subsidy investigations, a foreign manufacturer could avoid importer liability for the payment of dumping duties by engaging in a 'price undertaking'. Under such an undertaking, the Treasury Department would agree upon a satisfactory price for the product under investigation, presumably because Treasury felt that the price would be high enough to eliminate the dumping or remove the injury. So long as the exporter sold to the United States at or above that price, the Treasury Department would not collect any dumping duties. The Treasury Department would, through the Customs Service, periodically monitor the foreign exporter's prices to confirm that it was living up to its undertaking.

 

When the provisions of the anti-dumping law were extensively rewritten in the Trade Agreements Act of 1979, the provision for price undertakings did not survive in the new statute. Instead, the new law provided for 'suspension' agreements, under which the dumping investigation would be suspended, with no dumping duties imposed, provided certain conditions were met.

 

The new statute permits three types of suspension agreements in anti-dumping investigations: (1) agreements to cease exporting the investigated product to the United States; (2) agreements to eliminate dumping; and (3) agreements to revise prices so as to eliminate the injurious effects of dumping. The first type is virtually useless, since there is no incentive for the exporter to enter into it; an exporter that intends to stop exporting to the United States could as easily withdraw from the case and accept whatever dumping margins are found in the investigation without its participation, rather than struggle through the procedural difficulties of negotiating an agreement. In a practical sense, therefore, there are only two types of agreements: one to eliminate dumping and one to eliminate injurious effects.

 

Agreements to eliminate dumping

 

Agreements to eliminate dumping are relatively uncommon. These agreements must be signed by exporters accounting for 'substantially all' of the imports into the United States. Commerce Department regulations define the term 'substantially all' to mean exporters that account for at least 85% of imports of the subject merchandise. For industries that comprise several exporters, meeting the 85% threshold requirement can be difficult.

 

More importantly, it is extremely difficult for exporters to promise that they will 'eliminate completely' all dumping. The amount of dumping depends upon a number of complex factors, including product comparisons based on the Department's choice of characteristics, transportation and selling expenses, costs of production, and exchange rates. Many of these factors, such as exchange rates, can change abruptly and without notice. A manufacturer could well find after the fact that it had sold at dumped prices even when it had made good faith efforts to sell at non-dumped prices.

 

As a result of these and other problems, suspension agreements to eliminate dumping have been largely confined to non-market economies. Agreements with non-market economies are easier to reach because the basis for calculating normal value for these countries is the value of certain 'factors' of production which the Department chooses based on similarly situated market economies. The Department can therefore set a static normal value upon which the exporters can base a non-dumped United States price.

 

Agreements to eliminate injurious effects

 

Agreements to eliminate the injurious effects of dumping provide more flexibility than agreements to eliminate dumping. In practice, however, they are not necessarily more workable.

 

Such agreements must meet three conditions: (1) they must completely eliminate the injurious effects of the exports of that merchandise; (2) they must assure that each entry of merchandise is sold at a price that will not produce dumping margins greater than 15% of the average dumping margins found during the course of the investigation; and (3) they must prevent suppression or undercutting of domestic prices. Each of these requirements presents special problems.

 

First, the requirement that the revised prices eliminate the injurious effects of dumping implies a review of the injury question by the Commission. The statute provides for such a review, provided that it is requested within 20 days of the suspension of the investigation. Such a review is not automatic, in the absence of a request, since all sides could presumably agree that the suspension agreement eliminates injury. If it is referred to the Commission, however, the Commission has 75 days to consider whether the agreement in fact eliminates injury. If the Commission finds that the agreement does not eliminate injury, the suspension agreement is terminated and the investigation is resumed as soon as the Commission's determination is published.

 

The second requirement of the provision is that the revised prices under the agreement must reduce dumping margins to less than 15% of what they were determined to be during the investigation. Since the 15% rule must be satisfied individually by every future entry, the same difficulties discussed above with regard to agreements to eliminate dumping exist.

