Bаrnett, Judge: Plaintiffs Zhejiang Quzhou Lianzhou Refrigerants Co., Ltd. ("Lianzhou"), and Zhejiang Quhua Fluor-Chemistry Co., Ltd. ("Quhua") (together, "Plaintiffs"), challenge the United States Department of Commerce's ("Commerce" or the "agency") final determination in the antidumping duty investigation of 1,1,1,2 Tetrafluoroethane (R-134a) from the People's Republic of China ("PRC" or "China"). See 1,1,1,2 Tetrafluoroethane (R-134a) from the People's Republic of China ,
BACKGROUND
On March 23, 2016, Commerce initiated an investigation into 1,1,1,2 Tetrafluoroethane (R-134a) from China alleged to have been sold in the United States at less than fair value. See 1,1,1,2 Tetrafluoroethane (R-134a) from the People's Republic of China ,
Quhua timely submitted its separate rate application. See Quhua Separate Rate Appl. (May 9, 2016) ("Quhua SRA"), CR 50-54, PR 70-71, CJA Tab 4, PJA Tab 4, ECF No. 40. Commerce selected Lianzhou as a mandatory respondent; thus, Lianzhou submitted its request for a separate rate in Section A of its questionnaire response. See Respondent Selection Mem. (Apr. 26, 2016) at 1, CR 34, PR 60, CJA Tab 10, PJA Tab 10, ECF No. 40; Lianzhou Sec. A Questionnaire Resp. (May 31,
In September 2016, Commerce preliminarily denied Lianzhou's and Quhua's separate rate requests. See Decision Mem. for Prelim. Determination (Sept. 29, 2016) ("Prelim. Mem.") at 17, PR 172, CJA Tab 6, PJA Tab 6, ECF No. 41; Prelim. Denial of Separate Rates (Sept. 29, 2016) ("Separate Rate Mem."), CR 151, PR 176, CJA Tab 7, PJA Tab 7, ECF No. 41.
On March 1, 2017, Commerce affirmed its preliminary finding in the Final Determination .
Commerce disagreed with Plaintiffs' argument that Chinese law insulates them from government control, finding instead that the various legal provisions relied upon by Plaintiffs enable the government to "control the business activities of a company when the government is a controlling shareholder."
Commerce further disagreed with Plaintiffs' argument that their respective articles of association place control over their day-to-day operations with their respective managers.
Commerce also rejected Plaintiffs' argument that the agency had impermissibly relied on the mere potential for government control by failing to cite to a specific instance of Juhua Group exercising its legal right to control or influence Plaintiffs' exports of subject merchandise.
On May 18, 2017 Plaintiffs initiated this action challenging Commerce's Final Determination . Summons, ECF No. 1; Compl., ECF No. 8. Plaintiffs' joint Rule 56.2 motion is fully briefed, and on September 11, 2018, the court heard oral argument. ECF No. 47.
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction pursuant to § 516A(a)(2)(B)(i) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1516a(a)(2)(B)(i)(2012),
DISCUSSION
I. Legal Framework Governing Separate Rate Status in Proceedings Involving Nonmarket Economy Countries
In antidumping duty proceedings involving a country, such as China, that Commerce considers to have a nonmarket economy, Commerce employs a rebuttable presumption that all enterprises operating within that country are controlled by the government. See Huaiyin Foreign Trade Corp.,
To establish whether an exporter is eligible for a separate rate, Commerce applies a test it first set forth in Sparklers from the People's Republic of China ,
To determine whether an exporter is free of de facto government control, Commerce considers four factors: (i) whether export prices are set by or subject tо the approval of a governmental authority; (ii) whether the exporter has authority to negotiate and sign contracts and other agreements; (iii) whether the exporter has autonomy from the government in making decisions regarding the selection of its management; and (iv) whether the exporter retains the proceeds of its export sales and makes independent decisions regarding the disposition of profits or financing of losses. Policy Bulletin 05.1 at 2; see also Jiasheng I ,
Here, Commerce's denial of a separate rate turned on Plaintiffs' failure to establish that it met the third criterion regarding
II. Whether Commerce's Determination is Supported by Substantial Evidence
A. Parties' Contentions
Plaintiffs contend that Commerce erroneously treated them as part of the PRC-wide entity on the basis of mere potential for government control over management selection through indirect majority ownership. Pls.' Mem. at 31-35; Confidential Pls.' Reply Br. ("Pls.' Reply") at 2-5, ECF No. 38. Plaintiffs further contend that extensive record evidence demonstrates their autonomy from the government with regard to management selection. Pls.' Mem. at 28-31. Specifically, Plaintiffs contend that Zhejiang Juhua's articles of association and Chinese law together protect Zhejiang Juhua from its controlling shareholder and ensure that "[t]he democratically elected Zhejiang Juhua board selects its own management, as well as that for Plaintiffs." Id. at 31 (asserting that "the public ownership of Zhejiang Juhua extinguishes any ability for Juhua Group or SASAC to control the selection of Plaintiffs' management."). Plaintiffs also contend that Commerce impermissibly denied their separate rate requests on the basis of a single de facto criterion, id. at 24-28, and misapplied relevant judicial precedent, id. at 35-41; see also Pls.' Reply at 14-17 (seeking to distinguish cases affirming separate rate denials when a state-owned enterprise held indirect majority ownership).
