Jiangsu Zhongji Lamination Materials Co. v. United StatesJiangsu Zhongji Lamination Materials Co. v. United States
OPINION AND ORDER
Dated: September 18, 2019
[Commerce‘s final affirmative countervailing duty determination with respect to certain aluminum foil from the People‘s Republic of China is partially sustained and partially remanded for reconsideration consistent with this opinion.]
Aimee Lee, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, NY, for the defendant. With her on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Tara K. Hogan, Assistant Director. Of counsel on the brief was Mercedes Morno, Office of Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce, of Washington, D.C.
John M. Herrmann, II and Grace W. Kim, Kelley Drye & Warren, LLP, of Washington, D.C., for Defendant-Intervenors Aluminum Association Trade Enforcement
Restani, Judge: In this action challenging a final determination and countervailing duty order issued by the United States Department of Commerce (“Commerce”) regarding certain aluminum foil from the People‘s Republic of China (“PRC”), covering the period from January 1, 2016, through December 31, 2016, Jiangsu Zhongji Lamination Materials Co., Ltd. (“Zhongji”), and its affiliated companies, Shantou Wanshun Package Material Stock Co., Ltd. (“Shantou Wanshun”), Jiangsu Huafeng Aluminum Industry Co., Ltd. (“Jiangsu Huafeng”), and Jiangsu Zhongji Lamination Materials Co., (HK) Ltd. (“Zhongji HK”), request that the court hold Commerce‘s countervailing duty determination to be unsupported by substantial evidence or otherwise not in accordance with law.
BACKGROUND
Following a petition filed by the Aluminum Association Trade Enforcement Working Group and its individual members, JW Aluminum Company, Novelis Corporation, Reynolds Consumer Products LLC (collectively “Petitioners” or “Defendant-Intervenors”), Commerce initiated a countervailing duty (“CVD”) investigation into various subsidy programs concerning imports of certain aluminum foil from the PRC. See Certain Aluminum Foil from the People‘s Republic of China: Initiation of Countervailing Duty Investigation, 82 Fed. Reg. 15,688 (Dep‘t Commerce Mar. 30, 2017). Commerce selected Zhongji as a mandatory respondent and issued questionnaires to Zhongji and the Government of the PRC (“GOC”). See Certain Aluminum Foil from the People‘s Republic of China: Preliminary Affirmative Countervailing Duty Determination, 82 Fed. Reg. 37,844 (Dep‘t Commerce Aug. 14, 2017) (“Prelim. Determination”) and accompanying Decision Memorandum for the Preliminary Determination in the Countervailing Duty Investigation of Certain Aluminum Foil from the People‘s Republic of China, C-570-054, POI 1/1/2016-12/31/2016 at 9–10 (Dep‘t Commerce Aug. 7, 2017) (“Prelim. I&D Memo”). Commerce sought, inter alia, supporting sales documentation for Zhongji‘s requested export value adjustment.1 See Prelim. I&D Memo at 9–10. Zhongji, responding on behalf of itself and all affiliated companies, reported that, during the period of investigation, all of its sales to the United States were made through Zhongji HK, a Hong Kong-incorporated company wholly owned by Zhongji. See Prelim. I&D Memo at 10; see also Preliminary Determination Calculation Memorandum for Zhongji Lamination Materials Co., Ltd at 3, P.R.2 293 (Dep‘t Commerce Aug. 7, 2017) (“Prelim. Calc. Memo”) (examining “Zhongji HK together with Zhongji as a cross-owned, affiliated trading company” pursuant to
In its preliminary determination, Commerce granted Zhongji‘s requested export value adjustment, adjusting the subsidy rate to account for the mark-up between the export value from the PRC and the value of subject merchandise produced by Zhongji as entered into the United States. See Prelim I&D Memo at 10–11. Commerce used Maersk Shipping Line (“Maersk”) price quotes to calculate the benchmark to value ocean freight expenses, excluding Zhongji‘s proffered freight rates from Xeneta, a freight rate market intelligence firm. See id. at 17–18. Commerce, however, concluded that the GOC withheld information that was requested of it and failed to cooperate to the best of its ability with respect to certain information regarding the Export Buyer‘s Credit Program (“EBCP”), the provision of electricity at less than adequate remuneration (“LTAR”), and “Other Subsidies” self-reported by Zhongji. See id. at 26–29, 37–42. Accordingly, pursuant to
After receiving submissions from interested parties, Commerce issued its final determination and assigned Zhongji a 17.14 percent subsidy rate. See Countervailing Duty Investigation of Certain Aluminum Foil from the People‘s Republic of China: Final Affirmative Determination, 83 Fed. Reg. 9,274, 9,275 (Dep‘t Commerce Mar. 5, 2018) (“Final Determination”), amended by Certain Aluminum Foil from the People‘s Republic of China: Amended Final Affirmative Countervailing Duty Determination and Countervailing Duty Order, 83 Fed. Reg. 17,360 (Dep‘t Commerce Apr. 19, 2018) (“Amended Final Determination”);4 see also Decision Memorandum for the Final Determination in the Countervailing Duty Investigation of Certain Aluminum Foil from the People‘s Republic of China, C-570-054, POR 1/1/2016-12/31/2016 (Dep‘t Commerce Feb. 26, 2018) (“I&D Memo”). In accordance with its verification findings, Commerce denied Zhongji‘s export value adjustment request. I&D Memo at 42–45. Commerce continued to use an adverse inference from facts otherwise available (“AFA”) to countervail subsidies received with respect to the EBCP, the provision of electricity at LTAR, and Zhongji‘s “Other Subsidies,” and continued to find that the SOCB loans
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction pursuant to
DISCUSSION
I. Export Value Adjustment
Commerce must impose countervailing duties equal to the amount of the net countervailable subsidy.
