Saarstahl Ag v. United States v. Inland Steel Bar Company

Opinion for the court filed by Circuit Judge MAYER. Dissenting opinion filed by Circuit Judge PLAGE R.

MAYER, Circuit Judge.

The United States appeals the judgment of the Court of International Trade, Consol. Case No. 93-04-00219 (June 7, 1994), vacating the final determination of the United States Department of Commerce in Certain Hot Rolled Lead, and Bismuth Carbon Steel Products From Germany, 58 Fed.Reg. 6233 (Dep’t Comm. Jan. 27,1993) (final affirmative countervailing duty determination) (“Final Determination ”), as modified on remand in Remand Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Germany (Oct. 12, 1993) (“Remand Determination ”). Commerce had determined that the arm’s length sale of a subsidized government-owned company does not automatically terminate the countervailability of previously bestowed subsidies. Commerce also determined that a portion of the sales price paid by the private party for the steel company constituted repayment of a portion of the previously bestowed subsidies and extinguished the subsidies to the extent of the repayment. In vacating this decision “to the extent [that] Commerce determined [that] previously bestowed subsidies are passed through to a successor company sold in an arm’s length transaction,” Order at 1, the Court of International Trade held that the arm’s length sale of the company extinguished any remaining “competitive benefit” from the prior subsidies, because the price presumably included the market value of any continuing competitive benefit. 858 F.Supp. at 193. For reasons set forth below, we reverse and remand.

Background

Between 1978 and 1985, Saarstahl Volklingen GmbH (“Saarstahl SVK”), a German steel company, received various subsidies from the West German federal government and the Saarland state government. These governments gave Saarstahl SVK guaranteed loans, government funds, and “RZVs,” which are loans that must be repaid at face value, with repayment made contingent on Saarstahl SVK’s return to profitability. When Saarstahl SVK could not make its principal payments, the governments assumed them, and Saarstahl SVK continued to amass RZVs.

Until 1986, Saarstahl SVK was wholly owned by Arbed Luxembourg (“Arbed”), a Luxembourg state-owned company. In that year, with Saarstahl SVK’s financial condition continuing to deteriorate, Arbed transferred 76% of its ownership of Saarstahl SVK to the government of Saarland. Usinor-Saeilor, a French company that owned German steel producer AG der Dillinger Huttenwerke (“Dillinger”) expressed interest in purchasing Saarstahl SVK if it was relieved of its debt burden. The governments therefore devised a restructuring plan that entailed the forgiveness of all of Saarstahl SVK’s repayment obligations to the governments, as well as a portion of the company’s debts to private banks.

On June 15,1989, Saarstahl SVK was converted into a stock company called Dillinger Hiitte Saarstahl AG (“DHS”). In exchange for Saarstahl SVK’s assets and a capital contribution of DM 145.1 million, the Saarland government received 27.5% ownership interest in DHS. Usinor-Sacilor received 70% ownership of DHS in exchange for its shares in Dillinger. Arbed received 2.5% of DHS in exchange for a capital contribution of DM 8.9 million. On June 30, 1989, DHS transferred Saarstahl SVK’s lead-bar assets to a newly formed subsidiary, Saarstahl AG (“Saarstahl”).

Commerce initiated an investigation of Saarstahl on May 8,1992, based on a petition filed by Inland Steel and Bethlehem Steel, and issued its preliminary determination on September 17,1992. On January 27,1993, in its final determination, Commerce determined that “[b]ecause the debt forgiveness was part of the deal negotiated to effect the merger,” it benefited the newly formed company, not DHS’s predecessor, and was thus countervailable. Final Determination, 58 Fed.Reg. at 6234. Commerce also determined that the debt forgiveness by private banks was countervailable, because it was required by the governments as part of a government-led debt reduction package, and because the governments guaranteed Saarstahl’s future liquidity, “implicitly assuring the private banks that the remaining portion of Saarstahl’s outstanding loans would be repaid.” 58 Fed.Reg. at 6235. Following the International Trade Commission’s affirmative injury determination, Commerce issued a countervailing duty order for the relevant products. 58 Fed.Reg. 15,325 (1993).

