The announcement comes in response to a Department of Commerce investigation initiated a year ago under Section 232 of the Trade Expansion Act of 1962. The Department submitted its statutorily-required report to the President on February 17, 2019, concluding that imports of automobiles and certain automobile parts threaten to impair the national security of the United States. Specifically, the Department highlighted the importance of domestic R&D expenditures and innovation in ensuring “long-term automotive technology superiority” that is critical to the defense industry.

The President’s proclamation highlighted a near-doubling of automobile imports into the United States from 1985 to 2017 and the declining share of the U.S. automobile market held by American-owned producers during the same time period (now 22% vs. 67% in 1985). Additionally, the proclamation cites the difficulty of U.S. producers to export as a result of protected foreign markets – specifically in the European Union and Japan.

In directing the trade negotiations, the proclamation specifically mentions the European Union, Japan and “any other country the Trade Representative deems appropriate.” The President highlighted the potential benefits of the renegotiated United States-Korea agreement and the new United States-Mexico-Canada Agreement (USMCA) in addressing the national security threat.

Under the statute, a decision was required by the President within 90 days of receiving the Department of Commerce report. The decision to enter into trade negotiations was one option. Alternatively, in concurring with the Department’s findings, the President could have announced more immediate action to adjust imports (e.g., tariffs or quotas), or could have asked for additional analysis or review.

If agreements are not reached by November 13, 2019, the President will determine whether and what further action needs to be taken to address the national security threat.

In particular, Canada challenges:

1. the way in which the U.S. Department of Commerce refunds cash deposits after adverse WTO determinations;
2. the United States’ suspension of liquidation of cash deposit requirements when the U.S. Department of Commerce preliminarily determines critical circumstances exist;
3. the U.S. Department of Commerce’s treatment of certain export measures by foreign governments in the agency’s countervailing duty proceedings;
4. the U.S. Department of Commerce’s calculation of benefits involving the provision of goods for less than adequate remuneration in the agency’s countervailing duty proceedings; and
5. the U.S. Department of Commerce’s procedures for collecting evidence in antidumping and countervailing duty investigations.

Perhaps most concerning to U.S. industries is Canada’s challenge to the United States’ tiebreaker rule. The U.S. International Trade Commission determines whether a domestic industry on whose behalf an antidumping or countervailing duty investigation has been initiated is injured, threatened with injury, or whether material retardation of the establishment of an industry in the United States has occurred. The Commission, which is typically comprised of six Commissioners, can contain no more than three Commissioners from any one political party. When a Commission vote results in a tie, however, 19 U.S.C. § 1677(11) provides that the determination shall be deemed affirmative.

The next step in the process is for the United States and Canada to consult on the request, and those engagements will be closely watched by the trade community.

As of January 4, 2018, there are 416 antidumping and countervailing duty orders in place, only four of which involve Canada. A list of the orders currently in place is available on the U.S. International Trade Commission’s website.

The Department’s use of self-initiation authority has been judicious and rare. In an agency-issued press release Secretary Wilbur Ross stated, “{w}e are self-initiating the first trade case in over a quarter century, showing once again that we stand in constant vigilance in support of free, fair, and reciprocal trade.” The Department further noted that it last self-initiated a countervailing duty investigation in 1991 on softwood lumber from Canada, and last self-initiated an antidumping duty investigation in 1985 on semiconductors from Japan.

Use of U.S. AD/CVD laws have increased by 65 percent under the Trump Administration, according to the press release, and appear to be a key instrument of choice to combat unfairly traded exports and protect injured and vulnerable domestic industries. The agency notes, apart from the self-initiated cases, that it has initiated 77 combined AD and CVD cases in response to domestic industry petitions in 2017 – in contrast to 48 combined AD/CVD cases initiated in 2016. In addition to these self-initiated dumping and subsidy cases focusing on aluminum from China, the Commerce Department has also initiated a broader Section 232 investigation to determine whether aluminum imports overall threaten to impair the national security. If the Commerce Department issues an affirmative finding, the President has broad power to impose trade remedies – including tariffs and quotas – to “adjust” the imports so that they will not threaten to impair the national security. The Commerce Department’s Section 232 aluminum determination is due in January 2018.

In terms of next steps for the aluminum sheet AD and CVD cases, International Trade Commission preliminary determinations are due on or before January 16, 2018. If the ITC issues an affirmative preliminarily determination that there is injury or threat of injury, then the Commerce Department investigations will continue with deadlines of February 2018 to issue a preliminary CVD determination, and April 2018 to issues a preliminary AD determination. Affirmative preliminary Commerce determinations would allow Customs and Border Protection to begin collecting cash deposits from all U.S. companies importing the subject aluminum sheet from China. If the investigations proceed without any extensions in the preliminary phase, the Commerce Department’s final determinations would be due in April 2018 and July 2018 for the CVD and AD investigations, respectively.

