Trade Law and the End of Chevron

A few weeks ago the U.S. Supreme Court overruled Chevron, its 40-year-old precedent that had dominated the relationship between the courts and administrative agencies regarding the interpretation of legal texts.  Chevron had said that courts should defer to the interpretation of an ambiguous statute adopted by an administrative agency when that interpretation is “reasonable,” even if it is not the interpretation that the court itself would have adopted. [1]  Now, with the Court’s decision in Loper Bright, each statutory text must be understood to have a single “best meaning,” and it is the role of the Judiciary – not the Executive (through its agencies) – to discern that meaning. [2] 

An outcome of the Loper Bright decision, in the trade remedies field, is that oft-repeated statements such as, “the Court must defer to an agency’s reasonable interpretation of a statute even if the Court might have preferred another,” [3] and “{t}he agency’s construction need not be the only reasonable interpretation or even the most reasonable interpretation,” [4] can no longer be considered good law.  And the Supreme Court’s statement in Eurodif (one of its very few recent decisions addressing the antidumping law) that “a court’s choice of one reasonable reading of an ambiguous statute does not preclude an implementing agency from later adopting a different reasonable interpretation,” [5] is likewise suspect. But Loper Bright should have more than just a verbal impact.

The Supreme Court acknowledged in Loper Bright that courts should give “respectful consideration” to an agency’s statutory interpretation, in light of the expertise and experience of the administrators in applying the law. [6]  On this score, it approvingly cited the Skidmore formulation of what has been recognized as a lesser degree of deference than provided by Chevron. [7]  But the Loper Bright Court re-affirmed the long-established principle that it is “emphatically the province and duty of the {Judiciary} to  say what the law is.” [8]      

This decision gives rise to many interesting and important questions in the American administrative law arena, and some of those questions arise particularly in the practice of trade remedies.  In this note, I focus on a central topic – namely, the role of judicial review of agency interpretations of “ambiguous” legislative language.  

The reasoning in Loper Bright rests upon two assumptions – one about the role of language, and the other about the role of judges.  The first is that language can convey an intended meaning, and the second is that judges, using established tools of interpretation, can discern that meaning.  Both of these assumptions have been subject to fierce debate over the years, but they appear to be necessary for the functioning of a system, like ours, in which we rely on words, rather than violence, to resolve disputes, and in which we rely on judges to interpret those words. 

Of course, many texts clearly convey their meaning, and judges routinely are able to identify that meaning.  In those situations, the two assumptions reflect reality reasonably well.  But what happens when the text of a statute is uncertain (or ambiguous) – how does a judge discern its meaning, now that Chevron deference to the agency’s interpretation no longer applies? This situation strains the accuracy of both assumptions.  But the job of interpretation cannot be avoided, because disputes must be resolved.  

“Ambiguity” in statutory texts can mean different things. [9] Here are five [10] : (1) language is inherently limited and cannot fully articulate what the human mind is contemplating; (2) the drafters of a statute did not contemplate a given situation to which the text is now called upon to apply; (3) the use of language in the statutory text is imprecise; (4) the use of language, although precise, did not say what the drafters intended; and (5) the drafters could not resolve an issue, so they used ambiguity to enable them to pass the legislation and defer resolution of the ambiguity to another day (and another entity).    

The first type of ambiguity goes to the first basic assumption mentioned above. [11] Let’s set it aside, because, like it or not, we must use language to articulate human intentions.  Our job as lawyers and administrators and legislators and judges is to use language the best we can, and not to despair over its inherent limitations.  

Turning to the second type of ambiguity, situations may certainly arise that were not contemplated by the drafters of a statute, but the text nonetheless appears to apply.  Presumably courts can determine whether or not the statute should apply to the unanticipated situation, and they must be prepared to fulfill their role by making this sort of determination. [12] 

As to the third type, imprecise or inartful drafting is not uncommon, regrettably, and courts routinely are called upon to parse awkwardly-drafted texts, whether statutory, regulatory or contractual.  Longstanding tools of statutory construction are supposed to assist a court in engaging in the interpretive exercise. [13]  One example of a difficult text in the trade remedies field is the so-called “captive production” provision, which provides that, in determining the impact of imports on the domestic industry, the International Trade Commission shall focus primarily on the merchant market in certain situations where the domestic industry both sells the product on the market and also uses the product internally for the production of downstream merchandise. [14]  The underlying purpose is relatively clear but the text is convoluted, and the reviewing courts have grappled with it on several occasions. [15] 

