Dr. Peter KoenigDr. Sui-Yu Wu Miller & Chevalier, Washington, DC, USAWu & Partners, Taipei, Taiwan tel tel ext *Update based on the discussion and questions at the June 27, 2008 actual presentation. Wooden Bedroom Furniture – Trade Remedy Issues Presentation To The Vietnam Furniture Industry In Ho Chi Minh City July 2, 2008*

2 WHAT ARE THE PROSPECTS OF AN ANTIDUMPING CASE AGAINST VIETNAM WBF? The conditions exist that often motivate the filing of new U.S. trade remedy actions: Increasing Vietnam exports of wooden bedroom furniture (“WBF”) to the USA (see Slides 3-10 below) Financial difficulties experienced by domestic (U.S.) industry Sunset review as to China WBF beginning December 2009, meaning that U.S. industry must collect injury data anyway and needs to avoid defense claims then that other fairly traded imports determine U.S. market price anyway so sunset (end) antidumping duties on Chinese WBF Shift of China WBF capacity to Vietnam U.S. industry money from China WBF settlements (per their public financials) that could pay for new trade remedy case Historic tendency for one successful antidumping case to motivate new ones Note: This time the U.S. industry might be quiet before file new trade remedy case because now it is organized (unlike the situation as to China WBF case)  Rumors of a draft WBF petition already sent to DOC/ITC for review; if so, normal process is for DOC (mainly) but also ITC (much less extent) to suggest many revisions before the petition is acceptable for formal filing, which sometimes can be many months later  Earlier now apparently dead rumors of other furniture antidumping cases indicate perhaps some risk of other trade actions

3 IMPORT TRENDS SUMMARIZED ●Vietnam and other major WBF exporting countries supplying the USA (notably, Malaysia, Indonesia and Brazil) are increasing and/or significant. Between them and China, they account for the vast bulk of WBF imports into the USA, with these potentially newly accused supplying countries an increasing portion hereof. See Slides 4-10 below. ●Petitioners often cumulate imports from several countries to say that the cumulated imports as a group are injurious (so below we present the top 4 supplying countries to the USA other than China). ●Petitioners could even file a new trade remedy case against China (as to alleged unfair subsidies) and cumulate those imports with other newly accused imports, dumped or subsidized, to argue that the newly accused cumulated imports as a group are injurious, warranting remedial U.S. import duties. ●Unit import values are declining (e.g., as to Vietnam) or somewhat stable (recognizing that unit values might not be too informative as product mix may be changing) ●Import trends in the following charts (Slides 4-10), summarized above, are done separately for the two main HSUS #s covered in the prior China WBF antidumping case (though sometimes a petitioner changes the scope of accused product from case-to-case for strategic reasons)

4 IMPORT TRENDS

5 IMPORT TRENDS, cont’d

6 IMPORTS TREND, cont’d

7 IMPORT TRENDS, cont’d

8

9 IMPORT TRENDS

10 IMPORT TRENDS, cont’d HTS : WOODEN BEDS OF A KIND USED IN THE BEDROOM Average Import Unit Value (US$/unit) #Country YTD2008 YTD 1China Vietnam Malaysia Indonesia Brazil

11 Anti-Dumping: Substantive Requirements Antidumping import duties are imposed if: an anti-dumping petition is filed on behalf of a domestic (U.S.) industry; and, import sales are found at prices that are at below deemed fair value (i.e., dumped) that injure a domestic industry (or threaten such injury).

12 U.S. Anti-Dumping: Decision-Makers The U.S. Department of Commerce (“DOC”) decides the amount of dumping. The U.S. International Trade Commission (“ITC”) decides if a domestic (U.S.) industry is thereby injured and that any antidumping import duties found by DOC are imposed. The U.S. courts decide appeals of the above decisions.

13 Defining The Covered Product and Industry The Petitioners define the product subject to a trade remedy case to maximize the chance of success and benefit. Any amount of domestic production is enough to file petition. But: In addition, there are standing requirements to file a petition:  25% of domestic production must support the petition (whether producers or employees/unions); and,  50% of domestic production expressing a view must support petition.  But may ignore views of U.S. producers who import or have foreign production. Standing was a big issue in the original China case, as arguably U.S. petitioners narrowly met the standing requirement then.

14 Defining The Covered Product and Industry To win, petitioners must show that the dumped (or subsidized) imports injure the domestic industry as a whole producing the subject product (or threaten such injury).  But ITC may exclude from the scope of the domestic industry:  US producers who are importers; and,  US producers affiliated with foreign exporters.

