Guangdong Wireking Housewares & Hardware Co., Ltd. v. United States

Slip Op. 13-31
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Nicholas Tsoucalas, Senior Judge
GUANGDONG WIREKING HOUSEWARES & :
HARDWARE CO., LTD., :
:
Plaintiff, :
:
and :
:
BUREAU OF FAIR TRADE FOR IMPORTS & :
EXPORTS, MINISTRY OF COMMERCE, :
PEOPLE’S REPUBLIC OF CHINA, : Court No.: 09-00422
:
Plaintiff-Intervenor, :
:
v. :
:
UNITED STATES, :
:
Defendant, :
:
and :
:
NASHVILLE WIRE PRODUCTS, et al., :
:
Defendant-Intervenors. :
:
OPINION and ORDER
Held: Plaintiff and plaintiff-intervenor’s motion for judgment on
the agency record is denied because Public Law 112-99 is
constitutional and the Department of Commerce’s determination is
supported by substantial evidence and is otherwise in accord with
the law.
Dated:
Curtis, Mallet-Prevost, Colt & Mosle LLP, (William H.
Barringer, Daniel L. Porter, James P. Durling, Matthew P.
McCullough, and Ross Bidlingmaier) for Guangdong Wireking
Housewares & Hardware Co., Ltd., Plaintiff, and for Bureau of Fair
Trade for Imports & Exports, Ministry of Commerce, People’s
Republic of China, Plaintiff-Intervenor.
Stuart F. Delery, Principal Deputy Assistant Attorney General;
Court No. 09-00422 Page 2
Jeanne E. Davidson, Director, Franklin E. White, Jr., Assistant
Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice (Alexander V. Sverdlov); Office of the
Chief Counsel for Import Administration, United States Department
of Commerce, Daniel J. Calhoun, Of Counsel, for the United States,
Defendant.
Kelley Drye & Warren, LLP, (Kathleen W. Cannon, Paul C.
Rosenthal, Brooke M. Ringel, and David C. Smith) for Nashville Wire
Products, Inc. and SSW Holdings Co., Inc., Defendant-Intervenors.
TSOUCALAS, Senior Judge: Plaintiff Guangdong Wireking
Housewares & Hardware Co., Ltd. (“GWK”) and plaintiff-intervenor
Bureau of Fair Trade for Imports & Exports, Ministry of Commerce,
People’s Republic of China (collectively “Plaintiffs”) challenge
several aspects of the determination by the Department of Commerce
(“Commerce”) in Certain Kitchen Shelving and Racks from the
People’s Republic of China: Final Affirmative Countervailing Duty
Determination, 74 Fed. Reg. 37,012 (July 27, 2009) (“Final
Determination”). Plaintiffs also challenge the constitutionality
of a new law amending sections 701 and 777A of the Tariff Act of
1930.1 See Pub. L. No. 112-99, 126 Stat. 265–67 (2012) (the “new
law”). Commerce and defendant-intervenors, Nashville Wire
Products, Inc. and SSW Holdings Co., Inc., oppose Plaintiffs’
motion. For the following reasons, the court finds that the new
law is constitutional and that the Final Determination is supported
by substantial evidence and is otherwise in accord with the law.
1
All further citations to the Tariff Act of 1930 are to the
relevant provisions of Title 19 of the U.S. Code, 2006 edition,
unless otherwise specified.
Court No. 09-00422 Page 3
Background
I. Procedural History
On August 26, 2008 Commerce initiated a countervailing duty
(“CVD”) investigation on certain kitchen appliance shelving and
racks (“KASR”) imported from the People’s Republic of China (“PRC”)
during the calendar year of 2007. See Notice of Initiation of CVD
Investigation: Certain KASR from the PRC, 73 Fed. Reg. 50,304 (Aug.
26, 2008). Shortly thereafter, Commerce designated GWK as a
“mandatory respondent” for the investigation. See Certain KASR
From the PRC: Preliminary Affirmative CVD Determination and
Alignment of Final CVD Determination with Final Antidumping Duty
Determination, 74 Fed. Reg. 683, 683–684 (Jan. 7, 2009) (citing
Memorandum to Stephen J. Claeys, “Respondent Selection Memo” (Sept.
17, 2008), Public Rec. 38)).2
Commerce also initiated a parallel antidumping duty (“AD”)
investigation covering KASR imported from the PRC between January
1, 2008 and June 30, 2008. Certain KASR from the PRC: Initiation
of AD Investigation, 73 Fed. Reg. 50,596 (Aug. 27, 2008).3
2
Hereinafter all documents in the public record will be
designated “P.R.” without further specification except where
relevant.
3
In the AD investigation, Commerce utilized its non-market
economy (“NME”) methodology to calculate a weighted average dumping
margin of 95.99% for GWK. See Certain KASR From the PRC: Final
Determination of Sales at Less Than Fair Value, 74 Fed. Reg.
36,656, 36,661 (July 24, 2009). Under its NME methodology,
Commerce determines normal value by valuing factors of production
using surrogate data from a market economy “in an attempt to
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On July 27, 2009, Commerce issued the final results of its CVD
investigation. Final Determination, 74 Fed. Reg. at 37,012.
Commerce made several findings relevant to the instant litigation.
First, Commerce determined that it could impose CVDs on goods from
the PRC despite the PRC’s NME status in the AD investigation. See
Issues and Decision Memorandum for the Final Determination in the
CVD Investigation of Certain KASR from the PRC at 25–30, C-570-942
(July 20, 2009) (“I&D Memo”). Commerce also determined that GWK
received a countervailable subsidy through the provision of wire
rod by the government of China (“GOC”) and State-Owned Enterprises
(“SOEs”) within the PRC at less than adequate remuneration
(“LTAR”). See id. at 14–16. Commerce determined that market price
for wire rod in the PRC was distorted by the GOC’s substantial
presence in the market and therefore used a “world average price”
as a benchmark against which to measure the adequacy of
remuneration. Id. at 15. Commerce assigned GWK a “Net Subsidy
Rate” of 13.30%. See Final Determination, 74 Fed. Reg. at 37,014.
Plaintiffs allege that Commerce made several errors in the
Final Determination. Specifically, Plaintiffs argue that (1)
Commerce’s policy of imposing CVDs on goods from NME countries is
contrary to 19 U.S.C. § 1671(a); (2) Commerce’s policy of imposing
CVDs on goods from NME countries is unreasonable even if 19 U.S.C.
construct a hypothetical market value of that product.” Nation
Ford Chem. Co. v. United States, 166 F.3d 1373, 1375 (Fed. Cir.
1999).
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§ 1671(a) is ambiguous; (3) Commerce erred in finding that certain
of GWK’s wire rod suppliers that are majority-owned by the GOC are
“authorities” under 19 U.S.C. § 1677(5)(B); (4) Commerce erred in
finding that certain of GWK’s wire rod suppliers that are minority-
owned by the GOC are “authorities” under 19 U.S.C. § 1677(5)(B);
(5) Commerce erroneously countervailed GWK’s wire rod purchases
from privately-owned trading companies without first determining
that GWK received a financial contribution; and (6) Commerce
erroneously discarded in-country benchmarks for the price of wire
rod based on the GOC’s presence in the wire rod market. Pl. & Pl.-
Intervenor’s Br. Supp. Mot. J. Agency R. at 1–4 (“Pls.’ Br.”).
