The unconventional approach of the Trump administration on a variety of issues has without question had a polarising effect on the US political landscape. Among these is economic policy, of which trade has been prioritised.
Consistent with President Trump’s “America First” policy, the Trump administration has aggressively sought to address perceived unfair trade practices with its trading partners. This break with the traditional liberal trade policy of his predecessors was clearly signalled during President Trump’s campaign in the run-up to the 2016 election, which resonated with much of the American electorate concerned by the decline of the US manufacturing base. President Trump attributed this decline to the more open, or “free”, trade principles pursued and implemented by the US and its trading partners after World War II. In doing so, President Trump aggressively attacked free trade principles, declaring that “globalisation has wiped out our middle class”, and laid out his plans to address this, including the use of sections 201, 232 and 301 of the trade regulations. As has been well documented, President Trump has followed through on these campaign promises and withdrawn from the Trans-Pacific Partnership, renegotiated NAFTA, implemented a series of tariffs under sections 232 and 301 and engaged in a spiralling trade war with China. Collectively, these actions have dramatically altered and, in the view of many observers, weakened the global trading system.
President Trump has successfully made good on his protectionist campaign rhetoric, in part, by selecting like-minded cabinet officials such as US trade representative Robert Lighthizer – an established Washington, DC trade attorney with strong protectionist leanings – and Peter Navarro, who has been a long-time critic of China and its trade practices. Not as noteworthy but important from a trade policy perspective was Trump’s nomination of ex-steel executive Wilbur Ross to lead the US Department of Commerce (DOC), the agency responsible for determining antidumping (AD) and countervailing (CVD) duties in trade remedy proceedings. Compared to the tariffs implemented by President Trump under sections 232 and 301, AD and CVD duties impact a smaller volume of US imports, but have remained an important component of international trade policy dating back to the 1980s. Dumping is determined to have occurred when products are exported by a foreign company and sold in the US at a below-market price. Countervailing duties refer to instances in which foreign governments unfairly subsidise domestic industries, thereby putting US competitors at a disadvantage. Both AD and CVD proceedings are triggered by petitions filed by US companies alleging injury due to unfairly priced or subsidised imports. Depending on the outcome of the proceeding conducted by the DOC, AD and CVD duties may be applied in order to increase the price of the imported product to a fair market value thereby eliminating the calculated amount of dumping or subsidisation.
Prior to his appointment, Secretary Ross owned an equity firm with investments in a variety of industries, including US steel companies – some of which benefited from the imposition of AD and CVD tariffs on imported steel. As a result, Secretary Ross is familiar with the intricacies of the US trade remedy regulations and, therefore, uniquely positioned to leverage this experience to yield the full impact of the current regulations. Indeed, during 2017, the first year of Ross’ tenure, there was a significant increase in the number of AD and CVD initiations compared to any year of the Obama administration. The number of initiations levelled off in 2018 but remained at a historically high level. (For details, see the table below.) Secretary Ross also oversaw self-initiated AD and CVD investigations on aluminum products, a tactic not used by the DOC in over 25 years.
Often overlooked when analysing the Trump administration’s heavy use of trade remedy actions is that this continued a trend that developed towards the end of President Obama’s second term, in which AD and CVD initiations scaled up significantly. While this trend reflected economic conditions at the time, it was also due in part to changes to the AD and CVD regulations and practices enacted that went largely unnoticed outside the trade bar in Washington, DC. All the changes implemented by the Obama administration benefited US domestic industries, further tilting the trade remedy laws in favour of petitioning US companies. In combination with the surge in protectionist sentiment championed by President Trump and the appointment of like-minded cabinet officials at key agencies, the changes to the trade remedy regulations and practices implemented by President Obama effectively set the table for the aggressive use of AD and CVD actions experienced to date under the Trump administration.
Of the changes that transpired during the Obama era, the most notable was the DOC’s implementation of the “differential pricing test” in all AD proceedings. This development served to firmly establish the DOC’s heretofore fluid policy on how to determine and address “targeted dumping”. While the mechanics of the differential pricing test are complex, the impact on the antidumping calculations clearly benefits petitioning US companies. In particular, this change in practice allows the DOC to apply “zeroing” under specific circumstances. Zeroing refers to the controversial methodology of setting negative dumping margins on US sales transactions equal to zero, thus increasing the overall weighted-average dumping margin. Zeroing was a component of the DOC’s standard practice until 2012 when it finally complied with the WTO’s 2006 decision that struck down this practise. An example of how zeroing impacts the dumping calculation is provided below in the table on the following page.
