NCIEC WTO Conference March 11, 2004 Willkie Farr & Gallagher LLP Case Studies: Catfish and Shrimp Antidumping Cases Presented by Kenneth J. Pierce and Matthew R. Nicely Willkie Farr & Gallagher for the Georgetown University Law Center NCIEC WTO Conference sponsored by the U.S. – Vietnam Trade Council 11 March 2004

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP The Antidumping Law The Effect of the Byrd Amendment (“The Continued Dumping and Subsidy Offset Act of 2000”):  The Lure of Big Cash Awards  Attorney Contingency Arrangements

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Congressional Budget Office – Economic Analysis of the Byrd Amendment (March 2, 2004) (emphasis added) “The law subsidizes the output of some firms at the expense of others, leading to inefficient use of capital, labor, and other resources of the economy. It discourages settlement of cases by U.S. firms and will lead to increased expenditure of economic resources on administration, legal representation of parties, and various other costs associated with the operation of the antidumping and countervailing-duty laws. To the extent that other countries adopt comparable policies, the law may lead to further interference in the ability of U.S. exporters to compete in the global trading system. Finally, the World Trade Organization (WTO) Appellate Body has ruled that the act violates the WTO agreement, leaving the United States vulnerable to retaliation against its exports, although the amount of that retaliation has not yet been determined.”

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP The Lure of Big Payouts Byrd Money Fosters Antidumping Actions... Catfish and Shrimp Hundreds of millions of dollars in Byrd disbursements have been made each year Examples of “Big Winners”  Ball Bearings from Japan $51 million (2001)  Crawfish from China $7 million (2002)  Pipe and Tube from Thailand $4 million (2002)  Wax Candles from China $69 million (2002) 2004 – hundreds of millions (Canadian lumber CVD)

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP The Lure of Big Payouts Byrd Money Fosters Anti-dumping Actions... About $2.5 billion in shrimp imports enter the United States from countries subject to the antidumping investigation Hypothetical:  $2.5 billion X 10% AD = $250 million in cash rewards SSA Petition Support Survey letter to shrimpers:  “You must register to participate in any monetary benefits that may accrue through duties levied on imported shrimp if the domestic industry prevails.” LSA’s positions in shrimp case

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Byrd Amendment is Illegal Under WTO Rules, But Difficult to Repeal WTO Appellate Body declared the Byrd Amendment inconsistent under both the WTO Anti-dumping and SCM Agreements as an impermissible action against dumping and subsidies U.S. already beyond reasonable period of time to implement; complainants preparing to retaliate U.S. politics, need for Act of Congress, make repeal difficult:  Bush FY2004 softly supports repeal  Strong anti-WTO sentiment on Capitol Hill; February 2003 letter from 68 Senators to the President expressed opposition to repeal  Election year politics

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP An Ineffective DOC Defense: The Catfish Lesson Integrated Producer vs. Processor – Unprecedented – Locked in with Bangladesh; Defense Narrowed to Single Issue (whole fish valuation)  Bangladesh unchallenged post preliminary  Surrogate Company Financials  Inaccuracy of upstream data (e.g., species yields)  Problems of formatting – forcing a square peg into a round hole (e.g., yield factors) Exporters Ultimately Paid Heavily: AD margins of 36.84% to 53.68% for mandatory respondents; 45.55% for “separate rate” companies; and 63.88% for “country-wide”

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Vietnam Surrogate Country And Value Selection India, Bangladesh, Kenya, Pakistan, and Guinea  India and Bangladesh major catfish (and shrimp) producers  Must consider and argue fully at company level for comparability (aquaculture vs. wild, integrated vs. processors) – labor, materials, energy (utilities – water?), capital costs (including depreciation), factory overhead, SG&A, profits and packing  Imports from ME (e.g., antibiotics? feed?) -- Thailand, Korea, and Indonesia

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Catfish ITC Investigation Example of misuse of “like product” rules  Congress passes law against labeling imports from Vietnam as “catfish”  But ITC decision assumed no competitive difference between imported tra/basa and domestic catfish However, too much emphasis placed on this issue in defense; detailed alternative cause theories needed development

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Avoid Punitive “Facts Available” Catfish Facts Available  Facts available but for Processors Decision: FOPs – parent fish depreciation, river water, plastic bags, oxygen, rubber bands, electricity, syringes, rice bran and broken rice, vitamins, gasoline, lubricants, coal consumption, and soya waste  Partial Facts Available FOPs: By-product offset for fish waste, by- product water consumption, and ice consumption  Multiple responses, many errors, many changes, many facts could not be verified

