Yet, the United States may soon find itself in a very different position regarding such subsidies because of two bills passed by the Senate and endorsed by the Biden administration (but not yet passed by the House): The United States Innovation and Competition Act (USICA) and The Infrastructure Investment and Jobs Act (Infrastructure Bill). The USICA calls for major new government-financed investments in artificial intelligence, 5G telecommunications technology, semiconductors, biotech, and quantum computing. The infrastructure bill provides for large investments in bridges and pipelines, rail and buses, low-cost broadband, plug-in electric vehicle charging stations, and environmental remediation. Much of this funding, totaling well over $1 trillion dollars, will likely result directly or indirectly in government payments to private companies.

These programs are necessary, despite the major change that this represents in U.S. subsidization and trade policy. Additionally, these industrial investment programs are larger than anything comparable that the United States has done before and cover a wider range of sectors. The United States has been driven to these changes by vast subsidies in China and in other countries, which have non-market approaches to industrial development and provide government subsidies to a range of industries. These industries include many that are critical to technology leadership and national security, such as 5G, semiconductors, steel, high-performance computers, and maritime vessels. The United States cannot pretend that it lives in a world of free market economies and hope that its companies can compete against enormous foreign government coffers.

When faced with foreign subsidization that undercuts U.S. industries and technological leadership, the United States has three possible responses. The first approach is to file trade cases against companies receiving or governments granting subsidies. This has been by far the most common approach, but this presents a myriad of problems as a macroeconomic approach to international competition. First, trade law remedies do not reach all kinds of subsidies, such as subsidies in the service sector. Second, it is difficult to pursue anti-subsidy cases at the World Trade Organization (WTO) or other international forums; indeed, the WTO case between the United States and the European Union on Airbus and Boeing lasted 17 years. In other instances, U.S. industries have shied away from bringing multilateral anti-subsidy cases because of concerns about the ability of the international dispute settlement system to be administrated. Last, under a trade law administered by the U.S. government—the countervailing duty law—anti-subsidy duties can be circumvented by transshipment through third countries. Although there are methods to deal with such transshipment, they can take a long time to utilize.

The second approach is to try to reach agreements with foreign countries to limit subsidization. This has been tried repeatedly in areas such as steel subsidization, research and development subsidies, and subsidies for fisheries. The results of such negotiations have been slim and difficult to enforce.

This brings us to the third approach, currently being tried for the first time on a significant scale: major investment in critical U.S. industries to stand up against foreign subsidies. This approach should probably have been undertaken decades ago, or at least added to the U.S. anti-subsidy portfolio. There is no way that the United States can compete successfully against major Chinese subsidized industries without taking them on directly through U.S. investments. If the United States fails to do so, it would be equivalent to competing with its hands behind its back.

But this new approach does raise an issue for the United States, particularly for its trade negotiators and trade law enforcers. That is, how does the United States continue to argue against major subsidies in trade negotiations and trade cases if it is investing large amounts in its own industrial development? The simple answer is that the United States just does. The United States keeps up all its trade negotiation and trade enforcement activity, while vastly increasing the likelihood of overall success in the subsidy domain. The former is achieved by investing hundreds of billions of U.S. dollars into critical U.S. industries and infrastructure. If anyone raises complaints about this, the United States has several responses. The first is that international agreements such as the WTO have not shown themselves to be capable of dealing with large nonmarket economies and their subsidies. The United States needs to try to reform these agreements, but in the meantime, it needs to take action. The second answer is that many of the programs the United States is undertaking are probably not illegal or actionable subsidies under the internationally recognized definitions. The programs may be “generally available,” such as pipelines and bridges, or critical to our national defense, and as such exempt from WTO provisions. They also might not be causing “injury” in an international trade sense because the investments are meant to enhance the United States’ job base and national economy and are not targeted to export performance. Also, many of the investments are for pre-competitive university research, such as new programs at the National Science Foundation, which are not considered unfair trade practices.

Certainly, these “defenses” will sometimes be successful, though they don’t address the fundamental issue of how the United States continues to argue against the basic policy of subsidized industries while pursuing the policy itself on a large scale. For that issue, there’s a more obvious answer: If foreign countries are going to engage in major subsidization and build up key technology industries, the United States should do so too. It is the world leader in technology and intends to stay in that position.