Similarly, a series of disputes arose from what appears to be a relatively simple text – namely the statute that authorizes Commerce to calculate dumping margins for only “a reasonable number” of respondents in cases where a “large number” is involved. [16]  One question that arose from this statute is whether the number one is a “reasonable number.”  The Court of Appeals said no. [17]  Another question is what is a “large number.”  The Court of International Trade on several occasions engaged in its own interpretation of the statute and its application to the facts, sometimes agreeing with the agency’s analysis and sometimes not. [18] 

Related to uncertain texts are open-ended texts in which the legislature has provided limited guidance to the Executive Branch.  In its extreme form, such open-ended statutes can run afoul of another problem occasionally identified by the Supreme Court – namely the “non-delegation doctrine.”  This doctrine has been raised, for example, in challenges to the application of Section 232 of the Trade Expansion Act of 1962, which provides procedures for the Department of Commerce and the President to determine if an “article” is “being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security . . .”  The statute defines the “the national security” very broadly, so that it may be “impair{ed}” through “the weakening of our internal economy . . .” [19] After years of desuetude, this statute was reinvigorated by the previous Administration, whose actions have been subject to considerable litigation. Although the statute does include some guidelines, its broad application has been challenged, inter alia, as creating “serious nondelegation-doctrine concerns.”  This challenge, however, was unsuccessful. [20] 

This leads to the fourth situation, which is that the language is clear, but it does not say what the drafters arguably intended.  This situation may not involve an ambiguity at all, but rather just another type of imprecise drafting.  The Supreme Court has said that if the text is clear, it does not matter what the drafters may have intended – i.e., if there is a disconnect between text and legislative history, the text wins.  One example of this issue that arose in the trade remedies context is the “duty absorption” provision, which says that during an administrative review “initiated 2 or 4 years after the publication of an antidumping duty order,” the Department of Commerce shall, if requested, determine whether the duties “have been absorbed” by a foreign producer/exporter that sells through an affiliated importer. [21]  Commerce applied this text based on the understanding that the drafters intended it to authorize consideration of the duty absorption issue not only in the second and fourth annual reviews after the issuance of new antidumping duty orders, but also in the second and fourth annual reviews following the enactment of the statute for older (“transition”) antidumping duty orders.  But that is not what the statute says.  The Court of Appeals in FAG Italia concluded that there was no ambiguity in the statutory text, and ruled that the statute must be applied as written, declining to defer either to the agency’s interpretation or to policy considerations that Congress may have intended. [22]

And finally, there is intentional ambiguity – i.e., the enactment of ambiguous statutory text as a Congressional delegation of legislative authority to an administrative agency.  This appears to be one of the primary targets of the Supreme Court’s discontent in Loper Bright. [23] and the Court now has made it clear that if Congress engages in such a tactic, it is not sending the ambiguity to the Executive Branch to resolve, but to the Judiciary.  In interpreting such ambiguity, the Judiciary may give respectful consideration to the views and expertise of the Executive Branch agencies, but it is not bound by those views.  As the Supreme Court explained, “{t}he better presumption is . . . that Congress expects courts to do their ordinary job of interpreting statutes, with due respect for the views of the Executive Branch.” [24]

The impact of removing the authority to resolve textual ambiguities from the Executive may or may not cause Congress to reconsider a strategy of leaving ambiguities in draft legislation unresolved – depending on whether, in any given circumstance, the drafters would prefer to resolve the ambiguity themselves or throw it to the Judiciary.  But the option for Congress to delegate authority to resolve an ambiguity to the experts in Executive Branch agencies is now foreclosed, unless expressly (unambiguously) stated by Congress. [25]

Is this bad?  Concerns have been expressed that the lack of judicial deference to agency interpretations of the law could create instability, as different judges interpret a given statutory text in different and even conflicting ways.  But the Supreme Court noted that uncertainty already existed under Chevron, which left statutes subject to the possibility of unending reinterpretation by agencies [26] – for example, with changes of Administration.  