Defendant and Defendant-Intervenors contend that Commerce's reliance on indirect majority ownership to find that Plaintiffs failed to rebut the presumption of government control is supported by substantial evidence. Def.'s Resp. at 16-17, 19-25; Def.-Ints.' Resp. at 7-11. Defendant further asserts that Commerce properly relied on Plaintiffs' failure to demonstrate autonomy with regard to management selection to deny their separate rate requests, Def.'s Resp. at 18-19, and Commerce's determination is consistent with relevant judicial precedent, id. at 26-31; see also Def.-Ints.' Resp. at 11-14.
B. Commerce's Determination that Plaintiffs Failed to Rebut the Presumption of Government Control is Supported by Substantial Evidence
Plaintiffs first challenge Commerce's determination as "based entirely on speculation" and "the mere potential for control" by their indirect majority government owner. Pls.' Mem. at 32, 35. Plaintiffs' argument fails to recognize Commerce's reevaluation of the manner in which it interprets evidence of government ownership in connection with the presumption of government control as a result of a series of court opinions issued in response to the Diamond Sawblades proceeding. See Diamond Sawblades and Parts Thereof from the People's Republic of China ,
In litigation arising out of the Diamond Sawblades proceeding, the domestic industry challenged Commerce's grant of a separate rate to Advanced Technоlogy & Materials Co. Ltd., Beijing Gang Yan Diamond Products Company, and Gang Yan Diamond Products, Inc. (collectively, "AT & M"). See AT & M I ,
On remand, Commerce initially affirmed its separate rate determination. See AT & M II ,
The court again remanded Commerce's determination for failure "to consider important aspects of the problem."
In the second remand redetermination, Commerce, under protest,
Commerce's "protest" notwithstanding, in subsequent proceedings Commerce has viewed evidence of majority government ownership as "mean[ing] that the government exercises or has the potential to exercise control over the company's operations generally, which may include control over, for example, the selection of management ...." Decision Mem. for the Prelim. Determination of the Antidumping Duty Investigation of Carbon and Certain Alloy Steel Wire Rod from the PRC, A-570-012 (Aug. 29, 2014) ("Steel Wire Rod Mem.") at 6-7, available at https://enforcement. trade.gov/frn/summary/prc/2014-21335-1.pdf (last visited Oct. 4, 2018). Accordingly, Commerce now "consider[s] the level of government ownership where necessary." Id. at 7; see also id. at 8-9 (denying separate rates to certain exporters on the basis of evidence of indirect majority government ownership); Issues and Decision Mem. for the Final Aff. Determination in the Less-Than-Fair-Vаlue Investigation of Hydrofluorocarbon Blends and Components Thereof from the PRC, A-570-028 (June 21, 2016) at 50-53, available at https://enforcement.trade.gov/frn/summary/prc/2016-15298-1.pdf (last visited Oct. 4, 2018) (same); 1,1,1,2-Tetrafluoroethane from the PRC: Issues and Decision Mem. for the Final Determination of Sales at Less Than Fair Value Antidumping Duty Investigation, A-570-998 (Oct. 14, 2014) at 8-10, available at https://enforcement.trade.gov/frn/summary/prc/2014-24903-1.pdf (last visited Oct. 4, 2018) (same).
