Background

		AD/CV Duty Laws

U.S. laws authorize the imposition of AD/CV duties to remedy unfair trade  practices of other countries and foreign companies that cause material  injury (or threat thereof) to domestic industries, namely dumping (i.e.,  sales at less than fair market value), and countervailable foreign  government subsidies. The AD/CV duty laws implement U.S.  international obligations under the World Trade Organization (WTO)  Agreement on Antidumping, and the Agreement on Subsidies and  Countervailing Measures. Should the United States impose AD/CV  duties on a product, the government of the exporting country may institute  dispute resolution proceedings against the United States pursuant to the  WTO Understanding on Dispute Settlement if it believes that the United  States has violated its obligations under the WTO agreements.
Antidumping duty. AD duty law provides relief to a domestic industry  that is materially injured, threatened with material injury, or whose  establishment is materially retarded by reason of imports sold in the  United States at less than fair value. The law provides relief by  authorizing the imposition of an additional import duty on the dumped  imports. U.S. trade law permits the imposition of AD duties if (1)  Commerce determines that the imported goods are or are likely to be  sold in the United States at less than fair value; and if (2) ITC  determines that a U.S. industry is materially injured or threatened with  material injury, or that the establishment of an industry in the United  States is materially retarded, by reason of imports of that  merchandise.
Countervailing duty. CV duty law provides a similar kind of relief to a  domestic industry that is materially injured, threatened with material  injury, or whose establishment is materially retarded by reason of  imported goods that have received certain foreign government  subsidies. The law provides relief by authorizing the imposition of an  additional import duty on the subsidized imports. U.S. trade law  provides that CV duties will be imposed if (1) Commerce determines  that the foreign government or any public entity within the foreign  country is providing, directly or indirectly, a countervailable subsidy  with regard to the manufacture, production, or export of the subject  merchandise that is imported or sold (or likely to be sold) for  importation into the United States; and (2) if in the case of  merchandise imported from a Subsidies Agreement country, ITC  determines that a domestic industry is materially injured or threatened  with material injury, or that the establishment of a domestic industry is  materially retarded, by reason of imports or sales for imports of those  goods.

		Key Actors in the AD/CV Duty Process

The process for obtaining the imposition of an AD/CV duty generally  involves petitioners and interested parties who support and oppose the  petition, trade law firms, Commerce, and ITC. Petitioners and interested  parties in support of the petition may include domestic manufacturers,  producers or wholesalers, and certain unions and trade associations.  Parties in opposition to the petition for the imposition of duties may  include foreign exporters and producers, U.S. importers of the articles  under investigation, and governments of the exporting countries. Law  firms that specialize in international trade frequently represent petitioners  and the opposing parties before Commerce and/or ITC, the two agencies  responsible for conducting AD/CV duty investigations. Commerce  determines whether to initiate an AD or CV duty investigation after  examining a petition filed on behalf of a domestic industry. Commerce  conducts an investigation of dumping and/or subsidies while ITC  simultaneously conducts a separate investigation of material injury to a  domestic industry. Both Commerce and ITC make preliminary and final  determinations before Commerce imposes an AD or CV duty.

