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Antidumping and Countervailing Duties: Balancing World Trade

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The import process is filled with duties and tariff payments that can easily sneak up on you. Anti dumping and countervailing duties can be managed and tracked so they don’t come up as a surprise charge.
By
Natalie Kienzle
August 26, 2022
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Last Modified: September 1, 2022

Antidumping and countervailing duties are among the types of customs taxes affecting importers. Laws for these types of duties have to consider changing markets, production costs, and sale prices. Although versions of antidumping and countervailing laws exist in many countries, they aren’t all handled in the same way.

The U.S. Department of Commerce and the International Trade Commission (ITC) jointly investigate cases of dumping or unfair subsidization. When domestic industries submit petitions, Customs and Border Protection (CPB) can enforce rulings by collecting antidumping and countervailing duties. 

Take a look into what antidumping and countervailing duties (AD/CVD) laws are, their enforcement, and why importers should keep track.  

Antidumping and Countervailing Duties: What Are They?

The United States has laws to ensure fair trade practices that protect domestic industries in the country. These laws try to prevent foreign businesses from undercutting domestic industries critical to the U.S. economy.  

Two ways that foreign government markets, or any seller outside the U.S., use to flood domestic markets include: 

  • Dumping: Imported products sell at a price significantly below normal value for the U.S. consumer market. 
  • Subsidization: Government financial aid to help produce export items, which brings down the sale cost.  

Both of the above practices may create an unfair seller's market. They both make the imported goods significantly less expensive than the domestic goods. Neither practice is illegal, so the imports from these cannot be banned. They can, however, be taxed. 

Anti dumping duties (AD) and countervailing duties (CVD) are meant to raise the price of an import so it’s the same as domestic products

There are some AD/CVD orders in place for regularly imported items. The Department of Commerce, the ITC, and the CBP all keep records of imports that are charged duties under these orders. 

antidumping and countervailing duties truck passing through inspection point

Who Enforces Antidumping and Countervailing Duties?

Like many aspects of international trade, AD/CVD laws and orders fall under a few different agencies. As mentioned, some duties are built within certain industries or even from certain countries. 

The process of assigning antidumping or countervailing duties is complex. This is why it takes more than one agency. There are two departments involved in investigations. Another agency is used to enforce rulings.

Customs and Border Protection (CBP) is responsible for enforcing antidumping and countervailing duty payments

Not only does the CBP enforce payments, but it also manages related actions. 

  • Collection of AD/CVD cash deposits
  • Entry administration for merchandise subject to AD/CVD laws
  • Initial assessment of required duties based on imports
  • Tracking and law enforcement on importers attempting to evade duty payment

Since AD/CVD laws apply to imported products, the CBP also works closely with Immigration and Customs Enforcement (ICE). Although ICE doesn’t have the ability to enforce Customs payments, they do keep track of foreign sellers entering the country. They also assist the CBP in finding those that try to evade the duty payment.

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Who Determines Whether an Antidumping or Countervailing Duty is Needed?

All of the established AD/CVD laws find their origins in the Tariff Act of 1930. Like other parts of the Act, the goal is to protect the interest of domestic businesses and industries. 

Before a duty is established, there needs to be proof that a domestic industry is being harmed by foreign import practices. The Department of Commerce and the International Trade Commission (ITC) determine the need for antidumping or countervailing duties.

Petitions to Commerce and the ITC from domestic businesses start investigations. These petitions can come from:

  • Product manufacturers
  • Trade associations
  • Worker’s Unions associated with the production/manufacture of a product

There isn’t a limit to the size or type of industry to file a petition but there are other considerations. 

Any company that wishes to submit a petition for AD/CVD should provide the following information. 

  1. Scope: Provide details about what import or country of origin is being included in the petition. AD/CVDs can also be specific to nations. 
  2. Domestic Like Product: List the product(s) that the import would be directly competing with.  
  3. Industry Support: State whether there is support for a petition from within the industry. If the petition is from a company, then state whether similar companies have expressed support. 
  4. Evidence of Market Injury: Industry damage includes things like depressed prices, declining market share, or falling employment. 
  5. Dumping or Subsidy Allegation: Provide information on the foreign industry or market the product comes from. Mention how they reduce the sale price of the item below normal ranges. 

Be aware that not every import that can sell below domestic prices is going to get called out for dumping. An accusation is one thing but proving it is another. Importers should be aware of something known as the dumping margin. 