II. GPX and the New Law
Parallel to the instant case, GPX International Tire Corp., an
importer of tires from the PRC, challenged Commerce’s policy of
imposing CVDs on goods from NME countries. GPX Int’l Tire Corp. v.
United States, 33 CIT __, __, 645 F. Supp. 2d 1231, 1239 (2009).
Prior to 2007, Commerce refrained from imposing CVDs on goods from
NME countries, as it could not identify and measure the effects of
government subsidies in a centralized economy. See Carbon Steel
Wire Rod from Czechoslovakia: Final Negative CVD Determination, 49
Fed. Reg. 19,370, 19,372–73 (May 7, 1984). The Court of Appeals
for the Federal Circuit (“CAFC”) upheld this policy as a reasonable
interpretation of CVD law. See Georgetown Steel Corp. v. United
States, 801 F.2d 1308, 1309 (Fed. Cir. 1986). However, in 2006,
Court No. 09-00422 Page 6
Commerce announced that it was reconsidering the PRC’s status as a
NME country. See AD Investigation of Certain Lined Paper Products
from the PRC - China’s status as a NME, A-570-901 (Aug. 30, 2006)
(“CLPP from the PRC”). Although it did not alter China’s NME
status, id. at 82, Commerce subsequently determined that it could
identify and measure the effects of subsidies in the PRC, see CVD
Investigation of Coated Free Sheet Paper from the PRC - Whether the
Analytical Elements of the Georgetown Steel Opinion are Applicable
to China’s Present-Day Economy at 10, C-570-907 (Mar. 29, 2007)
(“CFSP from the PRC”), and therefore began imposing CVDs on goods
from the PRC. See Coated Free Sheet Paper from the PRC: Final
Affirmative CVD Determination, 72 Fed. Reg. 60,645 (Oct. 25, 2007).
In 2011, the CAFC found that “in amending and reenacting the
trade laws in 1988 and 1994, Congress adopted the position that
[CVD] law does not apply to NME countries.” GPX Int’l Tire Corp.
v. United States, 666 F.3d 732, 745 (Fed. Cir. 2011) (“GPX II”).
Therefore, the CAFC concluded that “[CVDs] cannot be applied to
goods from NME countries.” Id.Before the CAFC’s mandate was issued in GPX II, Congress
enacted the new law. See 126 Stat. at 265–67. The new law has two
sections. Id. Section 1 of the new law directs Commerce to impose
CVDs on goods from NME countries except where Commerce is “unable
to identify and measure subsidies provided by the government of the
[NME] country or a public entity within the territory of the [NME]
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country because the economy of that country is essentially
comprised of a single entity.” § 1(a), 126 Stat. at 265. Section
1 applies to all proceedings initiated by Commerce on or after
November 20, 2006. § 1(b), 126 Stat. at 265. Section 2, which
applies only to proceedings initiated following the enactment of
the new law, directs Commerce to “reduce” the AD in all proceedings
involving the concurrent imposition of CVDs and ADs where it can
“reasonably estimate the extent to which the countervailable
subsidy . . . increased the weighted average dumping margin” for
subject merchandise. § 2, 126 Stat. at 266.
Following the passage of the new law, the CAFC requested
additional briefing concerning the impact of the new law on
Commerce’s petition for rehearing GPX II. See GPX Int’l Tire Corp.
v. United States, 678 F.3d 1308, 1311 (Fed. Cir. 2012) (“GPX III”).
In assessing the impact of new law, the CAFC concluded that by
enacting section 1 “Congress clearly sought to overrule” the
holding in GPX II. Id. at 1311. It also noted that section 2
changed CVD law prospectively, as the former law did not include
protection against potential double-counting of remedies. Id. at
1311–12. The CAFC remanded so that this Court could evaluate the
constitutional claims GPX raised for the first time in its
opposition to the petition for rehearing. See id. at 1312–13.
On remand, GPX argued that the new law was a retroactive
change to CVD law which “violate[d] the Ex Post Facto Clause of the
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Constitution, as well as due process and equal protection rights of
the Fifth Amendment.” See GPX Int’l Tire Corp. v. United States,
37 CIT __, __, Slip Op. 13-2 at 8 (Jan. 7, 2013) (“GPX IV”).4 This
Court did not rule on whether the new law retroactively changed CVD
law, id. at __, Slip Op. 13-2 at 14, but found that the new law was
nonetheless constitutional even assuming that it did make a
retroactive change. See id. at __, Slip Op. 13-2 at 14–31.
During the course of the GPX litigation, parties to the
instant case submitted supplemental briefs concerning the
constitutionality of the new law. Plaintiffs contend that section
1(b) of new law retroactively changes the CVD statute and violates
the Ex Post Facto Clause, as well as the Fifth Amendment guarantees
of due process and equal protection. See Pl. & Pl.-Intervenor’s
Supplemental Br. Supp. Mot. J. Agency R. at 1 (“Pls.’ Supplemental
Br.”). Plaintiffs ask the court to sever section 1(b) of the new
law “to preserve the broader legislation.” Id. at 38.
JURISDICTION and STANDARD OF REVIEW
The court has jurisdiction pursuant to 28 U.S.C. § 1581(c).
The court will uphold Commerce's final determination in a CVD
4
Although GPX IV was decided after the completion of
supplemental briefing in this case, Commerce submitted it as
supplemental authority. See Def.’s Notice of Supplemental
Authority, Dkt. No. 93 (Jan. 11, 2013). All parties referenced the
decision throughout the oral argument before the court. See
generally, Oral Argument, Guangdong Wireking Housewares & Hardware
Co. v. United States, Court No. 09-00422 (Ct. Int’l Trade Jan. 16,
2013) (“Oral Arg.”).
Court No. 09-00422 Page 9
investigation unless it is “unsupported by substantial evidence on
the record, or otherwise not in accordance with law.” 19 U.S.C. §
1516a(b)(1)(B)(i).
Constitutional challenges are subject to a de novo review.
NationsBank of Tex., N.A. v. United States, 269 F.3d 1332, 1335
(Fed. Cir. 2001). Due process claims concerning economic
legislation come before the court with a “presumption of
constitutionality,” and “the burden is on one complaining of a due
process violation to establish that the legislature has acted in an
arbitrary and irrational way.” Concrete Pipe & Prods. of Cal.,
Inc. v. Constr. Laborers Pension Trust for S. Cal., 508 U.S. 602,
637 (1993). With regard to equal protection challenges, where
neither a fundamental right nor suspect class is at issue the
legislation will be upheld “if there is a rational relationship
between the disparity of treatment and some legitimate governmental
purpose.” Heller v. Doe, 509 U.S. 312, 320 (1993).
DISCUSSION
Plaintiffs argue that the court should remand the Final
Determination because the new law is unconstitutional and because
several of Commerce’s findings are not based on substantial
evidence or are not otherwise in accord with the law.
I. Constitutional Issues
A. Retroactive Application of the New Law
As a preliminary matter, the parties dispute whether section
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1 of the new law retroactively changes CVD law, as it directs
Commerce to impose CVDs on goods from NME countries in all
proceedings initiated on or after November 20, 2006. See § 1, 126
Stat. at 265. Plaintiffs allege that section 1 retroactively
changes CVD law, which unambiguously prohibited the imposition of
CVDs on goods from NME countries prior to the enactment of the new
law. Pl. & Pl.-Intervenor’s Reply Br. Concerning Const. Issues at
2–5 (“Pls.’ Supplemental Reply”). Commerce argues that section 1
does not make a retroactive change to CVD law, but rather
“clarif[ies]” the law as it was before GPX II. Def.’s Resp. Pls.’
