a

GAO

United States Government Accountability Office

Report to Congressional Committees

June 2005 U.S.-CHINA TRADE

Commerce Faces 

Practical and Legal 

Challenges in Applying 

Countervailing Duties

GAO-05-474
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-474.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Loren Yager at 

(202) 512-4347 or yagerl@gao.gov. 

Highlights of GAO-05-474, a report to 

congressional committees 

June 2005

U.S.-CHINA TRADE

Commerce Faces Practical and Legal 

Challenges in Applying Countervailing 

Duties 

The current Commerce policy of not applying CVDs to NME countries 

(including China) rests on two principles advanced in 1984 and confirmed by 

a federal appeals court. These are that Commerce (1) lacks explicit authority 

to do so, and (2) cannot arrive at meaningful conclusions regarding subsidies 

in such countries due to government intervention in the economy. 

Commerce could reclassify China as a market economy or individual 

Chinese industries as “market oriented” and apply CVDs against China as a 

market economy. Commerce has criteria for such determinations, but said 

that China is unlikely to satisfy them in the near term. It could also reverse 

its 1984 position and apply CVDs without any change in China’s NME status. 

However, absent a congressional grant of authority, such a decision could be 

challenged in court, with uncertain results. World Trade Organization (WTO) 

rules do not explicitly preclude either alternative. 

Commerce would face challenges, regardless of the alternative adopted. 

Chinese subsidies remain difficult to identify and measure. Employing thirdcountry information or “facts available” may help, but would not eliminate 

these difficulties. Commerce lacks clear authority to fully implement China’s 

WTO commitment on use of third-country information in CVD cases. 

It is unclear whether, on a net basis, applying CVDs would provide greater 

protection than U.S. producers already obtain from antidumping duties. 

CVDs alone tend to be lower than antidumping duties. If Commerce grants 

China market economy status, both CVDs and antidumping duties could be 

applied simultaneously, but required methodological changes could well 

reduce antidumping duties. It is not clear whether CVDs would compensate 

for these reductions. Regardless of China’s status, some duties might need to 

be reduced to avoid double counting of subsidies. Commerce lacks clear 

authority to make such corrections when domestic subsidies are involved. 

CVDs Are Not Currently Applied against NME Countries 

Ukraine

Moldova

Armenia

Azerbaijan

Georgia Kyrgyzstan

China

Vietnam

Tajikistan

Uzbekistan

Turkmenistan

Sources: Department of Commerce and MapArt.

Belarus

Some U.S. companies allege that 

unfair subsidies are a factor in 

Chinese success in U.S. markets. 

U.S. producers injured by 

subsidized imports may normally 

seek countervailing duties (CVD) to 

offset subsidies, but the United 

States does not apply CVDs against 

countries, including China, that the 

Department of Commerce 

classifies as “nonmarket 

economies” (NME). In this report, 

GAO (1) explains why the United 

States does not apply CVDs to 

China, (2) describes alternatives 

for changing this policy, (3) 

explores challenges that would 

arise in applying CVDs, and (4) 

examines the implications for duty 

rates on Chinese products. 

What GAO Recommends

GAO recommends that Commerce 

clarify its ability to measure 

Chinese subsidies and the 

methodologies it might use in doing 

so. If (1) Commerce changes 

China’s NME status or (2) Congress 

decides to authorize application of 

CVDs to China as an NME, 

Congress may wish to authorize 

Commerce to (1) implement 

China’s WTO commitment on 

third-country information in CVD 

cases and (2) make corrections to 

avoid double counting. 

Agency officials thought some of 

GAO’s suggested actions 

unnecessary. GAO maintains they 

are prudent in light of Commerce’s 

lack of explicit authority in this 

area and to prepare for potential 

CVD cases. 
Page i GAO-05-474 U.S.-China Trade

Contents

Letter 1

Results in Brief 3

Background 6

Legal and Practical Obstacles Have Prevented Application of CVDs 

to China 6

Department of Commerce Could Act to Allow Application of CVD 

Law to China 10

Challenges Would Remain in CVD Actions against China 18

Uncertain Whether Applying CVDs Would Result in Increased 

Protection 23

Conclusions 29

Recommendations for Executive Action 30

Matters for Congressional Consideration 31

Agency Comments and Our Evaluation 31

Appendixes

Appendix I: Objectives, Scope, and Methodology 34

Appendix II: CVDs and Antidumping Duties under WTO Rules and U.S. 

Law 36

WTO Agreement Provides General Rules 36

U.S. Procedures Reflect WTO Rules 37

Countervailing Duties Usually Applied in Tandem with Antidumping 

Duties 39

Appendix III: Comments from the Department of Commerce 43

GAO Comments 47

Appendix IV: GAO Contact and Staff Acknowledgments 50

Table Table 1: Former NME Countries Reclassified as Market Economy 

Countries 11

Figures Figure 1: Current NME Countries 8

Figure 2: U.S. Countervailing Duties and Companion Antidumping 

Duties, 1995-2004 24

Figure 3: Outline of the U.S. Process for Making CVD 

Determinations 38

Figure 4: Results of 72 CVD Petitions, 1995-2004 40

Figure 5: How Are Antidumping Duties Determined? 41
Contents

Page ii GAO-05-474 U.S.-China Trade

Figure 6: U.S. CVD Orders against All Countries and Antidumping 

Duty Orders against Market Economies, Other NME 

Countries, and China, 1996-2004 42

Abbreviations

CVD countervailing duty

ITC International Trade Commission

NME nonmarket economy

USTR Office of the United States Trade Representative

WTO World Trade Organization

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Page 1 GAO-05-474 U.S.-China Trade

United States Government Accountability Office

Washington, D.C. 20548

A

June 17, 2005 Letr

The Honorable Richard C. Shelby 

Chairman

The Honorable Barbara A. Mikulski

Ranking Minority Member

Subcommittee on Commerce, Justice, and Science

Committee on Appropriations

United States Senate

The Honorable Frank R. Wolf 

Chairman

The Honorable Alan B. Mollohan 

Ranking Minority Member

Subcommittee on Science, the Departments of State,

Justice, and Commerce, and Related Agencies 

Committee on Appropriations

House of Representatives

Imports from China have grown rapidly over the last decade, from a total 

value of about $42 billion in 1995 to over $196 billion in 2004.1

 While the 

prices of these Chinese goods are often lower than U.S. prices and 

therefore benefit consumers, this growth has presented a major challenge 

for U.S. producers that compete with Chinese products in the U.S. market.

Some U.S. companies adversely affected by this growth have alleged that 

unfair Chinese government subsidies have been an important factor in 

Chinese companies’ success in the U.S. market. U.S. officials have 

expressed concern about Chinese subsidies in bilateral and multilateral 

meetings. However, while U.S. producers injured by subsidized imports 

may normally seek imposition of countervailing duties (CVD) to offset the 

competitive advantages that these subsidies confer, U.S. CVD laws are not 

currently applied against countries—including China—that the United 

States classifies as “nonmarket economy” (NME) countries. Various 

parties, including U.S. industry representatives, some trade attorneys, and 

the U.S.-China Economic and Security Review Commission, have 

advocated taking steps to make CVDs available against Chinese products. 

Congress is currently considering legislation that would explicitly 

1

Both values are expressed in constant 2004 dollars.
Page 2 GAO-05-474 U.S.-China Trade

authorize CVD actions against NME countries.2 Nonetheless, the 

implications of such steps have not been fully explored.

In light of increased concern about China’s trade practices, the conference 

report on fiscal year 2004 appropriations legislation requested that GAO 

monitor the efforts of U.S. government agencies responsible for ensuring 

free and fair trade with that country.3

 In subsequent discussions with staff 

from the House Appropriations Committee’s Subcommittee on Science, the 

Departments of State, Justice, and Commerce, and Related Agencies, we 

agreed to provide a number of reports on relief mechanisms available to 

U.S. producers that are adversely affected by unfair or surging imports, and 

on the manner in which the mechanisms have been applied to China.4

 In 

this report, we 

• explain why the United States does not currently apply CVDs to imports 

from China,

• describe alternative courses of action available to the Department of 

Commerce that would lead to application of CVDs to Chinese-origin 

imports,

• explore the challenges that Commerce would face in applying these 

alternatives, and

• examine the potential impact that applying these alternatives would 

have on the rates of duty applied to Chinese products.

To address our objectives, we reviewed applicable U.S. laws and 

regulations and World Trade Organization (WTO) agreements, including 

relevant portions of the agreement through which China acceded to WTO 

membership in 2001. We conducted a literature search and reviewed 

relevant scholarly and legal analyses, Department of Commerce 

determinations, and decisions by U.S. courts and the WTO Dispute 

2

See, for example, H.R. 1216, S. 593. Similar bills were introduced in both houses of 

Congress in 2004, but did not gain approval. See H.R. 3716, S. 2212.

3

H.R. Rep. No. 108-401, at 574 (2003), accompanying the Consolidated Appropriations Act, 

2004, Pub. L. No. 108-199, 118 Stat. 3, 65.

4

We have already published a report on textile safeguards. See GAO, U.S.-China Trade: 

Textile Safeguard Procedures Should be Improved, GAO-05-296 (Washington D.C.: Apr. 4, 

2005). Forthcoming reports will focus on other safeguard measures and antidumping duties.
Page 3 GAO-05-474 U.S.-China Trade

Settlement Body. We consulted with trade and legal policy experts from the 

U.S. government, private sector trade associations, consulting and law 

firms, and academic institutions, as well as representatives of the WTO, the 

government of China, and other governments. Finally, we assembled and 

analyzed statistical information on numbers of CVD orders applied by the 

United States over the last decade and duty rates applied in these cases. 

For comparison, we assembled equivalent information for antidumping 

duties applied on similar products over the same period. We conducted our 

work from January 2004 through April 2005 in accordance with generally 

accepted government auditing standards. Appendix I contains a more 

detailed description of our scope and methodology.

Results in Brief U.S. producers that believe themselves injured by subsidized Chinese 

imports have not been able to obtain relief through CVD actions because 

China is considered a nonmarket economy country (NME) under U.S. law 

and practice. In two 1984 cases, the Department of Commerce declined to 

make CVD determinations for NME countries on the grounds that it lacked 

explicit legal authority to impose CVDs on NME countries and that, as a 

practical matter, it could not arrive at economically meaningful 

conclusions regarding subsidies in such countries—and therefore could 

not rationally apply the CVD laws. Commerce based the latter finding on its 

conclusion that, in such countries, government intervention in the 

economy is so pervasive that meaningful comparisons between subsidized 

and market-determined prices are not possible. A federal appeals court 

subsequently upheld Commerce’s determinations.

Commerce could take either of two paths to applying U.S. CVD laws to 

China. First, Commerce could, when appropriate, make administrative 

determinations that reclassify China as a market economy or individual 

Chinese industries as “market oriented” in character. This would permit 

Commerce to take CVD action against China on a country or industry basis. 

Commerce has criteria in place for making both types of determinations. 

However, Commerce officials stated that it may be difficult for China to 

meet these criteria in the near term. Second, Commerce could reverse its 

1984 position and process CVD actions against China without changing that 

country’s NME status. However, absent a clear congressional grant of 

authority, such a decision by Commerce could be challenged in court, with 

uncertain results. WTO rules, including China’s WTO accession agreement, 

do not explicitly preclude either of these alternatives. Moreover, the 

agreement contains provisions that permit application of third-country 
Page 4 GAO-05-474 U.S.-China Trade

information in CVD actions against China and that may facilitate such 

actions against state-owned enterprises.

