There is a new trade-law game in Washington: post-order antidumping (AD) and countervailing duty (CVD) settlements. Over the last 35 years, "settlements" have traditionally been confined to pre-order suspension agreements under 19 U.S.C. 1671c and 1673c. Settlement after an order has been imposed has not been a realistic option in most trade cases. Just this year, however, multiple large, high-profile AD/CVD cases with orders have been settled. In the first half of 2006, settlements were reached in Gray Portland Cement (from Mexico), Softwood Lumber (from Canada), Frozen Shrimp (from Brazil, Ecuador, India, Thailand, and Vietnam), and Wooden Bedroom Furniture (from China). These are all major cases encompassing combined annual in-bound trade of over $10 billion. The settlement agreements resulted from two types of negotiations: government-to-government and private-to-private. The latter, involving Shrimp and Furniture, is a recent phenomenon in cases of scale. On rare occasions the United States has entered into AD/CVD settlements with other governments (such as in an earlier Lumber case in 1996); two major government settlements in one year of orders on non-steel products (Cement and Lumber, which is not yet finally adopted) is significant. All of these settlements eliminate the risk of expensive retroactive liability for importers, reduce the chilling effects of existing AD and CVD orders, avoid litigation costs, and expedite huge federal payouts to domestic industries. This new and often sensible trend in post-order trade dispute resolution is not without its critics.
Prior to the recent advent of settlements, AD/CVD orders were often immortal. Until the United States' entry into the WTO in 1995, it was almost impossible to have orders revoked; they remained on the books for decades. The sunset reviews created by the WTO Agreements were intended to "sunset" AD/CVD orders every five years. Under this quinquennial review process, the United States is required to revoke unnecessary AD/CVD orders through bifurcated investigations by the U.S. Department of Commerce (DOC) (i.e., to determine whether dumping or subsidization will likely resume upon revocation) and the U.S. International Trade Commission (i.e., to determine whether material injury to the domestic industry will likely result from revocation). In practice, sunset reviews opposed by the domestic industry have resulted in a paltry 16 percent revocation rate. This revocation rate, while low, still provides some incentive for a domestic industry to settle and, in contrast, is a major reason for exporters to settle.
Foreign Interest In Settlement: Business Certainty
Under U.S. AD and CVD law, an importer pays an estimated "cash deposit" of duties upon U.S. entry, but final AD/CVD liability is not fixed until long after importation. The importer must await the DOC's possible annual update of its AD/CVD calculations to determine if more or less than the cash deposit is owed. This retrospective liability process (including court appeals) can take years to complete, and there is no cap on an importer's potential exposure. The business uncertainty created by this retrospective system is obvious; when a sale is made the importer cannot know its final cost and is wholly liable for the uncertain outcome of a review. Thus, even AD/CVD orders with low rates can seriously curtail trade. This uncertainty is increased by DOC's new policy of "sampling" by lottery which exporters are reviewed and then subjecting all others to an average of the sampled exporters' rates. AD/CVD settlements end this uncertainty by avoiding an annual review and making the estimated cash deposit rate final, or by eliminating the orders entirely and predictably. However, it takes two sides to settle and until recently domestic parties had little significant interest in so doing.
Domestic Industry Settlement Motivation: Byrd Amendment Cash
Increased domestic motivations for settlements can be traced to the "Byrd Amendment" (a.k.a. the Continued Dumping and Subsidy Offset Act of 2000). Originally, AD/CVD duties were paid into the federal treasury and an order's benefit to a domestic industry was a restraint on import competition. The Byrd Amendment requires that final AD/CVD duties instead be paid to the domestic companies that support imposition of the tariffs. This has dramatically altered trade litigation dynamics and interests. It is not a long walk from these potential payouts to settlements that expedite them. Parties can tie up the finalization of AD/CVD duties for years by requesting annual reviews and appealing to the courts. Thus, with the Byrd Amendment, settlement leverage was gained by importers and exporters - either the domestic industry settles, or it can be made to wait a long time before receiving any payouts.
Under pressure from trading partners and the WTO Appellate Body, Congress terminated the Byrd Amendment for imports made after September 30, 2007. Large pots of money remain unpaid from AD/CVD duties on imports made before October 1, 2007. Byrd Amendment dynamics have been further complicated by the U.S. Court of International Trade's recent groundbreaking decision in Chez Sydney , an appeal involving the AD case on crawfish from China. The court found the Byrd Amendment to be facially invalid as compelled speech contrary to First Amendment guarantees because a domestic producer must support an AD or CVD petition to qualify for the funds. PS Chez Sydney, L.L.C., v. U.S. International Trade Commission, Court No. 02-00635, Slip Op. 06-103, at 50 (Ct. Int'l Trade July 13, 2006). Likewise, the court in Canadian Lumber Trade Alliance v. United States found that Byrd Amendment payouts in cases involving Mexico or Canada are illegal under 408 of the North American Free Trade Agreement Implementation Act of 1993. 425 F.Supp. 2d 1321, 1366 (Ct. Int'l Trade 2006). Appeals to the U.S. Court of Appeals for the Federal Circuit are anticipated in both cases. Although the Byrd Amendment helped trigger the recent wave in settlements, without it settlements become the only means to satisfy a domestic industry's whetted appetite for cash.