The final benefit of this approach is that the United States may end up back where it started and where it ultimately wants to be. By engaging in government investments to meet the challenge of foreign subsidization, it will become clear to foreign competitors that they will not win the technology race through their subsidization. They will see that the United States intends to keep up with them as long as it has to. This could result in greater disciplines enacted on subsidies worldwide, in changes in the WTO to address nonmarket economy practices, and in a greater ability to reach international anti-subsidy agreements. The United States has the greatest research base, the greatest technology base, and the most creative economy in the world. If it can return to a world with more economic freedom in international competition, the United States will ultimately prevail.

Gilbert B. Kaplan is a non-resident senior adviser with the Project on Prosperity and Development at the Center for Strategic and International Studies in Washington, D.C. He is currently chairman of the advisory board and senior fellow with the Manufacturing Policy Initiative at the O’Neill School of Public and Environmental Affairs at Indiana University.

To read the full commentary from the Center for Strategic and International Studies, please click here.

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American ports and rail terminals are struggling to cope with unprecedented surges of imports from Asia, a situation likely to continue into next year and contributing to both American companies’ supply chain woes and broader inflationary pressures. Shipping containers are piling up by the thousands, leading to port delays, higher shipping costs (both ocean and inland freight), and U.S. exporters – mainly of agricultural products – lacking the empty containers they need to send their goods abroad. Importers, meanwhile, are especially reeling. Firms like the Columbia Sportswear Company, Whirlpool, and Peloton have gone on the record about rising shipping costs and struggles to meet consumer demand. Small businesses are being hit particularly hard, facing the decision to pay three times the typical shipping rate for products that are unlikely to arrive in months. And peak shipping season has just begun. The disruption is such that the CEO of the American Apparel Association even urged consumers to do their Christmas shopping in the summer.

(Sorry, fellow procrastinators.)

Surely, a lot of the problem here is just the global pandemic – for example, a surge of Asian‐​made consumer goods to meet an unexpected spike in U.S. demand, combined with still‐​muted demand for U.S. products in countries with relatively few vaccinations – doing its thing. Until COVID-19 is under control around the world, supply chain hiccups (and more) will persist. Thus, many of these issues will simply take time to work themselves out – regardless of what the politicians might promise.

However, U.S. trade policy is also likely contributing to the current shipping crunch. In particular, the United States earlier this year imposed extremely high “trade remedy” duties on imports of truck chassis (which are used to haul containerized merchandise around the country) originating in China – by far the largest producer of such products. The duties resulted from antidumping (AD) and countervailing duty (CVD) investigations launched last year by the U.S. International Trade Commission (ITC) and Department of Commerce (DOC), the latter of which calculated for chassis produced by China International Marine Chassis (CIMC), the world’s largest chassis manufacturer, combined final duty of 221.37 percent (177.05 percent AD and 44.32 percent CVD). These estimated AD/CVD measures now apply to any Chinese chassis imports that have entered the from March 4 on. And they apply on top of the 25 percent tariffs that President Trump imposed on a wide range of Chinese imports in a separate “Section 301” case back in 2018.

(We say “estimated” duty rates here because, as discussed previously, the U.S. trade remedies system’s novel “retrospective” approach requires duties to be (1) adjusted periodically for imports that entered the United States during a previous period and (2) then assessed on those imports at the new, recalculated rate once the review is completed years later. This approach creates an additional “uncertainty disincentive” – as if a 221 percent duty weren’t enough! – to import from subject countries and companies. That said, usually rates change modestly during these reviews, so it’s unlikely that the current duty rates on Chinese chassis imports will be substantially lower anytime soon.)

