RESTANI, Judge:
This action challenges the Department of Commerce's ("Commerce") final determination in a countervailing duty ("CVD") investigation of certain pneumatic off-the-road ("OTR") tires from the People's Republic of China ("PRC"). See Certain Pneumatic Off-the-Road Tires from the People's Republic of China, 72 Fed. Reg. 44,122 (Dep't Commerce Aug. 7, 2007) (initiation of CVD investigation); Certain New Pneumatic Off-the-Road Tires from the People's Republic of China, 73 Fed. Reg. 40,480 (Dep't Commerce July 15, 2008) ("Final Determination"); see also Issues and Decision Memorandum for the Final Affirmative Countervailing Duty Determination: Certain New Pneumatic Off-the-Road Tires (OTR Tires) from the People's Republic of China, C-570-913, POI: 1/01/06-12/30/06 (July 7, 2008), available at http://ia.ita.doc.gov/frn/summary/ prc/E8-16154-1.pdf (last visited Dec. 21, 2012) ("I & D Memo").
The court assumes general familiarity with the long procedural history of this case that was first filed in 2008. For ease of understanding, however, a summary is provided below.
Plaintiffs first filed this case in 2008, challenging Commerce's Final Determination. The investigation into Plaintiffs' product was one of the first cases in which Commerce imposed CVDs on products from the PRC after determining that it was possible to identify and measure subsidies in China. Commerce altered its previous practice, in which it did not apply CVD in non-market economies ("NME"), relying instead in those cases on its NME AD methodology to remedy unfair trade practices.
On appeal, the Court of Appeals for the Federal Circuit ("CAFC") initially affirmed the decision of this court, although upon different grounds. GPX Int'l Tire Corp. v. United States, 666 F.3d 732, 745 (Fed.Cir.2011) ("GPX V"). In its opinion, the CAFC determined that the CVD statute unambiguously prohibited Commerce from imposing CVDs on goods from China, finding that Congress had ratified Commerce's prior practice when amending the Tariff Act. Id.
After the panel opinion was filed in the CAFC but before the court's mandate was issued, the Secretary of Commerce and U.S. Trade Representative sent urgent letters to Congress seeking an amendment of the law to reverse the decision of the CAFC. See Letter from Secretary of Commerce John Bryson and U.S. Trade Representative Ron Kirk, Jan. 18, 2012, attached to Resp. of Titan Tire Corp. and the United Steelworkers Union, Qua Def-Intvnrs., to the Rule 56.2 Mots. of GPX, Starbright, and TUTRIC, Qua Pls. Asserting Constitutional Claims in Accord. with this Hon. Ct.'s Order of July 3, 2012 ("Titan Br."). While a petition for rehearing en banc was pending, Congress enacted the New Law.
The New Law contains two sections. Section 1 amends the Tariff Act of 1930 to require Commerce to impose CVDs on identified subsidies from NMEs. New Law, 126 Stat. 265-66. The section does provide an exception to this requirement when "the administering authority is unable to identify and measure subsidies provided by the government of the nonmarket economy country or a public entity within the territory of the nonmarket economy country because the economy of that country is essentially comprised of a single entity." Id. Section 2 "requires" Commerce to account for potential overlapping remedies by reducing the AD rate to the extent that Commerce is able to reasonably estimate the amount that the countervailable subsidy has increased the "normal value" used in the NME AD methodology.
The CAFC requested additional briefing on the impact of the new law. GPX Int'l Tire Corp. v. United States, 678 F.3d 1308, 1311 (Fed.Cir.2012) ("GPX VI"). In opposing rehearing, Plaintiffs raised issues regarding the constitutionality of the New Law, focusing primarily on the different effective dates of the two sections of the statute. Id. at 1312-13. Because the constitutional issues were raised for the first time in the petition for rehearing, the CAFC agreed with the government that it should remand the case to this court to evaluate the claims in the first instance. Id. Accordingly, the CAFC vacated the previous judgment of this court and remanded. CAFC Mandate of June 4, 2012, Docket No. 353.
On remand from the CAFC, GPX claims that the New Law is unconstitutional for three reasons. See Resp't Pls.' Supplemental Mem. of Points and Auths. in Supp. of their Mot. for J. on the Agency R. 2 ("GPX Br.").
Because the court upholds the constitutionality of the New Law, it will also return to the remaining CVD issues raised by the parties in the initial rounds of briefing in this matter. The parties certified that because those issues have already been fully briefed, no additional briefing was needed during this remand. GPX's Resp. to Ct. Order dated June 21, 2012 (June 29, 2012), Docket No. 360; Def.'s Resp. to Ct. Order Regarding Scheduling of Remand Proceedings, Letter of June 29, 2012, Docket No. 361. Following oral argument, however, the court offered parties an opportunity to submit letters identifying relevant cases decided after the CVD issues were briefed. None were submitted.
The court has continuing jurisdiction under 28 U.S.C. § 1581(c). This court reviews constitutional challenges de novo, with a presumption that Congress has constitutionally enacted the challenged statute in accordance with substantive due process. See Concrete Pipe & Prods. v. Constr. Laborers Pension Trust for S. Cal., 508 U.S. 602, 637, 113 S.Ct. 2264, 124 L.Ed.2d 539 (1993); NationsBank of Tex., N.A. v. United States, 269 F.3d 1332, 1335 (Fed.Cir.2001). The court will uphold a statute as constitutional unless the plaintiff shows that the statute lacks any rational basis for serving a legitimate government interest, and therefore, Congress has acted "in an arbitrary and irrational way." Concrete Pipe, 508 U.S. at 637, 113 S.Ct. 2264. With respect to equal protection claims, though at times a heightened standard of review may apply, Plaintiffs do not claim that a fundamental right is abridged or that they are part of any suspect class. GPX Br. 28; TUTRIC Br. 6. Therefore, the statute will also be upheld as constitutional on this claim unless it is not supported by any rational basis. See Armour v. City of Indianapolis, ___ U.S. ___, 132 S.Ct. 2073, 2080, 182 L.Ed.2d 998 (2012). A rational basis may be found if: 1) "there is a plausible policy reason for the classification;" 2) "the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decisionmaker;" and 3) "the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational." Id.
In reviewing Commerce's Final Determination and First Remand imposing CVDs, this court shall hold unlawful any determination by Commerce that is "unsupported by substantial evidence on the record, or otherwise not in accordance with law." 19 U.S.C. § 1516a(b)(1)(B)(i).
