ADVANCED TECHNOLOGY & MATERIALS CO., LTD., Bеijing Gang Yan Diamond Products Company, and Gang Yan Diamond Products, Inc., Plaintiffs, Bosun Tools Group Co. Ltd., Plaintiff-Intervenor, v. UNITED STATES, Defendant, and Diamond Sawblades Manufacturers Coalition, Weihai Xiangguang Mechanical Industrial Co., Ltd., and Qingdao Shinhan Diamond Industrial. Co., Ltd., Defendant-Intervenors.
Court No. 09-00511
United States Court of International Trade
Nov. 30, 2012
Slip Op. 12-147
CONCLUSION
For the reasons stated above, Commerce‘s final results upon redetermination are AFFIRMED. Judgment will be entered accordingly.
Delisa M. Sanchez, Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington DC, for the defendant. With her on the brief were Stuart F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director. Of Counsel on the brief was Nathaniel J. Halvorson, Office of the Chief Counsel for Import Administration, U.S. Department of Commerce.
Daniel B. Pickard and Maureen E. Thorson, Wiley Rein, LLP, of Washington DC, for defendant-intervenor Diamond Sawblades Manufacturers Coalition.
OPINION
MUSGRAVE, Senior Judge:
This opinion considers the results of remand from the U.S. Department of Commerce, International Trade Administration (“Commerce” or “Department“) on the investigation into sales from the People‘s Republic of China (“PRC“) of diamond sawblades and parts thereof at less than fair value (“LTFV“).1 See Slip Op. 11-122 (Oct. 12, 2011), familiarity with which is presumed. The petitioners, Diamond Sawblades Manufacturers Coalition (“DSMC“), argue for further remand while the defendant and the three respondents comprising the “AT & M entity,” Advanced Technology & Materials, Co., Ltd. (“AT & M“), Beijing Gang Yan Diamond Products Company (“BGY“) and Gang Yan Diamond Products, Inc., argue for sustenance.
The standard of review requires “substantial” evidence on the record,
“Separate Rate” Analysis of the AT & M Entity
I. Background
Previously discussed, Commerce employs a rebuttable presumption of governmental control over export operations in antidumping duty proceedings involving non-market economy (“NME“) participants. See, e.g., Bicycles from the People‘s Republic of China, 61 Fed.Reg. 19026 (Apr. 30, 1996) (final LTFV determination). To obtain a “separate” antidumping duty rate, a respondent must demonstrate that its export operations meet the three de jure and four de facto factors comprising the separate rate test announced in Sparklers from the People‘s Republic of
In answer to the question of how BGY sets its export prices, for the preliminary determination Commerce outlined that BGY certified in its August 25, 2005 questionnaire response that those prices are neither set by nor subject to the approval of a government agency, and that BGY had provided emails between its general manager and unaffiliated U.S. customers regarding price negotiation on U.S. sales as well as documents “demonstrating independent negotiation of contracts for purchases of raw materiаls” in addition to “documentation that both BGY and AT & M select their own management and boards of directors[.]” Diamond Sawblades and Parts Thereof from the People‘s Republic of China, 70 Fed.Reg. 77121, 77127 (Dec. 29, 2005) (inter alia, preliminary LTFV determination). The petitioners DSMC challenged this, arguing that the AT & M entity, through shareholding, is controlled by the Central Iron and Steel Research Institute (“CISRI“), which is owned by one of the PRC‘s state-owned assets supervision and administration commissions (“SASAC“). Nevertheless, Commerce preliminarily granted a separate rate because, “[a]lthough Petitioner has stated that SASAC has the authority to hire and fire management and order asset sales and acquisitions at CISRI, it has provided no evidence on the record of this proceeding that SASAC had the ability to exercise such control over AT & M and BGY during the POI.” Id.
For the final determination, the DSMC (re)iterated that Commerce‘s finding was contrary to “Decree of the State Council of the People‘s Republic of China No. 378: Interim Regulations on Supervision and Management of State-owned Assets of Enterprises (2003)” (“Interim Regulations” or “IR“), the PRC law governing state-owned enterprises, which DSMC contended de jure undermined BGY‘s independence under the Company Law. Commerce‘s essential response was that it “has consistently found an absence of de jure control when a company‘s operations were governed by the Company Law of the PRC, and when it supplied business licenses and export licenses, each of which have been found to demonstrate an absence of restrictive stipulations and decentralization of control of the company.” Issues and Decision Memorandum for the Final Determination,
The information submitted by Petitioner addresses a theoretical control by SASAC over CISRI, rather than any control of the PRC [G]overnment at any level over the numerous individual export decisions of the AT & M single entity that took place during the POI. BGY placed numerous documents on the
record that were examined for the Preliminary Determination.... ***
With respect to Petitioner‘s argument that the Department found at verification that four members of AT & M‘s board of directors are PRC [G]overnment officials, the Department notes that this is a misreading of the report which states merely that four members of AT & M‘s board were representatives of CISRI. See BGY Verification Report, at 9. Further, we note that these four individuals are a minority on the board of directors, of which two other members are representatives of AT & M, and three additional members are independently appointed by the stock exchange committee. See id.