The court recently addressed Commerce's use of the word "potential" as it now relates to government control in cases involving majority and minority government ownership. See An Giang Fisheries Imp. and Exp. Joint Stock Co. v. United States ("An Giang II "), 42 CIT ----, ----,
The foregoing discussion demonstrates that Commerce views government ownership differently depending on whether the government is a majority or minority owner. Evidence of legal separation between an exporter subject to the nonmarket economy presumption of government control and its parent company (and its parent's state-owned parent company) of the type relied upon by Plaintiffs here may rebut the presumption of de facto control over management selection when the government holds a minority stake. Cf. Jiasheng II ,
Plaintiffs do not contest Commerce's factual findings regarding Lianzhou's and Quhua's respective chains of ownership. Pls.' Mem. at 31-32 (citing I & D Mem. at 12). Plaintiffs assert that record evidence nevertheless demonstrates autonomy with regard to management selection. Pls.' Mem. at 28-31. Plaintiffs' assertion is unavailing.
Plaintiffs first point to the lack of direct involvement of SASAC/Juhua Group in the selection or activities of Plaintiffs' respective boards, and the lack of SASAC's direct involvement in the selection or activities of Zhejiang Juhua's board. Pls.' Mem. at 28 (citations omitted). Plaintiffs' argument ignores that Juhua Group, an SOE, is the majority owner of Zhejiang Juhua, and that Zhejiang Juhua, subject to that majority ownership, is the sole owner of the Plaintiffs. See, e.g. , I & D Mem. at 12 (discussing evidence of indirect majority ownership).
Plaintiffs next assert that Articles 40, 42, and 199 of Zhejiang Juhua's articles of association, along with Articles 37, 39, 99, and 100 of the Company Law of the People's Republic of China ensure the democratic and transparent election of Zhejiang Juhua's board. Pls.' Mem at 29; see also Lianzhou AQR, Ex. A-15 (Company Law of the People's Republic of China (effective March 1, 2014) ("PRC Company Law"). Article 39 of the PRC Company Law provides for the classification of shareholder meetings into regular and interim meetings. PRC Company Law, Art. 39. Article 99 cross-references and makes applicable Article 37, which provides for a company's shareholders to elect and replace its directors and supervisors, and to decide their pay. Id. , Arts. 37, 99. Article 100 states that "[t]he general meeting of a company shall hold an annual meeting once every year." Id. , Art. 100. Articles 40 and 42 of Zhejiang Juhua's articles of association mirror those provisions. See Zhejiang Juhua Arts. of Assoc., Art. 40 (discussing the shareholders' general meeting and associated functions, including appointment and remuneration powers), Art. 42 (discussing the classification of shareholder meetings).
Plaintiffs further assert that Articles 20 and 21 of the Code of Corporate Governance for Listed Companies and Articles 56 and 86
Plaintiffs additionally point to Zhejiang Juhua's "cumulativе voting"
Plaintiffs' reliance on Articles 125, 127, and 137 of Zhejiang Juhua's articles of association also lacks merit. See id. at 30. Article 127 provides that each board member holds one vote, while Article 125 provides that resolutions require more than half of all votes to pass. See Zhejiang Juhua Arts. of Assoc., Arts. 125, 127. Juhua Group's ability to elect the majority of the board, however, means that it effectively controls the majority of the votes. See id. , Art. 32(II). Article 137 bars "[t]he person, who assumes the posts other than the director in a controlling shareholder or an actual controller," from "assum[ing] the post of senior management in [Zhejiang Juhua]." Id. , Art. 137. This provision, however, appears to leave open the possibility that Juhua Group's "directors" or "controllers" may in fact assume positions within Zhejiang Juhua's senior management, which positions include "general manager, deputy general manager, person in charge of finance, and secretary of the Board of Directors." See id. , Art. 135.