Commerce would face substantial challenges in determining appropriate 

CVD levels against Chinese products. Chinese subsidies remain difficult to 

identify and quantify—largely because of the structure of the Chinese 

economy and a lack of transparency in the country’s subsidy regime. 

Commerce has no directly relevant experience and little guidance in place 

to indicate how it would proceed. It may be able to overcome these 

difficulties—at least partially—by using third-country information to create 

benchmarks for measuring subsidy benefits or by employing “facts 

available” to complete cases in which foreign parties cannot or will not 

provide needed information. However, these approaches would not fully 

resolve the methodological challenges that would face Commerce. 

Moreover, under current U.S. law, Commerce lacks explicit authority to 

fully implement China’s commitment regarding use of third-country 

information in CVD cases. 

Making CVDs available against China would give U.S. producers access to 

import relief measures that explicitly target unfair government subsidies. 

However, it is unclear whether applying CVDs would result in levels of 

protection for U.S. producers that are higher than those already applied in 

the form of antidumping duties. While the magnitude of any CVDs that 

might be applied to China has yet to be determined, CVDs alone tend to be 

lower than antidumping duties. Both types of duties could be applied 

simultaneously. However, for two reasons, simultaneous application could 

well result in reduced antidumping duties on Chinese products, and it is 

unclear whether application of CVDs would compensate for these 

reductions. First, designating China as a market economy would require 

Commerce to abandon its NME methodology for calculating antidumping 

duties on Chinese products. If made, such a change is widely expected to 

lead to lower antidumping duty rates. Second, regardless of whether China 

is designated a market economy, simultaneous application of CVDs and 

antidumping duties could, at least in some cases, require corrections to 

avoid “double counting”—that is, imposing two sets of duties to 

compensate for the same unfair trade practice. Commerce is required to 

reduce duties to avoid double counting when export subsidies are involved. 

However, the full implications of double counting are unclear because 

Commerce does not have clear legal authority to make adjustments for 

domestic subsidies.
Page 5 GAO-05-474 U.S.-China Trade

In order to provide Congress and the Department of Commerce with better 

information, we recommend that the Secretary of Commerce analyze and 

report to Congress on

• Commerce’s ability to identify and measure subsidy benefits at the 

present time, based on Commerce’s knowledge of significant Chinese 

subsidy programs; and

• broadly applicable methodologies that Commerce might employ to 

complete CVD actions against Chinese products, if called upon, 

including how it might respond to potential double counting of domestic 

subsidy benefits.

In the event that Commerce changes China’s NME status or Congress 

decides to adopt proposed legislation that would explicitly authorize 

Commerce to apply U.S. CVD laws to NME countries, including China, 

Congress may wish to consider adopting legislation to provide Commerce 

clear authority to (1) implement China’s WTO commitment regarding use of 

third-country information in such cases, and (2) make corrections to avoid 

double counting domestic subsidy benefits when applying both CVDs and 

antidumping duties to the same products from NME countries, taking into 

account Commerce’s analyses on this topic.

The Department of Commerce provided written comments on a draft of 

this report, which are reprinted in appendix III. Commerce disagreed with 

one of our recommendations, believing that reporting on methodologies 

that it would employ to complete CVD actions against China would be 

speculative and might prejudge the results of future cases. Regarding our 

matters for congressional consideration, Commerce cited some authority 

to apply third-country information and asserted that double counting of 

domestic subsidies may not occur and may be difficult to correct. In 

response, we clarified and elaborated upon our discussion of the legal 

issues involved. While agreeing that Commerce should not attempt to 

specify how it would proceed in specific sets of circumstances, we 

continue to believe that it would be instructive for Commerce to report 

broadly on how it might apply CVD law to China. We also maintain that it 

would be prudent for Congress to enact legislation that would fully 

authorize Commerce to implement China’s WTO commitment on using 

third-country information in CVD cases and correct for any double 

counting of domestic subsidies that may occur in the event that CVD law is 

applied to China as an NME country.
Page 6 GAO-05-474 U.S.-China Trade

The Department of Commerce also provided technical comments on a draft 

of this report, as did the Office of the United States Trade Representative 

(USTR) and the International Trade Commission (ITC). We took these 

comments into consideration and made revisions throughout the report as 

appropriate to make it more accurate and clear.

Background The WTO Agreement on Subsidies and Countervailing Measures 

establishes general international rules regarding the types of subsidies that 

exporting countries may and may not maintain and procedures that 

importing countries may employ to counter injurious subsidy practices. 

U.S. trade law generally reflects the agreement’s provisions. The United 

States applies CVDs with some regularity—almost always in tandem with 

the other major mechanism for providing relief from unfairly traded 

imports: antidumping duties. However, CVDs are requested and applied 

much less frequently than antidumping duties. Appendix II provides 

additional background information on WTO subsidy rules and relevant U.S. 

laws, explains antidumping actions in more detail, and provides more detail 

about how frequently CVD and antidumping actions are sought and duties 

actually imposed.

Legal and Practical 

Obstacles Have 

Prevented Application 

of CVDs to China

The U.S. government does not apply its CVD laws against China because 

the Department of Commerce classifies China as an NME country and has 

adopted a policy against taking CVD actions against countries so 

designated. This policy rests upon two principles, first advanced in two 

1984 Department of Commerce decisions and subsequently upheld by the 

U.S. Court of Appeals for the Federal Circuit. These principles are (1) from 

a legal standpoint, Commerce does not have explicit authority to apply 

CVDs against NME countries; and (2) as a practical matter, Commerce 

cannot arrive at economically meaningful conclusions regarding subsidies 

in such countries.
Page 7 GAO-05-474 U.S.-China Trade

The Department of 

Commerce Classifies China 

as an NME Country

The Department of Commerce classifies China, as well as Vietnam and a 

number of former Soviet republics, as NME countries. Under U.S. trade 

law, Commerce may classify any country that does not operate on market 

principles “so that sales of merchandise in such country do not reflect the 

fair value of the merchandise” as an NME country.5

 Commerce has 

classified China as an NME country since 1981.6

 Figure 4 shows the 

countries that Commerce currently classifies as NMEs.

5

19 U.S.C. §1677(18).

6

Final Determination at Less Than Fair Value: Natural Menthol from the People’s 

Republic of China, 46 Fed. Reg. 24614, May 1, 1981.
Page 8 GAO-05-474 U.S.-China Trade

Figure 1: Current NME Countries

Note: Commerce has made market/nonmarket economy determinations only when called upon. 

Commerce has never been called upon to rule on the market/nonmarket status of some countries that 

one might expect to find in a list of current or former nonmarket economies. 

Ukraine

Moldova

Armenia

Azerbaijan

Georgia

Kyrgyzstan

China

Vietnam

Tajikistan

Uzbekistan

Turkmenistan

Sources: Department of Commerce and MapArt.

Belarus
Page 9 GAO-05-474 U.S.-China Trade

Commerce Determined That 

It Lacks Authority to Apply 

Countervailing Duty Law to 

NME Countries

U.S. trade law does not contain any explicit prohibition against applying 

CVDs to NME countries. Nonetheless, the Department of Commerce 

determined in 1984 that it did not have explicit legal authority to apply 

CVDs to such countries. Commerce set forth its conclusions on this matter 

in rulings denying CVD protection against carbon steel wire rods from 

Poland and Czechoslovakia (which were then considered NME countries).7

 

Commerce observed that, even though Congress had addressed unfair 

trade remedies in both the Trade Act of 19748

 and the Trade Agreements 

Act of 19799

 and revised U.S. countervailing duty law on both occasions, it 

had not given any indication that CVD law should be applied against these 

countries. Instead, Congress provided two other remedies—antidumping 

duties and safeguard measures—to address unfair trade practices by NME 

countries. The U.S. Court of Appeals for the Federal Circuit upheld 

Commerce’s decision in Georgetown Steel Corp. v. United States.

10

Commerce Unable to 

Measure Subsidy Benefits in 

NME Countries

In its 1984 determinations, the Department of Commerce concluded that it 

cannot measure subsidy benefits in NME countries. In explaining this 

conclusion, Commerce observed that, in market economy countries, 

markets generate prices that can be used to measure the impact of 

government subsidies. However, in NME countries, government 

intervention in the economy is so pervasive that one cannot make 

meaningful comparisons between market-determined prices and those that 

have been distorted by government intervention. Commerce summarized 

the methodological problems it faced in these cases as follows:

7

49 Fed. Reg. 19370, 19374 (May 7, 1984).

8

Pub. L. No. 93-618, 88 Stat. 1978.

9

Pub. L. No. 96-39, 93 Stat. 144.

10801 F.2d 1308 (Fed. Cir. 1986). In upholding the Department of Commerce’s position, the 

Court of Appeals overruled an earlier ruling in the same case by the Court of International 

Trade, which had reversed the department. See Continental Steel v. United States, 614 F. 

Supp. 548, 550 (C.I.T. 1985). 
Page 10 GAO-05-474 U.S.-China Trade

“We believe a subsidy (or bounty or grant) is definitionally any action that distorts or 

subverts the market process and results in a misallocation of resources. . . . In NMEs 

resources are not allocated by a market. With varying degrees of control, allocation is 

achieved by central planning. Without a market, it is obviously meaningless to look for 

misallocation of resources caused by subsidies. There is no market process to distort or 

subvert.... It is this fundamental distinction—that in an NME system the government does 

not interfere in the market process but supplants it—that has led us to conclude that 

subsidies have no meaning outside the context of a market economy.”11

In upholding Commerce’s position in this matter, the Court of Appeals 

found in Georgetown Steel that in nonmarket economies the governments 

control their trading entities by determining where, when, and what they 

will sell, and upon what terms. When no market exists, subsidies cannot be 

found to distort market decisions.

Department of 

Commerce Could Act 

to Allow Application of 

CVD Law to China

Commerce could take either of two paths to applying U.S. CVD law to 

China. First, Commerce could use its administrative authority to change 

China’s NME status in whole or in part. This would allow Commerce to 

apply U.S. CVD law to China on a country or industry basis. However, 

Commerce officials observed that it may be difficult for China to meet 

these criteria in the near term. Alternatively, Commerce could reverse its 

1984 position and decide that CVD law could be applied to China while it 

remains classified as an NME country. However, absent a clear grant of 

authority from Congress, such a reversal could be challenged in court. The 

results of such a challenge are uncertain. WTO rules, including relevant 

provisions of China’s WTO accession agreement, do not explicitly preclude 

the United States from pursuing either alternative. Moreover, China’s WTO 

accession commitments (1) permit use of third-country information in CVD 

cases and (2) could facilitate Commerce adjudication of CVD actions 

against state-owned enterprises in that country.

Commerce Could Change 

China’s NME Status in 

Whole or in Part

The Department of Commerce has administrative authority to reclassify 

NME countries as market economy countries, or individual NME country 

industries as “market oriented” in character, provided that the country as a 

whole or the industries in question meet certain criteria. 

1149 Fed. Reg. 19370, 19374 (May 7, 1984).
Page 11 GAO-05-474 U.S.-China Trade

Commerce Could Reclassify 

China as a Market Economy 

Country

Department of Commerce officials explained that countries classified as 

NMEs may ask that their status be reviewed either within the context of an 

ongoing import relief case or as an independent matter. Commerce has 

responded to a number of requests for such reviews, granting some 

countries (such as Russia and Estonia) market economy status while 

classifying others (such as Vietnam) as nonmarket economies.12 Table 1 

shows former NME countries that Commerce has determined merit 

reclassification as market economy countries.