		Phases of the AD/CV Duty Process

According to Commerce, the process for determining whether to impose  an AD or CV duty consists of two key phases: (1) petition and (2)  investigation.
During the petition phase, a prospective petitioner gathers and presents  information that might provide a reasonable basis for Commerce to  believe that dumping or subsidization of a particular product might be  occurring and causing or threatening material injury to a domestic  industry, according to Commerce officials. Before deciding whether to  petition for the imposition of AD/CV duties, the prospective petitioner  considers the costs and benefits of doing so, including the time,  administrative requirements, and legal costs associated with the process.
U.S. law specifies that the petition allege the elements necessary for the  imposition of the AD or CV duty. Commerce and ITC regulations require  prospective petitioners seeking the imposition of AD/CV duties to provide  detailed information, which is reasonably available to the petitioner, in  their petition to Commerce and ITC. This information includes the  composition of the domestic industry, identity of importers, volume and  value of production of the domestic like product by the petitioner and each  U.S. producer, and information concerning material injury. Prospective  petitioners are also required to include information such as the proportion  of total exports to the United States that the petitioners believe each  producer is selling at less than fair value or benefiting from  countervailable subsidies accounted for during the most recent 12-month  period. For AD duty petitions, prospective petitioners should provide  pricing and cost information relevant to calculating dumping margins. For  CV duty petitions, prospective petitioners should provide factual  information relevant to the alleged countervailable subsidy. In addition,  prospective petitioners must demonstrate that they have sufficient support  from the domestic industry.
As prospective petitioners and their legal representatives contemplate  whether or not to file a petition, they may request information or  assistance from specialized offices within Commerce and ITC, described  below:
Commerce Import Administration’s Petition Counseling and Analysis  Unit. Staff in this unit of Commerce’s International Trade  Administration are available to help companies understand U.S. trade  remedy laws dealing with dumping and countervailable foreign  government subsidies and to provide technical assistance with  preparing and filing a petition. According to Commerce officials, the  department budgeted about $440,000 plus agency overhead for the  Petition Counseling and Analysis Unit in fiscal year 2012.
ITC’s Office of Investigations and Trade Remedy Assistance Office.  Office of Investigations staff are available to counsel all companies  seeking assistance in understanding the injury phases of AD/CV duty  investigations, and regularly provide technical assistance and  prepetition counseling to all companies, including SMEs. According to  ITC officials, the agency dedicated about $59,500 plus agency  overhead for prepetition counseling and assistance in 2012. The  Trade Remedy Assistance Office was established to provide eligible  small businesses, small trade and worker associations, and their  representatives with additional information and support. According to  ITC officials, the agency dedicated about $74,000 plus agency  overhead for the Trade Remedy Assistance Office in fiscal year 2012.
Once a petition is filed, Commerce has sole authority to initiate or not  initiate an investigation based on its examination of the petition. In the 20  calendar days after a petition is filed, Commerce examines the proposed  scope of the investigation, the domestic like product, industry support for  the petition, the adequacy of the dumping or subsidy allegation(s), and  the information provided to demonstrate injury, according to Commerce  officials. If Commerce decides not to initiate an investigation at this point,  the case is closed.
During the investigation, Commerce sends a questionnaire to selected  foreign producers and exporters (and the foreign government, in the case  of a CV duty investigation), to collect information for its determination of  whether imports are being dumped or subsidized. Commerce issues  supplemental questionnaires as needed, to clarify certain information or  obtain additional information. To establish the adequacy and accuracy of  information submitted in response to questionnaires and other requests  for information, Commerce conducts an on-site examination of the  records of the party that provided the information and interviews company  personnel who prepared the questionnaire responses and are familiar  with the sources of the data in the responses. Commerce uses the  information obtained to determine the appropriate amount of duty.  According to Commerce, the agency may hold a hearing, upon request,  to provide parties with an opportunity to express positions and respond to  agency questions about factual and legal issues in the case.
During its simultaneous investigation, ITC sends out separate, detailed  questionnaires to collect trade, pricing, and market data from all U.S.  producers, U.S. importers, and foreign producers of the product under  investigation to determine whether these imported goods are causing  material injury to the domestic industry. These questionnaires ask  responding U.S. producers to indicate whether they support, oppose, or  take no position on the petition. According to ITC officials, all data  submitted by firms in questionnaires are treated as business proprietary,  and thus, individual producer responses with regard to support of the  petition are confidential. During the investigation, ITC holds a hearing that  allows petitioners, other domestic producers, and opposing parties, who  are typically represented by legal counsel, to express their position on the  case and respond to questions that ITC Commissioners may have about  factual information or legal issues in the case. Some parties within an  industry may not support a petition for an AD/CV duty or at least not  publically support a petition for a variety of reasons. For example, the  product under investigation may be an input used by a domestic  manufacturer or the distributor may represent domestic and foreign  producers.
Once a petition is filed, the length of time for completing an AD/CV duty  investigation can range from 205 to 420 days, depending on whether it is  an AD, CV, or joint AD/CV duty investigation, and the number of  extensions applied as permitted under U.S. law. Generally, ITC makes a  preliminary decision regarding material injury within 45 days after a  petition is filed. If the ITC preliminary decision is negative, the  investigation is terminated. If the ITC determination is affirmative,  Commerce generally makes a preliminary decision regarding whether  imports are being dumped or subsidized within 140 days after initiation for  an AD duty case and 65 days for a CV duty case. Even if Commerce  makes a negative preliminary decision, the investigation continues until  Commerce makes its final decision, generally within 75 days of its  preliminary decision. If Commerce’s final decision is negative, then the  investigation is terminated and no further investigative action is taken by  either agency. If Commerce’s final decision is affirmative, ITC generally  makes a final injury decision within 45 days. If ITC’s final decision is  affirmative, Commerce issues an AD/CV duty order within 7 days.
Figure 1 shows the petition and investigation phases of the AD/CV duty  process and the associated time frames.

	Some SMEs Have Petitioned for the Imposition of AD/CV Duties and Most SME Petitioners Had Annual Sales Revenue of at Least $10 Million

		SMEs Were Listed on a Third of the Petitions for AD/CV Duties and Represented a Quarter of Petitioners over the Past 6 Years

