Order Code RL33550
Trade Remedy Legislation:
Applying Countervailing Action
to Nonmarket Economy Countries
Updated January 24, 2007
Vivian C. Jones
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division

Trade Remedy Legislation: Applying Countervailing
Action to Nonmarket Economy Countries
Summary
Concern regarding the mounting U.S. trade deficit with China, combined with
China’s alleged foreign exchange-rate manipulation and unfair trade practices, led
some in the 109th Congress to introduce legislation proposing to make countervailing
duty (CVD) laws applicable to nonmarket economy (NME) countries. Many expect
that legislative interest in this area will continue in the 110th Congress.
CVD laws provide for assessment of duties on imports whose production and/or
importation is found to be subsidized by a public entity in their country of origin and
are injurious to a domestic producer of like merchandise. Antidumping (AD), another
kind of trade remedy action, addresses products sold in the United States at less than
their fair value (as defined by law) in a similar manner.
Although antidumping (AD) and countervailing duty (CVD) laws and procedure
generally parallel each other, CVD laws contain no specific provisions for CVD
investigations on imports from nonmarket economy (NME) countries.
Initial administrative attempts in 1983 to apply countervailing remedies to
allegedly subsidized imports from several NME countries led to determinations by
the International Trade Administration (ITA) of the Department of Commerce, the
U.S. agency charged with determining whether such subsidization in fact exists (and
its extent), that subsidization (“bounties” or “grants”) within the meaning of the
countervailing law, cannot be found in nonmarket economies.
These ITA determinations were challenged in the U.S. Court of International
Trade (CIT), which held that they were “not in accordance with the law,” reversed
them, and remanded the cases to the ITA. On appeal, the U.S. Court of Appeals for
the Federal Circuit reversed, and reinstated the ITA’s original determinations — thus
affirming that the ITA has the discretion not to apply the CVD law to NME
countries. The ITA has not initiated any countervailing investigations of allegedly
subsidized imports as such from NME countries since 1991.
Legislation to prevent further exemption of NME countries from countervailing
action (aimed particularly at China) has been introduced in the 109th Congress
making such action applicable to NME countries. H.R. 3283 (English, passed House
on July 27, 2005), among other things, included such a provision. It is expected that
similar legislation will be introduced in the 110th Congress.
On November 27, 2006, the ITA initiated a countervailing duty case against
China for the first time since 1991, but made no determination at that time
concerning the applicability of CVD law to NMEs.
This report replaces CRS Issue Brief IB10148, Trade Remedy Legislation:
Applying Countervailing Action to Nonmarket Economy Countries, by Vivian C.
Jones and Vladimir N. Pregelj. This report will be updated as events warrant.

Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
China’s NME Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Countervailing Duty Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Countervailing Duty Investigations of Imports from Nonmarket
Economy Countries (1983-1984; 1991) . . . . . . . . . . . . . . . . . . . . . . . . . 4
1983-1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Court Decisions Regarding Applicability of Countervailing to NME
Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
U.S. Court of International Trade (614 F. Supp. 548-557) . . . . . . . . . . 8
U.S. Court of Appeals for the Federal Circuit
(801 F. 2d 1308-1318) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Action in Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Appendix: Summary of Legislation in the 109th Congress . . . . . . . . . . . . . . . . . 13

Trade Remedy Legislation: Applying
Countervailing Action to Nonmarket
Economy Countries
Most Recent Developments
Concerns in the 109th Congress regarding the mounting U.S. trade deficit with
China, combined with China’s alleged foreign exchange-rate manipulation and unfair
trade practices, led to calls for making countervailing duty (CVD) laws applicable to
nonmarket economy (NME) countries. Many expect that legislative interest in this
area will continue in the 110th Congress.
On November 27, 2006, the International Trade Administration (ITA) of the
Department of Commerce, the administrative agency tasked with determining
whether or not subsidies exist, formally initiated a countervailing duty (CVD) case
(on coated free sheet paper) against China.1 The agency, which has not initiated a
countervailing case against a nonmarket economy country since 1991, declined to
make any determination at that time regarding the applicability of CVD law to NME
countries, but said that it will once again consider that issue in the context of the
investigation.2
In the same investigation, on December 15, 2006, the International Trade
Commission (ITC) preliminarily determined “that there was a reasonable indication
that a U.S. domestic industry is materially injured or threatened with material injury”
by reason of allegedly subsidized coated paper from China — thus referring the case
back to the ITA for a determination on subsidization.3 If the ITC had determined in
the negative, the case would have been terminated.
In the 109th Congress, H.R. 3283 (English, introduced July 14, 2005) which,
among other things, requires application of CVD action to NME countries, was
passed by the House on July 27, 2005. The bill was received in the Senate on July 28,
2005, and referred to the Committee on Finance. Other bills containing similar
provisions include S. 593 (Collins, introduced March 10, 2005) and its companion
bill H.R. 1216 (English), and H.R. 3306 (Rangel, introduced July 14, 2005). S. 1421
1 71 F.R. 68546.
2 Department of Commerce, “Commerce Initiates Countervailing Duty Investigation on
Coated Free Sheet Paper from the People’s Republic of China,” Fact Sheet, November 21,
2006.
3 U.S. International Trade Commission. “ITC Votes to Continue Cases on Coated Free Sheet
Paper from China, Indonesia, and Korea,” News Release 06-120, December 15, 2006. For
an overview of CVD procedures, see CRS Report RL32371, Trade Remedies: A Primer.