A fundamental disagreement between the Plaintiffs and the government/Intervenor Defendants exists over the operative effects of the New Law. The government dismisses virtually all of the Plaintiffs' challenges to the New Law by arguing that it was merely a clarification rather than a modification of existing law. Def.'s Br. 3-8. In doing so, the government claims that both the CAFC and this court erred in deciding that Commerce was not permitted to impose CVDs in NMEs without any form of adjustment to account for
A law is retrospective in nature when "the new provision attaches new legal consequences to events completed before its enactment." Landgraf v. USI Film Prods., 511 U.S. 244, 269-70, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994) (noting that the sound instincts of judges in deciding such cases are guided by "familiar considerations of fair notice, reasonable reliance, and settled expectations"). In evaluating the substance of prior law, courts must balance their independent interpretations with those expressed by the amending Congress. In Marbury v. Madison, Chief Justice John Marshall explained, "It is emphatically the province and duty of the judicial department to say what the law is." 5 U.S. 137, 177, 1 Cranch 137, 2 L.Ed. 60 (1803). Based on this principle, the Supreme Court has repeatedly held that although Congress' contemporary interpretation of a previously enacted statute is entitled to great weight, it is not conclusive or binding upon the courts. FHA v. Darlington, Inc., 358 U.S. 84, 89-90, 79 S.Ct. 141, 3 L.Ed.2d 132 (1958) ("Subsequent legislation which declares the intent of an earlier law is not, of course, conclusive in determining what the previous Congress meant. But the later law is entitled to weight when it comes to the problem of construction."); United States v. Stafoff, 260 U.S. 477, 480, 43 S.Ct. 197, 67 L.Ed. 358 (1923) ("Of course a statute purporting to declare the intent of an earlier one might be of great weight in assisting a Court when in doubt, although not entitled to control judicial action.").
To support its argument that the New Law was merely a clarification, the government points to several statements by members of Congress indicating that the law was intended to reverse an erroneous decision of the CAFC.
Further, the use by Congress of an effective date for Section 1 that predates the statute's enactment by nearly six years
The government's argument is also difficult to square with the remand from the CAFC to consider the constitutionality of the New Law. If the New Law made no change to the law applicable to cases arising between the two effective dates of the New Law, there were no valid expectations at the time of importation to be upset and no significant constitutional issues to be addressed. In such a case, one would expect the appellate court to quickly dispose of the issue, as it did with respect to another constitutional issue, see supra note 7, rather than remanding the issue to this court for elaboration. Further, the government's view of a simple clarification is not easily extracted from the tangled history of this case.
First, the CAFC did not vacate GPX V, even though requested to do so. See GPX VI, 678 F.3d at 1313. Second, it did say in GPX VI that GPX V was undoubtedly overruled by Congress, but it did not say its view of the prior law was wrong. Id. at 1311-12. Third, unlike its GPX V opinion, in a footnote in GPX VI, it did declare the more flexible approach this court derived from Georgetown Steel wrong, but it provided no analysis on that point in either GPX V or GPX VI, so it is difficult to say what exactly, in the appellate court's view, was incorrect in this court's opinions interpreting prior law. See id. at 1312 n. 3.
The CAFC did appear to view Section 2 of the New Law, which is expressly prospective, as a change from prior law. Id. at 1311-12. At the same time, it seems to have equated the Section 2 adjustment as encompassing all possible remedies for a potential overlap between CVD and NME AD law, such that Congress has permitted no adjustments to cure the possible overlap in this case and similarly situated cases.
In sum, given the difficulties in concluding that Section 1 and the implied retrospective effects of Section 2 are together a simple clarification of prior law, the court will proceed to analyze the constitutionality of the New Law assuming, at least arguendo, that the New Law effected a retroactive change in the law. This enables the court to directly address the issues it concludes were remanded to it by its court of appeals. Failure of Plaintiffs on such issues would render the question of a retroactive change versus mere clarification in the law irrelevant.
GPX contends that Section 1 of the New Law violates the Ex Post Facto Clause of the Constitution because it effectively penalizes certain importers for past conduct. GPX Br. 9-19. The government and Titan argue that the New Law is remedial in nature and therefore not subject to the proscriptions of the Ex Post Facto Clause. Def.'s Br. 12-16; Titan Br. 20-24. GPX has failed to demonstrate that the law falls within the scope of the Ex Post Facto Clause.
Article I Section 9 of the Constitution provides that "No Bill of Attainder or ex post facto Law shall be passed." This clause, however, does not prohibit the imposition of all retrospective laws. Instead, the clause only prohibits the imposition of retrospective penal legislation, which often, though not always, takes the form of criminal law. See NationsBank of Tex., 269 F.3d at 1336 (citing Calder v. Bull, 3 U.S. 386, 390-91, 3 Dall. 386, 1 L.Ed. 648 (1798)). By contrast, retroactive remedial laws are not prohibited by the clause.
When a law is not facially penal, the plaintiff 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, 123 S.Ct. 1140, 155 L.Ed.2d 164 (2003) (internal brackets omitted). The CAFC has outlined a three-part test for evaluating whether a law is effectively penal. Huaiyin Foreign Trade Corp. v. United States, 322 F.3d 1369, 1380 (Fed.Cir.2003). An otherwise remedial law becomes subject to the ex post facto clause if: "(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." Id. In this case, all parties agree that the trade remedy laws are generally remedial in nature. GPX Reply Br. 6. Furthermore, GPX asserts that all parties agree that under the Huaiyin test, the duties meet the latter two prongs.
Both this court and the CAFC have consistently upheld the trade remedy laws as remedial and not punitive in nature. See Chaparral Steel Co. v. United States, 901 F.2d 1097, 1103-04 (Fed.Cir. 1990); Peer Bearing Co. v. United States, 182 F.Supp.2d 1285, 1310 (CIT 2001); Badger-Powhatan v. United States, 608 F.Supp. 653, 656 (CIT 1985). This conclusion stems, in part, from the detailed calculations required of Commerce to establish a duty rate that reasonably offsets the effects of foreign subsidies or dumping. See Chaparral, 901 F.2d at 1103-04 (citing S.Rep. No. 1221, 92d Cong., 2d Sess. 8 (1972)). Accordingly, it is clear from the case law that regular AD/CVD duties would certainly meet this standard. Id. Additionally, it is clear that the amount of duties need not be a perfect match to the harm caused in order to remain classified as remedial. Huaiyin, 322 F.3d at 1380 (establishing as penal only penalties that are "unrelated" to the actual harm).
Within virtually all trade remedy investigations, perfect information is rarely available and reasonable estimates must be made. Certain aspects of the trade remedy laws also permit Commerce to look to surrogate data sources or allow the use of adverse inferences, which may increase the level of the duty assessed. See, e.g., 19 U.S.C. §§ 1677b, 1677e. These adjustments, however, do not transform the duty into a punitive measure provided the duty remains reasonably related to the actual harm caused. See KYD, Inc. v. United States, 607 F.3d 760, 762 (Fed.Cir.2010); Lifestyle Enter., Inc. v. United States, 865 F.Supp.2d 1284, 1289 (CIT 2012) (explaining that an AD rate based on adverse facts available may not be punitive but must bear a rational relationship to an importer's commercial reality). The duties imposed by the New Law will be upheld so long as they are not "unrelated to" the harm caused. This standard does not require precise equivalency of the duties to the harm caused to the domestic industry. Even if the duties imposed by the CVD investigations of goods from NMEs that were initiated between 2006-2012 are presumed to be somewhat higher due to allegedly overlapping remedies, they remain mathematically linked to the measured harm.