Commerce was spurred to review its position on China’s NME status, last addressed in 2006, following the December 11, 2016 change in China’s Protocol of Accession to the World Trade Organization (“WTO”). By way of background, the WTO Antidumping Agreement permits WTO member countries to impose duties on dumped imports. Those duties are calculated as either the difference between the imported product’s export price and the comparable home market price, or the difference between the export price and a constructed value based on the product’s cost of production. Sometimes, however, those home market prices or costs of production do not reflect market forces, particularly in NME countries. Accordingly, the WTO Antidumping Agreement allows members to apply alternative dumping methodologies, including, for example, values other than home market prices or costs as comparisons to calculating dumping margins.

When China acceded to the WTO in 2001, a provision in its Protocol of Accession dealt with this very situation, permitting China to be treated as an NME for antidumping purposes. Aspects of that provision expired on December 11, 2016. China claims that as of December 12, 2016, the Protocol requires that China be considered an NME for purposes of the antidumping law. The United States has disagreed with China and maintained that the Protocol simply requires that other countries no longer presume that China was still a nonmarket economy; the issue of China’s NME status needed to be reexamined. While the EU has proposed changes in its rules concerning China, neither the EU nor the U.S. has found China to be a market economy. China has requested dispute settlement consultations with the United States and the EU at the WTO.

In the United States, on April 3, 2017, Commerce announced it was seeking public comment on China’s NME status in the context of its antidumping investigation on aluminum foil from China, the agency’s first antidumping duty investigation since the December 11^th change. Commerce accepted submissions until May 10, 2017, by which time it had received an overwhelming majority of comments from industry associations and coalitions, labor unions, individual companies across a variety of sectors, the legal community, and members of Congress in support of continuing China’s NME status.

In reaching its conclusion, Commerce examined the six factors set forth in the Tariff Act of 1930 for determining whether a country is an NME: (1) the extent to which the currency of the foreign country is convertible into the currency of other countries; (2) the extent to which wage rates in the foreign country are determined by free bargaining between labor and management; (3) the extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country; (4) the extent of government ownership or control of the means of production; (5) the extent of government control over the allocation of resources and over the price and output decisions of enterprises; and (6) any other appropriate considerations. Commerce determined, based on the information provided by the public, that China continues to be a non-market economy:

At its core, the framework of China’s economy is set by the Chinese government and the Chinese Communist Party (CCP), which exercise control directly and indirectly over the allocation of resources through instruments such as government ownership and control of key economic actors and government directives. The stated fundamental objective of the government and the CCP is to uphold the “socialist market economy” in which the Chinese government and the CCP direct and channel economic actors to meet the targets of state planning. The Chinese government does not seek economic outcomes that reflect predominantly market forces outside of a larger institutional framework of government and CCP control. In China’s economic framework, state planning through industrial policies conveys instructions regarding sector-specific economic objectives, particularly for those sectors deemed strategic and fundamental. . . .

This ability to affect these market forces is apparent in crucial facets of the economy, from the formation of exchange rates and input prices to the movement of labor, the use of land, the allocation of domestic and foreign investment, and market entry and exit. Because of the significant distortions arising from China’s institutional structure and the control the government and the CCP exercise through that structure, the Department finds that China remains a NME country for purposes of the U.S. antidumping law.

Commerce’s full 200 page memo, supported by extensive outside legal, economic, and financial research can be found here. The agency’s decision has been widely praised by domestic manufacturers seeking strong enforcement of the U.S. trade remedy laws.

Commerce is scheduled to announce its preliminary determination in the companion antidumping investigation on October 4^th.

Pushing back against assessments that U.S. trade policy is turning inward, Ross shifts the protectionist spotlight toward the policies, tariffs and regulations of key trade partners have put American workers, goods and services at a disadvantage – unfairly so. Free and fair trade, he argues, must address such non-tariff barriers that likely contribute to trade deficits. He further maintains that U.S. demands for a level playing field under these circumstances are driven by equity, not protectionism.

In addition to providing important insight on the Administration’s trade policy, the piece highlights Ross’s and the Commerce Department’s prominent role in an area, where traditionally, USTR has taken the lead. It also makes an important link between trade barriers and significant trade deficits – the latter being a subject of intense focus and review by the Administration pursuant to an Executive Order, and apparent trigger for examining key trade relationships.