According to importers and industry‐​watchers, these duties are undoubtedly affecting the U.S. shipping market for two reasons:

• First, chassis available to U.S. freighters have been “stretched to [the] limit” in recent months at most of the biggest transit hubs in the country, including the ports of Los Angeles/​Long Beach and New York/​New Jersey, and rail terminals in Dallas, Chicago, St. Louis, and elsewhere. Major chassis providers like TRAC Intermodal have also reported shortages in regions like the Seattle‐​Tacoma area and throughout the Midwest, where this situation is especially sensitive. Indeed, back in July, chassis shortages contributed to creating a clog of shipments in Chicago that forced Union Pacific and BNSF Railway, two of the largest railroad companies in the country, to temporarily restrict shipments from ports in the West Coast to said hub. As one recent report put it, “[s]hipments from Asia to the U.S. are experiencing extreme difficulties in getting their cargo delivered, mainly due to the acute shortage of chassis to effect delivery of their containers on the U.S. side.” (emphasis ours)
• Second, there simply isn’t enough non‐​China chassis capacity to meet current U.S. demand. In particular, CIMC can produce 40,000–50,000 units per year, while the five North American chassis manufacturers that requested the U.S. AD/CVD investigations have admitted that it would take them “at least six to nine months” to increase their production to only 10,000–15,000 annual units, and that they would not be able to fulfill new orders until 2022. Refurbishing old chassis, moreover, isn’t possible because every usable unit in the country is being employed because of the current shortages.

As a result of these two market realities, the new U.S. duties will do only two things, neither of which is good for the U.S. shipping crunch: (1) further discourage importers and freighters from bringing new capacity online (thus maintaining the chassis shortage and related shipping bottlenecks); and/​or (2) dramatically raise shipping costs, as freighters (importers, ocean carriers, truckers, etc.) suck it up and just buy Chinese chassis then pass on those costs to their customers. On the latter point, freight companies estimate that the new duties alone will add more than $25,000 to the price of each chassis they buy, effectively tripling their price. None of this is good for shipping‐​reliant U.S. companies (or consumers) and current inflationary concerns – especially when these higher inland freight costs are combined with higher ocean freight costs brought on by the pandemic.

As one U.S. trucking company representative put it when the new duties were finalized this Spring, “The timing couldn’t be worse.”

Why, then, did the U.S. government (DOC/ITC) not take these unique factors into account when determining whether to apply the new duties? Why not perhaps hold off on implementing them, at least until the shipping crunch abates next year? Given that ports are likely to be jammed up for the foreseeable future and chassis pools are already stretched thin, it would make sense for the government to let freighters purchase additional units of chassis at relatively competitive prices, thereby easing the current chassis shortages, reducing the “detention and demurrage fees” (for holding goods until equipment becomes available) that U.S. consumers are already bearing, and alleviating some of the brutal price pressures and bottlenecks in the current domestic shipping market. Such results would surely be in the national economic interest.

They would also be consistent with the Biden administration’s own stated priorities in the shipping sector. In particular, President Biden issued a July 9 Executive Order targeting (among other things) the very “detention and demurrage” fees that may be exacerbated by a lack of available chassis to transport incoming shipments from ports to their inland destinations. The Federal Maritime Commission is also now fielding a complaint by the American Truckers Association over alleged anti‐​competitive practices by ocean liners and chassis providers to restrict truckers’ choice over chassis to haul shipments.

Holding off on the new chassis duties thus seems like a total no‐​brainer, right?

Alas, as discussed previously U.S. law prohibits the DOC and ITC from taking these important economic and policy issues into account when determining whether to apply trade remedy measures on subject imports. Instead, the U.S. system effectively runs on autopilot, delivering rents to a small number of well‐​connected firms and labor unions regardless of current market conditions or how an agency decision might affect the long‐​term health of the U.S. economy or other domestic policy priorities. Many other national trade remedy systems have just this type of “public interest” test; the United States unfortunately does not. And it’s undoubtedly a big reason why we’re one of the biggest users of AD/CVD measures in the world.

To be clear, none of this means that the Chinese government’s subsidization of domestic firms like CIMC must be condoned or ignored. And the United States, just like all other World Trade Organization members, has the right to use its trade remedy system to offset injury to domestic firms caused by dumped or subsidized imports (though of course we at Cato have long complained about these laws’ merits and implementation). But a system that requires U.S. administering agencies to blindly enact 221 percent tariffs (on top of 25 percent tariffs already in place!) on badly needed chassis, while the economy reels from a massive shock to the global and U.S. shipping systems caused by a once‐​in‐​a‐​generation pandemic, makes zero sense – especially when it contradicts the White House’s own economic priorities. Moreover, chassis are relatively unsophisticated pieces of equipment, not jet fighters or nuclear reactors that might possibly raise credible national security concerns that warrant trade restrictions regardless of their economic costs.