Similarly, the trade remedy laws are designed to buffer domestic industries from the harm caused by competing with the allegedly subsidized or dumped foreign products. For this reason, domestic industries typically petition Commerce to initiate an investigation. In examining duties subject to an amendment to the unfair trade law that does not apply here, the court in Huaiyin found that the trade remedy duties failed to satisfy the third prong of its penal law test because the duties were designed to benefit individual industries. 322 F.3d at 1380-81. Though in that case the collected duties were distributed
GPX also argues that the New Law violates the Fifth Amendment's due process guarantees by retrospectively altering legitimate expectations of the level of duties that would be imposed on their imports. GPX Br. 19. GPX analogizes the New Law to the retrospective imposition of a tax, arguing that the case law in this area prohibits Congress from imposing laws which reach back beyond a few months. Id. The government responds that Congress sought to correct an unexpected judicial decision with the New Law, and GPX did not have a settled expectation that trade remedy duties would not have to be paid on the covered imports. Def.'s Br. 21. Although the government contends that import duties are part of general economic legislation and not the same as taxes, rendering the precedent cited by GPX inapplicable, it argues, nonetheless, that the New Law should be upheld even under the tax law standard because it is rationally based on legitimate governmental interests of finality and administrative efficiency. Def.'s Br. 17. GPX has failed to demonstrate that the government did not have a rational basis in enacting the New Law or that the New Law upended a vested right.
General economic legislation is subject to a rational basis review. Pension Ben. Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984). The Supreme Court has affirmed that "the strong deference accorded legislation in the field of national economic policy is no less applicable when the legislation is applied retroactively." Id. This deference applies even if the legislation adjusts the rights and burdens of individuals or imposes new duties or liabilities for past acts. Id.; Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15, 96 S.Ct. 2882, 49 L.Ed.2d 752 (1976). To succeed, a challenger must demonstrate that the law is "particularly `harsh and oppressive'" or "arbitrary and irrational." R.A. Gray, 467 U.S. at 733, 104 S.Ct. 2709. In the tax context, courts look to "the nature of the tax and the circumstances in which it is laid before it" to determine whether it meets this threshold. Welch v. Henry, 305 U.S. 134, 147, 59 S.Ct. 121, 83 L.Ed. 87 (1938). Although the government's possible justifications for retroactivity are varied, they may not be as broad as those for prospective legislation. Turner Elkhorn, 428 U.S. at 17, 96 S.Ct. 2882. To determine whether a retroactive law is rational, the Seventh Circuit articulated a four-factor test in Nachman Corp. v. Pension Ben. Guar. Corp., 592 F.2d 947, 960 (7th Cir.1979), aff'd 446 U.S. 359, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980). Under Nachman, courts examine: the reliance interests of affected parties, the extent to which impaired private interests were previously subject to regulatory control, the equities of imposing the burdens, and the statutory
A line of cases from the early twentieth century adopted broad deference towards retrospective legislation under an agency theory of law. See, e.g., Graham & Foster v. Goodcell, 282 U.S. 409, 427-430, 51 S.Ct. 186, 75 L.Ed. 415 (1931) (collecting cases); United States v. Heinszen & Co., 206 U.S. 370, 385-86, 27 S.Ct. 742, 51 L.Ed. 1098 (1907). Under this theory, the Court recognized that "defects in the administration of the law may be cured by subsequent legislation without encroaching upon constitutional right, although existing causes of action may thus be defeated." Graham, 282 U.S. at 427, 51 S.Ct. 186.
In a different context, the Court in R.A. Gray upheld federal retroactive legislation over constitutional challenges when it corrected defects in past legislation. 467 U.S. at 720, 729, 104 S.Ct. 2709. The Court dismissed the challenge citing the "short and limited periods [of retroactivity] required by the practicalities of producing national legislation...." Id. at 731, 104 S.Ct. 2709. The Court found constitutional a law that modified ERISA to avoid voluntary employer withdrawals from multi-employer plans. Id. at 722, 104 S.Ct. 2709. The law ultimately was passed with a retroactive effective date that reached back five months, in part to discourage employers from withdrawing from the plan during the laws' consideration. Id. at 724-25, 104 S.Ct. 2709. During the legislative process, the effective date was advanced several times so that it always lagged the legislative process by a few months, discouraging employers from trying to game the system by exiting plans prior to the law's enactment and rendering the true retroactivity period much longer. Id. at 731, 104 S.Ct. 2709.
Similarly, the Court in General Motors Corp. v. Romein, 503 U.S. 181, 191, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992), upheld a retroactive Michigan statute that required employers to reimburse their employees' withheld disability benefits. The statute had been passed in 1987 to overrule a disfavored statutory construction by the Michigan Supreme Court of a 1981 law. Id. at 184-85, 112 S.Ct. 1105. The U.S. Supreme Court found that the retroactive law, though imposing substantial liability on employers who relied on the Michigan Supreme Court decision, did not
The Second Circuit took a similar approach in evaluating retroactive tax legislation. Canisius College v. United States, 799 F.2d 18 (2d Cir.1986). In Canisius, the court upheld legislation effectively validating a Treasury Department revenue rule that courts previously had found to expand impermissibly the definition of "wages" subject to FICA taxation beyond the scope of the statute. Id. at 21. After looking to the period of retroactivity (four years), the reliance interests of the parties, and whether the parties' rights had vested, the court concluded that Congress had acted constitutionally with a curative intent to ratify the invalidated Treasury Department revenue rule, despite the longer than normal period of retroactivity. Id. at 25-27.
GPX relies upon different tax cases, such as United States v. Carlton, which upheld retrospective tax legislation based on "only a modest period of retroactivity." 512 U.S. 26, 32, 114 S.Ct. 2018, 129 L.Ed.2d 22 (1994) (recognizing that Congress "almost without exception" enacts revenue statutes with retroactive effective dates). Finding that the government has wide latitude to change its tax assessments, which are not considered penalties, the Court held that due process is generally not offended by modifications to that policy prospectively or retrospectively. Id. at 34, 114 S.Ct. 2018 (upholding a retroactive modification of a tax deduction provision that prevented the challenging companies from claiming it). The Court further limited seemingly contrary precedent, including Nichols, to apply to only "wholly new taxes" with extended periods of retroactivity. Id. (citing Nichols v. Coolidge, 274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184 (1927)). It also noted that those cases stem from a time of greater scrutiny of economic legislation that is no longer undertaken by the courts. Id.
In this case, the New Law is retrospective in its application back to November 20, 2006, approximately five and one half years before its enactment. 126 Stat. 265-66. This time period is longer than those upheld in the tax case law cited by GPX and in many of the general economic legislation cases relied upon by the government. In both sets of cases, the retrospective period normally was limited to the current fiscal year or legislative session, rarely reaching back more than a year. Though the time period of retroactivity is particularly long here, such a concern is in part offset by the failure of the Plaintiffs to articulate a vested right with which the New Law interferes, as well as by the specific context of trade duties.