 

Finally, the rule against price suppression or undercutting often results in setting minimum prices that make it very difficult for exporters to remain in the market. The Department has found that the only way to meet this requirement is to set a minimum price below which the exporters' price cannot fall, while also permitting the price to increase if the market adjusts upward. This often means that the price at which the exporters must sell is above the market price, thus making it difficult to compete (particularly in commodity markets). Although agreements to eliminate injury do provide more flexibility than agreements to eliminate dumping completely, they are still not common remedies. In large part, this is because the statute requires that before they can be accepted, the Commerce Department must find that there are 'extraordinary circumstances'. Extraordinary circumstances exist when: (1) the Commerce Department determines that suspension of the investigation would be more beneficial to the United States industry than continuing the investigation; and (2) the case is complex. In only a handful of cases has the Commerce Department made these findings. Furthermore, the Commerce Department will only try to meet these criteria if the President decides that it is in the broader global interests of the United States to enter into such an agreement. This is rarely deemed to be the case.

 

Suspension agreements in countervailing duty cases

 

The types of suspension agreements available in countervailing duty cases are roughly parallel to those in dumping cases. There are agreements to cease exports, to eliminate subsidies completely, and to eliminate the injurious effects of subsidies. While the agreement to cease exports is the same in countervailing duty as in dumping cases, the other two types of countervailing duty suspension agreements present significant differences from their counterparts in the dumping area.

 

Agreements to eliminate the subsidy

 

Agreements to eliminate subsidies completely contain a provision not available in dumping cases. The countervailing duty provisions permit a suspension agreement based on the elimination of the subsidy or on an agreement to offset the subsidy with an export tax. This provision is substantially more attractive as well as substantially more practicable than the corresponding provision for dumping cases. Unlike the situation in dumping cases, the exporter need not assure that every individual export is free of subsidies as it enters the United States. All the exporter needs to do is to renounce any benefits it might otherwise be entitled to under its government's subsidy programmes. This is much easier for the exporter to do.

 

In some cases, it may not be possible for the exporter to renounce or eliminate a subsidy. For example, if the Commerce Department has found that a company's exports are subsidized as a result of government loans or equity investments that occurred years before, it may well be physically impossible for the company to eliminate the impact of those prior subsidies. In this event, however, the suspension agreements provide for the offsetting of the benefit by an export tax.

 

The offsetting export tax provision, which is not available in dumping suspension agreements, permits the exporter to renounce that portion of the subsidy which the Commerce Department has determined affects United States sales, without at the same time foregoing the benefits of the subsidy on domestic sales or on exports to third countries. This makes it very attractive to exporters. It is also attractive to the foreign government involved, since in essence it permits the amount of the countervailing duty to be collected by the foreign government itself, rather than by the United States Government.

 

In the first few years following the introduction of the suspension agreements provisions, agreements to offset the full amount of the subsidy based on export taxes were frequently used. Eventually, however, United States interests claimed that these types of agreements were meaningless, since the foreign government could simply refund whatever export tax it was collecting by means of a new or increased subsidy to the exporter. In part as a response to these complaints, the Commerce Department has discouraged such agreements, and few have been signed in recent years.

 

Agreements to eliminate injury

 

The provisions for suspension agreements eliminating injury in countervailing duty cases closely resemble, in most respects, the corresponding provisions in dumping cases. The exporters must eliminate or offset at least 85% of the subsidy, and the agreement must result in the elimination of the suppression or undercutting of United States prices. As with anti-dumping agreements, there are provisions permitting referral of the matter to the Commission for a determination of whether the agreement in fact eliminates the injury.

 

Agreements of this sort in countervailing duty cases differ from their anti-dumping counterparts in one important respect. While quantitative restrictions are not permitted in anti-dumping cases, agreements to eliminate injury in countervailing duty cases can limit the quantity of subject merchandise exported to the United States.

 

This is often an attractive alternative for exporters as they can remain in the United States market - albeit restrained in terms of quantity, but without the restraints of countervailing duties.

 

Procedures for suspending investigations

 

To suspend an anti-dumping or countervailing duty investigation, the party desiring suspension must submit a proposed suspension agreement no later than: (1) 15 days after the Commerce Department issues a preliminary determination in an anti-dumping proceeding; or (2) 5 days after the Commerce Department issues a preliminary determination in a countervailing duty proceeding. The Commerce Department must then notify and consult with the petitioner concerning its intent to suspend the investigation, and must do so no less than 30 days before it suspends the investigation. The parties are then given an opportunity to comment on the proposed suspension agreement by a date set by the Commerce Department, but not later than: (1) 50 days after the preliminary determination is issued in an anti-dumping investigation; or (2) 35 days after the preliminary determination is issued in a countervailing duty investigation or a regional industry case.

