Settlements Between Foreign Producers And The Domestic Industry In The Antidumping Duty Review Context: Beneficial Or Extortionist?

By Alexandra B. Hess*

Introduction

Unquestionably our legal system encourages and touts the benefits of settlements. There are a variety of reasons why settlements might make economic sense for both plaintiffs and defendants alike. If both parties assess their individual situation and can agree on a settlement figure, then both have weighed the merits of the claim and the risk of litigation and determined that there is a benefit to settlement. This cost/benefit analysis is no different in the trade arena. Why then do some call trade settlements a "legalized shakedown racket" or worse, "extortion"? Although many argue that there is something inherently different about the trade context that renders settlements illegitimate and objectionable (even illegal), the real issue is quite different. Those who seek to illegalize trade settlement generally cite three areas of contention regarding settlements that are specific to trade: first, trade policy in the context of the General Agreement on Tariffs and Trade ("GATT"); second, the distribution of the settlement payments to the U.S. domestic industry; and third, the fact that trade settlements are paramount to extortion of foreign producers. Upon closer examination, however, none of these issues are with trade settlements per se, but rather with the U.S. trade remedy system itself. Accordingly, the solution is not to illegalize settlements in the trade context, but rather to work toward refining the U.S. trade system that can, at times, permit perverse settlement incentives.

1. Trade Background and Settlements in the Trade Context

   To understand this debate requires a minimum knowledge of the U.S. antidumping trade remedies system. The following is a very simplified explanation of an extremely complex and multifaceted system. Under the GATT, country-members agreed to continually work to lower barriers to trade, which has predominantly manifested itself by way of lowering tariffs on goods. To prevent "unfair" trade within this "open-border" policy, member-countries also agreed to measures to counteract "dumping" (i.e., price discrimination between markets). For purposes of illustration, motorcycles will be the example. If a U.S. manufacturing industry of motorcycles believes that foreign producers are causing them injury by selling their motorcycles in the United States for less than fair value (e.g., less than the price in the home market or that it cost to make the motorcycle plus profit), then the U.S. manufacturers can bring a petition to the U.S. government seeking relief. Upon submission of a petition, the U.S. government conducts a bifurcated investigation to determine whether the motorcycles were actually sold for less than fair value (U.S. Department of Commerce) and whether the U.S. industry has been injured by reason of these imports (U.S. International Trade Commission).

   The investigation consists of preliminary determinations, fact verification and briefing periods, and then final determinations. If both dumping and injury are found, Commerce will determine a dumping "margin"—the amount by which the fair market value of the motorcycle exceeds the foreign producer's U.S. selling price. Each time a motorcycle comes across the border, U.S. Customs and Border Protection ("CBP") will levy that margin (antidumping duties) to raise U.S. prices in an effort to mitigate the injury to the U.S. producers. For the same-country foreign producers not named, Commerce creates an averaged "all others" rate. The dumping margins are specific to each foreign motorcycle producer named, however, and a review of that margin can be requested annually. This article focuses on settlements in the context of the request for these annual reviews because they provide the most common set of circumstances under which trade settlements occur.

   The manner in which duties are levied is also important to the trade settlement debate. The essence of this duty collection system, for purposes of this discussion, is that only estimated duties are deposited upon importation based on the last antidumping margins found by Commerce. The final duties are not assessed until a subsequent annual administrative review, which does not conclude until long after the imports are made—resulting in retrospective final liability. The final assessment rate from a review can be higher or lower than the earlier estimated deposit rate. If no review is requested, the rate does not change and the deposit rate becomes the assessment rate—the status quo is maintained.

   Either Commerce, the domestic industry, foreign governments, foreign producers, or importers can ask for a review of the dumping margin on an exporter-specific basis. If no other party intervenes to request a review, however, the domestic industry can dictate which producers will be or will not be subject to the risk of a review. For example, if the domestic industry names only two out of five foreign producers, the three left out will maintain their same current rates. The rates will change only for the two reviewed. Those two foreign producers then must make individual risk determinations about the likely outcome of the review, which also must take into account the considerable costs and burden of defending a review. On the other hand, if the domestic producers can be convinced to...