JIANGSU SENMAO BAMBOO AND WOOD INDUSTRY CO., LTD., et al., Plaintiffs, and GUANGDONG YIHUA TIMBER INDUSTRY CO., LTD., et al., Plaintiff-Intervenors, v. UNITED STATES, Defendant, and COALITION FOR AMERICAN HARDWOOD PARITY, et al., Defendant-Intervenors.
Consol. Court No. 15-00225
UNITED STATES COURT OF INTERNATIONAL TRADE
March 11, 2020
Slip Op. 20-31
Before: Timothy C. Stanceu, Chief Judge
OPINION AND ORDER
[Remanding to the agency for correction a determination issued upon remand in an antidumping duty proceeding involving certain multilayered wood flooring from the People‘s Republic of China]
Dated: March 11, 2020
Gregory S. Menegaz, deKieffer & Horgan, PLLC, of Washington, D.C., for plaintiffs Dunhua City Jisen Wood Industry Co., Ltd. and Yingyi-Nature (Kunshan) Wood Industry Co., Ltd. With him on the brief were Alexandra H. Salzman, James K. Horgan, and Judith L. Holdsworth.
H. Deen Kaplan, Hogan Lovells US LLP, of Washington, D.C., for plaintiffs Armstrong Wood Products (Kunshan) Co., Ltd. and Armstrong Flooring, Inc. With him on the brief was Craig A. Lewis.
Mark R. Ludwikowski, Clark Hill PLC, of Washington, D.C., for plaintiff and plaintiff-intervenor Lumber Liquidators Services, LLC.
Ronald M. Wisla, Fox Rothschild LLP, of Washington, D.C., argued for plaintiffs, plaintiff-intervenors, and defendant-intervenors BR Custom Surface, CDC Distributors, Inc., CLBY Inc., doing business as D&M Flooring, Custom Wholesale Floors, Inc., Dalian Penghong Floor Products Co., Ltd., Doma Source LLC, Dunhua City Hongyuan Wooden Products Co., Ltd., Galleher Corporation, HaiLin LinJing Wooden Products, Ltd., Hangzhou Hanje Tec Co., Ltd., Hangzhou Zhengtian Industrial Co., Ltd., Huzhou Chenghang Wood Co., Ltd., Huzhou Fulinmen Imp. & Exp. Co., Ltd., Metropolitan Hardwood Floors, Inc., Mudanjiang Bosen Wood Industry Co., Ltd., Nakahiro Jyou Sei Furniture (Dalian) Co., Ltd., Pinnacle Interior Elements, Ltd., Real Wood Floors, LLC, Shanghai Eswell Timber Co., Ltd., Shanghai Shenlin Corporation, Shenyang Haobainian Wooden Co., Ltd., Shenzhenshi Huanwei Woods Co., Ltd., Swiff Train Co., Timeless Design Import LCC, V.A.L. Floors, Inc., Wego Chemical & Mineral Corp., Xuzhou Shenghe Wood Co., Ltd., Zhejiang Dadongwu Greenhome Wood Co., Ltd., Zhejiang Fuma Warm Technology Co., Ltd., Zhejiang Longsen Lumbering Co., Ltd., and Zhejiang Tianzhen Bamboo & Wood Development Co., Ltd. (collectively, the “Penghong Plaintiffs“). With him on the brief was Lizbeth R. Levinson.
John R. Magnus, Tradewins LLC, of Washington, D.C., for plaintiff, plaintiff-intervenor, and defendant-intervenor Old Master Products, Inc. With him on the brief was Sheridan S. McKinney.
Jonathan M. Zielinski, Cassidy Levy Kent (USA) LLP, of Washington, D.C., for plaintiff-intervenor Guangdong Yihua Timber Industry Co., Ltd. With him on the brief was Thomas M. Beline.
Jeffrey S. Levin, Levin Trade Law, P.C., of Bethesda, MD, for plaintiff and defendant-intervenor Coalition for American Hardwood Parity.
Tara K. Hogan, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington D.C., argued for defendant United States. With her on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director. Of counsel was Rachel A. Bogdan, Office of the Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce. Of counsel on the brief was Mercedes C. Morno, Office of the Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce.
Stanceu, Chief Judge: Before the court is the decision (the “First Remand Redetermination“) the International Trade Administration, U.S. Department of Commerce (“Commerce,” or the “Department“) issued in response to the court‘s order in Jiangsu Senmao Bamboo & Wood Indus. Co., Ltd. v. United States, 42 CIT __, 322 F. Supp. 3d 1308 (2018) (”Senmao I“). Final Results of Redetermination Pursuant to Ct. Order (June 3, 2019), ECF No. 145 (“First Remand Redetermination“).
Because the court sets aside as unlawful one of the decisions in the First Remand Redetermination—the decision to adjust downward the export price of subject merchandise to account for what Commerce considered to be irrecoverable value-added tax—the court remands the First Remand Redetermination to Commerce for correction.