 

If the Commerce Department decides to suspend the investigation, it must issue a public notice to that effect. If the agreement is to cease exporting or to eliminate the dumping or subsidy, then the Commerce Department will also end any suspension of liquidation that might have occurred prior to the agreement, and will refund any deposit or other security paid.

 

If the agreement is to revise prices to eliminate the injurious effects of dumping, or to eliminate the injurious effects of subsidies, the procedure is somewhat different. In those cases, the Commerce Department does not end the suspension of liquidation; indeed, if liquidation of duties has not previously been suspended, the Commerce Department orders that liquidation be suspended. This suspension continues for 20 days, until the time has passed for interested parties to request a review of the injury issue by the Commission. If a party requests the Commission to review whether the agreement eliminates the injurious effects of dumping, suspension of liquidation continues for the term of the Commission's review (75 days). If the Commission finds that the agreement does, in fact, eliminate the injurious effects of dumping, the suspension of liquidation will be ended, and any deposits or other security refunded, on that date.

 

Continuation of the investigation following suspension

 

Except for the Commission review of agreements to eliminate injurious effect, the signing of a suspension agreement ends the investigation. There is no final dumping or countervailing duty determination and no final injury determination by the Commission. This situation could leave either foreign exporters or the United States industry dissatisfied. If exporters feel that they have a strong case that they are not injuring the United States industry, they will want to have the Commission rule on the injury question in order to have the investigation dismissed and the suspension agreement nullified. If the domestic industry believes that it has a strong injury case, it will want to have the case go forward to a final injury determination in order to have the possibility of an immediate dumping or countervailing duty order if the suspension agreement should ever be terminated.

 

For this reason, both the subsidy and the dumping suspension agreement provisions include the possibility of continuing the investigation after the suspension agreement is signed. They provide that interested parties may, within 20 days of the date when the Commerce Department publishes its notice of suspension, request that the investigation be continued. In that event, the case goes forward to a final dumping determination by the Commerce Department and a final injury determination by the Commission.

 

The continuation of the investigation does not have any direct impact on the suspension agreement itself. Imports of the subject merchandise enter the United States without duty deposit requirements or suspension of liquidation. Exporters must continue to abide by the agreement, whether it be to eliminate dumping or subsidies, or to eliminate the injurious effect of either.

 

The results of the investigation, however, may have a significant impact on the suspension agreement. If the Commission finds no material injury or threat of material injury, the suspension agreement is dissolved. If the Commission finds material injury or threat of material injury, the suspension agreement remains in effect and the parties must live by the terms of the agreement.

 

If the injury case appears strong to petitioners, they can still gain an advantage by seeking to continue the investigation. In the event that the suspension agreement is violated, the Commerce Department is required to reinstitute suspension of liquidation and continue the investigation if it had not previously been pursued to a final injury determination. In most cases, however, violations of suspension agreements will occur years after the agreement was signed. The situation with respect to injury may be very different at that point from what it was when the investigation was originally instituted. Petitioners who had a strong injury case at the time the case was filed may find that the case is much weaker when the suspension agreement terminates.

 

Petitioners who believe that they have a strong injury case at the time they file the petition are therefore well advised to request that the case go forward to a final injury determination. If the final injury determination is affirmative (material injury or threat of material injury), then when and if the exporters ever violate the agreement, that violation will result in the immediate institution of a countervailing duty or anti-dumping order. The final injury determination made during the original investigation will carry forward into the time that the agreement is violated.

 

In short, both sides usually have an incentive to continue the investigation to a final injury determination even after the suspension agreement is issued. Petitioners have an incentive to request continuation if they believe the injury case is strong, and exporters have an incentive to request continuation if they believe the injury case is weak. As a result, a high percentage of suspension agreement cases continue to a final determination.

 

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