Table 1: Former NME Countries Reclassified as Market Economy Countries

Source: Department of Commerce.

In making decisions on such matters, U.S. trade law specifies that 

Commerce shall take into account the following factors:

• the extent to which the country’s currency is convertible into the 

currency of other countries,

• the extent to which wage rates are determined by free bargaining 

between labor and management,

12For details on these decisions see, for Russia, a Commerce Department memorandum 

available at http://ia.ita.doc.gov/download/russia-nme-status/russia-nme-decision-final.htm;

for Estonia, 68 Fed. Reg. 10445 (Mar. 5, 2003); and for Vietnam, 68 Fed. Reg. 4986 (Jan. 31, 

2003).

Country

Year of

Commerce decision

Romania 2003

Lithuania 2003

Estonia 2003

Russia 2002

Kazakhstan 2002

Latvia 2001

Hungary 2000

Czech Republic 2000

Slovakia 1999

Poland 1993
Page 12 GAO-05-474 U.S.-China Trade

• the extent to which joint ventures or other investments by foreign firms 

are permitted,

• the extent of government ownership over the means of production,

• the extent of government control over the allocation of resources and 

enterprises’ price and output decisions, and

• other factors that Commerce considers appropriate.13

In April 2004, the United States and China established a Structural Issues 

Working Group under the auspices of the U.S.-China Joint Commission on 

Commerce and Trade.14 Among other things, this group is examining issues 

relevant to China’s desire to be classified as a market economy country 

under the criteria set forth in U.S. antidumping law.15 U.S. officials involved 

with the group have observed that substantial additional reform will have 

to take place (e.g., in improving respect for labor rights and reducing or 

abandoning controls on currency convertibility) before China can expect to 

be declared a market economy country under the criteria listed above.

The Chinese government regards recognition as a market economy among 

its trading partners as a desirable diplomatic goal. While acknowledging 

that this change in status may result in the United States (and other 

countries) applying countervailing duties, Chinese officials we spoke with 

emphasized the political value of their country being officially declared a 

“market economy.” Other trade experts pointed out that Chinese officials 

may also be seeking this change because they believe it would generally

1319 U.S.C. §1677(18).

14The commission was established in 1983 to serve as a forum for high-level dialogue on 

bilateral trade issues.

15According to Commerce, the working group has held two meetings (in July 2004 and May 

2005).
Page 13 GAO-05-474 U.S.-China Trade

result in lower antidumping duties being assessed against Chinese 

products.16

China has actively sought change in its status among its trading partners. A 

number of them, including Singapore and Malaysia, have declared China to 

be a market economy. However, in June 2004, the European Union 

officially declined a Chinese request for designation as a market economy. 

In making this decision, the EU acknowledged that China had made 

progress, but concluded that much remained to be done in reducing state 

interference in the economy, improving corporate governance and the rule 

of law, and bringing the banking sector under market rules.17 Department of 

Commerce officials informed us that Chinese representatives have not yet 

officially requested that Commerce review their country’s NME status 

under U.S. law.

Commerce Could Classify 

Individual Chinese Industries as 

Market Oriented

The Department of Commerce could also designate individual Chinese 

industries as “market oriented” and thus as eligible for application of CVDs. 

In a 1992 CVD decision involving imported oscillating and ceiling fans from 

China, Commerce determined that, short of finding that an entire country 

merits designation as a market economy, Commerce can find specific 

industries within such countries to be “market oriented” in character.18 

Commerce stated that certain criteria, developed earlier in the context of 

an antidumping case (also against China),19 would have to be met for an 

16Application of Commerce’s NME (“surrogate” or third-country-based) methodology for 

calculating antidumping duties is widely believed to lead to application of duties that are 

significantly higher than those resulting from application of the department’s standard 

methodology for market economy countries. We were unable to identify any analyses 

showing conclusively that this is the case. Our forthcoming report on the application of 

antidumping duties to Chinese products will include information and analyses of this 

question.

17European Union, China—Market Economy Status in Trade Defense Investigations, 

memo 04/163 (Brussels, June 28, 2004).

18Oscillating and Ceiling Fans from the People’s Republic of China, 57 Fed. Reg. 24018 

(Dept. of Commerce, 1992) (final determination) and 57 Fed. Reg. 10011 (Dept. of 

Commerce, 1992) (preliminary determination). In issuing these decisions, the department 

was responding to an allegation from the company petitioning for relief that, regardless of 

the nature of China’s economy, the Chinese fan industry operated pursuant to market 

principles and that U.S. CVD laws should therefore apply.

19Sulfanilic Acid from the People’s Republic of China, 57 Fed. Reg. 9409, 9411 (Dept. of 

Commerce, Mar. 18, 1992).
Page 14 GAO-05-474 U.S.-China Trade

industry to be found market oriented. The industry in question must be 

characterized by the following:

• virtually no government involvement in setting prices or amounts to be 

produced,

• private or collective ownership, and

• market-determined prices being paid for all significant inputs, whether 

material or nonmaterial, and for all but insignificant proportions of all 

the inputs accounting for the total value of the product.

Commerce justified application of these criteria to determine whether a 

CVD investigation should proceed by observing that if the Chinese fan 

industry met the criteria just described, then Commerce could rely on 

prices and costs to producers in that industry to provide accurate measures 

of value. Commerce concluded that, if the prices and costs in a sector of an 

NME were market determined, then the practical concerns cited by the 

Court of Appeals in Georgetown Steel would not arise and Commerce could 

apply U.S. CVD law.20 

To date, Commerce has not accepted any claim that an NME country 

industry should be designated as market-oriented in character. Commerce 

officials observed that, as a practical matter, the criteria for designation as 

a market-oriented industry may be difficult for producers operating in a 

nonmarket economy to satisfy. In any event, Commerce has not received a 

CVD petition involving a market-oriented industry claim since the early 

1990s. In a few cases, Chinese companies have responded to antidumping 

cases, in part, by requesting designation as a market-oriented industry. 

Commerce has denied these requests—primarily on the grounds that the 

Chinese companies in question submitted information that was insufficient 

20Commerce also observed that Congress had amended U.S. antidumping laws in 1988 to 

provide the department with the authority to use its market economy methodology to 

calculate antidumping duties on industries from NME countries when the available 

information permits. The department stated that “this change was added in recognition of 

attempts by the traditional NME countries to evolve toward market-oriented economies” 

and that “Congress clearly contemplated a situation in which a sector of an NME may be 

sufficiently free of NME distortion so that the actual prices and/or costs incurred in the 

NME could be used in dumping calculations and render meaningful results.” Commerce 

also found that, if a market-oriented industry existed, failure to permit application of CVD 

law would leave affected U.S. industries at a disadvantage. 57 Fed. Reg. 24018 (June 5, 

1992).
Page 15 GAO-05-474 U.S.-China Trade

or provided too late in Commerce’s process to allow an informed 

decision.21

Commerce Could Apply 

CVD Law against NME 

Countries, but There Are 

Legal Obstacles to Such 

Action

Since there is no explicit statutory bar to applying CVDs to NME country 

products, Commerce could make an administrative determination to apply 

such duties to China and other NME countries. Some legal experts have 

taken the position that Georgetown Steel merely upheld Commerce’s 

decision that it could not apply CVD law to NME countries, and that 

Commerce could therefore change its policy so long as the change could be 

defended as reasonable. Commerce officials told us that it might be 

possible for parties in a particular case to present new legal positions that 

would permit it to apply CVDs against an NME country product without a 

change in current law. They added, however, that in the absence of an 

actual case, it was hard to say whether or how this would occur. 

While Commerce could reverse its 1984 position, the Court of Appeals’ 

Georgetown Steel ruling raises serious doubt about Commerce’s ability to 

make such a change without a clear grant of authority from Congress. The 

Court of Appeals did uphold Commerce, but the court also appeared to 

make its own findings. The court emphasized that recent trade legislation 

showed that Congress had intended that any selling by NME countries at 

unreasonably low prices should be dealt with under the antidumping law, 

and that there was no indication that Congress had intended or understood 

that the CVD law would also apply. The court stated, in addition, that “[i]f 

[antidumping law] is inadequate to protect American industry from such 

foreign competition (resulting from sales in the United States of 

merchandise that is priced below its fair value) . . . it is up to Congress to 

provide any additional remedies it deems appropriate.”22 The Uruguay 

Round Agreements Act,23 adopted in 1994, made important changes in U.S. 

CVD law but did not add any language authorizing CVD actions against 

NME countries. Moreover, the Statement of Administrative Action

accompanying the Act acknowledged that the Georgetown Steel ruling 

stood for “the reasonable proposition that the CVD law cannot be applied 

21For example, the Department of Commerce recently denied such requests by Chinese 

color television and bedroom furniture companies. See 69 Fed. Reg. 20594 (Apr. 16, 2004) 

and 69 Fed Reg. 67313 (Nov. 17, 2004). 

22801 F.2d 1308, 1318 (Fed. Cir. 1986).

23Pub. L. No. 103-465, 108 Stat. 4809, adopted Dec. 8, 1994. 
Page 16 GAO-05-474 U.S.-China Trade

to imports from nonmarket economy countries.”24 Although Members of 

Congress introduced legislation to make U.S. CVD law explicitly applicable 

to NME countries in 2004, and again in 2005, these bills did not gain 

approval. Consequently, a Commerce decision to reverse the position it 

adopted in 1984 and allow CVD actions against NME countries could very 

well be challenged in court. The results of such a challenge are uncertain.

WTO Agreements Are Silent 

on NME Issue in CVD 

Actions

WTO subsidy and countervailing duty rules do not address the issue of 

NME status in CVD proceedings. The WTO Agreement on Subsidies and 

Countervailing Measures does not discuss market/nonmarket economy 

designations in general and, more specifically, does not address the 

question of whether members can bring CVD actions against NME 

countries. The CVD provisions in China’s WTO accession agreement are 

similarly silent.25 Thus, we believe that these rules (1) do not explicitly 

restrict the United States from continuing or ceasing to apply NME status 

to China on either a countrywide or industry-specific basis and (2) do not 

explicitly preclude bringing CVD actions against countries that are 

classified as NMEs.

Accession Agreement 

Permits Use of ThirdCountry Information to 

Calculate Countervailing 

Duties

While WTO rules allow members to apply alternate methodologies—not 

based strictly on information from within the exporting country—to 

calculate antidumping duties in certain cases,26 the organization’s rules do 

not make explicit provision for applying third-country information in CVD 

cases. However, China’s WTO accession agreement specifically permits 

application of third-country information in CVD determinations. The 

agreement states that countries attempting to identify and quantify subsidy 

24The statement presented the Clinton administration’s views on the interpretation and 

application of the agreements resulting from the Uruguay Round of trade negotiations, and 

was approved by Congress as part of this Act. 108 Stat. 4814, 19 U.S.C. § 3511(a)(2).

25China’s accession agreement does recognize that decisions on NME status in antidumping 

actions are to be made under the national laws of WTO members. WTO Protocol on the 

Accession of the People’s Republic of China, art. 15(d).