Id., referencing
As part of this consolidated action, the DSMC‘s challenge to that determination was remanded to Commerce for clarification of the separate rate test in general and explanation of why Commerce essentially considered irrelevant the shareholder control over the AT & M entity that appeared traceable to the PRC Government, as argued by the DSMC.
II. Summary of Remand Results
On remand, Commerce continues to conclude that the government-owned stаtus of AT & M‘s majority shareholder, CISRI, does not affect determining that the AT & M entity is eligible for a separate rate, and it offers three broad reasons therefor. First, Commerce declares CISRI free of PRC control in its own right, de jure, by virtue of its corporate form, an “owned by all the people” company,2 of the type Commerce has previously declared “insulated” from governmental control and to which state control has been “devolved,” and therefore CISRI cannot “pass on” any governmental control to the AT & M entity through shareholding.
Second, Commerce finds the existence of legal “barriers” between PRC companies and their majority shareholders, such that even if CISRI is AT & M‘s majority shareholder, the AT & M entity is also free, de jure, of government control in its own right. The legal matter relied upon for this conclusion includes AT & M‘s articles of association, the “Company Law of the People‘s Republic of China (1999 Amended)” (“Company Law” or “CL“) and the “Code of Governance for Listed Companies.” Commerce notes the latter are among the PRC laws it has previously accepted as evidence of the “absence” of de jure governmental control over a company‘s export operations. Commerce acknowledges that AT & M‘s board of directors is responsible for selecting the general management including management over export operations and that only shareholders owning a certain minimum percentage of shares (i.e., CISRI) are permitted to nominate candidates for board and managеment positions, but Commerce found that candidates nominated to the board require the unanimous votes of the shareholders in order to gain appointment and reasoned that the power of veto means CISRI does not “control” AT & M‘s board, as does the fact that CISRI‘s repre-
Third, with respect to de facto control over the AT & M entity, Commerce concludes that its absence was established in the original investigation as well as by (re)analysis on remand of copies of certain board resolutions documenting the voting and appointment of certain managers as well as certain financial statements and board meeting minutes at which all board members discussed and voted upon profit distribution. RR at 8, referencing BGY‘s Sep. 20, 2005 Supp. Q. Resp., at Ex. SA-22. Commerce thereby reiterates that the AT & M entity has demonstrated the absence of both de jure and de facto control regarding the selection of managers and the distribution of profits, and that DSMC‘s information, in particular the Interim Regulations, is insufficient to undermine the AT & M entity‘s entitlement to a separate rate.
III. Discussion
The court cannot sustain the remand results on the bases articulated by Commerce. In particular, the court remains concerned that Commerce has failed to consider important aspects of the problem and offered explanations that run counter to the evidence before it. See Motor Vehicle Mfrs. Ass‘n of United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). In other words, the thread of analysis pretty much begins where left off. See Slip Op. 11-122 at 26.
A. Commerce Policy re Ownership of Separate Rate Applicant; Form of Owner
The court requested explanation of why CISRI is considered irrelevant to the separate rate analysis. The stated answer is that “in keeping with precedent” CISRI was not required “to address the separate-rate criteria because the separate rates test applies only to exporters.” That may be true, but it does not explain. There is no dispute that the focus of the separate rates test here is the AT & M entity‘s export operations, that Commerce‘s test applies only to exporters, and that CISRI is not an exporter, but CISRI is still an owner, and even the AT & M entity agrees consideration of that ownership is relevant. See AT & M Comments at 5.
Commerce did analyze CISRI to some degree nonetheless, and it concluded the corporeal form of CISRI effectively “insulated” CISRI from governmental control. As part of their argument concerning governmental control of AT & M, the DSMC pointed to the fact that CISRI defines itself as a “state-owned enterprise,” however Commerce dismissed this point on remand as mere “designation that does not restructure or reformulate the corporate form,” and because after promulgation of the Interim Regulations and the creation of the SASAC, CISRI did not file for a new business license or restructure or reformulate its articles of association. See RR at 18-19. The retort does not make sense. Commerce admits CISRI is a “state-owned enterprise,” see RR at 20, and the advent of the Interim Regulations and the creation of SASAC would not have resulted in changes to CISRI‘s articles or license unless CISRI no longer intendеd to operate, e.g., as state-owned.3
As to “insulation” from governmental control, Commerce essentially appeals to its “long standing” position with respect to
B. Further Analysis of the Interim Regulations and Governmental Control
The circa-2003 creation of the SASACs and the Interim Regulations that intervened since issuance of Silicon Carbide are of some import to the matter at bar. As with other PRC laws and regulations, the Interim Regulations evince corporeal identification of “ownership” and “management” for all companies covered thereby. Those include state-owned enterprises, such as CISRI, and enterprises with state-owned equity, such as AT & M. See IR, Art. 2. The remand results’ analysis of the Interim Regulations, however, raises more questions than answers as to the relevant distinctions of those concepts in the context of “governmental control” and this case.