Our analysis showed that some SMEs petitioned for the imposition of  AD/CV duties to seek relief from unfair trade practices; over the past 6  years, about one-third of the petitions for AD/CV duties listed SME  petitioners and about a quarter of the total number of petitioners were  SMEs. As figure 2 (left) shows, from 2007 through 2012, a total of 56  petitions were filed for the imposition of AD/CV duties. Of these, 21  petitions (38 percent) listed at least one SME petitioner, with 8 petitions  listing only SME petitioners, and 13 petitions listing both SME and non- SME petitioners. The majority of the petitions (36 petitions, or 63 percent  of the 56 total) represented non-SME petitioners. As figure 2 (right)  shows, SMEs represented about a quarter of the 147 petitioners named  in the 56 petitions filed for the imposition of AD/CV duties from 2007  through 2012. Of these 147 petitioners, 38 (26 percent) were SMEs.
The majority (21) of the 37 SME petitioners, for whom we had data on  annual sales revenue, had annual sales revenue of at least $10 million.  Two of the 21 SME petitioners had annual sales revenue of at least $50  million. In contrast, 3 SME petitioners had annual sales revenue of  under $1 million.
Close to half (17) of the 38 SME petitioners were in the iron and steel  industry (see fig. 3). Similarly, close to half (54) of the 109 non-SME  petitioners (i.e., those petitioners that did not meet the SBA criteria) were  also in the iron and steel industry. SME petitioners in the iron and steel  industry included producers of steel garment hangers, steel nails, drill  pipes, and welded stainless steel pressure pipes. Other SME AD/CV duty  petitioners included producers of wood products, aluminum products, and  machinery, among other things. Table 1 lists the products included in the  petitions filed by SME petitioners from 2007 through 2012.
Producers of goods under investigation, including SMEs, can benefit from  successful AD/CV duty petitions even if they are not petitioners.  Producers may support the petition but choose not to join as petitioners to  avoid bearing the cost, including petition preparation and representation  throughout the proceeding. In some cases individual petitioners may  cover all or most of the legal costs, thereby sparing co-petitioners from  paying for any or much of the cost. Additionally, according to Commerce,  it is possible that some non-petitioners may support the petition by  assuming some of the cost. Trade remedy duties add to the price of  foreign imports and can benefit domestic producers of the competing like  products, regardless of whether or not they choose to be petitioners.  When deciding whether to become a petitioner, a producer weighs the  expected benefits against the cost, according to our literature review and  interviews we conducted with experts. For a producer with a small share  of the market, the expected benefits from a successful petition might be  small, leading to a stronger incentive not to share the cost by becoming a  petitioner. Petitioners also have to weigh the benefit against the cost of  having additional producers join as petitioners. For example, more  petitioners could help an industry obtain greater resources to use for  advocacy and increase the likelihood of a successful petition, but having  more petitioners would also require more effort and cost.
It is difficult to measure the extent to which non-petitioners, including  SMEs, have benefited from successful AD/CV duty petitions without  knowing either how producers allocated the cost among themselves or  the specific reasons why certain producers chose not to be named on a  petition. Those reasons could include the fear of retaliation from  internationally active producers and not wanting to share the cost, as  discussed earlier. Public ITC reports do not disclose the position of the  non-petitioning domestic producers, unless a non-petitioning producer  has publicly disclosed that information. However, we can estimate the  maximum number of producers who may have benefited from a duty  associated with a successful petition without becoming a petitioner, by  calculating the share of non-petitioners within the industry and assuming  that all non-petitioners benefit from successful petitions without having to  share the cost. As discussed earlier, ITC typically sends questionnaires to  all producers (petitioners and non-petitioners) in the industry during its  material injury investigation. Of the 93 SMEs surveyed by ITC for the  petitions filed from 2007 through 2012, 38 were petitioners and 55 were  non-petitioners. These 55 non-petitioners represent the maximum number  of producers that may have benefited from the duty without having to sign  on as petitioners and share the cost.

	Three Key Challenges Impede SMEs’ Pursuit of the Imposition of AD/CV Duties

Knowledgeable parties we interviewed—including Commerce and ITC  officials, three academics, representatives from two industry associations,  six trade lawyers, two Congressional Research Service trade experts,  and two SME petitioners—identified key challenges to SMEs’ ability to  pursue the imposition of AD/CV duties. The challenges most frequently  cited were (1) high legal costs, (2) difficulty obtaining domestic and  foreign pricing and production data, and (3) difficulty demonstrating  industry support. Other challenges cited less frequently included fear of  retaliation and lack of knowledge regarding AD/CV duties.

		Legal Services Provided during the Petition and Investigation Phases Are Costly

Legal costs associated with pursuing an AD/CV duty case are a key  challenge for SMEs. Agency officials and trade lawyers we spoke with  stated that it is expensive for SMEs to pursue AD/CV duty cases because  the process generally involves trade lawyers. Five of the six trade lawyers  we interviewed roughly estimated that the average legal cost for pursuing  an AD or CV duty case from petition through the investigation was  between $1 million and $2 million, with approximately 70 to 75 percent of  the cost incurred during the investigation phase. One trade lawyer  stated that the average cost for pursuing a case could be considerably  more than $2 million, depending on the complexity of the case or whether  it involves multiple countries. According to agency officials, prospective  petitioners are not required to hire a trade lawyer to file a petition, but  legal representation is advantageous because trade lawyers can obtain  confidential information from multiple domestic producers and foreign  respondents and have the expertise to guide a case through the  investigation phase. Trade lawyers or authorized representatives also  have the ability to obtain confidential information collected by Commerce  or ITC by entering that agency’s Administrative Protective Order (APO)  system. A company would not be able to obtain this information  because producers typically seek to protect their pricing and production  data from disclosure to their competitors. In addition, trade lawyers or  other representatives are able to provide advocacy and guidance through  the often complicated proceedings before Commerce and ITC. For  example, trade lawyers advocate for their clients and challenge those  who oppose the case at public ITC hearings where ITC Commissioners  ask witnesses numerous detailed questions to gather more information.  Commerce officials were only aware of one instance where a petitioner  did not hire a trade lawyer until the investigation phase. In this case, the  officials said the petitioner was the sole producer in its industry.
Legal costs may be incurred during each phase of an AD/CV duty  investigation, as well as after the investigation is completed.  Representatives from all six trade law firms we spoke with told us that the  overall legal cost of pursuing an AD/CV duty varies according to the  nature of the case. Factors affecting the overall cost include the number  of respondent countries and companies, the complexity of the case, the  number of products involved, and how much data are available. In  addition to the costs associated with pursuing a case through the petition  and investigation phases, additional costs may be incurred after the  completion of a case during appeals and administrative reviews. For  example, SMEs may hire a trade lawyer to represent them if the final  Commerce or ITC determination is appealed to the U.S. Court of  International Trade, or further appealed from that court to the U.S. Court  of Appeals for the Federal Circuit. SMEs may also use trade lawyers to  assist with any requested yearly administrative reviews of a case, which  determine the final amounts of duties owed on past imports and set new  duty deposit rates for future imports. Trade attorneys look at a range of  trade remedy options to potentially address a trade issue, and may advise  potential petitioners that seeking the imposition of an AD/CV duty is not in  their best interest.
Petitioners are generally responsible for paying their legal costs, and the  amount each entity pays depends on the particular circumstances of the  case. Two trade lawyers we spoke with stated that in some instances,  petitioners may agree to allocate costs according to each petitioner’s  share of production in the given industry. Another trade lawyer explained  that a petitioner with higher revenue may assume most or all the costs.  One SME petitioner we spoke with said that his company covered the  majority of costs associated with its case because it was the largest  producer in a small industry composed of relatively few other companies.  In some instances, outside sources such as trade associations may cover  some of the costs. For example, a trade association representative  shared an example of a case where the association financed legal costs  using Continued Dumping and Subsidy Offset Act distributions from a  previous case.