In examining the nature and circumstances of the New Law, the court notes that customs duties are to an extent unique from other government assessments in that there is no right to import, and where unfair trade remedies apply, those with goods that may be imported rarely can predict with accuracy what the duty will be. See Norwegian Nitrogen Prods. Co. v. United States, 288 U.S. 294, 318, 53 S.Ct. 350, 77 L.Ed. 796 (1933) (recognizing that as with tax rates "[n]o one has a legal right to the maintenance of an existing rate or duty."). For example, when goods become the subject of an AD/ CVD investigation, liquidation is suspended while the initial investigation is undertaken, and generally while a review is conducted, prior to a final rate determination and duty assessment. See Parkdale Int'l v. United States, 475 F.3d 1375, 1376-77 (Fed.Cir.2007) ("While liability to pay dumping duties accrues upon entry of subject merchandise, ... the actual duty is
In examining the additional factors laid out in Nachman, the court notes that the area of trade is a highly regulated field in which duties are calculated, as indicated, based on imprecise and retrospective trade remedy laws. Although Plaintiffs understandably may have assumed that the CVD law would not be applied to their imports from China while Commerce continued to treat the country as an NME, they also knew at the time of entry into the United States of the goods at issue here that China's status was in a state of flux, and they should have known that their imports might be subject to increased remedial duties. See generally Antidumping Duty Investigation of Certain Lined Paper Products from the People's Republic of China ("China") — China's Status as a Non-Market Economy ("NME"), A-570-901 (Aug. 30, 2006), available at http://ia.ita.doc.gov/download/ prc-nme-status/prc-lined-paper-memo-08302006.pdf (last visited Dec. 21, 2012). Though GPX claims that the statute unambiguously prohibited the imposition of CVDs on goods from China as a NME as a legal matter, citing GPX V, they cannot claim that they lacked notice that China's status as a traditional NME was at least unsettled by the time Commerce issued its preliminary determination in this investigation and their entries were subjected to trade remedies. If China had graduated to market economy stature, CVD remedies would have been imposed and there would be no claim related to the imposition of CVD or the lack of an adjustment because of the potential overlap with NME AD remedies.
Further, the ability of the parties to predict duty rates is particularly difficult because prior to an NME unfair trade investigation, the parties may not even be able to tell whose pricing behavior will be used to calculate AD margins, as often few respondents are chosen for examination. Many exporters are covered by an all others AD rate or a China-entity rate. See Final Determination, 73 Fed. Reg. at 40,483. Equally unpredictable are the programs that are found to provide identifiable and measurable subsidies and how the subsidies will be valued for CVD purposes. Finally, if the importers had assumed that some offset applied for the potential overlap caused by imposing AD and CVD on the same goods from an NME, it could not have been clear at the time of importation what type of adjustment was required, when it would be done, and what data would be used. The lack of reliance on an adjustment is underscored by TUTRIC's
At a minimum, the parties here had notice at the time of an affirmative preliminary determination that Commerce would subject their imports entered thereafter to full trade remedy duties, because that is exactly what Commerce did. It is subsequent to that time that their imports were subject to the cash deposits and ultimately remedial duties.
Turning to the balance of burdens, the court notes that the government asserts that Congress acted based on the legitimate state interest of protecting U.S. industry from unfair trade practices while also ensuring the finality of existing CVD orders. Def.'s Br. 20-21. At least twenty-four orders were entered based on what later proved to be a contentious and perhaps faulty interpretation of the statute by Commerce. The government's assertions appear to be supported by the minimal legislative history and the letter from the administration that spurred Congress into action. See 158 Cong. Rec. H1166-73 (daily ed. Mar. 6, 2012). The effective date itself for Section 1 likely amounts to a deferral to Commerce's expertise in determining when Commerce first might have been able to identify and measure subsidies in the PRC. See also supra note 7. As in Canisius and R.A. Gray, these legislative bases are legitimate and provide the minimal rationale needed to prevent GPX from overcoming the presumption of constitutionality afforded to laws in this field. Because of the unique contours of trade law, arguments that due process was violated solely by the extended period of retrospectivity are unavailing.
Additionally, GPX's reliance on Carlton and Nichols is unpersuasive. The Carlton court limited the holding of the Nichols line of cases to a different jurisprudential regime that likely is no longer extant. Furthermore, GPX's arguments that Section 1 is a "wholly new tax" is not consistent with Carlton, as Section 1 of the New Law merely extends or expressly recognizes the ability of Commerce to impose CVDs in the NME context without first graduating the country to full market economy status. This modification, if it indeed is one, to "tax" policy is more akin to the adjustment upheld in Carlton rather than to the taxes in Nichols and the other cases cited in Carlton, which involved taxing a type of activity thought to be wholly exempt from the scope of taxation when undertaken. GPX and the other importers were aware that their importation of goods from China could give rise to duty liability in the form of traditional customs duties as well as trade remedy duties, and therefore, a modification to the boundaries of those laws does not constitute a "wholly new tax."
GPX finally argues that Congress lacks a rational purpose for enacting Section 1 of the New Law in this case because cash
Lastly, Plaintiffs assert that the New Law violates the right to equal protection under the law by applying a different law to respondents whose products were covered by CVD investigations between November 20, 2006, and March 13, 2012, as compared to other firms whose products will be investigated for unfair trade practices after the New Law was enacted. GPX Br. 28; TUTRIC Br. 8-14. In its reply brief, GPX clarifies that the classification it challenges "is not differential treatment between different classes of persons." GPX Reply Br. 13. Instead, it seeks to challenge the treatment of a "single class of persons" who are treated differently based on the timing of their imports, prior to or after the enactment of the New Law. Id. Importantly, and as indicated, none of the Plaintiffs asserts that the classification is based on any suspect class. The government argues that the type of classification created by the New Law occurs upon the imposition of any law that applies prospectively, such that only future conduct will enjoy any benefits of the new law. Def.'s Br. 12. As with the challenge based on due process, the government proffers the rational bases of administrative finality and efficiency. Def.'s Br. 17. GPX's and TUTRIC's arguments based on the date-based classification created by the New Law are without merit.
Economic legislation or an administrative classification that neither targets a suspect class nor implicates a fundamental right will be upheld "so long as it bears a rational relation to some legitimate end." Romer v. Evans, 517 U.S. 620, 631, 116 S.Ct. 1620, 134 L.Ed.2d 855 (1996); Hodel v. Indiana, 452 U.S. 314, 331, 101 S.Ct. 2376, 69 L.Ed.2d 40 (1981). A court will uphold such legislation in favor of the presumption of constitutionality 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, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993); see also Heller v. Doe, 509 U.S. 312, 320, 113 S.Ct. 2637, 125 L.Ed.2d 257 (1993) (explaining that the legislature need not articulate a rational basis). In Armour, the Supreme Court explained that administrative considerations regarding the burden of retroactively providing relief from a law can be legitimate state interests, upholding in that case a law that only prospectively forgave future installment payments by homeowners. 132 S.Ct. at 2081.
The classification that GPX points to is based on the gap between the New Law's effective dates for Section 1, November 20, 2006, and Section 2, March 13, 2012. 126 Stat. 265-66. During this interim period, goods from NMEs may be subject
The government also indicates that Section 2 was the result of an attempt to conform with an adverse WTO dispute settlement decision. Def.'s Br. 27; see Appellate Body Report, US-Antidumping and Countervailing Duties (China), WT/ DS379/AB/R (Mar. 11, 2011), available at http://www.wto.org/english/tratop_e/dispu_ e/cases_e/ds379_e.htm (last visited Dec. 21, 2012).