Commerce maintains that the Interim Regulations changed nothing of relevance and that SASAC/CISRI essentially continue to act merely as passive owner/investors with respect to the AT & M entity.5 Thus, Commerce concludes that “the Interim Regulations do not automatically demonstrate de jure control of a state-owned enterprise[,]” id. at 20, and that the
The Interim Regulations provide that SASAC‘s “invested enterprises shall accept the supervision and administration conducted by the State-owned assets and administration authority according to law[.]” IR, Art. 11. This seems an obvious declaration of re-centralized de jure control, of “invested enterprises” including those that are wholly state-owned, such as CISRI, and those in which the state has an investment, such as AT & M. See, e.g., IR, Art. 1. SASAC “is responsible for directing State-owned enterprises[,]” id., Art. 20 (italics added). Further substantial evidence of record does not support the inference that SASAC‘s “management”6 of its “state-owned assets” is restricted to the kind of passive-investor de jure “separation” that Commerce concludes.
For example, the Interim Regulations confer upon SASAC the authority to appoint or remove (including proposals therefor) “the responsible persons of its invested enterprises” including the general manager, deputy general manager, and/or chief accountant of SASAC‘s state-owned enterprises “in accordance with the relevant provisions.” See IR, Arts. 13, 17. CISRI‘s February 23, 2000 articles of association state that to the extent they conflict with any PRC laws the latter control. Thus, the DSMC were correct in pointing out that conflicting provisions in CISRI‘s articles of association were abrogated upon promulgatiоn of the Interim Regulations, at which point SASAC had the right, de jure, to appoint/remove members of CISRI‘s board and management during the POI despite the “democratic” election of CISRI‘s president stated in its articles of association.
Further, “in accordance with the Company Law” SASAC has the authority to nominate candidates “for the director of the board or supervisor to be dispatched” to a company with state-owned equity such as AT & M7 and instruct those di-
rectors/representatives to exercise voting rights in accordance with SASAC‘s instructions, id., Art. 22. “Voting rights” are made explicit with respect to “major matters” (e.g., division, merger, bankruptcy), but the authority of a director who also happens to represent the state‘s interests is broader. As Commerce is aware, those duties explicitly encompass, e.g., implementation of shareholder resolutions, deciding the company‘s operational and investment plans, formulating annual budgets and plans for profit distribution and recovery of losses, appointing or dismissing the company‘s general manager, et cetera. Cf. Company Law, Art. 46. Also, Commerce recognizes that the board of directors of AT & M “is in charge of overseeing ... business matters[.]” RR at 19. That recognition is in direct contrast to Commerce‘s declared position, from its analysis of de jure “control” in the Interim Regulations, supra, that a director under SASAC/CISRI‘s dispatch is effectively absolved of responsibility for “directing.” Further, the exclusion of “day to day operations” from “oversight” responsibility is a strаw man.
Commerce‘s analytical assumptions are not based on common or business sense. They are particularly conspicuous when confronting the de jure possibility of a general manager appointed by a board under SASAC‘s effective control, as permitted (or declared) by the Interim Regulations. Commerce acknowledges from CISRI‘s articles of association that CISRI‘s president is “responsible for” business operations including any investment-related export operations (e.g., CISRI‘s investment in the AT & M entity) in addition to production, research and development, and “human resources,” and Commerce is also aware that CISRI, or possibly SASAC, dispatched at least four individuals, de facto, to AT & M‘s board and management. The record further shows two members of AT & M‘s management on the board including its chief executive officer, which opens up the possibility of subjugation, as well as three “independent” board members who appear to be directly answerable to another PRC Government agency apart from SASAC. See infra. Commerce‘s interpretation of the Interim Regulations, however, prevented it from acknowledging a de jure prospect of “governmental control” of AT & M or determining the full de facto actuality of CISRI‘s and AT & M‘s management--by whom and how selected, nominated, dispatched, to whom answerable, and so forth--in addition to approval or confirmation by board resolution.8
Commerce‘s last references to the Interim Regulations are to Article 27, which provides that “state-owned enterprises are able to enjoy the rights of an investor in those companiеs in which they hold shares, consistent with the Company Law,” and which Commerce concludes means “CISRI‘s independence from the government with regard to its decisions as an AT & M investor are protected by the Company Law from any government interference,”
The Company Law rather appears neutral on that issue. As the DSMC point out, previous findings of the “absence” of de jure governmental control are mainly due to the significant rights the Company Law provides to investors, including the right to “enjoy the benefits of assets of the company, make major decisions, choose managers, et cetera, in accordance with the amount of capital they have invested in the company.” See CL, Art. 4; see, e.g., Certain Cased Pencils From the People‘s Republic of China, 59 Fed.Reg. 55625, 55628 (Nov. 8, 1994) (final LTFV determination) (finding significant the percentage of private individual shareholdings of respondent). In other words, where the government or its agency is the controlling investor, de facto, the Company Law does not free the investee from governmental control, it is being used to subject the investee to governmental control--with or without (but especially given) the Interim Regulations. See DSMC Comments at 18. Indeed, Commerce admits as much, having in other instances looked to whether the government has exercised its de jure control de facto. See Qingdao Taifa Group, supra, 33 CIT at —, 637 F.Supp.2d at 1243 and determinations cited. That amounts to conflation of the de jure and de facto analyses, but here, at least, the court can agree Commerce‘s statement that the Company Law has been “found to demonstrate an absence of de jure control,” e.g. RR at 22, is inadequate consideration of the DSMC‘s proposition, and it lacks, as above opined, common business sense.9
Commerce‘s analysis of the Company Law adds little to assuage the de jure issue of governmental control of a company through ownership. Commerce notes that Articles 16 and 20 of the Company Law allow state-owned enterprises to invest of their own accord in limited liability companies which, according to Commerce, ensures that the company will continue to operate under a “democratic management structure.” RR at 23 (citation omitted). See also note 2. But, Article 20 simply provides in relevant part that “a state-authorized investment institution or a department authorized by the state may invest on its own to estаblish a wholly state-owned limited liability company.” CL, Art. 20; see also RR at 23. On its face, this provision preserves state shareholding power by allocating state institutions, with appropriate governmental deputization, to create wholly state-owned companies in which the state‘s shareholding power is undiluted. It does not appear that this may reasonably be construed to “limit” the power of the state in the companies in which the state invests. Further, Commerce does not explain the significance of “ensure ... a democratic management structure” or why such a “structure,” per se, would be detached from governmental involvement. In the absence of clarity in the context of the separate rate test, this seems gratuitous.