The DOC adopted the current differential pricing test in 2013. Also, at this time, the DOC began to automatically apply the differential pricing test to all ongoing AD investigations rather than being triggered by an allegation of targetted dumping by the petitioning US company as was previously the case. The application of the differential pricing test was soon expanded to all ongoing administrative reviews. By 2014, all AD proceedings were subject to the differential pricing test, thereby reintroducing zeroing to standard DOC practice and in the process increasing the likelihood of finding a positive determination of dumping.
The mechanics of the differential pricing test is centred around a statistical measure called the “Cohen’s d” test, which is used to evaluate the magnitude of differences in US export prices among customers, time periods or regions. Sales are considered “passing” if the absolute value of Cohen’s d is greater than 0.8 (0.8 standards deviations above or below the mean). If 33 per cent or less of the US sales volume is found to pass the Cohen’s d analysis, no differential pricing is deemed to exist and no zeroing is applied. If more than 33 per cent but less than 66 per cent of the US sales volume passes the Cohen’s d test, the DOC applies zeroing only to those sales found to be differentially priced (ie, sales passing the Cohen’s d test) and there is a significant difference in the calculated dumping margins. If 66 per cent or more of the US sales volume passes the Cohen’s d test, the DOC applies zeroing to all sales, including those found not to be differentially priced if there is a significant difference in the calculated dumping margins. In the last two scenarios, negative dumping margins are zeroed out for part or all of the US transactions, thus neutralising any offset to positive dumping margins in calculating the overall dumping duties.
The other significant event that impacted the trade remedy regulations occurred soon after the implementation of the differential pricing test. In June 2015, Congress passed, and President Obama signed into law, the Trade Preferences Extension Act 2015 (the Trade Remedies Bill). A major component of the Trade Remedies Bill was the American Trade Enforcement and Effectiveness Act (ATEEA), which was introduced in Congress by US House Representative Mike Bost (Illinois) in May 2015. Bost was motivated to propose the changes after the temporary closure of a steel plant employing 2,100 constituents in his congressional district. The ATEEA amended existing laws to make it easier for US petitioning companies to prove injury before the ITC, and extended the DOC additional discretion on various aspects of trade remedy practice, including the following.
The ATEEA expanded the concept of a “particular market situation” by permitting the DOC to disregard not only a foreign exporter’s home market sales but also the cost of production when determining whether exports to the US were made at dumped prices. The DOC recently determined that a particular market situation existed in biodiesel from Argentina and Indonesia. In both proceedings, the DOC disregarded submitted raw material prices and used adverse facts available in calculating the cost of production which inflated the dumping margin.
Prior to passage of the ATEEA, in order to initiate a sales-below-cost investigation,
the DOC required the US petitioning company to submit detailed allegations, with supporting documentation, that home market sales were made at prices below the cost of production. Absent a sufficient allegation, the DOC would not require the foreign company to submit cost of production information. Pursuant to the ATEEA amendment, the DOC is now
required in all AD investigations and reviews to “request information necessary” to calculate the cost of production in order to determine whether home market sales were sold at prices below the cost of production. In other words, the DOC requires cost of production information in all proceedings, which is not only an additional burden on the responding company but also automatically subjects the foreign exporter to the DOC’s sales below cost test, which potentially eliminates lower priced home market sales that can minimise dumping margins if included.
The ATEEA grants the DOC greater discretion in selecting among possible adverse facts available (AFA) rates and relaxes corroboration requirements. The AFA rates applied are punitively high. The DOC is permitted under US trade regulations to draw an adverse inference when selecting among facts otherwise available against companies who fail to respond to requests for information or otherwise fail to participate in an AD or CVD proceeding.
Before he left office in January 2017, President Obama publicly touted the success of this legislation stating:
In each of the last two years, Commerce initiated the largest number of new investigations in 14 years. The administration worked with Congress to secure new legislative authorities that provide a substantial upgrade in our government’s trade enforcement capabilities. Commerce has conducted investigations and made final determinations on important cases brought by the American steel industry, finding dumping margins as high as 620 percent on certain products from China.
While the rise of protectionism is attributed to President Trump and his “America First” mantra, the Trump administration’s policy of strict enforcement of the US trade laws builds on the stronger enforcement begun at the end of the Obama era as clearly evidenced by President’s Obama’s remarks in January 2017. The Trump administration has effectively capitalised on the stronger trade remedy laws resulting from the changes enacted by President Obama, who is one of the many strongly criticised by President Trump as being weak on trade. Encouraged by President’s Trump’s vow to crack down on “cheating” by other countries, US companies as significant as Boeing have filed antidumping petitions aimed at impeding significant levels of competing imports. Assuming President Trump continues to politicise trade policy entering an election year, AD and CVD proceedings will remain a popular and convenient tool for US companies to limit foreign competition.