		Pricing and Production Data Required during the Petition and Investigation Phases Are Difficult to Obtain

During the petition and investigation phases, it is often difficult for  prospective petitioners to obtain domestic and foreign pricing and  production data required by Commerce and ITC regulations and  guidance. Both Commerce and ITC post guidance on their websites to  help prospective petitioners understand the types of data required for a  petition and the manner in which it should be presented and organized.  Petitioners are required to provide general data such as their name,  address, and some background information describing the extent of their  involvement in the industry. In addition, they must state whether they  have filed within the past 12 months, are now filing, or are planning to file  for other forms of import relief involving the good in question. Several  types of pricing, production, and injury data are also required for the  submission of a petition, as follows:
Pricing data: For a CV duty case, prospective petitioners must provide  reasonably available information regarding the law, regulation, or  decree under which the alleged countervailable subsidy is provided  along with the value of the subsidy to the exporters or producers of  the subject merchandise. For an AD duty case, prospective petitioners  must provide reasonably available data relevant to the calculation of  the U.S. price of the merchandise and the normal value of the foreign  like product.
Production data: Prospective petitioners must provide a detailed  description of the imported merchandise, which should include the  classification of the merchandise in the Harmonized Tariff Schedule of  the United States. In addition, to the extent reasonably available to  them, prospective petitioners should provide the names, addresses,  and telephone numbers of the foreign producer(s) and exporter(s)  believed to be selling the good at less than fair value or benefiting  from a countervailable subsidy. These data must also include the  volume and value of each firm’s exports of the merchandise to the  United States. The same data are required of the firms believed to be  importing the merchandise into the United States, to the extent that it  is reasonably available. Prospective petitioners should also provide  data on domestic production of the merchandise in question and  information relating to the degree of industry support for the petition.
Injury data: The petition should contain data to support the allegation  that a domestic industry has been materially injured, or threatened  with material injury, as a result of the alleged unfair imports. As a part  of the injury data, each prospective petitioner should list all sales and  revenues lost resulting from the alleged unfair imports during the 3  years preceding the filing of the petition.
Collecting and reviewing detailed pricing and production data during the  petition and investigation phases places an administrative burden on  SMEs. SMEs have fewer employees than larger firms and generally lack  the expertise needed to take on the additional tasks of data collection,  according to agency officials. Representatives from all six law firms and  agency officials we spoke with agreed that SMEs face challenges when  collecting the pricing and production data for a petition because the data  required are extensive and difficult to obtain. An SME petitioner explained  that his company employed legal counsel because his company lacked  the resources and expertise required to research and gather the data  required to file a petition. The SME petitioner further explained that it is  particularly difficult to collect and review domestic and foreign pricing  data, which are composed of several inputs—such as electricity, water,  and raw materials—whose price varies based on geographic location.  One trade lawyer we spoke with hired Chinese nationals to assist with  data collection for AD/CV duty cases involving China.
Petitioners also face an administrative burden during AD/CV duty  investigations. For example, they are required to respond to detailed ITC  questionnaires that collect the trade, pricing, and financial data ITC uses  in making its determination of whether a domestic industry is materially  injured by reason of the imports under investigation. According to ITC  officials, the questionnaire is comprehensive and takes approximately 50  hours to complete, which may place a strain on SMEs’ limited resources.  Two trade lawyers noted that during the investigation phase they review  data collected by Commerce from foreign respondents. For example, a  trade lawyer may conduct research leading to a discovery that data  reported by a foreign producer may not be accurate. In such an instance,  the trade lawyer may ask Commerce to send a supplemental  questionnaire to collect additional data from the foreign producer.  According to Commerce officials, this information is important because  Commerce uses data in the questionnaire to calculate whether there is  dumping or countervailable subsidization and at what level. Trade lawyers  also help petitioners determine the precise description of the imported  goods, which according to Commerce, it uses to ascertain the scope of  an investigation. For example, a 2010 AD order on seamless refined  copper pipe and tube from China and Mexico defined the product very  narrowly as “seamless circular refined copper pipes and tubes, including  redraw hollows, greater than or equal to 6 inches (152.4mm) in length  and measuring less than 12.130 inches (308.102 mm) (actual) in outside  diameter...” The scope definition went on to define the product with even  greater specificity.