I. BACKGROUND
Background on this consolidated case is presented in the court‘s previous opinion and is supplemented herein. See Senmao I, 42 CIT at __, 322 F. Supp. 3d at 1313–16.
In the Final Results, Commerce assigned individually determined weighted-average dumping margins to two Chinese respondents who produced and exported multilayered wood flooring (the “subject merchandise“): Dalian Dajen Wood Co., Ltd., to which it assigned a zero margin, and Jiangsu Senmao Bamboo and Wood Industry Co., Ltd. (“Senmao“), to which it assigned a margin of 13.74%. Final Results, 80 Fed. Reg. at 41,478.
Commerce assigned the 13.74% rate determined for Senmao to numerous “separate-rate” respondents (i.e., respondents that Commerce considered to have established their independence from the government of the People‘s Republic of China (“China“)) that were not selected for individual examination (the “non-selected companies“). Id.; see also Senmao I, 42 CIT at __, 322 F. Supp. 3d at 1314. Senmao and numerous non-selected companies are plaintiffs in this consolidated case, as is the Coalition for American Hardwood Parity (the “Coalition“), an association of U.S. producers of multilayered wood flooring. See Senmao I, 42 CIT at __, 322 F. Supp. 3d at 1315.
The changes Commerce made to the Final Results in the First Remand Redetermination reduced the dumping margin Commerce calculated for Senmao from 13.74% to 6.55%. First Remand Redetermination 30. Specifically, Commerce, in response to the court‘s order in Senmao I, reconsidered and revised the surrogate values it applied to overlaying glue (one of Senmao‘s production inputs), id. at 11–14, and to Senmao‘s cost for inland freight, id. at 14–17. Commerce reconsidered, but left unchanged, its surrogate value for another of Senmao‘s production inputs, plywood. Id. at 2–11. Commerce assigned the 6.55% rate to 46 non-selected companies in the First Remand Redetermination. Id. at 32–34.
II. DISCUSSION
A. Jurisdiction and Standard of Review
The court exercises jurisdiction according to section 201 of the Customs Courts Act of 1980,
B. Contested and Uncontested Decisions in the First Remand Redetermination
No party commented to the court in opposition to the decisions Commerce made in the First Remand Redetermination pertaining to the surrogate values for overlaying glue, inland freight, and plywood. Concluding that they comply with the order in Senmao I, the court sustains these decisions.
Parties contested two decisions in the First Remand Redetermination. The first is the Department‘s decision not to address the issue of whether Fine Furniture (Shanghai) Limited (“Fine Furniture“), an unexamined separate rate respondent, should have been examined individually as a “voluntary respondent” in the administrative review culminating in the Final Results. Fine Furniture commented in opposition to this decision. Pl.-Int. Fine Furniture (Shanghai) Ltd.‘s Comments on June 3, 2019 Final Results of Redetermination Pursuant to Ct. Order (July 3, 2019), ECF No. 148 (“Fine Furniture‘s Comments“). The second is the Department‘s decision to maintain certain deductions from the prices used to calculate the “export price” of Senmao‘s subject merchandise. Commerce made these deductions in the Final Results to account for Chinese value-added tax (“VAT“). Several parties commented in opposition to these deductions. E.g., Senmao Pls.’ Comments on Results of Redetermination Pursuant to Ct. Order from Slip Op. 18-67 2–7 (July 3, 2019), ECF No. 147 (“Senmao‘s Comments“); Fine Furniture‘s Comments 4; Pl.-Ints.’ Comments on Results of Remand Redetermination (July 3, 2019), ECF No. 149 (“Pl.-Ints.’ Comments“). Below, the court addresses the two issues that remain to be decided in this litigation.
C. Voluntary Respondent Status for Fine Furniture
In Senmao I, the court reviewed the Department‘s decision in the Final Results to deny voluntary respondent status to Fine Furniture, held that this decision was contrary to law, and directed Commerce to reconsider it. Senmao I, 42 CIT at __, 322 F. Supp. 3d at 1334–40. In the First Remand Redetermination, Commerce deemed Fine Furniture‘s claim to be moot because Fine Furniture has been excluded from the antidumping duty order in response to the decision of this Court in Changzhou Hawd Flooring Co. v. United States, 42 CIT __, 324 F. Supp. 3d 1317 (2018) (”Changzhou Hawd“), and, for this reason, concluded that it “is unable to calculate an individual weighted-average dumping margin for Fine Furniture.” First Remand Redetermination 18–19. Commerce did not assign a rate to Fine Furniture in the First Remand Redetermination.