A sane trade remedy system would allow for these and other considerations and permit the administering agencies to reduce, delay, or decline to impose duties where doing so would be in the public interest – for example during a shipping crisis that’s hindering the economic recovery and adding to already‐​serious inflationary pressures.

Alas, the United States has no such thing.

The post New U.S. Tariffs Are Contributing to the Shipping Crisis, and There’s Little We Can Do About It appeared first on WITA.

What is the WTO appellate body?

The appellate body basically functions as the supreme court for global trade. It hears appeals regarding decisions by WTO dispute settlement panels. Its rulings are binding on member states. Around two-thirds of all WTO disputes are appealed and reach the appellate body. There are seven seats on the appellate body and the system requires a minimum of three judges to form a panel to adjudicate a given dispute. Since December 2020, all seven seats on the appellate body have been vacant. 

What caused this disruption to the appellate body?

Starting in 2017, the United States began blocking all new appointments to the appellate body as the terms of its judges expired. Without a functional appellate body to hear cases, the country ruled against in a dispute can bypass a panel’s decision just by filing an appeal, which has major implications for the WTO’s ability to mediate disputes. This move was part of a wider approach to global governance under President Donald Trump, which I have characterized as an assault on the liberal trading order. 

What were the grievances motivating US policy towards the WTO’s appellate body?

During his tenure, Trump arbitrarily imposed tariffs on all of the United States’ major trading partners, launched a trade war with China, and blatantly violated the rules of the WTO – even repeatedly threatening to withdraw from the institution. Under Trump, the United States really began behaving as something of a rogue state in international trade.

This assault was part of a broader trend. The United States has been articulating complaints about the appellate body since the early 2000s. It was actually the Obama administration which first began blocking the reappointment of judges to the appellate body. But it was under President Trump that this escalated. What is motivating this shift? The United States has articulated a lengthy list of procedural complaints against the appellate body, but there is also a wider concern in Washington that the WTO system has failed to address China’s trading practices.

How did the European Union (EU) respond to the appellate body crisis?

The EU’s key intervention was to propose the multi-party interim appeal arbitration arrangement, or MPIA. The idea behind this was to replicate, as closely as possible, the practices and procedures of the appellate body. This interim appeals arrangement applies only to participating states, but any WTO member state can join. By now [July 2021], over 50 states have agreed to participate, and this number will probably rise if the appellate body crisis continues. 

In your article you present the EU as the major player leading the response to President Trump’s obstruction. What dynamics enabled the EU to play this role? 

The main reason behind the EU’s success in taking a leadership role is its willingness to put forward a concrete solution, however temporary, to the appellate body crisis. Ultimately, the MPIA is a stop-gap measure – akin to triage or battlefield medicine – but it is respected as a means of salvaging the trading system and preventing the United States from destroying the WTO’s foundational rules and principles. More broadly, the EU holds a lot of credibility as a long-standing champion of multilateralism. If trade tensions between the United States and China continue to escalate, perhaps the EU is best placed to act.

Why did we not see a stronger response from China towards US policy on the WTO under Trump?

When Trump came to power, China tried to present itself as a country that was going to step in and play a leadership role – as a champion of globalization and the liberal trading order. But that’s not what we’ve seen at the WTO. China has certainly been an important partner in the MPIA initiative led by the EU, but very much as a follower of the EU’s lead. China doesn’t seem to have either the will or the ability to play the same kind of role as the EU in advancing system-preserving initiatives. 

I think there are a couple of reasons for this. The first is that China lacks credibility as a defender of the rules-based trading system because of its own use of protectionist trade policies, and its attempts to weaponize trade as an instrument of economic coercion. We saw this, for instance, when China blocked imports from Canada, and also imprisoned two Canadian citizens, in retaliation for Canada’s participation in the Huawei extradition trial. Second, there is a widespread sense amongst WTO member states that China’s commitment to the rules-based trading system is really only partial and that China will violate the rules when it is in its interest to do so. As a result, Chinese efforts to assume leadership at the WTO have been greeted by a lot of distrust and suspicion.