		Demonstrating Industry Support for a Petition to Commerce Can Be Difficult

It can be difficult for prospective petitioners to garner sufficient support  from other producers to demonstrate to Commerce that the petition will  meet the statutory requirement of industry support. A petition meets this  requirement if the domestic producers or workers who support the petition  account for (1) at least 25 percent of the total production of the domestic  like product, and (2) more than 50 percent of the production of the  domestic like product produced by that portion of the industry expressing  support for, or opposition to, the petition. According to four trade lawyers  and agency officials, it can be difficult for SMEs in an industry with  numerous producers to organize themselves in order to meet the  statutory requirement for industry support. For example, SMEs in  geographically dispersed industries with numerous producers—such as  aquaculture and agriculture—may need to coordinate with hundreds of  domestic producers to obtain the support required for their petition. SMEs  may form an industry association to help them coordinate and establish  support for a petition. For example, several hundred shrimp producers  formed the Coalition of Gulf Shrimp Industries to file a petition on behalf  of their industry. These producers would have had more difficulty  undertaking the necessary steps to file a petition if they had remained an  unorganized, geographically dispersed collection of individual companies,  according to an SME petitioner from the coalition.

	Commerce and ITC Assistance Can Help SMEs Address Key Challenges

		Commerce and ITC Staff Help SMEs Obtain Data Required to File a Petition and Review Draft Petitions

Both Commerce and ITC have staff that respond to inquiries and provide  information and assistance to SMEs to relieve some of the administrative  challenges and costs of filing a petition. Commerce and ITC officials  stated that much of the assistance they provide involves helping SMEs  obtain the data needed to file a petition and reviewing draft petitions. If a  petition does not establish that it has the support of domestic producers  or workers accounting for more than 50 percent of total domestic  production, after a petition is filed Commerce staff will send a polling  questionnaire to domestic producers tailored to the product and industry  in question, or rely on other information, to determine if the original  support criterion is met. According to Commerce officials, in cases  where the industry is dispersed, they can provide assistance to petitioners  in their efforts to form a coalition. For example, after discussing options  with Commerce, the numerous shrimp fishing companies and processers  formed an association that enabled them to file six AD petitions in 2004,  according to Commerce officials and a representative for shrimp  producers. Officials from both Commerce and ITC also stated that staff  are on hand to help SMEs obtain publically available data. For example, if  prospective petitioners do preliminary work and data gathering with the  assistance of Commerce staff in advance of hiring law firms, this may  reduce legal costs, according to Commerce officials. In addition, officials  from both agencies stated that they frequently review draft petitions and  comment on how the petitions can be improved to ensure that they  include all the required detailed data to support initiation of an AD/CV  duty investigation. According to officials from both Commerce and ITC,  the assistance they provide during pre-petition counseling can help  reduce the amount of time that trade lawyers would otherwise bill to the  client.

		Self-Initiation of AD/CV Duty Investigations May Reduce Some Initial Costs but Could Also Have Adverse Effects

			Commerce Reserves Use of its Authority to Self-Initiate Investigations to Special Circumstances

U.S. law authorizes Commerce to initiate an AD/CV duty investigation  without a petition, but according to Commerce officials, the department  reserves the use of this authority to special circumstances consistent with  international trade agreements. Commerce has used this authority once  since 1991, under special circumstances. In 1991, when Canada  unilaterally terminated a 1986 trade agreement with the United States,  Commerce self-initiated a softwood lumber investigation. The United  States and Canada had entered into an agreement in 1986 regarding the  importation of softwood lumber that required the U.S. industry to withdraw  its CV duty petition and Commerce to terminate its ongoing CV duty  investigation. According to Commerce officials, because the initiation of  the softwood lumber case followed a bilateral dispute between the two  governments, it is an example of how Commerce applies special  circumstances as criteria for using its self-initiation authority.
Because self-initiation opens an investigation without a petition, it could  reduce some initial costs to SMEs but could also have adverse effects,  including raising questions of whether the action was taken consistent  with U.S. obligations under international trade agreements. Opening an  investigation without a petition could reduce the costs that SMEs incur  during the petition phase, but would likely have little impact on overall  costs because most legal costs are incurred during the investigation  phase. For example, one trade lawyer and an official representing a  coalition of SMEs suggested that self-initiation could lead to decreased  legal costs because less time would be billed and lawyers’ involvement  could start at the investigation phase. However, according to Commerce  officials, changing the department’s practice to permit increased use of its  self-initiation authority could be vulnerable in U.S. courts. In addition,  Commerce officials stated that the limited use of self-initiation is  consistent with language in the World Trade Organization (WTO)  Antidumping Agreement, the Subsidies and Countervailing Measures  Agreement, and the General Agreement on Tariffs and Trade, which  limits the ability to self-initiate investigations to instances in which there  are “special circumstances.” According to Commerce, the department has  limited resources to self-initiate investigations, and self-initiation without  significant participation of the industry is unlikely to result in the imposition  of duties. Finally, Commerce noted that when it initiates an investigation  based on a petition or by self-initiation, its decision is based on  information available to it that indicates that a formal investigation is  warranted. Therefore, when Commerce initiates an investigation by  petition or by self-initiation, it needs the cooperation of the affected  industry to help gather information that is generally the same as that  required in a petition. According to Commerce officials, the data needed  to show that a domestic industry is experiencing injury as a result of  dumping or subsidization are most readily available to that same industry.  Therefore, Commerce would need significant cooperation and data from  domestic producers to meet the requirements to initiate an investigation.
Commerce officials also stated that the United States tries to serve as a  role model for other WTO signatory countries, so any increased use of  self-initiation could lead to additional adverse effects. For example, other  countries might open investigations without the data supporting  allegations of unfair trade practices, which are normally included in a  petition. In addition, both Commerce and ITC officials expressed  concerns that without support and direct participation from domestic  producers affected by unfair trade practices, it would be difficult for ITC to  obtain the detailed, company-specific information in the 45 days available  to it to make a preliminary determination. According to ITC officials, the  questionnaires they send to domestic producers to obtain the data that  support allegations of material injury are based on product definitions  usually included in the petitions. Therefore, if an investigation is initiated  without a petition, ITC would lack key information it needs to develop its  questionnaires.