In the subsequent countervailing duty investigations in Certain Steel Products From Germany, 58 Fed.Reg. 37,315 (1993) (final determination), Commerce reconsidered the effect of privatization on the benefits from prior subsidies and determined that, although the privatization of a public company through an arm’s length sale did not automatically extinguish the countervailability of the prior subsidies, the price paid for the company could constitute a partial repayment of the prior subsidies.

Commerce requested and was granted a remand to reconsider its original determination, and on remand adopted the methodology developed in the Ceitain Steel cases. Remand Determination: Certain Hot-Rolled Lead and Bismuth Steel Products from Germany (Oct. 12,1993). It determined that the debt forgiveness amounted to a grant bestowed on Saarstahl in 1991, the benefit of which passed through to DHS after Saarstahl was privatized. It also determined that part of the Saarstahl sales price represented partial repayment of the subsidy and adjusted the countervailing duty margins accordingly, treating the purchase price for Saarstahl as payment for prior subsidies to the same extent that subsidies comprised Saarstahl SVK’s net worth. On January 27,1993, Commerce had imposed a countervailing duty of 17.28%. On remand, Commerce imposed a countervailing duty of 16.85%.

On June 7,1994, the Court of International Trade upheld Commerce’s determination that Saarstahl was privatized because it was supported by substantial evidence, but held that Commerce’s privatization methodology was unlawful to the extent that it passed previously bestowed subsidies through to a successor company sold in an arm’s length transaction. To that extent, the court vacated Commerce’s final determination as modified on remand. The court held that the sale of Saarstahl to DHS in an arm’s length transaction automatically extinguished subsidies previously bestowed on Saarstahl. Thus, DHS did not directly or indirectly receive a subsidy, and no countervailable event had occurred under 19 U.S.C. § 1671(a) (1994). The court acknowledged that it must accord deference to Commerce’s interpretation of the statute it administers, but concluded that in this case that interpretation would alter Congress’s intent.

Discussion

The issue is whether the Court of International Trade erred in vacating Commerce’s final determination and holding that Commerce’s privatization methodology is unlawful to the extent that it allows previously bestowed subsidies to be passed through to a successor company sold in an arm’s length transaction. We review issues of statutory interpretation de novo. Suramerica de Aleaciones Laminadas, C. A v. United States, 966 F.2d 660, 663 (Fed.Cir.1992); Chaparral Steel Co. v. United States, 901 F.2d 1097, 1100 (Fed.Cir.1990).

In the Court of International Trade, as in this court, Commerce’s construction must be sustained if it “falls within the range of permissible construction.” Daewoo Electronics v. International Union, 6 F.3d 1511, 1516 (Fed.Cir.1993) (citing Suramerica, 966 F.2d at 667); see also Chevron U.S.A, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694 (1984). The duty of the reviewing court “is not to weigh the wisdom of, or to resolve any struggle between, competing views of the public interest, but rather to respect legitimate policy choices made by the agency in interpreting and applying the statute.” Suramerica, 966 F.2d at 665. “To sustain [an agency’s] application of [a] statutory term, we need not find that its construction is the only reasonable one, or even that it is the result we would have reached had the question arisen in the first instance in judicial proceedings.” Zenith Radio Corp. v. United States, 437 U.S. 443, 450, 98 S.Ct. 2441, 2445, 57 L.Ed.2d 337 (1978); accord American Lamb Co. v. United States, 785 F.2d 994, 1001 (Fed.Cir.1986). In particular, the administration of the antidumping law is “a difficult and extremely delicate endeavor.” Daewoo, 6 F.3d at 1516.

The Court of International Trade’s decision rests on the premise that subsidies may not be countervailed unless they confer a demonstrable competitive benefit on the merchandise exported to the United States. The court acknowledged that the statute embodies an irrebuttable presumption of competitive benefit from a subsidy, but held that the presumption “ceases to exist where the new owner has paid fair market value for the [company] and is therefore not a ‘recipient.’ ” 858 F.Supp. at 193. “By determining the sale of Saarstahl was at arm’s length,” the court reasoned, “Commerce has necessarily determined [that] DHS did not receive a competitive benefit [from the prior subsidies], but instead paid the fair market value for the productive unit it purchased.” 858 F.Supp. at 194.

