Modification of Regulations Regarding Benefit and Specificity in Countervailing Duty Proceedings, 24406-24416 [2019-11197]

Agencies

• DEPARTMENT OF COMMERCE
• International Trade Administration

[Federal Register Volume 84, Number 102 (Tuesday, May 28, 2019)]
[Proposed Rules]
[Pages 24406-24416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11197]


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DEPARTMENT OF COMMERCE

International Trade Administration

19 CFR Part 351

[Docket No. 190522468-9468-01]
RIN 0625-AB16


Modification of Regulations Regarding Benefit and Specificity in 
Countervailing Duty Proceedings

AGENCY: Enforcement and Compliance, International Trade Administration, 
Department of Commerce.

ACTION: Proposed rule and request for comments.

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SUMMARY:  The Department of Commerce (Commerce) proposes to modify two 
regulations pertaining to the determination of benefit and specificity 
in countervailing duty proceedings. These modifications, if adopted, 
would clarify how Commerce determines the existence of a benefit 
resulting from a subsidy in the form of currency undervaluation, and 
clarify that companies in the traded goods sector of an economy can 
constitute a group of enterprises for purposes of determining whether a 
subsidy is specific.

DATES: To be assured of consideration, written comments must be 
received no later than June 27, 2019.

ADDRESSES:  All comments must be submitted through the Federal 
eRulemaking Portal at https://www.regulations.gov, Docket No. ITA-2019-
0002, unless the commenter does not have access to the internet. 
Commenters that do not have access to the internet may submit the 
original and one electronic copy of each set of comments by mail or 
hand delivery/courier. All comments should be addressed to Jeffrey I. 
Kessler, Assistant Secretary for Enforcement and Compliance, Room 1870, 
Department of Commerce, 1401 Constitution Ave. NW, Washington, DC 
20230. Comments submitted to Commerce will be uploaded to the 
eRulemaking Portal at www.Regulations.gov.
    Commerce will consider all comments received before the close of 
the comment period. All comments responding to this notice will be a 
matter of public record and will be available on the Federal 
eRulemaking Portal at www.Regulations.gov. Commerce will not accept 
comments accompanied by a request that part or all of the material be 
treated confidentially because of its business proprietary nature or 
for any other reason.
    Any questions concerning file formatting, document conversion, 
access on the internet, or other electronic filing issues should be 
addressed to Laura Merchant, Enforcement and Compliance, at (202) 482-
2104, email address: [email protected].

FOR FURTHER INFORMATION CONTACT:  Gregory Campbell at (202) 482-2239 or 
Matthew Walden at (202) 482-2963.

SUPPLEMENTARY INFORMATION:

Background

    The purpose of the U.S. countervailing duty law is to provide a 
remedy for U.S. workers and businesses injured by unfairly subsidized 
imports. It is based upon the recognition that certain government 
interventions in the market cause distortions to trade and confer 
unfair advantages on certain economic actors. The countervailing duty 
law therefore provides for the imposition of a countervailing duty on 
subsidized imports to offset the portion of the subsidy attributable to 
the imported goods. Commerce conducts an investigation to determine 
whether countervailable subsidies have been provided, and the U.S. 
International Trade Commission separately determines whether the 
domestic industry of the like product is injured (or threatened with 
injury) by reason of those imports. If both agencies reach affirmative 
determinations, Commerce will instruct U.S. Customs and Border 
Protection to apply countervailing duties on the subject imports.
    A countervailing duty investigation is initiated when Commerce 
receives a

[[Page 24407]]

petition filed on behalf of a U.S. industry that requests relief. 
Commerce can also self-initiate an investigation. An investigation 
covers a discrete ``class or kind'' of merchandise, such as off-the-
road tires, or corrosion-resistant steel, or frozen shrimp. The 
investigation is a quasi-judicial proceeding, during which Commerce 
collects information from interested parties, assembles an 
administrative record, and receives arguments from interested parties. 
Commerce then makes its findings based upon the administrative record 
and parties' arguments. If the investigation results in affirmative 
findings, and countervailing duties are imposed, there can be annual 
reviews of the duties to establish the precise amount of duties each 
year.
    The Tariff Act of 1930, as amended (19 U.S.C. 1671, et seq.) (the 
Act), governs countervailing duty proceedings. It also defines a 
``subsidy.'' Specifically, section 701 of the Act provides that when 
the government of a country or any public entity within the territory 
of a country is providing, directly or indirectly, a countervailable 
subsidy with respect to the manufacture, production, or export of a 
class or kind of merchandise that is imported into the United States, 
and material injury or threat of material injury is found by the 
International Trade Commission, Commerce shall impose a countervailing 
duty. Section 771(5)(B) of the Act defines a subsidy as existing when: 
A government or any public entity within the territory of a country 
provides a financial contribution; provides any form of income or price 
support; or makes a payment to a funding mechanism to provide a 
financial contribution, or entrusts or directs a private entity to make 
a financial contribution, if providing the contribution would normally 
be vested in the government and the practice does not differ in 
substance from practices normally followed by governments; and a 
benefit is thereby conferred. To be countervailable, a subsidy must be 
specific within the meaning of section 771(5A) of the Act.
    There are four types of government financial contributions 
described in section 771(5)(D) of the Act: (1) A direct transfer of 
funds or potential direct transfer of funds; (2) foregoing or not 
collecting revenue that is otherwise due; (3) providing goods or 
services, other than general infrastructure; and (4) purchasing goods.
    Section 771(5)(E) of the Act sets forth certain methods for 
determining the existence of a benefit for several different types of 
financial contributions. However, section 771(5)(E) of the Act is not 
exhaustive; it does not provide the method for determining the 
existence of a benefit for every type of financial contribution. 
Commerce's regulations provide further rules for determining the 
existence of a benefit. In particular, 19 CFR 351.503 sets forth some 
general principles, while 19 CFR 351.504 through 351.520 provide more 
specific guidelines for calculating the benefit from certain types of 
financial contributions.
    Section 771(5A) of the Act addresses specificity of subsidies. 
Section 771(5A)(A) of the Act states that a subsidy is specific if it 
is an export subsidy described in section 771(5A)(B) or an import 
substitution subsidy described in section 771(5A)(C), or is determined 
to be specific pursuant to section 771(5A)(D). Section 771(5A)(D)(i) of 
the Act states that a subsidy is specific as a matter of law if the 
authority providing the subsidy, or the legislation pursuant to which 
the authority operates, expressly limits access to the subsidy to an 
enterprise or industry.
    Even if a subsidy is not specific as a matter of law, it could be 
specific as a matter of fact. Section 771(5A)(D)(iii) of the Act 
describes four situations in which a subsidy is specific as a matter of 
fact: (1) The actual recipients of the subsidy, whether considered on 
an enterprise or industry basis, are limited in number; (2) an 
enterprise or industry is a predominant user of the subsidy; (3) an 
enterprise or industry receives a disproportionately large amount of 
the subsidy; or (4) the manner in which the authority providing the 
subsidy has exercised discretion in the decision to grant the subsidy 
indicates that an enterprise or industry is favored over others. 
Section 771(5A)(D)(iv) of the Act states that a subsidy is specific 
when it is limited to an enterprise or industry located within a 
designated geographical region within the jurisdiction of the authority 
providing the subsidy. Section 771(5A) of the Act makes clear that the 
term ``enterprise or industry'' includes a group of enterprises or 
industries. Commerce's regulation at 19 CFR 351.502 sets forth more 
rules for determining specificity.
    Neither the Act nor Commerce's regulations specify how to determine 
the existence of a benefit or specificity when Commerce is examining a 
potential subsidy resulting from the exchange of currency. The proposed 
modifications to Commerce's regulations, described below, would address 
this issue.\1\
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    \1\ In the past, Commerce has received allegations from 
petitioning U.S. industries that currency undervaluation in the 
context of unified currency regimes constitutes a countervailable 
subsidy. Commerce found the evidence in these allegations 
insufficient to support initiation. See, e.g., Utility Scale Wind 
Towers from the People's Republic of China: Initiation of 
Countervailing Duty Investigation, 77 FR 3447 (January 24, 2012); 
Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled 
Into Modules, From the People's Republic of China: Initiation of 
Countervailing Duty Investigation, 76 FR 70966 (November 16, 2011).
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    Specifically, the modifications described below propose one way to 
analyze whether the exchange of an undervalued currency results in a 
countervailable subsidy. They are developed with the recognition that 
while Commerce is, by statute, the administering authority of the 
countervailing duty law, the issue of currency undervaluation is 
complex and unlike many of the subsidies we have examined in the past. 
As described below, during any countervailing duty proceeding involving 
a potential subsidy in the form of currency undervaluation, we intend 
to seek and to defer to the Department of the Treasury's (Treasury's) 
evaluation and conclusion as to whether government action on the 
exchange rate has resulted in currency undervaluation, unless we have 
good reason to believe otherwise, based on the record as a whole, in 
which case we will provide Treasury an opportunity to review and rebut 
the contrary reasoning. Treasury will use a consistent framework to 
assess currency undervaluation resulting from government action, 
recognizing country-specific factors. If it is determined that there is 
currency undervaluation based on government action on the exchange 
rate, Commerce will proceed to determine whether such action is 
countervailable.
    In determining whether there has been government action on the 
exchange rate that undervalues the currency, we do not intend in the 
normal course to include monetary and related credit policy of an 
independent central bank or monetary authority.
    We invite comments not only on this proposed approach, but also as 
to whether there are other options under the existing law to examine 
potential currency-related subsidies.

