U.S. antidumping law is the most powerful legal instrument that U.S. industries have to protect themselves from foreign competition, says William E. Perry. An antidumping duty order can effectively bar a foreign firm's products from the U.S. market. But, says Perry, a foreign firm can continue to export to the United States if it obtains a low dumping margin ruling at the U.S. Department of Commerce, or successfully argues before the U.S. International Trade Commission that the imports of the product under investigation are not hurting any U.S. industry.

Politics play a much smaller role in dumping cases than foreign producers might think, Perry adds.

Now a partner in the law firm Williams, Mullen, Christian & Dobbins, Perry previously worked in the Office of Antidumping Investigations at the U.S. Department of Commerce and in the General Counsel's office at the U.S. International Trade Commission.

The U.S. antidumping law is the most powerful weapon that U.S. industries have to protect themselves from imports.

It provides a legal remedy to counteract low-priced competition in the U.S. market from foreign producers who are allegedly "dumping" -- that is, selling goods at prices below those in their own home market (price discrimination) or below their fully allocated cost of production (sales below cost) -- so as to cause injury to a U.S. industry. Numerous antidumping cases have been brought against products ranging from natural produce such as cut flowers, honey, and garlic, to basic commodities such as steel, to sophisticated high-tech products such as supercomputers and semiconductor chips.

The power of antidumping law lies in the fact that dumping duties levied by the U.S. government can exceed 400 percent. In many instances, the duties can be so high as to drive a foreign company out of the U.S. market. Moreover, an order against dumping can last for 10 to 20 years, forming what amounts to a permanent barrier to imports of a particular product from a certain country.

To win an antidumping case, a U.S. industry must first establish with the U.S. Department of Commerce that a foreign exporter is selling its products in the United States at less than fair value. It must then establish with the U.S. International Trade Commission (USITC) that the dumped imports cause or threaten to cause material injury to a U.S. domestic industry.

In almost 90 percent of the cases brought to date, the Commerce Department has found that a foreign exporter/producer is dumping. So for foreign exporters trying to contest the dumping case, the objective at the Commerce Department is to get the dumping margin as low as possible. The dumping margin is the percentage by which the foreign exporter's prices in the United States are found to be lower than the prices in his home market, or the percentage by which the exporter is selling at less than his cost of production.

In most cases, the only chance for a foreign exporter to completely win a case is at the USITC on the basis of lack of injury to U.S. industry. When my own firm represented two Chinese saccharin exporters, we won the case on the basis of the USITC's determination that there was no injury to U.S. industry -- even though the Commerce Department found levels of dumping (the dumping margin) in the range of 160 to 276 percent.

The way the dumping margin is calculated depends on the type of economy in which the product originated.

To determine the dumping margin for market-economy countries such as Germany, Mexico, India, and Japan, the Commerce Department uses the foreign producer's actual prices and costs. In its price comparison, the department starts from the first sales transaction between unrelated parties and then, through a series of adjustments for freight, customs duties, differences in merchandise or quantities sold, peels back the layers until it determines the price of the product at the factory door. Having determined the factory-door price, the department then compares the prices being charged for the product in the U.S. market and the prices being charged in the foreign producer's home market to determine whether dumping has occurred.

If an allegation is made by the U.S. industry that a foreign producer is selling below the cost of production, the Commerce Department determines the fully allocated cost of production and compares that to sales in the producer's home market. The department disregards sales in the home market that are below the cost of production and uses only above-cost home market sales for comparison purposes. If 95 percent or more of the sales in the home market are below the cost of production, the department uses a constructed value -- that is, the foreign producer's fully allocated cost of production, plus profit, overhead, and selling, general, and administrative expenses -- and compares the constructed value to the U.S. sales prices to determine whether there is dumping.

The Commerce Department treats nonmarket-economy countries such as China and Russia differently. The department has decided that since prices and costs in most Communist and former Communist countries are set by the state, they do not reflect actual market prices. To determine the foreign market value in these cases, the department obtains factors of production from the foreign producer: how much raw material inputs, labor, electricity, and the like the producer uses to produce a single unit of the merchandise, such as a metric ton of a specific chemical or metal product. The department then obtains value information from published data in a surrogate country -- that is, a country with a comparable economy that is a significant producer of the product under investigation. In cases involving goods produced in China, for example, the department generally uses India as a surrogate. Based on the values from the surrogate country, the department determines a foreign market value for the product. It then compares the foreign market value with the U.S. price to determine whether there is dumping.