15 Basics of the Anti-Dumping Import Duty Margin Calculation U.S. price is reduced to the equivalent of ex-factory price. This means many deductions to gross unit price (e.g., for movement costs, selling expenses, discounts, rebates, etc. paid by the exporter) to get the net, ex- factory price. Dumping import duty margin calculation is: Normal Value – Net U.S. Price Net U.S. Price

16 Separate Rules for Non-Market Economies (NME’s) Non-market economy (“NME”) is viewed as one where the state controls prices and factors of production. NME home prices and costs are believed not market based and thus not reliable to determine normal value, so special rules apply to determine normal value. China and Vietnam are considered NMEs.

17 NMEs: Dumping Margin Calculation For NME’s, DOC constructs a normal value based on the inputs used in production in the NME, valued at prices in a surrogate market economy. This NME constructed value includes factory overhead, general & administrative (“G&A”) and profit of producers of similar product in the surrogate country. DOC selects a surrogate market economy country deemed to be:  at a level of economic development comparable to that of the NME country (for Vietnam, DOC says India, Indonesia, Bangladesh, Sri Lanka, etc. can be surrogates; for China, India is generally the surrogate but Philippines just used); and,  a significant producer of comparable merchandise. Dumping import duty margin = NME Constructed Value - Net, Ex-Factory U.S. Price Net, Ex-Factory U.S. Price NME methodology generally viewed as leading to higher dumping duty margins and more arbitrary compared to dumping margin methodology applied to market economies.

18 Practical Aspects of U.S. Anti-Dumping Law Incredible burden on investigated foreign exporters in antidumping cases:  Volume of data required -- all U.S. sales transactions and production data for 6 months for NMEs.  Must follow DOC reporting requirements exactly.  Must obtain data from affiliates (customers or suppliers).  Everything must be verified to financial system (audited financial). DOC uses above data to calculate the dumping margin.

19 Practical Aspects of U.S. Anti-Dumping Law If exporter does not fully cooperate, then DOC imposes high penalty dumping rate, generally as alleged in petition (often 100%+). Exporter is probably then locked out of the U.S. market.

20 ITC Injury Decision Imports must be “a cause” of “material injury” to the domestic industry, or threat thereof, for antidumping import duties to be imposed.  “A cause” means does not even have to be the most important cause.  “Material injury” means injury that is not “insignificant” or “de minimis”.  Domestic industries suffering injury from other factors are deemed more vulnerable to injury from dumping. Factors considered as to whether imports are injurious:  Are imports increasing or significant? (either absolutely or in market share)?  Generally the accused imports must take at least 5% of the U.S. market (consumption) to be found injurious.  Do import prices undersell or suppress U.S. producer prices?  Do non-accused imports determine U.S. market price anyway?  Do imports adversely affect domestic industry financial performance?  Generally U.S. industry profits must be low or negative to find injury.

21 STRATEGIES TO BEST AVOID OR MINIMIZE ANTIDUMPING RISK Effective Advance Planning DOC reviews sales/production for 2 quarters preceding the filing of the petition to determine the dumping margin. Can often adjust sales/production in advance of petition filing to best defeat it (see next slide, Slide 22, for examples of what to do) In the U.S. Shrimp Antidumping Case, of 6 accused countries, only Ecuador prepared in advance. Only Ecuador got a no dumping finding and out of the case (ultimately) Once Case Is Filed Then argue for best surrogate country/values to minimize or eliminate antidumping margin found.

22 STRATEGIES TO BEST AVOID OR MINIMIZE ANTIDUMPING RISK, cont’d Examples of Effective Advance Planning: Sales Strategy Sell WBF as sets (to avoid dumping margin from low priced components) Sell through U.S. affiliate (higher prices possible) Seek similar prices to U.S. customers, U.S. geographic regions and over time (to extent possible) Then avoid a DOC targeted dumping finding with zeroing of non-dumped sales where don’t get credit for higher prices thereof Production Strategy If exporter buys inputs from market economy country paying market economy currency, then that purchase price, not surrogate value, can be used to “value” the input (if such import purchases are over 33% of the amount bought of input) Can significantly reduce dumping margins Also results more predictable and controllable Integrate upstream to use more basic inputs with lower surrogate values Use subcontractors where surrogate values are determined for the more basic inputs used by the subcontractors, meaning lower surrogate values