Fine Furniture commented in opposition to the Department‘s disposition of its voluntary respondent claim, arguing that Changzhou Hawd was not a final court action because an appeal remained pending. Fine Furniture argues that the court should “direct Commerce to revisit Fine Furniture‘s voluntary respondent status if
The Court of Appeals issued an opinion in Changzhou Hawd on January 20, 2020, in which it affirmed the decision of this Court excluding Fine Furniture from the Order. Changzhou Hawd Flooring Co. v. United States, 947 F.3d 781, 794 (Fed. Cir. 2020). The period in which a petition for certiorari may be filed will end on April 19, 2020. Because the court is ordering Commerce to prepare a second remand redetermination to address the value-added tax issue, as discussed below, the court will be issuing a further decision in this litigation. Therefore, the court will hold in abeyance any decision on the disposition of Fine Furniture‘s claim pending further proceedings in this case.
D. The Downward Adjustments Made in Determining the Export Price of Senmao‘s Subject Merchandise to Account for Chinese Value-Added Tax Were Contrary to Law
Section 731 of the Tariff Act,
The issue pertaining to Chinese VAT arose from the Department‘s decision in the Final Results to apply one of the statutory adjustments to Senmao‘s starting prices. Specifically, Commerce invoked section 772(c)(2)(B) of the Tariff Act,
“export tax” provision), in calculating Senmao‘s weighted average dumping margin. The export
Commerce made the downward adjustments to the starting prices used to determine the export price of Senmao‘s subject merchandise to account for what it considered to be amounts of Chinese value-added tax that were not rebated (“recovered“) by reason of the exportation of the merchandise. Commerce considered “irrecoverable VAT” to be an “export tax, duty, or other charge” that China imposed on Senmao‘s subject merchandise, reasoning that “input VAT” (or “VAT-in“), a VAT present in the prices paid to Senmao‘s suppliers of materials used in domestic production of the subject merchandise, “amounts to a tax, duty, or other charge imposed on exports” to the extent it is “irrecoverable,” i.e., not refunded upon exportation. See Senmao I, 42 CIT at __, 322 F. Supp. 3d at 1342. Commerce adjusted the starting prices downward by 8% of the free-on-board (“FOB“) price in the sale for export, which Commerce considered to be the amount of irrecoverable VAT. Id. at __, 322 F. Supp. 3d at 1341.
Seven plaintiffs and groups of plaintiffs5 challenged the downward adjustments Commerce made in the Final Results. In Senmao I, the court granted relief on the plaintiffs’ claims, holding that record evidence did not support the Department‘s finding, for purposes of the export tax provision, that China imposed “an export tax, duty or other charge,” in the amount of 8%, or in any other amount, “on the exportation” of Senmao‘s subject merchandise to the United States. See id. at __, 322 F. Supp. 3d at 1340–45.
In the First Remand Redetermination, Commerce maintained the 8% downward adjustments it made in the Final Results for what it termed “irrecoverable” VAT. First Remand Redetermination 28–30. Upon reviewing the First Remand Redetermination, comments thereon, defendant‘s reply to the comments, and the administrative record, the court holds that Commerce misinterpreted the antidumping statute when it used these downward adjustments in calculating the export price of Senmao‘s exported subject merchandise. The downward adjustments were unauthorized by the statute and resulted in the assignment of erroneous margins to Senmao and the non-selected companies.
1. The Court‘s Decision on Value-Added Tax in Senmao I
In Senmao I, the court concluded that the Department‘s decision to make the deductions
First, as to the statutory requirement that the “export” tax, duty, or other charge be “imposed by the exporting country on the exportation of the subject merchandise,” one factual
problem was that, according to uncontradicted record evidence, “input VAT” was not a tax, duty, or charge paid on the exported merchandise to the government of China by the exporter, Senmao. Rather, it occurred as amounts present in the prices of materials Senmao purchased from its suppliers, who paid the VAT on the materials they supplied. As the court noted, “Senmao‘s questionnaire response explained that it was subject to value-added tax liability on sales of its finished products (whether sold in the domestic market or for export) but did not pay to the tax authority a VAT on materials it used in producing its goods.” Senmao I, 42 CIT at __, 322 F. Supp. 3d at 1342. The court added that “Senmao further explained that the VAT of 17% on the materials was included in the prices it paid for those materials and was available as a deduction from the liability to the tax authority for ‘VAT-out’ (output VAT) on the combined sales, both domestic and export, of the finished products.” Id. The court summarized, “[i]n other words, the 17% VAT applicable to materials Senmao used in production was VAT paid to its material suppliers and passed on to Senmao.” Id. Commerce did not convince the court that a tax on value added that is present in the prices of materials used in all production of the subject merchandise (i.e., both for domestic sale and export sale) was, as a factual matter, an “export tax, duty, or other charge” or that it was “imposed by the exporting country on the exportation of the subject merchandise to the United States,” as required for an adjustment under
The court concluded that one factual finding in particular, a finding essential to the Department‘s decision, lacked any evidentiary support in the record. The finding in question was that under the Chinese VAT scheme, irrecoverable VAT “amounts to” a tax, duty, or other charge that is not imposed on domestic sales. Senmao I, 42 CIT at __, 322 F. Supp. 3d at 1342.