[I]n this case, there are two F.O.B. export prices for the same sale: the one on which subsidies are applied for and received by [the parent company], and the one which includes [the affiliate‘s] mark-up and which is the value listed on the [parent company‘s] invoice accompanying the merchandise to the United States. At verification, [the parent company] demonstrated that their accounting systems are set up to track the mark-up for each individual shipment of bearings via back-to-back invoices that are identical except for price. When [the parent company] ha[s] a shipment ready for export, [it] will electronically transmit a copy of the invoice to [its affiliate], who then adds the mark-up amount and transmits the invoice back to Thailand. This marked-up invoice is then cut in Thailand and packed with the shipment for export from Thailand. Even though [the affiliate] determines the mark-up,
the merchandise is shipped from Thailand to the United States accompanied by the marked-up invoice.
Id. When entering the United States, therefore, the mark-up creates a mismatch between the previously calculated subsidy rate and the final invoiced price to which the subsidy rate is applied, resulting in a potential over-collection of duties. The mark-up thus skews the subsidies attributed to the merchandise by an amount equal to the percentage of the mark-up. In Ball Bearings from Thailand, because the two invoices had a “one-to-one correlation” and because the merchandise was “shipped directly from Thailand to the United States and [was] not transshipped, combined with other merchandise, or repackaged with other merchandise,” Commerce was able to adjust the subsidy rate to reflect the amount of subsidies actually bestowed. Id. To adjust the rate, Commerce first divided the F.O.B. value of the exports of the subject merchandise before the mark-up by the value of the same merchandise after the mark-up, as entered into the United States, which reflected the difference in the export and import values. Id. Commerce then multiplied the resulting ratio by the subsidy rate to obtain an ad valorem subsidy rate for each countervailable program. Id.; see also Issues and Decision Memorandum for the Final Determination in the Countervailing Duty Investigation of Coated Free Sheet from the People‘s Republic of China at Comment 21, C-570-907, POI 1/1/2006–12/31/2006 (Dep‘t Commerce Oct. 25, 2007) (“CFS from the PRC”) (outlining the same calculation to obtain the subsidy rate where a company was eligible for the export value adjustment).
In subsequent investigations, Commerce stated that it has established a practice of adjusting the calculation of the subsidy rate “when the sales value used to calculate that subsidy does not match the entered value of the merchandise, e.g., where subject merchandise is exported to the United States with a mark-up from an affiliated company.” Countervailing Duty Investigation of Certain Uncoated Paper from Indonesia: Issues and Decision Memorandum for the Final Affirmative Determination at 12, C-560-829, POI 1/1/2014–12/31/2014 (Dep‘t Commerce Jan. 8, 2016). Based on the determination in Ball Bearings from Thailand, Commerce‘s existing practice grants an export value adjustment where the respondent‘s sales to the United States meet the following six criteria:
- the price on which the alleged subsidy is based differs from the U.S. invoiced price, 2) the exporters and the party that invoices the customer are affiliated, 3) the U.S. invoice establishes the customs value to which the CVD duties are applied, 4) there is a one-to-one correlation between the invoice that reflects the price on which subsidies are received and the invoice with the mark-up that accompanies the shipment, 5) the merchandise is shipped directly to the United States, and 6) the invoices can be tracked as back-to-back invoices that are identical except for price.
See CFS from the PRC at Comment 21. According to Commerce, the six criteria listed above must be met to ensure that “the sales value adjustment properly reflects an upward adjustment to the sales value of all merchandise that entered the United States, and on which [Customs] assessed dutiable value.” CSP Cells from the PRC at 47–48.