Article 38 of the Company Law, which is implicated by the Interim Regulations, “delimits,” according to Commerce, the exact powers that shareholders can hold. Commerce implies these are limited to “high level” powers only, such as the appointment of the board of directors, establishing the articles of association, and approving various financial decisions such as profit distribution and budget plans that are established by the board of directors. Commerce omits the ability “to decide on the company‘s operational policies and investment plans,” but be that as it may, the court remains unclear why Commerce has concluded, in effect, that the Company Law restricts the PRC Government from implementation of its own Interim Regulations and from becoming a company‘s controlling shareholder and acting in furtherance of such control of the company.
After analyzing various other provisions that basically support identification of limited liability companies as legal entities, Commerce concludes that “the Company Law separates the powers between the shareholders and the Board of Directors, where the primary purpose of the Board of Directors is to design plans related to business functions and to enact them as
Article 37 of the Company Law makes clear that the general meeting of all shareholders is the supreme organ of the company, as numerous legal commentators have noted. The boards of PRC limited liability companies are “responsible to the shareholders” pursuant to Articles 37 and 46. Shareholders have the ability to hire and fire each board member and decide their pay pursuant to Article 38, and each board member is thereby beholden. That amounts to delegation, as opposed to separation,11 as does Article 50, since the general manager, in point of fact, is selected by the same board of directors “in charge of overall business planning and the selection of upper management” that is “responsible to the shareholders” and can readily be replaced at their whim. CL, Arts. 38, 50.
The point here is that “governmental control” in the context of the separate rate test appears to be a fuzzy concept, at least to this court, since a “degree” of it can obviously be traced from the controlling shareholder, to the board, to the general manager, and so on along the chain to “day-to-day decisions of export operations,” including terms, financing, and inputs into finished product for export. The other provisions of the Company Law generally cited by Commerce do not implicate shareholders in any clear way, or clarify why Commerce regards ownership and management as “separated” by the equivalent of a Great Wall, or what this all signifies, and its reading of general, hortatory language as limiting is perplexing. See RR at 22-23. For example, it is unclear why Commerce has determined that Article 6, which states that “a company implements an internal management structure,” acts to “limit” the power of shareholders, in particular controlling shareholders, to influence that implementation or structure or what this implies. See id. at 23. To summarize: given that the separate rate test factors are not facially restricted to obvious “direct” control of export pricing, e.g., via export licensing, the court, as mentioned, continues to be mystified as to why Commerce reflexively interprets the Company Law to preclude the PRC Government, de jure, from lawful control, de facto, through ownership of a company including its export operations. Repetition, to the point of mantra, that the
D. Further Analysis of the Code of Corporate Governance
Commerce‘s analysis of the Code of Corporate Governance (“Code“) also does not enlighten. The Code applies only to stock market listed companies such as AT & M, and Commerce cites it mainly for the proposition that majority shareholders’ powers in the companies in which they invest are particularly limited. But, Commerce reading of certain provisions goes beyond their text and without explanation for broad interpretation. For example, a provision Commerce cites as protecting “the rights of all shareholders, including minority shareholders” contains the caveat that minority shareholders’ rights and duties are “based on the shares that they hоld.” Compare RR at 24 with Code, Art. 2. And a provision Commerce cites as requiring complete separation between a listed company‘s personnel and its controlling shareholder in fact provides for listed company personnel to act as directors of the majority shareholder and vice versa. Compare RR at 24 with Code, Art. 23. The court fails to understand how Commerce interprets these provisions to curtail in any manner a controlling shareholder‘s de jure control of a company.