In sum, Plaintiffs' insistence that Zhejiang Juhua's articles of association, the PRC Company Law, and the Corp. Code Circular "extinguish[ ]" the government's de facto control of Lianzhou and Quhua fails to persuade. See Pls.' Mem. at 32. Instead, the cited provisions represent the legal vehicles through which Juhua Group exercises its control over Zhejiang Juhua and, thus, Quhua and Lianzhou. There is, therefore, substantial evidence supporting Commerce's determination that Quhua's and Lianzhou's management is "beholden" to Zhejiang Juhua, whose board is controlled by the govеrnment-owned Juhua Group. See I & D Mem. at 14; Separate Rate Mem. at 2.
Finally, Plaintiffs' argument that Commerce's determination is inconsistent with relevant judicial precedent lacks merit. Plaintiffs seek to distinguish the Diamond Sawblades proceeding and Yantai CMC on the basis that those cases involved instances of actual control and on the basis that thosе cases did not address the protections afforded to publicly-traded companies by the Corp. Code Circular. Pls.' Mem. at 36-37 (citing AT & M II ,
In sum, Commerce's finding that Plaintiffs failed to rebut the presumption of government control is supported by substantial evidence.
III. Whether Commerce's Determination is in Accordance with Law
A. Parties' Contentions
Plaintiffs contend that Commerce misappliеd the presumption of government control. Pls.' Mem. at 41-42. According to Plaintiffs, the evidence they submitted rebutted the presumption; thus, Commerce impermissibly denied their separate rate applications absent evidence of specific instances of actual control. Id. at 41-42; see also Pls' Reply at 10-14. Plaintiffs also assert that Commerce has "convert[ed] the presumption into an irrebuttable finding of government control based on indirect ownership" without "indicat[ing] what type of evidence would have been sufficient for separate rates." Pls.' Mem. at 42. Plaintiffs further contend that Commerce departed from the separate rate methodology stated in Policy Bulletin 05.1 without adequately acknowledging or explaining its departure therefrom. Id.
Defendant contends that Commerce applied properly the presumption of government control and correctly found that Plaintiffs' evidence failed to address Juhua Group's indirect control over Lianzhou and Quhua. Def.'s Resp. at 31. Defendant further contends that Commerce adhered to its long-standing separate rate methodology, and Plaintiffs' arguments "amount to mere disagreement" with the agency's conclusion. Def.'s Resp. at 31-32.
Plaintiffs assert that Commerce's analysis ran afoul of Federal Circuit precedent regarding the operation of presumptions. See Pls.' Mem. at 41-42 (citing A.C. Aukerman Co. v. R.L. Chaides Const. Co. ,
Additionally, the court disagrees with Plaintiffs' assertion that Commerce has "convert[ed] the presumption into an irrebuttable finding of government control based on indirect ownership." Pls.' Mem. at 42. The presence of direct or indirect majority government ownership may require exporters to surmount a high bar to demonstrate the absence of de facto control, but it does not necessarily preclude exporters from obtaining a separate rate. See Def.'s Resp. at 22-23 (noting, for example, the absence of evidence "that [ ] Juhua Group did not actually vote its shares");
Plaintiffs assert that Commerce deviated from Policy Bulletin 05.1 by (1) denying a separate rate on the basis of a single de facto criterion and thereby treating government ownership as dispositive; (2) relying on the potential for government control instead of actual control; and (3) acting contrary to a prior proceeding in which Commerce grаnted a separate rate notwithstanding evidence of government involvement in management selection. Pls.' Mem. at 42-43 (citations omitted); see also Pls.' Reply at 17-21. The court has largely dispensed with these arguments elsewhere. See supra pp. 1321 & n.22 (Commerce properly may rely on a single criterion); id. pp. 1317-18 (clarifying Commerce's consideration of potential control in the context of majority versus minority ownership and the implications thereto with regard to rebutting the presumption); id. pp. 1321-22 & n.26 (squaring this case with judicial precedent).
