On November 18, 2022, the Department of Commerce (“the Department”) published a notice of advanced proposed rulemaking seeking public comments with respect to its methodology in determining the existence of a particular market situation (“PMS”) that distorts the cost of production in the ordinary course of trade in the context of its antidumping duty (“AD”) proceedings.  This PMS provision was added to Section 773(e) of the Tariff Act of 1930, as amended, through the Trade Preferences Extension Act in 2015.  As a result of several adverse court decisions since the passage of this amendment, the Department intends to reconsider its approach to determining the existence of a PMS, and to issue a new regulation to identify the types of information that should be considered when determining whether a PMS distorting the cost of production exists.  Comments are due no later than December 18, 2022. 

This Notice follows a string of recent losses by the Department before the Court of Appeals for the Federal Circuit (“CAFC”) and the Court of International Trade (“CIT”) regarding the Department’s PMS determinations. Many of these decisions stem from the Department’s PMS determination in Oil Country Tubular Goods (“OCTG”) from Korea, where the Department determined that a PMS distorted prices of hot rolled-coil (“HRC”) and electricity in Korea due to the collective effect of global steel overcapacity, particularly cheap HRC from China flooding the Korean market; the Korean government’s subsidization of HRC; strategic alliances between Korean HRC suppliers and OCTG producers; and the Korean government’s involvement in setting electricity prices.  The Department relied on these same four factors in subsequent cases, including Welded Line Pipe from Korea and Cold-Rolled Steel Flat Products from Korea, to reach affirmative PMS determinations.

On appeal, the CAFC and CIT both held that the Department’s conclusion regarding the existence of a PMS for HRC and electricity in OCTG from Korea was not supported by substantial evidence on the record.  Some of the reasons cited by the courts include the Department’s failure to demonstrate how the global overcapacity was “particular” to the Korean market and to demonstrate how the Department reached contradicting conclusions on whether Korean electricity is sold at market rates in the AD and countervailing duty cases. 

The CAFC’s reasoning in Nexteel v. United States – the judicial appeal of the OCTG from Korea proceeding – is cited in the Notice as relevant to the Department’s request for public comments. Specifically, the Department cites to the following four conclusions reached by the CAFC:

  1. “A PMS which distorts costs, as referenced in the Act, must cause cost to deviate from what they would have otherwise been in the ordinary course of trade;”
  2. “[A] PMS must be particular to certain producers or exporters, inputs, or the market where the inputs are manufactured;”
  3. “[I]f there is a claim of subsidy or government interference, there should be evidence that the producer or seller of the input at issue received, or should have received, that subsidy or government assistance, and that there is some form of impact on the price of the input as a result of that subsidy or government interference; and
  4. “Commerce is not required to quantify a distortion in costs by the PMS to find the existence of a PMS, but if Commerce is able to quantify the distortion, such quantification may help support a finding of a PMS.”

With these holdings in mind, the Department has asked parties submitting comments to:

  1. “identify information which they believe Commerce should consider in determining if a PMS exists which distorts the costs of production if that information is reasonably available and relevant to the PMS allegation;”
  2. “identify information which they believe Commerce should not be required to consider when determining if a PMS exists, regardless of the PMS allegation;” and
  3. “provide comments on adjustments which Commerce may make to its calculations when it determines the existence of a PMS, but the record before it does not allow for the quantification of cost distortions.”

The Department’s Notice provides no deadline for it to act, but the issuance of a new regulation should follow this process.

The Department’s request presents an important opportunity for companies to help shape the methodology and application of PMS adjustments.  As noted above, the Department can make adjustments to the cost of inputs upon finding a PMS to exist.  Companies that have been subject to PMS allegations in the past should consider submitting a response to the Department with a particular focus on what should be a considered a PMS and what types of evidence would be required to demonstrate that a PMS exists based on the four conclusions cited above from Nexteel.  Such a comment could include not only the types of information that would be relevant for determining an existence of a PMS, but also how the Department should adjust costs for a PMS (e.g., whether the distortions on the cost of an input has already been remedied through existing U.S. countervailing duties on that specific input).