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(Collins, introduced July 19, 2005) is a companion bill to H.R. 3283. Section 3 of
H.R. 1498 (Tim Ryan, introduced April 6, 2005), defines manipulation of foreign
exchange rates as a countervailable subsidy.
Background and Analysis
Countervailing duty (CVD) laws provide relief to domestic industries that have
been, or are threatened with, the adverse impact of imported goods sold in the U.S.
market that have been subsidized by a foreign government or public entity. The relief
provided is an additional import duty placed on the subsidized imports that is equal
to the estimated amount of subsidization. In order for an industry to obtain relief,
two things must be determined: (1) the International Trade Commission must find
that the domestic industry is materially injured or threatened with material injury due
to the imports, and (2) the International Trade Administration (ITA) of the
Department of Commerce must find that the targeted imports have been subsidized.4
CVD laws currently do not apply to nonmarket economy (NME) countries due to a
determination by the ITA that there is no adequate way to measure market distortions
caused by subsidies in an economy that is not based on market principles.

The ITA is also the agency responsible for designation of countries as
nonmarket economies, defined by law as “any foreign country that the administering
authority [ITA] determines does not operate on market principles of cost or pricing
structures, so that sales of merchandise in such country do not reflect the fair value
of the merchandise.”5 NME designations are based on the extent to which (1) the
country’s currency is convertible; (2) its wage rates result from free bargaining
between labor and management; (3) joint ventures or other foreign investment are
permitted; (4) the government owns or controls the means of production; and (5) the
government controls the allocation of resources and price and output decisions. The
ITA may also consider other factors that it considers appropriate.6
The ITA made the determination not to apply CVD action to NME countries in
1983-84 in connection with countervailing investigations of two cases of alleged
subsidization, one dealing with carbon steel wire rod imported from Czechoslovakia
and Poland, and the other with imports of potassium chloride (potash) from the
German Democratic Republic (East Germany) and the Soviet Union. All of them at
the time were treated as nonmarket economy countries.
China’s NME Status. The People’s Republic of China, the United States’s
second largest import trading partner ($242.6 billion in 2005, imports for
consumption) and our largest partner in terms of trade deficit ($203.8 billion in
4 19 U.S.C. 1671 et seq.
5 19 U.S.C. 1677(18)(A). The following are ITA-designated NME countries: Armenia,
Azerbaijan, Belarus, China, Georgia, Kyrgyz Republic, Moldova, Tajikistan, Uzbekistan,
and Vietnam.
6 19 U.S.C. 1677(18)(B).