The uncontradicted record evidence was that China‘s VAT is imposed on domestic sales, and there was no evidence as to these sales that it was rebated, avoided, or otherwise “recovered.” See id. The court reasoned that “an input VAT incurred upon the purchase of materials for use in production of goods both for export sale and domestic sale cannot correctly be found to be a tax, duty, or charge that is not imposed on domestic sales.” Id. at __, 322 F. Supp. 3d at 1344. The court continued, “[t]here is no record evidence from which Commerce could find that Senmao‘s export sales incurred a ‘tax duty, or other charge’ that its domestic sales avoided” and that “[u]nder the Chinese VAT system as shown by the evidence placed on the record by Senmao, export sales were not treated less favorably than were domestic sales (and in fact were treated more favorably).” Id. at __, 322 F. Supp. 3d at 1345.
Responding to the Department‘s rationale that input VAT that is incurred on materials used in producing goods in China and not refunded upon exportation of those goods “amounts to” an export, tax, duty, or other charge on the exportation of the goods, the court said that “[s]imply stated, input VAT incurred on materials used in domestic production that is not rebated or refunded upon the sale of the good (whether domestically or to an export market) made from those materials cannot, as a factual matter, ‘amount to’ something
2. Plaintiffs Are Not Precluded from Challenging the Methodology by which Commerce Applied the Export Tax Provision in the Review
Plaintiffs commenting on the First Remand Redetermination argue, inter alia, that Commerce failed to address the issue of whether the Department‘s methodology is lawful under the statute, arguing that the methodology is inconsistent with certain decisions of this Court holding that the export tax provision of
The court does not agree with defendant‘s argument that the commenters are precluded from objecting to the interpretation of
3. China‘s VAT System as Applied to Producers of Multilayered Wood Flooring, Such as Senmao
The tax-related issue presented in this case requires the court to consider the treatment the Tariff Act accords to different types of taxes imposed by the exporting country that potentially affect the determination of a weighted-average dumping margin. The tax specifically at
Under the Chinese VAT system in effect during the period of review, the VAT liability of a producer such as Senmao was calculated by combining the “output VAT” (or “VAT-out“) as calculated for domestic sales and the output VAT as calculated for export sales, and then deducting from that sum the total input VAT incurred in the purchase prices of all materials used in the combined production (i.e., for domestic or export sale).6 The output VAT on sales of multilayered wood flooring into the domestic market was calculated at a rate of 17% of the sales value. The output VAT on sales for export was calculated at a preferential rate of 8% of the FOB sales value (with the difference between the two rates sometimes described as the “rebate rate“).
Senmao was entitled to credit the input VAT that it incurred in the purchase of materials (which typically amounted to 17% of the sale price of the materials) used in all production toward the output VAT calculated on its combined sales (i.e., the domestic and the export sales) and carry forward to future periods credits arising if the input VAT incurred in the materials purchased exceeded the output VAT as calculated on its own sales.
4. The Tariff Act Prohibits Downward Adjustments to EP or CEP Starting Prices for Home Market Taxes such as the Value-Added Tax at Issue in this Litigation
This is not the first time the Department‘s treatment of Chinese VAT has come before this Court. China Manufacturers Alliance, LLC v. United States, 43 CIT __, 357 F. Supp. 3d 1364, 1370–75 (2019) (”China Manufacturers“), held that the Department‘s interpreting the export tax provision,
Qingdao Qihang Tyre Co. v. United States, 42 CIT __, 308 F. Supp. 3d 1329, 1338–47 (2018) (”Qingdao Qihang“) employed a similar analysis, holding that the Department‘s interpretation of the export tax provision was impermissible under step one of an analysis conducted under Chevron, U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (”Chevron“). Upon analyzing plain meaning and the statutory and legislative history, Qingdao Qihang concluded that
Certain other decisions of this Court, on which defendant relies in part for its argument supporting the Department‘s interpretation, interpret the export tax provision differently than did China Manufacturers and Qingdao Qihang and reach different results. Because these other decisions raise significant issues, the court takes this opportunity to reconsider the statutory interpretation question presented in China Manufacturers and Qingdao Qihang and considered again in this case. As the court explains later in this Opinion and Order, the decisions reaching a different result than China Manufacturers and Qingdao Qihang relied upon reasoning grounded in step two of a Chevron analysis, holding that Commerce reasonably interpreted an ambiguous export tax provision to include within its scope Chinese value-added tax. The court grounds the present analysis in Chevron step one.