TUTRIC argues that Congress may not rely upon administrative efficiency and finality as rational bases for the classification created by the New Law. Reply Br. on Constitutional Issues of Co-Pl. Tianjin United Tire & Rubber Int'l Co., Ltd. 7-14 ("TUTRIC Reply Br."). It asserts that administrative finality is only a legitimate governmental interest when the government has shown that forgoing the classification would result in substantial additional expense or would be particularly burdensome. Id. at 7-11. TUTRIC claims that the expense involved in treating the present case like those covered by Section 2 of the New Law would be minimal as TUTRIC would have Commerce simply forgo the imposition of CVDs or apply the new methodology developed to address overlapping remedies. Id. TUTRIC's finality arguments are based largely on the claim that few of the covered cases are "final" because challenges to them remain pending before either this court or the WTO's Dispute Settlement Body.
Similarly, the court must reject TUTRIC's finality claims. Although, TUTRIC is correct that Congress may have chosen to enact Section 2 retroactively just as it did for Section 1, TUTRIC has not cited any authority for its argument that finality cannot be a legitimate governmental interest. The court does not find persuasive TUTRIC's argument that many of the CVD investigations remain subject to some form of review, as Congress reasonably could believe that many of these proceedings will not result in redeterminations, especially following the enactment of Section 1 of the New Law. Accordingly, Plaintiffs have failed to overcome the New Law's presumption of constitutionality.
As this court finds that the New Law is constitutional, it need not reach the issue of severability raised by the parties.
Because the court has determined that the New Law is constitutional, it now turns to the claims raised several years ago challenging the methodology employed by Commerce in calculating CVD rates. These issues were initially briefed under the label of "all other CVD issues" or raised in comments to Commerce's First Remand.
The original remand in this matter required that Commerce reject the arbitrary date that Commerce had chosen for the existence of a subsidy, which it had set as the date of China's WTO accession, on the basis that such an arbitrary date had no relation to the actual identification and measurement of subsidies.
Because of the effective date of Section 1 of the New Law, the court now addresses this issue. In fact, the New Law may say something new about it.
For the parties before the court, the rates calculated under the First Remand did not change.
To the extent the government wishes to rely on the New Law to support an arbitrary cut-off date, that issue is also waived for this litigation. As the court has been provided no currently viable basis to reject the First Remand on this point, or to find dates later than the original starting dates appropriate, the First Remand is sustained as to the dates for measurement.
Hebei Tire Co. Ltd. ("Hebei Tire") began as a state-owned enterprise overseen by a state-owned holding company. Analysis of Change in Ownership (May 28, 2008), GPX App. Tab. 15 at 4 ("Preliminary CIO Memo"); see also Analysis of Change in Ownership, Final Determination (July 7, 2008), GPX App. Tab. 17 at 1 ("Final CIO Memo") (adopting preliminary determination). In 2000, Hebei Tire was selected to be privatized as part of an economic liberalization effort by the PRC. Preliminary CIO Memo at 4. During the 2000 privatization, Hebei Tire's employees and management purchased the company's shares from the holding company, in part using a fictional financing arrangement and in part through an agreement to assume certain existing liabilities. Id. Additionally, the local village obtained a minority interest in the company by granting land rental rights to Hebei Tire.
GPX first challenges Commerce's findings that Starbright received countervailable subsidies when it acquired Hebei Tire in 2006. Resp't Pls.' Mem. of Points and Auths. in Supp. of Their Mot. for J. on the Agency R. 15-40 ("GPX CVD Br."). In particular, GPX alleges that Commerce failed to comply with the law because it did not make specific findings of a financial contribution and benefit in evaluating the asset purchase. Id. The government responds that Commerce did not need to make a finding of a new financial contribution, and GPX failed to exhaust administrative remedies by not raising this claim below. Def.'s Mem. in Opp. to Pls.' and Def.-Intvnrs.' Mem. Regarding CVD Issues in Supp. of Their Mots. for J. Upon the Agency Rs. 37-48 ("Def.'s CVD Br."). As a preliminary matter, the court finds that GPX did articulate its objections to Commerce's methodology in its case brief before Commerce, and therefore the court will turn to the merits of the challenge. Starbright Case Brief (June 4, 2008), GPX App. Tab 16 at 39.
In order for Commerce to find a countervailable subsidy, the statute requires that Commerce identify a financial contribution,
Commerce's current methodology for determining whether a purchasing company has received a countervailable subsidy by virtue of taking over a subsidized company has not yet been subjected to judicial scrutiny.
After Delverde, Commerce attempted to modify its methodology to comply with the ruling. It replaced the previous methodology with a "same-person" methodology wherein Commerce looked to four factors to determine whether the purchasing company was essentially the same corporate person as the purchased company. See Allegheny Ludlum Corp. v. United States, 367 F.3d 1339, 1342 (Fed.Cir.2004) ("Allegheny I"). Again, the CAFC found that this methodology conflicted with the statutory definition of a subsidy because it did not undertake the required "fact-intensive inquiry into the circumstances surrounding the transfer of ownership, beyond the simple inquiry into whether the transaction occurred at arm's length." Id. at 1344. The court reaffirmed that Commerce must show that the purchaser "received both a financial contribution and benefit from a government, albeit indirectly through the seller." Id. (emphasis added). Additionally, the court rejected Commerce's renewed arguments that whether the purchase was at fair market value ("FMV") is irrelevant, finding instead that the terms of the transaction are important, relevant considerations. Id. at 1345-47 (finding that the new methodology essentially operated as a per se rule, failing to consider whether the purchaser adequately compensated the seller/government for the purchase, thereby repaying the subsidies). On remand, the court clarified that "the payment of fair market value means that the purchasing firm did not receive more than it paid for...." Allegheny Ludlum Corp. v. United States, 358 F.Supp.2d 1334, 1339 (CIT 2005) ("Allegheny II").
Based on the successful challenges to Commerce's methodologies in both Delverde and Allegheny I, it is clear that a tension exists in the statute between the definition of a subsidy in 19 U.S.C. § 1677(5)(B) and the later added clause clarifying the effects of a change in ownership in 19 U.S.C. § 1677(5)(F). Although the defining clause requires Commerce to identify both a financial contribution "to a person" and a resulting benefit, the change in ownership clause discusses a subsidy that does not flow through to a purchaser because it "no longer continues to be countervailable." This language implies the possibility of the existence of a subsidy prior to the sale which continues to exist following the purchase. Accordingly, Allegheny I refers to a subsidy that no longer exists as one that is "extinguished." 367 F.3d at 1344.
The CAFC decisions and legislative history do not resolve the tension in the statute. In the committee report considering the addition of 19 U.S.C. § 1677(5)(F), the House explained the purpose of the new provision:
H.R. Rep. No. 130-826, at 110 (1994). The Senate used similar, but different, language in explaining the adoption of the change in ownership clarification:
S.Rep. No. 103-412, at 92 (1994) (emphasis added). The Delverde court read these statements to express the same intent, even though the Senate report seems more expansive in applying the change in ownership provision to sales of companies without government ownership or clear involvement. See 202 F.3d at 1367 ("The Senate Report is nearly identical."). It seems indisputable now that in the government-seller context, Commerce is required to look behind a sale to ensure that competitive bidding in fact occurred such that the sales price reflected FMV. See Allegheny II, 358 F.Supp.2d at 1340. Both the CAFC and this court have recognized that when the government is the seller of a subsidized company, traditional market forces which would typically drive the purchase price toward FMV are not always present. Id.; see Allegheny I, 367 F.3d at 1347 (identifying concerns besides price including employment, national defense, and politics). Importantly, however, the statute itself does not limit the context in which the change in ownership rule applies to government sellers only.