Proposed Modifications

    Commerce proposes to modify 19 CFR 351.502 and 19 CFR 351.503 as 
indicated below. The modification to 19 CFR 351.502 would clarify that 
enterprises that primarily buy or sell goods internationally can 
constitute a

[[Page 24408]]

group of enterprises for purposes of determining specificity. The 
modification to 19 CFR 351.503 would add a paragraph explaining how 
Commerce intends to determine benefit when investigating or reviewing a 
potential subsidy in the form of currency undervaluation under a 
unified exchange rate system.
    Any analysis of currency countervailability must focus on the 
above-described legal criteria under the U.S. countervailing duty 
statute, all of which relate to the fundamental principle that 
countervailing duties address government interventions in the market 
that cause distortions. There are a variety of possible currency-
related fact patterns that might satisfy the legal criteria for 
countervailability, and it is not Commerce's intention to identify or 
address them all here. That said, one analytical approach is to view 
currency undervaluation under a unified currency regime as a domestic 
currency premium. For instance, this occurs when exporting enterprises 
exchange U.S. dollars for their domestic currency at a state bank or 
other entity that Commerce determines on the record of the proceeding 
to be an authority (or a private entity entrusted or directed by an 
authority) and, in doing so, receive more domestic currency in exchange 
for each U.S. dollar converted than they would otherwise earn in the 
absence of the currency undervaluation. The receipt of domestic 
currency from an authority (or an entity entrusted or directed by an 
authority) in exchange for U.S. dollars could constitute the financial 
contribution under section 771(5)(D) of the Act.
    In general terms, the currency undervaluation benefit calculation 
requires an identification of what the currency's value should be, 
absent the undervaluation. To do this, one method is to employ the 
concept of an equilibrium ``real effective exchange rate'' (REER) or 
its equivalent, consistent with International Monetary Fund (IMF) 
methodologies. For the purposes of this rule, equilibrium REER is 
defined as the REER that would lead to an appropriate level for 
external balance over the medium term. This equilibrium REER or its 
equivalent would be employed in the following two-step benefit 
analysis.
    Step 1 would involve a threshold determination of the extent of 
foreign currency undervaluation, on the basis of a comparison of a 
country's REER and equilibrium REER in the relevant time period. 
Parties alleging that there is a currency undervaluation subsidy could 
submit, where possible, objective, third-party, publicly available 
estimates of the nominal U.S. dollar rate consistent with the REER 
needed to achieve external balance. To the extent that a country's 
equilibrium REER exceeds its REER in the relevant time period, a 
benefit may exist.
    The next step would be to identify the nominal, bilateral U.S. 
dollar exchange rate consistent with the equilibrium REER that would 
have prevailed in the relevant time period absent the undervaluation. 
The difference between (1) this nominal, bilateral U.S. dollar rate 
that would otherwise have prevailed and (2) the actual average nominal, 
bilateral U.S. dollar (money or market) rate used for commercial 
purposes in the relevant time period, could demonstrate the existence 
of a ``benefit'' from currency undervaluation.
    In assessing the parties' arguments and conducting its analysis, 
Commerce will timely request that Treasury evaluate any currency 
undervaluation resulting from government action on the exchange rate. 
We expect that Treasury will timely provide Commerce with an evaluation 
and conclusion as to whether and to what extent the government action 
on the exchange rate has resulted in undervaluation of the currency, 
and, if Treasury deems appropriate, an evaluation of the benefit 
arising from such undervaluation. Treasury will use a consistent 
framework to assess currency undervaluation resulting from government 
action on the exchange rate, recognizing country-specific factors. 
Commerce will submit Treasury's evaluation to the record of the 
administrative proceeding and defer to Treasury's evaluation as to 
undervaluation in making Commerce's determination as to 
countervailability, unless Commerce has good reason to disagree with 
that evaluation, based on the record as a whole, in which case Commerce 
will provide Treasury an opportunity to review and rebut the contrary 
reasoning. As with any countervailing duty proceeding, all information 
presented to or obtained by Commerce during the proceeding will be 
placed on the administrative record, consistent with section 
516A(b)(2)(A)(i) of the Act.
    The value of the countervailable benefit to a particular enterprise 
under investigation or review could be determined by taking into 
account the amount of U.S. dollars that enterprise converted into 
domestic currency through an entity determined to be an authority (or 
entrusted or directed by an authority) during the relevant 
investigation or review period, the actual exchange rates in effect at 
the time of conversion, and the nominal dollar rate Commerce determines 
under this proposed regulatory modification. The benefit could be 
determined in other ways as well, depending on the particular 
circumstances.
    With respect to the specificity of an undervalued currency under a 
unified currency regime, an analysis under the proposed regulation 
could take into consideration a country's balance of payments data and, 
specifically, the amount of foreign currency supplied by broad 
categories of entities or activities in that country, e.g., exporters, 
foreign investors, tourists and recipients of factor income earned 
abroad. Information, where available, regarding the market supply of 
foreign currency could provide a reasonable proxy for the amount of 
U.S. dollars converted into the undervalued domestic currency of the 
country under investigation.
    The final step would be to determine the portion of this total 
amount that is composed of foreign exchange supplied by enterprises 
that primarily buy or sell goods internationally. Starting with gross 
foreign currency supplied by exporters, and deducting the foreign 
exchange needed by these exporters to purchase any imported inputs used 
in the production of exported goods, would result in a figure for net 
foreign exchange supplied by the enterprises in the exporting and 
importing sector of that country. If enterprises in a country that 
primarily buy or sell goods internationally collectively constitute a 
predominant user or account for a disproportionate share of net foreign 
exchange supply, Commerce could find a currency undervaluation subsidy 
to be specific to that group of enterprises within the meaning of 
section 771(5A)(D)(iii) of the Act.
    As noted above, the countervailing duty law addresses government 
interventions in the market that cause distortions to trade and confer 
unfair advantages on certain economic actors. The proposed 
modifications, if adopted, would do just that. When state-owned banks 
or other entities Commerce finds to be authorities (or private entities 
entrusted or directed by authorities) provide foreign currency in 
exchange for U.S. dollars, Commerce may determine that there is a 
government financial contribution. The specificity test in the statute 
focuses the countervailing duty remedy only on those government 
interventions that benefit particular sectors of the economy. With 
respect to benefit, Commerce's analysis would address, in light of 
record evidence from third-party sources and Treasury, whether there is 
a financial contribution on terms more favorable than the market would 
provide. Commerce intends to use its

[[Page 24409]]

discretion under the existing statute and regulations, including these 
proposed modifications, to focus the benefit inquiry on government 
distortions providing an advantage to exporters, consistent with 
Commerce's existing practice.