Here, based on information provided by Zhongji, Commerce preliminary determined that Zhongji met all six criteria and made an export value adjustment to the entered value of Zhongji‘s sales made through Zhongji HK, the Hong Kong-incorporated affiliated company, based on information provided by Zhongji. Prelim I&D Memo at 11. To determine the sales
But Commerce‘s subsequent verification appeared to call into question Zhongji‘s ability to meet all six criteria; in particular, the requirement that Zhongji HK ship the subject merchandise directly to the United States. I&D Memo at 44. At verification, Commerce discovered that “Zhongji‘s export sales ledger contained all exports and was not sub-divided by country or region.” Verification Report at 11. Zhongji identified companies they considered to be U.S. customers for each sale in the ledger.8 See Verification Report at 11; see also Pre-Verification Minor Corrections by Jiangsu Zhongji Lamination Materials Co., Ltd. at 8, P.R. 331 (Oct. 23, 2017) (“the segregation of US and non-US sales are based on manual identification, transaction-by-transaction.”). Verification revealed that some companies characterized as U.S. customers were trading companies. Verification Report at 12. One of those trading companies withheld the identity of its final customers and another stated that its customers were located in the United States and also in a foreign country. Id. Commerce also examined five sale documentation packages that Zhongji characterized as sales to U.S. customers. Id. at 2. The examination revealed that some of the sales involved merchandise shipped directly to the United States, one sale was shipped directly to a foreign country, i.e., it never made entry into the United States, and another sale was shipped to a customer in a foreign country through a trading company characterized as a U.S. customer, who changed the commercial invoice before sending it to the final customer. Id. at 2, 12.
Commerce concluded in its final determination that Zhongji‘s identification of U.S. sales was faulty because Commerce discovered that some merchandise did not enter the United States or was shipped via trading companies outside of the United States. I&D Memo at 44. Thus, Commerce found, “Zhongji was unable to identify its U.S. sales with certainty, [and could] no longer claim that all of its sales of subject merchandise to the U.S. meet the six criteria.” Id. Moreover, Commerce was concerned that, because the unaffiliated trading companies are able to change the invoice before sending it to the final customer, it could no longer verify a one-to-one correlation between “the invoice that reflects the price on which subsidies are received (i.e., the invoice from Zhongji) and the invoice that accompanies the shipment.” Id. Commerce concluded that Zhongji could not show that an export value adjustment would properly reflect an upward adjustment to the sales value of all merchandise that entered the United States. Id. at 44–45. Accordingly, Commerce‘s final determination did not
Zhongji challenges Commerce‘s reasons for denying the adjustment originally granted and argues that that there was no regulatory or reasonable basis for distinguishing between exports to U.S. and non-U.S. customers. Zhongji Br. at 9, 15–16. Zhongji claims that the existence of non-U.S. sales, its inability to identify U.S. sales with certainty, or its use of U.S. trading companies does not disqualify it from an export value adjustment (“EVA”) under Commerce‘s past practice and statutory obligation. Id. at 9, 14. Zhongji emphasizes that there were no inconsistencies regarding any shipment‘s compliance with the six criteria regardless of the ultimate destination, and that the focus of the inquiry should be on whether sales that did enter the United States were subject to the mark-up. Id. at 13, 14. Moreover, Zhongji argues, because the regulations rely on total sales or total export sales as the denominator, and do not limit the CVD calculation denominator to U.S. sales, this distinction for purposes of calculating an EVA is irrelevant. Id. at 9–10, 15–16.
In response, the government argues that Commerce correctly determined that Zhongji‘s sales through Zhongji HK failed to meet the requisite criteria, that Commerce‘s denial of an EVA is consistent with prior practice, that its requirement that Zhongji identify U.S. sales is supported by regulation, and that Commerce did not improperly rely on intracompany sales. Gov‘t Br. at 11–22. The government points out that Zhongji‘s methodology was faulty, and could not identify its U.S. sales with certainty, even though Commerce requested sales “ledgers to cross-check Zhongji‘s list of U.S. customers.” Id. at 14, 16 (citations omitted). It claims that Commerce was unable to verify whether sales made by the affiliate through the unaffiliated trading company were shipped directly to the United States because of Zhongji‘s use of trading companies and that there was no “one-to-one correlation” between the invoices because an unaffiliated trading company could change the commercial invoice before sending it to the final customer. Id. at 15.