What has this episode revealed about the strength of multilateral institutions such as the WTO, in the face of spoiling tactics from major powers?

The WTO is unique amongst international institutions because it has a powerful enforcement mechanism – the dispute settlement system. However, the fundamental vulnerability is that if powerful states like the US and others won’t participate in the system and be bound by its rules, they quickly risk becoming irrelevant. And that’s the situation we’re in right now with the appellate body crisis, where, without a functioning mechanism to ensure that WTO rules are enforced, the entire system of global trade rules risk collapsing. Ironically, the United States has been the leader of the liberal trading order for the past 70 years, but since Trump, it has become its leading saboteur.

What are the implications of a permanent collapse of the international trading system?

The very real danger from such a breakdown is a return to what we saw in the 1930s. In response to the outbreak of the Great Depression, you had countries imposing trade barriers, blocking imports from other state, and a general escalation of tit-for-tat protectionism. This response wound up not only exacerbating the effects of the depression itself but has also been credited by some as paving the way for the outbreak of the second world war. The reason why institutions like the WTO were created in the first place was to prevent a recurrence of the 1930s protectionist trade spiral. The danger now – if those rules become meaningless and unenforceable – is the institutional foundations of postwar economic prosperity could unravel, throwing us back into economic chaos and potentially political disorder.

What does the WTO’s future look like under new director-general Dr Okonjo-Iweala?

Dr Okonjo-Iweala has certainly made an encouraging start to her term, but the truth is the position of director-general itself holds very limited powers. The WTO is very much a member-driven organization. The director-general plays a role in trying to broker cooperation between states, but as we have seen the future of the WTO relies on the powerful states like the United States following the rules.

Despite the election of President Biden – and his professed commitment to multilateralism, international cooperation and the rule of law – there has not yet been any shift in US policy on this issue. Even under Biden, the US continues to block appellate body appointments and is yet to lift controversial tariffs on steel and aluminum which affect virtually all of the United States’ big trading partners. The United States remains in violation of international trade law. There is no indication that Biden intends to bring it into compliance in the near future.

One key moment for assessing the future health of the WTO is the ministerial meeting scheduled for 30 November 2021, where a critical agenda item will be brokering a new agreement on fishery subsidies. This is one of the sole active areas of multilateral negotiations at the WTO right now and was mandated as part of the UN sustainable development goals. Not only is this issue critical for global environmental policy, but also for global development because so many states depend on fisheries for food security and livelihoods. So, this could be a crucial test case for whether the WTO can maintain its function as a forum for delivering multilateral trade agreements – with or without US support.

Ben Horton leads the Common Futures Conversations project, which develops new online formats for political dialogue between young people in Africa and Europe. Alongside this he manages the digital strategy of the Chatham House journal, International Affairs, and co-hosts the Chatham House podcast, Undercurrents.

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Trade policy in the United States has reached a turning point as a rising China seeks absolute advantage across a broad range of vital industries. If the United States rejects both free trade and protectionism, and going forward adopts power trade as a strategy, what needs to be done to implement that strategy? This is the third of three articles which examine power trade as practiced by Germany before World War II, and by China today.

The practice of U.S. power trade from 1945 to 2016, focused as it was on ensuring global market integration (outside of the Soviet Union and then Russia)—even at the expense of U.S. industrial competitiveness—has run its course. America’s adversary today is not a sclerotic but militarily powerful foe that could inflict little or no economic damage outside of its bloc. China today is a dynamic, militarily and technologically powerful foe that can and does inflict considerable economic damage around the world, including to the U.S. economy.

The post U.S. Trade Policy at a Turning Point: How America Can Better Protect Itself Against China’s Predatory Policies appeared first on WITA.

