April 25, 2014

Court of Appeals Tells Foreign Producers That When It Comes to Countervailing Duties, You Are Your Government’s Keeper

By Douglas J. Heffner and Richard P. Ferrin

On April 23, 2014, the U.S. Court of Appeals for the Federal Circuit (CAFC) handed down an opinion, Fine Furniture (Shanghai) Ltd. v. United States, Ct. No. 2013-1158, which may have a significant impact on future countervailing duty (CVD) investigations and administrative reviews conducted by the U.S. Department of Commerce (DOC). If you are a U.S. importer of products subject to a CVD proceeding, you will not only have to make sure that your foreign supplier cooperates fully with the DOC, but also that the government of your foreign supplier also answers fully all of DOC’s questions and satisfies any documentation requirements, otherwise the DOC will assume that your foreign supplier is unfairly subsidized, and you, as U.S. importer of record, will ultimately pay higher CVD duties.

In this case, Fine Furniture, a Chinese producer of hardwood flooring, participated in the CVD investigation of multi-layered wood flooring from China. Fine Furniture fully cooperated with the DOC, including answering allegations that the Government of China (GOC) was providing electricity to Fine Furniture at subsidized prices. The GOC also responded to a DOC questionnaire, but refused DOC’s requests to provide certain specific documents relating to electricity prices. As a result, the DOC applied an adverse inference to find that the GOC provided a subsidy in the form of electricity at less than adequate remuneration.

Fine Furniture appealed the ruling, arguing that U.S. law does not authorize the DOC essentially to penalize an exporter that has fully cooperated. The CAFC disagreed, saying that taking adverse inferences against the importer is a proper and legal remedy in order to encourage the GOC to cooperate fully.

This CAFC ruling has significant consequences for U.S. importers of merchandise subject to CVD investigations or administrative reviews. Even if the importer purchases from a foreign producer that is a private entity, the DOC has over the last several years expanded its probes of unfair subsidies to consider not only whether foreign governments are providing direct financial support to their exporting industries, but also whether foreign producers and exporters may be benefiting from pricing distortions caused by government interference in regulated upstream industries, such as electricity, coal, and natural gas. This is an issue in nearly every CVD proceeding against China, and increasingly in CVD proceedings against imports from market economies, such as Turkey (in the case of natural gas). The takeaway is that U.S. importers who wish to continue to import products subject to CVD proceedings must not only ensure that their private suppliers supply full information to and cooperate with the DOC, but also must make sure the government of the private suppliers fully cooperate as well.

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