U.S. Commerce Department May Rethink the Retrospective Import Duty System

International Trade Update

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The United States is the only major economy in the world that employs a “retrospective” system for assessing and collecting antidumping and countervailing duties on imports. At the direction of the U.S. Congress, the Department of Commerce’s International Trade Administration (ITA) is seeking public comment on the relative merits of the existing retrospective system versus a “prospective” system. Given the significance of the potential change to the U.S. duty assessment system suggested by this initiative, interested parties should consider submitting written comments by the deadline of April 20, 2010, and notifying the ITA of their interest in participating in a hearing on this issue by the deadline of April 13, 2010.

Background

In March 2008, the U.S. Government Accountability Office (GAO) issued a report exposing a $600 million shortfall in the collection of antidumping and countervailing duties assessed against imports of a number of products. Although GAO acknowledged several factors contributing to the government’s inability to collect the full amount of outstanding duties, GAO highlighted the retrospective nature of the U.S. antidumping and countervailing duty system as the chief impediment.

Under the current system, importers must pay cash deposits equal to the estimated antidumping and countervailing duties (if any) applicable to goods that enter the United States at the time of importation. However, the final amount of duties owed may not be determined until much later, after the ITA has examined the details regarding the imports subject to such duties, and after any judicial challenges of the results of that examination have been exhausted. On average, this process can take over three years and can result in the calculation of a final duty amount that exceeds the amount of cash deposited. By the time the final duty amount is established, the importers may be financially unable to pay the duties, and unscrupulous importers may have disappeared in order to evade their financial obligations. As a result, the U.S. government is often unable to collect antidumping and countervailing duties owed by importers.

The retrospective system also has a significant impact on U.S. importers who are responsible for paying the duties. Although they pay cash deposits to cover the estimated amount of duties at the time of importation of the goods, they must carry a contingent liability on their books for an extended period of time, pending final determination of the amount of duties owed. This is particularly problematic for importers of consumer goods, due to the uncertainty it creates for the pricing of fast-moving goods in the retail market.

In contrast, under a prospective duty system, duty rates are calculated based on data regarding historical levels of dumping and subsidies, and those rates are applied to future entries of goods at the time of importation. Under this system, it may be possible for importers to obtain a refund of duties previously paid, and foreign exporters may seek a recalculation of the duty rate going forward if they can demonstrate the occurrence of “changed circumstances.” Generally, however, in prospective systems, the duty rates that were initially determined remain in effect throughout the life of an antidumping or countervailing duty order, with the final duty assessments calculated on the basis of those rates.

Among the suggested measures for improving the government’s collection of duties, GAO recommended that the U.S. Congress require the Secretaries of Commerce, Homeland Security and the Treasury to conduct an analysis and report to Congress on the relative advantages and disadvantages of retrospective and prospective duty systems. GAO reiterated this recommendation in a second report published in July 2008.

The U.S. Congress acted on GAO’s recommendation in December 2009. The conference report accompanying the 2010 Consolidated Appropriations Act, Public Law No. 111-117, required submission of a report by the Departments of Commerce, Homeland Security and the Treasury on the relative merits of retrospective and prospective antidumping and countervailing duty systems within 180 days of enactment of the Act (i.e., by June 14, 2010).

Request for Comments and Hearing Participation

To assist its preparation of the report required by Congress, the ITA published a notice on March 31, 2010 inviting the public to submit written comments about, and participate in a hearing on, the retrospective and prospective antidumping and countervailing duty systems. Specifically, the ITA requests input on the extent to which each type of system would likely achieve the goals of:

1. remedying injurious dumping or subsidized imports into the United States;
2. minimizing uncollected duties;
3. reducing incentives and opportunities for importers to evade antidumping and countervailing duties;
4. effectively targeting high-risk importers;
5. addressing the impact of retrospective rate increases on U.S. importers and their employees; and
6. creating minimal administrative burden.

As noted above, comments must be submitted to the ITA by April 20, 2010 and requests to participate in the ITA’s hearing on this issue must be submitted by April 13, 2010. The hearing itself is scheduled for April 27.

Implications

The report to be developed on the basis of the public comments and testimony requested by the ITA could lead to fundamental changes in the way in which duties are assessed on imports into the United States. On the one hand, adoption of a prospective system would better align U.S. assessment practices with those of other countries, and the greater consistency could benefit global companies that export to the United States and other markets. Also, it could significantly reduce the shortfall in the collection of antidumping and countervailing duties, thereby providing more effective relief for the domestic industries on whose behalf such duties are imposed. On the other hand, replacement of the retrospective system would entail a significant change in the way in which duty liability has been determined in the United States since antidumping law was first enacted in 1921, which could engender uncertainty and confusion during a transition period.

In short, the ramifications of a departure from the retrospective U.S. antidumping and countervailing duty system must be considered carefully. Because of the fundamental nature of this proposed change in the U.S. duty system, companies involved in importation or facing import competition should carefully evaluate where their interests lie and consider the benefits of submitting comments to ITA either in writing or at the public hearing.

Sidley Austin LLP has a global team of professionals with expertise in the mechanics of both retrospective and prospective antidumping and countervailing duty systems who would be pleased to assist interested parties in developing comments and testimony on this important issue.

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