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On May 28, 2019, Commerce published in the Federal Register a notice of proposed action and modification of regulations regarding the benefit and specificity in Countervailing Duty Proceedings to address the issue of currency undervaluation in CVD proceedings.  The new regulation will authorize the use of countervailing duties on imports of goods from countries that “undervalue” their currency relative to the U.S. dollar.  While this is still a proposed rule, interested parties may comment on this modification no later than June 27, 2019.

The countervailing duty law provides for the imposition of a countervailing duty on subsidized imports of goods to offset the portion of the subsidy attributable to these imported goods. In a normal countervailing duty case, Commerce generally looks at four types of financial contributions provided by a foreign government to its exporters to determine its countervailability: (1) a direct transfer or potential transfer of funds, (2) foregoing or not collecting revenue that is otherwise due, (3) providing goods or services other than general infrastructure, and (4) purchasing goods.

The modification to 19 C.F.R. 351.502, focuses on entities that primarily buy or sell goods internationally.  The detailed draft rule makes an attempt to clarify how the agency “determines the existence of a benefit resulting from a subsidy in the form of currency undervaluation, and clarify that companies in the traded goods sector of an economy can constitute a group of enterprises for purposes of determining whether a subsidy is specific.”  The proposed rule also clarifies that the specificity test will focus “only on those government interventions that benefit particular sectors of the economy.”  To make this determination, Commerce would seek Treasury’s input in CVD cases on the extent of whether the undervaluation is the result of government intervention or not.  Commerce would examine in detail each individual exporting company’s currency exchanges and whether the amount of any additional currency received was the result of undervaluation.  Commerce would then add this “currency subsidy” to the exporting company’s overall CVD rate.  Any importers of goods from the affected company would then be required to pay this additional countervailable duty at the time of entry of goods into the United States.

Commerce Secretary Wilbur Ross applauded this move in a statement that claims that the “change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries” and that “foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses.”

Congressional Democrats have repeatedly tried to pass legislation specifying that Commerce can label currency manipulation as countervailable subsidy. House Democrats passed a bill to that effect in 2010 and Sen. Charles Schumer (D-NY) proposed an amendment to the Trade Facilitation and Trade Enforcement in 2015 that did not make it into the final legislation. It was also included in a seven-point trade platform Senate Democrats, led by Schumer, released in August 2017.

For more information or if you or your company wish to submit comments to Commerce’s proposed legislation please contact Husch Blackwell’s International Trade and Supply Chain GroupJeffrey Neeley, Nithya Nagarajan, or Stephen Brophy.