The Impact of the Coronavirus on U.S. Trade Proceedings
The coronavirus (COVID-19) has had an undisputed impact on health and travel around the globe during the past two months. It has also stifled trade with China, where it originated. The pressure from tariffs and the ongoing trade war is beginning to shift to pressure from supply chain disruptions caused by the coronavirus. Importers and manufacturers that source from China have been particularly affected, as have maritime, construction, and global supply chain entities. But as trade with China has taken a hit, how have U.S. agencies handled the administration and enforcement of ongoing proceedings involving China?
Of all U.S. federal agencies with oversight over trade with China, the Department of Commerce (“DOC”) is perhaps the most directly involved. The DOC administers antidumping (“AD”) and countervailing (“CVD”) cases, as well as Section 232 tariffs that target Chinese imports. The Office of the United States Trade Secretary (“USTR”) administers the Section 301 tariffs specifically targeting China.
The virus has had a lesser impact on the administration of Section 232 and Section 301 tariffs because this is handled almost entirely in Washington. However, in AD/CVD cases DOC officials must regularly travel to China to conduct onsite verifications of Chinese producers examined in these proceedings. The DOC is currently overseeing nearly 200 ongoing AD/CVD cases against China. Of these, new investigations require verifications, and in the remaining annual reviews the DOC must verify Chinese producers at least once every three years. Each verification takes at minimum a week and involves two or three officials. That adds up to significant travel to China during an average year.
So how has the DOC been mitigating the impact of the virus on its ability to administer trade remedy proceedings? For one, many AD/CVD verifications have been put on hold indefinitely due to health concerns and because major airlines have suspended flights to China. This can be good or bad depending on which side of the case one is (i.e., U.S. companies that brought the cases vs. the importers that have to pay the duties). If the case is likely to result in high margins, importers and their Chinese suppliers would likely want verification so that they can personally prove to DOC officials that they are not dumping and do not receive illegal subsidies. On the other hand, if the AD/CVD margins are projected to be low, then U.S. producers may want the Chinese producers verified, and conversely the latter would prefer not to be audited.
The DOC has also been generous about granting extensions for submissions to Chinese respondents in AD/CVD cases. The agency recognizes that responses to its questionnaires require access to information which has been difficult for Chinese employees to access. Many of them are in quarantined areas and unable to get to work, let alone respond to DOC’s requests. Chinese legal counsel and accountants that regularly support respondents in DOC’s proceedings also are less able to reach their clients.
The DOC may even consider a less conventional approach – tolling of AD/CVD cases. Tolling would allow for ongoing proceedings to be paused or delayed. There is little precedent for such action in response to a foreign emergency or crisis. The DOC last tolled deadlines in its proceedings during the U.S. government shutdown in January 2019. But that was necessitated by domestic federal government concerns. With the coronavirus, a close comparison could be made to the 2004 Asian tsunami crisis, but that event did not necessitate tolling of DOC’s AD/CVD cases involving shrimp from Thailand and India whose seafood industries were decimated.
The DOC has the discretion to toll its deadlines. However, an action that changes AD/CVD duties would require Congressional approval. Hence pleas for a reduction in such duties would face an uphill effort and encounter resistance from domestic producers (as it did when Thailand asked to have dumping duties on its shrimp reduced after the tsunami).
Although the coronavirus itself appears to have become a non-tariff barrier, the Trump Administration has given no indication of backing off its trade deal reached with China in January. Under the agreement, China promised to increase purchases of U.S. crops and meat products by $20 billion in 2020 in exchange for a reduction or delay on current tariffs. Indeed, in late February, USTR Robert Lighthizer and Agricultural Secretary Sonny Perdue insisted that the Administration will hold China accountable for its commitments, even as the outbreak disrupts global supply lines.
*Mark Ludwikowski is the leader of the International Trade practice of Clark Hill, PLC and is resident in the firm’s Washington D.C. office. He can be reached at 202-640-6680 and mludwikowski@ClarkHill.com