Commerce also relies on Article 20 of the Code for the proposition that “majority shareholders must consult with all shareholders to appoint senior management.” RR at 24. Article 20 actually states that “controlling shareholders are forbidden to appoint senior management by circumventing the shareholders’ meetings or the board of directors.” Apart from the fact that this provision conflicts with Commerce‘s reading of the Company Law and AT & M‘s articles of association, pursuant to which management is not appointed by the shareholders at all but by the directors, compare RR at 24 with id. at 23, it is unclear how Commerce reads Article 20 as effectively limiting the controlling shareholder‘s powers when, for example, the controlling shareholder could simply call12 a shareholders meeting to comply with relevant provision(s).
Elsewhere, Commerce attempts to bolster its decision by citing Articles 22-27 of the Code as further confirming the independence of listed companies from their majоrity shareholders and further confirming AT & M‘s autonomy from CISRI. RR at 24-25. Articles 22 and 23, for example, state that a listed company (such as AT & M) shall be “separate” and “independent” from controlling shareholders in such aspects as personnel, assets, and financial affairs. But those concepts are not in a vacuum: when read as a whole, Articles 22-27 rather intend protections for minority shareholders by forbidding controlling shareholders from absconding with listed company assets, using listed company personnel to further the shareholders’ own independent businesses, or engaging in business that competes with the listed
E. Further Analysis of the AT & M Entity
The court also fails to understand from the evidence of record that AT & M‘s articles of association, the Code, and the Company Law create legal “barriers” separating AT & M and CISRI as concluded by Commerce. In addition to its analysis above, Commerce states that AT & M‘s articles require that nominees for the board of directors “may not be shareholders” and implies that shareholders are not permitted to be directors. See RR at 19. But, AT & M‘s articlеs of association only state that directors “need not be shareholders.”13 That is not a barrier. Given CISRI‘s majority stake, this article rather appears to confirm CISRI‘s lawful control of AT & M‘s board. Commerce also finds significant that AT & M‘s “Board of Directors operates independently of the shareholders and is in charge of overseeing the business matters of the company,” RR at 19, but, once again, even to the extent this de jure declaration is true, it is no indication of a controlling shareholder‘s de jure and de facto ability to “control” the board of directors and the company itself.
Ultimately, Commerce finds that AT & M is not “controlled” by CISRI because there are numerous other AT & M shareholders who all have “protected rights” as minority shareholders including voting rights. But facts drive the law, not vice versa. AT & M itself identifies its “controlling shareholder” as CISRI in its financial statements,14 and the power to veto nomination does not equilibrate the power of control over nomination.15 See, e.g., Metropolitan Washington Airports Authority v. Citizens for the Abatement of Aircraft Noise, Inc., 501 U.S. 252, 268-70 & n. 15, 111 S.Ct. 2298, 115 L.Ed.2d 236 (1991) (appointments under Transfer Act “must” be made from the lists submitted by the Speaker of the House; therefore, whether plaintiff has formal statutory power of appointment and removal over board of review is irrelevant)
Curiously, Commerce acknowledges as part of its de jure analysis that “the Interim Regulations provide that SASAC may intervene in certain business operations” but then it “notes that there is no record evidence that SASAC acted upоn this power and intervened in the selection of management and board members.” RR at 21. Apart from this further conflation of de facto and de jure analysis and evisceration of the presumption of state control in “the selection of ... management,” et cetera, the administrative proceeding does not appear to have advanced to such a state that the onus had shifted to the DSMC on that burden.16 Cf., e.g., Certain Paper Clips From the People‘s Republic of China, 59 Fed.Reg. 51168, 51170 (Oct. 7, 1994) (final LTFV determination) (management nomination meeting minutes, appointment announcements and correspondence between respondent and state established that state involvement in respondent‘s management appointment process “reflects nothing more than an administrative formality“).
Apart from de jure control, the overriding question is whether there is de facto governmental control over export operations. As above indicated, Commerce recognizes that scrutiny of board and management is critical to that inquiry. In the original final results and on remand, Commerce found four of the nine AT & M directors representatives of CISRI. One of those is AT & M‘s chairman of the board. Commerce also found five directors not “involved in CISRI‘s business, functions in any way” during the POI. The record excerpts provided by the parties, however, do not evince information that would permit construal to the extent of the latter.17
The verification report for AT & M notes that two of the “non-CISRI” directors consisted of AT & M management, including the company‘s chief executive officer. Verification Report at 9 (Mar. 26, 2006). The DSMC argue the verification report actually рroves at least one of those is also connected to CISRI See, e.g., DSMC Comments n. 2. The report also notes that the three other “non-CISRI” directors are “independent,” in that they are “subject to approval by the independent stock exchange committee which will establish their independence.” The re-
Commerce‘s analysis of AT & M‘s board focuses only on CISRI‘s ability to control it. See RR at 19. If the proper analysis concerns “governmental control” of AT & M‘s board, it is unclear from this last statement or from the report itself whether the three “independent” directors are free of such governmental control in toto. Cf. Verification Report at 8 (“companies’ conduct is supervised by the independent China Stock Exchange Committee“). BGY declared that none of its board members are “employed by” the PRC Government and it further declared that none of the AT & M entity companies are affiliated, owned, or controlled by “individuals employed by” the PRC Government, BGY‘s Sep. 20, 2005 Supp. Q. Resp. at 2, 6, 8, but apart from this and the statements of company officials at verification, the court does not discern corroboration of “independence” from “governmental control” of the five “non-CISRI” directors. Their independence seems assumed.