The statute provides that countervailing duties may be assessed if two requirements are satisfied: (1) a subsidy is provided “with respect to the manufacture, production, or sale of a class or kind of merchandise;” and (2) a domestic industry is injured by reason of imports into the United States of that class or kind of merchandise. 19 U.S.C. § 1671(a).^*

These requirements are satisfied regardless of whether the subsidy actually confers any competitive advantage on the merchandise exported to the United States. Thus, the statute does not limit Commerce to countervailing only subsidies that confer a competitive advantage on merchandise exported to the United States. Nor does the legislative history say that Commerce was expected to perform any calculations of competitive advantage. See, e.g., S.Rep. No. 1298, 93d Cong., 2d Sess. 184 (1974) U.S.Code Cong. & Admin.News 1974, pp. 7186, 7319 (“[Wjhenever the Secretary of Treasury has sufficient evidence to determine the existence of a bounty or grant, he can and should make his final determination and impose countervailing duties.”); 30 Cong. Rec. 318 (1897) (statement of Rep. Meyer) (“[T]he less the adjustment of the proper duty is complicated by needless questions of computation, the simpler will be the duties of the customs collector, and the less opportunity afforded for mistakes or misconduct”).

The court’s improper equation of subsidy and competitive benefit leads it to erroneously inject the International Trade Commission into a statutory provision pertaining to the International Trade Administration’s role. To support its decision, the court notes that the legislative history accompanying the 1979 amendments indicates that “relating the benefit of the commercial advantage to the recipient” of the subsidy should be one “reasonable method[ ] of allocating the value of such subsidies over the production or exportation of products benefitting from them” when calculating the “effect of non-recurring subsidy grants or loans.” H.R.Rep. No. 317, 96th Cong., 1st Sess. 75 (1979). This statement, however, is best seen as an explanation of how a subsidy once found to exist should be allocated over time. It cannot be seen as Congress’s idea of how Commerce should determine whether a subsidy exists, because the statute makes clear that Congress did not require Commerce to determine the effect of the subsidy once bestowed. Indeed, Congress has expressed the contrary view that “an ‘effects’ test for subsidies has never been mandated by the law and is inconsistent with effective enforcement of the countervailing duty law.” North American Free Trade Agreement Implementation Act, S.Rep. No. 189, 103d Cong., 1st Sess. 42 (1993). It would be “burdensome and unproductive for the Department of Commerce to attempt to trace the use and effect of a subsidy demonstrated to have been provided to producers of the subject merchandise.” Id. at 42-43. For these reasons, it is Commerce’s practice to value a nonrecurring subsidy in the year of receipt, subject only to certain statutory offsets not involved here. See 19 U.S.C. § 1677(6). The International Trade Commission, not Commerce, is entrusted with the function of determining whether a United States industry is materially injured “by reason of imports of [the subsidized] merchandise.” 19 U.S.C. § 1671(a); Suramerica, 44 F.3d at 983. This injury to domestic industry is the only “effect” relevant under the statutory scheme, and the arm’s length sale of a subsidized company would not necessarily prevent the merchandise sold by the newly privatized company from having this adverse effect on the United States industry. Gf. ASG Indus, v. United States, 67 C.C.P.A. 11, 610 F.2d 770, 777 (CCPA 1979) (concluding that “it was error to employ an injury (to United States trade) test in determining whether a bounty or grant was paid upon the manufacture or production of the involved merchandise”).

