Mr. Dharmendra N. Choudhary from US law firm GrunfeldDesiderio et al looks at the manner in which anti-dumping cases are determined in the US.

Vietnam’s rapid industrial progress in recent years, evidenced not only by the precipitous rise in US exports of seafood (fish and shrimp) but also apparel, footwear and industrial products like steel nails and customized commodities such as wind towers, has been accompanied by a public perception in the US that Vietnamese companies may have taken some shortcuts and violated international trade rules or agreements to achieve this rapid growth.

There appears to be a perception in the country that certain Vietnamese goods are being dumped, that is, deliberately pushed into the US market at artificially low prices in order to outprice domestically-produced goods, and that these goods have contributed to the sputtering performance of the US domestic manufacturing industry and the accompanying job losses.

This article seeks to demystify certain facts surrounding the alleged dumping of Vietnamese goods into the US market. Under US trade law, the US Department of Commerce (DoC) applies a fundamentally different methodology for determining the dumping duty margin of goods exported from Vietnam (and China) than the methodology followed for most other US trading partners.

This is because pursuant to its WTO Accession Protocol signed in 2007, Vietnam agreed to be treated as a non-market economy (NME) country for a limited period of 12 years (which expires on December 31, 2018).

The calculation of the dumping duty margin is based on the difference between the US sale price and the fair (or normal) market value of goods. In the case of market economy (ME) countries like Germany, the fair value of goods is the price at which goods similar or identical to the exported goods are sold in the German marketplace.

As such, in ME anti-dumping (AD) cases, the dumping duty margin is based on objective criteria and the exporter can exercise reasonable care while negotiating the export price to ensure they are not later found culpable of dumping.

In contrast, due to Vietnam’s NME status, DoC determines the fair value of exported goods by applying a hypothetical two-step method. First, it holds that the sale price of goods in the Vietnamese marketplace cannot be a proxy for fair value since these are unreliable prices, based on a legal presumption that these are not determined by free market principles. As such, DoC determines the fair value of goods by developing prices for inputs, labor and overheads in an economically comparable third country (surrogate country). DoC has wide discretion to select a surrogate country. In recent Vietnamese AD proceedings, DoC has chosen a variety of surrogate countries: India (wind towers), Indonesia (frozen fish fillets), or Bangladesh (frozen warm water shrimp).

Second, unlike ME cases, DoC does not value the finished goods itself in the surrogate country. Instead, it breaks down the finished goods into their (often) hundreds of components, material and non-material, values all of these components individually and then aggregates them to arrive at a hypothetical fair value for the finished export goods.

As such, the resulting dumping margin arising from this hypothetical two-step methodology is unpredictable even for seasoned lawyers. Clearly, therefore, unless a Vietnamese exporter is blessed with some divine revelation, it can never envision that it would later be ensnared in a US AD proceeding when setting its US export prices. Likewise, it would not be prescient enough to set up production and accounting records in the unique format required by DoC.

The situation is further complicated in cases where a Vietnamese exporter is engaged in exporting goods to several countries. In this case it must reckon with disparate rules being followed in different countries for establishing the fair market value of goods. For instance, different surrogate countries could be selected by the investigating authorities in different jurisdictions.

Another important point of distinction to note is that in European Union (EU) countries, although the fair value is determined in a surrogate country it is based on the price of finished goods as such, instead of an aggregation of input prices.

To sum up, on account of Vietnam’s theoretical NME status, the dumping margins established for Vietnamese exporters are nothing more than a hypothetical construct. At the very least, it is unfair to charge Vietnamese exporters with an intent to dump goods in the US market when the methodology used for computing dumping margins is based on a set of hypothesis, entirely unknown at the time of export to the US.

This explains why Vietnamese exporters are so keenly awaiting the expiry of the transitional 12-year time period on December 31, 2018, after which they will have their first opportunity to claim market economy status in US AD proceedings. If such status is ultimately granted to them, they will benefit from the application of objective rather than hypothetical rules, thereby achieving a more predictable outcome.

(*) Mr. Dharmendra N. Choudhary is a Foreign Trade Counsel at the Washington D.C. office of international trade law firmGrunfeldDesiderio et al. His practice area is highly focused on defending Vietnamese exporters in US antidumping and countervailing duty cases.

VN Economic Times