Regarding the two directors who are also members of AT & M management, the DSMC also raise a second legitimate concern. In their managerial capacity, thosе AT & M members appear on the record, de facto as well as de jure, to be beholden to the board that controls their pay, in particular to the chairman of the board as the de facto company head under the PRC model. If board members are properly presumed subject to governmental control, directly or indirectly, then true independence and autonomy remain in doubt until proven otherwise. If they are not so presumed, then the presumption of state control is without purpose or application. Examination of subjugation, therefore, ought to have been a necessary extension of any inquiry into “governmental control,” a question not to be conflated with any de jure directorial obligations. Cf., e.g., Code, Art. 23 (“[a] listed company shall be separated from its controlling shareholders in such aspects as personnel“) with Art. 33 (“[d]irectors shall faithfully, honestly and diligently perform their duties for the best interests of the company and all the shareholders“).
It may well be the case that there is evidence of record from which these five directors true independence from governmental control may reasonably be concluded, but the remand results, arguments, and record excerpts provided by the parties do not appear conclusive to this point. The court was tempted to revive and grant, sua sponte, DSMC‘s motion for oral argument, as the parties might be able to provide assistance, but in view of the resources this would have consumed and the fact that remand is required on other ground, the court considers that such questions аre better left for Commerce and the parties to address on remand.
F. Further Defendant Commentary
The defendant would here disagree, with all of the foregoing, in arguing that the separate rate analysis is not simply a “litmus test for government influence in general” but is rather a “particularized analysis” of a company‘s export activities. The separate rate test purports to “focus[] on controls over the decision-making process on export-related investment, pricing, and output decisions at the individual firm level,” Import Policy Bulletin 05.1 (italics added), and the defendant argues this means an examination of the “degree” to which those activities are “controlled” by a government or by the company itself. Def.‘s Resp. at 6. The test “does not purport to ensure that no government interests are promoted through the exporter‘s business venture, but rather serves to ensure that the Government of China itself is
Unfortunately, this does not clarify. The Interim Regulations, for example, provide for more than mere “influence in general.” See supra. Nonetheless, the defendant argues that when all is said and done, the question is simply concerned with price variability: is the price of the diamond sawblades that AT & M exports to the United States “set by” the PRC Government or by AT & M; in other words, “does the price of AT & M‘s diamond sawblades exports to the United States by AT & M vary depending on world market conditions or is the price set and orchestrated by the PRC Government and only responds to changes оrdered by the central government?” Def.‘s Resp. at 11. But this too does not clarify, as those concepts are not mutually exclusive. The price of an arm‘s length transaction to a buyer in the market is always a “market” transaction by definition, and regardless of any “setting” of or involvement in price by the seller‘s government. See, e.g., Case C-337/09, Judgment of the Court, ¶ 86 (Grand Chamber, European Court of Justice) (July 19, 2012).18 For that matter, the actual setting of price is only one of the four de facto factors described in the Policy Bulletin, whereas governmental manipulation of the cost of inputs, see id., or rationalization of industry or output are among numerous other scenarios of concern that can affect seller pricing.
In the end, the defendant concludes: “[b]ecause there is no record evidence indicating that the [PRC] Government ... sets the price of the diamond sawblades
exported by AT & M, Commerce correctly assigned AT & M a separate rate.” Given the presumption of state control, however, the reviewing standard requires record evidence that the PRC Government (including any agent thereof) did not “set” (however defined) the price of diamond sawblades exported by AT & M. That still remains in doubt. The obvious instance of governmental control of price setting would be direct regulatory approval of a particular export price, but to what extent does the inquiry also concern governmental “influence” in what might otherwise appear to be the company‘s decision? The court cannot agree that is irrelevant. The question to Commerce might thus be better phrased as follows: what is the agency‘s definition of the “degree” of “governmental control” in the “setting” of export prices that must not be shown in order for an applicant to receive a separate rate, and where is the line drawn to exclude or include implementation of governmental influence or policy? After all, personnel is policy: it is axiomatic that inert entities (e.g., corporations, governments) can only act through agency,19 concerning which “state” of affairs even socialistic European cousins recently expressed a certain misgiving (without irony):
[I]n the context of a non-market economy country, the fact that a company established in that country is de facto controlled by State shareholders raises serious doubts as to whether the company‘s management is sufficiently independent of the State to be able to take decisions regarding prices, costs and in-
puts autonomously and in response to market signals.
Id.