Defendant-Intervenors emphasize that Commerce could not verify “that all of Zhongji HK‘s reported shipments of subject merchandise were provided directly to U.S. customers, with a one-to-one correlation between Zhongji‘s invoice and the final U.S. customer.” Def.-Ints. Br. at 10. They add that Zhongji “did not know the destination of any merchandise shipped to this customer, nor did it know whether such sales were actually U.S. sales.” Id. at 11. Accordingly, they argue, Commerce could not use the information initially reported as the basis for making an EVA determination. Id. at 13. Defendant-Intervenors point out that the regulation addresses subsidies tied to particular markets to counter Zhongji‘s claim that the regulation does not limit the CVD calculation denominator to U.S. sales. Def-Ints. Br. at 13–14 (citing
In reply, Zhongji argues that an EVA is not conditioned on the United States being the only export destination and that the calculation relies on total sales and total export sales without distinguishing between U.S. and non-U.S. sales. Plaintiffs Reply Brief in Support of Rule 56.2 Motion for Judgment on the Agency Record at 2, ECF. No. 38 (June 7, 2019) (“Reply Br.”). Zhongji contends that the examined set of
Commerce‘s reasoning is lacking in several critical aspects. Commerce does not adequately explain why, given the calculation methodology employed in this case, the identification of U.S. sales or U.S. customers is relevant to the EVA determination or, specifically, to the criterion that merchandise be shipped directly to the United States. Over-collection of duties occurs when Customs imposes a duty based on a subsidy rate that did not account for a mark-up reflected on the invoice used by Customs to calculate the duty owed. What matters, then, is the point at which Customs assesses a countervailing duty and the accuracy of the sales value, reflected on the relevant entry forms, on which Customs computes that duty. See, e.g., CSP Cells from the PRC at 47–48 (“[The EVA] properly reflects an upward adjustment to the sales value . . . on which [Customs] assessed dutiable value.”). The record indicates that all of Zhongji‘s shipments that enter the United States are processed through Zhongji HK and that Zhongji HK marks-up all of its invoices. See Prelim I&D Memo at 10–11; Prelim Calc. Memo at 3. If so, all invoices that make entry into the United States include the mark-up. Moreover, Commerce does not claim that Zhongji‘s merchandise shipped to the United States undergoes transshipment, combinations, or repackaging, the concerns addressed in Ball Bearings from Thailand, such that the entered value would be altered for reasons other than the mark-up or that the Hong Kong mark-up does not really exist. See 57 Fed. Reg. at 26,647.
Specifically, Commerce does not explain why it could no longer subtract all sales to Zhongji HK and then add sales by Zhongji HK to adequately account for the upward adjustment to the sales value as it enters the United States, even after discovering that some sales were to foreign markets, U.S. trading companies, or where final customers were unidentified. To ensure that the universe of sales represents the universe of subsidies, Commerce must adjust the subsidy rate to properly reflect the subsidy bestowed. Where there is a mark-up by the affiliated trading company on the entered value, an adjustment to the sales value would result in the imposition of duties equal to the subsidies bestowed.
Moreover, in Ball Bearings from Thailand, Commerce granted an EVA to a respondent that exported to U.S. and non-U.S. markets. 57 Fed. Reg. at 26,647. In fact, Commerce rejected the petitioner‘s argument that the accuracy of the adjustment was dependent on “the accuracy of the allocation of subsidies to U.S. exports as opposed to all exports.” Id. The petitioners claimed that the producers did not show “that the mark-up on shipments to other countries is equal to the mark-up on shipments to the United States” and that “the allocation of subsidies to exports to different countries may be skewed” because “transfer prices may vary by country of destination.” Id. Commerce concluded, however, that because the adjustment was “based on the existence of the one-to-one invoice tracking system for U.S. shipments, it is not necessary for [Commerce] to allocate subsidies by country.” Id
Accordingly, Commerce does not adequately explain how the six criteria are all relevant to the facts of this case and how those that are relevant are not satisfied. Moreover, Commerce does not explain why the adjustment of the sales value in the subsidy calculation must be limited to sales
II. Export Buyer‘s Credit Program
The Export Buyer‘s Credit Program (“EBCP”) of the Export-Import Bank of China (“Ex-Im Bank”) is used to promote exports by providing credit at preferential rates to foreign purchasers of goods exported by Chinese companies. See Clearon Corp v. United States, 359 F. Supp. 3d 1344, 1347 (CIT 2019).
