Thanh Nien continues a bimonthly column in which eminent jurists analyze various aspects of business and investment laws. The column appears on the second and fourth Fridays of the month.

The US antidumping laws permit the US government to collect special import duties, or antidumping duties, to offset “unfairly” low prices of imports.

To impose antidumping duties, the country’s Department of Commerce (DOC) and International Trade Commission (ITC) must determine that imported merchandise is sold at “less than normal value” and is causing or is threatening to cause “material injury” to a domestic industry.

Once domestic producers of certain types of products file an antidumping petition against the imports into the US, the DOC and ITC will proceed with an antidumping investigation on shipments of the merchandise under investigation.

The issue is whether individual Vietnamese companies participating in an antidumping (AD) investigation can qualify for a separate rate – that is, an individual company-specific dumping margin.

The respondent companies are required to satisfy both the de jure and the de facto tests for securing a separate rate.

Of course, exporting companies that remain under state ownership will have considerably more difficulty in securing separate rates.

Overview of DOC separate rates test

The DOC recently conducted AD investigations against Vietnamese exporters of catfish and shrimp on the basis of non-market economy (NME) calculation methodologies.

In AD proceedings involving NME country exporters, the DOC presumes that all exporters in the exporting country are under government control.

This presumption is reversed only if the individual exporter can demonstrate that its export functions are not under government control.

The DOC developed this practice because it presumes that if all exporters are controlled by the NME government, it simply shifts exports to the exporter with the lowest antidumping duty rate.

Hence, DOC applies a single country-wide rate to all exporters/producers in the NME country to discourage the funneling of exports to companies with lower dumping margins.

Thus, a single AD duty rate applies to all NME exporters unless an exporter can demonstrate that it exercises independence in its export activities as a matter of law (de jure) and as a matter of fact (de facto).

Securing a “separate” rate becomes very important because the country-wide antidumping duty rate applied to the NME as a whole is typically punitive in nature and is often based on the highest calculated dumping margin listed in the US industry’s AD petition.

Do Vietnam’s business and foreign currency laws satisfy the de jure element of DOC’s separate rates test?

For the purpose of collecting information and data from the respondent exporters/producers, the DOC issues questionnaires, which include questions relating to all aspects of the corporate operation of the respondents and their production and sale of the merchandise under investigation.

These questions include the Section A questionnaire, the responses to which are used to make analyses for the separate rate tests.

Section A focuses on general areas of inquiry – such as company ownership structure, identity and work history of company managers, company ties to local, provincial, or central state agencies and ministries, cross-ownership among exporting companies, export controls applied to the merchandise under investigation, price coordination and price negotiation, foreign exchange targets set by the state, management selection process, restrictions on how export revenues can be used, and the extent to which foreign currency earnings must be sold to the state.

Privately-held or shareholding companies participating in the AD investigation usually have little difficulty in securing their own separate rates.

Therefore, the focus of the DOC’s separate rates analyses is to prove de jure and de facto that the state-owned companies involved in the AD investigation are under the government influence or control.

The DOC examines closely the fundamental tenets of Vietnam’s Law on Enterprises that apply to limited liability companies, shareholding companies, partnerships, and private enterprises.

It is likely to pay close attention to the fact that the Law on Enterprises grants explicit rights to non-state owned entities to “conduct business autonomously,” operate independently in “seeking markets and customers and signing contracts” and “recruit, employ and use labor in accordance with business requirements.” The DOC then compares this language to the law applicable to state-owned entities to evaluate the degree of legally-mandated restrictions placed on state-owned enterprises.

The DOC is also likely to focus its attention on Vietnam’s foreign exchange control regulations and the extent to which exporters, state-owned and otherwise, must convert a significant portion of or the whole foreign currency earnings into dong.

Vietnam has instituted a set of foreign exchange regulations aimed at preventing the “dollarization” of the Vietnamese economy.

These regulations set forth various restrictions including the requirement that companies convert their foreign currency earned through export sales into dong.

Vietnam’s regulations on foreign exchange control also state explicitly that business entities operating in Vietnam must sell foreign currency that accrues as revenue to authorized banks.

Although companies retain the right to buy foreign currency to import raw materials and generally meet current account payments, the DOC will likely focus on the inherent restrictions that are placed on foreign currency earned from exports.

Can state-owned exporters satisfy the de facto element of separate rates test?

The DOC looks closely at Vietnamese laws and regulations pertaining to the operation, management, and business function of state-owned enterprises.

Although the respondents may develop arguments stating the de facto independence of individual exporters from any government control or influence, they must document the extent to which state-owned companies select their own managers.

In other words, regardless of what any laws or regulations might dictate with regard to the management selection process at state-owned companies, the respondents must ensure that all state-owned exporters participating in the AD investigation can demonstrate through the company charter and other relevant documentation that the selection of key managers is dictated internally and not by the government.

To the extent that a central or provincial government agency appoints a firm’s manager or director, the respondents may, for example, demonstrate that the state nominates rather than appoints managers and that the company personnel ultimately must approve the government’s nomination.

Of course, the DOC is also likely to seek an interview with relevant provincial and central government officials to corroborate any information provided to them by the respondents.

On the other hand, it also looks closely at the business practices of the respondents to determine the extent to which individual companies — especially state-owned — are required to sell foreign currency earned from exports.

While providing de facto evidence, many state-owned exporters have successfully argued that they retained their foreign currency earnings because exporting companies that have parallel importing businesses are typically allowed to retain their export foreign currency earnings in order to conduct day-to-day import activities.

This approach helped diminish the effect of any unfavorable legal restrictions on foreign currency revenues on separate rates arguments.

A failure to secure separate rates will have long-lasting consequences for all Vietnamese exporters subject to future AD investigations.

In fact, the AD investigation initiated in the catfish case five years ago provided a good opportunity to establish a beneficial separate rates precedent for any dumping cases involving Vietnam.

By Le Cong Dinh, Managing partner of DC Law

Friday, May 9, 2008 11:30:25 Vietnam (GMT+07)

Source: www.thanhniennews.com