Using Trade Protectionism to Combat Human Rights Abuse – The Potential of Antidumping Laws at the ITC

There has been some speculation about whether anti-dumping statutes could be put to good use in a human rights context. This speculation stems in part from a case filed in 2004 by the Southern Shrimp Alliance at the International Trade Commission (ITC), challenging the alleged dumping of Thai shrimp (notoriously forced-labor produced). While the shrimp case (discussed further below) did not specifically allege forced labor, it raised the question of whether anti-dumping claims could be used to challenge forced labor and other widespread abuses that suppress the consumer price of various imports. After all, if a product is cheap because it was produced unethically, that would constitute unfair competition and undercut the market for legal goods.

After some research, our answer is probably not, for two reasons. First, methods used by Commerce and ITC in determining that a practice amounts to “dumping” fail to directly account for labor abuses, and such abuses would be difficult to account for indirectly. Second, the remedy for an antidumping claim will not protect or compensate those harmed by these supply chain abuses. On this second point, while there may be some deterrent effect in suing a company under such a theory even if there is no benefit to the forced laborers or others harmed, there may also be unintended negative impacts. Without the involvement of the affected community, this seems like an unjustifiable risk. But read on, and let us know in the comments if you disagree.

Wait, What is the ITC Again?   

The ITC enforces a number of laws to ensure fairness in trade between the U.S. and foreign countries. The purpose of ensuring fairness in methods of producing and pricing products is to protect domestic industry in the U.S. Thus, ITC actions typically allege an “unfair method of competition” and injury to domestic industry. Additionally, the remedy for these causes of action will be tailored to alleviate the harm to domestic industry. Hence, the type of remedy depends on the nature of the alleged “unfair competition method.”

In dumping cases, “less than fair value” (LTFV) imports are the unfair competition method to remedy. As such, ITC imposes a dumping duty (i.e. a tariff) on dumped imports to increase its U.S. sales price to match its “fair value.” In dumping cases, the Department of Commerce (“Commerce”) will calculate a fair value for the imports to determine whether they are less than fair value when sold in the U.S. Then, the ITC evaluates whether domestic industry is, or will be, materially injured by reason of the imports’ price. If both make affirmative determinations, a duty will be assessed against the imports to raise their price in the U.S. closer to a fair value. Then, every 5 years that duty is reviewed to determine: first, if removing the duty would harm domestic industry, and, second, whether the duty itself needs to be increased or decreased.

How Is “Less Than Fair Value” Calculated?

A large portion of the dumping proceedings center on the question of fair value and causation. Commerce and ITC must rely on the “best information available” which means they will use direct evidence solicited through questionnaires. These questionnaires request accounting data from exporters (for Commerce’s price calculation), and information on purchasing decisions by importers (for ITC’s causation test). If these datasets are incomplete or deficient in some other respect, ITC and Commerce will rely on publicly-available data.

In order to show an import’s price is less than fair value, Commerce will compare its U.S. price to one of two values: the import’s price in a comparable non-U.S. market, or, the cost of producing and selling the import for profit. This latter measurement is particularly relevant to claims aimed at forced labor practices for two reasons. First, it prevents exporters from claiming their U.S. exports are fairly priced since they sell to other countries at low prices. Second, it provides the most direct means of highlighting forced labor practices. Namely, when inquiring into the costs of production, Commerce will request exporters’ accounting data to verify their overhead, input, and labor costs. If an exporter uses forced labor, then they will have discrepancies in their accounting data, or, they will opt not to respond (like the Chinese garlic producers). If Commerce lacks data, or doubts the validity of reported data, they will impute missing values based on data from third countries. For example, when reviewing the garlic case, Commerce did not have reliable data from certain respondents and therefore used labor costs reported from Romania due to the data’s credibility and Romania’s similarity to China’s export market for garlic. Commerce found similarity between China and Romania because they have similar levels of economic development (based on the Gross National Income of each) and they both export large volumes of garlic.

Thus, accounting for forced labor in the fair value calculation will require data from a comparable country producing the same import to say what labor should cost the exporters. However, when pleading a claim, petitioners can rely on data from U.S. producers to substantiate alleged sales at less than fair value. For example, in the Shrimp case discussed below, the petitioners calculated the fair value by comparing the U.S. import price to the price of shrimp imports in Japan and by using production costs from U.S. shrimp producers (e.g. overhead, labor, materials). This pricing calculation demonstrated unfairly-low prices of shrimp imports during the preliminary review. When Commerce calculated its own fair value for the good based on the cost of production, it relied upon publicly-available data published by Urner Barry rather than data from India or Ecuador. However, that data was not rejected for the reason that those countries were also parties to the action, but because India’s data was unreliable and because the Ecuadorian data was not publicly-available.

Without getting too far into the technicalities here (you can check out the technicalities in the Anti-Dumping Manual), this methodology presents an issue for dumping claims aimed at labor abuses. Namely, Commerce’s fair price calculation caters to prevailing macro market conditions and published data on production costs rather than inquiring into a fair value for labor. For example, in determining the “fair value” of Chinese garlic exports, Commerce used production costs from Romania despite the fact that the minimum wage in Romania is more than double that of China. Commerce still used the former’s cost data to calculate a fair value because the macro-economic conditions were similar between China and Romania (i.e. comparable GNI, large-volume exporters of garlic) and Commerce found cost data submitted by respondents inadequate.