Supplemental Br. at 6–10 (“Def.’s Supplemental Br.”). Even if the
new law is a retroactive change as Plaintiffs contend, the court
need not decide this issue because, for the reasons articulated
below, Plaintiffs fail to demonstrate that section 1 is
unconstitutional.
B. Ex Post Facto Clause
The Ex Post Facto Clause states that “No Bill of Attainder or
ex post facto Law shall be passed.” U.S. Const. art. I, § 9, cl.
3. An ex post facto law is a law that “renders an act punishable
in a manner in which it was not punishable when it was committed,”
Fletcher v. Peck, 10 U.S. 87, 138 (1810), or “inflicts a greater
punishment, than the law annexed to the crime, when committed.”
Calder v. Bull, 3 U.S. 386, 390 (1798). While the Ex Post Facto
Clause does not prohibit all retroactive laws, it “flatly prohibits
Court No. 09-00422 Page 11
retroactive application of penal legislation.” Landgraf v. USI
Film Prods., 511 U.S. 244, 266 (1994). “Penal legislation” often
refers to criminal laws, but certain non-criminal retroactive laws
are penal in nature and are thus subject to the prohibition of ex
post facto laws. See, e.g., Burgess v. Salmon, 97 U.S. 381, 384
(1878); Cummings v. Missouri, 71 U.S. 277, 329 (1866).
To demonstrate that a civil law is penal in nature, the
challenger must show by the “clearest proof” that the law is “so
punitive either in purpose or effect as to negate the State’s
intention to deem it civil.” Smith v. Doe, 538 U.S. 84, 92 (2003)
(internal citations and brackets omitted). In determining whether
a law is penal in nature, courts consider a three-prong test:
A statute imposes a penalty only when: (1) the costs
imposed are unrelated to the amount of actual harm
suffered and are related more to the penalized party's
conduct, (2) the proceeds from infractions are collected
by the state, rather than paid to the individual harmed,
and (3) the statute is meant to address a harm to the
public, as opposed to remedying a harm to an individual.
Huaiyin Foreign Trade Corp. (30) v. United States, 322 F.3d 1369,
1380 (Fed. Cir. 2003) (citing Ingalls Shipbuilding, Inc. v. Dalton,
119 F.3d 972, 978 (Fed. Cir. 1997)). The party challenging the law
must demonstrate that the law satisfies all three prongs of the
Huaiyin test. Id. Plaintiffs fail to meet this burden.
It is well established that trade duties are remedial, not
punitive. See Chaparral Steel Co. v. United States, 901 F.2d 1097,
1103–04 (Fed. Cir. 1990); Peer Bearing Co. v. United States, 25 CIT
Court No. 09-00422 Page 12
1199, 1221, 182 F. Supp. 2d 1285, 1310 (2001); Badger-Powhatan v.
United States, 9 CIT 213, 216, 608 F. Supp. 653, 656 (1985). The
specific purpose of CVD law is to “offset” the harmful effects of
foreign subsidies. See S. Rep. No. 1221, 92d Cong., 2d Sess. 8
(1972) (cited in Chaparral, 901 F.2d at 1103–04). The remedial
purpose is reflected in the language of the CVD statute, which
directs Commerce to calculate a CVD “equal to the amount of the net
countervailable subsidy.” 19 U.S.C. § 1671(a). In fact, this
Court found that the CVDs imposed under section 1 were not
penalties because “they remain mathematically linked to the
measured harm.” GPX IV, 37 CIT at __, Slip Op. 13-2 at 17.
However, Plaintiffs insist that the focus on the mathematical
relationship between the subsidy and the CVD in GPX IV is
misplaced. Plaintiffs contend that the court’s focus should be on
the nature of the new law itself, specifically whether it imposes
duties that exceed those Commerce imposed under the previous legal
regime. See Oral Arg. at 18:01. According to Plaintiffs, the CVDs
imposed under section 1 are disproportionate to the harm caused by
the unfair pricing of goods imported from NME countries because
they are imposed on top of the special NME AD, which was the
“complete and exclusive remedy” for such unfair pricing under the
old legal regime. Id. at 18:22. Plaintiffs insist that the new
law is analogous to the retroactive tax increase struck down in
Salmon, 97 U.S. at 384, which also retroactively imposed a greater
Court No. 09-00422 Page 13
liability than the affected party was subject to at the time the
cost was assessed. See Oral Arg. at 21:00.
Plaintiffs’ argument is unpersuasive because it misinterprets
the first prong of the Huaiyin test. Plaintiffs essentially argue
that any retroactive increase in the costs assessed will be
disproportionate to the harm. That is simply not the case. The
test requires the party challenging the statute to demonstrate “the
absence of an association between the costs imposed and the actual
harm done.” Ingalls, 119 F.3d at 978 (citing Huntington v. Atrill,
146 U.S. 657, 676 (1892)). Here, the imposition of CVDs under the
new law is associated with the harm caused by subsidies. ADs and
CVDs are separate remedies that counteract different
anticompetitive behaviors. See 19 U.S.C. §§ 1671, 1673. The
imposition of one type of duty does not obviate the need for the
other, nor does it address the harm caused by the conduct the other
duty is designed to remedy. Accordingly, CVDs are the proper
remedy to address the harms caused by foreign subsidies. Id. at
1671(a).5
5
Plaintiffs also claim that the new law has “tainted” past
ITC determinations because artificially high AD margins make a
finding of injury to the domestic industry more likely. Pls.’
Supplemental Br. at 18 (citing 19 U.S.C. § 1677(7)(C)(iii)(V)).
Dumping margin, however, is but one of a number of factors the ITC
considers when making an injury determination. See 19 U.S.C. §
1677(7)(C). Moreover, a dumping margin does not in and of itself
demonstrate injury to a domestic industry, but rather identifies
differences in price between a respondent’s home market and the
U.S. market. See 19 U.S.C. § 1677(35)(A).
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Similarly, Plaintiffs fail to demonstrate that section 1
addresses a public rather than a private harm. Plaintiffs contend
that the imposition of duplicative duties evidences Congress’s
intent to address public harms such as “the need to punish China .
. . and address ‘illegal’ subsidies.” Pls.’ Supplemental Br. at
20. However, Plaintiffs’ argument overlooks the fact that CVDs are
imposed only where a domestic industry has been “materially
injured” or “threatened with material injury” by foreign subsidies.
19 U.S.C. § 1671(a); see GPX IV, 37 CIT at __, Slip Op. 13-2 at 17
(noting that CVD are “collected to primarily counter the individual
harm to particular domestic industries in an attempt to provide
relief from the imports which are causing or threatening material
injury”). Moreover, in their assessment of legislative intent,
Plaintiffs overlook evidence indicating Congress’s substantial
interest in “leveling the playing field” for domestic industries.
See generally, 158 Cong. Rec. H1166, H1166–73 (Mar. 6, 2012). As
section 1 primarily addresses a private harm to individual domestic
industries, the fact that it also addresses certain public harms
does not render it penal in nature. Because they fail to
demonstrate that the new law is “penal legislation,” Plaintiffs
cannot show that the new law violates the Ex Post Facto Clause.