A dumping margin is the cost of a product in a foreign market versus its price in U.S. markets. Different products have different margins. Look closely at the specified legal definition for any product you plan to import. These legal definitions matter more than HTS codes when it comes to payments.  

You can also source imports from places without AD/CVD duties or just choose products sold within the margin of dumping.  

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What Are the Stages of an Antidumping and Countervailing Duty Investigation?

If a product you are importing is under investigation, take time to track the progression and final ruling. The timelines for investigations of dumping and countervailable subsidy are different but the stages are the same. Proving dumping takes a little bit longer.

You can still import products being investigated, but the CBP does collect an initial deposit during entry. If the investigation doesn’t find a case for dumping or other unfair pricing, the deposit is returned. 

There are three stages to the investigations conducted by Commerce and the ITC. 

  1. Initial Stage: Petitions are submitted to Commerce for the starting determination. 
  2. Preliminary Stage: Commerce and the ITC each make a preliminary determination based on domestic evidence and international trade research.
  3. Final Stage: Commerce and the ITC reach individual final determinations. If evidence is found of dumping or unfair competition because of subsidies, Commerce releases the Order Issuance. 

The ITC and Commerce are part of the preliminary and final stages, but it’s Commerce that makes the ruling official. From start to finish, the majority of rulings are made within less than a year. 

A countervailing duty investigation tends to wrap up quickly. Extensions happen if there is an antidumping investigation going on in the same industry at the same time. If duties are assigned, they are applied retroactively.

This is another reason why importers should take the time to track investigations of imported products. The deposit made to the CBP may not be enough. Commerce and the ITC could end up finalizing a greater amount. This can reduce or take away any profit margin. 

What is the Difference Between Antidumping and Countervailing?

By legal definition, antidumping and countervailing fall under different categories. The terms antidumping and countervailing simply refer to how the unfair price advantage is being managed. 

  • Antidumping duties correct the price difference between products caused by dumping. This is when a foreign product is sold below the sales price or production cost in the country of origin
  • Countervailing duty orders correct the price difference created when government money is used to manufacture or export goods. The duty offsets, or countervails, the price difference

For an importer, it really boils down to the same thing. You will pay more taxes on items sold cheaply in the U.S. to discourage mass imports. The idea is to make importers raise the price of the product to offset the duty rate. 

At the end of the day, the duty is designed to ensure a desired level of revenue within the domestic market. Depending on the product or country of origin, AD/CV duties can reach anywhere from 7% to 230% of the cost. 

What is the Effect of Dumping on International Trade?

The effect of dumping will change based on which end a country finds itself. The country where goods are being dumped usually experiences negative effects on any local sources of the same product. 

This can include:

  • Under-Performing Facilities: Domestic industries that cut down production because of a flooded market have an effect on related fields. Raw materials can pile up and manufacturing centers end up cutting back on employees. 
  • Loss of Investment Capital: Money being invested in domestic production goes away because returns are minimal or nonexistent. Unrestricted dumping makes future investments into an industry unlikely. 

Countries that practice dumping can gain control of other markets. Without competition, they can then set whatever prices they want. Countries capable of mass producing a product for dumping might use some questionable practices too. 

  • Providing subsidies: A government provides money to a manufacturing center to lower costs. This might be done to give a product an initial boost until profits catch up. If used long-term, it might become too expensive and prevent the industry from becoming self-sufficient.
  • Use of subpar materials: These products might break down faster and actually force people to buy more than they would have. 
  • Breaking Forced Labor Laws: Goods produced by inmates or through forced labor cannot be imported into the U.S.  

While these are internationally seen as negative elements of world trade, they aren’t always illegal. In either case, they are a large part of why AD/CV duties exist. 

On the other hand, sometimes a country just finds a way to produce a good quality product more efficiently. This is where AD/CVD laws come under harsh criticism. Interested parties who want to bring in a good, well-made product face backlash from domestic industries.

Dumping is usually viewed as something bad, but there are strong arguments for and against its strict regulation. 

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Do All Countries Charge an Antidumping Duty?

Many countries have a set of laws or a type of antidumping duty in place to protect domestic industries. Most countries have at least a few local specialties they want to protect. This is where AD laws come into play. 

For example, The European Union has antidumping and countervailing duties in place.  Because of the great diversity represented in 27 nations, exceptions within each country exist. The United Kingdom and Ireland also have individual laws regarding AD/CVD orders. 

If you are importing to countries other than the U.S., check with local commerce Departments. AD/CVD laws aren’t universally applied, so the amount charged, if any, isn’t the same. 