China Manufacturers and Qingdao Qihang correctly applied a Chevron step one analysis to hold that Congress had an intent on the narrow question presented that is binding on the court as well as Commerce. Congress addressed home-market taxes of the exporting country, such as value-added taxes, in a different statutory provision than the export tax provision. Under the statutory scheme, such a home-market tax potentially will reduce a dumping margin if “recoverable,” i.e., if rebated or avoided upon exportation. The statutory scheme, interpreted according to plain meaning, purpose, and statutory and legislative history, reveals that Congress could not have intended that such a tax, whether or not recoverable, would also fall within the scope of the export tax provision so as to increase a dumping margin. In this case, the Tariff Act prohibited Commerce from deducting value-added tax from the Senmao starting prices that were used to determine export price.
a. The Treatment the Tariff Act Accords to Various Taxes of the Exporting Country
The narrow question presented is whether the export tax provision of the Tariff Act,
Any valid interpretation begins with a careful and thorough reading of the statute.7 The export tax provision names only “export” taxes, duties, and other charges, mentioning no other type of tax. It is expressly limited to taxes, duties, and other charges “imposed on the exportation” of the subject merchandise. The limiting terms of the export tax provision, even when the provision is read in isolation, cast doubt on the Department‘s interpretation.
A thorough analysis also must consider the export tax provision in the context of related provisions in the Tariff Act. The Tariff Act addresses other categories of taxes in provisions outside of the export tax provision. These other categories of taxes also might be present in the
starting price for determining EP or CEP but are treated differently than export taxes. They
As China Manufacturers explained, the Tariff Act makes certain adjustments to U.S. price (whether calculated by EP or CEP), and to normal value, to achieve a “tax neutral” comparison between U.S. price and normal value. For example, the statute upwardly adjusts U.S. price, and thereby reduces a dumping margin, “to account for import duties imposed by the country of exportation that have been rebated (i.e., through duty drawback), or not collected, by reason of the exportation of the merchandise to the United States.” China Manufacturers, 43 CIT at __, 357 F. Supp. 3d. at 1370 (citing
made, the price comparison already being tax-neutral.” Id. Accordingly, the Tariff Act does not provide that irrecoverable import duties present in the EP or CEP starting price will increase a dumping margin.
Other domestic taxes in the exporting country to which the exported subject merchandise, or the materials used to produce it, have been subjected, such as value-added taxes, are treated in much the same way as import duties. See id. These may reduce, but do not increase, a dumping margin. Like an import duty, a value-added tax imposed domestically by the exporting country may reduce a dumping margin to the extent it is rebated or avoided upon exportation. Specifically, under the “home-market” tax provision, home-market taxes, such as value-added taxes, that are present in the prices of the foreign like product are presumed not to be included in U.S. price to the extent they have rebated, or not collected, on the exported subject merchandise. To achieve a tax-neutral comparison between U.S. price and normal value, these “recoverable” value-added taxes are removed from the calculation of normal value, and thus reduce a dumping margin, to the extent they are added to or included in the price of the foreign like product (which, after adjustment, is compared to the U.S. price (either EP or CEP).9
exporting country imposed on such materials or their disposition that is remitted or refunded upon exportation of the subject merchandise produced from such materials“)10; see also
The export tax provision of section 772(c)(2)(B) of the Tariff Act,
b. Statutory and Legislative History
The statutory history of the home-market tax provision and export tax provision confirms that Congress never intended for the export tax provision to apply to domestic value-added taxes
such as the one at issue here. As discussed in Qingdao Qihang, see 42 CIT at __, 308 F. Supp. 3d at 1340–43, and China Manufacturers, see 43 CIT at __, 357 F. Supp. 3d at 1372–73, the home-market tax provision in current law is derived from a similar provision in an earlier version of the statute, enacted as part of the Trade Agreements Act of 1979 (“TAA“),
The purchase price [now called “export price“] and the exporter‘s sales price [now called “constructed export price“] shall be adjusted by being—
(1) increased by—
* * *
(B) the amount of any import duties imposed by the country of exportation which have been rebated, or which have not been collected, by reason of
the exportation of the merchandise to the United States; (C) the amount of any taxes imposed in the country of exportation directly upon the exported merchandise or components thereof, which have been rebated, or which have not been collected, by reason of the exportation of the merchandise to the United States, but only to the extent that such taxes are added to or included in the price of such or similar merchandise when sold in the country of exportation;
and
(2) reduced by—
* * *
(B) the amount, if included in such price, of any export tax, duty, or other charge imposed by the country of exportation on the exportation of the merchandise to the United States other than an export tax, duty, or other charge described in
section 1677(6)(C) of this title .
It is also contrary to plain meaning. Congress used different language in the TAA version of the statute to distinguish export taxes from import duties and the taxes potentially coming within the scope of the home-market tax provision. While various types of taxes, including value-added taxes, that were “imposed in the country of exportation directly upon the exported merchandise or components thereof,”
Taxes described by the home-market tax provision and the import duty provision of the TAA differed in another way from the export taxes, duties, and other charges that fell within the scope of the export tax provision. Home-market taxes and import duties were ones that were capable of being rebated or avoided by reason of exportation of the merchandise subject to the antidumping duty order, i.e., the subject merchandise, even if they were not rebated or avoided in fact. See
Notably, Congress used language in the TAA home-market tax provision (and in the import duty provision as well) indicating its familiarity with the concepts of recoverable and irrecoverable taxes. While providing that recoverable import duties and recoverable home-market taxes potentially would lower a dumping margin, it made no provision under which an irrecoverable portion of such a tax or duty would raise one.
