The U.S. Department of Commerce ("Commerce") reported to the U.S. Congress in November 2010 on the Relative Advantages and Disadvantages of Retrospective and Prospective Antidumping and Countervailing Duty Collection Systems. Commerce made no recommendations. It also is unlikely that Congress would have the appetite anytime soon to consider the wholesale revisions to U.S. trade laws that changing to a prospective duty assessment system would entail. Nevertheless, there are several noteworthy items in the report.

All other countries, unlike the United States, rely on prospective systems in their trade laws, as does the WTO. These systems require changes going forward, following an investigation and findings, but do not reach back for penalties. Congress instructed Commerce to address how prospective systems compare to the U.S. retrospective system on the following criteria:
(1) Remedying injurious dumped or subsidized imports;
(2) Minimizing uncollected duties;
(3) Reducing incentives to evade antidumping (“AD”) and countervailing duties (“CVD”);
(4) Targeting high risk importers;
(5) Considering the impact of retrospective rate increases on importers and their employees; and
(6) Minimizing administrative burdens.
Commerce received comments from 40 interested parties, including comments that the editors of this blog submitted on April 20, 2010. Those commentators represented a wide range of industries, petitioning U.S. producers, foreign producers, importers and customers. The U.S. Department of the Treasury and the U.S. Department of Homeland Security ("DHS"), which enforces AD and CVD orders at the ports, previously submitted comments for a study by the Government Accountability Office. Commerce summarizes some of those earlier agency comments in its report.

Commerce noted that the United States is the only country that uses a retrospective system for collecting AD and CVD duties. Advocates of keeping the retrospective system, mostly U.S. petitioners, emphasized the greater accuracy of the system because duties are assessed based on the amount of dumping or subsidization found for the actual imports in question. Commerce acknowledged that advocates of prospective systems argued that such claims of superior accuracy are not achieved consistently in practice because Commerce in recent years has not reviewed more than a couple of companies in administrative reviews, even when many companies requested reviews. Commerce has said it lacks the resources to review all the companies making requests. Commerce also noted the arguments of some commentators that retrospective duties are not very good at remedying the actual injury caused by dumping or subsidies because the duty rates cannot be known when importers and customers are making their pricing and purchasing decisions.

It appears from Commerce’s Report that DHS would prefer a switch to a prospective system. Commerce quoted DHS as saying that "its preferred option would be ‘for Congress to fundamentally alter the United States system by eliminating its retrospective component and make it prospective. This approach would …. [a]lleviate the collection issue faced by DHS due to substantial rate increases since the amount of duties assessed at entry would be the final amount owed.’ "

Advocates of prospective systems emphasized that the retrospective system is bad for business, particularly small business, because it deprives companies of critical information on the full costs of their products before they have to make pricing decisions. Commerce responded to this criticism by pointing out that, because of due process rights in U.S. law, a prospective duty assessment system would not eliminate this uncertainty: the parties to AD and CVD proceedings have a due process right to appeal administrative determinations of Commerce and the United States International Trade Commission to the United States Court of International Trade and eventually to the United States Court of Appeals for the Federal Circuit. The courts routinely enjoin liquidation of the customs entries for the duration of these proceedings. The final duty rates, which could go up as well as down as a result of court decisions, can take years to be known.

Commerce, thus, is correct in questioning the advantage of a prospective system, in light of U.S. legal rights, to achieve accuracy and predictability. The United States is famously a litigious society; trade cases often take many years to work their way through the Court of International Trade, through possible remands by the court back to the agencies (Commerce or the International Trade Commission), and possible further judicial review by the Court of Appeals for the Federal Circuit (with possible remands to the Court of International Trade).

Any party appealing an agency decision would want the court to enjoin the final assessment of antidumping or countervailing duties pending the appeal’s outcome. Otherwise, much of the economic benefit, should the party succeed in the appeal, would be lost. Because of separation of powers and due process requirements of the U.S. Constitution, Congress would not be able to strip the courts of the power to issue such injunctions through a change from a retrospective to a prospective system of duty assessment. Therefore, even were Congress to legislate such a change, the U.S. system would retain retrospective aspects. Under a prospective system, duties could be assessed and collected at the time of importation, but for any case on appeal — for those companies whose shipments are the subject of the appeal, and with respect only to the issues under appeal — the final duty owed would not be known until the court process would reach final decisions.

A prospective system may still be better. In many cases, the potential effect of a judicial reversal of Commerce’s determination can be quantified at the time of the appeal. Companies would be able to account for the risk of judicial reversal when making purchasing and pricing decisions. For example, if the only issue on appeal for a particular respondent were whether to allow a particular adjustment in the dumping calculation, the effect on the margin of allowing or disallowing that adjustment could be calculated at the time when the appeal would first be taken; importers could price their products accordingly. By contrast, under the current U.S. system, at the time of importation, when importers make their pricing decisions, most of the data necessary for a dumping calculation are unknown because Commerce has not yet performed any calculations, verification has not yet occurred, and a myriad of other variables remains undetermined. Thus, even for cases subject to judicial appeal, a prospective system provides more certainty than the current U.S. retrospective system.

Although a switch to a prospective system would not be the panacea that some proponents claim it would be, it would represent an improvement over the uniquely cumbersome U.S. system of retrospective duty assessment for the following reasons:
• Defenders of the status quo claim superiority for the retrospective system because, they say, duty rates are based on a comparison of actual import prices to normal values or subsidies calculated for a contemporaneous period. However, because the prospective system allows the importer to account fully for the antidumping or countervailing duties when making pricing decisions (i.e., where the imports compete with the domestic product), a prospective system may, in fact, do a better job of remedying the injurious effect of dumping or subsidization.
• Prospective systems are better at collecting duties because they collect upon importation. Injured parties do not have to wait through years of administrative and legal reviews and proceedings before unfair competition can be offset.
• Prospective systems are more likely to reduce incentives and opportunities for the evasion of duties because they are clearer in their expectations: normal values or fixed duty rates advise importers in advance of the prices they should apply to goods, information known to authorities with certainty at the time of importation.
• The retrospective system has no reliable way to "target high-risk importers," as it is focused on the prices of goods after they are imported. The prospective system, focused on the price of the goods when they arrive at port, makes the relative "risk" of the importer less relevant.
• The American retrospective system, by creating much more uncertainty in the marketplace, creates competitive advantages for U.S. petitioners (through the advantages of market disruption occasioned by the very filing of trade remedy petitions), but the costs and consequences are visited upon importers, their employees, downstream businesses and their employees, and ultimately U.S. consumers, an inherently unfair distribution of the burdens arising from unfair trade.
• The retrospective system is by far more administratively cumbersome and expensive than the prospective system adopted by every other country and reflected in the principles governing the remedy system of the WTO.
The United States has maintained an expensive and inefficient system unlike any other
country’s. The case for the status quo, the Commerce report shows, is weak and biased in favor of petitioners, against importers, consumers, and rational markets. The systematic analysis of retrospective and prospective duty assessment systems that Congress has invited has been overdue. This report, unfortunately, is not likely to lead to warranted change.