The U.S. is also a member of the World Trade Organization (WTO) made up of 159 countries. The WTO maintains a set of rules and guidelines used to determine if dumping or unfair subsidization is taking place. 

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How Do Countervailing Duties Work?

Countervailing duties are specific to the presence of government subsidies within an industry. Technically, a production facility or industry uses subsidies to produce enough products to make dumping possible.

Countervailing duties work by charging a tax equal to the difference in production costs between manufacturers with and without subsidies.

Not all products produced with subsidized help are subject to countervailing duties. Commerce can only issue a CVD order after investigations prove that the provided subsidy is harmful to a domestic industry.

The Subsidies Agreement of the WTO has a list of what counts as adverse and prejudiced applications of subsidies. Various actions can trigger countervailing measures.

  • Evidence of harm to the domestic industry 
  • Imports that negatively impact related industries of dependent countries (domino effect)
  • Continuous subsidies given to industries or companies that would otherwise operate at a loss (constant bailouts)
  • Money in the form of debt forgiveness for industries and companies operating at a loss
  • Providing a subsidy to deliberately damage another nation’s domestic production
  • Subsidies that allow a company from one country to undermine the export efforts of another importer

Importers working with products and materials from WTO countries can operate within these guidelines. 

Countervailing duties won't stop a country or industry from granting subsidies. They do impact the possible profits. Even when it comes to other members of WTO, the Subsidies Agreement is a guideline. 

This doesn’t make it impossible for items to be imported. Some AD/CV duties are very reasonable and actually promote good competition between local and foreign manufacturing. As an importer, your best bet is to educate yourself on your imports and get familiar with applicable regulations. 

Speaking with a Customs Consultant is a great way to get an idea of import guidelines for all kinds of products. Products with duties include everything from commercial ready items to raw materials needed in domestic productions.

What Is An Example Of A Countervailing Duty?

Countervailing and antidumping duties are both protecting a market from being flooded with a competitive product selling at an unfair price.

Whether something is a countervailing duty or antidumping duty depends on the use of monetary assistance from a government

To better see the difference, let’s look at some simplified examples. Company Alpha and Company Beta both manufacture tires. Company Alpha operates in the U.S. while Company Beta manufactures products in a foreign market. 

Company Alpha Tire Production - Domestic Market

Production Costs Per Tire$10
Market Price Per Tire$15
Profit Per Tire Sold$5

The five dollars of profit that Company Alpha makes per tire covers production, worker pay, and profit. Now let’s see how the production cost of a company receiving a subsidy might look.

Company Beta Tire Production - Foreign Market

Production Costs Per Tire$10
Government Subsidy For Production50% of Cost
Production Costs After Subsidy$5
Selling Price Per Tire$12
Profit Per Tire Sold$7 

With the assistance of a government subsidy, Company Beta can make a greater profit even when selling at a lower price. If Company Alpha tries to beat or match the $12 sell price, company profits will suffer. Their production costs are still $10 a tire. 

This is where a CV duty comes into play. In the current setup, Company Beta makes $2 more in profit per tire than Company Alpha. Charging imported tires a 30% countervailing duty means their tires would need to be sold at $15 to cover the difference. 

Without the CVD, the chances of Company Alpha going out of business are high. No competition means Company Beta can start charging more than domestic industries did. 

Again, this is a very simplified example. Working with a country that provides subsidies like this for some exports is risky. Importers might want to look into what the long-term plans are.

Are the subsidies temporary until business picks up? Does that government plan on investing the profits into new production techniques? Will domestic prices be changing? As an importer, there is plenty of information you should try to get ahead of time.   

How Can Importers Avoid Additional Customs Duties?

Other types of international arrangements also impact the presence of AD/CV duties. For importers looking to avoid the extra costs of AD/CVD fees, there are options. 

  • Free Trade Agreements: Imports from a country with a Free Trade Agreement may help you avoid some duties. However, you have to consider that the agreement might limit the number or variety of importable products. 
  • Checking With Agencies: The CBP, Commerce, and ITC all keep records of current rulings and ongoing investigations. Finding records is easier if you have a specific product in mind rather than trying to find a product list. 
  • Working With a Customs Broker: As an importer, you have a business to run. Outsourcing the product duty checking is a simple way to give yourself that time. A Customs Broker can stay updated on current investigations that directly impact your business. 