In summary, the TAA version of the Tariff Act placed home-market taxes (such as value-added taxes) in a different category than it placed export taxes, duties and other charges. As discussed below, that distinction continues in the current statute.
In the URAA, Congress converted the home-market tax provision from one that allows an upward adjustment to U.S. price to one that allows a downward adjustment to normal value.11
URAA § 224. In making
The margin-reducing adjustment to normal value provided for in the current home-market tax provision, which resulted from the URAA amendments, is not available where normal value is determined otherwise than according to the price at which the foreign like product is sold in the comparison market (normally, the home-market of the exporting country). That is the situation in the review at issue in this case, which involved goods exported from China. Considering China to be a non-market economy country, Commerce determined normal value according to the “surrogate value” factors-of-production procedures of
The fact that VAT might be present in the EP or CEP starting price does not alter the court‘s conclusion. Commerce is no more empowered by the statute to increase a dumping margin for Chinese VAT present in the EP or CEP starting price than it would be to increase a dumping margin for import duties, excise taxes, or any other types of domestic taxes that Commerce might find to be present in that price. Only an “export” charge that is “imposed on the exportation of the subject merchandise to the United States” may be the subject of such a margin increase under the export tax provision.14
On the uncontradicted facts in the record, including those acknowledged by Commerce itself, the Chinese value-added tax at issue in this case is a tax imposed on Chinese domestic production and subsequent sale of a good, regardless of whether the sale is into domestic commerce or for export. As Commerce recognized in the First Remand Redetermination, and as the court discussed previously, a Chinese producer incurs potential liability for Chinese VAT according to a formula in which total input VAT incurred in the prices of the total materials used in all domestic production (i.e., for domestic sale or for export) is applied as a credit against total output VAT, which is the sum of the output VAT as calculated on the sales for the domestic market and the output VAT calculated on export sales. See First Remand Redetermination 21–22. Thus, VAT-in and VAT-out are elements in the unitary calculation of the total VAT owed by a Chinese domestic producer, whether or not that producer is also an exporter. Because Chinese VAT is a home-market tax applying to domestic production of a good, it is one that, by definition (and in contrast to an export tax), is capable of being rebated or avoided by reason of exportation of that good (regardless of whether, under the product-specific tax provision applicable to that good, it actually is rebated or avoided by reason of exportation).15
d. The Department‘s Interpretation of the Export Tax Provision, as Explained in the First Remand Redetermination, Cannot Be Sustained
In the First Remand Redetermination, Commerce gave three reasons in support of the deductions it made from Senmao‘s EP and CEP starting prices. The court does not find these reasons convincing.
Commerce concluded, generally, that “the amount of irrecoverable VAT is, effectively, an ‘export tax, duty, or other charge’ under section 772(c) of the Act, and it, therefore, warrants an adjustment to U.S. price.” First Remand Redetermination 23. Commerce explained, second, that “[h]ere, although Senmao reported a negative VAT payable to the government during the POR, the resultant tax credit it could carry forward under Chinese law and apply against future VAT payable to the government was unambiguously reduced by irrecoverable VAT-in—a cost or expense Senmao incurred by reason of its exports—and therefore constitutes an export tax or other charge under section 772(c) of the Act.” Id. at 29–30 (emphasis added). Finally, Commerce reasoned that “its adjustment of EP/CEP for irrecoverable VAT is reasonable and provides for a tax-neutral dumping margin.” Id. at 30.
Commerce erred first in reasoning that “irrecoverable VAT” is an “export tax, duty, or other charge imposed by the exporting country on the exportation of the subject merchandise to the United States.” As the court has explained, Congress addressed
The Department‘s rationale that irrecoverable VAT “constitutes an export tax or other charge under section 772 of the Act” because it is “a cost or expense Senmao incurred by reason of its exports” is unconvincing as well. As the uncontested facts demonstrate, and Commerce recognized, a Chinese exporter of multilayered wood flooring incurs potential liability for output VAT on all sales. Export sales did not incur output VAT liability from which domestic sales are exempt (and, in this instance, export sales received preferential tax treatment). Commerce views an irrecoverable value-added tax as a “cost” because it does not reduce potential tax liability in the way a recoverable value-added tax does. That does not make the irrecoverable portion of a value-added tax an “export” tax imposed on “exportation.” The Tariff Act treats an irrecoverable VAT (and an irrecoverable import duty) as a domestic tax that does not potentially reduce a dumping margin, as a recoverable VAT potentially does (and as a recoverable import duty does). The Tariff Act does not treat irrecoverable VAT as an export tax simply because it is irrecoverable.