Under U.S. law, a government program is deemed to be a countervailable subsidy when it meets three criteria. The program must (i) constitute a financial contribution provided by a government authority or public body, (ii) yield a benefit to the recipient, and (iii) be specific to an enterprise or industry or a group thereof.  In its February 2020 final rule (Final Rule), Commerce modified its regulations regarding benefit and specificity to address the issue of currency manipulation. If a country’s currency was undervalued, the Final Rule defines the benefit to be the extra amount of domestic currency gained when converting USD into that domestic currency. On specificity, the Final Rule provides that: “In determining whether a subsidy is being provided to a “group” of enterprises or industries … the Secretary normally will consider enterprises that buy or sell goods internationally to comprise such a group.”

As the first substantive determination issued after this Final Rule, PVLT from Vietnam establishes important precedents in a number of areas, but three stand out in particular.

The first is its definition of “specificity.”  In determining whether currency undervaluation was “specific” for purposes of its preliminary determination, Commerce used USD inflows into Vietnam as a proxy for conversion of USD into VND. The agency analysed inflows of USD via exports of goods, exports of services, various forms of portfolio and direct investment, and earned income from abroad. In its preliminary decision, Commerce found that the first of these (the traded goods sector) accounted for 71.94 percent of USD inflows, and thus found that the subsidy was de facto specific to this group.

In the final phase of the investigation, this preliminary finding of specificity was challenged on a number of grounds, the most significant of which was that the traded goods sector was too broad to constitute a “specific” group of enterprises.  As a practical matter, members of the traded goods sector came from a wide variety of industries, so much so that the subsidy effectively would be spread through the entire economy. Furthermore, entities that buy or sell goods internationally were not “known or particularised” as is required by WTO case law (discussed below).  Commerce dismissed the first argument by stating that there need not be shared characteristics (such as membership of a particular industry) to comprise a “group.”.  Commerce dismissed the second argument by stating that it had established that a particular portion of USD inflow went to the traded goods sector (by implication this group was “known and particularised”).  In addition, Commerce noted that it had previously found that state-owned enterprises constituted a “group,” which it contended was as “known and particularised” as the traded goods sector.

Commerce’s preliminary determination on specificity was also challenged on the grounds that to treat exporters as a group was against Commerce’s previous practice. Commerce had previously observed that: “subsidies to exporters are countervailable as export subsidies…. That scheme is set on its head by treating exporters as a “group” for purposes of finding a domestic subsidy under section 771(5A)(D) of the Act.”  Commerce acknowledged its previous comments and position, but nevertheless concluded that as a matter of agency practice it was entitled to change its view, so long as that change was adequately explained.

The second key finding related to whether a currency is undervalued, and how the amount of undervaluation would be measured.  To make this finding, Commerce relied on the results of an analysis published by the U.S. Department of the Treasury (Treasury) in August 2020 which made use of the Treasury’s Global Exchange Rate Assessment Framework, which is itself heavily based on a model developed by the International Monetary Fund (IMF).  However, while the Treasury methodology lays out the framework of the model, much of the underlying data out of which the model was built, and indeed certain parameters of the model, were not.

The respondents argued that Commerce should have disclosed not only the model used by Treasury but also the underlying data, and should have put that information on the administrative record. Commerce responded that disclosure of all the Treasury data was not required by the subsidy regulations. In support of its argument, Commerce noted that it used findings from other agencies without putting the underlying data on the record.  For example, Commerce stated that it “relies on asset depreciation tables of the Internal Revenue Service (IRS) for purposes of allocating non-recurring subsidies, without placing the IRS’s data on the record.”

Third, the respondents raised queries about the specific methodology used by Treasury and relied upon by Commerce to determine undervaluation. A central argument was that other models of undervaluation (such as those used by the IMF, which is the basis of the Treasury’s own methodology) produced different results, including that the VND was overvalued. Commerce responded that those models concerned periods before 2019, i.e., the relevant period of investigation, and were thus not relevant.

As PVLT from Vietnam was the first final determination to address substantively the issue of currency undervaluation as a subsidy, it is understandable that Commerce’s methodology is still under development.  Nevertheless, several aspects of the agency’s decision raise serious questions, and appear ripe for challenge.