Furthermore, such judicially-generated instability is less likely to occur in the trade regulatory field as compared to other areas of administrative law, because exclusive subject matter jurisdiction is vested in a single court (the Court of International Trade) subject to review by a single appellate court (the Court of Appeals for the Federal Circuit). [27]  Here, a relatively small cadre of judges develop expertise in the interpretation of a complex legislative and regulatory structure, which, one may hope, decreases the likelihood of unpredictable and destabilizing judicial decisions.  Also, in successive bouts of legislation, Congress has enacted increasingly detailed statutory provisions governing numerous situations under the trade remedy laws that the agencies have confronted, [28] and, of course, a robust body of judicial precedent has developed over the decades.  All of these developments help reduce the level of uncertainty that may arise in the application of statutory texts to specific disputes.    

As a final point (for now), it should be recalled that Loper Bright addresses only statutory interpretation – i.e., the “otherwise not in accordance with law” prong of the judicial review provision of the Tariff Act. [29]  One can anticipate that the courts will still defer to agency determinations regarding the factual record involved in individual cases, pursuant to the “unsupported by substantial evidence on the record” prong. [30]  But situations likely will arise in which the application of the law to the facts of a particular case may itself require an interpretation of statutory text – indeed, creative counsel may articulate their complaints in terms of the meaning of a statute, as to which the court may not defer to the agency’s interpretation.  

In any event, when it comes to statutory interpretation, I would be surprised to see statements in future judicial opinions, like those in Koyo Seiko, Changzhou Trina, and Eurodif, quoted above, announcing the extensive deference a court will grant to the trade regulatory agencies regarding the interpretation of statutory language.  Ultimately, there is only one “best meaning” of a statute, [31] and the ascertainment of that meaning is the role of the Judiciary – i.e., to say “what the law is,” in the ancient words of Marbury v. Madison.

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Through his 40 years of experience in the international trade regulatory field, Neil Ellis has litigated numerous cases involving the U.S. trade laws before the administrative agencies, U.S. courts, and in WTO dispute settlement proceedings. Please contact us at neil@neilellislaw.com with questions you may have regarding trade litigation issues.

[1] Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984).

[2] See Loper Bright Enterp. v. Raimondo, S. Ct. No. 22-451, Slip Op. at 31  (June 28, 2024) (a “statute still has a best meaning, necessarily discernible by a court . . .”).

[3] Koyo Seiko Co. v. United States, 36 F.3d 1565, 1570 (Fed. Cir. 1994) (citing Chevron).

[4] Changzhou Trina Solar Energy Co. v. United States, 975 F.3d 1318, 1326 (Fed. Cir. 2020).

[5] United States v. Eurodif S.A., 555 U.S. 305, 315 (2009); see also United States v. Mead Corp., 533 U.S. 218, 229-30 (2001).

[6] Loper Bright, Slip Op. at 8 (quoting United States v. Moore, 95 U.S. 760, 763 (1878)).

[7] Skidmore v. Swift & Co., 323 U.S. 134, 139-40 (1944).

[8] Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803).

[9] See Loper Bright, Slip Op. at 30 (“the concept of ambiguity has always evaded meaningful definition”).

[10] This list may not be exhaustive, and these different “types” may not even be distinct.

[11] As noted by the Supreme Court, “ambiguities will inevitably follow from ‘the complexity of objects, . . . the imperfection of the human faculties,’ and the simple fact that ‘no language is so copious as to supply words and phrases for every complex idea’.”  Loper Bright, Slip Op. at 22 (quoting The Federalist No. 37, at 236 (J. Madison)).

[12] A recent example, outside the trade remedies environment, is the Supreme Court’s decision in Garland v. Cargill, 602 U.S. 406 (June 14, 2024), considering whether the federal statute forbidding ownership of machineguns applied to “bump stocks”.  The Supreme Court ruled in the negative, using its tools of interpretation to determine that the statutory language was clear and compelled the outcome.  As the concurring opinion explained, “there can be little doubt that the Congress that enacted [the statute prohibiting ownership of machineguns] would not have seen any material difference between a machinegun and a semiautomatic rifle equipped with a bump stock.  But the statutory text is clear, and we must follow it.” Id. at 429 (Alito, concurring).