Contrary to GPX's arguments, what the court does not see in Delverde and Allegheny I is a conclusion that 19 U.S.C. § 1677(5)(F) requires that the purchaser receive a financial contribution directly from a governmental authority or from a private entity entrusted to perform governmental acts. The discussion in those cases of indirect receipt of a subsidy through a sale of assets or stock of a previously subsidized entity does not reference 19 U.S.C. § 1677(5)(B). Obviously, if the seller is entrusted by a governmental authority to provide a subsidy, the issue of a financial contribution goes away. Commerce here never made a finding that Hebei Tire was entrusted by a governmental entity to provide a subsidy to Starbright, so it relied on the construct that seems to be endorsed by the change in ownership provision in 19 U.S.C. § 1677(5)(F). The concern addressed there seems to be that purely market forces may not be operating, even if the evidence of action by the governmental authority is not clear.
As indicated, this particular tension in the statute is not resolved by court precedent or clear legislative history. The ambiguity, however, may be resolved by the agency charged with carrying out the statute — Commerce. Its interpretation of the statute as a whole, which appears to attempt to harmonize the two provisions at issue, need only be one reasonable way of interpreting the statute and will be upheld to the extent it is properly applied in a particular case. See Chevron, U.S.A. v. NRDC, 467 U.S. 837, 844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).
As described above, Commerce has promulgated a series of regulations attempting to establish a reasonable methodology to determine whether a purchasing company has obtained a countervailable subsidy under the statute. The methodology attempts to carry out Commerce's statutory interpretation. See Notice of Final Modification of Agency Practice Under Section 123 of the Uruguay Round Agreements Act, 68 Fed. Reg. 37,125 (Dep't Commerce June 23, 2003) ("Final Modification"); Certain Steel Products From Austria, 58 Fed. Reg. 37,217, 37,268-69 (Dep't Commerce July 9, 1993) (final determination).
In this case, GPX challenges Commerce's determination that non-recurring subsidies to Hebei Tire were not extinguished through the 2006 asset sale to Starbright. GPX faults Commerce's methodology as unreasonable and contrary to law for four reasons: 1) Commerce failed to find explicitly that Starbright received a financial contribution from an authority; 2) Commerce assumed that Hebei
Commerce decided in its Final Determination that Hebei Tire was not fully privatized at the time of its asset sale to Starbright. I & D Memo at 127-28; Preliminary CIO Memo at 7-8. Commerce based its conclusion on several factors: 1) the village possessed a minority ownership interest in Hebei Tire, 2) state officials retained influence over Hebei through its board of directors, and 3) employees were never fully compensated for their loss of status. Preliminary CIO Memo at 4. As indicated, however, Commerce did not conclusively determine that Hebei Tire was an authority under the CVD law because it decided that it was not required to find that Starbright received a new "financial contribution" from Hebei Tire, and the court does not fault that basic approach here.
But Commerce must recognize that in back of everything is the concern that a government is pulling the strings and that this is not a straight-out private market-driven transaction. Putting aside cases of a fictitious corporate change, the change in ownership methodology is basically a substitute for a finding that Hebei Tire itself is the governmental arm providing the subsidy. Accordingly, the analysis must not be perfunctory, and presumptions cannot substitute for facts. These seem to be the real teachings of Delverde and Allegheny I. Of course, if Commerce has evidence to demonstrate that Hebei Tire itself qualifies as an entity entrusted with governmental authority to make a financial contribution much as the government itself would, the calculus changes. As Commerce avoided this finding previously, the court does not expect it now.
As indicated, Commerce found that Hebei Tire was not a fully private company and applied its change of ownership methodology to determine if the sale was at arm's length and for FMV. The record regarding some village ownership (although the village may be a passive minority equity-holder), the continued control by shared directors of the SOE, and the incomplete privatization under Chinese law provide substantial evidence to support Commerce's conclusion that Hebei Tire was not fully privatized as of 2005. This requires a closer examination of the circumstances of sale to determine whether a subsidy was passed on to Starbright by virtue of Starbright's paying less than FMV for Hebei Tire.
In applying the methodology, Commerce characterized the sale as the final step in a privatization. I & D Memo at 126. Commerce determined that the transaction was not at arm's length because Hebei Tire failed to act at all times as a profit-maximizer, through the negotiations by its chairman. Preliminary CIO Memo at 8-9. Commerce found particularly suspicious Hebei Tire's chairman's interactions with the auction house, which officially oversaw the sale and accepted bids. Id. Hebei Tire's chairman contacted the auction house, consistent with auction house's rules, to discuss the reserve price for the company and to alert it that GPX would be submitting a bid. Id. Additionally, Commerce pointed to the inclusion of a supplemental employment agreement, whereby Starbright agreed to retain a certain number of existing employees and provide direct compensation to them as part of the sale. Id. Commerce found that this put
In its change in ownership analysis, Commerce narrowly defined appropriate commercial interest as traditional profit maximization through a high sales price. Id. at 9. It distinguished this interest from those typically associated with the state, such as those identified in Allegheny II. Although generally it would be unreasonable for Commerce to disregard completely a company's interest in its shareholders, in this case the company's employees, Commerce reasonably considered whether such an interest upset the arm's-length nature of the transaction because of guarantees by Starbright related to continued employment following the sale. Although this situation did not create an identity of interests between Starbright and Hebei Tire's shareholders, it did create some conflict between profit maximization and job security such that Hebei Tire may not have been as likely to negotiate for the highest price possible.
Although Commerce's arm's-length analysis regarding the employee-shareholders may fall into the category of what the courts have considered reasonable, its analysis focusing on the actions of Hebei Tire's chairman does not. Commerce adopted a distorted view in evaluating the actions of Hebei Tire's chairman, in particular in analyzing the actions of the chairman in negotiating a reserve price for the foreclosure auction. Consistent with auction house rules, the chairman discussed an appropriate reserve price with the auction house, mirroring the offer submitted by GPX. Auction Rules (Nov. 27, 2007), GPX App. Tab. 19 at art. 6.
After concluding that the sale was not at arm's-length, Commerce considered whether the factual circumstances of the asset sale appeared consistent with a final price reflective of FMV. Preliminary CIO Memo at 9-11. Commerce looked to the existence of external valuations of Hebei Tire, barriers to entry in the bidding process, external commitments, and the selection of the winning bid. Id.
Commerce focused heavily on the fact that neither party specifically relied on external valuation studies during the
Commerce's current methodology focusing on the circumstances of the negotiations of the parties appears to generally follow the instructions of the CAFC in Delverde and Allegheny I that Commerce must look to the particular factual circumstances of the sale. It appears, however, to have ignored record evidence proffered by GPX that it in fact paid FMV for the purchase of Hebei Tire.
In the I & D Memo, Commerce dismissed consideration of the appraisals because they were not "timely", as they were completed just one week before the asset purchase agreement was signed and as part of a regulatory package to obtain state approval of the transaction. I & D Memo at 134-35.
