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On January 9, 2023, the U.S. Government Accountability Office (“GAO”) <a href="https://www.gao.gov/products/gao-23-105794">publicly released</a> a <a href="https://www.gao.gov/assets/820/813897.pdf">performance audit</a> scrutinizing the “process design” for the imposition of antidumping and/or countervailing duty (“AD/CVD”) tariffs jointly administered by the U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission (“USITC”). The audit addressed concerns from critics claiming that domestic industries “may sometimes file petitions without merit to obstruct domestic market competition.”

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To complete the audit, which was conducted from February 2022 through December 2022, the GAO (1) analyzed guidance and policy documents from Commerce and USITC, (2) assessed applicable legal statutes, federal regulations, and academic articles, (3) interviewed relevant Commerce, USITC, Department of Justice and Federal Trade Commission officials, and (4) scrutinized recent data on AD/CVD case outcomes, i.e., data from fiscal years 2011 through 2021.

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To assess whether a petition is meritless, the GAO (1) examined the processes federal agencies have in place to conduct AD/CVD proceedings, (2) reviewed the processes U.S. agencies have in place to ensure the accuracy and completeness of AD/CVD petitions, and (3) scrutinized how aspects of market competition factor into the AD/CVD process design.

U.S. law authorizes the imposition of antidumping duties on certain imports that have been “dumped” into the United States—i.e., sold at less than fair market value—equal to the amount by which the “normal value,” usually the market price for the product in the exporting country, exceeds the export price of the subject merchandise (referred to as the “dumping margin”). See 19 U.S.C. § 1673. Similarly, U.S. law authorizes the imposition of countervailing duties on certain imports subsidized by (or at the direction of) foreign governments equal to the amount of the net countervailable subsidy. See 19 U.S.C. § 1671.

When an AD/CVD petition is filed, it must be filed concurrently with Commerce and USITC. Commerce determines whether the alleged dumping or subsidization of merchandise exists, while the USITC determines whether the domestic industry is in fact materially injured by that merchandise. If dumping or subsidization and material injury exists, then Commerce imposes an AD/CVD order on the subject merchandise.

Collectively, AD/CVD duties are among the most applied U.S. trade remedies; as of January 18, 2023, the United States had 663 active orders (plus seven suspension agreements) affecting imports from 59 countries. Moreover, AD/CVD duties are among the most effective corrective measures used by the United States to remedy unfair trade practices: In fiscal year 2021 alone—the last fiscal year covered by the GAO audit—the United States collected $30.2 billion in duties from imports subject to AD/CVD orders.

The AD/CVD Process Ensures Petitions Are Not Meritless

The first section of the GAO audit describes the processes federal agencies have in place to conduct AD/CVD proceedings to ensure petitions are not meritless. According to that section, the design of the AD/CVD process roots out meritless petitions through a two-phase process: (1) initiation and (2) investigation. When Commerce first receives an AD/CVD petition, it uses an “initiation checklist” to ensure the petition is meritorious—i.e., the petition complies with statutory, regulatory, and administrative requirements. The initiation checklist requires the petitioner to show broad industry support, a prerequisite that cannot be satisfied without investing “extensive and difficult…administrative burden[s] and legal costs” and effectively serves as “a deterrent against frivolous petitions” and the possibility of “a single firm … acting alone to file a fraudulent petition.”

Even when a petition is deemed eligible to proceed from the initiation phase to the investigation phase of the AD/CVD process, Commerce and the USITC will impose additional controls to ensure the petition remains meritorious. Both Commerce and the USITC substantiate allegations raised in a petition by conducting separate, concurrent investigations to inform their respective preliminary and final determinations on dumping or subsidization and injury; often, these independent investigations involve sending questionnaires to domestic and foreign producers, U.S. importers and purchasers, and foreign governments. If necessary, Commerce and the USITC can send supplemental questionnaires to a petitioner to address or clarify discrepancies. To compel cooperation, if a party fails to comply with an agency’s request for additional information, the agency may draw “an inference that is adverse to the interests of that party in selecting from among the facts otherwise available.”

The GAO noted the transparency of the AD/CVD process to ensure petitions are not meritless, such as (1) the requirement that all confidential case materials—petitions, questionnaire responses, memoranda, interviews, hearing transcripts, briefs, etc.—be compiled into the official record, which will be open “for both the agencies and parties to review and comment on or challenge” and (2) the availability of all nonconfidential case materials to the public.

AD/CVD Process Features Ensure Petitions are Accurate and Complete

The second section of the GAO audit highlights how certain features of the AD/CVD process ensure petitions are accurate and complete:

AD/CVD Process Considers Market Competition as a Factor

The final section of the GAO audit focuses on the criticism that a domestic industry may file a frivolous petition to hinder the success of downstream competitors because injury analyses conducted by the USITC do not consider downstream purchasers (i.e., industries, retailers, and consumers), focusing exclusively on domestic producers instead.

The GAO rejects such criticism, observing that current AD/CVD law and regulations do not contain a provision authorizing the USITC to consider downstream purchasers in injury analyses, but that the USITC still solicits downstream purchaser information, including from nonparties, to analyze how the domestic market for the product in question operates for its injury analyses. The USITC has been hesitant to push Congress to add a provision mandating the agency to consider the potential economic effects on downstream purchasers as part of the injury analysis because such a requirement would involve “a public interest test”—a broad consideration of the public’s interest at stake—and “this kind of consideration is generally inherently policy-oriented, political, and subjective.” According to the GAO, the current ad hoc approach taken by the USITC regarding downstream purchasers seems sufficient.

Ultimately, the GAO concludes that the AD/CVD process and its features “function as internal controls that [seem to] lessen the risk of … agencies initiating or conducting an investigation with inaccurate or incomplete information.”&nbsp; The GAO lauds certain features as particular safeguards to ensure meritorious, accurate and complete petitions: (1) communication of process requirements through pre-petition counseling and public guidance, (2) petition information requirements, (3) information certification requirements, (4) independent collection and corroboration of information by Commerce and the USITC, and (5) transparency of case information and of the rationale supporting agency determinations. These findings are consistent with interviews the GAO conducted with Commerce and USITC officials who “did not see false or misleading petition information as an issue … of the AD/CVD process design” and who “could not recall any instances in which a petition contained information that was demonstrably false.”

<em>This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.</em>

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GAO Audit: AD/CVD Process Ensures Petitions Are Not Meritless, Inaccurate, Incomplete or Filed to Obstruct Domestic Market Competition

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