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2005)7 is currently designated as a nonmarket economy. Concern over China’s
alleged subsidization of many of its exports, combined with its policy until July 2005
of pegging its currency to the U.S. dollar (and presently, to a basket of currencies that
includes the dollar), have led to renewed congressional interest in applying
countervailing action to imports from China.
The applicability of NME classification with regard to China was determined
in Preliminary Determination of Sales at Less than Fair Value, Greige Polyester
Cotton Print Cloth from China
.8 The ITA recently reaffirmed this determination on
May 15, 2006 (and more comprehensively on August 30, 2006) in the context of an
investigation on certain lined paper from China.9 Any determination that a foreign
country is a nonmarket economy country remains in effect until specifically revoked
by the ITA.10
In China’s case, however, China’s World Trade Organization (WTO) accession
package specified that the NME designation must effectively be revoked by the
United States and other World Trade Organization (WTO) members within fifteen
years after China’s accession date (December 11, 2016), if it has not been previously
revoked.11 Therefore, in order to be in compliance with its WTO obligations, the
United States must grant market economy status by that date.
Countervailing Duty Legislation
At the time the 1983-1984 investigations were initiated, the United States had
in force two countervailing duty laws. Both provided for the imposition, on imports
of already dutiable (but not duty-free) products that had been subsidized in their
country of origin, of a countervailing duty in the amount of such subsidization. Both
laws also required a determination of the existence and amount of subsidization to
be countervailed, but one of the laws also required a finding that the subsidized
imports have caused or threatened to cause injury to a U.S. domestic industry.
The earlier of the two laws (Section 303 of the Tariff Act of 1930, repealed) was
a minimally modified version of the countervailing law of general applicability,
initially enacted by the Tariff Act of 1897, and at the time of the two cases above
applied only to products of countries other than countries “under the Agreement,”
meaning (1) any country to which the GATT Subsidies and Countervailing Code
applied, or (2) had assumed Code-equivalent obligations with respect to the United
7 Trade balance equals exports (of domestic merchandise) minus imports (for consumption).
8 48 F.R. 9897.
9 ITA. The People’s Republic of China (PRC) Status as a Non-Market Economy (NME).
Memorandum, May 15, 2006. The ITA conducted a more comprehensive analysis of the
issue in Antidumping Investigation of Certain Lined Paper Products from the People’s
Republic of China (“China”). China’s Status as a Non-Market Economy (“NME”)
.
Memorandum, August 30, 2006.
10 19 U.S.C.1677(18)(C)(I).
11 World Trade Organization. Accession of the People’s Republic of China. WTO Document
WT/L/432, p. 9.

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States, or (3) the President determined the existence of an agreement with the United
States containing certain relevant provisions specifically spelled out in the statute.
This statute — repealed effective January 1, 1995, by Section 261(a) of the Uruguay
Round Agreements Act (URAA) (P.L. 103-465) — provided for the levying of a
countervailing duty (CVD) equal to the net amount of public or private subsidization
(defined as “any bounty or grant, however the same be paid or bestowed”) without
any need for injury determination.
Countervailing legislation with much broader country applicability (i.e., to
countries “under the Agreement”) consisted of comprehensive provisions (including
detailed procedural provisions) added by the Trade Agreements Act of 1979 (P.L. 96-
39) as Subtitle A of Title VII to the Tariff Act of 1930.12 That law implemented for
the United States the provisions of the international Subsidies and Countervailing
Code agreed to in multilateral trade negotiations under the auspices of the General
Agreement on Tariffs and Trade (GATT) in Geneva in April 1979. Under this
legislation, most of which is still in force in a somewhat amended language, the
assessment of a countervailing duty required — in addition to a determination that
a “country under the Agreement” or a private entity in such country was providing
“directly or indirectly, a subsidy with respect to the manufacture, production, or
exportation” of merchandise imported into the United States — a determination that
such imports have caused, or threatened with, injury to an industry in the United
States, or that the establishment of an industry in the United States is thereby
materially retarded.
The URAA, in addition to repealing section 303 and omitting subsidies from a
private source as being countervailable, also amended the countervailing duty law of
the 1979 Act by incorporating into it provisions comparable to those of section 303,
which do not require injury determination in countervailing investigations of
subsidized imports from countries other than “Subsidies Agreement countries.” The
latter have been defined in the same way — with appropriate updating technical
changes — as the countries under the Agreement under the Trade Agreements Act
of 1979. This version is still in effect.13
Countervailing Duty Investigations of Imports from
Nonmarket Economy Countries (1983-1984; 1991)

1983-1984. Parallel countervailing duty investigations of imports of carbon
steel wire rod imports from Czechoslovakia and Poland14 were initiated on December
13, 1983, pursuant to petitions filed with the International Trade Administration on
November 23, 1983, by four U.S. steel manufacturers. The petitions alleged that
manufacturers, producers, or exporters of the product in question in either country
received public benefits within the meaning of the countervailing law. Specifically,
the petitions for countervailing action alleged that “bounties or grants” were provided
12 19 U.S.C. 1671-1671h.
13 19 U.S.C. 1671(b).
14 Carbon steel wire rod from Czechoslovakia (48 F.R. 56419) and Carbon steel wire rod
from Poland
(48 F.R. 56419).

