By Liu Cheng and Linda Davinson King & Wood’s Foreign Direct Investment (FDI) Group

A significant recent ruling from the U.S. Court of Appeals Federal Circuit temporarily concludes the U.S.-China tire wars in the case of GPX International Tire Corporation and Hebei Starbright Tire Co., Ltd et al v. United States et al.  The U.S. Federal Court held that existing U.S. countervailing duty law cannot be applied to non-market economy (NME) countries including China, affirming the U.S. International Trade Court’s decision but on different grounds. 

Shortly thereafter, China’s Ministry of Commerce (MOFCOM) highlighted the U.S. Federal Court’s decision by issuing a statement to the United States to not impose countervailing duties on Chinese imports because to do so would violate the rules of the World Trade Organization and prevailing U.S. law.

The issue was whether duties can be imposed on goods imported from non-market economy countries such as China.  Two types of duties may be applied on imports into the U.S from market economy countries (non-NMEs): 1) antidumping duties on goods sold in the U.S. at less than fair value; and 2) countervailing duties on goods that receive a "countervailable subsidy" from a foreign government.  See 19 U.S.C. Section 1673 (2006).

The fight began in 2007 when U.S. tire manufacturer Titan Tire Co. petitioned the U.S. Department of Commerce to impose both antidumping duties and countervailing duties on certain Chinese tires including those manufactured by the plaintiffs (Hebei Starbright and Tianjin United Tire) in the present case.  Prior to this petition, the U.S. Department of Commerce had maintained the position that countervailing duties did not apply to NMEs because by virtue of definition, subsidy being a "market"  phenomenon.  Under pressure, the U.S. Department of Commerce responded by imposing both antidumping and countervailing duties on the imported Chinese tires.  Complaints were filed by the Chinese tire manufacturers and the cases consolidated by the U.S. International Trade Court, which after a series of rulings and remands, ultimately found for the Chinese manufacturers ordering the U.S. Department of Commerce to not impose the countervailing duties. 

The U.S. and the U.S. tire manufacturers appealed in the instant action and the U.S. Federal Court affirmed the U.S. Trade Court’s ruling but on different grounds.  In summary, the U.S. Federal Court’s decision was based on the principle of "legislative ratification" finding that the U.S. Congress had effectively ratified prior interpretations that countervailing duties did not apply to NMEs, China included.

The result is a current win for Chinese manufacturers – for now, no countervailing duties will be imposed on Chinese products based on the allegation that they are "subsidized" by the Chinese government.  Only if and when China or certain industries within China are declared as "market oriented"  will U.S. countervailing duty law apply.  We will wait to see if the decision is appealed and further down the road, whether U.S. legislative change to the contrary occurs.