Proposed AD/CVD Changes, Return of Zeroing in Trump Trade Memo Could Push Up AD/CVD Rates

While the memo covered a host of different tools and statutory authorities, it had one section on AD/CVD measures and the changes the new administration would seek. The provision instructed the commerce secretary to review the regulations pertaining to "transnational subsidies, cost adjustments, affiliations, and 'zeroing.'" In addition, the Commerce Department was told to review procedures for on-site verifications during cases to "assess whether these procedures sufficiently induce compliance by foreign respondents and governments involved in AD/CVD proceedings."

In the days that followed, various trade lawyers speculated as to what this vague and broad language could mean and what changes await the trade bar over the coming years.

Lizbeth Levinson, partner at Fox Rothschild and a lawyer for foreign exporter respondents in AD/CVD cases, told us that it's "clear that [Trump] wants the administration to make it more difficult for respondents" and "ultimately increase antidumping duties." Alex Keyser, an associate at Fox Rothschild, added that if a lot of the "procedural elements" laid out in the memo are made stricter and harder to navigate, "what we're going to see functionally" are more adverse facts available rates.

Of the provisions mentioned in the memo, the one that caused the greatest stir was the return of "zeroing." Zeroing is a practice by which Commerce assigns a zero when a good is sold at a price higher in the U.S. than in the home or comparison market, rather than factoring it in when calculating AD rates (which has the effect of lowering those rates). The measure was repeatedly struck down by the World Trade Organization, leading the agency to discontinue the practice more than a decade ago.

Instead, Commerce developed its differential pricing methodology, by which it identifies "masked" dumping. By addressing veiled dumping, the agency gave itself tools to account for instances of negative dumping margins, though not to the extent that zeroing allowed.

Attorneys for both respondents and petitioners indicated that this means one thing: higher rates. The only question that remains is, how high will the increase be?

Arpit Bhargava, partner at SBA Consulting, said the biggest impact will be felt by respondents seeking to achieve de minimis AD rates. He said that, under Commerce's current methodology, respondents still have a chance to get a de minimis rate "if they have fairly stable prices in the U.S. in different regions." If zeroing comes in, "that chance goes out."

Bhargava put the chances of companies getting de minimis margins if zeroing comes back as going down by one-third, since Commerce's current methodology has three methods for duty calculation, and, after zeroing, they will only have one.

Nathan Rickard, partner at Picard Kentz, a petitioners' firm, said that in certain cases, the result will not be as stark. He noted that in a recent preliminary determination on large top mount refrigerators from Thailand, the difference between having zeroing and not was a 13.5% vs. 15% dumping margin. However, Rickard didn't downplay the difference, saying that the difference is "the stuff that you're shaving off and reducing from the trade relief that the industry is receiving."

Regardless of its impact on AD rates, Rickard said that returning to zeroing will free up a lot of agency resources. "The more stuff that Commerce is forced to introduce just makes this longer, more expensive and more expensive to administer," he said. "Zeroing just simplifies things." Rickard noted just how much of recent issues and decision memos are taken up by discussions of the differential pricing analysis.

Another element found in the trade memo addressed "affiliation," yet, without more, many attorneys were left scratching their heads as to precisely what is meant by this reference.

"Honestly, it probably just means, somehow, if we track this back to China, that we're going to take that into consideration," said Lawrence Friedman, partner at Barnes Richardson. Friedman speculated that the inclusion of affiliations could either be a reference to efforts to treat goods coming from third countries as non-market economy goods based on new affiliation findings with the NME country, or reduce the number of separate AD rates given for companies within the NME nation.

Tim Brightbill, partner at Wiley Rein, a petitioners' firm, agreed, noting that the administration "may look more closely at partial government ownership, or the role of state-owned enterprises," and not just instances where the government has majority ownership over a company.

Bhargava thinks Commerce could exert pressure in a different direction by disallowing reporting exemptions currently made for affiliates. In the past two years, the agency has allowed reporting exemptions for "small transactions" between affiliates, he noted. Now, the agency could demand more fulsome reporting from affiliates, he said.

Yet another provision in the trade memo that caused confusion was on-site verification of foreign respondents during AD/CVD proceedings, and how the new administration might more aggressively pursue verification. One possibility could see Trump's Commerce increase the frequency of verification, upping it from every three years to every year, covering every administrative review, Bhargava speculated.

Brightbill said he expects the new administration to "look at increasing the pace of verifications," but also at ensuring that foreign respondents and governments aren't providing "false or misleading information." This could take the form of asking "on-the-spot" questions instead of providing questions to companies in advance of on-site verification or simply asking for more information, he said. Bhargava added that Commerce could be more aggressive about rejecting submissions based on inconsistencies found at verification.

Lastly, the memo made mention of "transnational subsidies," presumably referring to a rule change codified by Commerce last year allowing the agency to target transnational subsidies in CVD proceedings (see 2403210070). Levinson took the mention to mean the new administration will take a "more aggressive stance" in using the new tool. "The fact that he's spelling this out in a memo where there's only one paragraph, and one of the notions is transnational subsidies, shows that that's very clearly on his agenda," she said.

Levinson thinks the new rule would be prime for litigation, questioning whether Commerce has the statutory authority to target transnational subsidies. In any event, she said she expects Congress to implement a new AD/CVD statute, more clearly laying out what powers the executive has in regard to trade remedies.