	Concluding Observations

U.S. AD/CV duty laws implement U.S. international obligations under the  World Trade Organization (WTO). If the United States imposes AD/CV  duties on a product, a foreign government may institute dispute resolution  proceedings against the United States pursuant to the WTO  Understanding on Dispute Settlement if it believes that the United States  has violated its obligations under the WTO agreements. Commerce and  ITC require detailed information to generate sufficient evidence to  substantiate a case. High legal costs, difficulty obtaining pricing and  production data, and garnering industry support may prove too much of a  challenge for many SMEs to overcome. However, these challenges are  part of a process designed to ensure that the imposition of AD/CV duties  on foreign exports is backed by sufficient evidence of unfair trade  practices and is consistent with U.S. law and internationally agreed-upon  standards.
Whether or not a U.S. industry ultimately files an AD/CV duty petition is a  complex decision made after considering the resources required for the  petition and investigation process, whether there is sufficient industry  support, and the probable outcome. While both Commerce and ITC  provide some assistance to SMEs, in the absence of additional public  resources to help SMEs address the challenges of high legal costs and  difficulty obtaining pricing and production data, limited options exist to  address challenges to pursuing the imposition of AD/CV duties. While  increased use of Commerce’s authority to self-initiate AD/CV duty  investigations could lower some initial costs, its impact would be limited  and could strain resources and have other adverse effects, such as  foreign governments initiating investigations without data to support  allegations of unfair trade practices.

	Agency Comments

We provided a draft of this report to the International Trade Commission  (ITC) and the Department of Commerce (Commerce) and requested  comments, but none were provided. ITC and Commerce both provided  technical edits that were incorporated, as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Department of Commerce, the International Trade  Commission, the Office of the United States Trade Representative, and  the United States Small Business Administration. In addition, this report  will be available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Lawrance Evans at (202) 512-4802 or evansl@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. GAO staff who made major  contributions to this report are listed in appendix III.

Appendix I: Safeguards

Safeguard laws give domestic producers relief from surges of imported  goods. The principal safeguard laws that the International Trade  Commission (ITC) administers include the global safeguards law, the  China safeguards law, and various safeguards laws implementing free  trade agreements to which the United States is a party, according to ITC  officials. Most ITC safeguard investigations are conducted on the basis of  a petition filed by a representative of a domestic industry. However, ITC  may be required to conduct investigations at the request of the President  or U.S. Trade Representative, or upon resolution of the House Committee  on Ways and Means or the Senate Committee on Finance. Safeguard  laws require action by the President to put relief into effect.
In contrast to the antidumping (AD) and countervailing (CV) duty laws,  safeguard laws do not require the finding of an unfair trade practice.  Instead, ITC must first find that increased imports are a substantial cause  of serious injury (or threat thereof) to a domestic industry producing an  article like or directly competitive with the imported article. If ITC makes  an affirmative injury determination, it recommends a remedy to the  President. The President makes the final decision on whether to apply a  remedy measure, and if so, the type, amount, and duration of the remedy.  The President may accept or modify ITC’s remedy recommendation, or  may elect not to impose a safeguard.
According to ITC and Department of Commerce (Commerce) officials,  trade experts, and trade lawyers, requests for safeguard investigations  have been far less frequent than for AD/CV duty investigations in recent  years because of the political uncertainty of whether relief will be granted.  Since 2001, safeguard measures have been imposed twice. In 2002,  safeguard measures were imposed on imports of certain steel products  under the global safeguards provisions following an affirmative ITC injury  determination and remedy recommendations in response to a request for  investigation made by the U.S. Trade Representative and a subsequent  resolution by the Senate Committee on Finance. These measures were in  effect from March 2002 until December 2003, when they were terminated  by the President following an adverse report by the World Trade  Organization Dispute Settlement Body. In 2009 the President imposed  higher tariffs on imports of certain passenger vehicle and light truck tires  from China under the China safeguard provision following an affirmative  ITC injury determination and remedy recommendation in response to a  petition from a labor union representing U.S. workers producing tires. The  safeguard measure on tires from China was in effect between September  2009 and September 2012. China challenged the safeguard measure  before the World Trade Organization Dispute Settlement Body, which  upheld the measure. Table 2 below shows the final determinations of both  ITC and the President for all safeguard cases investigated by ITC from  2000 through 2012.