As the court has emphasized, this methodology, although it carries out Commerce's acceptable interpretation of the statute, is an expediency because Commerce cannot identify direct governmental interference easily. Thus, it is very important that Commerce be exacting in its determination that FMV was not paid, which would otherwise extinguish the subsidy previously provided. Accordingly, Commerce's change in ownership analysis here is not sustainable under its adopted general methodology and is remanded for
GPX finally argues that even if Starbright received a subsidy through its purchase of Hebei Tire, the level of subsidy must be offset by any amount of the purchase price that reflected payment for the subsidy. GPX CVD Br. 34. The government insists that under its current methodology, Commerce assumes that the entire value of the subsidy passes through to the purchaser. Def.'s CVD Br. 60 61; I & D Memo at 137-40.
Though the court acknowledges that calculating the exact FMV of the company may be difficult, it appears unreasonable for Commerce to argue that it is able to create a surrogate benchmark to calculate the level of benefit for all other types of subsidies in China and yet does not even need to attempt to do so here. Commerce must provide a credible explanation for, or abandon, the apparent disconnect between its limited ability to undertake this analysis for the benefit calculation in the change in ownership context and the requirement of the same analysis for other subsidies under 19 U.S.C. § 1677(5)(E). See also Acciai, 350 F.Supp.2d at 1256-57. Titan's arguments to the contrary are unavailing, as it confuses a recognition that the value of a subsidy may change over time with an inability to ever quantify it.
Titan challenges Commerce's calculation of debt forgiveness provided to Starbright when an outstanding judgment on loan guarantees went uncollected. Titan Tire Corp. & the United Steelworkers' Mem. in Supp. of Their Rule 56.2 Mot. for J. on the Agency R. 36-37 ("Titan CVD Br."). Titan has failed to show, however, that Commerce's benefit calculation method was unreasonable.
Within the PRC, the Government of China ("GOC") implemented a loan guarantee system whereby companies in related industries were grouped in order to mutually guarantee each other's loans. Loan Benchmark Memo (July 7, 2008), P.R. Doc. 440, attach. 1 at 6, 51. Due to frequent under-performance, loan defaults became very common during the period of attempted economic liberalization. Id. Hebei Tire was paired with another SOE as part of the loan guarantee system. Preliminary CIO Memo at 13-14; I & D Memo at 148-50. Ultimately, the other company defaulted on several loans, and the lenders sought judgment against Hebei Tire and the other guarantors. I & D Memo at 148-50. The court awarded judgment in favor of the creditors, finding the guarantors, including Hebei Tire, jointly and severally liable for the outstanding debt. Id. Despite pursuing judgment against the guarantors, the banks never sought enforcement, allowing the statute of limitations to run. Id.
The statute does not provide a particular methodology that Commerce must use in calculating the benefit received by Hebei Tire in this situation. The calculation is particularly difficult here, where Commerce must guess what would have happened had the banks collected under the judgment. Though Bridgestone has proposed one reasonable method for determining the amount of the subsidy, nothing indicates that Commerce's methodology for evaluating this counterfactual event was not also reasonable. Because this court defers to a reasonable methodology adopted by Commerce, the Department's calculations here must be upheld.
Intervenor Defendants further challenge the benchmark calculation used by Commerce to calculate the subsidies received by Hebei Tire in the form of subsidized loans. Titan CVD Br. 29-35.
The statute provides that a benefit received from a subsidized loan is equal to the "difference between the amount the recipient of the loan pays on the loan and the amount the recipient would pay on a comparable commercial loan that the recipient could actually obtain on the market." 19 U.S.C. § 1677(5)(E)(ii). In calculating this difference, Commerce looks to comparable loans based on similar structural features including interest calculation, currency, and maturity. 19 C.F.R. § 351.505(a)(2). Where the examined firm does not have any comparable past loans, Commerce normally will examine the national average interest rate for comparable commercial loans. Id. § 351.505(a)(3)(ii).
In this case, Commerce found that the investigated companies had not received any comparable past loans and that no comparable commercial benchmark rates existed within the PRC due to market distortions. I & D Memo at 104-05. Accordingly, Commerce employed the basket methodology described above to calculate a comparable commercial loan benchmark rate, consistent with agency practice. Id. After calculating a benchmark, Commerce adjusts both the domestic rate and the benchmark rate to adjust for "market factors in the country under investigation that could affect a market price." Id. at 29. Intervenor Defendants rely on prior agency practice to argue that adjustments for inflation reintroduce the distortions of the PRC's economy back into the benchmark. Commerce, however cites to its practice in CFS from the PRC to explain its use of an inflation adjustment to create a set of comparable real interest rates. Issues and Decision Memorandum for the Final Determination in the Countervailing Duty Investigation of Coated Free Sheet from the People's Republic of China (Dep't Commerce Oct. 17, 2007) at 71-72, available at http://ia.ita.doc.gov/frn/ summary/prc/E7-21046-1.pdf (last visited Dec. 21, 2012). Though Commerce acknowledges that this is "a rough proxy" for the exchange-rate adjusted nominal rates, it does not explain the connection between the two within the context of bank interest rate policies in China.
Intervenor Defendants placed substantial evidence on the record that the inflation rate in China is distorted. Petitioner's Pre-Preliminary Comments (Nov. 29, 2007), Non-Confidential App. to the Brs. Filed by Titan Tire Corp. and the United Steelworkers in Consol. Ct. No. 08-00285 ("Titan App."), Tab CVD PR Doc. 180 at 30-34. Commerce, although not discrediting the accuracy of this information, decided to use an inflation adjustment to create comparable real interest rates between the subsidized loans and the "comparable commercial loan" benchmark required by statute. If Commerce is assuming that nominal interest rates in the PRC are set in part with a consideration of the actual distorted inflation rate in the country, then the adjustment that the Intervenor Defendants seek is essentially an attempt to countervail against the PRC's distorted inflation rate, which is not a specific subsidy at issue in the investigation. Commerce, however, failed to adequately explain its methodology either in terms of how inflation is an appropriate proxy or is not a distortive independent adjustment. Accordingly, the court remands for further explanation by Commerce of its methodology. Commerce must explain why it uses a currency expectation adjustment for comparing domestic interest rates, why an inflation adjustment is a suitable proxy for a currency expectation adjustment, and whether the proposed adjustment by the Intervenor Defendants is essentially an attempt to countervail against China's distorted inflation rate or
In Commerce's CVD investigation, it applied adverse facts available ("AFA") against the GOC and indirectly against TUTRIC in relation to certain debt forgiveness. TUTRIC claims that it fully cooperated throughout the investigation and provided all information within its control. Br. in Supp. of Pl. Tianjin United Tire & Rubber Int'l Co., Ltd.'s Rule 56.2 Mot. for J. Upon the Agency R. 9-13 ("TUTRIC CVD Br."). Therefore, it argues that it should not be penalized by adverse inferences. Commerce failed to consider relevant information submitted pursuant to its remand questionnaire and inappropriately applied adverse facts, which collaterally impacted TUTRIC, despite the availability of other record evidence.
