On March 25, 2024, the Department of Commerce published new regulations in the Federal Register formalizing major changes to U.S. trade remedy regulations, 19 C.F.R. part 351, which include noteworthy clarifications and new provisions. The extensive changes were first proposed in May 2023 (see Update of May 15, 2023), and follow a public comment period that yielded more than 50 responses. With the publication of the March 25, 2024 final rule, the regulations will take effect in 30 days on April 24, 2024.
Commerce’s sweeping changes include:
- Investigation of transnational subsidies: In 1998, because it did not believe that governments would spend their own taxpayer funds to subsidize the production and exportation of goods of another country, Commerce restricted its ability to investigate transnational subsidies. More than 25 years later, Commerce has reversed course, recognizing governments now “provide cross-border equity infusions, fundings, loans, etc., and [such benefits] are no longer limited to foreign aid. Rather, they are provided to promote the grantor country as well as the recipient’s country manufacturing capacities for a particular industry.” In the Federal Register notice, Commerce referenced projects funded worldwide by China’s Belt and Road Initiative as examples.
- Clarity for a Particular Market Situation (PMS): Commerce’s recent PMS findings have faced a myriad of legal challenges prompting differing judicial standards for Commerce to consider when determining whether a PMS exists in an antidumping proceeding. (A PMS determination allows Commerce to reject cost and sales prices due to distortions in the exporting market.) The new regulations incorporate the 2022 U.S. Court of Appeals for the Federal Circuit ruling clarifying what criteria Commerce should consider, and when, in a PMS determination.
- Consideration of an exporting country’s “nonexistent, weak, or ineffective” labor, environmental, human rights, and intellectual property protections: In its trade remedy analyses, Commerce will now consider how an exporting country’s inadequate legal and regulatory infrastructure related to labor, environmental, human rights, and intellectual property protections distorts costs and prices. The change reflects longstanding criticisms from U.S. companies that certain foreign competitors do not face the same or similar compliance costs as they do. As Commerce noted, “it is standard practice for Commerce to consider arguments based on real-world factors that can affect the cost of production, and to reject the use of prices or costs which Commerce has determined to be distorted or potentially distorted.” This acknowledgement “is not, despite the criticism of some of the commenters, a judgment on the social welfare policies, priorities, and laws of different countries. Instead, it is a recognition of economy reality—the lack of enforcement of certain protections granted in other countries, or the nonexistence of those productions under law entirely, can have a notable impact on a company’s or industry’s costs of production.” Commerce repudiated arguments that it must define what constitutes “weak” or “ineffective” protections and laws and must codify certain international standards, stating that “such decisions are fact-specific and made on a case-by-case basis.”
- Expanded meaning of “subsidy” to include an uncollected fee, fine, or penalty: According to Commerce, when a government issues a financial sanction against a company but never collects the payment in full, the government has effectively foregone revenue, benefitting the specific company and thus qualifying as a financial contribution under the Tariff Act of 1930. Such a “payment [that] was otherwise required [but] was not made, in full or in part” is distortive in nature and can be considered a countervailable subsidy.
While Commerce routinely tweaks and updates its U.S. trade remedy regulations “to improve, strengthen, and enhance the enforcement and administration” of antidumping and countervailing duty laws, it is unusual for the agency to institute a major overhaul of these regulations as it did here. Commerce “recognizes that in the year 2024, there are complexities and challenges in international trade which did not exist, or did not exist in the same manner or to the same degree, when previous regulations were issued. Accordingly, Commerce has determined that revisions and updates to Commerce’s trade remedy regulations are warranted.”