On November 10, 2022, the Department of Commerce’s International Trade Administration (ITA) announced that it was revoking Russia’s status as a market economy (ME) and reclassifying the country as a non-market economy (NME) for any antidumping (AD) proceeding. In announcing this determination, the ITA noted that Russia’s market-oriented economic reforms “have notably and significantly backtracked.” This determination was based on evidence of expanding government activity and prices and costs in Russia that are no longer predictably set by free-forming supply and demand factors.
Russia now joins China, Vietnam and nine other former Soviet republics on Commerce’s NME list for AD proceedings. Notably, this reclassification marks the first time the ITA has withdrawn a country’s ME status after previously upgrading it. The Department of Commerce designated Russia a ME in 2002 as part of Russia’s bid to join the World Trade Organization (WTO). As recently as October 2021, Commerce had reiterated its position that Russia should maintain its ME status, even though the agency lamented that market-oriented reforms in Russia “have not progressed as significantly as expected and in some cases have backtracked” in the same communique. In March 2022, however, shortly after Russia’s invasion of Ukraine, the petitioners in an ongoing AD investigation involving urea ammonium nitrate solutions from Russia argued that Russia should be treated as a NME country given the “significant changes in market conditions” related to “ruble convertibility, the environment for foreign investment” and the Russian government’s control over the country’s “economy, rule of law, and freedom of information.”
The ITA assessment determined that: (i) “Russia’s prior liberalization initiatives on currency convertibility and foreign investment have notably reversed course”; (ii) “backtracking of economic reforms” continues; (iii) government ownership and control over the economy and setting prices has grown; and (iv) there has been a deterioration in rights associated with freedom of information. These factors thus “render any cost or sales information that [the ITA] could use for AD investigations unrepresentative of market-determined outcomes.” Practically, this assessment means Russian producers now face a presumption of government control, which could result in higher duties in AD proceedings. When the Department of Commerce tries to determine whether a good is sold at less than fair value in the United States, the agency compares the good’s price in its home market with its U.S. import price; when the home market is a NME, however, the ITA assumes that the in-country price is not subject to market forces and relies instead on data from a ME country similarly sized to assess the price of the good. In doing so, the ITA has significantly greater discretion when determining dumping margins for products from NMEs and, in turn, establishing AD duties for them.
The effective date of implementation of the ITA’s determination is November 1, 2022.