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP U.S. Shrimp Imports

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP U.S. Shrimp Imports

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Vietnam’s Common Defense Postures Among All Shrimp Respondents – ITC Cumulation ITC cumulation for injury is mandatory if “reasonable overlap” in competition with domestic product and other subject imports: countries win or lose together (one vote)  Need common, consistent, mutually supportive defense themes among all subject countries (blaming other subject imports is suicidal)  ITC staff conference (hearing) only 60 minutes presentation, plus Q&A  Joint lead counsel role – cumulated causation focus; common brief  Like product arguments (size, species, prepared – not determinative if U.S. does not produce)  Negligibility (3%/7% (AD) test)  ITC preliminary – low legal threshold (“reasonable indication”)  Key is to control Vietnam not being singled out for blame

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Vietnam’s Separate Countrywide Shrimp Defense Issues: ITC Decumulation and Threat Decumulation (separate votes by country or country subgroups) for threat of injury  Completely discretionary to each of six Commissioners for threat (tie vote?)  Different import volume or value trends  Different products  Different markets

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP ITC Decumulation and Threat ITC foreign producer questionnaires – key for threat  Issued within two days of petitions being filed (before initiation)  About 10 days to complete ITC questionnaire information – annual data, 2000 through 2003, 1Q-3Q 2002 and 1Q-3Q 2003 (interims), and 2004 and 2005 projections  Production capacity, inventories, production, shipments (Vietnam, U.S., other exports), internal reconciliation, use of estimates  Expansion plans, affiliations, (DOC impact) U.S. operations

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP ITC Shrimp Preliminary Determination: 6 to 0 Affirmative all Six countries Cumulated all six countries (reasonable overlap in competition based on injury (not threat)) Single like product: rejected “Value Added Shrimp,” “Salad Shrimp,” “Giant Shrimp,” “Breaded Shrimp,” and Canned Shrimp (revisit canned in final)  physical characteristics and end uses  interchangeability  channels of distribution  production processes, facilities, employees  price Like product included fresh shrimp (LSA and Byrd Amendment) Volume, Price, Impact

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Vietnam’s Separate Countrywide Shrimp Defense Issues: DOC “All Others” Rate Selection of mandatory respondents – Vietnam’s 4 largest U.S. exporters (2Q and 3Q 2003) – date of sale issues; volume  Separate company-specific rates for mandatory respondents, but significant countrywide impact  “All Others” rate – weighted average of mandatory respondents (w/o de minimis (< 2%) or total adverse facts available or “voluntary respondents”)  Each exporter must qualify to receive All Others separate rate or else “Countrywide” rate (based on petition’s allegations of up to 99%) State ownership not necessarily a disqualification for separate rate (de facto can trump de jure)

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP DOC’s “All Others” Rate Section A DOC response – company specific facts but with common law, supplemental questionnaires, attacks by petitioners, DOC verification, hearing, legal briefs  U.S. sales value and volume? U.S. sales processes?  Company ownership (foreign?), structure, affiliations, control, government relations, relations with other producers and exporters, management? Loss financing? Legal control – centralized? Export activities, regulations, and earnings? Licenses (allocations or quotas)? Pricing?  Accounting/Financial practices?

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP DOC “All Others” Rate Other Section A issues with especially significant impact for mandatory respondents:  Date of sale  Product descriptions  Affiliated importer (EP vs. CEP – U.S. expenses (direct and indirect))  U.S. further manufacturing (e.g. processing) – triggers Section E questionnaire  Suppliers – key question, linkages (through, e.g., feed or input supplies, such as antibiotics, sole supply), destination knowledge  HLSO equivalent

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Vietnam’s Separate Countrywide Shrimp Defense: Section A and Mandatory Respondents Model match criteria (Day 24) (NME impact) Basis for normal value – NME? Catfish precedent Market Oriented Industry? (ME price for all inputs – No) Surrogate country – Bangladesh/India; public data values (other than import statistics?) All market economy inputs and services

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Government of Vietnam Antidumping Defense Roles Must be targeted, statute designed to limit involvement ITC – industry-wide information for hearing/brief (e.g., limitations on capacity, standards) DOC – standing, NME, MOI DOC – verification observer/monitoring: demarche DOC – suspension agreement (Day 175) DOC – sometimes specific substantive issues (HLSO)