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in both countries in the form of a multiple exchange rate system, and a partial
hard-currency retention program for exporting firms. In addition, Czechoslovakia
allegedly had in effect a system of industry-specific trade conversion coefficients for
the official exchange rate, and tax exemption for foreign trade earnings, while Poland
provided price equalization payments for losses incurred due to foreign sales below
domestic prices.
Both cases proceeded in parallel, and the determinations on issues they had in
common were identical except for a few minor, country-specific differences.
Therefore, page references to the Federal Register included in this report will be only
those dealing with the Czechoslovak case, unless an issue specific to one country is
discussed.
In its notices of initiation of investigation, the International Trade
Administration (ITA) found both countries to be “countries not under the
Agreement,” and conducted the countervailing procedure according to provisions of
Section 303, hence, without the need for determining injury. In addition, the ITA
considered both of them nonmarket economy (NME) countries, but specifically
pointed out that it had not yet resolved the question “whether the countervailing duty
law [either Section 303 or the countervailing duty provision of Title VII] applies to
nonmarket economy countries [as such].”
Although this issue had arisen almost a year earlier in connection with a CVD
investigation of textile imports from China,15 it was not resolved then because the
CVD petition was withdrawn by the petitioners, meaning that the investigation
terminated.16 The issue, however, was subsequently addressed in the preliminary
determinations in the two carbon steel wire rod cases.17 In both cases, the ITA found
that “nonmarket economy countries are not exempted per se from the countervailing
duty law,” since Section 303, by its statutory terms as well as based on its legislative
history, applied to “any country...”
Weighing its own tentative initial literal interpretation of the country
applicability of the provision and the arguments introduced earlier in the
consideration of the China textiles case — focusing on the difference in the effects
of government intervention in a market and nonmarket economy — the ITA,
however, was “dispose[d] to not exclude nonmarket ... economies from its
application without further review in each particular case.” The ITA, consequently,
had its “first opportunity to determine preliminarily whether practices by a
government of a so-called nonmarket economy country confer countervailable
benefits.”
Focusing on prices as the key elements of subsidization, the ITA, in the ensuing
detailed analysis of the situation in both countries, pointed out that
15 48 F.R. 46600.
16 48 F.R. 55492.
17 Czechoslovakia: 49 F.R. 6773; Poland: 49 F.R.6768.

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[i]n nonmarket economies, central planners typically set the prices without any
regard to their economic value. As such, these prices do not reflect scarcity or
abundance. For example, when a product is scarce in a market economy, its price
will increase. In a nonmarket economy, however, the price of a scarce good will
not go up unless the central planners mandate a new, higher price. Even if we can
identify an internally set price, that price does not have the same meaning as a
price in a market economy (49 F.R. 6770).
The ITA then analyzed in detail the alleged subsidization programs by
determining first whether they would confer a subsidy in a market economy, and then
whether the conclusion would be different for an NME country. The ITA concluded
preliminarily that multiple exchange rates, currency retention schemes, trade
conversion coefficients, and price equalization payments do not confer a bounty or
grant either in market or in nonmarket economies; that the Polish adjustment
coefficient program did not constitute a bounty or grant within the meaning of the
law; and that the agency had not received sufficient timely information on the
Czechoslovak tax exemption program to make a determination. On the basis of these
findings, the ITA preliminarily determined that, while Congress did not exempt NME
countries as such from the CVD law, the alleged Czechoslovak and Polish practices
were not providing bounties or grants within the meaning of the CVD law. As the
CVD law required, the ITA continued both investigations into their final phase.
In the final phase of these two investigations, the ITA focused on the unresolved
issue of the application of the CVD law to nonmarket economy countries. In its
detailed and comprehensive final determinations in the two carbon steel wire rod
cases,18 the ITA first concluded “that Congress never has confronted directly the
question of whether the countervailing duty law applies to NME countries.” It
pointed out that Congress did not even debate, much less legislate on this issue,
either in 1974 (when the concept of nonmarket economy countries was introduced
into trade legislation and remedies were provided specifically with respect to imports
from them, and Congress also amended the CVD law) or in 1979 (when the CVD law
was thoroughly restructured, and the application of unfair-pricing remedial legislation
was dealt with in detail, but only with respect to dumping by NME countries).
The ITA found it significant that, in the Trade Act of 1974, Congress enacted
remedial provisions dealing specifically with injurious imports from
“State-controlled-economy” or “Communist” countries — both terms functionally
equivalent to that of “nonmarket economy” countries used in another part of the same
Act — in the context of antidumping and “market disruption” (NME-specific
import-relief action) but not with respect to countervailing action. In this, pointed out
the ITA, citing the Senate report on the 1974 Act (S.Rept. 93-1298), Congress
recognized the need for special remedial legislation applicable to
State-controlled-economy countries because traditional fair- or unfair-trade remedies
were insufficient or have proven inappropriate or ineffective because in
“State-controlled-economy countries ... supply and demand forces do not operate to
produce prices” and “because of the difficulty of [the] application [of such remedies]
to products from State-controlled economies” (cited at 49 F.R. 19373).
18 Czechoslovakia: 49 F.R. 19370; Poland: 49 F.R. 19374.