[13] However, the Supreme Court has expressed skepticism in recent decades regarding what had previously been understood as one of the most important tools for interpretation of statutes – namely, legislative history.  See, e.g., Exxon Mobil Corp. v. Allapattah Servs., 545 U.S. 546, 568-69 (2005).  But now that courts are expected to identify the single “best” interpretation of a statute, it seems that an important tool to identify the “best” when the text itself is unclear would be evidence of legislative “intent” (however assayed).

[14] 19 U.S.C. § 1677(7)(C)(iv).

[15] See, e.g., Full Member Subgroup of Am. Inst. of Steel Constr., LLC v. United States, 81 F.4th 1242, 1254-56 (Fed. Cir. 2023); Bethlehem Steel Corp. v. United States, 27 CIT 1662, 1665-71 (2003).

[16] 19 U.S.C. § 1677f-1(c)(2).

[17] YC Rubber Co. v. United States, 2022 U.S. App. LEXIS 24259, 2022 WL 3711377 (Fed. Cir. 2022).

[18] See, e.g., Carpenter Tech. Corp. v. United States, 662 F. Supp. 2d 1337, 1341-44 (Ct. Int’l Trade 2009);  Zhejiang Native Produce & Animal By-Products Imp. & Exp. Corp. v. United States, 637 F. Supp. 2d 1260, 1263-64 (Ct. Int’l Trade 2009) (“One is not a large number”); Husteel Co. v. United States, 98 F. Supp. 3d 1315, 1325-28 (Ct. Int’l Trade 2015) (twelve “is a much larger number”).

[19] 19 USC §§ 1862(b)(3)(A), (d).

[20] See Transpacific Steel LLC v. United States, 4 F.4th 1306, 1332-33 (Fed. Cir. 2021), cert denied, 142 S.Ct. 1414 (2022).

[21] 19 U.S.C. § 1675(a)(4).

[22] FAG Italia S.p.A. v. United States, 291 F.3d 806 (Fed. Cir. 2002).

[23] The Court asserted that “‘{a}n ambiguity is simply not a delegation of law-interpreting power.  Chevron confuses the two’.”  Loper Bright, Slip Op. at 22 (quoting C. Sunstein, “Interpreting Statutes in the Regulatory State,” 103 Harv. L. Rev. 405, 445 (1989)).

[24] Loper Bright, Slip Op. at 25.

[25] See Loper Bright, Slip Op. at 26 (“That is not to say that Congress cannot or does not confer discretionary authority on agencies.  Congress may do so, subject to constitutional limits, and it often has.”).

[26] See Loper Bright, Slip Op. at 33) (“Under Chevron, a statutory ambiguity, no matter why it is there, becomes a license authorizing an agency to change positions as much as it likes.”)

[27] Similarly, Congress at times has vested exclusive jurisdiction in the Court of Appeals for the D.C. Circuit to resolve disputes involving other administrative agencies and regulatory schemes.

[28] An example of such legislative “gap-filling” occurred in 2009 when Congress enacted subsection (f) of 19 U.S.C. § 1671 to clarify that the countervailing duty law applies to non-market economy countries, after an about-face by Commerce and extensive litigation on the issue.  See Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986) (applying Chevron deference to Commerce’s conclusion that 19 U.S.C. § 1671 did not apply to non-market economies); GPX Int’l Tire Corp. v. United States, 666 F.3d 732 (Fed. Cir. 2011) (despite Chevron, rejecting Commerce’s opposite interpretation of the same statute), rehearing granted and case remanded, 678 F.3d 1308 (Fed. Cir. 2012) (remanding after Congress enacted subsection (f)). 

[29] 19 U.S.C. § 1516a(b)(1)(B)(i).

[30] Ibid.

[31] Loper Bright, Slip Op. at 31.

Customs and the Constitution

Do the U.S. Constitution’s procedural protections governing the deprivation of life, liberty and property apply in the context of import regulation? That question may deserve a skeptical response, especially in light of the longstanding principle that “engaging in foreign commerce is not a fundamental right protected by notions of substantive due process.” [1] But even if there is no substantive right to engage in foreign commerce, is there nonetheless a right to procedural protections, under the due process clause of the U.S. Constitution, when the government takes action to restrict importation? Judicial precedent states that such guarantees exist, but they have been narrowly construed; procedural due process challenges have generally been unsuccessful in the trade remedies field [2].