C. Due Process
Plaintiffs also argue that the new law violates the due
process guarantees of the Fifth Amendment by retroactively impeding
Court No. 09-00422 Page 15
importers’ vested interests in the “finality and repose” of their
transactions. See Pls.’ Supplemental Br. at 28–33. Specifically,
Plaintiffs argue that section 1 levies a “harsh and oppressive”
retroactive tax which violates the prohibition against wholly new
retroactive taxes, exceeds recognized limits on the retroactive
application of tax legislation, and imposes excess duties upon
importers that they reasonably believed they would not be liable
for at the time they entered their goods. See id. at 30—33.
Alternatively, Plaintiffs argue that even if it is considered
general economic legislation, the new law still violates due
process because section 1 does not achieve a legitimate government
purpose. See id. at 33–35. In response, Commerce argues that the
new law does not violate due process because it was enacted in
order to correct an erroneous judicial decision and protect
domestic industries. See Def.’s Supplemental Br. at 21–25.
According to Commerce, the new law is general economic legislation
rather than tax legislation, but is nonetheless constitutional as
tax legislation because subjected importers like GWK had notice of
and therefore could reasonably expect potential CVD liability. See
id. at 26—30.
General economic legislation faces “a presumption of
constitutionality” and is analyzed under a rational basis review.
Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729
(1984). “[T]he strong deference accorded legislation in the field
Court No. 09-00422 Page 16
of national economic policy is no less applicable when that
legislation is applied retroactively.” Id. Thus, retroactive
economic legislation will be upheld if the retroactive application
“is itself justified by a rational legislative purpose.” Id. at
730. With regard to retroactive tax legislation, courts have
considered “whether ‘retroactive application is so harsh and
oppressive as to transgress the constitutional limitation.’”
United States v. Carlton, 512 U.S. 26, 30 (1994) (quoting Welch v.
Henry, 305 U.S. 134, 147 (1938)). The “harsh and oppressive”
standard, however, “‘does not differ from the prohibition against
arbitrary and irrational legislation’ that applies generally to
enactments in the sphere of economic policy.” Id. (quoting R.A.
Gray, 467 U.S. at 733). Thus, whether the new law is considered
tax legislation or general economic legislation, Plaintiffs must
demonstrate that Congress acted in an irrational and arbitrary
manner. See id. In determining whether a retroactive law passes
a rational basis review, courts may consider “the reliance
interests of the parties affected, whether the impairment of the
private interest is effected in an area previously subjected to
regulatory control, the equities of imposing the legislative
burdens, and the inclusion of statutory provisions designed to
limit and moderate the impact of the burdens.” Nachman Corp. v.
Pension Benefit Guar. Corp., 592 F.2d 947, 960 (7th Cir. 1979),
aff’d 446 U.S. 359 (1980) (internal citations omitted).
Court No. 09-00422 Page 17
On the reliance factor, Plaintiffs cite Justice O’Connor’s
concurring opinion in Carlton, which states that “[t]he
governmental interest in revising the tax laws must at some point
give way to the taxpayer's interest in finality and repose.” 512
U.S. at 37–38 (O’Connor, J., concurring). According to Plaintiffs,
importers like GWK reasonably relied on the unambiguous prohibition
against the imposition of CVDs on goods from NME countries when
they entered their goods. Pls.’ Supplemental Br. at 32. Now,
years later, section 1 retroactively imposes previously illegal
CVDs, upsetting their interest in a rate without such CVDs. Id.Essentially, Plaintiffs argue that GWK’s reliance interests were
upset because GWK and other similarly situated importers would not
have entered goods had they knowledge of the retroactive tax. Id.However, Plaintiffs fail to identify a vested interest. See
Carlton, 512 U.S. at 33 (holding that a party’s detrimental
reliance on a statute prior to retroactive change is insufficient
to demonstrate a due process violation where there is no vested
interest). GWK and similarly situated importers could not rely on
a specific CVD-free duty assessment at the time of entry. See
Norwegian Nitrogen Prods. Co. v. United States, 288 U.S. 294, 318
(1933) (“No one has a legal right to the maintenance of an existing
rate or duty.”). Moreover, importers who entered goods from NME
countries during the retroactive period of section 1 were on notice
of the PRC’s shifting status and their own potential CVD liability
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as early as 2006. See CLPP from the PRC at 1–4; CFSP from the PRC
at 10. Additionally, Plaintiffs cannot have relied on the holding
in GPX II to demonstrate their interest in a duty rate exclusive of
CVDs because the CAFC never issued a mandate. See GPX III, 678
F.3d at 1312. As importers subject to section 1 did not have a
vested right in duty assessments that excluded CVDs, Plaintiffs
cannot show that section 1 interfered with such a right.
With regard to the second Nachman factor, Plaintiffs insist
that the new law “retroactively introduces a wholly new tax” that
violates the prohibition against such taxes recognized by the
Supreme Court in Carlton. See Pls.’ Supplemental Br. at 30–31.
However, Plaintiffs’ reliance on Carlton is misplaced. Section 1
is not a “wholly new” tax, it amends the operation of CVD law,
applying it to goods imported from NME countries. See § 1, 126
Stat. at 265; see also GPX IV, 37 CIT at __, Slip Op. 13-2 at 26
(“Section 1 of the [new law] merely extends or expressly recognizes
the ability of Commerce to impose CVDs in the NME context.”). In
Carlton, the Supreme Court specifically excluded such legislative
acts from the prohibition of wholly new retroactive taxes, stating
that the prohibition “‘is of limited value in assessing the
constitutionality of subsequent amendments that bring about certain
changes in operation of the tax laws.’” Carlton, 512 U.S. at 34
(citing United States v. Hemme, 476 U.S. 558, 568 (1986)).
Plaintiffs also insist that the new law “retroactively,
Court No. 09-00422 Page 19
without notice, grant[s] [Commerce] authority where none previously
existed to impose [CVDs].” Pls.’ Supplemental Br. at 25. However,
as noted above, Commerce announced in 2006 that it was
reconsidering the PRC’s NME status, see CLPP from the PRC at 1–4,
and shortly thereafter determined it could identify subsidies in
the PRC. See CFSP from the PRC at 10. Whether Commerce’s policy
shift was consistent with CVD law at the time does not bear on the
issue of whether GWK had notice of potential CVD liability.
Therefore, GWK was aware of the regulatory control Commerce
intended to exert over goods from NME countries before the
enactment of the new law.
With regard to the balance of burdens, the court finds that
the need to protect the domestic industry and to correct an
unexpected judicial decision form a rational basis for the
retroactive application of section 1. The Supreme Court has
recognized that correcting an erroneous or unexpected
interpretation of a statute is a legitimate purpose for enacting
retroactive legislation. See Carlton, 512 U.S. at 32 (closing an
unexpected loophole in an estate tax statute was a “legitimate
legislative purpose” for a retroactive amendment to that statute);
Gen. Motors Corp. v. Romein, 503 U.S. 181, 191 (1992) (upholding
retroactive legislation that corrected the unexpected results of a
judicial opinion). Congress’s curative intent is demonstrated by
the language of section 1, which essentially overturns GPX II. See
Court No. 09-00422 Page 20
§ 1, 126 Stat. at 265; see also GPX III, 678 F.3d at 1311(“Congress clearly sought to overrule our decision in [GPX II].”).