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Likewise, in the legislative history of the thorough restructuring of the CVD law
by the Trade Agreements Act of 1979, there was nothing regarding any aspect of the
application of the CVD law to NME countries, although the Subsidies and
Countervailing Code of the General Agreement on Tariffs and Trade, implemented
for the United States by that act, in Article 15 “explicitly permits [GATT] signatories
to regulate unfairly priced imports from NME countries under either antidumping or
countervailing duty legislation” (49 F.R. 19373).
The ITA also consulted with other U.S. government and academic sources,
which, briefly, concluded that “it is ... only ‘remotely possible’ to identify and
quantify subsidies in NMEs;” “most of the analysis used thus far for ... subsidies, is
entirely inapplicable. ... Theoretically, any given sale may be subsidized or not, but
since there is no market reference point, it is idle to speak in such terms.” To one
author, the countervailing duty law appears to require identification and measurement
of a resource transfer from the state to the producer, but “this is simply not a
measurable event in the typical nonmarket economy;” and “The extent to which a
nonmarket system ... can be said to be subsidising will always be unclear” (all cited
at 49 F.R. 19374).
Claiming broad discretion in this matter earlier recognized by the judiciary the
ITA concluded that a “bounty or grant,” within the meaning of the countervailing
duty law, cannot be found in an NME.19 The ITA also determined that
Czechoslovakia and Poland were NMEs, since they operated “on principles of
nonmarket cost or pricing structures so that sales or offers for sale of merchandise ...
do not reflect the value of the merchandise.” Accordingly, the ITA determined that
manufacturers, producers, or exporters in Czechoslovakia and Poland did not receive
bounties or grants, and issued, effective May 7, 1984, final negative countervailing
duty determinations.20
Shortly before the completion of the countervailing duty investigations of
carbon steel wire rod, two U.S. chemical manufacturers filed (on March 30, 1984)
petitions alleging subsidization of potassium chloride (potash) imported from the
German Democratic Republic and the Soviet Union, whereupon the respective
investigations were initiated as of April 26, 1984.21 Because of the subsequent
determination in the carbon steel wire rod cases that bounties or grants within the
meaning of the countervailing duty law cannot be found in a NME (and both
countries were determined to be NMEs), the ITA on June 6,1984, rescinded the two
potassium chloride (potash) investigations and dismissed the relevant petitions.22
1991. Since the conclusion of the wire rod and potash countervailing duty
cases (see next section) the ITA has not initiated any countervailing investigations
of allegedly subsidized imports from NME countries, with one specialized exception.
19 49 F.R. 19374.
20 49 F.R. 19374 and 19378.
21 Potassium chloride from the German Democratic Republic (49 F.R. 18000) and
Potassium chloride from the Soviet Union (49 F.R. 18002).
22 49 F.R. 23428.

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Based on a petition filed on October 1, 1991, the ITA, on November 13, 1991,
initiated a countervailing duty investigation of Ceiling and Oscillating Fans Imported
from China
.23 The petitioner claimed that, while China was an NME country, “the
PRC fans sector operates substantially pursuant to market principles and that the
CVD law should apply.”
The petition was apparently based on the fact that ITA had, meanwhile,
procedurally introduced into antidumping investigations of imports from NME
countries the concept of market-oriented industry (MOI) as a means of determining
whether an industry in an NME country is sufficiently market-oriented (i.e., free from
state control) to enable the ITA to use the economic data provided by the industry
itself (rather than those of a surrogate market-economy country) in determining fair
market value of the imported product subject to the investigation.
The petitioners in the Chinese fan CVD case claimed that the Chinese fan
industry was an MOI with dependable self-provided data (including those relating to
subsidization) and, hence, could objectively be subjected to a countervailing
investigation. In its preliminary investigation,24 the ITA concluded that the prices of
several inputs are not market-determined and, hence, the industry cannot be
considered an MOI, but believed that the information used as the basis for the
determination should be verified and did not rescind the investigation. In its final,
more comprehensive phase of the investigation, the ITA concluded that “the prices
of several significant inputs are not market-determined” and therefore “the PC fans
industry is not an MOI.”... “As a result ... the CVD law cannot be applied to the PRC
fan industry” and the ITA issued final negative determination in the case.25
Court Decisions Regarding Applicability of Countervailing to
NME Countries