This reflects a fundamental disposition in Commerce’s analysis: they are concerned with what a “fair” price is and whether imports are sold at that price; they are not concerned with why imports are less than fair value. However, the use of publicly-available data can aid a human rights-oriented dumping claim. For example, when the Garlic case came up for review, one of the reasons Commerce used Romanian data rather than accounting data submitted by respondents was because academic publications challenged the reliability of respondent’s accounting by highlighting discrepancies between production volume and the costs of production. Namely, public data on labor abuses in the industry cast doubt on the reliability of respondents’ reported costs, justifying the use of Romanian data to calculate a fair value.

Material Injury

The ITC’s inquiry into material injury is more straightforward. First, ITC will define the “domestic like product.” This is a domestic good which is substitutable with the subject imports. Then, ITC will send questionnaires to domestic importers to understand what features of the product matter to their purchasing decisions. Unsurprisingly, price is typically an important factor, and, because the domestic like product is by definition substitutable with the imports, ITC has a basis to infer that the price of the imports caused harm to domestic industry. “Proof” of the harm comes from assessing profits, production, prices, and other economic metrics in the domestic industry. In this analysis, the ITC does not have to conclude that price alone is responsible for the declining economic performance of domestic industry; rather, they simply have to account for non-price factors to ensure its not attributing injury caused by those factors to the imports’ price. Thus, in the Shrimp case, the ITC considered the effects of Hurricane Katrina on domestic industry since it occurred during the period of review. But after assessing the hurricane’s impact alongside longer-term trends in the industry, ITC was able to conclude that low-priced imports harmed domestic industry notwithstanding the natural disaster.

Dumping & Forced Labor: The Garlic & Shrimp Cases – Successful Claims, Questionable Remedies

Since goods produced using forced labor tend to be low-priced, the question arises whether dumping claims can account for, and remedy such practices. Two cases in particular have succeeded in their dumping actions against industries with well-documented labor violations.

First, in 1994 the domestic garlic industry, represented by The Fresh Garlic Producers Association, filed a dumping claim (Fresh Garlic from China) with the ITC alleging that garlic from China was being sold at less than fair value, injuring domestic fresh garlic producers. The plaintiffs here did not allege that forced labor was the cause of the low price, though given the role of forced labor in the industry at the time it was likely at least a contributing factor. Forced labor in Chinese garlic continues to be a problem, causing US Customs and Border Patrol to detain shipments of Chinese garlic as recently as 2017.

In the 1994 case, Commerce agreed that the fresh garlic from China was not fairly priced, not due to forced labor, but by imputing production costs after Chinese garlic producers failed to supply complete data. Based on Commerce’s finding, ITC concluded that LTFV fresh garlic from China materially injured the domestic industry because data demonstrated declining revenues and performance which could not be explained by non-price variables.

Then, in 2004, the domestic shrimp industry, represented by the Southern Shrimp Alliance, filed an action with the ITC (Certain Frozen or Canned Warmwater Shrimp and Prawns from Brazil, China, Ecuador, India, Thailand, and Vietnam) alleging that shrimp from Brazil, China, Ecuador, India, Thailand, and Vietnam were being dumped and injuring domestic industry. Again, there was no allegation of forced labor in the pleadings, despite well-documented allegations for forced labor in the industry. After conducting their own investigations, both Commerce and the ITC agreed that the shrimp imports were less than fair value and, as a result, caused material injury to domestic industry, despite other factors such as the recent Hurricane Katrina.

These two cases signal the potential for dumping claims to succeed against industries that utilize abusive labor practices. However, two salient issues lurk behind these success stories. First, they miss the mark if their goal is to promote a human rights agenda abroad. Nothing about the ITC remedy encourages foreign corporations to correct their labor practices – it functionally requires them to pay the U.S. government a tax in lieu of paying their workers a living wage. Secondly, the method for determining the “fair value” of imports measures proxies for labor violations rather than directly capturing those abuses as costs.

Conclusions & Main Takeaways

Defining success is critical for understanding why a human rights-oriented dumping claim is not worthwhile. If “success” means a claim results in enforcement action, then a human rights-oriented dumping claim could be successful, as demonstrated by the Shrimp and Garlic cases. Those cases indicate that producers with exploitative labor practices can be punished with steeper tariffs, but winning the merits of the case still requires public, reliable data from a comparable, exporting country. Assuming the existence of this data, Commerce would still need to find that body of data to be better than data reported by respondents. In the examples provided above, Commerce only used external data points after finding that reported costs were incomplete or unreliable. In such a situation, external data constitutes the “best available information.” Such actions may create disincentives for companies to profit off of forced labor, though they may be able to avoid this problem by simply selling the good at a higher price. Ultimately, if the consumer price of the good is “fair,” the forced labor in the supply chain fails to be relevant.

If “success” is defined eradicating forced labor, then an antidumping claim may not be “successful” even if it results in enforcement action. Enforcement seeks to remedy injury to domestic industry, not the manner of producing imports which results in their unfairly-low price. Thus, imposing a duty on imports may reduce domestic demand for those goods, but it does nothing to relieve the labor conditions which enable such low prices. An enforcement action is also unlikely to force a behavior change by companies, since they can avoid future litigation by increasing their profit margin on the product. While this might reduce their total sales by decreasing their competitiveness in the market (making their consumer price comparable to others’ who don’t use forced labor), they may recoup those costs by increasing the profits they earn on each item sold.

But we hate to be the bearers of bad news. Have you seen any promising theories that could make an anti-dumping case a useful vehicle to combat forced labor or other supply chain abuses? Start the conversation in the comments below.

Alex Kontopoulos is a 2L at Harvard Law. Charity Ryerson is a co-founder and Legal Director for Corporate Accountability Lab.



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