Trade Remedy Legislation: Applying Countervailing Action to Nonmarket Economy Countries

Publication Date: December 2007

Publisher: Library of Congress. Congressional Research Service


Research Area: Trade



Concern regarding the mounting U.S. trade deficit with China, combined with China's alleged foreign exchange-rate manipulation and unfair trade practices, led some in the 109th Congress to introduce legislation proposing to make countervailing duty (CVD) laws applicable to nonmarket economy (NME) countries. Many expect that legislative interest in this area will continue in the 110th Congress.

CVD laws provide for assessment of duties on imports whose production and/or importation is found to be subsidized by a public entity in their country of origin and are injurious to a domestic producer of like merchandise. Antidumping (AD), another kind of trade remedy action, addresses products sold in the United States at less than their fair value (as defined by law) in a similar manner.

Although antidumping (AD) and countervailing duty (CVD) laws and procedure generally parallel each other, CVD laws contain no specific provisions for CVD investigations on imports from nonmarket economy (NME) countries.

Initial administrative attempts in 1983 to apply countervailing remedies to allegedly subsidized imports from several NME countries led to determinations by the International Trade Administration (ITA) of the Department of Commerce, the U.S. agency charged with determining whether such subsidization in fact exists (and its extent), that subsidization ("bounties" or "grants") within the meaning of the countervailing law, cannot be found in nonmarket economies.

These ITA determinations were challenged in the U.S. Court of International Trade (CIT), which held that they were "not in accordance with the law," reversed them, and remanded the cases to the ITA. On appeal, the U.S. Court of Appeals for the Federal Circuit reversed, and reinstated the ITA's original determinations -- thus affirming that the ITA has the discretion not to apply the CVD law to NME countries. The ITA has not initiated any countervailing investigations of allegedly subsidized imports as such from NME countries since 1991.

Legislation to prevent further exemption of NME countries from countervailing action (aimed particularly at China) has been introduced in the 109th Congress making such action applicable to NME countries. H.R. 3283 (English, passed House on July 27, 2005), among other things, included such a provision. It is expected that similar legislation will be introduced in the 110th Congress.

On November 27, 2006, the ITA initiated a countervailing duty case against China for the first time since 1991, but made no determination at that time concerning the applicability of CVD law to NMEs.

This report replaces CRS Issue Brief IB10148, Trade Remedy Legislation: Applying Countervailing Action to Nonmarket Economy Countries, by Vivian C. Jones and Vladimir N. Pregelj. This report will be updated as events warrant.