Advantages And Disadvantages To Both Forms Of Settlement
There are advantages and disadvantages to both forms of settlement, government and private. Both are the result of negotiations and while there is no template, both effectively fix the total amount of AD/CVD duties paid by importers, thereby eliminating retroactive risks and expediting Byrd Amendment payouts. The government agreements end all pending litigation and fix future AD/CVD liability until scheduled revocations of the orders. The settlements in Cement and Lumber also result in significant refunds to importers of a portion of their cash deposits, and in Lumber some of the Byrd Amendment funds are to be distributed to a joint marketing initiative.
Private parties are active participants in the government settlements, but with government involvement comes government entanglement. The Cement agreement establishes regional import quotas for the three years that the order remains in place. In Lumber, while revocation would be immediate, for seven years Canada must impose either a graduated export tax or a lower export tax coupled with a volume restraint. Both agreements require extensive government monitoring, meaning continuing reporting burdens on exporters and compliance investigations by DOC. Some critics contend that these settlements have just replaced one set of government burdens on trade with another, albeit less onerous.
Although the Byrd Amendment was certainly an impetus for the government agreements, a significant degree of national political will was also required. The United States Trade Representative has acknowledged that the dire need for reconstruction materials following Hurricane Katrina was a primary motivation for the Cement agreement. With respect to Lumber, the U.S. Government and industry have consistently lost multiple NAFTA, U.S. court, and WTO rulings on the validity of the AD/CVD measures, and were at risk of getting nothing if settlement terms were not reached. The United States' refusal to comply with its many losing Lumber verdicts became a flash point in Canada's 2006 national elections. It is apparent the United States was politically highly motivated to settle because the legal mechanism for the Cement and Lumber agreements hinges on 19 U.S.C. 1617, an obscure provision that only obliquely authorizes the Executive Branch to settle AD/CVD orders through authority to "compromise" "any claim arising under the customs laws."
In contrast, the private settlements in the Shrimp and Furniture cases were simpler to negotiate and implement, and the motivation easier to understand - cash. This is in large part because they are less reaching in their consequences, resulting in termination of an annual review but continuing the orders for possible future reviews. These settlements were made possible by four essential factors: 1) most exporters had low AD rates that they did not wish to jeopardize in a review, 2) the domestic industry requested annual reviews of every known exporter (and a variety of exporters requested reviews of themselves), 3) DOC threatened to use sampling to select the exporters reviewed, putting every exporter at serious uncontrollable risk, and 4) there might be no Byrd Amendment payouts for several years unless review requests were withdrawn. In Shrimp alone there were 104 separate settlement agreements between the domestic industry and exporters. These settlements eliminated the potential for retroactive liability for a single review period for specific exporters that paid a negotiated settlement price. This was accomplished by the domestic industry withdrawing its review request of an exporter by a specified date in return for the settlement payment. Without a request, there is no review and AD liability is fixed at the cash deposit rate. 19 C.F.R. 351.213(d). And without a review, Byrd Amendment funds accumulated at the cash deposit rates can be paid to the domestic industry relatively quickly.
Because the Shrimp and Furniture agreements are private, there are no minimum prices, export taxes, or quantitative restraints. Indeed there are no settlement terms for the governments to enforce or monitor, but the orders remain in place and the settlement process can repeat itself every year. This is a chief criticism of these settlements, along with the allegation of government-condoned extortion because the domestic industry requested blanket reviews to set up possible settlements and was given added leverage by DOC's sampling policy. These settlements were feasible because the domestic industry in each case spoke with one voice and could control withdrawal of review requests, an essential precondition for settlement. Whether this will be possible when more disparate members of a domestic industry look to play the settlement game in future reviews is a major question. Despite these limitations, the advantages of private settlements of annual reviews can far outweigh the potential difficulties.
Settlements have certainly become a viable option for resolving post-order AD/CVD trade disputes when the right interests align. Discerning when these opportunities are present requires deciphering many interrelated AD/CVD intricacies in the context of broader national trade policies. Any company (U.S. or foreign) that is caught up with an order in the United States AD/CVD regime would be well served by assessing whether there is a settlement option that can better accomplish its commercial objectives.
Kenneth J. Pierce is a Partner in the International Trade Department of Willkie Farr & Gallagher LLP in Washington D.C. His practice includes the full range of U.S. unfair trade actions, such as antidumping and countervailing duty, and Sections 301 and 201 actions. Robert E. DeFrancesco is an Associate in the International Trade Department .