In response to Commerce‘s initial and supplemental questionnaires regarding the possible use of the EBCP, Zhongji submitted affiliate and customer certifications of non-use applicable to the POI stating that U.S.-based customers had not benefitted from the EBCP, which the GOC confirmed to be accurate. Prelim I&D Memo at 27–28; Zhongji Initial Questionnaire Response at Vol I, Ex. 12; GOC Initial Questionnaire Response at 13, P.R. 132, 146, 151, 152, 158 (June 12, 2017). The GOC, however, refused to provide the 2013 Implementing Rules of the Ex-Im Bank and information regarding potential third-party bank involvement in the EBCP, stating that this information was not public and irrelevant to Commerce‘s determination regarding whether respondent‘s customers used the program. See I&D Memo at 24, 29. The GOC further claimed that all necessary information relevant to confirming non-use was provided. See id. at 23–24, 29–31. Commerce, however, claimed that the withheld information necessary for Commerce to fully understand the operations of the program. Id. at 29. Specifically, the information would identify whether the Ex-Im Bank uses third-party banks to disburse credits, provide information on the size of contracts to which credits are applicable, and help Commerce “understand how export buyer‘s credits flow to and from foreign buyers and China Ex-Im.” Id. Therefore, Commerce concluded, the information was necessary to verify non-use of the program. Id. at 29–30. Commerce further explained that the certifications were unverifiable without the information requested of the GOC because its understanding of the program was incomplete and unreliable and reasoned that verifying the certificates was impossible without information regarding the EBCP‘s operation and involvement with third-party banks. Id. at 31–32. Moreover, Commerce claimed, it could not otherwise verify non-use because the primary entity that possesses such supporting information is the Ex-Im Bank. Id. at 31. Absent this information, Commerce concluded, “the [GOC]‘s claims that the respondent companies did not use the program are not reliable.” Id. at 29–30. Accordingly, Commerce concluded that the GOC “withheld necessary information that was requested and significantly impeded the proceeding” and failed to cooperate by “not acting to the best of its ability.” Id. at 31. Despite respondent‘s full cooperation and provision of non-use certifications, Commerce applied adverse inferences to facts otherwise
Zhongji argues that Commerce unlawfully used AFA in determining that respondents benefited from the EBCP. Zhongji Br. at 18. Specifically, Zhongji claims that Commerce‘s imposition was not supported by record evidence because Commerce ignored uncontradicted non-use evidence and conflated its desire to know the operation of the EBCP with its need to know whether the program was used. Zhongji Br. at 19–20, 23–26. Zhongji contends that there was no missing information on the record to warrant Commerce‘s use of AFA and that Commerce had “no reasonable basis to make the threshold finding of non-cooperation” when the GOC provided Commerce with “all the information necessary for understanding the program.” Zhongji Br. at 20–21. Additionally, Zhongji argues that even if Commerce‘s use of AFA was reasonable, Commerce did not reasonably apply the benchmark rate for use of the EBCP. Zhongji Br. at 27–30. The government contends that Commerce‘s use of AFA in determining that respondents benefitted from the EBCP and Commerce‘s selection of the AFA rate for the EBCP was in accordance with law and supported by substantial evidence. Gov‘t Br. at 22–23, 29–30.
When Commerce is unable to render a decision because “necessary information is not available on the record” or an interested party has withheld requested information, significantly impeded the investigation, or provided unverifiable information, Commerce may “use the facts otherwise available” to reach a decision.
The court has recently issued several opinions that address the use of adverse inferences to determine that a cooperating party has benefited from the EBCP due to GOC‘s withholding of requested information. Most have held that Commerce fails to provide a reasonable explanation as to its need for the withheld information to verify non-use when it merely states that a reliable understanding of EBCP‘s operation is a prerequisite to verifying non-use. See Clearon Corp. v. United States, 359 F. Supp. 3d 1344, 1360, 1363 (CIT 2019) (remanding Commerce‘s use of AFA and holding that Commerce needs to give an “adequate answer as to why the information it seeks . . . is necessary to fill a gap . . . or rely on the information it has on the record.”); Changzhou Trina Solar Energy Co. v. United States, 352 F. Supp. 3d 1316, 1327 (CIT 2018) (“Changzhou II”) (remanding Commerce‘s use of AFA and holding that in order to apply AFA Commerce must explain “if and how certifications of non-use are unverifiable in the absence of the GOC‘s cooperation.”); Guizhou Tyre Co. v. United States Slip Op. 19-114, 2019 WL 3948913, at *3 (CIT Aug. 21, 2019) (“Guizhou II”) (collecting cases). But see Changzhou Trina Solar Energy Co. v. United States, 195 F. Supp. 3d 1334, 1355 (CIT 2016) (“Changzhou I”) (upholding Commerce‘s use of AFA when Commerce
Accordingly, to apply an adverse inference that a cooperating party benefited from the EBCP based on the GOC‘s failure to cooperate, Commerce must: (1) define the gap in the record by explaining exactly what information is missing from the record necessary to verify non-use; (2) establish how the withheld information creates this gap by explaining why the information the GOC refused to give was necessary to verify claims of non-use; and (3) show that only the withheld information can fill the gap by explaining why other information, on the record or accessible by respondents, is insufficient or impossible to verify. See Changzhou II, 352 F. Supp. 3d at 1326–27 (instructing Commerce to explain specifically why the information the GOC withheld created a gap that resulted in the use of AFA); Guizhou II, 2019 WL 3948913, at *5 (remanding for Commerce to explain why verification was impossible); see also Clearon Corp., 359 F. Supp. 3d at 1360.