Briefly, Policy Bulletin 05.1 does not direct or otherwise require Commerce to address each de facto criterion and the de jure prong of its separate rate test before denying an exporter a separate rate. Policy Bulletin 05.1 at 1-2 (summarizing Commerce's separate rate test); see also Yantai CMC ,
In sum, though Commerce now accords more weight to evidence of an exporter's government ownership as a consequence of the Diamond Sawblades proceeding, it does so within the confines of its longstanding separate rate test. See I & D Mem. at 10-12. Commerce has, moreover, placed exporters on notice of this change. See, e.g. , Steel Wire Rod Mem. at 6-7. Plaintiffs may disagree with the conclusions Commerce reaches on the basis of this evidence, but mere disagreement is not a sufficient basis to remand Commerce's determination. Accordingly, Commerce's decision to deny Plaintiffs' requests for separate rates is in accordance with law.
CONCLUSION
For the foregoing reasons, Plaintiffs' motion is denied. Judgment will enter accordingly.
Notes
The administrative record is divided into a Public Administrative Record ("PR"), ECF No. 19-1, and a Confidential Administrative Record ("CR"), ECF No. 19-2. Parties submitted joint appendices containing record documents cited in their briefs. See Public JA ("PJA"), ECF No. 42; Confidential JA ("CJA"), ECF Nos. 40-41. The court references the confidential versions of the relevant record documents, if applicable, throughout this opinion, unless otherwise specified.
Defendant-Intervenors include Arkema Inc., The Chemours Co. FC, LLC, Honeywell International Inc., and Mexichem Fluor, Inc. (collectively, "Defendant-Intervenors").
The period of investigation is July 1, 2015 to December 31, 2015. Final Determination ,
Thereafter, Lianzhou did not participate as a mandatory respondent. See Prelim. Mеm. at 3 (explaining that Commerce did not issue supplemental questionnaires to Lianzhou on the basis of its preliminary finding of ineligibility for a separate rate).
Zhejiang Juhua is a "publicly-traded company listed on the Shanghai Stock Exchange." Lianzhou AQR at 11 (emphasis omitted); see also Quhua SRA at 12.
Exhibit 7D consists of various public announcements regarding actions taken at Zhejiang Juhua's annual shareholder meetings. See Quhua SRA, Ex. 7D. Exhibit 12 consists of letters documenting Zhejiang Juhua's appointment of Quhua's executive director, supervisor, general manager, and person in charge of finance. See Quhua SRA, Ex. 12.
Certain information treated as business proprietary in the Separate Rate Memorandum and other record documents is disclosed herein on the basis of Plaintiffs' representation to the court that the information is now public.
Commerce also cited to "Ex. A-9 at Art. 9" of Lianzhou's Section A Questionnaire Response. Separate Rate Mem. at 2 n.7. Exhibit A-9 consists of letters documenting Zhejiang Juhua's appointment of Lianzhou's executive director, supervisor, and general manager; thus, there is no Article 9 therein. See Lianzhou AQR, Ex. A-9. Article 9 of Lianzhou's articles of association, however, provides for Zhejiang Juhua's appointment of Lianzhou's executive director, supervisor, and general manager. See Lianzhou AQR, Ex. A-7 at Art. 9.
Quhua's articles of association are appended to its separate rate application at Exhibit 10. Article 9 governs Zhejiang Juhua's responsibilities as sole shareholder. See Quhua SRA, Ex. 10 at Art. 9.
All citations to the Tariff Act of 1930, as amended, are to Title 19 of the U.S. Code, 2012 edition, unless otherwise stated.
Commerce made no findings regarding de jure control. See I & D Mem. at 10-16.
Plaintiffs also contend that Defendant-Intervenors have advanced several arguments supporting Commerce's determination that Commerce itself did not rely upon. Pls.' Reply at 7-8 (citing Def.-Ints.' Resp. at 4, 11-19). It is well settled that the court may only sustain the agency's decision "on the same basis articulated in the order by the agency itself." Burlington Truck Lines, Inc. v. United States ,
The affirmance is nonprecedential. See Fed. Cir. Rule 32.1(b).
By issuing a redetermination under protest, Commerce signals its disagreement with the court's opinion and preserves its right to appeal. See Meridian Prods. v. United States ,
An Giang II represents the court's opinion following the remand ordered in An Giang Fisheries Imp. and Exp. Joint Stock Co. v. United States ("An Giang I "), 41 CIT ----, ----,
The court addresses Plaintiffs' assertion that Commerce has effectively rendered the presumption "irrebuttable" infra , pp. 1323-24.