For the above reasons, the court remains unclear as to the extent of “governmental control” that would preclude, or lack thereof permit, the grant of a separate rate, particularly with regard to the third and fourth de facto factors, as previously pondered. See Slip Op. 11-122 at 24. Specifically, it is unclear what the defendant means by “degree” or what Commerce means by “control,” “separate,” “autonomy,” “independent,” and so forth in the context of the sеparate rate policy, and one that lacks clarity in purpose or application borders on arbitrary and capricious. Whatever “degree” that is, Commerce‘s use of such terms to describe ownership and management in the context of this matter leads to confusion,20 but it is at least clear that apart from the camel‘s nose of “guidance” or “oversight,” Commerce concludes there is no degree of “control” or influence whatsoever by SASAC over CISRI or AT & M or by CISRI over AT & M, and that appears to be based on flawed analysis. The court must therefore await Commerce‘s reasonable explanation and analysis of “controls over the decision-making process on export-related investment, pricing, and output decisions at the individual firm level,” as previously requested. See Import Policy Bulletin 05.1.
G. Further Analysis of Governmental Control Over AT & M‘s Finances
The DSMC also argue the evidence in support of AT & M‘s right to distribute its profits without government interference is similarly lacking. RR at 8; see also BGY‘s Sep. 20, 2005 Supp. Q. Resp. at Ex. SA-5. The court agrees in part. The evidence includes the records of a board meeting at which all discussions of profit distribution were explicitly accompanied by the caveat: “This resolution should be approved by the Shareholder‘s Meeting.” Id. AT & M‘s controlling shareholder was CISRI, and shareholders’ voting power is in proportion to their shares. See id. at Ex. SA-10(1), Art. 35 & Ex. SA-11; see also BGY Section A Comments at Ex. 7. The DSMC are correct in pointing out that CISRI had the power over any profit distribution regardless of what the board of directors decided. However, the defendant is also correct in pointing out that CISRI‘s portion of AT & M‘s allocated profits is consistent with CISRI‘s role as a shareholder entitled to a proportionate share of the profits.
On the other hand, the defendant argues too narrowly that this “does not suggest or establish government control upon AT & M‘s export activities“, nor did Commerce‘s review of the board minutes from the relevant AT & M board meeting suggest any government control over export activities. Def.‘s Resp. at 10, referencing RR at 8. The DSMC‘s larger point here is that the financial statements to which Commerce cites are only balance sheets, without auditor‘s notes or other detail, cf. RR at 8 with BGY‘s Sep. 20, 2005 Supp. Q. Resp. at Ex. SA-22, and more complete versions that AT & M submitted in a later response clarify that CISRI had significant [REDACTED]. See BGY‘s Dec. 5, 2005 Supp. Q. Resp. at Ex. 4, p. 48 (Notes to Main Items of Parent Company Financial Report at Item 23); see also id. at Ex. 2 (Footnotes, Section V.27 and XI.3). The DSMC thus
IV. Conclusion
The court аppreciates that Commerce labors under constraints, administrative and other, wise or not, in reaching determinations entitled to a presumption of administrative regularity,22 but at this point
Analysis of 30CrMo Steel Plate Valuation
I. Background
In the original final results, based upon certain verification report exhibit records Commerce calculated the surrogate values for the AT & M entity‘s 30CrMo steel plate inputs for the manufacture of diamond sawblade cores using Indian Harmonized Tariff Schedule provisions covering alloy steel plate both above and below 600mm wide, in a variety of thicknesses. See RR at 11-12; see also I & D Memo at 74. This decision was voluntarily remanded.
II. Summary of Remand and Results
On remand, Commerce accepted the AT & M entity‘s arguments and recalculated the 30CrMo steel input based only upon Indian HTS categories covering steel plate of widths of 600mm-and-greater and rejected using the two categories for below-600mm. See RR at 11. Commerce justified this result on the ground that the “raw material purchase documentation for 30CrMo steel plate on the record only shows that the AT & M Entity purchased it in widths of either 1210mm or 1050mm,” and on the ground that its verification team was provided a worksheet by company officials “demonstrating the total purchases of steel during the POI,” from which the team noted “the purchases of 30CrMo were clearly for steel sheets with dimensions listed on the invoices.” Id. at 26-27, referencing Verification Report at 27 & Ex. 12, and BGY‘s Nov. 3, 2005 Supp. Q. Resp. at Ex. SD-4, 16-17. Commerce found that “the measurements in the column in the inventory-out log refer to the diameters of the finished product being produced from the 30CrMo steel which was withdrawn, as opposed to the widths of the 30CrMo steel plate input itself.” Id. at 27.
III. Discussion
This decision is not fully explained, and the record evidence upon which Commerce relies does not fully support its conclusion. In large part, the analysis contradicts, without adequate explanation, Commerce‘s analysis of record
The DSMC argue it is “highly unlikely” that the dimensional values in AT & M‘s inventory out-logs represent finished diamond sawblade widths as found by Commerce, rather than the width of the input steel. The DSMC in particular point to the fourth line item of the raw material subledger referencing a particular quantity-to the hundredth kilogram-of 30CrMо steel and its amount in renminbi. See Ex. 12, supra, at 7. Because the inventory-out record, Ex. 12 at 11, records the removal of exactly those same amounts, it would seem clear, as the DSMC argue, “that the inventory-out record refers to the same 30CrMo steel as the raw material subledger.” Commerce accepted AT & M‘s explanation that the dimensional values described in the inventory-out record reflect those not of the 30CrMo steel input but to the dimensions of the end product. The DSMC contend AT & M has not explained why it would record the dimensions of as-yet-unproduced finished goods in its raw material inventory records.