Here, Commerce again does not explain why a complete understanding of the operation of the program is necessary to verify non-use of the program.9 In this investigation, Commerce now specifies that record evidence indicates that third-party banks may be involved in the program as intermediaries between the Ex-Im Bank and U.S. customers. But Commerce does not explain why an understanding of third-party bank involvement, if any, or any other aspect of the 2013 rule change, was necessary to verify claims of non-use. In its brief to the court, for example, the government provides one such explanation: that the identities of third-party banks allegedly involved are unknown to Commerce, and those names, not “China-Ex-Im Bank,” would appear in the records of U.S. customers that received EBCP credits. Gov‘t Br. at 27–28. Thus, if Commerce were to verify the ledgers of U.S. customers, it could check for credits from those third-party banks.10 Commerce, however, did not provide even this bit of explanation in its Final Determination, and it is thus a post hoc rationalization that cannot be the basis to find Commerce‘s use of AFA supported by substantial evidence. See SEC v. Chenery Corp., 318 U.S. 80, 95 (1943); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 419 (1971). But that
The EBCP has resulted in much litigation of late, and the parties appear to have retreated to their respective corners. Contestant number 1, the Department of Commerce, asserts that because the GOC will not answer all of its questions about the program, a specific financial
contribution from a governmental authority conferring a benefit on respondents and their customers has resulted, i.e., a subsidy exists for which duties may be imposed to countervail it. See
Neither of their assertions has been demonstrated to satisfy statutory investigative requirements. Rather than resting on the failure of the GOC and causing cooperating respondents to bear the brunt of the adverse action, Commerce must consider what information could be verified that would show non-use. The private parties and Commerce are in the best position to figure out what could answer the question as the private parties understand their own operations, and Commerce, for its part, can determine how much certainty is required.11 As the court has stated, effort should be made to avoid the collateral consequences to cooperating parties of another’s non-cooperation. See Archer Daniels, 917 F. Supp. 2d at 1342.
If Commerce does not make further efforts to investigate, it is unlikely that the court will be able to find that the statutory requirements for imposing countervailing duties have been met. If the respondents are unwilling to provide more than certificates of non-use, where other steps may reasonably be taken, they are unlikely to be viewed as cooperating. In one case, the domestic industry may suffer underserved consequences because countervailable subsidies may have occurred but insufficient investigative behavior prevented them from being imposed. On the other hand, if respondents do not make greater efforts, countervailing duties perhaps may be imposed when no subsidy was received. Either situation would be unfortunate.
There is no indication that this program will end, so an acceptable solution that will avoid continued remands would be in everyone’s interest. Thus, the parties are directed to contemplate a solution to the impasse and to confer. This issue is remanded.
III. Electricity at Less Than Adequate Remuneration and Benchmark Selection
A subsidy is countervailable where “a government of a country or any public
To determine whether a benefit is conferred through the provision of a good or service, Commerce generally compares a calculated benchmark price with the respondent’s reported government price for the good or service provided. See
During the investigation, Commerce first requested that the GOC provide information regarding the roles and nature of the cooperation between Chinese provinces and the National Development and Reform Commission (“NDRC”). Prelim I&D Memo at 37. Commerce requested information about the NDRC’s role in deriving electricity price adjustments, including “Provincial Price Proposals” for each province in which mandatory respondents were located, to enable Commerce to determine whether the provision of electricity was a countervailable subsidy.
Commerce made three final determinations related to the GOC’s provision of electricity to respondents. Commerce first concluded that the provision of electricity was a financial contribution of a good, and not of general infrastructure, relying on this court’s decision in Royal Thai Gov’t v. United States, 441 F. Supp. 2d 1350 (CIT 2006). I&D Memo at 65. Second, in the light of the GOC’s withholding of information13 and failure to comply to the best of its ability, Commerce applied an adverse inference to determine that the provision of electricity constituted a financial contribution that was specific. I&D Memo at 62–63; Prelim I&D Memo at 37–41. Third, in selecting the benchmark for determining the existence and amount of the benefit, Commerce also applied an adverse inference to select the highest non-seasonal provincial electricity rates on the record for various industry categories used by respondent. I&D Memo at 60; Prelim I&D Memo at 52–53 (listing the categories as
Zhongji first challenges Commerce’s reliance on Royal Thai and its finding that the provision of electricity is not “general infrastructure.” Zhongji Br. at 30; Reply Br. at 20–21. Zhongji claims that, because the electricity service is available to the public, i.e., “developed for the benefit of society as a whole,” and openly traded on the market, Commerce was precluded from finding a financial contribution. Zhongji Br. at 31; Reply Br. at 21 (quoting Countervailing Duties, 63 Fed. Reg. at 65,378). But Zhongji misunderstands the nature of the financial contribution at issue here. The regulations provide that “general infrastructure” is “infrastructure created for the broad societal welfare of a country, region, state or municipality.”
Zhongji then challenges Commerce’s determination, through the use of AFA, that the electricity program is specific. Zhongji Br. at 31–32. Zhongji claims that Commerce failed to make a specificity determination and establish the relationship between the GOC’s withholding of information and a finding of specificity.
Under the statute, a domestic subsidy is specific as a “matter of fact” if “[t]he actual recipients of the subsidy . . . are limited in number,” if “[a]n enterprise or industry is a predominant user of the subsidy,” if “[a]n enterprise or industry receives a disproportionately large amount of the subsidy,” or if “[t]he manner in which the authority providing the subsidy has exercised discretion in the decision to grant the subsidy indicates that an enterprise or industry is favored over others,” or it may be specific where it “is limited to an enterprise or industry located within a designated geographical region.”