Plaintiffs assert that, since 1994, Commerce has granted exporters a separate rate despite "significant-and even 100 percent-government ownership." Pls.' Mem. at 18-19 (citations omitted). In the only cited determination that post-dates thе AT & M litigation, the government held a minority stake in the relevant entity. See Issues and Decision Mem. for the Admin. Review of the Antidumping Duty Order on Small Diameter Graphite Electrodes from the PRC; 2014-2015, A-570-929 (Sept. 2, 2016) at 18-19, available at https://enforcement.trade.gov/frn/summary/prc/2016-21782-1.pdf (last visited Oct. 4, 2018).
Article 199 of Zhejiang Juhua's articles of association sets forth rules governing dissolution in the event of Zhejiang Juhua's liquidation; thus, its relevance to Plaintiffs' argument is unclear. See Zhejiang Juhua Arts. of Assoc., Art. 199.
Plaintiffs' reference is to Article 82; however, their discussion suggests that this reference is a typographical error and they intended to refer to Article 86. See Pls.' Mem. at 29. Article 82 is discussed below. See infra , note 21 and accompanying text.
Plaintiffs seek to rely on additional provisions of the Corp. Code Circular to demonstrate Zhejiang Juhua's independence from Juhua Group. See Pls.' Mem. at 9-10 (citing Corp. Code Circular, Arts. 22-27). While these provisions may demonstrate de jure autonomy, the issue here is de facto control, which the cited provisions fail to rebut.
Cumulative voting
allows shareholders to cast all of their votes for a single nominee for the board of directors when the company has multiple openings on its board. In contrast, in "regular" or "statutory" voting, shareholders may not give more than one vote per share to any single nominee. For example, if the election is for four directors and you hold 500 shares (with one vote per share), under the regular method you could vote a maximum of 500 shares for each one candidate (giving you 2,000 votes total-500 votes per each of the four candidates). With cumulative voting, you are afforded the 2,000 votes from the start and could choose to vote all 2,000 votes for one candidate, 1,000 each to two candidates, or otherwise divide your votes whichever way you wanted.
Quhua SRA, Ex. 7D (definition of "Cumulative Voting"); see also Zhejiang Juhua Art. of Assoc., Art. 82 (governing cumulative voting procedures).
Plaintiffs rely on Jiasheng I and Jiasheng II to support the proposition that Commerce failed to consider "the totality of the circumstances," including the de jure prong of the separate rate test and the three additional de facto criteria. Pls.' Mem. at 24-25 (citing Jiasheng I ,
The court decided Rongxin III following the court ordered remands in Shandong Rongxin Imp. & Exp. Co., Ltd. v. United States ("Rongxin II "), 41 CIT ----,
Accordingly, the court does not address Plaintiffs' arguments regarding evidence demonstrating the absence of de jure control or the absence of de facto control vis-à-vis the remaining criteria. See Pls.' Mem. at 25-28.
Plaintiffs' assertion that "Juhua Group would violate the PRC Company Law if it were to appoint Zhejiang Juhua's board members," Pls.' Mem. at 38 (emphasis omitted), misses the point because Commerce made no such finding. Rather, Commerce relied upon Juhua Group's ability as majority shareholder to control "the operations of the company, including the selection of management," and its interest in so doing. I & D Mem. at 12.
Plaintiffs point to the Jiasheng I court's statement "that Commerce considers the 'totality of the circumstances' and does not rely solely on 'the possibility for governmental control over export activities.' " Pls.' Mem. at 39 (quoting Jiasheng I ,
Defendant-Intervenors did not respond to Plaintiffs' arguments regarding the lawfulness of Commerce's determination. See Def.-Ints.' Resp. at 6-7 (presenting arguments pertaining solely to the court's substantial evidence review).
Pursuant to the bursting bubble theory, "a presumption is not merely rebuttable but completely vanishes upon the introduction of evidence sufficient to support a finding of the nonexistence of the presumed fact." Aukerman ,
Two opinions addressing Commerce's separate rate analysis have suggested otherwise. See An Giang II ,
Plaintiffs identify the case as "Jiansheng I "; however, the accompanying reporter volume and pin cite suggests that Plaintiffs intended to cite to Jiasheng II.