Commerce Department punishes corporate America, subverts Biden’s inflation-fighting efforts
President Biden has named fighting inflation as his top economic priority, but his Commerce Department does not appear to have received the memo. This summer, US importers were ambushed by a malicious Commerce Department decision to raise tariffs on imported counters from an average of 3.19% to 161.56% ad valorem. It will bankrupt dozens of American businesses, cause layoffs and increase housing costs.
As the federal agency that administers U.S. anti-dumping law, the Department of Commerce determines whether foreign producers are selling their goods in the United States at prices it considers “unfairly” low and, if so, the amount of customs duties needed to increase the price from abroad so that it is no longer “unfair”. Much has been written about the methodological sleight of hand and pro-petitioner bias that permeates the US anti-dumping administration. But you don’t need to know these facts to see how this law makes manufacturing inputs and final consumer products more expensive, fueling rather than suppressing inflation.
As the anti-dumping case involving “quartz surface products” (i.e. “countertops”) from India shows, the process is plagued by types of procedural uncertainty, culpability by association and capricious decision-making that are inconsistent with the fundamental principles of the rule of law.
Under anti-dumping law, dumping is defined as the sale of a good by a foreign company in the United States for less than “normal value”. Generally, normal value is based on the price of the same or similar product in a comparator market (normally the foreign producer’s “domestic” market). The extent of dumping (or “margin of dumping”) is calculated by subtracting the export price from the normal value and dividing the difference by the export price.
Thus, if an Indian producer sells countertops at $100 per square foot at home and $80 per square foot in the United States, his margin of dumping is (100−80)/80, or 25%. But this simple exercise of comparing prices and calculating margins of dumping is riddled with subjective interferences and methodological tricks that generally lead to the calculation of higher rates. The Department of Commerce retains considerable discretion over various decisions that directly affect how the existence and extent of dumping is determined.
For example, the Commerce Department is supposed to calculate individual anti-dumping rates for all known exporters, but it is permitted by law to assign rates based on a review of a subset of exporters if the group of exporters is so large that it makes the calculation of the individual dumping margin too cumbersome. at the Department of Commerce. In the original countertop investigation, the Department of Commerce reviewed the detailed records of two “mandatory respondents”, Pokarna Engineered Stone Limited (PESL) and Antique Marbonite. Rates for PESL and Antique were determined at 2.67% and 5.15%, respectively, and the 51 unexamined companies were assigned the “all others” rate of 3.19% — the average of the two respondents mandatory.
Basically, these rates are based on sales that have already taken place during the period of investigation and are estimates of the margins of dumping on future sales. The rates determine the amount of duty that US importers at these outlets are required to file with US Customs and Border Protection at the time of importation. It is not the final customs duties payable by importers, which are only determined after the completion of an administrative review of the sales and costs of the actual imports on which the deposits were made, usually approximately one year later.
This “retrospective” system of assessing final duties is unique to the United States — all other major trading partners assess and collect final duties on imports — and is causing enormous uncertainty among U.S. importers and retailers, who are forced to hope and pray that a Commerce Department analyst won’t wake up on the wrong side of the bed and vent their frustrations by dramatically inflating their customs obligations.
In June 2022, the Commerce Department released the shocking preliminary results of its administrative review of these sales, finding that the anti-dumping duty rate for PESL and Antique was 0.00% and 323.12%, respectively, and that the rate “all others” was the mean of 161.56. %. PESL’s records showed no evidence of dumping and Antique’s records were, well, completely ignored.
The company’s submission to the Commerce Department was due at 10 a.m. on May 16, 2022, but Antique’s attorneys submitted the company’s responses at 3 p.m., assuming the filing deadline was 5 p.m. , as is usually the case. As a result of this error, Commerce decided to reject the submission entirely and resorted to “adverse facts available” (“AFA”), a methodology reserved for respondent companies that do not cooperate with Commerce’s information requests. .
Levying that 323.12% burden on a company for a minor infraction – a type of error that Commerce has excused or slapped on the wrists in the past – 51 other exporters who have nothing to do with this error and are only related to Antique’s response for methodological convenience to the Department of Commerce are now saddled with a 161.56% duty, which means they have no access to the US market. Considering that India accounts for about a quarter of all imports of these products by volume, Americans should expect steep price increases in the future.
But the greatest collateral damage will be borne by US importers, who must now pay a duty (tax) bill of more than $300 million. There is no way this huge sum can be recouped by these companies, as the imported countertops were sold years ago and are now installed in homes, hotels and offices across the United States. Many small businesses will declare bankruptcy as they find themselves unable to absorb these unexpected and massive costs.
This threat hangs over American industries and the American economy because a company missed a five-hour deadline. But the Commerce Department didn’t need to go nuclear, like it did. As evidence that the Commerce Department has become quite comfortable abusing its discretion, consider the AFA rate base it used to punish Antique (and pretty much everyone else). The rate of 323.12% was an allegation made in the original petition in the case derived from certain sales quotes provided by PECL. The petitioners alleged that PECL was dumping at 323.12%. However, in Commerce’s recent review, PECL was found to have a dumping rate of 0%. In other words, the AFA rate used by Commerce has already been clearly shown to be a fiction by its own analysis and has no place on the record going forward.
Perhaps the Commerce Department will give in and come to their senses before releasing its final decision in the coming months. At the very least, the White House and members of Congress have good reason to call Secretary Raimondo.