In support of its rationale that Chinese input VAT is subject to the export tax provision because it is a cost borne by the exporter, Commerce quoted Aristocraft of Am. LLC v. United States, 43 CIT __, 380 F. Supp. 3d 1324 (2019) (“Aristocraft II“). First Remand Redetermination 30 (“[I]n Aristocraft [II], the CIT found that: ‘Commerce reasonably found that subject merchandise EP and CEP must be directly reduced by the irrecoverable VAT because irrecoverable VAT, as set forth in Chinese law, reduces the input VAT offset that serves to limit Shanghai Wells’ overall VAT liability.‘“). The opinion defendant cites does not discuss the statutory construction issue of whether the export tax provision is reasonably interpreted to increase a dumping margin for a value-added tax imposed by the exporting country. An earlier decision in the same litigation, issued in 2017, applying step two of an analysis under Chevron, found reasonable the Department‘s methodology treating Chinese irrecoverable VAT as the basis for a margin-increasing adjustment under the export tax provision. Aristocraft of Am., LLC v. United States, 41 CIT __, 269 F. Supp. 3d 1316, 1321–26 (2017) (“Aristocraft I“).
Aristocraft I predated the previously-discussed opinions in Qingdao Qihang and China Manufacturers and, therefore, does not address the grounds upon which those opinions held the Department‘s statutory interpretation impermissible. It relies principally upon two earlier decisions of this Court, Jacobi Carbons AB v. United States, 41 CIT __, 222 F. Supp. 3d 1159 (2017) (“Jacobi AR7 I“)
In Jacobi AR7 I, this Court stated that “[t]he ordinary meaning of the term ‘imposed’ [as used in the export tax provision] demonstrates the reasonableness of Commerce‘s interpretation. Because the Chinese VAT is refunded in the context of domestic sales but not exports, it constitutes a ‘penalty’ that is ‘applied,’ and with which Jacobi is forever ‘burdened,’ at the time of exportation.” Jacobi AR7 I, 41 CIT at __, 222 F. Supp. 3d at 1188. The finding that “Chinese VAT is refunded in the context of domestic sales but not exports” is a finding that could not be supported on the record of this case. In any event, a subsequent opinion in the Jacobi litigation clarified the relevant factual circumstances of China‘s VAT system as applied to activated carbon; that opinion did not rest on a finding or inference that export sales of activated carbon were burdened by the VAT system in a way that domestic sales were not. To the contrary, the case involved “output VAT” of 17% that “is equally applicable to domestic and export sales.” Jacobi Carbons AB v. United States, 43 CIT __, 365 F. Supp. 3d 1323, 1339 (2019) (“Jacobi AR7 II“).
As Juangcheng Kangtai and Jacobi AR7 I predate Qingdao Qihang and China Manufacturers Alliance, they do not address the grounds upon which those later opinions held the Department‘s statutory interpretation impermissible. Juangcheng Kangtai and Aristocraft I, in applying Chevron deference, emphasized the words “export tax, duty, or other charge” as used in the export tax provision, concluding that the “other charge” reference is broad enough to encompass the irrecoverable VAT in question. See Aristocraft I, 41 CIT at __, 269 F. Supp. 3d at 1322–23. But the question has never been whether China‘s value-added tax is a “tax.” As the uncontradicted facts in this case show, it is just that: a tax imposed on value added to goods produced in China that does not treat export sales less favorably than domestic sales. The term “other charge” is not permissibly read in isolation, as the tax or other charge must be an “export tax, duty, or other charge,” and it must be imposed “on the exportation of the subject merchandise,” in order to come within the bounds of the export tax provision. It is not enough that the charge be merely a cost that arises as the result of export sales. Moreover, the relevant tax-related adjustment provisions in the Tariff Act, when read together, and read in consideration of the statutory and legislative history, cause the court to disagree with the conclusion, as stated in Aristocraft I, that “Congress has not expressed an unambiguous intent on how Commerce should resolve this issue.” Id. at __, 269 F. Supp. 3d at 1322.
Methodological Change fails to persuade the court that the First Remand Redetermination is lawful, for a straightforward
Also unconvincing is the Department‘s rationale that reducing Senmao‘s U.S. price for what it regarded as “irrecoverable VAT” is reasonable because it resulted in a tax-neutral calculation of the dumping margin. In support of this rationale, Commerce cited Jacobi Carbons AB v. United States, 43 CIT __, 365 F. Supp. 3d 1344 (2019) (“Jacobi AR8“). Commerce stated that “[i]n Jacobi [AR8], the CIT found that ‘...adjusting EP/CEP for VAT imposed on export sales allows Commerce to calculate a tax-neutral dumping margin when normal value is calculated exclusive of VAT.‘” First Remand Redetermination 30 (quoting Jacobi AR8, 43 CIT at __, 365 F. Supp. 3d at 1361).
