President Biden has singled out curbing inflation as his top economic priority, but his Commerce Department seems not to have received the memo. This summer, U.S. importers were ambushed by a spiteful Commerce Department decision to raise tariffs on imported countertops from an average of 3.19% to 161.56% ad valorem. This will bankrupt scores of U.S. companies, induce layoffs, and increase housing costs.
As the federal agency that administers the U.S. antidumping law, the Commerce Department determines whether foreign producers are selling their wares in the United States at prices it considers “unfairly” low and, if so, the amount of tariff necessary to raise the foreigner’s price so that it’s no longer “unfair.” Much has been written about the methodological sleights of hand and the pro-petitioner biases that permeate U.S. antidumping administration. But one need not be familiar with those facts to see how this law makes manufacturing inputs and final consumer products more expensive, fueling rather than quelling inflation.
As the antidumping case involving “Quartz Surface Products” (i.e., “countertops”) from India demonstrates, the process is rife with the kinds of procedural uncertainty, guilt by association, and capricious decision making that are incompatible with basic tenets of the rule of law.
Under the antidumping law, dumping is defined as the sale of a commodity by a foreign company in the United States at a price that is less than “normal value.” Typically, normal value is based on the price of the same or a similar product in a comparison market (normally the foreign producer’s “home” market). The magnitude of dumping (or the “dumping margin”) is calculated by subtracting the export price from normal value and dividing the difference by the export price.
Accordingly, if an Indian producer sells countertops for $100 per square foot at home and for $80 per square foot in the United States, its dumping margin is (100−80)/80, or 25%. But that straightforward‐sounding exercise of comparing prices and calculating dumping margins is rife with subjective interference and methodological tricks that typically lead to calculation of higher rates. Commerce maintains considerable discretion over various decisions that directly affect how the existence and magnitude of dumping is determined.
For example, Commerce is supposed to calculate individual antidumping rates for all known exporters but is permitted under the law to assign rates based on an examination of a subset of exporters if the pool of exporters is so large as to render individual dumping margin calculation too burdensome to the Commerce Department. In the original countertops investigation, Commerce examined the detailed records of two “mandatory respondents,” Pokarna Engineered Stone Limited (PESL) and Antique Marbonite. The rates for PESL and Antique were determined to be 2.67% and 5.15%, respectively, and the 51 companies not examined were assigned the “all others” rate of 3.19% — the average of the two mandatory respondents.
Crucially, these rates are based on sales that already happened during the period of investigation and are estimates of dumping margins on prospective sales. The rates determine the amount of duties that U.S. importers of these countertops are required to deposit with U.S. Customs and Border Protection at the time of importation. They are not the importers’ final duty liabilities, which are not determined until after completion of an administrative review of the sales and costs of the actual imports on which the deposits were posted, typically about one year later.
This “retrospective” system of assessing final duties is unique to the United States — all other major trade partners assess and collect final duties upon importation — and causes enormous amounts of uncertainty among U.S. importers and retailers, who are forced to hope and pray that a Commerce Department analyst doesn’t wake up on the wrong side of the bed and take out his frustrations by drastically inflating their customs liabilities.
In June 2022, Commerce published the shocking preliminary results of its administrative review of those sales, finding the antidumping duty rate for PESL and Antique to be 0.00% and 323.12%, respectively, and the “all others” rate to be the average of 161.56%. PESL’s records showed no evidence of dumping and Antique’s records were, well, completely disregarded.
The company’s submission to the Commerce Department had been due at 10am on May 16, 2022 but Antique’s lawyers submitted the company’s responses at 3pm, assuming the filing deadline was 5pm, as it usually is. As a result of this error, Commerce decided to reject the submission entirely and resorted to use of “Adverse Facts Available” (“AFA”), a methodology reserved for respondent companies that are uncooperative with Commerce’s requests for information.
In the process of levying this 323.12% burden on one company for a minor infraction – a type of mistake Commerce has excused or issued wrist slaps over in the past – 51 other exporters who had nothing to do with this error and are only tied to Antique’s response as a methodological convenience to Commerce are now saddled with a 161.56% duty, which means no access to the U.S. market. Considering that India accounts for about one fourth of all imports of these products by volume, Americans should expect large price increases going forward.
But the most significant collateral damage will be borne by U.S. importers, who are now on the hook for a duty (tax) bill of more than $300 million. There is no way this enormous sum can be recovered by these companies, as the imported countertops were sold years ago and are now installed in homes, hotels, and offices throughout the United States. Many of the smaller companies will declare bankruptcy, as they find themselves unable to absorb these unexpected, massive costs.
This threat looms over U.S. industries and the U.S. economy because one company missed one deadline by five hours. But the Commerce Department did not need to go nuclear, as it did. As evidence that Commerce has become very comfortable abusing its discretion, consider the basis of the AFA rate it used to punish Antique (and just about everyone else). The 323.12% rate was an allegation made in the original petition in the case derived from some sales quotes provide by PECL. Petitioners alleged PECL was dumping by 323.12%. However, in the review just conducted by Commerce, PECL was found to have a dumping rate of 0%. In other words, the AFA rate the Commerce Department used was already clearly demonstrated to be fiction by its own analysis and has no place on the record going forward.
Perhaps Commerce will relent and come to its senses before publishing its final determination in the coming months. At the very least, the White House and members of Congress have good reasons to give Secretary Raimondo a call.