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Vietnam’s Company-Specific Antidumping Defense Issues: DOC Mandatory Respondents Normal value minus U.S. price/U.S. sales = AD margin Every detail rests on complex legal arguments, each of which is fact bound by company-specific operations  Section A – Same as all Section A Respondents, with added emphases  Section C – U.S. sales  Section D – Factors of Production  Section E – U.S. Further Manufacturing Computer-intensive: IBM-compatible PC, data encoded in ASCII, PC SAS, Access, dBase, Excel, or Lotus format

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP DOC Mandatory Respondents Section C – U.S. price (same as ME)  POI U.S. sales list (delineated by date of sale, non-affiliates) – By model (product code and CONNUM) – By sale – Approximately 50 fields for every sale of each model, each with narrative and exhibits  Fields include product characteristics (packing); dates of sale; invoice, shipment, payment; quantity; price (discounts, rebates); price adjustments (net expenses to ex-factory, e.g., movement); agents (commissions); warranty; imputed credit

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP DOC Mandatory Respondents Factors of production – Quantitative Normal Value (based on products sold to U.S. – allocation issues) – actual per unit (NOT STANDARD – but variances okay)  POI based  Weighted average if multiple facilities  DOC not yet demanding shrimp farm production (catfish lesson)

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP DOC Mandatory Respondents Factors of Production – production process, with segregation of all inputs, delineated by product, +50 fields  Material inputs consumed (monthly – 6 month POI)  If ME (materials and services), source, price, amount (Q and V) – Delivery details (mode, distances) – except imports from Korea, Thailand, Indonesia.  Time (processing and actual labor)  Number, function, and skill levels of labor (direct and indirect G&A impact)  Energy, water  Co-products, by-products, waste, yield (per unit)  Total production  Packing (materials and labor), freight out

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP DOC Mandatory Respondents Factors of Production Valuation  Surrogate country  Available public data (often import statistics)  Independent research Factory Overhead (depreciation), General and Administrative Expenses Ratios Valuation  Surrogate company ratio – catfish lesson  Other country (levels of integration)  Independent research  Avoid double counting with FOP Profit – surrogate company ratio – independent research

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP DOC Mandatory Respondents Common FOP surrogate value data bases  Import statistics  United Nations Comtrade Statistics  U.S. Department of Labor PPI (wage inflation)  International Financial Statistics (IMF inflators)  DOC daily currency exchange rates  Surrogate country public corporate financial statements  Asian Development Bank  ILO Yearbook of Labor Statistics  On-site research in India and Bangladesh

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Main Risk for Vietnam Respondents – DOC Information Demands Catfish experience and adverse facts available  Fish depreciation, plastic bags, oxygen, bands, electricity, syringes, rice bran and broken rice, vitamins, gasoline, lubricants, coal consumption, soya waste – CIT implications  Many responses – many errors Accurate, complete, timely, and verifiable China crawfish experience and adverse facts available End of factual submissions (Day 181)

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Politics Engrained in Administration of the Law The 1979 transfer from Treasury to Commerce: “The move reflected a Congressional desire for more zealous enforcement of AD/CVD laws and for less concern about their being used in a protectionist manner. Its significance goes beyond the difference in institutional sympathies. One of DOC’s functions is to serve as an advocate for U.S. firms. Thus, the move placed responsibility for deciding AD/CVD cases in the hands of an advocate of U.S. parties to those cases.” - U.S. Congressional Budget Office (1994)

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Consumer/Importer Coordinated Response with Vietnam ASDA to SSA Olive Branch – joint marketing: no traction Public Relations (economic study regarding U.S. job losses, net national economic harm, and White Paper; Vietnam and ASDA) Lobbying? Often misunderstood with unrealistic expectations: specific targets – need convincing message, not simply access SSA strategy is to “demonize” all who sell or support imports (e.g., ASDA members)

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Politics Inherent in the Details DOC makes political decisions on technical issues that affect the outcome  Example: HLSO “Equivalents”  Example: Surrogates – in NME, what surrogate values get used for determining antidumping margins?  Example: DOC verifications – demand the impossible and then penalize party for not meeting demands

NCIEC WTO Conference March 11, Willkie Farr & Gallagher LLP Working the Process Department of Commerce. Because the law’s administration is political, DOC makes choices on technical matters that dramatically affect the margin calculation. Must have pressure on DOC to make fair choices. USTR – State – Treasury – White House – Congress. International Trade Commission. More objective, but also politically sensitive. Budgets and staff are threatened by lawmakers. Must make it politically safe for the ITC to consider the merits. Press and American interests (jobs).