For example, Notice 748, cited by Commerce, stipulates a lowering of on-grid electricity sales prices in varying amounts for industrial and commercial use. Prelim I&D Memo at 37–41. In addition, it directs the reduction of that sales price, indicates that provincial authorities shall make plans reflecting that price reduction and submit it to the NDRC, and ensures that departments guarantee the implementation of the price adjustment.
Zhongji also challenges Commerce’s selection of the electricity benchmark. Zhongji Br. at 32–34. Zhongji first claims that Commerce’s selection led to a benchmark derived from multiple regions
[t]he GOC refuse[s] to provide certain details regarding variation of provincial electricity rates and whether these rates were calculated based on market principles. Accordingly, Commerce can apply an adverse inference to the GOC’s electricity rate submissions and select the highest rates for each electrical category and use those to set a benchmark.
Changzhou II, 352 F. Supp. 3d at 1343 (stating that Commerce’s “goal in setting a benchmark rate is to best approximate the market rate of electricity, not to choose the rate respondents were most likely to pay in an electricity market Commerce argues is tainted by the GOC’s interference”) (citations omitted); see also Fine Furniture v. United States, 865 F. Supp. 2d 1254, 1260–1263 (CIT 2012) (upholding Commerce’s decision to set the benchmark rate for electricity equal to the highest rate reported in the provincial price schedules). Commerce’s decision to select the highest rate was within its lawful discretion and Zhongji provides no argument for why Commerce’s selection of the highest rate from various provinces is less reflective of the market rate for electricity absent government interference. See Changzhou II, 352 F. Supp. 3d at 1343. Accordingly, Commerce’s calculation of the benchmark is consistent with its regulations and is in accordance with law.
IV. Reliance on Maersk Data
In determining the proper ocean freight charge to be added for the benchmark calculations, Commerce relied on actual price quotes sourced from Maersk for shipping cargo to Shanghai, China. I&D Memo at 65–66; see also Prelim I&D Memo at 17–18. Commerce rejected Zhongji’s proffered Xeneta rates because its data inconsistently included or excluded terminal handling charges in calculating freight rates to Asia. I&D Memo at 65.
Zhongji argues that Commerce’s decision is not supported by substantial evidence because the Maersk data is flawed and the Xeneta rates is superior. Zhongji Br. 34–37. First, Zhongji argues that the Maersk data is not contemporaneous with the POI and only includes the first eight days of the months between January 2015 and August 2015. Zhongji Br. 34–35. Zhongji asserts that the Maersk data was affected by a “dockworker strike on the West Coast of the United States,” which did not impact rates in POI. Zhongji Br. at 36. Second, Zhongji contends the data is not representative of the market rate for ocean freight because it consisted of price quotes, not final payments, and thus subject to change. Zhongji Br. 34. Zhongji claims Commerce should instead use the Xeneta data, or, if the court determines that the Maersk data is reasonably reliable, average the data set from Maersk and Xeneta. Zhongji Br. 34, 37. The government claims that Zhongji is barred from arguing that the Maersk data set is non-contemporaneous because it failed to raise the issue in its administrative case brief. See Gov’t Br. at 38. Moreover, the government and defendant-intervenors argue
As a preliminary matter, the court considers whether Zhongji is barred from raising the claim that the Maersk data is non-contemporaneous because it did not clearly raise before Commerce. Commerce’s regulations further require that an interested party’s case brief “present all arguments that continue in the submitter’s view to be relevant to [Commerce’s] final determination or final results.”
Regardless, Zhongji’s argument that the contemporaneity problem with regard to the Maersk data is determinative fails. “[N]on-contemporaneous freight rate data [can be] affected by factors not present during the POR, for example, changes in demand for freight from year-to-year, changing energy costs, or construction of new ports, or inability to use particular ports.” Changzhou Trina Solar Energy Co. v. United States, 255 F. Supp. 3d 1312, 1323 (CIT 2017) (emphasis added). Zhongji, however, provides no evidence that the dockworker strike restricted access to ports or significantly impacted shipping rates from Asian markets to the United States. Zhongji’s only evidence is the statement that the labor dispute lasted for nine months and “snarled international trade at seaports handling about $1 trillion worth of cargo annually.” Zhongji Br. at 36; Mem. from John Corrigan to the File re: Placing Information on the Record at Attach. 1, p. 3 (Aug. 2, 2017) (P.R. 276).
Zhongji’s contention that the Maersk data is flawed because it is based on price quotes is also unavailing. In measuring adequate remuneration, Commerce is required to calculate “the price that a firm actually paid or would pay if it imported” the product at issue.
Commerce was also not required to average the Xeneta data with the Maersk data because the Xeneta data did not meet the standards of consistency set forth by the regulations. Although Commerce’s regulations require that Commerce average commercially available world market prices to the extent practicable, see
V. Countervailed “Other Subsidies”
Generally, investigations into potentially countervailable subsidies are either self-initiated by Commerce or a result of a petition by a domestic interested party on behalf of an industry.