The legislative history of the new law also evidences Congress’s
intent to overturn GPX II. See generally 158 Cong. Rec. at
H1166–73.6
The retroactive period of section 1, although lengthy, is a
rational means of achieving Congress’s objectives. The Supreme
Court upheld a retroactive period that stretched back multiple
years where it was necessary to correct the unexpected results of
a judicial decision. See Romein, 503 U.S. at 191. Here, a shorter
retroactive period would have resulted in the possible termination
of approximately twenty four CVD orders and investigations, harming
domestic industries. See 158 Cong. Rec. at H1173. Furthermore, as
this Court recognized in GPX IV, it was reasonable for Congress to
“defer[] to Commerce’s expertise in determining when Commerce first
might have been able to identify and measure subsidies in the PRC.”
37 CIT at __, Slip Op. 13-2 at 26. Accordingly, the court finds
that the new law does not violate the due process guarantees of the
Fifth Amendment.7
6
Representative Camp stated that the new law “overturns an
erroneous decision by the [CAFC].” 158 Cong. Rec. at H1167.
Representative Rohrabacher stated that the new law “overturns a
faulty court decision.” Id. at H1168. Representative Critz stated
that “[w]e must take action today and pass [the new law] to
overturn a flawed court ruling.” Id. at H1170.
7
Plaintiffs also insist that the new law unduly burdens past
importers without providing any protection to the domestic
industry. See Pls.’ Supplemental Br. at 33–35. According to
Court No. 09-00422 Page 21
C. Equal Protection
Finally, Plaintiffs argue that the new law violates the right
to equal protection under the Fifth Amendment by creating an
arbitrary distinction between importers subject to section 1 of the
new law and importers subject to section 2. Pls.’ Supplemental Br.
at 35–37. The classification at issue arises from the different
effective dates of the new law’s two sections. Section 1 directs
Commerce to impose CVDs on goods from NME countries in all
proceedings initiated on or after November 20, 2006, with no
protection from potential double counting of remedies. § 1, 126
Stat. at 265. Section 2, on the other hand, provides protection
against double counting of remedies resulting from the concurrent
imposition of ADs and CVDs, but only for those importers whose
goods are subject to proceedings initiated after the enactment of
the new law. § 2, 126 Stat. 265–66. Plaintiffs do not argue that
the classification at issue involves a suspect class. Pls.’
Plaintiffs, the domestic industry is adequately protected from the
effects of subsidies by the deposits on CVD orders importers paid
in 2007. Id. at 34. As the new law does not provide any
additional protection and merely imposes duplicative duties on past
importers, Plaintiffs insist that it is not supported by a rational
basis. Id. at 34–35. Plaintiffs add that the refund of those
deposits would not harm the domestic industry because the importers
receiving refunds would still be subject to “substantial” ADs. Id.
at 35. However, this argument is inconsistent with trade law.
First, ADs and CVDs are separate remedies that address different
anticompetitive behaviors. See 19 U.S.C. §§ 1671, 1673. Second,
Plaintiffs do not cite any authority for the proposition that a
domestic industry is adequately protected by the payment of cash
deposits which will be refunded in the future.
Court No. 09-00422 Page 22
Supplemental Br. at 36.
“‘[A] classification neither involving fundamental rights nor
proceeding along suspect lines . . . cannot run afoul of the Equal
Protection Clause if there is a rational relationship between the
disparity of treatment and some legitimate governmental purpose.’”
Armour v. City of Indianapolis, 132 S. Ct. 2073, 2080 (2012)
(quoting Heller, 509 U.S. at 319–320). A court will uphold such a
classification “if there is any reasonably conceivable state of
facts that could provide a rational basis for the classification.”
FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 313 (1993).
Plaintiffs insist that the new law violates equal protection
because importers whose goods are subject to section 1 receive
“much more harsh treatment” than those whose goods are subject to
section 2. Pls.’ Supplemental Reply at 12. According to
Plaintiffs, section 2 provides a legislative fix against double
counting and is thus consistent with Congress’s intent to create a
“level playing field” for the domestic industry. See Pls.’
Supplemental Br. at 37. Because section 1 does not provide the
same protection against potentially overlapping remedies,
Plaintiffs contend that it “patently slanted the playing field
against exporters and importers subject to CVD orders and
investigations prior to passage of the [new law].” Id.Commerce argues that administrative efficiency and finality
justify the retroactive application of section 1. Def.’s
Court No. 09-00422 Page 23
Supplemental Br. at 32–33. Specifically, Commerce contends that
the retroactive application of section 1 prevented Commerce from
having to reopen “numerous [CVD] investigations and reviews that
were initiated before the implementation of section 2.” Id. at 32.
Additionally, Commerce argues that the retroactive application of
section 2 would entail “tremendously complex undertakings that
almost certainly require factual information and analytical tools
not present on most earlier administrative records.” Id. Commerce
also notes that Congress did not need to apply section 2
retroactively because it was enacted in order to “implement an
adverse WTO decision.” Id. at 33. Because statutes enacted to
give effect to WTO decisions are implemented prospectively,
Commerce concludes that it was reasonable for Congress to decline
to apply section 2 to past CVD investigations unnecessarily. Id.
The court finds that Commerce proffers a legitimate rationale
for Congress’s decision to apply section 1 retroactively. The
Supreme Court has recognized that administrative efficiency and
finality are legitimate legislative interests. See Armour, 132 S.
Ct. at 2081. In Armour, the Supreme Court upheld a law that
provided prospective relief to city residents who owed future
installment payments while denying refunds to those residents who
paid in full because such refunds would require the expenditure of
considerable administrative resources. Id. The instant case
involves similar legislative interests, as the retroactive
application of section 2 would require Commerce to recalculate AD
Court No. 09-00422 Page 24
margins for numerous completed CVD investigations and orders.8
Moreover, the decision to apply section 2 prospectively only is
consistent with Congress’s obligations when implementing adverse
WTO decisions. See 19 U.S.C. § 3538. Accordingly, the court finds
that the new law is supported by a rational basis and therefore
does not violate equal protection rights under the Fifth Amendment.
E. Severability
Because the court finds that section 1 law is constitutional,
it need not reach a decision on the issue of severability.
II. CVD Determination
As the new law is constitutional, the court must now address
the claims Plaintiffs raise in their original brief challenging
certain aspects of the Final Determination, specifically: (1)
whether Commerce erred in treating GWK’s suppliers of wire rod that
were majority-owned by the GOC as “authorities” under 19 U.S.C. §
1677(5)(B); (2) whether Commerce erred in treating GWK’s suppliers
of wire rod that were minority-owned by the GOC as “authorities”
under 19 U.S.C. § 1677(5)(B); (3) whether Commerce erroneously
countervailed wire rod provided to GWK by privately-owned trading
companies; and (4) whether Commerce erroneously discarded in-
8
Plaintiffs insist that the burden of recalculating ADs is
insubstantial compared to the administrative burden the city of
Indianapolis faced in Armour. See Pls.’ Supplemental Reply at 13.
However, the relative burden is irrelevant. As this Court
recognized in GPX IV, “at least some significant effort would be
required to apply [Section 2] methodology to this case and other
completed investigations.” 37 CIT at __, Slip Op. 13-2 at 31.
