Wednesday, April 7, 2010

Pottasium Phosphates Contervailing Duties

Commerce published their preliminary findings for countervailing duties for potassium phosphate salts imported from China.

Potassium phosphate salts are food additives and fertilizers. The order covers three types of these salts, one of which, monopotassium phosphate, is an ingredient in Gator Aid, for example.

The period of investigation is from January 1st 2008 to December 31st 2008.

Apparently both suppliers of these salts decided to stop selling potassium phosphates in the U.S. as Commerce claims both parties, and the Chinese government, did not respond to questionnaires aimed at determining whether there was dumping, and how much.

When parties shipping to the U.S. are charged with dumping the Commerce Department, or more specifically the Import Trade Administration (ITA), sends them questionnaires about pricing, costs, etc. They use the data collected from the questionnaires, other pricing data, and the dumping petition, to make determinations of countervailing margins and/or antidumping margins. The margins are percentages which translate into additional duties above the tariff schedule added to products already imported and imported in the future.When parties do not send back their questionnaires, partially fill them out, or send them back late, the ITA will then use the "adverse facts available" to find dumping or countervailing duties margins based on the assumption when in doubt the margin is higher.

When using "adverse facts available" the result should be a "reasonably accurate estimate of the respondent’s actual rate, albeit with some built-in increase intended as a deterrent to non-compliance. " F. Lii de Cecco Di Filippo Fara S. Martino S.p.a. vs. United States (App. Ct. Fed Cir. 2000) The ITA should make an accurate estimate of what the countervailing and anti-dumping margins should be and then add a little to punish the companies for not complying with the questionnaires.

So the rate should be "reasonably accurate." But in this case, for the potassium phosphate salts, the preliminary findings for only countervailing are a rate of 119% in additional duty. That means for every good that is exported, the Agency found that a reasonably accurate subsidy of 55% is being paid to the exporting companies by the Chinese Government. This seems quite improbable. For every dollar in exports the Chinese government is paying the exporting companies $0.55 of it.

Some of their methods used seem arbitrary. The findings showed China has a 33% income tax rate. But instead of figuring out the effect the income tax on the profit would be on the price of the exported product, they simply added 33% to the other subsidies. Income taxes are based on income which is revenue less expenses. The manner the ITA chose to make its calculations there would be no cost of production. I would like to run a business in whatever world the ITA is living in.

In addition to the absurdly high countervailing duty the ITA also has a concurrent non market economy (NME) antidumping duty case. Non market methods of calculation are done with countries such as China because government run companies have internal price controls making the domestic value unreliable. 

Because it is hard to tell where the company begins and the government ends the antidumping duty uses a method that catches that and all the government subsidies. But if the NME methodology catches the subsidies and the countervailing duty counts the subsidies then there will be double counting or doubling of countervailing margins by using both methods concurrently.  

Fortunately, for principle of fairness, if nothing else, the Court of International Trade (CIT) recognized this double counting was not correct. GPX Tires v. United States. CIT 09-103. The Court found it is permissible for the ITA to use both NME methodology for antidumping duties and make a finding of countervailing duties if they can come up with a methodology to insure that there is no double counting. I personally do not see how they will be able to do that. I think the only solution would be to apply countervailing duties only on the parts of the antidumping margin that do not use the NME methodology, or what has been termed the 'bubbles' of market economy within the the NME.

But the ITA does not co-ordinate the antidumping and countervailing investigations, other than trying to synchronize the schedule. They have the same data but they do not try to co-ordinate the determinations in a way that will avoid double counting as of yet. In this case especially they seem to be operating as if the above court decisions do no exist. Maybe they will fix it by the final determinations but it seems like they will keep doing whatever they want until challenged in court.

The importers of potassium phosphate salts for 2008 are the ones that might pay the penalty for this quagmire. If the Chinese government and companies who manufactured these potassium phosphate salts and exported them to the United States decided, like it seems, to just abandon the U.S. market at the hint of a injury investigation, then the importers are left holding the bag with little recourse.

The importers can and should make the challenges I mentioned above, but real amelioration of these margins in the help of real cost data from the suppliers would be much better. Finally results are due out over the summer and then we could be looking at litigation after that.