In its initial questionnaire response, Zhongji reported receiving various “other subsidies” from the GOC during the POI. Prelim I&D Memo at 41 (citing Zhongji Initial Questionnaire Response at Vol. I p. 31, Vol. II p. 26, Vol. III p. 21). In its initial questionnaire to the GOC, Commerce asked it “if it provided any other forms of assistance to subject producers,” and “to coordinate with the Respondents on any additional subsidies reported by the companies in order to provide detailed information.” I&D Memo at 22. The GOC responded by stating that Commerce’s request was “premature absent a more direct inquiry supported by credible evidence and the initiation of a discrete investigation.” I&D Memo at 23; see also Prelim I&D Memo at 42. In supplemental questionnaires regarding these “other subsidies,” the GOC submitted previously reported information and “withheld all additional information required by Commerce to determine the countervailability of the reported grants.” I&D Memo at 23. Because necessary information to determine specificity was not available on the record, and because the GOC withheld information and failed to cooperate to the best of its ability, Commerce applied AFA to find the “other subsidies” countervailable. Prelim I&D Memo at 42; I&D Memo at 23. In its Final Determination, in response to arguments that it could not initiate an investigation into these subsidies, Commerce concluded that its decision to investigate “other subsidies” reported by the respondents “fell squarely within the guidelines established under [
Zhongji argues that Commerce unlawfully investigated “other subsidy” programs because it failed to identify any evidence that the subsidies appeared to be specific and countervailable before initiating an investigation into the programs, in violation of
Zhongji’s argument is misguided. First, the elements of a countervailable
VI. Policy Loans
Commerce determined that loans reported by Zhongji from state owned commercial banks (“SOCBs”) provided countervailable subsidies under a lending program that encouraged the development of the aluminum foil industry. I&D Memo at 14–21; Prelim I&D Memo at 42–44. When analyzing a lending program supporting a policy initiative, Commerce examines whether “government plans or other policy directives lay out objectives or goals for developing the industry and call for lending to support objectives or goals.” I&D Memo at 14 (citing Aluminum Extrusions from the People’s Republic of China: Final Affirmative Countervailing Duty Determination, 76 Fed. Reg. 18,521 (Dep’t Commerce Apr. 4, 2011)); Prelim I&D Memo at 42–41 (citing CFS from the PRC at Comment 8). Commerce found that extensive record evidence indicated that the GOC sought to target the aluminum foil industry for development in recent and current years. Prelim I&D Memo at 43–44. Specifically, the GOC’s plans seek to accelerate the transformation of aluminum industry development, develop aluminum processing and enhance utilization levels, and improve the competitiveness of the industry. I&D Memo at 14–15; Prelim I&D Memo at 43–44. Commerce also found that the banking sector in the PRC remained under state control, resulting in the allocation of credit in accordance with government policies directed specifically at encouraged industries, including the aluminum industry. I&D Memo at 15–16; Prelim I&D Memo at 44. Policy guidance, for example, identifies the aluminum industry, with a priority for aluminum foil, as an “encouraged” industry that shall receive “credit support in compliance with credit principles.” I&D Memo at 16; Prelim I&D Memo at 43. Thus, Commerce concluded, the GOC provides target support to the aluminum foil industry through preferential loans, such that the subsidy is specific under
Zhongji first argues that substantial evidence does not support a finding that a “financial contribution” was provided by an “authority.” Zhongji Br. at 40–42. Zhongji claims that Commerce misconstrued broad industrial policies as financial support to the aluminum foil industry, where the policies instead sought to curb blind expansion of the industry.
Here, Commerce properly determined that SOCBs act as “authorities” that provide a “financial contribution” in the form of loans. See
Finally, contrary to Zhongji’s argument, Commerce did find on the record that the policy loans were given at preferential rates and thus conferred a benefit to Zhongji. A benefit is conferred, “in the case of a loan, if there is a difference between the amount the recipient of the loan pays on the loan and the amount the recipient would pay on a comparable commercial loan that the recipient could actually obtain on the market.”
CONCLUSION
For the foregoing reasons, the court remands Commerce’s challenged determinations as regards to its determination on the export value adjustment and the Export Buyer’s Credit Program. All other determinations are sustained. The court remands for proceedings consistent with this opinion. Remand results should be filed by November 18, 2019. Objections are due December 18, 2019 and Responses to Objections are due January 17, 2020.
/s/ Jane A. Restani
Jane A. Restani, Judge
Dated: September 18, 2019
New York, New York
Notes
I&D Memo at 63.Provincial Price Proposals; the specific derivation of increases in cost elements and the methodology used to calculated cost element increases; legislation that may have eliminated the Price Proposals; explanation, with supporting documents, how pricing values in the Appendix to Notice 748 were derived; information concerning the coincidence of provincial price changes with Notices 748 and 3105; and explanation of the factors and information that Jiangsu and Guangdong Province relied upon to generate their submitted price adjustments and tariffs.