New U.S. customs laws could impact Canadian exporters

Recent and significant amendments to U.S. trade and customs laws will adversely affect foreign exporters, including Canadian, so it’s imperative they be aware of them, says one U.S. foreign trade counsel. 

This is even more the case now given the current “negative sentiment being propagated against NAFTA” south of the border, according to Dharmendra N. Choudhary of the Washington, D.C.-based law firm Grunfeld Desiderio et al.

The Trade Preferences Extension Act of June 2015 (Trade Remedies Act) and Trade Facilitation and Trade Enforcement Act of February 2016 give several departments and agencies — the U.S. Department of Commerce, International Trade Commission and Customs and Border Protection — a vast array of new tools to counter alleged dumping and subsidies, says Choudhary.

U.S. domestic industry had complained that existing legislation was insufficient to counter the trend of dumping illegal exports into U.S. markets, which prompted the amendments, Choudhary says. Changes enacted under the Trade Preferences Extension Act of June 2015 were the most significant, revamping certain key sections of U.S. trade law dealing with anti-dumping and countervailing duty.

Dumping is the sale of goods by foreign producers or exporters in an export market, such as the United States, at prices that are lower than the prices received by the producer or exporter for sales of the same or similar products in their home market or a third market, or prices that are below the cost of producing the products (“less than fair value”). Countervailing duty is the import tax imposed on certain goods in order to prevent dumping or counter export subsidies.

In anti-dumping proceedings, the rate of duties is dependent on a “fair value” determination over which the Commerce department now has vast discretion, Choudhary explains. Broadly speaking, the law covers two types of trading nations: market economy countries such as Canada, and non-market economies such as China. For countries designated as market economies, the law requires Commerce to calculate fair value based, preferably on an exporter’s home-market sale prices, or alternatively on an exporter’s third-country selling price, or using a cost construction method.

Prior to the amendments under the Trade Preferences Extension Act, an exporter’s home market sales prices could be disregarded only absent a “viable” home market (i.e., home market sales that constituted five per cent or more of its sales to the United States), or in case a “particular market situation” prevailed in the home market, Choudhary reports.

Now, the Commerce department can reject home market sales prices (previously the default choice for normal value) by invoking a “particular market situation.” This already existed in the World Trade agreement on anti-dumping, but was not clearly defined, says Choudhary. “In this amendment, the law for the first time has been amended to provide wide powers applying to any market economy country like Canada,” he says.

A “particular market situation” can be "abnormal market behavior" such as subsidies. “In my experience,” he says, “if there are subsidies provided in countries of production, Commerce can say that a producer was producing goods with a subsidy, so, for lower than market value.” So, exporters to the U.S. need to “be careful of [their] behaviour,” Choudhary warns, and not purchase from countries which the U.S. Commerce department defines as “particular market situations.” Exporters would also be wise to maintain in-house control of production of goods that are being exported to the U.S. for the same reason, and be careful to dot their i’s and cross their t’s.

“Now, the department of Commerce has been allowed to fill in the gaps using the most adverse information,” according to Choudhary. “Any information missing [on the exporters’ forms], and exporters will be told they are deliberately not providing it. … Even if missing information is only five per cent, … it can be very bad for the exporter.”

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