This report presents the relevant courts’ views in a highly summarized
form, and strives not to omit any of their salient points. However, it is also far
from being a legal analysis of such views. If the detail or a legal analysis of the
judicial opinions is required, their actual texts, identified in this report by page
references to, respectively, 614 Federal Supplement, or 801 Federal Reporter
2d
, should be consulted. Requests for legal analysis should be addressed to the
American Law Division of the Congressional Research Service
.
U.S. Court of International Trade (614 F. Supp. 548-557). Following
the ITA’s negative determinations in the carbon steel wire rod cases and the dismissal
of the potassium chloride cases, the petitioners challenged those actions in the U.S.
Court of International Trade (CIT). The court consolidated both suits and, on July
30, 1985, held that “countervailing duty law covers countries with nonmarket
economies in light of fact that governmental subsidies that are target of law may be
found in nonmarket economies as well as in market economies” (p. 548). The CIT
reversed the carbon steel wire rod cases and remanded them to the ITA for
23 56 F.R. 57616.
24 57 F.R. 10011.
25 57 F.R. 24018.

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determinations consistent with the court’s opinion, and set aside the rescissions of the
potash cases and ordered that their investigations be resumed (p. 557).
The CIT, in its detailed opinion, addressed each of the four grounds on which
the ITA had based its determination of nonapplicability of countervailing procedure
to NME countries: (1) the view that a subsidy cannot be conferred in an nonmarket
economy “because a subsidy, by definition, means an act which distorts the operation
of a [free] market” (both italics in the original); (2) congressional “silence” on the
issue and the apparent preference for other trade remedial procedures; (3) consensus
of academic opinion as to nonapplicability of CVD law to NME countries; and (4)
the ITA’s asserted broad discretion to determine the existence or nonexistence of
subsidies.
The CIT held that the ITA had made a basic error in interpreting and
administering the CVD law by concluding that, in its opinion, subsidies cannot be
found in nonmarket economies. The court emphasized that, absent clear legislative
intent to the contrary, the plain language of the CVD law must ordinarily be regarded
as conclusive (p. 551). Hence, it applies to any country and, therefore, does not allow
for any per se exemptions of any political entity, a fact that the ITA itself appears to
have recognized in its determinations.
The ITA, in the court’s view, “institute[d], by administrative fiat, a major
exemption for countries with nonmarket economies” by redefining the term
“subsidy” as “a distortion of the operation [solely] of a market economy,” thereby
attempting to amend the CVD law (p. 552). Although the ITA had recognized that
the CVD law did not allow for per se exemptions (see p. 3), it claimed that countries
with nonmarket economies (i.e., political entities of a certain type) were exempt
because of their NME status, illogically contradicting the meaning of the CVD
statute. The difficulties of the CVD law, said the CIT, are not those of its meaning,
but rather problems of measurement, which are precisely within the expertise of the
agency.” The ITA “has the authority and ability to detect patterns of regularity and
investigate beneficial deviations from those pattern — and it must do so regardless
of the form of the economy” (p. 554).
As to the ITA’s argument that Congress’ “silence” on the applicability of the
CVD law to NME countries and its apparent preference for other remedial measures
— among them antidumping law, which does contain specific provisions dealing
with NME countries — the CIT pointed out that those measures have been
established for remedying specific trade problems other than subsidization.
Moreover, said the court, Article 15 of the GATT Subsidies and Countervailing
Code, implemented for the United States by the Trade Agreements Act of 1979,
“clearly gives a country the choice of using subsidy law or antidumping law for
imports from a country with a state-controlled economy” (p. 556).
The court summarily dismissed the ITA’s recourse to the views of “economic
academia” “that the government of a country with a nonmarket economy cannot
show what amounts to favoritism towards the manufacture, production, or export of
particular merchandise. The idea violates common sense and conflicts with a rational
construction of the law” (p. 554-555).