Expected Impact of the Proposed Rule

    Like many of Commerce's regulations, the modifications proposed 
here are an explanation of how Commerce will apply its existing 
statutory authority. Commerce notes that our proposed analysis for 
currency is not fundamentally different from the approach we follow for 
other types of countervailable subsidies we frequently encounter: 
Loosely speaking, we examine whether foreign companies are receiving a 
financial contribution on terms that are better than what is 
commercially available, absent government action. The purpose is to 
provide relief to U.S. workers, farmers, ranchers, and businesses who 
are injured by unfairly subsidized imports--in this case, by virtue of 
subsidies that occur when a foreign producer/exporter exchanges 
currency and receives a benefit due to currency undervaluation.
    It is also important to note that the Act requires Commerce's 
determinations in countervailing duty cases be made on the basis of the 
administrative record. The proceedings are normally adversarial, and 
accordingly there is often conflicting factual information on the 
record that might support different determinations by Commerce. Under 
section 516A(b)(1)(B)(i) of the Act, Commerce may make any 
determination unless it is unsupported by substantial evidence on the 
record, or otherwise not in accordance with law (e.g., arbitrary and 
capricious).
    We note all of Commerce's determinations in countervailing duty 
cases are made publicly available and are subject to judicial review. 
Commerce's decisions are fully explained, including calculations 
supporting the findings and responses to comments made by the 
interested parties.
    We are including here two alternative approaches to assessing the 
expected economic impact of the proposed rule, if it were to become 
final, and we welcome comments on both approaches. Note that the 
economic analyses included in this document have been prepared solely 
for purposes of providing the public with the information and analyses 
required by Executive Order 12866 and are not meant to serve as a 
predictor of the facts in any potential future cases, nor to indicate 
the likelihood of any particular future determinations. Examples are 
provided for illustrative purposes only. All of Commerce's 
countervailing duty determinations are based solely on the 
administrative record of the proceeding at hand, consistent with the 
Act and Commerce's regulations.

Economic Impact Assessment--Alternative 1

    The first alternative analysis is based on the estimates of the 
annual total duties that could be collected if currency-related 
subsidies are countervailed in future proceedings.
    This proposed rule, if it becomes final, would explain how Commerce 
will apply its statutory authority when examining potential subsidies 
resulting from undervalued currency. As explained above, in multiple 
prior cases Commerce has examined subsidy allegations based on a 
unified currency regime. While Commerce declined to initiate on those 
currency undervaluation allegations due to insufficient evidence 
provided by the petitioner, there is nothing in existing law or 
regulations that would prevent a domestic industry from petitioning 
Commerce immediately to investigate such a subsidy.
    Nonetheless, to inform the public discussion of this proposed 
regulation, we consider the economic impact of a potential increase in 
the number of currency subsidy allegations that could potentially 
result from the public's increased awareness that Commerce would 
consider initiating countervailing duty investigations of such 
subsidies. As discussed below, we estimate that the total amount of 
countervailing duties that might be collected due to countervailing 
such subsidies could range from $3.9 million to $16.6 million 
annually--or, if certain additional assumptions are made, reflecting an 
unlikely scenario, up to $21 million. To be clear, this rule itself 
will not lead to duties in these estimated amounts. Rather, 
countervailing duties related to a currency-related subsidy can only be 
imposed after Commerce has reached an affirmative final determination 
of subsidization and the U.S. International Trade Commission has 
reached an affirmative final injury determination. Any subsidy 
determination in a future countervailing duty (CVD) proceeding in which 
Commerce applies this rule will be based on the administrative record 
of that proceeding, consistent with the Act and Commerce's regulations. 
Commerce welcomes public comment on any likely economic effect of this 
proposed rule.
    As a threshold question, we considered whether the proposed 
regulation would lead to an increase in the number of CVD petitions 
filed. The number of petitions filed over the past five years has 
fluctuated considerably.\2\ Yet we are not aware of any evidence that 
the number of potentially countervailable subsidy programs is 
responsible for this change, even in part. Rather, a key determinant of 
whether a petition is filed is whether petitioners believe they can 
meet the statutory requirements for injury.\3\ Furthermore, Commerce 
estimates that a typical affirmative final determination in a CVD case 
results in a finding of at least 10 countervailable programs \4\--and 
in some cases, the number is much higher. From the standpoint of a 
petitioner who has not yet hired advisors to prepare a petition, the 
number of potentially countervailable subsidies for a given product 
from a given country is indefinite. Petitioners' awareness (as a result 
of the proposed regulation) that there is one additional subsidy claim 
that could be brought is unlikely to significantly change their 
calculus in deciding whether to invest the necessary time and resources 
to petition for the imposition of a CVD order.
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    \2\ The number of CVD petitions filed each year from FY 2014 
though FY 2018 is as follows: 15, 25, 16, 11, 18.
    \3\ Section 701(a) of the Act.
    \4\ While this estimate is based on our general experience 
across all CVD cases and relevant countries, as an independent check 
we closely reviewed the final determinations in the investigations 
for all current CVD orders involving South Korea, and calculated 
that Commerce countervailed 14 programs on average in those 
investigations. This further confirms that an estimate of 10 
programs per case is appropriately viewed as conservative. We 
further note that the number of subsidies alleged in a given 
proceeding generally exceeds (often considerably) the number of 
subsidies ultimately determined to be countervailable and used by 
the companies under investigation in a proceeding.
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    Accordingly, Commerce does not believe that the proposed regulation 
will affect the number of CVD petitions received.\5\ However, Commerce 
does believe that the proposed regulation is likely to increase the 
number of CVD allegations in petitions, because petitioners will be 
aware that Commerce is willing to investigate and potentially 
countervail currency undervaluation subsidies when there is a supported 
allegation and when the financial contribution, benefit, and 
specificity requirements are met. Therefore, in the

[[Page 24410]]

remainder of this section, we consider the following question: What is 
the value of annual duties likely to be collected if Commerce finds a 
countervailable currency undervaluation subsidy in a proceeding in 
which both it and the U.S. International Trade Commission have reached 
final affirmative determinations?
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    \5\ Commerce has seldom, if ever, conducted an investigation 
that included only one or even a handful of alleged subsidies, which 
further supports the point that the addition of one more potential 
subsidy allegation, in the form of currency undervaluation, is not 
likely to be a decisive factor in a U.S. petitioning industry's 
decision to file a new petition.
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    In theory, there are two possible approaches to answering this 
question. First, we could attempt to estimate the likely value of 
annual duties from the magnitude of currency undervaluation shown to 
exist economy-wide in the past. However, this approach is unworkable, 
because (consistent with statute) countervailing duty calculations are 
based on company-specific information which is not possible to estimate 
in the abstract. Given that the range of possible experience can vary 
widely between companies, it is essentially a speculative endeavor to 
identify meaningful, representative averages for each variable.
    To illustrate this point with a simplified calculation: Assume as 
an example two hypothetical producers/exporters of subject merchandise 
in a country are under investigation by Commerce, each with markedly 
different profiles. Company A is an integrated producer that imports 
few inputs and sells a relatively large share of its finished product 
within its domestic market, though also exports some to the United 
States. Company B is a Foreign Invested Enterprise in the country under 
investigation that is part of a global supply chain. It imports key 
inputs (in U.S. dollars) and re-exports a large portion of its finished 
product to the United States. Assume the REER differential for the 
country's domestic currency unit (DCU) is 10 percent. Also, assume two 
scenarios for each company: One where the bilateral nominal exchange 
rate is undervalued by 5 percent (scenarios A1 and 
B1) and one where it is undervalued by 10 percent (scenarios 
A2 and B2). Finally, assume that neither company 
receives the currency subsidy benefit indirectly, and that the current 
nominal exchange rate is 1 U.S. dollar per DCU 1.05.