A recent decision by the Court of Appeals for the Federal Circuit, however, reveals that constitutional constraints may in fact govern the procedures by which importers are subject to trade-restricting decisions of U.S. agencies. Royal Brush Mfg., Inc. v. United States involved an allegation that Royal Brush, an importer of pencils, transshipped Chinese-origin pencils through the Philippines in order to evade U.S. antidumping duties imposed on pencils from China. [3] U.S. Customs and Border Protection (CBP) opened an investigation under the Enforce and Protect Act of 2015 (EAPA) [4], and conducted a “verification” at the site of the Philippine manufacturer. CBP obtained information, including production orders, invoices, and photographs of equipment, from which it concluded that the Philippine facility was incapable of producing the quantity of pencils that Royal Brush had imported into the United States. In part on the basis of this information, CBP determined that Royal Brush had evaded the AD duties on imports of pencils from China. However, the information obtained by CBP was treated as confidential and was not released to Royal Brush or its counsel, because CBP’s regulations do not authorize the release of confidential information obtained in an EAPA investigation. [5]

Royal Brush appealed to the U.S. Court of International Trade (CIT), which remanded the case and ordered CBP to provide public summaries of the confidential information, but it rejected Royal Brush’s argument that it was entitled to review the confidential information itself. The CIT stated that “Congress has not mandated that Royal Brush be afforded such access and Royal Brush has not shown that due process requires it.” [6] On remand, CBP prepared public summaries of the confidential information, but the redactions emptied the public versions of content – for example, replacing a photograph with the word “photo,” and replacing numbers with the word “number.” [7] The CIT found that CBP complied with its regulatory obligations “by providing the necessary public summaries of the confidential information,” and again held that “Royal Brush has not established that CBP has failed to provide Royal Brush the process that it is due.” [8] Accordingly, the CIT affirmed CBP’s remand determination.

The CIT’s decision raises the question, what process is due? [9] This is particularly important in a situation – such as under EAPA – where Congress has not specified through legislation the procedures by which confidential information is to be managed, unlike AD/CVD proceedings, in which those procedures are laid out in elaborate detail. [10]

The Court of Appeals answered that question, and reversed. [11] It explained that there is one “relatively immutable” principle of due process, which is that “the evidence used to prove the [g]overnment’s case must be disclosed to the individual so that he has an opportunity to show that it is untrue.” [12] The Court of Appeals quoted several of its prior decisions, as well as those by other courts regarding the due process requirement that a party be granted access to the information on which the Government relies in reaching an adverse determination. The Court found that there is “no legitimate government interest here in refusing to provide confidential business information to Royal Brush,” given that the Government’s concerns about the “necessity of secrecy can be alleviated by issuing a protective order,” as in AD/CVD cases. [13]

The Government, in defending the CBP’s actions, contended that neither the EAPA nor CBP’s regulations provide a mechanism, such as a protective order, under which confidential information could be disclosed to Royal Brush or its counsel. “In other words,” the Court of Appeals summarized the Government’s position, “the government can avoid compliance with due process requirements by the simple expedient of failing to provide for a protective order in a statute or regulation.” [14] The Court rejected that contention: “We are aware of no case supporting any such extraordinary theory, and it is untenable on its face. The right to due process does not depend on whether statutes and regulations provide what is required by the constitution.” [15] The Court found that CBP has the “inherent authority” to issue protective orders [16], and it turned the Government’s logic on its head – reasoning that the absence of an authorizing statute does not prevent CBP from issuing protective orders in the absence of a statutory or regulatory provision prohibiting it from doing so. [17] On the latter point, it could be argued that, since the Court found that a party’s due process right to confront the evidence used against it emanates from the Constitution, a statute or regulation prohibiting the issuance of protective orders would be unconstitutional, and hence could not lawfully prohibit the disclosure of the information to the targeted party under some sort of protective mechanism. But the Court of Appeals in Royal Brush was not called on to address that difficult situation. [18]

Royal Brush will be remanded to CBP, which will be required to develop a protective order under which it may release the information on which it has relied to the company’s counsel. In addition, the Government has recently requested a voluntary remand in at least one other case in light of the Royal Brush decision [19], and it is likely that CBP will establish a procedure for issuing protective orders in EAPA proceedings, to avoid similar disputes regarding the due process rights of targeted importers. This is particularly urgent as EAPA proceedings have become more active in recent years. More broadly, the Court of Appeals’ decision undoubtedly will have implications for other proceedings in which CBP is involved and which currently do not provide for the disclosure of confidential information to parties under protective order.

