The U.S. Commerce Department is prepared to change a decades-old policy and impose countervailing duties on non-market economies like China when the facts merit, a senior official said on Thursday.
David Spooner, assistant secretary of commerce for import administration, said the Bush administration also was ready to work with Congress on legislation that "affirms" the department's authority to take that step.
Anger over the huge U.S. trade deficit with China, which grew 15.4% in 2006 to a record $232.5 billion, has fueled congressional demands for a change.
The Commerce Department has already responded and could announce preliminary countervailing duties against imports of glossy paper from China by early April, if the facts warrant action in that case, Spooner said.
"There is no legal bar to Commerce's application of the CVD (countervailing duty) law to non-market economies, including China, and we will do so if presented with the appropriate facts," Spooner said at a congressional hearing on a bill requiring the Commerce Department to change its policy.
Countervailing duties are imposed to offset government subsidies, which both the Bush administration and Congress believe are rife throughout the Chinese economy. They are different than anti-dumping duties, which are used to offset unfairly low prices. The U.S. has 61 anti-dumping orders against Chinese goods.
The Commerce Department has not been imposing countervailing duties on non-market economies since the early 1980s because of the difficulty in determining subsidies in countries where the government has extensive control of the marketplace.
Many lawmakers believe that policy may have been appropriate for Eastern Europe two decades ago, but not for modern non-market economies such as Vietnam and China, where they think subsidies are much easier to identify.
The Bush administration would support legislation affirming the Commerce Department's authority to use countervailing duties in non-market economies, but lawmakers need to be careful in crafting the bill, Spooner said.
"Because of the complexity of this issue, it is important for the language of any bill to be crafted with appropriate precision, not only to ensure consistency with our international trade obligations, but also to avoid unintended consequences for existing provisions of U.S. countervailing duty law," Spooner said.
'List Goes On And On'
China has challenged the Commerce Department's decision to review its policy at the Court of International Trade. Beijing believes Washington must declare China a market economy before it can impose countervailing duties. That designation could lead to lower U.S. anti-dumping duties on Chinese goods because of the difference in how duties are calculated for non-market economies.
Partly because of the court case, House of Representatives Ways and Means trade subcommittee Chairman Sander Levin, a Michigan Democrat, said he was convinced legislation was needed but that it had to be done "in the right way."
"China subsidizes its textile industry, its petrochemical industry, its high-technology industry, its forestry and paper products industry, its machinery industry, its copper and non-ferrous metals industry," he said. "The list goes on and on."
Levin also endorsed a plank of the proposed legislation that would give Congress control over when China is designated a market economy by allowing lawmakers to vote on any Commerce Department proposal to do that.
Spooner said the Bush administration has concerns about that provision, but they may be resolved.