                                              Table 1--Hypothetical Currency-Related CVD Rate Calculations
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                                                                                           Share of
                                       Domestic                                              US$         Amount     Amt.  DCUs                 Currency
                                        sales      US$  rate    US  sales    Tot. sales    holdings       DCUs      at  target    Benefit      subsidy
                                        (DCUs)      gap  (%)      (US$)        (DCU)      exchanged     actually    US$  rate      (DCUs)     CVD  rate
                                                                                             (%)        received                                 (%)
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Company A1.........................    1,000,000            5      500,000    1,525,000           80      420,000      400,000       20,000         1.31
Company A2.........................    1,000,000           10      500,000    1,525,000           80      420,000      381,818       38,182         2.50
Company B1.........................      250,000            5      500,000      775,000           20      105,000      100,000        5,000         0.65
Company B2.........................      250,000           10      500,000      775,000           20      105,000       95,455        9,545         1.23
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Note that under Commerce's CVD methodology, in calculating a 
company-specific CVD rate for a given domestic (i.e., non-export-
contingent) subsidy, Commerce will normally use the company's total 
worldwide sales (including domestic sales and sales to third countries) 
of domestically manufactured products as the denominator. All other 
things equal, the result of using total sales as the denominator 
compared to using, e.g., just export sales (as Commerce does for 
export-contingent subsidies) is generally to reduce the CVD rate for 
that subsidy. The magnitude of that reduction will depend on the 
particular company's ratio of export to total sales, among other 
things. Accordingly, in the event of an affirmative finding of a 
countervailable subsidy in a future proceeding under the proposed 
regulation--which sets out a framework for analyzing currency 
undervaluation as a domestic subsidy--the higher the worldwide sales of 
the subsidy recipient, the lower the CVD rate that Commerce would 
assign to that subsidy recipient, all else equal.
    The examples presented above, while hypothetical, serve to 
illustrate that company-specific valuations of a subsidy benefit from 
currency undervaluation can vary significantly depending on the 
assumptions for at least three key variables: (i) The extent to which 
the nominal bilateral U.S. dollar rate falls below the level consistent 
with the equilibrium REER value; (ii) the extent to which the company 
converted U.S. dollars into domestic currency during the relevant time 
period; and (iii) the value of the company's total sales (of all 
products, to all markets). The larger (or smaller) the divergence in 
the nominal bilateral (in (i) above), the larger (or smaller) is the 
subsidy benefit in absolute terms, all else equal; and (ii) the larger 
(or smaller) the amount of U.S. dollars converted into domestic 
currency (in (ii) above), the larger (or smaller) is the benefit, all 
else equal. However, this tells us nothing about how large or small the 
countervailing duty rate is since this rate is equal to the benefit in 
U.S. dollars divided by the U.S. dollar value of the company's total 
sales (i.e., the ratio of the two variables). Since there is no 
necessary correlation or relationship between the total sales variable 
and the other two variables, or between the benefit amount and the 
sales amount of the ratio that defines the countervailing duty rate, 
neither the currency undervaluation variable nor the U.S. dollar 
conversion variable alone gives any indication of the ultimate 
countervailing duty rate for currency undervaluation. Thus, in the case 
of a large currency undervaluation, the countervailing duty rate can 
nevertheless be zero; and in the case of a small currency 
undervaluation, the countervailing duty rate can be large. For this 
reason, as stated above, we cannot estimate the likely value of annual 
duties from the magnitude of currency undervaluation shown to exist 
economy-wide in the past.
    The second possible approach, presented below, is to base our 
estimate on aggregated historical data for the value of CVDs 
deposited--which we assume to be a function of the number of subsidy 
allegations made to Commerce. This aggregated historical data serves as 
the baseline for our impact analysis. According to data from Customs 
and Border Protection,\6\ the average annual amount of total duties 
deposited under CVD orders over the last five fiscal years (FY 2014-18) 
was $527 million. The average annual value of imports subject to CVD 
during that timeframe was $4.22 billion. Thus, an average total CVD 
rate of roughly 12

[[Page 24411]]

percent was deposited on every dollar of imports subject to CVD.\7\
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    \6\ Customs and Border Protection collects data on the total 
value of U.S. imports from all countries subject to countervailing 
duty orders during a given period, as well as the value of duties 
deposited by importers pursuant to those CVD orders during that 
period. Concerns regarding the protection of proprietary information 
prevent us from making public that information, except in the most 
aggregated form that we have provided here.
    \7\ During that 5-year time frame, the average total CVD rate on 
an annual basis ranged from a low of 8.5 percent to a high of 15.2 
percent.
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    As noted above, Commerce estimates that a typical CVD case involves 
at least 10 countervailable programs.\8\ Thus, we have calculated a 
conservatively high average 1.2 percent CVD rate for each subsidy 
program found to be countervailable in a typical case.\9\ There is no 
reason to think that this figure would be different for currency-
related subsidies.\10\
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    \8\ Commerce does not calculate this statistic in the ordinary 
course of our work. This estimate of at least 10 countervailable 
programs on average is based on an internal review of the 
determinations in several of the hundreds of CVD investigations and 
administrative reviews that Commerce has conducted in recent years.
    \9\ Alternatively, taking the highest average annual total CVD 
rate in the last five years of 15.2 percent, as noted above, and 
dividing by 10 programs, results in a very conservatively-high 
program-specific CVD rate of 1.52 percent. Conversely, taking the 
lowest average annual total CVD rate in the last five years of 8.5 
percent and dividing by 10 programs results in a lower-end program-
specific CVD rate of 0.85 percent.
    \10\ As discussed below, the fact that currency undervaluation 
subsidies may be perceived to be available to a variety of 
industries and enterprises throughout a particular country's economy 
does not distinguish them from other subsidies that Commerce already 
countervails today. Furthermore, the larger the relevant sales of a 
given company, the lower the applicable CVD rate (all else equal). 
Thus, the magnitude of currency undervaluation based on Step 1 or 
Step 2 of the benefit analysis is not in and of itself a predictor 
of the likely CVD rates that Commerce would impose if it were to 
countervail currency subsidies.
---------------------------------------------------------------------------

    As of the drafting of this notice, there are 116 CVD orders in 
effect. While Commerce does not believe that implementation of this 
currency undervaluation methodology will result in an increase in CVD 
investigations (as discussed above), for purposes of illustration we 
assume hypothetically that the proposed regulation would result in an 
additional two CVD orders per year that would not have otherwise 
existed absent the adoption of this methodology, which equals a roughly 
two percent increase in the number of existing orders.\11\ Therefore, 
as a corollary, we assume that the average value of imports subject to 
CVD increases two percent from $4.22 billion to $4.3 billion. To be 
clear, Commerce is not aware of any precedent for new petitions as the 
result of the public's increased awareness that a type of subsidy is 
potentially countervailable. Therefore, in our view, a two percent 
increase in the number of petitions due solely to the public's 
increased awareness that currency undervaluation subsidies are 
potentially countervailable represents an outlier scenario.
---------------------------------------------------------------------------

    \11\ From FY 2014 through FY 2018, the number of CVD orders 
imposed is as follows: 6, 9, 16, 11, 18.
---------------------------------------------------------------------------

    We currently have information in the public domain from two sources 
(IMF and Peterson Institute for International Economics) regarding 
whether countries' exchange rates were undervalued during 2017.\12\ For 
some countries the two sources agree, but for other countries one 
source finds there is undervaluation and the other source finds there 
is not; moreover, the lists of countries assessed by the two sources 
are not identical. Additionally, these two sources are not making a 
judgment about whether the undervaluation is a result of government 
action on the exchange rate, which would be part of the evaluation and 
conclusion provided by Treasury in the proposed rule. Commerce has not 
made any decision as to how we will treat instances where our 
information sources disagree over undervaluation for a given country. 
This will depend upon the record evidence, including any analysis 
provided by Treasury, and interested parties' arguments in a given 
proceeding.
---------------------------------------------------------------------------

    \12\ Any future finding of undervaluation will of course be 
based on data for the relevant period of investigation or review 
covered by the CVD proceeding, data permitting.
---------------------------------------------------------------------------