26General Agreement on Tariffs and Trade Annex I, Ad art. VI, states, “[I]n the case of 

imports from a country which has a complete or substantially complete monopoly of its 

trade and where all domestic prices are fixed by the State, special difficulties may exist in 

determining price comparability [in antidumping analyses] and in such cases importing 

contracting parties may find it necessary to take into account the possibility that a strict 

comparison with domestic prices in such a country may not always be appropriate.”
Page 17 GAO-05-474 U.S.-China Trade

benefits in China may encounter special difficulties because “prevailing 

terms and conditions in China may not always be available as appropriate 

benchmarks.” In such situations, the agreement allows other member 

countries to employ “terms and conditions prevailing outside China” to 

generate benchmarks that can be used to measure subsidy benefits and 

establish appropriate CVDs. The agreement does require, however, that 

before considering application of information from outside China, member 

countries should first seek to use adjusted information from China itself.27 

This provision has no expiration date and does not differentiate between 

China as a market or a nonmarket economy.28

Accession Agreement May 

Facilitate Actions against 

State-Owned Enterprises

China’s WTO accession agreement contains another provision that may 

facilitate application of CVDs in some cases involving state-owned 

enterprises.29 WTO members may only apply CVDs when the subsidies in 

question can be shown to be “specific to an enterprise or industry or group 

of enterprises or industries.”30 Determining whether a particular subsidy 

meets this test can be challenging. For example, a government loan 

program directed specifically at providing below-market financing to 

enable fishermen to acquire boats and equipment might be considered 

specific, and thus actionable. On the other hand, a program that provides 

below-market financing to many types of small businesses, including some 

fishermen, might not be considered specific, and thus not open to 

application of CVDs.31

China’s accession agreement provides that subsidies benefiting stateowned enterprises will be regarded as specific if, among other things, such 

enterprises are the “predominant” recipients or receive “disproportionally 

27WTO Protocol on the Accession of the People’s Republic of China, art. 15(b).

28China’s accession agreement also affirms other WTO members’ right to apply third-country 

information in antidumping actions against China. However, the agreement provides that 

members will cease doing so in the event that they recognize China as a market economy, in 

whole or in part. The agreement indicates further that its provisions on applying thirdcountry information in antidumping cases will expire in December 2016.

29USTR officials stated that state-owned enterprises are believed to be, by far, the major 

recipients of subsidies in China.

30WTO Agreement on Subsidies and Countervailing Measures, art. 2.1.

31See WTO, Technical Cooperation Handbook on Notification Requirements, 

WT/TC/NOTIF/SCM/1, 9 (Geneva, September 1996), 6-7.
Page 18 GAO-05-474 U.S.-China Trade

large amounts” of such subsidies.32 This may facilitate application of CVDs 

in some circumstances because it may make it difficult for China to argue 

that such subsidies are generally available, and thus not actionable. 

Instead, members may regard them as specific to state-owned businesses 

without regard for the sector in which they operate.33

Challenges Would 

Remain in CVD Actions 

against China

While Commerce could proceed with CVD actions against China, it would 

continue to face substantial practical challenges in identifying Chinese 

subsidies and determining appropriate CVD levels. Commerce could 

employ third-country information or “facts available” to complete China 

CVD actions. However, these approaches would not eliminate the 

challenges that such actions would present. Moreover, Commerce lacks 

explicit legal authority to implement China’s WTO commitment allowing 

other members to employ third-country information in CVD actions against 

China.

Chinese Subsidies Remain 

Difficult to Identify and 

Assess

Several trade experts stated that even in the best of circumstances, it can 

be quite difficult to identify and quantify subsidy benefits.34 In joining the 

WTO, China specifically agreed to eliminate all prohibited subsidies upon 

accession and to provide the organization with information on all of its 

subsidies as called for in the WTO subsidies agreement. Some trade experts 

we spoke with believed that sufficient information could be obtained to 

understand and estimate the benefits derived through Chinese subsidies. 

However, U.S. government officials and other trade experts said that it 

remains particularly difficult to obtain substantive information about 

Chinese subsidies. For example, USTR has observed the following:

“It is difficult to identify and quantify possible export subsidies in China because of the lack 

of transparency in China’s subsidy regime. Chinese subsidies are often the result of internal 

administrative measures and are not publicized. U.S. subsidy experts are currently seeking 

32WTO Protocol on the Accession of the People’s Republic of China, art. 10. 

33According to the World Bank, state-owned enterprises now account for less than onequarter of China’s industrial output. See the World Bank, China: An Evaluation of World 

Bank Assistance (Washington, D.C., 2004).

34WTO officials observed that even the United States—a country wherein government 

actions that influence the economy are comparatively well documented—has had difficulty 

identifying and quantifying subsidy information that it is required to report to the WTO. 
Page 19 GAO-05-474 U.S.-China Trade

more information about several Chinese programs and policies that may confer export 

subsidies. Their efforts have been frustrated in part because China has failed to make any of 

its required subsidy notifications since becoming a member of the WTO.”35

Commerce officials told us that even though there has been substantial 

reform in China, underlying features of the Chinese economy continue to 

make it difficult to identify appropriate benchmarks for measuring 

subsidies. For example, according to USTR, most Chinese subsidies are 

believed to be provided through that country’s financial system. However, 

some trade experts stated that government control over the banking 

system in China makes it difficult to identify market-determined rates of 

interest that could be used as benchmarks to determine whether, or to 

what extent, particular companies or industries are benefiting from credit 

subsidies. U.S. government and private sector analysts added that while the 

Chinese government heavily influences allocation of credit—favoring some 

industries over others—it is uncertain how to quantify the subsidy benefits 

conferred through this process. In addition, while some attorneys who have 

represented Chinese companies disagreed, Commerce officials and 

attorneys who have represented U.S. firms said that lack of adherence to 

generally recognized accounting standards and unreliable bookkeeping 

among Chinese companies can make accurate identification and accurate 

measurement of subsidy benefits extremely difficult. Some Commerce 

officials and trade experts also said that unlike most market economies, 

which are national, China’s economy is fragmented into five or six regions, 

each with its own pricing. Thus, even if an industry were declared to be

35USTR, National Trade Estimates Report (Washington, D.C., March 2004).
Page 20 GAO-05-474 U.S.-China Trade

market oriented, it would be difficult to evaluate the subsidy benefits 

accruing to the national industry as a whole.36

Third-Country Information 

or “Facts Available” May Be 

Useful, but Would Not Fully 

Resolve Challenges

Commerce may find employing third-country information or “facts 

available” helpful in completing China CVD actions. However, these 

approaches would not fully resolve the challenges that would face 

Commerce.

Commerce has not attempted to develop methodologies or procedures for 

determining CVDs against products from nonmarket economies—based 

either on information from within the country itself or from a third country. 

Nonetheless, Commerce officials stated that, if required, they would 

endeavor to apply existing guidance and conduct an investigation that 

would withstand analytical and legal scrutiny.

While the United States employs “surrogate” or third-country information 

to calculate antidumping duties on imports from China and other NME 

countries, CVD cases against China would raise issues that Commerce 

analysts do not face in antidumping cases and that may not be resolved by 

use of third-country information. For example, it may be difficult to 

separate specific (and therefore countervailable) subsidies from those that 

are generally available (and therefore not countervailable).37 In addition, 

identifying reasonable benchmarks (such as market-determined capital 

costs) in third countries will only provide Commerce with a starting point 

36While Commerce has never reached an affirmative final determination in a CVD case 

against China—or any other NME country—Canada did complete three CVD cases against 

China during the last year. In two of these cases, Canadian officials were able to obtain 

sufficient information from the Chinese government and exporting companies to complete 

their analyses. Canada Border Services Agency, Statement of Reasons: Outdoor Barbeques 

Originating in or Exported from the People’s Republic of China, CVD/102 (Ottawa, Dec. 3, 

2004), and Statement of Reasons: Certain Laminate Flooring Originating in or Exported 

from the People’s Republic of China, CVD/104 (Ottawa, June 1, 2005). In the remaining case 

the agency was unable to obtain sufficient information from the Chinese government and 

completed its analyses by employing “the best information available.” Canada Border 

Services Agency, Statement of Reasons: Certain Carbon Steel and Stainless Steel Fasteners 

Originating in or Exported from the People’s Republic of China, CVD/103 (Ottawa, Dec. 

24, 2004). Unlike the United States, Canada does not differentiate between market and 

nonmarket economy countries in countervailing duty actions. Canadian officials did not 

employ third-country information in any of these cases. As far as we are aware, these are the 

only CVD actions completed against China to date by any WTO member.

37As already observed, article 10 of China’s WTO accession protocol facilitates such 

determinations when state-owned industries are involved.
Page 21 GAO-05-474 U.S.-China Trade

for calculating CVD rates that should be applied to Chinese products. After 

establishing such benchmarks, Commerce would then face significant 

challenges in quantifying, for example, the capital or utility costs that are 

actually being paid by Chinese companies under investigation, so that 

analysts can determine the difference between unsubsidized and 

subsidized costs. 

Commerce also has the authority to employ facts available to overcome 

difficulties in calculating subsidy benefits and corresponding CVD rates. 

Commerce normally obtains information from U.S. companies seeking 

relief and also from foreign companies and government agencies alleged to 

be benefiting from or providing subsidies. However, U.S. law grants 

Commerce authority to make determinations based on facts otherwise 

available when foreign sources cannot or will not provide needed 

information.38 Commerce might be able to complete some China CVD cases 

by applying this approach. However, Commerce officials pointed out that 

their authority to employ facts available is subject to certain limitations.39

The extent to which Commerce would employ this approach in China CVD 

cases is uncertain. 

Commerce Does Not Have 

Explicit Authority to 

Implement China’s WTO 

Commitment Regarding 

Third-Country Information 

in CVD Cases

Existing U.S. laws do not provide Commerce with clear authority to fully 

implement China’s WTO commitment allowing members to use thirdcountry information to identify and measure Chinese subsidy benefits. In 

joining the WTO, China made commitments regarding four import relief 

measures that other members may apply against imports from China. As 

already noted, even before China joined the WTO, U.S. trade law 

specifically allowed for implementation of the first of these 

commitments—application of third-country information in antidumping 

cases. Congress has passed legislation—commonly referred to as section 

421—implementing the second (involving application of safeguard 

measures).40 While Congress did not adopt legislation to implement China’s 

3819 U.S.C. §1677e(a). 

39For example, 19 U.S.C. §1677e(b) prevents the department from applying information that 

is clearly adverse to the interests of an exporter unless it determines that the exporter has 

failed to cooperate with the investigation to the best of its abilities.

40Section 421 of the Trade Act of 1974, as amended, Pub. L 106-286, 114 Stat. 882, 19 U.S.C. § 

2451. This section implements article 16 of China’s WTO protocol of accession, which 

authorizes other WTO members to apply product-specific safeguards on Chinese imports 

that are deemed to be causing or threatening to cause market disruption.
Page 22 GAO-05-474 U.S.-China Trade

third import-relief commitment (regarding textile safeguards), the U.S. 

interagency group responsible for processing textile safeguard cases41

believes that existing legislation provides it with authority to implement 

such measures.42

In contrast, U.S. trade law was not amended to explicitly authorize 

Commerce to implement China’s fourth commitment, regarding application 

of third-country information in CVD cases, and does not otherwise clearly 

state that Commerce may apply third-country information in such cases 

against foreign countries in general. Commerce regulations do provide for 

application of third-country information to CVD cases—but only in some 

circumstances.43 The most explicit provision covers only subsidies that 

impact goods and services used in producing the allegedly subsidized 

imports.44

This lack of clarity raises a question about whether Commerce could 

currently apply this commitment, even if it were to decide to reclassify 

41This interagency group, which is headed by the Commerce Department, is the Committee 

for the Implementation of Textile Agreements. 