Jacobi AR8 involved an “output VAT” of 17% that Commerce found to have been imposed on both export sales and sales to the Chinese domestic market of activated carbon and, as applied to the export sales, determined to be subject to the export tax provision. The opinion describes the statutory interpretation issue presented in the case as “whether Commerce may apply the statute,
The court is unable to agree that the interpretation Commerce placed upon the export tax provision, as ruled upon in Jacobi AR8, was a permissible one, even under a review conducted according to step two of a Chevron analysis. The premise that the statute is ambiguous “as to whether the statute applies to such assessments imposed solely upon export sales or assessments imposed upon sales at the time of export, regardless of whether the assessment is also applied to domestic sales,” id. at __, 365 F. Supp. 3d at 1359, addresses only the language of the export tax provision without considering the other tax-related provisions in the Tariff Act that lend the export tax provision meaning and context. “[A] reviewing court should not confine itself to examining a particular statutory provision in isolation.” Food and Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132 (2000).
Even if it were presumed, arguendo, that the export tax provision is ambiguous in the way described in Jacobi AR8, the Department‘s interpretation of the export tax provision as reviewed in that decision still would be impermissible, for two reasons.
First, as the court discussed previously in this Opinion and Order, the home-market tax provision contemplates that home-market taxes can be imposed on exported subject merchandise (and possibly rebated), and no reasonable interpretation of the TAA would place the same tax within the ambit of that home-market tax provision and also within the ambit of the export tax provision, the scope of which was not enlarged upon enactment of the URAA. Because the output VAT rate for sales to the domestic market and the output VAT rate for sales for export were the same in the calculation of VAT owed by the producer to the Chinese government, the VAT scheme as applied in Jacobi AR8 neither promoted exportation of the subject merchandise nor penalized it. In carefully chosen language, Congress took pains to distinguish such a tax from a tax on exportation itself, which disadvantages export sales. Under the scheme Congress established in the Tariff Act (both before and after enactment of the URAA), a tax such as the one at issue in Jacobi AR8 would not reduce a dumping margin, but, being outside the intended scope of the export tax provision, neither would it increase one. The Department‘s interpretation was, therefore, unreasonable in that respect.
Second, the basis upon which Jacobi AR8 found the Department‘s statutory interpretation to be reasonable was that doing so achieved a tax-neutral comparison with normal value, which Commerce, according
Under
As the court has noted, Commerce is not free, for example, to increase a dumping margin for irrecoverable import duties or irrecoverable home-market taxes that Commerce may find to be present in the EP or CEP starting price, even though the Department‘s normal value calculation, based on factors of production and surrogate values, might not include these taxes or duties. Yet, under the rationale for the Department‘s statutory interpretation as described in Jacobi AR8, Commerce could shoehorn practically any type of tax, duty, or other charge affecting both domestic and export sales into the export tax provision—and, thereby, use it as a justification for increasing a dumping margin—so long as the tax or charge is assessed at the time of exportation and is found to be included in the EP or CEP starting price, and so long as Commerce considers the exporting country to be a non-market economy country. Congress intended otherwise.
In summary, the Department‘s interpretation of the export tax provision is inconsistent with the plain language of the provision when interpreted in concert with other tax-related provisions in the Tariff Act that are relevant to the statutory interpretation issue before the court. The Department‘s interpretation is inconsistent with statutory and legislative history and cannot be justified as a reasonable method of achieving a tax-neutral dumping margin. Congress had a clear intent on the narrow question presented: a home-market value-added
III. CONCLUSION
The Department‘s decision in the First Remand Redetermination to maintain its adjustments under
Therefore, upon consideration of the First Remand Redetermination and all papers and proceedings in this action, and upon due deliberation, it is hereby
ORDERED that the First Remand Redetermination be, and hereby is, set aside as unlawful with respect to the decision by Commerce to maintain deductions from the starting prices under
ORDERED that Commerce, within 60 days of the issuance of this Opinion and Order, shall submit a Second Remand Redetermination that corrects the error the court has identified; it is further
ORDERED that plaintiffs, plaintiff-intervenors, and defendant-intervenors may file comments on the Second Remand Redetermination within 30 days from the date on which the Second Remand Redetermination is filed with the court; and it is further
ORDERED that defendant may file a response to the comment submissions within 15 days from the date on which the last of any such comments is filed with the court.
/s/ Timothy C. Stanceu
Timothy C. Stanceu, Chief Judge
Dated: March 11, 2020
New York, New York
Notes
(continued...) Statement of Administrative Action accompanying the Uruguay Round Agreements Act, H.R. Rep. No. 103-316, Vol 1. at 157 (1994) (“SAA“), reprinted in 1994 U.S.C.C.A.N. 4040, 4166. The TAA version of the home market tax provision required for a margin-reducing adjustment that the taxes be “added to or included in the price of such or similar merchandise when sold in the country of exportation.”The deduction from normal value for indirect taxes constitutes a change from the existing statute. The change is intended to ensure that dumping margins will be tax-neutral. The requirement that the home-market consumption taxes in question be “added to or included in the price” of the foreign like product is intended to insure that such taxes actually have been charged and paid on the home market sales used to calculate normal value, rather than charged on sales of such merchandise in the home market generally. It would be inappropriate to reduce a foreign price by the amount of the tax, unless a tax liability had actually been incurred on that sale.