Appendix II: Objectives, Scope, and Methodology

Our objectives were to examine (1) the extent to which small and  medium-sized enterprises (SME) have petitioned for the imposition of  antidumping (AD) and countervailing (CV) duties, (2) key challenges to  SMEs’ ability to pursue the imposition of AD/CV duties, and (3)  assistance provided by Commerce and ITC to help SMEs address these  challenges.
To examine the extent to which SMEs have petitioned for the imposition  of AD/CV duties, we obtained data from ITC public reports on a total of  406 companies. The ITC data included certain characteristics of  petitioners and non-petitioners, which ITC identified as part of the  industry, for AD/CV duty petitions filed from 2007 through 2012. These  data contained the names and locations of the companies, and the  products in question in the petitions. To identify which companies were  SMEs, we used a combination of both LexisNexis and Dun & Bradstreet  databases to search for the number of employees and affiliation  information. Our method for collecting and assessing the information on  company employment size and their affiliation to determine whether a  company was an SME was as follows:
We first searched the LexisNexis database for the number of  employees and affiliation information of each of the 406 companies.
If LexisNexis did not contain the company or the number of  employees, we then searched Dun & Bradstreet. We were able to find  the number of employees for 386 of the 406 companies.
Based on the information obtained from these two databases, we  determined whether the company was an SME using the following  criteria: (1) the Small Business Administration (SBA) Office of  Advocacy’s definition of SME based on the number of employees (i.e.  fewer than 500 employees), and (2) the company affiliation  information. In other words, we designated companies that were not  subsidiaries of a larger company and had fewer than 500 employees  as SMEs. If we were unable to determine whether a company was a  subsidiary, we did not designate it as an SME. This methodology  reflects the overall conservative approach we developed to avoid  over-counting the number of SMEs. We identified 46 SME petitioners  at the end of this step.
As a check on the reliability of the data, for the 46 SME petitioners we  identified in the prior step, we conducted a second search in Dun &  Bradstreet for the number of employees and affiliation information. For  the companies where the number of employees differed, we used the  larger employment number to make the final determination as to  whether a company was an SME. After this check, we concluded that  38 petitioners were SMEs. Information on the number of employees  for 7 of the 38 SME petitioners came from one database, which we  determined to be adequate because there was a high level of  correspondence between the two databases. For the 42 companies  for which we had employment numbers from both data sources, the  employment numbers were largely consistent. There were only two  companies for which one source showed under 500 employees and  the other showed 500 and over.
To assess the characteristics of the SME petitioners, we analyzed the  annual sales revenue and the industry distribution of the 38 SME  petitioners. We collected sales revenue data from LexisNexis and Dun &  Bradstreet on SME petitioners to determine whether they had annual  revenues of $10 million or more and, whether they had annual revenues  of $50 million or more, or less than $1 million. Our method for collecting  and assessing the information on company sales revenue was as follows:
We first used LexisNexis and Dun & Bradstreet to find the annual  sales revenue for the 38 SME petitioners and were able to find it for  37 companies. Annual sales revenue data for 30 of the 37 companies  were in both databases, for 7 in either LexisNexis or Dun &  Bradstreet, for 33 in LexisNexis, and for 34 in Dun & Bradstreet.
For the 30 companies for which we had revenues from both sources,  if both the Lexis and Dun & Bradstreet values fell into the same  category, we assigned the company to that category. For the category  $10 million and above, 19 companies fell in the same category  according to both databases. For the category $50 million and above,  2 companies fell in the same category according to both databases.
For the category below $1 million, 1 company fell in the same  category according to both databases. This way of counting the  number of companies reflects the overall conservative approach we  developed to avoid over-counting the number of SMEs—in this case,  those with sales revenues of $10 million and above or $50 million and  above. As a check on the reliability of the revenue data, we compared  the categorization of whether the company had sales revenues of at  least $10 million for the 30 companies for which we had data from  both sources. Overall, the level of correspondence in this  categorization was 25 out of 30 companies—i.e., the two sources  showed 5 companies belonging to different categories and 25  belonging to the same category.
For the 7 companies for which we had annual sales revenue data  from only one database, we used the value obtained from that source.  We determined this to be a valid decision based on the relatively high  level of concurrence between the two data sources when assessing  SME sales revenue. We found 2 companies with annual sales  revenue of $10 million and above, 2 companies with annual sales  revenue of less than $1 million, and no company with annual sales  revenue of $50 million or above.
We then summed up the number of companies in each category  based on the counts we obtained in the two steps described above.
We assessed the reliability of the ITC data on petitions filed from 2007  through 2012 by interviewing agency officials who were knowledgeable  about the data. We assessed the reliability of the information obtained  from LexisNexis and Dun & Bradstreet by reviewing ITC data to ensure  that the company names and locations were consistent. We also  reviewed existing information about the databases. When we found  inconsistencies between the two databases, we applied a methodology  as described above to ensure that we were conservative in our count of  SMEs and their revenues. On the basis of these steps we determined that  the data were sufficiently reliable for our purposes.
To identify key challenges to SMEs’ ability to pursue the imposition of  AD/CV duties, we interviewed Commerce officials in the Import  Administration Office, Petition Counseling and Analysis Unit, and Office of  General Counsel and ITC officials in the Trade Remedy Assistance  Office, Office of the Inspector General, and Office of Investigations. In  addition, we interviewed three academics, representatives from two  industry associations, six trade lawyers, two Congressional Research  Service trade experts, and two SME petitioners. We selected the  academics, industry association representatives, and trade lawyers on  the basis of recommendations from CRS trade experts and Commerce  and ITC officials. We selected a sample of SMEs to interview based on a  range of different products represented on petitions. We contacted 18  SMEs who filed petitions, but only 2 volunteered to participate in our  interview. The trade lawyers we spoke with represented 38 percent of the  21 petitions with SMEs filed from 2007 through 2012. We administered a  set of standard questions to all six trade lawyers we interviewed. To  obtain information on legal costs, we asked representatives from each of  the six trade law firms for a range of the approximate costs of pursuing  AD/CV duties. One declined to respond and the remaining five offered  estimates rather than examples of actual fees charged to clients. To  identify the data requirements for filing a petition, we reviewed relevant  requirements and guidance, including ITC’s 2008 Antidumping and  Countervailing Duty Handbook and applicable statutes and federal code.  We also reviewed a sample of petitions submitted by prospective  petitioners and ITC reports.
To examine assistance provided by Commerce and ITC to help SMEs  address these challenges, we interviewed the same parties as for the  prior objective. To obtain information on self-initiation, we reviewed  applicable U.S. statutes and international agreements. We analyzed  Commerce documents to determine the extent to which self-initiation had  been used recently. In addition, we gave Commerce a set of written  questions regarding increased use of self-initiation and we examined the  department’s written responses. Afterwards, we discussed the issue  further with trade lawyers, and with Commerce and ITC officials.
We conducted this performance audit from June 2012 to June 2013 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix III: GAO Contacts and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact named above, Christine Broderick (Assistant  Director), Tom Zingale, Ming Chen, and Heather Hampton made key  contributions to this report. Vida Awumey, Debbie Chung, David  Dornisch, Etana Finkler, Alfredo Gomez, Grace Lui, and Erin McLaughlin  provided additional assistance.