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Through his 40 years of experience in the international trade regulatory field, Neil Ellis has litigated numerous cases involving the U.S. trade laws before the administrative agencies, U.S. courts, and in WTO dispute settlement proceedings. Please contact us at neil@neilellislaw.com with questions you may have regarding trade litigation issues.

[1] NEC Corp. v. United States, 151 F. 3d 1361, 1369-70 (Fed. Cir. 1998).

[2] See, e.g., NEC Corp., supra; PSC VSMPO-Avisma Corp. v. United States, 688 F. 3d 751, 761-62 (Fed. Cir. 2012); Gilda Indus. v. United States, 446 F. 3d 1271, 1284 (Fed. Cir. 2006) (no due process right to “additional procedural protections” in challenging USTR action under Section 301); Transpacific Steel LLC v. United States, 4 F. 4th 1306, 1333-35 (Fed. Cir. 2021) (rejecting equal protection argument regarding application of Section 232 steel tariffs).

[3] Royal Brush Mfg., Inc. v. United States, 75 F. 4th 1250 (Fed. Cir. 2023).

[4] 19 U.S.C. § 1517.

[5] The CBP regulation governing EAPA procedures does establish rules governing the submission of confidential information, which specifies that the submitting party must also prepare public summaries “in sufficient detail to permit a reasonable understanding of the substance of the information.” 19 C.F.R. § 165.4(a)(2). However, unlike the rules governing the treatment of confidential information in AD/CVD proceedings, neither Congress nor CBP has authorized the release of the confidential information in an EAPA investigation to the party that is the target of the allegations or its counsel.

[6] Royal Brush Mfg., Inc. v. United States, 483 F. Supp. 3d 1294, 1308 (Ct Int’l Trade 2020).

[7] 75 F. 4th at 1254. The Court of Appeals found that “{t}he public summaries . . . provided no meaningful information.” 75 F. 4th at 1259.

[8] Royal Brush Mfg., Inc. v. United States, 545 F. Supp. 3d 1357, 1369 (Ct Int’l Trade 2021).

[9] See, e.g., NEC Corp., supra, 151 F. 3d at 1371 (“. . . NEC is due a fair and honest process; the question that remains, then, is what process is due.”)

[10] See 19 U.S.C. § 1677f.

[11] This note focuses on one particular aspect of CBP’s handling of confidential information – namely, its refusal to provide the evidence on which it relied to Royal Brush or its counsel. CBP’s denial of Royal Brush’s request for an opportunity to submit rebuttal information was also rejected by the Court of Appeals, but that topic is not explored further here.

[12] 75 F. 4th at 1257 (quoting Greene v. McElroy, 360 U.S. 474, 496 (1959)).

[13] 75 F. 4th at 1259.

[14] 75 F. 4th at 1260.

[15] Id.

[16] 75 F. 4th at 1260, 1262.

[17] Thus, the Court of Appeals implicitly rejected the CIT’s statement that “CBP is precluded from disclosing {confidential information} by statute and regulation.” 545 F. Supp. 3d at 1367 (emphasis added).

[18] The Court of Appeals also brushed aside CBP’s argument based on the legislative history of the EAPA – namely, that a draft of the legislation expressly authorized CBP to issue protective orders, but that provision was deleted in a later iteration of the legislative text. Courts on occasion have interpreted a Congressional decision to delete a proposed statutory provision as evidence of legislative disapproval of the deleted provision. But the Court of Appeals declined to accept that logic, stating flatly that “there is no indication that Congress objected to protective orders.” 75 F. 4th at 1261.

[19] See Defendant’s Partial Consent Motion for Voluntary Remand, ECF No. 62, in Newtrend USA Co. v. United States, CIT No. 22-347 (Sept. 18, 2023).