Court No. 09-00422 Page 25
country benchmarks for the price of wire rod. See Pls.’ Br. at 5.9
A. “Authority” Status of GWK’s Wire Rod Suppliers
A subsidy occurs when “an authority provides a financial
contribution . . . to a person and a benefit is thereby conferred.”
19 U.S.C. § 1677(5)(B). The statute defines “authority” as “a
government of a country or any public entity within the territory
of the country.” Id. Commerce treats entities that are owned by
a government as “authorities.” Countervailing Duties; Final Rule,
63 Fed. Reg. 65,348, 65,402 (Nov. 25, 1998) (“CVD Final Rule”).
However, “where it [is] unclear whether a firm [is] an authority
based on ownership information alone,” Commerce consults five
relevant factors: “(1) government ownership; (2) the government's
presence on the entity's board of directors; (3) the government's
control over the entity's activities; (4) the entity's pursuit of
governmental policies or interests; and (5) whether the entity is
created by statute.” I&D Memo at 43.
1. Wire Rod Suppliers Majority-Owned by the GOC
Commerce determined that the GOC held “a majority ownership
position in certain of the wire rod producers that supply [GWK],”
and thus “treat[ed] these producers as ‘authorities’” during the
investigation. Id. at 44; see P.R. 193 at 2–3. Accordingly,
9
However, the court will not address arguments Plaintiffs
raise in their original brief concerning Commerce’s interpretation
of CVD law prior to the enactment of the new law because they are
moot in light of the court’s decision upholding the
constitutionality of the new law.
Court No. 09-00422 Page 26
Commerce countervailed purchases of wire rod by GWK from these
entities at LTAR. I&D Memo at 44.
Plaintiffs argue that this determination was erroneous because
Commerce “simply equated government ‘control’ in the form of an
ownership interest with the existence of a government authority,”
Pls.’ Br. at 38, and therefore ignored record evidence of legal
reforms in China which indicated that entities owned by the GOC do
not exercise government authority. Id. at 40–43. Plaintiffs
insist that this conclusion ignored the actual issue: “whether an
entity exercises elements of government authority.” Id. at 39.
According to Plaintiffs, the five-factor test is the proper means
of addressing this question. Id. In essence, Plaintiffs challenge
Commerce’s interpretation of 19 U.S.C. § 1677(5)(B), alleging that
Commerce unreasonably construed “public entities” to include any
entity that is majority-owned by a government.
“Public entity” is not defined in statutes or regulations.
Where a statute is silent or ambiguous concerning the meaning of a
term, the court must determine whether Commerce’s interpretation is
“based on a permissible construction of the statute.” Chevron v.
NRDC, 467 U.S. 837, 843 (1984). A reviewing court “is obliged to
accept [Commerce’s] position if Congress has not previously spoken
to the point at issue and the agency's interpretation is
reasonable.” United States v. Mead Corp., 533 U.S. 218, 229 (2001)
(citing Chevron, 467 U.S. at 842–45). The issue here is whether it
was reasonable for Commerce to treat GWK’s wire rod suppliers as
Court No. 09-00422 Page 27
“authorities” within the meaning of 19 U.S.C. § 1677(5)(B) based
solely on the GOC’s majority-ownership interest in those suppliers.
Commerce explained that majority-ownership of an entity by the
government creates a rebuttable presumption of government control
over that entity. See I&D Memo at 43. It does not consult the
five-factor test in this scenario because “a careful examination of
the five factors reveals that when a government is the majority
owner of a firm, factors one through four are largely redundant.”
Id. The redundancy occurs because “the government would normally
appoint a majority of the members of the firm’s board of directors
who, in turn, would select the firm’s managers, giving the
government control over the entity’s activities.” Id. Commerce
notes that a respondent may overcome this presumption if it can
“demonstrate that majority ownership does not result in control of
the firm.” Id.The court finds that Commerce’s interpretation of “public
entity” is reasonable. Because the purpose of CVD law is to offset
the harm to domestic industries caused by foreign subsidies, see S.
Rep. No. 1221, 92d Cong., 2d Sess. 8 (cited in Chaparral, 901 F.2d
at 1103–04), it is reasonable for Commerce to attempt to detect and
counteract all forms of foreign subsidies. Commerce’s
interpretation of “public entities” reflects the realities of
corporate ownership and control and enables it to detect certain
forms of subsidization which are not provided directly by the
government but instead pass through private or quasi-private
Court No. 09-00422 Page 28
channels. Furthermore, Commerce provides interested parties the
opportunity to present evidence that the entity in question is not
government controlled. See I&D Memo at 43. Accordingly, the court
upholds Commerce’s interpretation of “public entity.” See Mead
Corp., 533 U.S. at 229.
Ultimately, the standard for which Plaintiffs advocate is
improper. Plaintiffs do not cite any instances in which Commerce
evaluated “authority” status by determining whether the entity in
question exercised elements of governmental authority. Plaintiffs
ignore Commerce’s “longstanding practice of treating most
government-owned corporations as the government itself.” CVD Final
Rule, 63 Fed. Reg. at 65,402.10 Although Plaintiffs correctly point
out that Commerce previously declined to treat entities majority-
owned by a government as authorities, see Issues and Decision
Memorandum for the Final Determination in the CVD Investigation of
Dynamic Random Access Memory Semiconductors from the Republic of
Korea at 17, C-580-851 (June 16, 2003) (“DRAMS Memo”), Plaintiffs
overlook the fact that the DRAMS Memo involved a factually distinct
scenario concerning the temporary government takeover of private
10
Commerce has employed this practice in numerous CVD
investigations and determinations. See Issues and Decision
Memorandum for Final Determination in the CVD Investigation on
Certain Welded Austenitic Stainless Pressure Pipe from the PRC at
16–17, C-570-931 (Jan. 21, 2009); Issues and Decision Memorandum
for the Final Affirmative CVD Determination: Certain New Pneumatic
Off-the-Road Tires from the PRC at 77, C-570-913 (July 7, 2008);
Issues and Decision Memorandum for the Final Determination in the
CVD Investigation of Circular Welded Carbon Quality Steel Pipe from
the PRC at 62–63, C-570-911 (May 29, 2008).
Court No. 09-00422 Page 29
banks due to a financial crisis. See Preliminary Affirmative CVD
Determination: Dynamic Random Access Memory Semiconductors From the
Republic of Korea, 68 Fed. Reg. 16,766, 16,772 (Apr. 7, 2003).
Plaintiffs simply fail to provide sufficient authority to support
their preferred standard for evaluating government control.
Turning to Commerce’s decision, the court must determine
whether Commerce reasonably concluded that wire rod producers
majority-owned by the GOC were “authorities.” Plaintiffs argue
that Commerce’s decision was erroneous because it ignored reforms
in the PRC over the past twenty-five years that “effectively
severed any public function from the commercial operations of SOEs
such that SOEs do not exercise elements of governmental authority.”
Pls.’ Br. at 40. Plaintiffs cite several reforms directly,
including the 1988 State-Owned Enterprises Law, the 1993 Company
Law, and the establishment of the State-Owned Assets Supervision
and Administration Committee (“SASAC”) in 2003. Id. at 40–42
(citing P.R. 129 at 3–4 & Ex. 8). Because reforms in China
demonstrate that GOC ownership of an entity does not result in that
entity undertaking public functions, Plaintiffs insist that
Commerce’s determination was contrary to record evidence.11
Plaintiffs’ argument must fail. First, as noted above,
11
Plaintiffs also assert that Commerce’s determination was
erroneous because steel pricing in the PRC is set by the market not
by the GOC. See Pls.’ Br. at 42–43. However, the relative
commerciality of an act by a government or public entity is not
relevant to the “authority” issue. See Hynix Semiconductor Inc. v.
