Global Trade recently spoke to Dharmendra N. Choudhary, a well-known anti-dumping lawyer in Washington DC, and a surrogate value expert.

Please explain the concept of surrogate value and how it is relevant in US anti-dumping proceedings on Chinese goods.
In anti-dumping proceedings, the US Commerce Department treats China as a Non Market Economy. As a result, Commerce determines the fair market value of Chinese goods based on the price data prevailing in a third country that is economically comparable to China.

For a number of years, India was invariably selected as a surrogate country to China. However, ever since Commerce veered away from India in 2010, citing the country’s lack of economic comparability with China due to India’s relatively lower per capita gross national income, the choice of surrogate country has been in a constant state of flux.

These days, in most cases, Commerce values goods in Thailand but sometimes, it also selects other countries, such as Mexico, South Africa, Bulgaria, and Romania. Furthermore, recently, Commerce has indicated that it is no longer bound to limit its choice to economically comparable countries. As such, Commerce has injected further uncertainty into this process, by opening the door to select any country as a surrogate to China.

Another important point is that Commerce requires surrogate values for all inputs utilized in producing finished goods and aggregates them to determine the fair value of finished goods. For any given input, even within a given surrogate country, there are several available choices and, therefore, the selection of surrogate value is contentious.

Due to a perpetual uncertainty surrounding the selection of a surrogate country and thereafter choice of surrogate values, the outcome in Chinese anti-dumping proceedings is unpredictable.

Why has US not yet granted China a market economy status beginning Dec. 11, 2016 as per China’s WTO Accession Protocol ?
The issue of China’s transition from non-market economy (NME) to market economy (ME) status is a hotly debated issue now. Five years ago, no one would have thought that this issue would become so contentious in 2017. Over the last three years, as the timeline for transition approached, the US domestic industry galvanized into action and ratcheted up a high-voltage campaign to deny China this transition to ME status, which is clearly stipulated under Article 15 of China’s WTO Accession Protocol.

Attorneys representing US domestic petitioners have come up with creative interpretations of Article 15, suggesting that there was never an agreement to automatically award a ME status to China on December 11, 2016. This interpretation, in my view, is disingenuous and does not bode well for any future trade agreement. China has filed a complaint at WTO against US on this issue.

How do you see Chinese anti-dumping proceedings being prosecuted after December 11, 2016 ?
Predictably, the US Commerce department has decided not to treat China as a ME country after December 10, 2016. However, individual Chinese exporters have demanded ME treatment on merits in their individual cases prosecuted beginning December 11, 2016. In anticipation of this possibility, US recently amended its anti-dumping laws that are applicable to market economy countries. Now, citing the presence of a so-called “particular market situation,” Commerce will be able to apply the surrogate country methodology to even ME cases. The timing of this amendment indicates that it is essentially meant to deny de facto benefits of market economy status to China, in the event China succeeds de jure in achieving this status.

In the short and medium time frame, I believe that Commerce would continue to treat China as NME and will keep applying the surrogate country-surrogate value methodology in Chinese anti-dumping cases.

What is your advice to Chinese exporters who are either already implicated or will face anti-dumping proceedings in future?
First of all, all Chinese exporters should begin arguing for a market economy status and in support they should provide all necessary evidence showing as to how they are functioning independently of their government in all respects, such as, no operational control being exercised by PRC government through shareholding, independence in setting up of export prices and disposition of profit, independence in investment decisions as well as procurement and allocation of resources, independence in selection of management, wage fixation based on market principles.

Beyond that, they should continue to plan for the worst case scenario assuming continued application of surrogate country methodology. To that end, they should work closely with their counsels, mapping out alternative surrogate country-surrogate value scenarios, in order to establish a safe threshold US export price that would not attract an anti-dumping levy.

What do you find as the most challenging aspect in Chinese Anti-dumping proceedings ?
From the perspective of a counsel to Chinese clients, there are several tricky issues to be navigated with dexterity in order to obtain a favorable result in Chinese anti-dumping cases. Conversely, counsels representing US domestic petitioners need to prevail on no more than one or two big issues to achieve a high anti-dumping margin.

Of all the issues, surrogate country-surrogate value issues are the most contentious and problematic. I am kept busy all the year around, traveling through several countries in search of the best quality price data and information. I interact extensively with officials in international and national organizations, industry associations and other private entities. Aside from obtaining favorable price data for our clients, I also work extensively to rebut the unfavorable price data submitted by US domestic petitioner.

With Commerce now further liberalizing the choice of surrogate country, this issue has become even more challenging. Since we have been focusing on this key issue for the last nine years, building up an extensive network of resources in the process, we are one step ahead in handling this challenge even under the new legal environment. Even so, every case is unique and calls for a fresh approach – there are no set templates to go by. As they say, the game is on.