42See 7 U.S.C. 1854 and Exec. Order 11651, 37 Fed. Reg. 4699 (Mar. 3, 1972), as amended. 

Nevertheless, the interagency group’s authority to process China textile safeguard cases has 

been challenged in court by the U.S. Association of Importers of Textiles and Apparel, 

partially on the ground that Congress did not enact legislation implementing China’s 

commitment. U.S. Ass’n of Importers of Textiles and Apparel v. United States, Ct. No. 00598 

(C.I.T. Dec. 1, 2004). GAO takes no legal position on this issue.

43For example, according to Commerce, 19 C.F.R. § 351.505 authorizes use of international 

lending rates to measure subsidy benefits from certain loans. However, this provision only 

applies to loans and does not specifically authorize use of third-country information.

44When no useable market-determined prices are available in the exporting country, 19 

C.F.R. § 351.511 authorizes the use of world market prices to determine subsidy benefits for 

goods and services employed in producing the exports in question. However, this provision 

does not extend to subsidy benefits conveyed through other means, such as equity 

investments. In its ruling on the United States application of CVDs against Canadian 

softwood lumber, the WTO Appellate Body found that information from outside the 

subsidizing country could be used to measure subsidy benefits in very limited 

circumstances. However, it did not make any specific findings on the U.S. regulations. WTO, 

United States—Final Countervailing Duty Determinations with Respect to Certain 

Softwood Lumber from Canada, WT/DS257/AB/R, paras. 77-103 (Geneva, January 2004). 

Several North American Free Trade Agreement panels have also ruled on the softwood 

lumber CVD case and questioned application of the methodology set forth in the U.S. 

regulation. North American Free Trade Agreement Secretariat, United States—Final 

Affirmative Countervailing Duty Determination: Certain Softwood Lumber Products 

from Canada, File USA-CDA-2002-1904-03 (Aug. 13, 2003, and June 7, 2004).
Page 23 GAO-05-474 U.S.-China Trade

China as a market economy or specific Chinese industries as market 

oriented in character. Department of Commerce officials said they had not 

yet decided whether Commerce could fully apply the commitment in the 

absence of authorizing legislation.

Uncertain Whether 

Applying CVDs Would 

Result in Increased 

Protection

Making CVD procedures available to U.S. producers that believe they are 

injured as a result of unfairly subsidized Chinese imports would provide a 

mechanism for taking actions that specifically target Chinese government 

subsidies. However, it is unclear whether, on a net basis, applying CVDs to 

China would result in overall levels of protection for U.S. products that are 

higher than those already applied through antidumping duties. CVDs could 

be applied alone or in tandem with antidumping duties. CVDs alone 

generally tend to be lower than antidumping duties. For two reasons, 

simultaneous application of both types of duties could well result in 

reduced antidumping duties, and it is unclear whether application of CVDs 

would compensate for such reductions. First, designating China as a 

market economy would require a change in the methodology used to 

calculate companion antidumping duties that is widely expected to lead to 

lower duty rates. Second, regardless of whether China is designated as a 

market economy, some companion antidumping duties might need to be 

reduced to avoid double counting subsidy benefits. Each of these 

considerations introduces an element of uncertainty about the magnitude 

of the total level of protection that would be applied to Chinese products; 

each may result in combined rates that are lower than might be expected.

CVD Rates Vary, but Tend to 

Be Lower Than 

Antidumping Duties

U.S. CVDs tend be lower than companion antidumping duties. This may, in 

part, explain why U.S. producers seek CVDs less often than antidumping 

duties. Figure 2 compares CVDs and antidumping duties imposed on the 

same products over the last decade. As the figure shows, CVDs imposed on 

these products varied from less than 2 percent to more than 60 percent. 

However, CVDs were lower than companion antidumping duties in nearly 

70 percent of the 36 cases where the United States imposed CVDs. The 

average CVD rate imposed in these cases was about 13 percent, while the 

average antidumping duty rate imposed was about 26 percent.
Page 24 GAO-05-474 U.S.-China Trade

Figure 2: U.S. Countervailing Duties and Companion Antidumping Duties, 1995-2004

0 10 20 30 40 50 60 70 80 90

Steel wire strand (India) 2003

Pigment (India) 2003

Hard red spring wheat (Canada) 2002

Uranium (France) 2001

Sulfanic acid (Hungary) 2001

Steel wire rod (Canada) 2001

Steel wire rod (Brazil) 2001

PET Film (India) 2001

Steel flat products (Thailand) 2000

Steel flat products (South Africa) 2000

Steel flat products (Indonesia) 2000

Steel flat products (India) 2000

Honey (Argentina) 2000

Steel plate (Indonesia) 1999

Steel plate (India) 1999

Steel plate (France) 1999

Steel beams (Korea) 1999

Steel products (Brazil) 1998

Steel plate in coils (South Africa) 1998

Steel plate in coils (Italy) 1998

Stainless steel sheet (Korea) 1998

Stainless steel sheet (France) 1998

Steel plate in coils (Belgium-Lux) 1998

Pasta (Turkey) 1995

Pasta (Italy) 1995

D-RAMS (Korea) 2002

Uranium (Germany) 2001

Uranium (Netherlands) 2001

Uranium (United Kingdom) 2001

Stainless steel bar (Italy) 2001

Softwood lumber (Canada) 2001

Steel flat products (Argentina) 2000

Steel plate (Korea) 1999

Steel plate (Italy) 1999

Stainless steel sheet (Italy) 1998

Steel wire rod (Italy) 1997

Product (country) year

Duty rate (percentage)

Countervailing (CVD) rates

Antidumping (AD) rates

Source: GAO analysis of Department of Commerce data.

Cases in 

which 

AD rates 

were 

greater than 

CVD rates

Cases in 

which 

CVD rates 

were 

greater than 

AD rates
Page 25 GAO-05-474 U.S.-China Trade

Notes: This figure compares “all others” duty rates from each new CVD action concluded during the 

indicated period to the “all others” antidumping duty rates applied to the same products. “All others” 

rates are weighted averages of the individual rates assigned to the exporting companies investigated 

in each case. The data is displayed according to the year in which petitioners filed for CVD action. 

Comparisons employing the highest rates issued in each case (that is, the highest rates applied to any 

individual company) or the median values of the rates applied to individual companies provide similar 

results. While Commerce can, and does, change rates over time to reflect changing circumstances, 

the figure does not take such changes into account.

In the three cases involving uranium from the United Kingdom, Germany, and the Netherlands, 

Commerce concluded that no antidumping duty should be applied. For more information, see 66 Fed. 

Reg. Reg. 65886 (Dec. 21, 2001).

Commerce ordered antidumping duties on Korean D-RAMS in 1993. However, Commerce 

subsequently revoked its order, and collection of these duties ended in 1999—prior to initiation of a 

CVD action on these products. For more information, see 65 Fed. Reg. 59391 (Oct. 5, 2000). 

Under the WTO subsidies agreement and U.S. law, CVD rates are limited to 

the levels required to offset the amount of the subsidies.45 For example, a 

company may be receiving government credit subsidies that reduce its 

capital costs by 20 percent. This advantage may make a real difference in 

the company’s ability to compete in the international market. However, 

Commerce stated that CVD rates are calculated by dividing the total value 

of subsidy benefits by the total value of an exporting company’s sales. 

Since the subsidy just mentioned affects only one portion of the company’s 

balance sheet (capital costs) the countervailing duty applied to offset this 

benefit may be much lower than 20 percent. In some instances, past 

government intervention and support may have been critical to an 

exporting industry’s start-up or survival. However, loans and nonrecurring 

benefits, such as equity infusions or grants, are generally amortized over a 

period of years. After several years have passed, the current value of these 

subsidies may have declined to a comparatively insignificant level. U.S. 

companies, therefore, may experience substantial difficulty in competing

45See article 19 of the WTO Agreement on Subsidies and Countervailing Measures, and 19 

U.S.C. §1671(a).
Page 26 GAO-05-474 U.S.-China Trade

with Chinese companies that owe their existence to favorable government 

actions in the past, but find that legitimately applied CVDs are minimal.46

Change in Methodology May 

Lower Antidumping Duties

Administrative actions reclassifying China as a market economy (in whole 

or in part) would require Commerce to cease applying its NME 

methodology for calculating antidumping duties on affected Chinese 

products. This is significant because, as noted earlier, CVD actions usually 

have a companion antidumping action. U.S. law allows Commerce to 

employ its third-country-based methodology to calculate antidumping 

duties only when the merchandise in question is being produced in 

countries that it classifies as NMEs. Therefore, once Commerce 

reclassified China as a market economy it could no longer apply this 

methodology. Similarly, Commerce could no longer apply this methodology 

to individual Chinese industries after it found them to be market-oriented 

in character. After either finding, Commerce would apply its market 

economy approach to calculate antidumping duties. Commerce has never 

attempted to calculate antidumping duties on Chinese products based on 

prices charged within China. Whether these antidumping duties would be 

higher, lower, or approximately the same as those derived through 

Commerce’s NME approach remains uncertain.47 However, if—as trade 

experts commonly expect—they prove to be significantly lower than 

antidumping duty rates derived through Commerce’s NME methodology, 

then even in combination with companion CVDs, the total level of 

protection applied may not be as high as that currently applied against 

Chinese products.

46The likelihood that significant CVDs could be imposed to counter past government support 

in China and other NME countries is further reduced by a 2002 WTO dispute settlement 

decision that established a rebutable presumption that prior subsidies usually will not be 

considered to have provided countervailable subsidy benefits for new, private owners of 

former state-owned enterprises—provided that the enterprise was turned over to private 

ownership in an arm’s length, fair market transaction. WTO, United States—Countervailing 

Measures Concerning Certain Products from the European Communities, 

WT/DS212/AB/R (Geneva, December 2002). Furthermore, in a countervailing duty case 

involving exports from Hungary, Commerce found that subsidies provided by a country 

before its status is changed from nonmarket to market economy are not subject to U.S. 

countervailing duty law. Sulfanilic Acid from Hungary, 67 Fed. Reg. 60223 (Dept. of 

Commerce, 2002) (Issues and Decision Memorandum for the Final Determination at 14-15).

47GAO is currently engaged in an analysis of how antidumping duty rates derived through 

Commerce’s nonmarket economy methodology compare with duty rates derived through 

the department’s standard methodology. The results of this analysis will be included in our 

forthcoming report on application of antidumping duties to China.
Page 27 GAO-05-474 U.S.-China Trade

Adjustments to Avoid 

Double Counting Might 

Lower Companion 

Antidumping Duties

If called upon to apply CVDs against Chinese products, Commerce would 

have to adjust companion antidumping duty rates downward in some cases 

in order to avoid “double counting”—imposing two sets of duties to 

compensate for the same unfair trade practice. However, the extent of 

these adjustments—and their net impact on combined duty rates to be 

applied—remains uncertain. 