In reality, there is no foolproof way to avoid all AD/CV duties. Millions of products enter the U.S. every year. At any given point, there are a few hundred investigations going on. 

For more information, check out our article, How to Avoid Antidumping Duty

Since that is the case, your time is better spent on reducing the chances of paying the highest AD/CVD fees. Consider some of these best practices for importers. 

  • Don’t assume the AD/CVD deposit paid on entry will always cover the full duty. Duties can and will change between pending and final investigations. 
  • Be wary of imports from nations with Non-Market Economy (NME) status because it’s harder to make accurate duty predictions. 
  • Check the product's import history for former petitions or investigations involving dumping or countervailing. 
  • Review the product volumes from before and during any recent or current investigations. This can provide an idea of sustainable numbers.
  • Look at written descriptions of products to check for AD/CVD fees and not HTS codes. It's the description that the final duty will depend on. 
  • Never rely on foreign exporters for AD/CVD fee determination - they are not legally responsible for any of the fees. It’s the Importer of Record who remains on the hook for any payments to the CBP. 

Following these practices yourself, or finding a Customs Broker who does, is going to help you avoid the worst customs duties. 

Do AD/CVD Laws Apply to All Imports?

The short answer here is no, not every import is required to pay an AD/CVD fine. The longer answer is that there is always a possibility that an AD/CV duty is applicable. 

That is the risk you take when importing products that are also available domestically. How much extra can only be determined after official investigations conclude. Recall, however, that some AD/CVD fees only apply to products from specific countries. 

When or if that happens, an alternate supplier from another country could save your business from major disruptions.

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What is the Role of the International Trade Commission in AD/CVD Investigations?

The ITC is one of many agencies working to regulate international trade. In terms of AD/CVD investigations, the ITC, Commerce, and the CBP all work together. 

The ITC handles the part of the investigation that looks into the damage to domestic markets due to imports. The ITC’s investigations are done apart from those of Commerce, even though it exists within the same department. 

After the ITC conducts investigations, it reports the findings to Commerce. Then Commerce makes the final call on whether it will issue any duty orders. 

The ITC should also not be confused with the International Trade Administration (ITA). While both operate under the Department of Commerce, the ITA works more directly with our international trade partners. The ITC focuses more on the impact of trade on the local economy. The ITA is more of an outreach agency that looks to improve international ties with trade. 

Both work towards ensuring fair trade, but the ITA has no direct input in ITC investigations for dumping or unfair subsidization

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Are AD/CVD Duties Permanent?

Once Commerce has issued the order for antidumping or countervailing duties, there is no specific expiration date. This doesn’t mean that AD/CV duties can never be removed, but it implies that they last a while. 

While that sounds permanent, it all comes down to what agreements are possible between the U.S. and any exporting countries. The U.S. can issue a suspension agreement if the country being investigated agrees to specific provisions during the process.

Importers working with a nation under a suspension agreement can bring in products without paying an AD/CVD deposit. However, each transaction has to meet the terms of the agreement. 

Negotiations for these agreements are difficult, making suspensions rare. As of August 2022, only four nations have suspension agreements with the U.S. 

  • Mexico: fresh tomatoes and sugar
  • Russian Federation: uranium and cut-to-length carbon steel plate
  • Ukraine: cut-to-length carbon steel plate
  • Argentina: lime juice

The takeaway is that you can’t rely on the possibility of a suspension agreement for products being investigated.  

AD/CV duties that result from WTO guideline regulations are given a time limit. Referred to as a Sunset Clause, it states that duties can only be in place for five years. There needs to be proof that the dumping is no longer causing economic damage for duties to be lifted early. 

Bypassing the Sunset Clause is possible. The WTO Agreement states that duties can stay in place as long as it's being used to counteract damaging import practices.

Rely on USA Customs Clearance to Navigate AD/CVD and Other Customs Duties

No one wants to pay more taxes than they have to. International shipping, whether by sea or overland, remains challenging. Antidumping and countervailing duties aren't going away, but they don’t need to get in the way of import profits. 

Trust USA Customs Clearance to provide you with access to experienced and licensed Customs Brokers to help you navigate the system. 

Schedule a 1-on-1 consult session with one of our Customs Brokers to get started. In 30 minutes you can have your shipping plan fully outlined. Once you’ve made your plans, we offer additional resources to ensure its success. 

Make USA Customs Clearance your international trade partner and call us today at (855) 912-0406. You can also schedule a consult session online now. 

Don’t let duties get you down. Call USA Customs Clearance and get the help your business deserves.

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