Proposed U.S. CVD Legislation Addresses Chinese Subsidies in Foreign Countries
On December 2, U.S. Representatives Terri Sewell (D-AL) and Bill Johnson (R-OH) introduced legislation, H.R.6121, called the Level the Playing Field Act 2.0. One aspect of this legislation is that it addresses subsidies by a government to companies in another country, referred to as "transnational" or "cross-border" subsidies, by amending U.S. countervailing duty law so as to apply to these subsidies.
In their press release, Sewell and Johnson explained the limitations of current law and the impact of their amendment on this issue as follows:
Belt and Road Initiative Subsidies - Currently, the Department of Commerce can only consider subsidies provided by the government under investigation. However, with the expansion of China’s Belt and Road Initiative, China is beginning to subsidize production in countries outside of China. Section 201 of this legislation would give Commerce the authority to apply CVD law to subsidies provided by a government to a company operating in a different country.
The relevant section of the legislation is titled "Addressing Cross-Border Subsidies in Countervailing Duty Investigations." In its section on "transnational subsidies," it states:
For purposes of this subtitle, if there is a countervailable subsidy conferred by a government of a country or any public entity within the territory of a country that is not the country in which the class or kind of merchandise is produced, exported, or sold (or likely to be sold) for importation into the United States and the government of the country or any public entity within the territory of the country in which the class or kind of merchandise is produced, exported, or sold (or likely to be sold) for importation into the United States (hereafter in this subparagraph referred to as the 'subject merchandise country') facilitates the provision of such subsidy, then the administering authority shall treat the subsidy as having been provided by the government of the subject merchandise country or a public entity within the territory of the subject merchandise country and shall cumulate all such countervailable subsidies, as well as countervailable subsidies provided directly or indirectly by the government or any public entity within the territory of the subject merchandise country.
The legislation also defines "transnational subsidy" as follows:
The term 'transnational subsidy', with respect to subject merchandise, means a subsidy conferred by a country that is not the country in which the class or kind of merchandise is produced, exported, or sold (or likely to be sold) for importation into the United States to the producer, exporter, or supplier of the producer or exporter, of the subject merchandise.
The concept of "transnational subsidies" and its application to China has already been put into practice in the European Union, as described in blog posts here, here, here, here, and here. It seems likely that the United States will, at some point, follow the EU path and begin to take action against these subsidies, including through its countervailing duty law. A recent CRS report on countervailing duties discusses this issue as follows:
Transnational Subsidies and Applications of CVDs to Third Countries
Recently, the EU (the second largest user of CVDs) applied CVDs to goods manufactured in one country yet subsidized by another. In June 2020, the EU imposed CVDs on certain glass fiber fabrics imported from Egypt. The merchandise at issue was manufactured by Jushi Egypt and Hengshi Egypt, two Egyptian subsidiaries of the China National Building Materials Group, a Chinese SOE. Jushi and Hengshi manufactured the merchandise in the Suez Economic and Trade Cooperation Zone (SETC-Zone), a special economic zone which was jointly established by the Government of China (GOC) and Government of Egypt (GOE). The EU determined that “the GOE has actively sought to support the zone not only directly by the provision of land and tax breaks but also indirectly, through agreed assistance of the Chinese government for the development of the SETC-Zone in its territory.” The EU concluded that countervailable subsidies “should include not only measures directly emanating from the GOE but also those measures by the GOC which can be attributed to the GOE on the basis of the available evidence.” The GOC and GOE objected. The imposition of these CVDs was followed by a new White Paper by the EU Commission proposing a new approach to managing foreign subsidies.
As the EU moves to counter new forms of foreign subsidization abroad, Congress may be interested in reviewing U.S. CVD laws and regulations to determine whether they wish to legislate similar changes, or take an alternative approach. A recently introduced bill proposes a similar solution, amending U.S. CVD law to include transnational subsidies.
(footnotes omitted)
The legislation referred to in the last paragraph of the CRS report is S.1187, Eliminating Global Market Distortions To Protect American Jobs Act of 2021, introduced in April of 2021. That bill has a provision on cross-border subsidies, although it is much less detailed than H.R.6121.