In justifying its result, the Court of International Trade stated that it would be onerous to allocate subsidies to companies sold at arm’s length. Such an argument, however, is inconsistent with the Court of International Trade’s explicit assumption that the buying company is necessarily taking into account “all relevant facts,” presumably including the subsidies, in formulating a purchase price. See 858 F.Supp. at 193 (“[0]ne must conclude that the buyer and seller have negotiated in their respective self-interests, the buyer has taken into consideration all relevant facts, and the buyer has paid an amount which represents the market value of all it is to receive.”). The court assumes that the market purchase price must include the complete present value of the subsidies. Commerce has indicated that if such a situation arose it would extinguish the subsidies “to the extent that a portion of the purchase price for a privatized company can reasonably be attributed to prior subsidies.” Remand Determination at 10 (citing Certain Steel Products from Austria, General Issues Appendix, 58 Fed.Reg. 37225, 37262-63 (1993) (final determination)); see also Certain Corrosion-Resistant Carbon Steel Flat Products From New Zealand, 57 Fed.Reg. 57730, 57731 (Dec. 7, 1992) (preliminary determination) (stating that it “would recognize as extinguishing a countervailable subsidy” the “repayment to the government by the recipient company of the remaining value of that subsidy”). Indeed, in this case, Commerce held that part of the price paid by the buyer was repayment of a part of the previously bestowed subsidies, and extinguished the subsidies to that extent. Thus, the court erred in holding that as a matter of law a subsidy cannot be passed through during an arm’s length transaction. Commerce’s methodology correctly recognizes that a number of scenarios are possible: the purchase price paid by the new, private company might reflect partial repayment of the subsidies, or it might not.

The court makes an additional policy argument that “as long as the amortization clock is still ticking the subsidy will continue to travel” under Commerce’s approach, which “requires buyers to value the potential liability of purchasing productive units which previously received a subsidy.” 858 F.Supp. at 194. Thus, according to the court “[a] purchaser could no longer value a business based on market considerations; he would have to investigate whether there had been previous subsidies that were being, or possibly might be, countervailed in the future.” Id. at 194. Yet these considerations are precisely the same as those the court assumes have taken place during the arm’s length transaction, in which the buyer considered “all relevant facts.”

Ultimately, the court did not accord sufficient deference to Commerce’s approach. It states that “Commerce has developed its privatization methodology in the absence of any direction by Congress and in direct contravention of the guiding purpose of the [countervailing duty] laws.” It then notes that Commerce conceded that Congress has provided no guidance as to what proportion of the purchase price of a privatized company should be attributed to prior subsidies. In the absence of explicit mandates, however, Commerce’s approach must be accorded deference. Instead, the court decided that the subsidy remains with the seller — in this ease, “reverts to the state,” — “[t]o the extent that the government is not fully reimbursed for its previous subsidy payments.” 858 F.Supp. at 193. In reaching this conclusion, the court disregarded the fact that Commerce’s approach is merely the flip side of the court’s preferred approach: Commerce determined that the subsidy survives unless there is evidence that it went elsewhere or was repaid.

Commerce’s approach was reasonable and should not have been disturbed, and therefore the court erred in concluding that subsidies cannot pass through to privatized companies. The case must be remanded because the court did not address all of the parties’ arguments, including Commerce’s request for a remand to review the agency’s allocation of Saarstahl’s purchase price to repayment of prior subsidies and to assess Saarstahl’s creditworthiness in 1989.

Conclusion

Accordingly, the judgment of the Court of International Trade is reversed and the ease is remanded for further proceedings consistent with this opinion.

COSTS

Each party shall bear its own costs.

REVERSED AND REMANDED.

* On December 8, 1994, Congress passed the Uruguay Round Agreements Act of the General Agreement on Tariffs and Trade. See Uruguay Round Agreements Act, Pub.L. No. 103-465, tit. II, §§ 221(b), 222, 229(b), 233, 251, 266, 267, 270, 108 Stat. 4869, 4890, 4898, 4900-02, 4915, 4917-18 (Dec. 8, 1994). This agreement profoundly changed the countervailing duty statute as of January 1, 1995. Under the current section 1677(5)(F), "[a] change in ownership of all or part of a foreign enterprise or the productive assets of a foreign enterprise does not by itself require a determination by the administering authority that a past countervailable subsidy received by the enterprise no longer continues to be countervailable, even if the change in ownership is accomplished through an arm’s length transaction.” 19 U.S.C. § 1677(5)(F) (1994). Although the current statutory scheme is fundamentally at odds with the Court of International Trade's decision in this case, our decision is based on the statutory scheme prior to this amendment, and our references are to that version of the statute.