When Commerce determines that necessary information is not available on the record, it may use facts otherwise available to reach its determination. 19 U.S.C. § 1677e(a). If an interested party has failed to cooperate in not providing valid data upon which Commerce can calculate trade remedy duty rates, Commerce may calculate a rate using inferences which are "adverse to the interests of that party in selecting from among the facts otherwise available." 19 U.S.C. § 1677e(b). In doing so, Commerce may rely on information derived from the petition, a final determination in the investigation, any previous review, or any other information placed on the record. Id. "An AFA rate[, however,] must be `a reasonably accurate estimate of the respondent's actual rate, albeit with some built-in increase intended as a deterrent to noncompliance.'" Gallant Ocean (Thai.) Co. v. United States, 602 F.3d 1319, 1323 (Fed. Cir.2010) (quoting F.lli De Cecco Di Filippo Fara S. Martino S.p.A. v. United States, 216 F.3d 1027, 1032 (Fed.Cir.2000)). In the AD context for example, "Commerce may not select unreasonably high rates having no relationship to the respondent's actual dumping margin." Id.
Moreover, Commerce cannot rely on an unaffiliated party's failure to cooperate to justify the application of the AFA rate, unless the exporter is also found responsible for the behavior in some way. See 19 U.S.C. § 1677e(b) (noting that Commerce must determine that a party did not act "to the best of its ability") (emphasis added); see also SKF USA, Inc. v. United States, 675 F.Supp.2d 1264, 1275-77 (CIT 2009) (finding unlawful the application of an AFA rate to a cooperative respondent in order to encourage the compliance of an unaffiliated supplier); see also Nippon Steel Corp. v. United States, 337 F.3d 1373, 1382 (Fed.Cir.2003) (requiring Commerce to examine respondent's actions and assess the extent of respondent's abilities, efforts, and cooperation before applying adverse inferences); Tianjin Magnesium Int'l Co. v. United States, Slip Op. 11-17, 2011 WL 637623, at *1-2, 2011 Ct. Int'l Trade LEXIS 16, at *5-10 (Feb. 11, 2011) (rejecting the application of an AFA rate based on the actions of another party).
This court has recognized in the CVD context, unlike the typical AD case, that often the government rather than the respondent in the investigation possesses the information needed by Commerce to accurately evaluate and calculate the alleged subsidies. See, e.g., Fine Furniture (Shanghai) Ltd. v. United States, 865 F.Supp.2d 1254,
In this case, Commerce sought information from the GOC on the terms of the sale of TUTRIC's debt from government-owned banks to a government-owned asset management company (Cinda) and eventually to a U.S.-based investment firm (Avenue Asia). I & D Memo 115-16. Commerce explained that this information was material to its investigation because it believed that the agreements transferring the debt could have contained provisions forgiving portions of it or in some way limiting the ability of the purchaser to collect on the debt. The GOC originally refused to release any information regarding the transactions because it claimed that the information was proprietary and that the companies involved in the transaction did not consent to release of the information. I & D Memo at 16-17. Though the GOC acknowledged it had controlling interests in the banks and debt servicer, it argued that it had a policy of not intervening in the operations of the companies. Id. No party has argued that TUTRIC had access to these third-party agreements during the investigation.
TUTRIC eventually was able to obtain the transfer agreements requested by Commerce and attempted to submit them during remand. TUTRIC claims that Commerce failed to consider this new evidence that it put on the record in response to Commerce's request. TUTRIC Remand Br. 10-22. On remand, Commerce sent all parties a questionnaire requesting that these companies: (1) confirm "if debt was explicitly or effectively forgiven during the period 1993 through 2006," and (2) "please provide complete information, if not already on the record." Remand Questionnaire (Dec. 10, 2009), Remand Record ("R.R.") Doc. 666 at 3. TUTRIC understood this request to be an open-ended request for additional information related to any of the alleged debt-forgiveness subsidies. Accordingly, TUTRIC attempted to submit the debt transfer agreements in its response, but Commerce ordered TUTRIC to remove this additional information. Commerce Remand Letter
Commerce asserts in its remand decision that TUTRIC attempted to exploit an open-ended request for information intended to assist Commerce in calculating an appropriate cut-off date for subsidies by putting previously delinquent information on the record. First Remand at 56-57. Although the court normally defers to Commerce's reasonable deadlines, when Commerce decided to solicit information that had already been requested, it could not arbitrarily reject relevant information that is then provided. Commerce opened the door by requesting additional information already requested on subsidies and cannot shut that door simply because it does not like the relevant information submitted.
To the extent that the documents now provided do not resolve this issue, the court notes that Commerce's seeking of transaction information in the investigation appears to be part of a reasonable effort to ascertain if and when TUTRIC's debt was forgiven. Additionally, because the GOC refused to provide this information, which was conceded to be within its control, Commerce was permitted to look to facts otherwise available and to apply an adverse inference against the GOC. As made clear in Fine Furniture, however, Commerce was also required to consider the record evidence put forward by TUTRIC, as the party directly affected by duties, if the information appeared reliable and its consideration would mitigate the collateral affects of the adverse inference taken against the GOC. Therefore, at a minimum, Commerce was required to take into account the settlement agreement between Avenue Asia and TUTRIC in analyzing the maximum amount of debt forgiveness possibly received. Commerce may reasonably conclude that the portion of the debt that was not repaid by TUTRIC could have been forgiven as part of the debt transfer agreements if the evidence of these agreements submitted on remand still does not resolve this issue.
TUTRIC argues that even if Commerce correctly identified debt forgiveness that was countervailable, it incorrectly calculated the benefit of that subsidy and improperly calculated the resulting CVD rate in allocating the benefit. TUTRIC CVD Br. 16. TUTRIC first claims that Commerce erred in not considering the partial payment that TUTRIC and its parent company made on the loans that Commerce found to be forgiven.
In response to TUTRIC's second challenge, the court concludes that Commerce's decision to allocate the amount across only TUTRIC's sales was reasonable and supported by substantial evidence. TUTRIC initially incurred the debt that was originally forgiven and only "transferred" that debt later to cross-owned Dolphin Group for an unrelated business advantage.
As for TUTRIC's final claim regarding the discount rate employed by Commerce, the court finds that TUTRIC failed to raise this argument during the investigation and therefore has failed to exhaust the required administrative remedies. See 28 U.S.C. § 2637(d). TUTRIC's reliance on cases recognizing the ability of Commerce to obtain a voluntary remand to apply a new methodology is not on point as TUTRIC, not Commerce, is seeking the remand in this case.
The court finds that the challenged law is rationally related to legitimate government interests and therefore does not violate the due process or equal protection requirements of the Constitution. Additionally, if the law is a retrospective change, it does not run afoul of the Ex Post Facto Clause because it is remedial and not penal in nature.
This court, however, finds that Commerce's Final Determination and First Remand are not fully consistent with applicable law and at times are unsupported by substantial evidence. Therefore, this court remands to Commerce for a redetermination consistent with this opinion. Commerce shall file its results within 60 days of the date of this order. GPX, TUTRIC, Titan, and Bridgestone will have 30 days thereafter to file responses. The government will then have 15 days to reply.
645 F.Supp.2d at 1250.
To determine whether this consideration is satisfied, Commerce has identified a non-exhaustive list of four considerations:
Final Modification, 68 Fed. Reg. at 37,127.