    However, hypothetically, if Commerce were to find that a currency 
is undervalued because at least one of the two sources' point estimates 
indicates undervaluation (the ``more conservative'' scenario, in that 
it results in a higher estimate of economic significance), then the 
data show that roughly 32 percent of total imports subject to CVDs are 
from countries with undervalued currencies.\13\ As an alternative 
hypothetical, if Commerce were to find that a currency is undervalued 
because both sources (and in the case of IMF, the entire reported 
range) support such a determination (the ``less conservative'' 
scenario), then only 7.6 percent of total imports subject to CVDs are 
from a country (in fact, only one country--Korea) with an undervalued 
currency.\14\
---------------------------------------------------------------------------

    \13\ In FY 2018, countervailing duties were deposited on various 
products imported from 19 countries. For 12 of these 19 countries, 
at least one of the two sources (IMF or Peterson Institute for 
International Economics) deemed the domestic currency undervalued 
during 2017. Based on information from Customs and Border 
Protection, the total value of imports from these 12 countries with 
potentially undervalued currencies equaled roughly 32 percent of the 
total value of imports from all 19 countries.
    \14\ To be clear, in this estimate we are only considering 
``step 1'' of the benefit analysis. Step 2 of the benefit test, the 
financial contribution test, the specificity test, and the U.S. 
International Trade Commission's injury test would reduce the 
candidate countries for CVDs targeting currency undervaluation even 
further. This is another reason that Commerce's estimates of 
economic significance are conservatively high.
---------------------------------------------------------------------------

    Under the more conservative scenario: 32 percent * $4.30 billion = 
$1.38 billion in average annual imports that are covered by CVD orders 
and are from countries with undervalued currencies. Next, $1.38 billion 
* 1.2 percent CVD rate calculated for a currency subsidy = $16.6 
million in total annual duties collected for countervailing currency 
undervaluation subsidies.\15\
---------------------------------------------------------------------------

    \15\ Relying instead on the very conservative (high) average 
program rate of 1.52 percent, noted above, results in the following 
calculation: $1.38 billion * 1.52 percent CVD rate calculated for a 
currency subsidy = $21 million in total annual duties collected for 
countervailing currency undervaluation subsidies. Conversely, 
relying on the low rate of 0.85 percent results in the following 
calculation: $1.38 billion * 0.85 percent CVD rate calculated for a 
currency subsidy = $11.7 million in total annual duties collected 
for countervailing currency undervaluation subsidies.
---------------------------------------------------------------------------

    Under the less conservative scenario: 7.6 percent * $4.30 billion = 
$327 million in average annual imports that are covered under CVD 
orders and are from countries with undervalued currencies. Next, $327 
million * 1.2 percent CVD rate calculated for a currency subsidy = $3.9 
million in total annual duties collected for currency undervaluation 
subsidies.
    Although Commerce believes that the assumptions underlying the two 
scenarios above are the most reasonable based on past CVD practice, 
other assumptions would lead to significantly higher estimates of 
economic impact. For example, if the total value of imports subject to 
countervailing duties is assumed to be double the historical average 
(i.e., $8.44 billion); the share of all imports from undervalued 
countries is assumed to be 50 percent (rather than the maximum of 32 
percent suggested by the relevant data sources we have cited from PIIE 
and IMF), and the average CVD rate for currency undervaluation is 
assumed to be double the historical average for other subsidies (i.e., 
2.4 percent rather than 1.2 percent); then the calculation of economic 
impact would be as follows: $8.44 billion * 50% * 2.4 percent = $101.3 
million.
    Commerce notes that there is no evidence that CVDs--which are 
imposed only on very specific products from a particular country (e.g., 
certain carbon and alloy cut-to-length steel plate from the Republic of 
Korea)--deter trade with the country more generally. Commerce currently 
has 58 CVD orders on China, the most for any single country, and each 
CVD order typically involves multiple subsidy programs (of which 
currency undervaluation would be only one). Yet U.S. imports from China 
have continued to rise

[[Page 24412]]

significantly over the last several years to $540 billion in 2018 (up 
from $440 billion in 2013). Similarly, Commerce currently has 19 CVD 
orders on imports from India (again, with each order typically 
encompassing multiple subsidy programs), and yet total U.S imports from 
India have continued to rise significantly over the last several years 
to $54 billion in 2018 (up from $42 billion in 2013). Commerce has a 
total of 116 CVD orders in place, but the value of imports impacted by 
those orders equates to just 0.3 percent of all imports into the United 
States in FY 2018.
    It is important to underscore four additional points in this 
context. First, the fact that currency undervaluation subsidies may be 
perceived to be available to a variety of industries and enterprises 
throughout a particular country's economy does not distinguish them 
from other subsidies that Commerce already countervails today. For 
example, Commerce has often countervailed the provision of electricity 
for less than adequate remuneration in CVD proceedings involving 
imports from China. This is largely a reflection of the fact that this 
program is frequently included among the countervailable subsidies 
alleged in CVD petitions submitted from petitioning U.S. industries, 
which in turn reflects the fact that most foreign industries that have 
been involved in U.S. CVD proceedings use electricity in their 
production processes. The fact that Commerce has frequently found 
electricity subsidies in prior China CVD cases has not led to new CVD 
petitions being filed by U.S. industries that would not otherwise be 
filed. Land, policy lending, and export buyers credits, which Commerce 
frequently countervails, similarly illustrate this point.
    Moreover, while it may seem that the total aggregate value of these 
types of government supports across all recipients could be relatively 
large, given the various enterprises and industries to which they may 
be available, there is no basis to presume a relatively large economy-
wide value translates into a larger CVD rate for the program for a 
given company. This is because, as explained above, the CVD rate for 
domestic subsidies is generally determined on a company-specific basis, 
taking into account the amount of subsidy received by a particular 
producer/exporter of subject merchandise, and the total worldwide sales 
of the company for relevant products (i.e., those products that benefit 
from the subsidy, which may be a broader category than the subject 
merchandise).
    Likewise, assuming arguendo that the benefit from a currency 
undervaluation subsidy in a given country is large in the aggregate, 
Commerce does not believe that that is a sufficient basis to presume 
that a company-specific CVD rate calculated for currency undervaluation 
will likely be larger than the program rates for any other subsidies 
that company receives. For example, in Countervailing Duty 
Investigation of Certain Corrosion-Resistant Steel Products From the 
Republic of Korea: Final Affirmative Determination, and Final 
Affirmative Critical Circumstances Determination, in Part, 81 FR 35310 
(June 2, 2016), the Government of Korea reported in its public 
submissions that the Korean Development Bank (a Korean government 
policy bank) provided close to $14 billion in loans in 2014 to Korean 
companies under its ``Short-Term Discounted Loans for Export 
Receivables'' program. However, despite the considerable size of the 
program in the aggregate, we calculated a company-specific rate for 
that subsidy program of less than 0.01 percent for one of two Korean 
respondent companies in that CVD proceeding. The second respondent 
company in the investigation reported not using the program at all, and 
therefore received no rate for that program.\16\ That said, we invite 
the public to comment on this issue. Similarly, the aggregate value of 
the Government of India's ``Merchandise Exports from India Scheme'' was 
reportedly close to $2 billion (Rs 12,746 in Crore) during India's 
2016-17 budget year.\17\ And yet, in a CVD investigation of that 
subsidy program involving Indian producers of cold-drawn mechanical 
tubing during that period, Commerce determined that the company-
specific program rate for that subsidy was only 0.12 percent for one of 
the companies under investigation, and 1.48 percent for another 
company. See Certain Cold-Drawn Mechanical Tubing of Carbon and Alloy 
Steel from India: Final Affirmative Countervailing Duty Determination, 
82 FR 58172 (December 11, 2017).
---------------------------------------------------------------------------

    \16\ To the extent information on aggregate subsidy amounts is 
on the record of Commerce's CVD proceedings, it is often ``business 
proprietary information'' and therefore is not subject to public 
disclosure.
    \17\ ``Statement of Revenue Impact under the Central Tax 
System,'' Receipts Budget 2018-2019 (available online at: https://www.indiabudget.gov.in/ub2018-19/rec/annex7.pdf).
---------------------------------------------------------------------------