Commerce’s Proposed Regulations and The Economics of Trade Remedies

As has been widely publicized, the U.S. Department of Commerce recently issued proposed amendments to its antidumping (AD) and countervailing duty (CVD) regulations. [1] These proposed amendments come in the wake of Commerce’s revisions to the regulations governing scope and anti-circumvention proceedings, as discussed in my note posted in October 2021. The new proposals cover a broad range of topics, both technical and substantive, several of which are novel and significant. In this note, I focus on one of the more far-reaching proposed revisions – namely, the expansion of the types of issues that the trade remedy laws are intended to address.

Traditionally, the AD and CVD laws have been understood as limited to specific types of economic conduct – predatory pricing (or price discrimination) in the case of AD, and government financial contributions that confer a benefit on foreign producers/exporters in the case of CVD. The proposed regulations will significantly expand that scope by authorizing proceedings to address the fundamental economic concept of externalities, as well as benefits to foreign production that are difficult to quantify, such as lax enforcement of labor, environmental, human rights, and intellectual property (IP) rules. The proposed expansion of the U.S. trade remedies regulations is consistent with the current Administration’s efforts to include non-traditional elements in trade agreements and in the standards by which international trade is to be judged.

Several aspects of this proposed expansion of the trade remedies regulations deserve attention.

First, the Proposed Rule would address not just actions taken (or financing provided) by foreign governments to support their producers and exporters, but also foreign government “inaction” in enforcing their laws in the fields of property rights (including IP), labor protections, human rights, and environment protection, where that inaction “evinces the existence of a financial contribution” to a foreign producer. [2] The Proposed Rule explains,

“We recognize that every country retains discretion to pursue its own priorities, whether through directed efforts to assist in the economic success of its domestic industries, such as subsidies and government assistance, or by implementing and enforcing certain laws, policies and standards for the public welfare. However, we also recognize that when governments take little or no action to implement or enforce such laws, policies, and standards, benefits may accrue to a company in a way that provides the company with a financial advantage over its competitors.” [3]

What is intriguing is not just the expansive reach of the Proposed Rule, but also that Commerce’s explanation uses language broader than that traditionally used to describe and justify the trade remedy laws. That is, Commerce’s explanation uses the economic terminology found in studies of externalities to describe the failure of markets to set prices that capture the social costs of production. Commerce explains that producers do not typically consider externalities (i.e., “the indirect societal costs of their production decisions”) when setting prices and calculating profits, and as a result, government regulation is necessary to ensure that those externalities are captured and the full “cost of compliance” is considered by producers. Classic sources in the economic literature, such as Coase and Samuelson, are cited in support of this principle. [4] The logical outcome of this analysis, according to Commerce, is that the failure of a foreign government to enforce its regulations confers a benefit on producers who are not required to fully internalize the social costs incurred through their productive activity.

Second, Commerce justifies the proposed rule in part by comparing the economic impact of government inaction across, rather than within, countries. The Proposed Rule states:

“These examples of foreign government inaction could result in costs and prices that are unreasonably suppressed and create an unlevel playing field between producers and suppliers in countries in which governments provide weak, ineffective, or nonexistent property (including intellectual property), human rights, labor, and environmental protections, and producers and suppliers in countries in which the governments provide and enforce such protections.” [5]

This reasoning seems to conflate the situation in countries where necessary rules don’t exist with countries where rules exist but are inadequately enforced. Put differently, the term “provide,” in the quoted text, is different from “enforce.” It would be difficult, if not impossible, to compare the “costs of compliance” [6] across countries when different countries impose different compliance obligations in the first place.

As noted above, Commerce concedes that different countries will have different enforcement priorities. And it appears to recognize the obvious point that the trade remedy laws of a single country – such as the United States – are not a suitable engine to ensure that the entire global economy accedes to a given level of labor, environmental and IP standards. However desirable such global standards may be, they must be established through multilateral (or at least bilateral) agreement, as seen in the United States’ negotiation of agreements that include such standards. But if that is true, then it would be difficult for CVD rules to be applied through a comparison of general policies regarding cost internalization in one country against another, despite what Commerce seems to be saying at several points in the Proposed Rule. [7]