Summary:
Why GAO Did This Study

The United States and many of its trading partners have enacted laws to remedy the unfair trade practices of other countries and foreign companies that cause or threaten to cause material injury to domestic producers and workers. U.S. laws authorize the imposition of AD duties on certain imports that were dumped (i.e., sold at less than fair market value) and CV duties on certain imports subsidized by foreign governments. Commerce and ITC conduct AD/CV duty investigations, most of which are initiated based on petitions filed on behalf of a domestic industry. According to the U.S. Census, in 2010, small and medium-sized enterprises accounted for 45 percent of employment in the manufacturing sector.
GAO was asked to review SMEs pursuit of trade remedies. This report examines (1) the extent to which SMEs have petitioned for the imposition of AD/CV duties, (2) key challenges to SMEs ability to pursue the imposition of AD/CV duties, and (3) assistance provided by Commerce and ITC to help SMEs address these challenges. GAO examined petition data from ITC and interviewed petitioners, trade lawyers, trade association officials, academics, trade experts from the Congressional Research Service, and Commerce and ITC officials. In addition, GAO reviewed AD/CV duty petitions and reports.

What GAO Found

Some small and medium-sized enterprises (SME)--which are defined by the Small Business Administration's Office of Advocacy as independent businesses with fewer than 500 employees--have petitioned for the imposition of antidumping (AD) and countervailing (CV) duties to seek relief from unfair trade practices. Among the 56 petitions filed between 2007 and 2012, GAO found 21 that included at least 1 SME petitioner. In addition, the 56 petitions represented a total of 147 petitioners, of which 38 were SMEs. The majority of these SME petitioners had annual sales revenue of at least $10 million. Close to half of the total SME petitioners were in the iron and steel industry. Since participation in the petitions is not mandatory, producers, including SMEs, may benefit from a successful petition even if they choose not to join as a petitioner.
SMEs face three key challenges when pursuing the imposition of AD/CV duties: (1) high legal costs, (2) difficulty obtaining domestic and foreign pricing and production data, and (3) difficulty demonstrating industry support. Trade lawyers estimated that the cost of pursuing an AD or CV case during the petition and investigation phases can average between $1 million and $2 million and sometimes more, especially if the case involves multiple countries. It is often difficult for prospective petitioners to obtain domestic and foreign pricing and production data required by Department of Commerce (Commerce) and International Trade Commission (ITC) regulations and guidance. In addition, it can be difficult for prospective petitioners to demonstrate enough industry support to meet statutory requirements.
Commerce and ITC both have offices that provide information and assistance to SMEs to help them meet some of the administrative requirements and reduce costs. Commerce has the authority to self-initiate an AD/CV duty investigation without a petition and has used this authority only once since 1991. According to Commerce officials, the Department uses this authority only when it has significant participation from the industry. Self-initiation would likely have little impact on SMEs' overall costs since SMEs incur most costs during the investigation phase. Also, self-initiation could have adverse effects, including raising questions of whether the action was taken consistent with U.S. obligations under international trade agreements.

What GAO Recommends

GAO is not making any recommendations.