Although it is difficult, it is possible to obtain a zero percent (no dumping) determination from Commerce and be excluded from the antidumping order. In the Polyvinyl Alcohol from China case, for example, our client received a zero percent dumping margin and was excluded from the dumping case, although the dumping margin for all other Chinese exporters is 116 percent.

If the Commerce Department determines that there is dumping, the USITC must then determine whether the dumped imports cause material injury or threaten material injury to a domestic industry. To do so, the USITC sends questionnaires covering such areas as employment and profits to U.S. producers and importers and to foreign producers and exporters. It gathers the questionnaire data into a single income statement for the entire industry. From this, the commission then can see whether employment, capacity utilization, production, shipments, and profits for the industry have gone up or down and can determine if the domestic industry is in a state of material injury. The commission then examines import trends to determine whether the dumped imports are a contributing cause of that injury. It examines whether imports have increased substantially and whether the imported product is priced lower than the domestic product, thereby taking sales away from the domestic producers.

If the Commerce Department finds dumping and the USITC finds injury, the Commerce Department issues an antidumping order setting out the dumping margins for the foreign exporters that were included in the investigation and an "all-others" rate for exporters that did not.

An important point to understand is that the dumping margin does not establish the final dumping duty. Once an antidumping order is issued, a U.S. importer may continue to import the product, but it must post a cash deposit equivalent to the dumping margin with the U.S. Customs Service every time the importer imports the product into the United States. The actual dumping duty owed by the U.S. importer is determined during a review investigation that commences one year later in the anniversary month of the dumping order and every anniversary month thereafter. If the duty is less than the cash deposit, the importer is reimbursed for the difference plus interest. But if the duty is more than the cash deposit, the importer owes the additional amount plus interest. Thus, an importer could import a product under a 5 percent dumping margin, only to discover at the end of the review period that the actual dumping duty is 100 percent. The importer could then be faced with possible bankruptcy because of the additional amount it owes the U.S. Customs Service, which is the agency responsible for collecting the dumping duty.

On the other hand, if a foreign exporter is shut out of the U.S. market because of a high dumping duty, that exporter may try to open up the market by making a small sale of the same product in the United States to establish a lower dumping margin. Once it has made the small sale, it can ask for a review investigation at the Commerce Department and receive a much lower cash deposit rate/antidumping margin so that it can begin to export products to the United States again. If the foreign exporter receives three zero-percent dumping margins in a row, it can apply to have its dumping margin revoked.

Changes to the U.S. antidumping law to implement the 1994 Uruguay Round multilateral trade agreement have given foreign producers at least one advantage in review investigations. Prior to the passage of the Uruguay Round act, there were no time limits on antidumping review investigations. Therefore, the Commerce Department could take a substantial number of years before announcing its determination. In one case, for example, the Commerce Department restarted a review investigation in 1993 of golf carts being imported from Poland into the United States from 1980 to 1982 -- more than 10 years later. Under the new law, the department must finish review investigations in 12-18 months.

The Uruguay Round Act also provides new exporters to the United States with additional benefits. If a new exporter was not named in a prior review or investigation and is not related to a company that was, it may, after making a small sale in the U.S. market, request a new-shipper review investigation to obtain its own, lower dumping margin. New-shipper review investigations have shorter time limits than normal reviews and allow U.S. importers to post a bond, rather than cash, when they import products from the new shipper into the United States.

One final point: Many foreign producers view politics as playing a major role in U.S. antidumping investigations. Based on my 17 years of practice in the antidumping area, I can state that this role is not nearly as great as a foreign producer might think. At the USITC, politics has no role. Commissioners there act as judges and are almost always immune from political pressure. At the Commerce Department, politics plays only a small role. Politics can be used, for example, to manipulate procedural rules and level the playing field. In the end, however, the facts presented in the questionnaire responses are what determine whether the domestic or foreign producer wins or loses a case.

The U.S. antidumping law remains the most important law that an American producer can use to prevent low-priced imports from entering the U.S. market. Use of dumping law, once confined to a few industrial countries, has now become prevalent in areas and countries around the world, including Canada, Mexico, Venezuela, Australia, Europe, India, China, Japan, and Korea. Now U.S. companies themselves are facing dumping actions in foreign countries around the world.