    Second, the products that are subject to countervailing duty (and 
antidumping duty) investigations are typically defined very narrowly by 
the petitioners. This is due, at least in part, to the relationship 
between the scope of Commerce's investigations and the U.S. 
International Trade Commission's definition of the domestic like 
product.\18\ This will not change if Commerce begins to countervail 
currency undervaluation subsidies.
---------------------------------------------------------------------------

    \18\ In many cases, a narrow definition of the scope and the 
domestic like product is beneficial to the petitioning U.S. domestic 
industry, because this may increase the likelihood of an affirmative 
injury finding. As the Court of Appeals for the Federal Circuit 
stated in Allegheny Ludlum Corp. v. United States, 287 F.2d 1365, 
1370-71 (Fed. Cir. 2002), ``Any actual effect of the imported goods 
on the narrower domestic like product market may be effectively 
submerged, and lost, upon the inclusion of data from a larger set of 
domestic products.''
---------------------------------------------------------------------------

    Third, as noted above, Commerce estimates that a typical CVD case 
involves 10 countervailable subsidy programs. Furthermore, based on 
anecdotal evidence, it can cost private parties more than one million 
dollars in legal and other fees to petition for the imposition of CVDs 
on a particular product from a particular country. Accordingly, to the 
extent that the proposed regulation would change CVD practice, it is 
likelier to lead to one additional CVD allegation in petitions that 
would otherwise have been submitted--not an increase in the overall 
number of CVD petitions.
    Fourth, Commerce again notes that the proposed rule simply explains 
that companies that primarily buy or sell goods internationally can 
comprise a ``group'' of enterprises for specificity purposes. This is 
consistent with what Commerce has done in other situations. For 
example, in Coated Free Sheet Paper from the People's Republic of 
China: Final Affirmative Countervailing Duty Determination, 72 FR 60645 
(October 25, 2007), Commerce explained in Comment 14 of the Decision 
Memorandum that foreign invested enterprises (FIEs) constitute a 
``group'' of enterprises, notwithstanding the fact that they may 
operate in a variety of industries. Likewise, in a 2010 policy 
bulletin, available at https://enforcement.trade.gov/policy/PB-10.1.pdf, Commerce explained that state-owned enterprises (SOEs) can 
constitute a ``group'' of enterprises. Treating FIEs or SOEs as a group 
for purposes of the specificity analysis has not led to a discernable 
increase in the number of CVD investigations. Accordingly, we do not 
believe that the specificity provision in this proposed regulation will 
lead to a discernable increase in the number of CVD investigations.

[[Page 24413]]

    All of this information confirms that the proposed regulation is 
unlikely to dramatically change the total volume of imports subject to 
CVDs. Rather, it may lead to an uptick in total CVD rates if and only 
if Commerce determines that there are currency undervaluation subsidies 
in countries during the relevant time periods. This supports the 
estimates of economic impact provided above, ranging from approximately 
$4 million to less than $17 million.
    In sum, based on the reasoning provided above, Commerce is of the 
view that regulatory guidance on how it will treat subsidy allegations 
regarding currency undervaluation is no different from existing 
regulations, for example, addressing the treatment of loans by state-
owned banks (19 CFR 351.505), equity infusions (19 CFR 351.507), or 
exemptions for prior-stage cumulative indirect taxes (19 CFR 351.518).

Economic Impact Assessment--Alternative 2

    During interagency discussions, an alternative approach to 
assessing the economic significance of the rule emerged. This 
alternative approach attempts to determine the likely economic impact 
of the proposed regulation, based on the overall magnitude of currency-
related subsidies provided to all economic actors, regardless of their 
company-specific features and their engagement (or lack thereof) in 
unfair trade that injures a domestic industry.
    As discussed in more detail above, Commerce frequently countervails 
the provision of electricity for less than adequate remuneration in its 
CVD proceedings involving imports from China; this analysis will use 
extrapolations from this past experience as a means of exploring the 
potential impact of currency-related subsidies.\19\ This analysis 
begins by estimating the electricity portion of Chinese imports' 
overall subsidy rate, which along with the Chinese portion of worldwide 
countervailable imports yields an estimate of the countervailing duties 
associated with Chinese electricity subsidies. The result is then 
extrapolated, proportionate to estimates of the total relevant 
subsidies, from the electricity context to currency.
---------------------------------------------------------------------------

    \19\ As discussed below, the fact that currency undervaluation 
subsidies may be perceived to be available to a variety of 
industries and enterprises throughout a particular country's economy 
does not distinguish them from other subsidies that Commerce already 
countervails today. Furthermore, the larger the relevant sales of a 
given company, the lower the applicable CVD rate (all else equal). 
Thus, the magnitude of currency undervaluation based on Step 1 or 
Step 2 of the benefit analysis is not in and of itself a predictor 
of the likely CVD rates that Commerce would impose if it were to 
countervail currency subsidies.
---------------------------------------------------------------------------

    Table 2 reports electricity-associated and total subsidy rates for 
a random sample of the approximately 35 Chinese countervailable 
subsidies for which final affirmative determinations were published in 
the Federal Register between 2014 and 2018.\20\ Also reported are 
import values associated with the relevant products, which will be used 
to calculate an import-weighted average of the electricity portion of 
overall countervailing duties.
---------------------------------------------------------------------------

    \20\ This sampling approach introduces uncertainty. It is 
anticipated that a more comprehensive examination of the data 
(without sampling) may be possible for the analysis of any final 
rule resulting from this proposal.

                 Table 2--Sample of Chinese Subsidy Rates and Total Import Values, 2014 to 2018
----------------------------------------------------------------------------------------------------------------
                                                                   Subsidy rate                      Pre-order
                                                                       (%),        Subsidy rate     imports ($
                                                                    electricity     (%), total     million) \k\
----------------------------------------------------------------------------------------------------------------
Calcium Hypochlorite \a\........................................            5.34           65.85             8.1
Tool Chests and Cabinets \b\....................................            0.41           14.03             230
Stainless Steel Sheet and Strip \c\.............................            5.62            75.6             312
Cast Iron Soil Pipe Fittings \d\................................            3.44           34.87            13.2
Hardwood Plywood \e\............................................            0.61           22.98         \i\ 464
Large Diameter Welded Pipe \f\..................................           20.06          198.49            29.2
Melamine \g\....................................................           20.06           154.0            14.5
Cold-Rolled Steel Flat Products \h\.............................           20.06          256.54         \j\ 280
----------------------------------------------------------------------------------------------------------------
\a\ https://enforcement.trade.gov/frn/summary/prc/2014-29368-1.pdf; https://www.federalregister.gov/documents/2014/12/15/2014-29368/calcium-hypochlorite-from-the-peoples-republic-of-china-final-affirmative-countervailing-duty duty.
\b\ https://enforcement.trade.gov/frn/summary/prc/2017-25768-1.pdf; https://www.federalregister.gov/documents/2017/11/29/2017-25768/certain-tool-chests-and-cabinets-from-the-peoples-republic-of-china-final-affirmative-countervailing countervailing.
\c\ https://enforcement.trade.gov/frn/summary/prc/2017-02577-1.pdf; https://www.federalregister.gov/documents/2017/02/08/2017-02577/countervailing-duty-investigation-of-stainless-steel-sheet-and-strip-from-the-peoples-republic-of-china.
\d\ https://enforcement.trade.gov/frn/summary/prc/2018-14827-1.pdf; https://www.federalregister.gov/documents/2018/07/11/2018-14827/cast-iron-soil-pipe-fittings-from-the-peoples-republic-of-china-final-affirmative-countervailing countervailing.
\e\ https://enforcement.trade.gov/frn/summary/prc/2017-24864-1.pdf; https://www.federalregister.gov/documents/2017/11/16/2017-24864/countervailing-duty-investigation-of-certain-hardwood-plywood-products-from-the-peoples-republic-of-china.
\f\ https://enforcement.trade.gov/frn/summary/prc/2018-13567-1.pdf; https://www.federalregister.gov/documents/2018/11/14/2018-24805/countervailing-duty-investigation-of-large-diameter-welded-pipe-from-the-peoples-republic-of-china.
\g\ https://enforcement.trade.gov/frn/summary/prc/2015-09004-1.pdf; https://www.federalregister.gov/documents/2015/11/06/2015-28351/melamine-from-the-peoples-republic-of-china-final-affirmative-countervailing-duty-determination determination.
\h\ https://enforcement.trade.gov/frn/summary/prc/2016-12183-1.pdf; https://www.federalregister.gov/documents/2016/05/24/2016-12183/certain-cold-rolled-steel-flat-products-from-the-peoples-republic-of-china-final-affirmative affirmative.
\i\ Chinese imports are assumed to be 65 percent of the $715.7 million combined total across five countries.
\j\ Chinese imports are assumed to be 65 percent of the $431.5 million combined total across two countries.
\k\ The pre-order import levels listed in the cited fact sheets will not necessarily equal the imports that
  occur in future years when CVDs are imposed.