The DSMC also argue AT & M has conceded that the dimensional values recorded in its inventory logs reflect the dimensions of input steel, not output cores. Commerce confirmed that AT & M uses 65Mn steel plate in widths under 600 mm by comparing a subledger showing the purchase of a particular quantity of that steel in kilograms with an inventory-in log showing the placement of that quantity of steel into inventory. I & D Memo at 74; see also Ex. 12, supra, at 1, 4. The purchase subledger did not indicate the dimensions of the purchased steel. See Ex. 12 at 1. However, like the inventory-out log, Ex. 12 at 11, this inventory-in log contained a second column with dimensional values. See id. at 4, 11. On the basis of these, Commerce determined that the AT & M entity purchased 65Mn steel in dimensions less than 600mm wide. I & D Memo at 74. And in its motion brief for judgment, the AT & M entity relied on the “validity” of this determination to support its arguments, apparently since abandoned,23 on the proper valuation of 65Mn
Even apart from that, the DSMC contend, the original determination regarding 65Mn steel and the remand determination for the 30CrMo steel creates a logical contradiction that Commerce has not addressed. Commerce found that with respect to inventory-out records for 30CrMo steel, the second column reflects the dimensions of as yet unproduced finished goods. See, e.g., RR at 11-12, 26-27. But, the record also contains inventory-out records for 65Mn steel plate, with dimensional values matching to those seen in the inventory-in records for the same type of steel. Verification Report, Ex. 12 at 4, 9-10.
Commerce dismissed the DSMC‘s argument with the following:
[S]imply because some measurements overlap does not mean that any definitive conclusions can be drawn from such observation and then applied to the 30CrMo steel input. The inventory-in records for 65Mn steel clearly show purchases of less than 600mm in width, indicating BGY purchased this input in widths closer to the diameters of the finished product than it did for 30CrMo steel. In contrast, the record is absolutely bereft of any indication that BGY purchased 30 CrMo steel in widths under 600mm.
RR at 27.
At this point the court must ponder why the dimensions of input steel are recorded in both the inventory-in and inventory-out records for 65Mn steel but not for 30CrMo steel, but cannot speculate. The DSMC also point out that the fact that the dimensions recorded in the second column of the 65Mn inventory-in and inventory-out records match exactly tends to discount the argument that the invеntory-out records show the dimensions of finished cores, because an exact match between the figures would seem to leave no room for scrap or error whatsoever in cutting cores from the input plates. The court must therefore agree with the DSMC that this situation appears to be more than mere “overlap“—after all, the -in and -out 65Mn steel records and the 30CrMo steel records are formatted nearly identically and record what appears to be the same kinds of information, including dimensional values.
IV. Conclusion
For the above reasons, the matter of the 30CrMo steel inputs valuation will also be remanded for further explanation or reconsideration.
A separate and confidential order of remand to the above effect will be issued herewith.
MUSGRAVE
SENIOR JUDGE
Notes
In a situation in which the burden of proof is upon respondent to show a lack of state control (or, in this case, upon the agency to demonstrate that its determination of no state control is reasonable) a lack of record information regarding control cannot logically be adduced to show that the presumption has been rebutted.DSMC Comments at 16-17. At this point it would also seem appropriate to note the original determination‘s criticism, supra: “The information submitted by Petitioners addresses a theoretical control by SASAC over CISRI, rather than any control of the PRC Government at any level over the numerous individual export decisions of the AT & M entity that took place during the POI.” I & D Memo at Comment 16(C). The statement‘s first part is precisely what de jure analysis is all about--theory, of meaning--and the second part is precisely of which the DSMC complain--burden-shifting.
When it joined the WTO in 2001, China promised that the government would not influence, directly or indirectly, the commercial decisions of [state-owned enterprises (“SOEs“)]. China does not appear to be keeping this commitment. The state does influence the commercial decisions of SOEs and the most recent five-year guidance does not herald a change in this regard. If anything, China is doubling down and giving SOEs a more prominent role in achieving the state‘s most important economic goals. *** The [PRC] government‘s prominent economic role, coming a decade after China joined the WTO, throws into doubt expectations that China‘s WTO membership would lead it to pull back from market interventions. The back-and-forth between China‘s representative and the Working Party [of the WTO] on China‘s accession [to the WTO] is memorialized in the Working Party Report. As the following text from the report demonstrates, China itself encouraged these expectations: The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China [promised it] would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments. But given the strong state direction embodied in the 12th Five Year Plan, as well as the incentive structure facing the leaders of China‘s SOEs, it is clear that SOEs will continue to be driven by government policies....”