United States, 30 CIT 288, 309, 425 F. Supp. 2d 1287, 1306 (2006).
Court No. 09-00422 Page 30
Plaintiffs’ argument addresses the wrong standard for government
control. The issue is whether Plaintiffs provided sufficient
evidence to demonstrate that government ownership does not result
in government control. I&D Memo at 43. Plaintiffs evidence,
however, indicates that under Chinese law, SOEs are directed not to
perform public functions. See Pls.’ Br. at 40–42. Second,
Plaintiffs’ argument fails to address any of Commerce’s specific
findings concerning the GOC-owned entities at issue. Plaintiffs
provide general information regarding the operation of SOEs in the
Chinese economy, but do not offer evidence that negates any of
Commerce’s specific findings. Finally, Plaintiffs appear to
overstate the level of separation between government ownership and
government control under Chinese law. As Plaintiffs themselves
admit, the “SASAC is accorded the same rights of any shareholder in
the enterprises in which it invests.” Pls.’ Br. at 41. Therefore,
as a majority shareholder in an entity, SASAC would enjoy the
rights belonging to any majority shareholder, including the right
to appoint directors. Accordingly, Commerce’s determination was
supported by substantial evidence.
2. Wire Rod Suppliers Minority-Owned by the GOC
Commerce also determined that certain of GWK’s wire rod
suppliers were “authorities” even though they were minority-owned
by the GOC and therefore countervailed wire rod purchases by GWK
from these suppliers at LTAR. I&D Memo at 44. Because Commerce
could not determine whether these suppliers were “authorities” on
Court No. 09-00422 Page 31
the basis of ownership information alone, Commerce consulted the
five-factor test to determine the extent of government control.
See P.R. 193 at 3–10. Plaintiffs argue that Commerce did not
consider “whether the entities in question were exercising elements
of government authority,” and failed to address evidence concerning
substantial reforms in the PRC and the “lack of any price controls”
in the PRC’s wire rod market. See Pls.’ Br. at 50.
Here, Commerce’s determination is supported by substantial
evidence. Commerce properly performed the five-factor test in
accord with its prior practice. See I&D Memo at 43. Plaintiffs
rehash the same flawed arguments they raised concerning wire rod
suppliers that are majority-owned by the GOC. As noted above,
Plaintiffs advocate for the wrong standard of reviewing “authority”
status. Moreover, Plaintiffs’ evidence concerning the reforms in
the PRC and the relative commerciality of wire rod prices does not
contradict Commerce’s findings concerning the state-ownership of
individual wire rod suppliers. Plaintiffs fail to demonstrate that
Commerce’s determination was unsupported by substantial evidence.
Therefore, Commerce’s decision to treat wire rod suppliers
minority-owned by the GOC as “authorities” was proper.
C. Wire Rod Purchased from Privately-Owned Trading Companies
Commerce also countervailed wire rod purchases GWK made from
certain privately-owned trading companies. I&D Memo at 45.
Although it did not find that the GOC provided GWK with a financial
contribution directly, Commerce nonetheless found that GWK received
Court No. 09-00422 Page 32
a subsidy because the trading companies received a financial
contribution when they purchased wire rod from the GOC at LTAR,
which enabled GWK to obtain wire rod from those trading companies
at LTAR. Id. Plaintiffs argue that Commerce’s decision is
contrary to law because GWK never received a financial
contribution. Pls.’ Br. at 44. Alternatively, if the court finds
that GWK received a financial contribution, Plaintiffs insist that
Commerce’s decision is still erroneous because Commerce neither
conducted an upstream subsidy investigation nor demonstrated that
the privately-owned trading companies were “authorities.” See id.at 44–45.
A countervailable subsidy exists where an (1) “authority
provides a financial contribution . . . to a person” and (2) “a
benefit is thereby conferred.” 19 U.S.C. § 1677(5)(B). Plaintiffs
insist that the financial contribution requirement was not
satisfied. Pls.’ Br. at 44. A “financial contribution” is defined
as:
(i) the direct transfer of funds, such as grants,
loans, and equity infusions, or the potential direct
transfer of funds or liabilities, such as loan
guarantees,
(ii) foregoing or not collecting revenue that is
otherwise due, such as granting tax credits or deductions
from taxable income,
(iii) providing goods or services, other than
general infrastructure, or
(iv) purchasing goods.
19 U.S.C. § 1677(5)(D). The GOC provided the private trading
companies a financial contribution through the provision of wire
Court No. 09-00422 Page 33
rod. See I&D Memo at 45; 19 U.S.C. § 1677(5)(D)(iii). The issue
is whether that financial contribution is sufficient to satisfy the
requirements of 19 U.S.C. § 1677(5)(B) with regards to GWK.
Plaintiffs argue that 19 U.S.C. § 1677(5)(B) requires Commerce
to “find a financial contribution and a benefit to the respondent
end user” in order to determine the existence of a countervailable
subsidy. Pls.’ Br. at 44 (emphasis in original). Plaintiffs rely
on a passage from Delverde, SrL v. United States, in which the CAFC
states that “[i]n order to conclude that a ‘person’ received a
subsidy, Commerce must determine that a government provided that
person with both a ‘financial contribution’ . . . and a ‘benefit.’”
202 F.3d 1360, 1365 (2000); see Pls.’ Br. at 44. Because Commerce
did not find that the GOC provided GWK with a financial
contribution directly, Plaintiffs insist Commerce’s determination
was erroneous. See Pls.’ Br. at 44.
However, a close look at the CAFC’s opinion in Delverde
reveals that Plaintiffs’ argument is flawed. In Delverde, the
respondent challenged Commerce’s decision to impose CVDs on
corporate assets it purchased after the provision of the subsidy to
the prior owner, arguing that it never received a financial
contribution.12 See 202 F.3d at 1362–63. The CAFC held that in the
case of a sale of corporate assets the meaning of “subsidy” under
12
Although Delverde concerned the imposition of CVDs on
corporate assets rather than merchandise, see 202 F.3d at 1362, the
CAFC’s analysis of 19 U.S.C. § 1677(5) is instructive.
Court No. 09-00422 Page 34
19 U.S.C. § 1677(5) did not change. See id. at 1366. According to
the CAFC, Commerce still must determine whether “a government
provided both a financial contribution and a benefit to a person,
either directly or indirectly, by one of the acts enumerated,
before charging it with receipt of a subsidy.” Id. Thus, the
respondent end user need not directly receive the financial
contribution as Plaintiffs insist.
Applying the CAFC’s interpretation of 19 U.S.C. § 1677(5) to
the instant case, the court finds that Commerce’s determination was
in accord with the law. The GOC provided a financial contribution
to private trading companies. See 19 U.S.C. § 1677(5)(D)(iii). A
benefit was conferred upon GWK through the provision of wire rod
from said trading companies at LTAR. See 19 U.S.C. §
1677(5)(E)(iv) (A benefit is conferred “in the case where goods or
services are provided, if such goods or services are provided for
[LTAR].”). Essentially, Commerce found that GWK received the
benefits of an indirect financial contribution, enabling it to
purchase wire rod below the benchmark price. As the requirements
of 19 U.S.C. § 1677(5) were satisfied, Commerce was not required to
undergo an upstream subsidies analysis or determine that the
trading companies in question were “authorities.” Accordingly,
Commerce’s decision to countervail wire rod purchases from private
trading companies was in accord with the law.