    The average, weighted by import value, of the electricity portion 
of the overall subsidy rate is 5.25 percent.\21\ The Customs and Border 
Protection data cited above indicate that 17 percent of countervailable 
imports are from China. This, in turn, yields an estimate that $4.7 
million (= 5.25 percent x 17 percent x $527 million) in annual 
countervailing duties are associated with Chinese electricity 
subsidies.
---------------------------------------------------------------------------

    \21\ The result would be 3.7 percent if it were calculated by 
dividing the estimated electricity-related subsidies by the 
estimated total subsidies. This approach is not emphasized because 
it would require somewhat greater confidence in the import data, 
which has the limitations noted in the Table 2 footnotes.

---------------------------------------------------------------------------

[[Page 24414]]

    Industrial and commercial users in China reportedly received 
between $7.2 billion and $13.6 billion in annual electricity subsidies 
in recent years.22 23 It is unclear how much of that total 
went to export manufacturing, but given the steel industry's prominence 
as a recipient of electricity subsidies (per Haley and Haley, 2013), 
steel trade data are used to develop an estimate of the portion of such 
subsidies that are associated with exports to the United States.\24\ In 
2018, China exported 66.9 million metric tons of steel, including 734.8 
thousand metric tons to the U.S.\25\ Total Chinese steel production was 
928.3 million metric tons.\26\ Exports to the U.S. thus represented 
0.08 percent (= 0.7348 million / 928.3 million) of Chinese steel 
production.\27\ If 0.08 percent of Chinese electricity subsidies are 
associated with steel that is ultimately exported to the United States, 
then the amount of the associated subsidy would range from 
approximately $6 million (= 0.08 percent x $7.2 billion) to $11 million 
(= 0.08 percent x $13.6 billion). The resulting estimates of the ratio 
of countervailing duty to underlying subsidy would range from 42.8 
percent (= $4.7 million / $11 million) to 78.4 percent (= $4.7 million 
/ $6 million).
---------------------------------------------------------------------------

    \22\ Stocking, Andrew and Terry Dinan. ``China's Growing Energy 
Demand: Implications for the United States.'' Congressional Budget 
Office Working Paper 2015-05. June 2015. https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/50216-China_1.pdf.
    \23\ Lelyveld, Michael. ``China Faulted for Cutting Power 
Prices.'' Radio Free Asia, March 18, 2019, https://www.rfa.org/english/commentaries/energy_watch/china-faulted-for-cutting-power-prices-03182019111315.html.
    \24\ Haley, Usha C.V. and George T. Haley. ``How Chinese 
Subsidies Changed the World.'' Harvard Business Review, April 25, 
2013, available at https://hbr.org/ 2013/04/how-chinese-subsidies-
changed.
    \25\ https://www.trade.gov/ steel/countries/pdfs/exports-
china.pdf.
    \26\ https://www.worldsteel.org/en/dam/jcr:dcd93336-2756-486e-aa7f-64f6be8e6b1e/2018%2520global%2520crude%2520steel%2520production.pdf.
    \27\ Uncertainty is introduced into this analysis by a limited 
ability to account for the possibility that the U.S. imports steel 
that is of relatively high value per ton.
---------------------------------------------------------------------------

    The IMF reports 3.0 percent undervaluation of Chinese currency on 
average in 2017.\28\ With U.S. imports from China valued at $540 
billion, the associated subsidy would be approximately $16 billion (= 
3.0 percent x $540 billion). However, this estimate does not account 
for behavior change (which could include changes in import-export 
activity, subsidy activity, or both). Toward that end, it is noted that 
Table 3 reports data on pre-order countervailable imports from China 
and the rest of the world for which final affirmative determinations 
were made between November 2018 and April 2019. The Chinese portion 
consists of 65 percent of the total. As noted previously, CBP data 
indicate that 17 percent of (post-order) countervailable imports are 
from China, thus potentially indicating that behavior change, 
especially in the Chinese context, can reduce CVD collection by nearly 
three-quarters.\29\ For this reason, the $16 billion subsidy estimate 
is reduced to $4 billion.
---------------------------------------------------------------------------

    \28\ The IMF reports an uncertainty range from 13 percent 
undervaluation to 7 percent overvaluation; see the ``Staff-Assessed 
REER Gap'' columns of Table 2 of the External Sector Report 2018, 
available at https://www.imf.org/en/Publications/ESR/Issues/2018/07/19/2018-external-sector-report. The Peterson Institute for 
International Economics (PIIE), another major third-party source of 
information on currency valuation, only reports a point estimate, 
which presently indicates that Chinese currency is overvalued; see 
the ``Change in REER (percent) Change in Simulation'' column of 
Table 2 of PIIE's report, available at https://piie.com/system/files/documents/pb17-31.pdf.
    \29\ Moreover, U.S. imports of cold-rolled steel from Vietnam 
rose by nearly $200 million subsequent to the imposition, in 2015, 
of anti-dumping charges on Chinese cold-rolled steel products (see 
https://www.commerce.gov/news/press-releases/2018/05/us-department-commerce-issues-affirmative-final-circumvention-rulings). If it is 
assumed that nearly all of this increase consisted of Chinese steel 
funneled through Vietnam and that pre-order U.S.-bound Chinese 
exports of cold-rolled steel were $280 million (as shown in Table 
2), then this provides further evidence of behavior change reducing 
duty collection by over 70 percent.

  Table 3--Pre-Order Countervailable Imports, Final Determinations from
                       November 2018 to April 2019
------------------------------------------------------------------------
                                                           Pre-order
                                        Pre-order       countervailable
                                     countervailable    imports from the
                                       imports from    rest of the world
                                    China ($ million)     ($ million)
------------------------------------------------------------------------
Large Diameter Welded Pipe \a\....               29.2              294.7
Common Alloy Aluminum Sheet \b\...              897.9                  0
Rubber Bands \c\..................                4.9                  0
Plastic Decorative Ribbon \d\.....               22.5                  0
Large Diameter Welded Pipe \e\....                  0              398.8
Cast Iron Soil Pipe \f\...........               11.5                  0
Rubber Bands \g\..................                  0               12.1
Steel Wheels \h\..................                388                  0
Laminated Woven Sacks \i\.........                  0               21.1
Glycine \j\.......................                1.1                6.7
------------------------------------------------------------------------
\a\ https://enforcement.trade.gov/download/factsheets/factsheet-multiple-large-diameter-welded-pipe-ad-cvd-final-110718.pdf.
\b\ https://enforcement.trade.gov/download/factsheets/factsheet-prc-alloy-aluminum-sheet-ad-cvd-final-110718.pdf.
\c\ https://enforcement.trade.gov/download/factsheets/factsheet-prc-rubber-bands-ad-cvd-final-111418.pdf.
\d\ https://enforcement.trade.gov/download/factsheets/factsheet-prc-plastic-decorative-ribbon-ad-cvd-final-122118.pdf.
\e\ https://enforcement.trade.gov/download/factsheets/factsheet-multiple-large-diameter-welded-pipe-ad-cvd-final-022119.pdf.
\f\ https://enforcement.trade.gov/download/factsheets/factsheet-prc-cast-iron-soil-pipe-ad-cvd-final-022519.pdf.
\g\ https://enforcement.trade.gov/download/factsheets/factsheet-thailand-rubber-bands-ad-cvd-final-030119.pdf.
\h\ https://enforcement.trade.gov/download/factsheets/factsheet-prc-steel-wheels-ad-cvd-final-032219.pdf.
\i\ https://enforcement.trade.gov/download/factsheets/factsheet-vietnam-laminated-woven-sacks-ad-cvd-final-040519.pdf.
\j\ https://enforcement.trade.gov/download/factsheets/factsheet-multiple-glycine-ad-cvd-final-042519.pdf.