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ITA’s alleged assertion of its “broad discretion to determine the existence or
nonexistence of subsidies” (p. 550) was not specifically addressed by the court; it
was, however, implicitly challenged in the lengthy critique of administrative actions
that, in the court’s view, were contrary to law and, in effect, were attempts “to
amend the countervailing law ... by administrative fiat.” (p. 552).
U.S. Court of Appeals for the Federal Circuit (801 F. 2d 1308-1318).
The U.S. government appealed the CIT decision to the U.S. Court of Appeals for the
Federal Circuit, which — focusing on the potash cases — reviewed in detail the
legislative history and development of relevant trade remedy laws and concluded that
the CVD statute under which these investigations were conducted (Section 303 of the
Tariff Act of 1930) had remained “substantially unchanged from the first general
countervailing duty statute the Congress enacted [in 1897] ....”
Since Congress had not “defined the terms ‘bounty’ and ‘grant’ as used in
section 303,” the appellate court concluded it could not “answer the question whether
that section applies to nonmarket economies by reference to the language of the
statute” nor could it, on the other hand, answer it by concluding that, on the basis of
the statutory language, “Congress has not attempted to exclude nonmarket economies
from what the court believed to be the sweeping reach of the section.” Since “at the
time of the original enactment there were no nonmarket economies; Congress ... had
no occasion to address the issue ...” Hence, it remained for the court to “determine,
as best [it could], whether when Congress enacted the countervailing duty law in
1897 it would have applied the statute to nonmarket economies, if they then had
existed” (p. 1314).
Based on the relevant aspects of the potash case, the appellate court concluded
that the economic incentives and benefits provided by the Soviet Union and East
Germany to their exports of potash to the United States did not constitute bounties
or grants under the applicable CVD law (p. 1314). The court also said it followed a
precedent which “recognized that the agency administering the countervailing duty
law [i.e., the ITA] has broad discretion in determining the existence of a ‘bounty’ or
‘grant’ under that law” and, further, that it could not “say that the Administration’s
conclusion that the benefits the Soviet Union and the German Democratic Republic
provided for the exports of potash to the United States were not bounties or grants
under section 303 was unreasonable, not in accordance with the law or an abuse of
discretion” (p. 1318).
In conclusion, the Court of Appeals on September 18, 1986, vacated the CIT
order insofar as it reversed the ITA’s final CVD determinations in the two wire rod
cases, and remanded them to the CIT with instructions to dismiss the complaint for
lack of jurisdictions (because the complaint was not timely filed). It also reversed the
CIT order insofar as it set aside the ITA’s final actions in the potash cases (p. 1318).
Action in Congress
The decision of the U.S. Court of Appeals for the Federal Circuit in the wire rod
and potash cases triggered immediate reaction in Congress. H.R. 3 of the 100th
Congress (Trade and International Economic Policy Reform Act of 1987; introduced
on January 6, 1987), as passed by the House, provided for the application of the

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countervailing duty law to nonmarket economy countries to the extent that a subsidy
can reasonably be identified and measured by the administering authority (the ITA,
see section 157). The proposed statute also contained detailed procedural provisions,
including a requirement of injury determination by the U.S. International Trade
Commission, whenever international obligations of the United States required it
(H.Rept. 100-40, Part 1, p. 389). A comparable provision, however, was not included
in the Senate version, and the House-passed language was dropped in conference
(H.Rept. 100-576, p. 628; April 20, 1988).
As H.R. 3 was being considered, companion bills S. 770 and H.R. 1687 were
introduced on March 18 and 24, 1987, respectively, to apply CVD provisions to
imports from a state-controlled economy country, but were not further considered.
The application of CVD law to NME countries was addressed again in the 103rd
and 104th Congresses. In the 103rd Congress, Section 105 of S. 90 (Trade
Enforcement Act of 1993
, introduced on January 21, 1993) expanded the definition
of “countervailable subsidy” in the Tariff Act of 1930, as amended by the Uruguay
Round Agreements Act (P.L. 103-465), by applying it to NME countries and
prescribing the determination of its amount by using a surrogate market-economy
country method (as used in antidumping investigations). An identical provision was
included in the 104th Congress as Section 103 in S. 1148 (Economic Revitalization
Act
), introduced on August 10, 1995. Both bills died in committee.
In the 106th through 108th Congresses, identical bills (H.R. 3198 in the 106th
Congress; H.R. 784 in the 107th Congress; and H.R. 3716 in the 108th Congress) were
introduced, applying the CVD duty law to NME countries and applicable to
investigations of subsidies provided on or after the date of the enactment of the
respective act. Virtually identical bills, but applicable to CVD investigations pursuant
to petitions filed on or after the date of the enactment of the respective act, were
introduced in the 108th Congress (H.R. 3716 and S. 2212). All of these bills died in
committee.
109th Congress. Two free-standing bills with identical operative provisions
were introduced in the 109th Congress on March 10, 2005: S. 593 (Collins, Stopping
the Overseas Subsidies Act of 2005
) and H.R. 1216 (English), providing for
application of CV duties to subsidized imports from NME countries, based on all
petitions filed on or after the date of the enactment of the legislation. These bills are
pending in the respective committees of jurisdiction.
In order to assure the consideration of S. 593 in the Senate, Senator Evan Bayh,
one of its original sponsors, on April 12, 2005, placed a hold on the confirmation of
then-Representative Rob Portman as the U.S. Trade Representative until Senate
leadership would allow a vote on S. 593; on April 27, 2005, Senator Bayh proposed
amendment S.Amdt. 568, identical with S. 593, to H.R. 3, but on April 28, 2005,
withdrew the amendment and released the hold.
Provisions requiring application of CV action to imports from NME countries
were subsequently included as Section 3 in broader trade-remedial legislation (United
States Trade Rights Enforcement Act
), introduced on July 14, 2005 (H.R. 3283,
English) and July 19, 2005 (S. 1421, Collins). In addition to amending Title VII of