First, it is not clear whether Commerce’s determination that the “traded goods sector” constitutes a specific group would satisfy the standard under Article 2 of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), which provides that a countervailable subsidy must be specific to a “group of enterprises or industries.” Article 2.1(c) of the SCM Agreement requires that the investigating authority consider certain factors in demonstrating de facto specificity, including “use of a subsidy programme by a limited number of certain enterprises,” and “predominant use by certain enterprises.”  The WTO Appellate Body has construed the term “certain enterprises” in this context to mean enterprises that are “known and particularized.”  Appellate Body Report, United States – Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R (December 8, 2014), para. 4.376.  Based on this definition, it may be difficult for the United States to argue that the “traded goods sector” is “known and particularised,” given that enterprises belonging to the sector can be found in almost every industry and constitute a significant proportion of the Vietnamese economy.  Commerce’s definition of “group” in this case may therefore be vulnerable to challenge at the WTO level, if the GoV were to take that approach.

Further, in deciding whether the traded goods sector converted more USD into VND than other sectors (such as the traded services sector), Commerce used inflows of USD into Vietnam as a proxy for conversion of USD into VND. But the inflow of USD is not a direct measure of conversion, nor is it even a good proxy.  Just because a USD flows into Vietnam does not mean it will be converted into VND. USDs that flow to the traded goods sector may well be placed in a USD-denominated bank account, or in USD-denominated assets as an investment, or used to buy capital equipment in USD on international markets, and so on.  Indeed, it may well be the case that the Vietnamese traded service sector, though receiving fewer USDs than the traded goods sector, actually converted many more of those dollars into VND since salaries to service providers in Vietnam would likely all be paid in VND. Thus, the inflow of USD is arguably a poor proxy for USD-VND conversion, and may be another basis on which to challenge specificity.

Second, as a matter of U.S. administrative law, the decision by Commerce not to place the data used by Treasury to make its undervaluation determination on the administrative record raises questions of fidelity to basic principles of administrative law. For example, although some of the underlying data used by the Treasury to create its model may be available publicly (such as some IMF data), much of it is not. For example, Treasury estimates of the ‘safe asset index’ and the ‘commodity terms of trade gap’ are not publicly available, and yet are critical to determine the model’s parameters and ultimately the results of the undervaluation.  Another example is that the Treasury model relies upon the concept of ‘desired policies,’ such as the ideal amount of exchange intervention. Departures from this ‘desired policy’ can be a reason for undervaluation in the model, but the data on the administrative record do not reveal at what level Treasury set these desired policies in its model. Without the inclusion of this information on the record, reviewing courts will find it difficult to review whether Commerce’s decision on undervaluation was supported by substantial evidence and was in accordance with law.

The need for parties to be able to review the data underlying the Treasury analysis is all the more important since Commerce is not obligated to accept Treasury’s recommendation.  Commerce’s regulations state that Commerce “will request that the Secretary for the Treasury provide its evaluation and conclusion as to the determinations {of undervaluation},” As noted above, in this case, Commerce disregarded alternative valuation methodologies proposed by the parties on the grounds that they did not cover the relevant period of investigation.  But parties in future cases could provide contemporaneous alternatives, and if so, Commerce would then be faced with the prospect of deciding which analysis to adopt, and being able to assess the reasonableness of the assumptions made will be a critical component of that analysis.

We anticipate that Commerce will continue to investigate allegations of currency undervaluation as countervailable subsidies, and if so, we will continue to monitor these developments.

Danyal Arnold is a trained economist and has taught undergraduate economics as an Associate Tutor at the faculty of Economics, Mathematics and Statistics at Birkbeck, University of London.

Eric Emerson, co-chair of Steptoe’s International Trade and Regulatory Compliance group, represents companies across various industries on all aspects of antidumping (AD) and countervailing duty (CVD) proceedings before the US Department of Commerce (DOC), the US International Trade Commission (ITC), and US courts.

Zachary Simmons focuses his practice on antidumping (AD) and countervailing duty (CVD) investigations and reviews before the US Department of Commerce (DOC) and the US International Trade Commission (ITC) and related litigation before the US Court of International Trade (CIT) and the US Court of Appeals for the Federal Circuit (CAFC).

To read full blog by Steptoe, please click here.

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