Adjustments Required to Avoid 

Double Counting of Export 

Subsidies

Both WTO rules and U.S. laws require adjustments in combined duty rates 

to avoid double counting of export subsidies. WTO rules specify that no 

product can be subjected to both antidumping and countervailing duties “to 

compensate for the same situation of dumping or export subsidization.”48 

U.S. law echoes this provision, in effect, by requiring adjustments in 

antidumping duties in the event that CVDs are applied simultaneously to 

counter export subsidies on the same products.49

The rationale behind these provisions is that since antidumping duties are 

calculated by comparing domestic prices with export prices, such duties 

already offset the price advantage that export subsidies confer over the 

prices charged in the exporter’s domestic market. When imposing both 

countervailing and antidumping duties, Commerce adjusts antidumping 

duty rates downward by any amount that is attributable to export 

subsidies. Commerce would be obliged to make such adjustments when 

applying both types of duties to China, regardless of whether China 

remains an NME country under U.S. law.

The extent to which Commerce would have to reduce antidumping duty 

rates in order to avoid double counting Chinese export subsidies is 

unknown. As already noted, China agreed to cease providing export 

subsidies upon joining the WTO. Some trade experts allege that China has 

nonetheless continued to provide such subsidies. However, no industry 

group has petitioned for application of countervailing duties against 

Chinese subsidies, and U.S officials have not attempted to quantify the 

benefits provided by Chinese subsidy programs in general, or export 

subsidies in particular.

48WTO General Agreement on Tariffs and Trade, art. VI.5.

4919 U.S.C. §1677a(c)(1)(C).
Page 28 GAO-05-474 U.S.-China Trade

Implications of Double Counting 

Domestic Subsidies Are Unclear

Another potential source of double counting could emerge if Commerce 

were to apply CVDs to China while it retains its NME status. In such 

circumstances, Commerce would continue to use third-country 

information to calculate antidumping duties. While, in principle, double 

counting of actionable domestic subsidies generally does not occur when 

analysts employ information from exporting countries themselves to 

determine duty rates, it may occur when analysts use third-country 

information. However, current trade law does not make any specific 

provision for adjusting antidumping duties in such situations, and the 

implications of such situations arising are therefore unclear.

When an antidumping duty is calculated using the third-country-based 

methodology that Commerce applies to NME countries, the normal value 

of the product (the basis for calculating an antidumping duty) is based not 

on Chinese prices (which might be artificially low as a result of domestic 

subsidies) but on information from a country where prices are determined 

by free markets. Thus, when the normal value is compared with the export 

price, the difference will, at least in theory, reflect the price advantages that 

the exporting company has obtained from both export and domestic 

subsidies.50 

Economists, trade law practitioners, and Commerce officials we consulted 

disagreed on whether, in practice, antidumping duties derived through the 

third-country-based methodology effectively offset all of the subsidy 

benefits enjoyed by Chinese exporters.51 However, they generally agreed 

that, in theory, antidumping duties derived in this way do offset much of the 

value of both export and domestic subsidies. As a result, it appears that 

some double counting of actionable domestic subsidies could occur if 

Commerce used third-country information to calculate antidumping duties 

on the same products against which it also applied CVDs.

50In contrast, when a market economy methodology is used, both the normal value and the 

export price will, in principle, reflect the benefits that the producer has derived from 

domestic subsidies. Therefore, comparing the normal value with the export price will not 

result in an antidumping duty rate that captures the benefits provided by these subsidies; 

these benefits will be captured only in a CVD investigation. Thus, domestic subsidy benefits 

generally would not be double counted.

51For example, some of those with whom we spoke pointed out that Commerce’s analyses 

may not result in antidumping duties that fully offset Chinese subsidies because the thirdmarket values employed by the department may, themselves, be distorted by subsidies 

provided by other governments.
Page 29 GAO-05-474 U.S.-China Trade

Because the United States has never attempted to apply both 

countervailing and antidumping duties against an NME country, the 

implications of taking such an action are unknown. The relevant WTO 

agreements are silent with regard to making adjustments to avoid double 

counting actionable domestic subsidies, and U.S. law does not provide 

Commerce with any specific authority to avoid double counting in such 

situations. Therefore, Commerce officials observed that they would have 

no choice but to apply both duties without making any adjustments.52 

While at least two U.S. courts have suggested that double counting to 

compensate for the same unfair trade practice is generally considered 

improper,53 they have not ruled on the specific question of whether double 

counting of actionable domestic subsidies, in particular, is improper. 

Commerce officials told us that, theoretical arguments aside, interested 

parties finding fault with Commerce’s decision making would have to prove 

that there was actual double counting. 

Conclusions Despite increasing concern about Chinese government subsidies and their 

adverse impacts on U.S. producers, U.S. producers may not currently avail 

themselves of the U.S. government’s primary tool for countering unfair 

subsidies—CVDs. While the methodology that Commerce currently 

employs to calculate antidumping duties on Chinese products already 

results in duty rates that offset subsidy benefits to some degree, Commerce 

52Commerce officials identified one case involving alleged double counting of domestic 

subsidies. The case involved application of antidumping and countervailing duties against 

low enriched uranium from France—a market economy country. In this case, Commerce 

concluded that the information on the record did not provide a sufficient basis for 

determining whether double counting had taken place. Some parties to the case objected to 

Commerce’s conclusion, but they did not provide any new information that would have 

helped Commerce in re-examining it; they also did not challenge Commerce’s reasoning 

before the courts. The determination itself may be accessed online 

http://ia.ita.doc.gov/frn/0112frn/01-31509.txt. A decision memorandum providing additional 

information is also available at http://ia.ita.doc.gov/frn/summary/france/01-31509-1.txt. 

53For example, in a CVD case involving tax subsidies, the Court of Appeals for the Federal 

Circuit found that Commerce had erred in counting both a rebate of a tax and a tax 

deduction in calculating the amount of a subsidy. Similarly, in an antidumping case against 

Chinese companies, the court found that Commerce had double counted a substantial 

component of total freight expenses such that the results fell “outside the limits of 

permissible approximation.” Finally, in an antidumping case, the Court of International 

Trade instructed Commerce to reconsider its method of calculating exporter profit margins, 

in part to avoid double counting. Kajaria Iron Castings PVT. LTD v. United States, 156 F. 

3d 1163, 1173-74 (Fed. Cir. 1998); Sigma Corp. v. United States, 117 F. 3d 1401, 1407 (Fed. 

Cir. 1997); and Geum Pong Corp. v. United States, 193 F. Supp. 2d. 1363, 1370 (C.I.T. 2002).
Page 30 GAO-05-474 U.S.-China Trade

could act to make CVDs available against China as well. It could do this 

either by changing China’s NME status, or by changing its current policy 

and determining that it may apply CVD law against China regardless of its 

NME status. However, Commerce appears unlikely to employ the first 

alternative in the near future, and the Georgetown Steel ruling raises an 

obstacle to employing the second, without clear authority from Congress.

While Congress is considering legislation that would authorize Commerce 

to apply CVDs to China as an NME country, substantial practical questions 

about how such cases would proceed remain unanswered, and the results 

that they would produce remain uncertain. The absence of such 

information makes it difficult for interested Members of Congress, 

prospective participants in CVD cases, and Commerce itself to gain any 

perspectives on the implications of taking such actions. Commerce has had 

no experience in attempting to complete CVD investigations on Chinese 

products and has no specific guidance in place for how to proceed. In 

particular, Commerce lacks guidance or experience in applying thirdcountry information to calculate CVD rates—an approach that is explicitly 

permitted under the terms of China’s accession to the WTO and that 

Commerce may very well find necessary to employ given lack of 

transparency regarding China’s subsidy practices. The CVD rates that 

would result from these investigations are uncertain, as are the net effects 

of applying both CVDs and antidumping duties to Chinese products.

Furthermore, Commerce lacks clear authority under U.S. law to either fully 

implement China’s WTO commitment regarding the use of third-country 

information in CVD cases or adjust antidumping duty rates to avoid double 

counting of Chinese domestic subsidy benefits. Given this lack of clarity, it 

is reasonable to expect that parties objecting to Commerce’s decisions on 

these issues would challenge relevant aspects of CVD decisions against 

China, complicating and delaying application of such duties to products 

from that country. Until these issues are clarified, policymakers will not be 

fully informed about the implications of applying U.S. CVD laws to China, 

and Commerce will not be prepared to implement such a change in policy.

Recommendations for 

Executive Action

In order to provide Congress and the Department of Commerce with better 

information about the implications of taking actions that would result in 

application of U.S. CVD laws to China, we recommend that the Secretary of 

Commerce analyze and report to Congress on
Page 31 GAO-05-474 U.S.-China Trade

• Commerce’s ability to identify and measure subsidy benefits at the 

present time, based on its knowledge of significant Chinese subsidy 

programs; and

• broadly applicable methodologies that Commerce might employ to 

complete CVD actions against Chinese products, if called upon, 

including how it might respond to potential double counting of domestic 

subsidy benefits when applying both countervailing and antidumping 

duties to the same products.

Matters for 

Congressional 

Consideration

In the event that (1) Commerce changes China’s NME status or (2) 

Congress decides to adopt proposed legislation that would authorize 

Commerce to apply U.S. CVD laws to NME countries, including China, 

Congress may wish to consider adopting legislation to provide Commerce 

clear authority to

• fully implement China’s WTO commitment regarding use of thirdcountry information in CVD cases, and

• make corrections to avoid double counting domestic subsidy benefits 

when applying both CVDs and antidumping duties to the same products 

from NME countries, in situations where Commerce finds that double 

counting has in fact occurred, taking into account Commerce’s analyses 

of this issue prepared in response to our recommendation above.54

Agency Comments and 

Our Evaluation

The Department of Commerce provided written comments on a draft of 

this report. These comments are reprinted in appendix III. Commerce 

provided a different characterization of our finding that it did not have 

clear legal authority to apply CVD law to China, taking the position that 

there is no explicit statutory bar to taking such an action, and stating that 

Commerce would carefully consider any CVD petition. We modified our 

report to clarify that Commerce could decide, in response to a petition, that 

circumstances warrant and permit a change in its policy. However, given 

that Commerce determined in 1984 that it did not have explicit legal 

54We limit this matter for congressional consideration to situations involving NME countries 

because we believe it unlikely that double counting problems involving domestic subsidies 

will arise in companion antidumping and countervailing duty actions against market 

economy countries.
Page 32 GAO-05-474 U.S.-China Trade

authority to take such an action, and this was subsequently upheld and 

affirmed by a federal appeals court, and later confirmed by a 1994 

statement of administrative action, we continue to believe that there would 

be legal obstacles to Commerce changing its policy.

With regard to our recommendations, Commerce did not comment on our 

recommendation that it analyze and report on its ability to identify and 

measure subsidy benefits in China. Commerce believed our recommended 

report on the methodologies the department would employ if called upon 

to apply CVDs to China would be too speculative, and therefore not 

meaningful or appropriate before an actual case was filed, and that such a 

report could prejudge the outcome of future actions. We agree that specific 

decisions on how best to complete individual CVD actions against China 

would depend upon the facts in particular cases. We did not intend that 

Commerce provide detailed discussions of how it would respond to 

particular sets of circumstances. Rather, this report would provide 

Commerce, Members of Congress, and potential parties to CVD cases with 

some general-level guidance about how such actions might proceed. For 

example, such a report could address Commerce’s use of benchmark 

information from within or outside China to measure subsidy benefits and 

application of China’s WTO commitment regarding CVD actions involving 

state-owned enterprises. Providing broad commentary on such points 

would be consistent with Commerce making general guidance on its 

antidumping practices publicly available.55

Regarding our matters for congressional consideration, Commerce cited 

some legal authority for using external benchmarks in CVD cases. We 

evaluated this information and added a discussion in our report. We were 

not convinced that the cited authority would clearly provide for full 

implementation of the special methodology in China’s WTO accession 

agreement. An explicit grant of authority by Congress would remove doubt 

and lesson the chances for legal disputes, and therefore we continue to 

believe our suggestion is prudent. Commerce also said our suggestion that 

Congress provide Commerce with authority to correct any double counting 

of domestic subsidies in companion CVD and antidumping actions was not 

warranted or appropriate because Commerce had not yet encountered this 

55U.S. trade law provides general rules for completing antidumping actions against NME 

countries. 19 U.S.C. § 1667b(c). However, Commerce has also provided additional guidance. 