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the Tariff Act of 1930 by subjecting NME countries to CV action, the legislation
provides operational definitions of countervailable subsidy with respect to China
(thus attempting to surmount the obstacle to determinations of subsidy, which the
International Trade Administration claims cannot be made with respect to NME
countries; see p. 4). The section also prohibits double-counting of countervailable
subsidies in any antidumping order on the same product imported from the same
country. The countervailing provisions would apply to a CVD petition filed on or
after 30 days after the enactment date of the act, while the AD double-counting
provision would apply to any subsequently made AD preliminary, final, or
administrative-review determination.
After failing to pass in the House on July 26, 2005, under suspension of the
rules (240-186), H.R. 3283 was considered the following day under the provisions
of H.Res. 387 (an original closed rule, reported on July 26, 2005, in H.Rept. 109-187
and agreed to 228-200 on July 27, 2005) and passed on July 27, 2005 (255-168). The
measure was received in the Senate on July 28, 2005, and referred to the Committee
on Finance.
In somewhat simpler language, H.R. 3306 (Fair Trade with China Act of 2005),
focuses its findings exclusively on problems in trade with China, but in Section 3
subjects all (including China) NME countries to countervailing action, effective with
respect to CVD petitions filed on or after the enactment date of the bill. The
provision also specifies that the application of CV action to nonmarket economy
countries in no way affects the NME status of a country under antidumping
provisions of the Tariff Act of l930 (several of which deal specifically with AD
action against NME countries).
Triggered by alleged foreign exchange-rate manipulation by China, Section 3
of H.R. 1498 (Chinese Currency Act of 2005) introduced April 6, 2005, and referred
to House committees on Ways and Means, and Armed Forces, defines any such
manipulation as a countervailable subsidy.

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Appendix: Summary of Legislation in the 109th
Congress
S. 593 (Collins); H.R. 1216 (English)
Require application of countervailing procedure to imports from nonmarket
economy countries. Introduced March 10, 2005; referred respectively to Committees
on Finance, and Ways and Means.
H.R. 1498 (Tim Ryan, Chinese Currency Act of 2005)
Section 3 defines manipulation of foreign-exchange rate as countervailable
subsidy. Introduced April 6, 2005; referred to Committees on Ways and Means, and
Armed Forces.
H.R. 3283 (English); S. 1421 (Collins)
United States Trade Rights Enforcement Act. Section 3 requires application of
countervailing procedure to imports from nonmarket economy countries; defines
“countervailable subsidy” with respect to China; and prohibits double-counting of
countervailable subsidy in antidumping cases; to enter into effect with respect to
CVD provisions on 30th day after enactment and with respect to AD provisions as of
the date of any subsequent AD determination. Introduced, respectively, on July 14
and 19, 2005, and referred, respectively, to Committees on Ways and Means, and on
Finance. Having failed to pass the House on July 26, 2005, under suspension of the
rules, H.R. 3283 was considered under a closed rule (H.Res. 387; H.Rept. 109-187,
agreed to 228-200 on July 27), and passed (255-168) on July 27, 2005.
H.R. 3306 (Rangel)
Section 3 requires application of countervailing procedure to imports from
nonmarket economy countries; applicable to CVD investigations for which petitions
have been filed on or after the day of enactment; such application of CV action to
nonmarket economy countries in no way affects the NME status of a country in any
antidumping action. Introduced July 14, 2005; referred to committees on Ways and
Means, International Relations, and Financial Services.