Third, the Proposed Rule would apply the “inaction” principle in several ways. A finding that a foreign government failed to enforce its rules would impact CVD determinations in two ways, and one in AD. The first CVD impact is direct, if limited. A proposed new regulation, 19 C.F.R. 351.529, would provide that a failure by a foreign government to impose or collect “fees, fines, and penalties” from a producer/exporter would be treated as a countervailable subsidy. This would be limited, presumably, to situations in which the other criteria for countervailability – most importantly, specificity – were also found to exist. The countervailable benefit would be measured as the amount of the fee that was not collected, or the amount of interest foregone in the case of deferred payment of a fee. [8]

The second CVD impact is less direct, but it raises more fundamental issues. The Proposed Rule would amend section 351.511(a)(2) of Commerce’s regulations, concerning the benchmark used to determine whether a foreign government is providing goods or services at “less than adequate remuneration.” The proposed amendment would authorize Commerce to consider whether “certain prices are derived from countries with weak, ineffective, or nonexistent property (including intellectual property), human rights, labor, or environmental protections.” If so, those prices could be excluded from the benchmark against which the provision of goods or services by the government under investigation to its producers/exporters would be measured. As the quoted language makes clear, the exclusion of the third country’s prices from the benchmark would be based on broad social and economic findings – far broader than the “fees, fines, and penalties foregone” principle. Importantly, however, the financial impact of those broad findings – i.e., the “weak, ineffective or nonexistent” legal protections – would not have to be quantified, thus avoiding what would entail a very complex exercise.

In the AD space, the proposed impact of the “inaction” principle focuses on the calculation of dumping margins for non-market economy (“NME”) countries – primarily China and Vietnam. In calculating the dumping margin for an NME producer, Commerce does not determine the “normal value” (“NV”) of the merchandise exported to the United States on the basis of the prices charged by that producer in its home country. Rather, it bases NV on the value of the inputs (“factors of production” or “FOPs”) used to produce the subject merchandise in a “surrogate” market economy country at a level of economic development comparable to the NME. [9] The Proposed Rule would authorize Commerce to disregard a proposed market economy surrogate value if, inter alia, that value is “derived” from an industry, region or country with “weak, ineffective, or nonexistent property (including intellectual property), human rights, labor, or environmental protections.” [10] Thus, for example, if the environmental protections or IP enforcement in proposed surrogate countries for China, such as Romania or Malaysia, are found to be inadequate, and if they “undermine the appropriateness” of the value of a significant FOP, then Commerce could disqualify that surrogate country’s data to value the FOP.

Finally, on a procedural matter, Commerce has invited comments on the Proposed Rule, which are due by July 10, 2023. The Proposed Rule will certainly be subject to careful review by Commerce before it is finally promulgated, and the provisions discussed in this note may undergo substantial revision. In addition, however it is finally formulated, the Proposed Rule will almost certainly be subject to challenge, either in domestic litigation – as exceeding the scope of the AD/CVD laws and Commerce’s authority as granted by Congress – or the WTO – as exceeding the scope of the AD/SCM Agreements to which the United States acceded – or both.

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Through his 39 years of experience in the international trade regulatory field, Neil Ellis has worked extensively with his clients in evaluating and commenting on proposed amendments to U.S. statutes and regulations. If you have questions regarding the Proposed Rule – either the specific topics discussed in this note, or otherwise – please feel free to contact us at neil@neilellislaw.com.

[1] U.S. Dep’t Commerce, “Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws,” 89 Fed. Reg. 29850 (May 9, 2023) (“Proposed Rule”).

[2] Id., 89 Fed. Reg. at 29858.

[3] Id.

[4] Id., 89 Fed. Reg. at 29859 n.29 (citing, among others, the classic article by Ronald Coase, “The Problem of Social Cost,” 3 J. L. & Econ. 1 (1960)).

[5] Id., 89 Fed. Reg. at 29859.

[6] Id.

[7] And indeed, challenges of general economic and welfare policies enacted by foreign countries may necessarily be limited by the “specificity” concept that underpins the CVD law. See 19 U.S.C. 1677(5A); WTO Agreement on Subsidies and Countervailing Measures, Arts. 1.2 & 2.

[8] The proposed regulation, 19 C.F.R. 351.529(b), explains that the deferral of the payment of a fee, fine, or penalty would be treated as a government-provided loan in the amount of the payment deferred.

[9] See 19 U.S.C. 1677b(c); 19 C.F.R. 351.408.

[10] Proposed Rule, 89 Fed. Reg. at 29875 (proposing new subsection 351.408(d)).