See Department of Commerce, Import Administration Dumping Manual, chapter 8, 

(Washington, D.C., 1997). This document is available on the Internet at 

http://ia.ita.doc.gov/admanual/index.html.
Page 33 GAO-05-474 U.S.-China Trade

situation, such corrections might be too difficult, and it would put China in 

a special category distinct from all other countries. We maintain that our 

analysis shows that there is substantial potential for double counting of 

domestic subsidies if Commerce applies CVDs to China while continuing to 

use its current NME methodology to determine antidumping duties. We 

believe that, in such a situation, Commerce should be provided authority to 

proactively address potential double counting, rather than waiting for it to 

occur and create methodological and legal problems. Finally, we intended 

that our suggestion on double counting apply to all NME countries, and 

have clarified our language on this point.

The Department of Commerce also provided technical comments, as did 

USTR and ITC. We took these comments into consideration and made 

revisions throughout the report as appropriate to make it more accurate 

and clear.

We are sending copies of this report to the Secretary of Commerce and the 

United States Trade Representative, appropriate congressional 

committees, and other interested parties. We will also make copies 

available to others upon request. In addition, the report will be available at 

no charge on GAO’s Web site at http://www.gao.gov.

If you or any of your staff have any questions about this report, please 

contact me at (202) 512-4347 or yagerl@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 IV. 

Loren Yager

Director, International Affairs and Trade
Page 34 GAO-05-474 U.S.-China Trade

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

In May 2003, the House Appropriations Committee’s Subcommittee on 

Commerce, Justice, and State, the Judiciary, and Related Agencies held 

hearings regarding U.S. government efforts to support American 

businesses adversely affected by imports from China. In light of concerns 

expressed at this hearing, the conference report on fiscal year 2004 

appropriations legislation requested that GAO monitor the efforts of U.S. 

government agencies responsible for ensuring free and fair trade with 

China.1

 In subsequent discussions with your staff, we agreed to respond by 

providing a number of reports on relief mechanisms available to U.S. 

producers adversely affected by unfair or surging imports, and the manner 

in which they have been applied to China.2

 In this report, we (1) explain 

why the United States does not currently apply CVDs to imports from 

China, (2) describe available alternatives for applying CVDs to Chineseorigin imports, (3) explore the challenges that the Department of 

Commerce would face in applying these alternatives, and (4) examine the 

potential impact that applying these alternatives would have on the rates of 

duty applied to Chinese products.

To address our objectives, we reviewed applicable U.S. laws and 

regulations and World Trade Organization (WTO) agreements, including 

the Agreement on Subsidies and Countervailing Measures, and China’s 

WTO accession agreement. We conducted a literature search and reviewed 

relevant scholarly and legal analyses, Department of Commerce 

determinations, and decisions by U.S. courts and the WTO Dispute 

Settlement Body. We consulted with trade and legal policy experts from the 

U.S. government, private sector trade associations, consulting firms, and 

academic institutions; law firms with broad experience in trade actions 

against China; as well as representatives of the WTO, the government of 

China, and other governments concerned about Chinese trade practices, 

including the European Union, Canada, New Zealand, and Mexico.

In addition, to address our fourth objective, we obtained information on 

U.S. countervailing and antidumping duty actions from 1995 through 2004 

from the Department of Commerce and the U.S. International Trade 

Commission. We used this data to construct our own database on 

1

H.R. Rep. No. 108-401, at 574 (2003), accompanying the Consolidated Appropriations Act, 

2004, Pub. L. No. 108-199, 118 Stat. 3, 65.

2

We have already published a report on textile safeguards. See GAO, U.S.-China Trade: 

Textile Safeguard Procedures Should be Improved, GAO-05-296 (Washington, D.C.: Apr. 4, 

2005). Forthcoming reports will focus on other safeguard measures and antidumping duties.
Appendix I

Objectives, Scope, and Methodology

Page 35 GAO-05-474 U.S.-China Trade

countervailing duty determinations and antidumping duties applied on 

similar products over the same period. We included all countervailing duty 

cases over this time period, as well as all antidumping cases in which a 

petition was filed by U.S. industry for an antidumping investigation against 

a similar product from the same country (e.g., honey from Argentina). Of 

the 72 countervailing duty cases from 1995 through 2004, we found only 3 

in which a similar antidumping petition was not also filed. Our database 

includes information on the outcome of the investigations (e.g., whether an 

order was issued), the status of the orders as of the end of 2004, the duty 

rates imposed in each case that resulted in a CVD order and the 

antidumping duty rates imposed on similar products. For each 

countervailing or antidumping duty order, the Department of Commerce 

may issue several different duty rates. These may include separate duty 

rates for large individual companies (suppliers), as well as weighted 

average “all others” rates for smaller suppliers. We collected all of these 

rates and compared the lowest and highest separate rates, the average of 

all separate duty rates, and the “all others” rates. As we report above, we 

found that the averages or median rates for countervailing duties orders are 

smaller than similar antidumping rates, whether comparing the lowest 

rates, the highest rates, the average rates, or the “all others” rates. 

However, as shown in figure 2, in some individual cases countervailing duty 

rates were higher than antidumping rates. Also, future investigations may 

yield different results depending on the types of products, countries, and 

activities investigated. Having verified these data with the original Federal 

Register notices, which provide the official U.S. government notification of 

investigations and orders, we find the data to be sufficiently reliable for 

analyzing the number, status, and duties (if imposed) on U.S. countervailing 

duty cases from 1995 through 2004, as well as U.S. antidumping cases on 

similar products. 

In addition, to provide information on the growth of U.S. imports from 

China, we examined official U.S. import data from the Department of 

Commerce, Bureau of the Census, which we adjusted for inflation using the 

end-use import price index published by Commerce’s Bureau of Economic 

Analysis. While U.S. data on imports from China have some acknowledged 

limitations, we found them to be sufficiently reliable for the purpose of 

establishing that there has been rapid growth in these imports in recent 

years.

We performed our work from January 2004 through June 2005 in 

accordance with generally accepted government auditing standards.
Page 36 GAO-05-474 U.S.-China Trade

Appendix II

CVDs and Antidumping Duties under WTO 

Rules and U.S. Law ApendxiI

WTO Agreement 

Provides General Rules

The WTO Agreement on Subsidies and Countervailing Measures defines a 

subsidy as a financial contribution by a government or any public body 

within a WTO member that confers a benefit. While the agreement imposes 

an outright ban on some types of subsidies,1

 most types are not completely 

prohibited but are classified as actionable under certain conditions. 

Actionable subsidies are those that are specific—i.e., benefit a specific 

enterprise, industry, or group of enterprises or industries—and cause 

adverse effects to the interests of another WTO member, such as injury to 

their domestic industries. 

According to the WTO, members may impose CVDs when they (1) identify 

subsidized imports, (2) determine that a domestic industry is suffering 

injury, and (3) establish a causal link between the subsidized imports and 

the injury being suffered. These duties are intended to offset the price 

advantages that the subsidy confers on the imported product and, more 

broadly, encourage governments that maintain subsidies to eliminate them. 

The subsidies agreement requires that the investigating authorities quantify 

the value of the subsidies being provided and limits the level of duty 

imposed to that value.

To facilitate identification of subsidies and evaluation of their trade effects, 

the agreement requires WTO members to provide the organization with 

annual notifications on all of the specific subsidies they maintain and to 

provide additional information on any of these programs when requested. 

The agreement specifies that member states should provide sufficient 

information “to enable other Members to evaluate the trade effects and to 

understand the operation of notified subsidy programs.”2

1

Export subsidies (those contingent on export performance) and local content subsidies 

(those contingent on use of domestic over imported goods) are explicitly prohibited. 

Members may challenge prohibited subsidies through the WTO’s dispute settlement process 

and may impose countermeasures if the member being challenged declines to eliminate the 

subsidies. In contrast to CVD actions, members bringing such complaints do not have to 

show that their domestic industries have suffered adverse effects as a result of these 

subsidies.

2

WTO Agreement on Subsidies and Countervailing Measures, art. 25.3.
Appendix II

CVDs and Antidumping Duties under WTO 

Rules and U.S. Law

Page 37 GAO-05-474 U.S.-China Trade

U.S. Procedures 

Reflect WTO Rules

Under U.S. law,3 CVDs may be imposed against subsidized imports from 

other WTO members when a U.S. industry is materially injured or 

threatened with injury or the establishment of an industry in the United 

States is materially retarded.4

 The ITC and the Department of Commerce 

share investigative and decision-making responsibility in CVD cases. The 

ITC determines whether there is material injury or threat thereof to the 

domestic industry by reason of the subject imports. Commerce determines 

whether the foreign country is providing a countervailable subsidy, and, if 

so, the size of the subsidy and (consequently) the size of the CVD that 

should be imposed. To make these determinations, Commerce solicits 

information from exporting country governments and from individual 

producers and exporters of the subject merchandise and applies this 

information to establish appropriate duty rates for each known exporter or 

producer.5

 

3

19 U.S.C. §1671 and following.

4

U.S. law requires an injury test when the exporting country is a WTO member or meets 

certain other criteria. 19 U.S.C. §§1671(b) and (c).

5

Individual company rates can vary a great deal, depending upon the facts in each case. In 

one recent case, for example, the Commerce Department applied a CVD of about 17 percent 

to one Indian exporter of carbazole violet pigment, but a rate of about 34 percent to another 

Indian exporter of this product. 69 Fed. Reg. 77995 (Dec. 29, 2004).
Appendix II

CVDs and Antidumping Duties under WTO 

Rules and U.S. Law

Page 38 GAO-05-474 U.S.-China Trade

Figure 3: Outline of the U.S. Process for Making CVD Determinations

Petition for Relief filed on 

behalf of domestic industry

Commerce initiates 

investigation 

Positive 

ITC injury determination 

(preliminary) 

Positive Commerce 

determination on subsidies

(preliminary)

Duties imposed 

at preliminary 

rates

Duties imposed at final rates

Positive

Commerce determination on 

subsidies (final)

Positive 

ITC injury determination 

(final) 

Commerce issues 

countervailing duty order 

Commerce 

dismisses

petition 

Case

ends

Case

ends

Case

ends

Negative ITC 

determination 

No duties

Negative 

Commerce 

determination 

Negative 

ITC injury 

determination 

Day 0

Time

Day 20

Day 45

Day 85

Day 160

Day 205

Department of Commerce actions

International Trade Commission (ITC) actions

Day 212

Yes

No

No

No

No

Case

ends

No

Yes

Yes

Yes

Yes

Source: Department of Commerce.
Appendix II

CVDs and Antidumping Duties under WTO 

Rules and U.S. Law

Page 39 GAO-05-474 U.S.-China Trade

Notes: In addition to producers and associations of producers, U.S. law grants unions and other 

recognized worker groups in affected U.S. industries the right to submit petitions for relief. Petitions are 

filed with Commerce and ITC simultaneously. Commerce may also self-initiate investigations.