    Multiplying the $4 billion estimate by the 42.8- or 78.4-percent 
CVD-to-subsidy ratios calculated in the electricity context yields an 
estimated range of between $1.71 billion and $3.14 billion in new 
countervailing duties collected on Chinese imports.\30\ This estimation 
approach extrapolates from electricity subsidies to a new policy

[[Page 24415]]

context involving currency undervaluation. A key assumption underlying 
this analysis is that, despite being different types of subsidies, the 
patterns of injury findings and company-specific features are such that 
the ratio of CVDs ultimately collected to subsidies provided (where 
subsidy is defined in its general, rather than legal, sense) would be 
similar in the currency context to what has been historically 
experienced with regard to electricity. Public comments are welcome on 
the appropriateness of this extrapolation and as regards evidence or 
methodological suggestions that would allow for refinement of the 
analytic approach.
---------------------------------------------------------------------------

    \30\ This outcome would, in turn, lead to increased prices for 
U.S. consumers of the relevant imported goods.
---------------------------------------------------------------------------

    In sum, based on the reasoning provided above, Commerce is of the 
view that regulatory guidance on how it will treat subsidy allegations 
regarding currency undervaluation is no different from existing 
regulations, for example, addressing the treatment of issues such as 
electricity subsidies in the extended example, loans by state-owned 
banks (19 CFR 351.505), equity infusions (19 CFR 351.507), or 
exemptions for prior-stage cumulative indirect taxes (19 CFR 351.518). 
Nevertheless, the topic of currency undervaluation often garners wider 
attention, and we recognize that some argue that any action to address 
currency exchange practices will impact currency markets. These impacts 
are inherently indirect and unpredictable, and would not necessarily be 
a factor in the decision making of the agency to pursue individual 
cases of subsidy allegations that necessarily flow from the statutory 
criteria, as clarified in this proposed rulemaking. Nevertheless, if 
that were to turn out to be true, the indirect economic impact of this 
rule could potentially be greater than the historically based estimates 
summarized in this section. This is an area of uncertainty in this 
analysis and accordingly, we welcome comments on whether this proposed 
rule addressing the ``benefit'' and ``specificity'' elements of the 
countervailing duty law will have such an impact.

Classifications

Executive Order 12866

    For the reasons described above regarding the potential economic 
impacts of this rule, and because of the potential, depending on the 
flow of additional activity in this area, for this rule to have a 
relatively concentrated effect on specific markets, OMB has determined 
that this proposed rule is economically significant for purposes of 
Executive Order 12866.

Executive Order 13771

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017. The designation of 
any final rule that results from this proposal, as an E.O. 13771 
regulatory or deregulatory action, will be informed by feedback 
received during the public comment period.

Paperwork Reduction Act

    This proposed rule contains no new collection of information 
subject to the Paperwork Reduction Act, 44 U.S.C. Chapter 35.

Congressional Review Act

    This proposed rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and will, if finalized, be transmitted to 
the Congress and to the Comptroller General for review in accordance 
with such provisions.

Executive Order 13132

    This proposed rule does not contain policies with federalism 
implications as that term is defined in section 1(a) of Executive Order 
13132, dated August 4, 1999 (64 FR 43255 (August 10, 1999)).

Regulatory Flexibility Act

    The Chief Counsel for Regulation for the Department of Commerce 
certified to the Chief Counsel for Advocacy of the Small Business 
Administration under the provisions of the Regulatory Flexibility Act, 
5 U.S.C. 605(b), that the proposed rule, if adopted, would not have a 
significant economic impact on a substantial number of small business 
entities. A summary of the need for, objectives of and legal basis for 
this rule is provided in the preamble and is not repeated here. The 
factual basis for this certification is as follows.
    The entities upon which this rulemaking could have an impact 
include foreign governments, foreign exporters and producers, some of 
whom are affiliated with U.S. companies, and U.S. importers. Commerce 
currently does not have information on the number of directly-impacted 
entities that would be considered small under the Small Business 
Administration's size standards for small businesses in the relevant 
industries. However, some of the affected entities may be considered 
small entities under the appropriate industry size standards. 
Additionally, although this proposed rule may indirectly impact small 
entities that are parties to individual countervailing duty 
proceedings, we do not expect that it will have a significant economic 
impact on any such entities.
    The proposed action is merely a promulgation of the rules and 
standards Commerce will apply in analyzing a potential subsidy 
resulting from currency undervaluation. Any direct burden resulting 
from this proposed rule will fall on foreign governments and foreign 
exporters, which may be required to report information regarding a 
potential currency subsidy to Commerce. Therefore, the proposed rule 
would not have a significant economic impact on a substantial number of 
small business entities, as that term is defined in the Regulatory 
Flexibility Act. For this reason, an Initial Regulatory Flexibility 
Analysis is not required, and one has not been prepared.
    We recognize that action subsequent to this rule could also result 
in indirect burdens to U.S. importers, which may be required to pay 
increased duties as a result of determinations made in individual CVD 
proceedings that include allegations of specific currency 
undervaluation. However, because even the products and industries that 
will be the subject of such case-by-case determinations cannot be known 
in advance, it is impossible to determine the number of small entities 
that might be impacted by subsequent CVD proceedings that may involve 
allegations of the sort that are the subject of this rule and so may be 
affected by this rule.
    Commerce invites comment on this certification.

List of Subjects in 19 CFR Part 351

    Administrative practice and procedure, Antidumping, Business and 
industry, Cheese, Confidential business information, Countervailing 
duties, Freedom of information, Investigations, Reporting and 
recordkeeping requirements.

    Dated: May 23, 2019.
Jeffrey I. Kessler,
Assistant Secretary for Enforcement and Compliance.


    For the reasons stated, 19 CFR part 351 is proposed to be amended 
as follows:

PART 351--ANTIDUMPING AND COUNTERVAILING DUTIES

0
1. The authority citation for 19 CFR part 351 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 1202 note; 19 U.S.C. 1303 
note; 19 U.S.C. 1671 et seq.; and 19 U.S.C. 3538.

0
2. In Sec.  351.502, redesignate paragraphs (c) through (f) as 
paragraphs

[[Page 24416]]

(d) through (g), and add paragraph (c) to read as follows:


Sec.  351.502  Specificity of domestic subsidies.

* * * * *
    (c) Traded goods sector. In determining whether a subsidy is being 
provided to a ``group'' of enterprises or industries within the meaning 
of section 771(5A)(D) of the Act, the Secretary may consider 
enterprises that primarily buy or sell goods internationally to 
comprise such a group.
* * * * *
0
3. In Sec.  351.503, add paragraph (b)(3) to read as follows:


Sec.  351.503   Benefit.

* * * * *
    (b) * * *
    (3) Special rule for currency undervaluation. In determining 
whether a benefit is conferred when a firm exchanges United States 
dollars for the domestic currency of a country under a unified exchange 
rate system, the Secretary normally will consider a benefit to be 
conferred when the domestic currency of the country is undervalued in 
relation to the United States dollar. In applying this rule, the 
Secretary will request that the Secretary of the Treasury provide 
Treasury's evaluation and conclusion as to whether the currency of a 
country is undervalued as a result of government action on the exchange 
rate and the extent of any such undervaluation.
* * * * *
[FR Doc. 2019-11197 Filed 5-23-19; 4:15 pm]
 BILLING CODE 3510-DS-P