D. Benchmark Price for Wire Rod
When determining a benchmark price for wire rod against which
Court No. 09-00422 Page 35
to measure the adequacy of GWK’s remuneration, Commerce selected a
“world average price” instead of using the domestic market price in
the PRC. I&D Memo at 52. Commerce bypassed market prices for wire
rod in the PRC because it found that the prices were distorted as
a result of the GOC’s significant presence in the market. Id. at
51–52. Specifically, Commerce found that (1) “the GOC has direct
ownership or control of at least 47.97[%] of wire rod production”
in the PRC;13 (2) wire rod imports comprised only 1.53% of the PRC’s
wire rod market; and (3) the GOC implemented export controls on
wire rod including a “10[%] export tariff” and an “export licensing
requirement.” Id. at 15. Plaintiffs claim that Commerce’s
determination is inconsistent with mainstream economic theory and
is unsupported by substantial evidence. See Pls.’ Br. at 45–49.14
Commerce prefers to measure adequacy of remuneration “by
comparing the government price to a market-determined price for the
good or service resulting from actual transactions in the country
in question.” 19 C.F.R. § 351.511(a)(2)(i). However, “[i]f there
is no useable market-determined price with which to make the
13
Commerce noted that the GOC’s market share may exceed 47.97%
because “some companies that were classified as [Foreign Investment
Enterprises (“FIEs”)] by the GOC could be majority owned or
controlled by the [GOC].” I&D Memo at 51. According to Commerce,
information provided by the GOC indicates that the GOC treats any
firms with at least 25% foreign invested ownership as FIEs. Id.14
Plaintiffs cite three works which they claim undermine
Commerce’s decision: Dennis W. Carlton & Jeffrey M. Perloff, Modern
Industrial Organization (2d ed. 2004); Clement G. Krouse, Theory of
Industrial Economics (1990); and Stephen Martin, Industrial
Economics: Economic Analysis and Public Policy (2d ed. 1988).
Court No. 09-00422 Page 36
comparison,” Commerce measures adequacy of remuneration “by
comparing the government price to a world market price where it is
reasonable to conclude that such price would be available to
purchasers in the country in question.” Id. at §
351.511(a)(2)(ii). When determining whether the domestic market
price is “useable,” Commerce undertakes the following analysis:
While we recognize that government involvement in a
market may have some impact on the price of the good or
service in that market, such distortion will normally be
minimal unless the government provider constitutes a
majority or, in certain circumstances, a substantial
portion of the market. Where it is reasonable to
conclude that actual transaction prices are significantly
distorted as a result of the government's involvement in
the market, we will resort to the next alternative in the
hierarchy.
CVD Final Rule, 63 Fed. Reg. at 65,377. Thus, the issue is whether
Commerce reasonably determined that wire rod prices were distorted
as a result of the GOC’s substantial involvement in the market.
According to Plaintiffs, “[e]conomic theory says that when
there are a large number of non-affiliated firms there is little to
no scope for strategic interaction among the firms.” Pls.’ Br. at
47. Given the large number of non-affiliated firms in the PRC’s
wire rod market, Plaintiffs contend that “[t]he competitive nature
of the non-affiliated firms means their pricing decisions are
driven by their costs and not by the strategic influence of the
GOC’s alleged control of other firms.” Id. Plaintiffs add that in
a market with a large number of sellers, “‘sellers are likely to
have at least slightly divergent notions about the most
Court No. 09-00422 Page 37
advantageous price,’” and it is likely that “‘at least one will be
a maverick, pursuing an independent and aggressive pricing
policy.’” Id. at 48 (quoting Frederic M. Scherer & David Ross,
Industrial Market Structure and Economic Performance at 277
(Houghton Mifflin Co. 3d ed. 1990)). Accordingly, Plaintiffs
insist that wire rod prices in the PRC “reflect competitive market
principles, not allegedly GOC-controlled SOE prices.” Id. at 47.
Here, Plaintiffs fail to show that Commerce’s determination
was unreasonable or unsupported by substantial evidence. Commerce
reasonably concluded, based on information provided by the GOC,
that the GOC had an interest in a substantial, near-majority share
of the wire rod market. See I&D Memo at 15. Plaintiffs reliance
on abstract economic theory fails to undermine this evidence. At
best, Plaintiffs’ evidence indicates a theoretical level of
competition between wire rod suppliers in the PRC. Pls.’ Br. at
47–48. However, Commerce reasonably determined that the level of
competition amongst these entities was not relevant, concluding
that the GOC’s substantial market share made it a “price leader,
with which private firms are forced to compete.” I&D Memo at 52.
Plaintiffs also argue that Commerce’s conclusion that export
controls on wire rod contribute to market distortion is not
supported by substantial evidence. Pls.’ Br. at 48–49.
Specifically, Plaintiffs insist that Commerce “offered no evidence
as to how the referenced measures significantly affected either
pricing or volume of domestic production, exports or imports.” Id.
Court No. 09-00422 Page 38
at 49. In fact, Plaintiffs suggest that Commerce ignored evidence
of the PRC’s significant importation and exportation of wire rod in
terms of volume, which indicated that the GOC does not distort
market prices. Id. Therefore, Plaintiffs insist that it was
erroneous for Commerce to conclude that the GOC’s involvement in
the wire rod market distorted prices. Id.
Plaintiffs’ claims concerning the sufficiency of Commerce’s
evidence are also unavailing. Plaintiffs’ argument appears to be
based on the mistaken belief that Commerce must demonstrate with
substantial evidence the specific distortive effect of each
government action on wire rod prices. Id. However, the
regulations only require Commerce to determine whether the GOC
constitutes a substantial portion of the wire rod market, such that
Commerce may reasonably conclude that prices are distorted. See
CVD Final Rule, 63 Fed. Reg. at 65,377. As described above,
Commerce relied on a number of factors indicating the substantial
influence the GOC held over the wire rod market, including the
GOC’s near-majority market share, the low market share of wire rod
imports, and regulations on the exportation of wire rod. See I&D
Memo at 15, 51–52. Commerce reasonably concluded that the
evidence, taken as a whole, demonstrated “the GOC’s predominant
role and contributed to the distortion of the domestic market in
the PRC for wire rod.” Id. at 51. Therefore, Commerce’s
determination to abandon the market price for wire rod in the PRC
is consistent with its own regulations and is supported by
Court No. 09-00422 Page 39
substantial evidence. See CVD Final Rule, 63 Fed. Reg. at 65,377.
CONCLUSION
For the foregoing reasons, the court finds that the new law,
Pub. L. No 112-99, is constitutional. The court also finds that
the Final Determination is supported by substantial evidence and is
otherwise in accord with the law.
ORDER
In accordance with the above, it is hereby
ORDERED that the determination of Commerce is SUSTAINED; and
it is further
ORDERED that this action is dismissed.
/s/ NICHOLAS TSOUCALAS
Nicholas Tsoucalas
Senior Judge
Dated: March 12, 2013
New York, New York