Commerce will dismiss petitions that (1) do not allege the elements necessary for imposition of a duty 

and contain information “reasonably available to the petitioner” in support of these allegations or that 

(2) have not been filed by or on behalf of the domestic industry concerned. The information to be 

submitted must address, among other things, the nature of the subsidies being provided to the foreign 

producers, the competitive benefits that these subsidies bestow, and injury to the U.S. industry by 

reason of the subject imports.

Countervailing Duties 

Usually Applied in 

Tandem with 

Antidumping Duties

The United States has imposed CVDs with some regularity, on a variety of 

products from a variety of countries.6

 From 1995 through 2004, U.S. 

domestic industries petitioned for 72 CVD investigations against 43 

different products from 25 countries.7

 Thirty-six of these investigations (50 

percent) resulted in application of CVDs.8

 Figure 4 shows the results of 

these 72 petitions.

6

The United States has more CVDs in place than any other country. According to the WTO, 

the United States had 57 CVD measures in place as of June 2004. The next highest reported 

totals were for the European Community (18) and Canada (10). See WTO, Report (2004) of 

the Committee on Subsidies and Countervailing Measures, G/L/711 (Geneva, Nov. 9, 2004).

7

The Department of Commerce declined to initiate investigations in 4 of the 72 cases, 

involving certain crude petroleum oil products from Mexico, Iraq, Saudi Arabia, and 

Venezuela, because of insufficient U.S. industry support for the petition. 64 Fed. Reg. 44480 

(Aug. 16, 1999).

8

Twenty-three of these 36 cases (64 percent) involved steel products. Other products 

included pasta, honey, softwood lumber products, low enriched uranium, and 

semiconductors. India was the country most petitioned against (10 out of the 72 

investigations), while Italy faced the most positive determinations. (All six of the 

investigations against Italy resulted in CVDs.)
Appendix II

CVDs and Antidumping Duties under WTO 

Rules and U.S. Law

Page 40 GAO-05-474 U.S.-China Trade

Figure 4: Results of 72 CVD Petitions, 1995-2004

Note: There are currently 57 CVD orders in place. Thirty-two of these (as shown in the figure) resulted 

from petitions filed from 1995 through 2004. The remainder resulted from petitions filed prior to 1995.

Generally, when petitioners seek imposition of CVDs, they also seek 

imposition of antidumping duties on the same product from the same 

country. In 69 of the 72 CVD cases, petitioners also requested a companion 

antidumping investigation.9

 

9

The three cases in which petitioners requested CVDs but not antidumping duties involved 

laminated and hardwood flooring from Canada (1996), carbon and certain alloy steel wire 

rod from Turkey (2001), and D-RAMS (a type of semiconductor) from Korea (2002). The 

Department of Commerce did order assessment of antidumping duties against Korean DRAMS beginning in 1993. However, this order was revoked approximately two years prior to 

initiation of a CVD action against these products. 

6%

39%

44%

6%

Orders in place - 32

Not initiated - 4

Incomplete - 3

1%

Suspended - 1

Terminated - 28

Orders revoked - 4

Source: Federal Register.

4%

CVDs imposed

CVDs not imposed
Appendix II

CVDs and Antidumping Duties under WTO 

Rules and U.S. Law

Page 41 GAO-05-474 U.S.-China Trade

Dumping occurs when a foreign company sells merchandise in a given 

export market (for example, the United States) at prices that are lower 

than the prices charged in the producers’ home market or another export 

market. When this occurs, and when the imports have been found to 

materially injure, or threaten to materially injure, U.S. producers, WTO 

rules and U.S. laws permit application of antidumping duties to offset the 

price advantage enjoyed by the imported product. As in CVD cases, 

Commerce analysts establish antidumping duties for each known producer 

or exporter. Figure 5 illustrates how antidumping duties are determined. 

Figure 5: How Are Antidumping Duties Determined?

Note: As with CVDs, the Department of Commerce and ITC share responsibility for processing 

antidumping actions. Commerce determines whether and to what extent dumping is taking place, while 

ITC determines whether a U.S. industry has suffered material injury as a result. Duties may be 

imposed only if both agencies make positive determinations.

Petitioners requesting antidumping investigations do not always request 

CVD investigations, and CVDs are, in fact, sought and imposed much less 

frequently than are antidumping duties. From 1995 through 2004, U.S. 

industry groups petitioned for nearly five times as many antidumping as 

countervailing duty investigations (354 compared with 72). Similarly, the 

United States put in place over four times as many antidumping duty orders 

(156) as it did CVD orders (36). 

Figure 6 shows the distribution of these countervailing and antidumping 

duty orders by year for 1996 through 2004. For antidumping orders, these 

are further broken down into orders against market economies, China, and 

• price in home market,

• price in other export market, or 

• constructed value 

 (costs of production plus profit)

Product’s price in 

the U.S. market 

Product’s “normal value” based on

Dumping margin/ 

antidumping duty 

$110

$100

10 percent or $10

Example: 

Source: 19. U.S.C. §§ 1673 and following.
Appendix II

CVDs and Antidumping Duties under WTO 

Rules and U.S. Law

Page 42 GAO-05-474 U.S.-China Trade

other nonmarket economies. The number of CVD orders imposed might 

have been higher, and the contrast with antidumping duty orders less 

pronounced, if CVDs had been available against nonmarket economies 

during this period. Nonetheless, figure 6 shows that even among market 

economy countries, the United States imposes CVDs much less frequently 

than antidumping duties.

Figure 6: U.S. CVD Orders against All Countries and Antidumping Duty Orders against Market Economies, Other NME 

Countries, and China, 1996-2004

Notes: The figure shows the countervailing and antidumping duty orders issued each year as a result 

of petitions submitted from 1995 through 2004. The figure does not provide data for 1995 since all of 

the investigations based on petitions filed in that year remained incomplete at the end of the year.

According to the WTO, antidumping and countervailing duties affected less than 0.5 percent of U.S. 

imports in 2001. See WTO, Trade Policy Review–United States 2004 (Geneva, 2004). 

0

5

10

15

20

25

30

35

Antidumping duty orders - other NME countries

Antidumping duty orders - China

Antidumping duty orders - market economies

All CVD orders

1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: Federal Register.

Fiscal year

Number of cases
Page 43 GAO-05-474 U.S.-China Trade

Appendix III

Comments from the Department of 

Commerce ApendxiI

Note: GAO comments 

supplementing those in 

the report text appear 

at the end of this 

appendix.
Appendix III

Comments from the Department of 

Commerce

Page 44 GAO-05-474 U.S.-China Trade

See comment 1.

See comment 2.

See comment 3.
Appendix III

Comments from the Department of 

Commerce

Page 45 GAO-05-474 U.S.-China Trade

See comment 4.

See comment 5.
Appendix III

Comments from the Department of 

Commerce

Page 46 GAO-05-474 U.S.-China Trade
Appendix III

Comments from the Department of 

Commerce

Page 47 GAO-05-474 U.S.-China Trade

The following are GAO’s comments on the Department of Commerce’s 

letter dated June 1, 2005.

GAO Comments 1. We agree that U.S. trade law does not explicitly bar CVD actions against 

NME countries. Also, we acknowledge that the Department of 

Commerce remains open to considering petitions for CVD action 

against such countries, and that Commerce could conceivably decide 

that the facts in a particular case warrant and permit applying CVDs in 

an NME context. We have revised the text to ensure that these points 

are clearly stated.

Nonetheless, while not explicitly barring CVD actions against NME 

countries, U.S. trade law also does not explicitly authorize such 

actions, and both Commerce and a U.S. Court of Appeals decision have 

indicated that U.S. CVD law was not intended to be applied to NME 

countries. This position was also supported by the Statement of 

Administrative Action accompanying the 1994 Uruguay Round 

Agreements Act. Accordingly, we conclude that there would be legal 

obstacles to Commerce reversing its policy and allowing CVD actions 

against NME countries, including China. It is likely that, absent a clear 

grant of authority, such a policy change would result in court 

challenges.

2. We do not presume that applying CVD law to China would require that 

China be designated a market economy under U.S. antidumping law. We 

assume that if Commerce applied CVDs to China without changing its 

status as an NME country, it would continue to apply its NME 

methodology in antidumping cases against that country. 

3. We agree that completing CVD actions against China would be a 

challenging exercise, and that specific decisions on how best to 

complete such actions would depend on the facts at hand in particular 

cases. We do not intend to suggest that Commerce provide detailed 

analyses of how it would respond in case-specific circumstances.

Nonetheless, a Commerce study evaluating how it might generally 

proceed in such cases would be helpful to Commerce itself and 

Members of Congress in considering whether to take actions that 

would lead to CVD cases against NME countries, as well as to potential 

parties to such actions concerned about how to proceed in such cases. 

For example, such a report could address (1) benchmark information 
Appendix III

Comments from the Department of 

Commerce

Page 48 GAO-05-474 U.S.-China Trade

from within or outside China that Commerce would consider in 

measuring subsidy benefits, (2) methods and approaches that could be 

employed to respond to potential double counting of domestic subsidy 

benefits, and (3) how China’s WTO commitment regarding subsidies 

and state-owned enterprises might affect specificity determinations.

We have revised the report text to make these points.

4. We acknowledge that Department of Commerce regulations do provide 

for applying information from outside a subsidizing country to assist in 

assessing subsidy benefits—in some circumstances—and that 

Commerce has applied them in a number of cases. We have revised our 

report to include information on these provisions.

Nonetheless, current U.S. law does not explicitly authorize Commerce 

to fully apply China’s commitment regarding the use of information 

from outside China to complete CVD actions. Also, as discussed in 

more detail in the body of the report, the methodologies set forth in 

regulatory provisions cited by Commerce do not apply to the full range 

of subsidies that might arise in a CVD case. Moreover, the methodology 

in the more specific of these provisions has been questioned in a 

dispute settlement case under the North American Free Trade 

Agreement.

5. We agree that any legislation authorizing Commerce to adjust duty 

rates to avoid double counting in applying countervailing and 

antidumping duties to products from NME countries should not apply 

only to China. We have modified the report text to make this clear.

We disagree with Commerce’s comment that legislative action on this 

matter is not warranted or appropriate. We believe that sound 

economic reasoning suggests that there is substantial potential for 

domestic subsidies to be double counted in the event that Commerce 

applies CVDs to NME country products while continuing to use thirdcountry information to calculate antidumping duties on those same 

products. Therefore, congressional action to provide Commerce with 

authority to avoid double counting in these instances would be prudent. 

We agree that making such adjustments could raise complex 

methodological issues. It is for this reason that we recommend that, in 

reporting on methodologies for completing CVD actions against China, 

Commerce include discussion on responding to potential double 

counting of domestic subsidy benefits. This would allow Commerce to 
Appendix III

Comments from the Department of 

Commerce

Page 49 GAO-05-474 U.S.-China Trade

evaluate, among other things, the feasibility and cost of making such 

adjustments and their likely impact.
Page 50 GAO-05-474 U.S.-China Trade

Appendix IV

GAO Contact and Staff Acknowledgments ApendxiIV

GAO Contact Loren Yager, (202) 512-4347

Staff 

Acknowledgments

In addition to those named above, the following individuals made 

significant contributions to this report: Adam R. Cowles, R. Gifford 

Howland, Michael McAtee, Richard Seldin, Ross Tuttelman, and Timothy 

Wedding.

(320326)
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