Cabot Corp. v. United States

Decision Date04 October 1985
Docket NumberCourt No. 83-7-01044.
Citation620 F. Supp. 722
PartiesCABOT CORPORATION, Plaintiff, v. UNITED STATES, Defendant, and Hules Mexicanos, S.A.; and Negromex, S.A., Defendants-Intervenors.
CourtU.S. Court of International Trade

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Stewart & Stewart, Washington, D.C. (Terence P. Stewart and Eugene L. Stewart, Washington, D.C., on the motion), for plaintiff.

Richard K. Willard, Acting Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Attorney in Charge, International Trade Field Office, Commercial Litigation Branch, Civil Division, New York City (Shiela N. Ziff, Washington, D.C., on the motion), for defendant.

O'Connor & Hannan, Washington, D.C. (Joseph E. Pattison, Washington, D.C., on the motion), for defendant-intervenors.

OPINION AND ORDER

CARMAN, Judge:

Plaintiff commenced this action pursuant to section 516A(a)(2)(A)(ii) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1516a(a)(2)(A)(ii) (1982), to challenge a final affirmative countervailing duty determination by the International Trade Administration (ITA). The case is consolidated with Hules Mexicanos, S.A., and Negromex, S.A. v. United States, Court Number XX-X-XXXXX, because of the similarity of the issues presented.

Plaintiff, a United States producer of carbon black, moves to review the final affirmative countervailing duty determination and order of the ITA pursuant to Rule 56.1 of the rules of this court. Contending that the determination is unsupported by substantial evidence or otherwise not in accordance with law, the plaintiff seeks a remand to the ITA for redetermination. Defendant and defendant-intervenors oppose the motion, with defendant United States cross-moving to affirm the administrative determination.

THE ITA DETERMINATION

On December 3, 1982, the ITA published notice that it was initiating a countervailing duty investigation of carbon black imports from Mexico as a result of a petition, filed by plaintiff Cabot Corporation, which alleged that Mexican carbon black producers received a multitude of bounties or grants. 47 Fed.Reg. 54526 (1982). During the investigation, the ITA determined "that the case is extraordinarily complicated because the alleged subsidy practices are numerous and complex and present novel issues".1 48 Fed.Reg. 29564, 29564 (1983). But in the final determination, the ITA found the net bounty or grant to be 0.88 percent ad valorem and that only the following programs constituted countervailable subsidies:2

(1) FOMEX pre-export financing loans at preferential interest rates;
(2) A discount to Hules Mexicanos on its natural gas and electric power costs at its carbon black plant; and
(3) FONEI long term financing at preferential interest rates to Negromex.

The ITA determined that the following programs did not confer bounties or grants to the Mexican producers:

(1) Preferential pricing under the NIDP on petroleum feedstock and natural gas purchased by the carbon black producers from PEMEX at prices below world market prices, and below the prices applicable to the sale of natural gas to commercial and residential consumers; and
(2) the dual currency exchange rate system.

Finally, the ITA additionally determined the following programs are not used by the carbon black producers and exporters:

(1) preferential benefits from the Mexican Government's direct and indirect shareholdings in the two Mexican carbon black producers;
(2) preferential federal and state tax incentives;
(3) FOGAIN and FOMIN preferential financing;
(4) internal transportation benefits;
(5) preferential exports marketing benefits (IMCE);
(6) import duty rebates on equipment used in export production; and
(7) preferential rates on commercial risk insurance.

Plaintiff in this action now makes the following challenges to the final determination of the ITA:

(1) The ITA's finding that the provision of carbon black feedstock and natural gas to Mexican carbon black producers does not constitute a countervailable subsidy is unsupported by substantial evidence and is not supported by law;
(2) the ITA's finding that Hules Mexicanos paid all applicable taxes is unsupported by substantial evidence; and (3) the ITA's failure to make any finding regarding the receipt of FONEP preferential financing by Negromex is effectively a negative finding and is unsupported by substantial evidence; and
(4) the ITA erred in calculating the percent ad valorem benefit for FONEI loans to Negromex.
BACKGROUND

Carbon black is elemental carbon with incidental or planned surface oxidation that is formed under the controlled cracking, heating and quenching of a petroleum derivative feedstock, commonly referred to as carbon black feedstock. Carbon black is used primarily in the rubber industry, but is also used in the production of paints, inks, plastics and carbon paper.

Carbon black feedstock, along with natural gas and water, is essential for the production of carbon black. The feedstock is one of many types of petroleum products obtainable from crude oil, but results relatively early in the refining process. After crude oil is heated to cause a breakdown into its constituent parts, one of the constituent parts, "gas oil" or "heavy gas oil," is refined further in a catalytic cracker. In the typical catalytic cracking process, a catalyst is introduced into the heating treatment of the gas oil. At extremely high temperatures and pressures, the gas oil breaks down—cracks—and yields gasoline. Catalytic cracking is a crucial process in the production of gasoline and the prime goal is to produce gasoline. 14 Encyclopedia Britannica, Petroleum Refining 183 (15th Ed.1982). There is, however, a further product that results from the catalytic cracking of gas oil: catcracker bottoms, or carbon black feedstock. Catcracker bottoms are the residue that collects at the "bottoms" of catalytic cracking towers after the lighter distillates have been removed.

These catcracker bottoms, according to plaintiff, are a unique product and represent the major cost of producing carbon black. Though there is considerable technical dispute over whether other residual oils not obtained from catalytic cracking, such as number 6 fuel oil, may also be used for feedstock in the production of carbon black, the Mexican carbon black producers use catcracker bottoms exclusively.

The parties also disagree on the quality of Mexican catcracker bottoms: Defendant and intervenors state that the feedstock, high in sulphur content, is unsuitable for use in countries such as the United States with stringent environmental regulations, while plaintiff avers that it has attempted to obtain, and would use, Mexican feedstock.

It is clear, nevertheless, that the quality and chemical makeup of carbon black feedstock may vary within certain parameters, but that a carbon black plant must be adapted to utilize the particular feedstock available to it. In the case of the Mexican carbon black industry, the two producers, Hules Mexicanos and Negromex, have geared their plants to the use of the catcracker bottoms available from Petroleos Mexicanos (PEMEX), the government owned petroleum company of Mexico. Thus, due to "the inherent nature of the product and the current levels of technology" in Mexico, 48 Fed.Reg. at 29568, no enterprises or industries in Mexico other than the carbon black producers have the technology and ability to make commercial use of the product. Record at 824-28. Plaintiff contends even further that the only commercial use worldwide of catcracker bottoms is by the carbon black industry.

PEMEX manufactures catcracker bottoms as a byproduct resulting from the production of light and middle distillate products. The cracking process may be varied to distill out more or less of the lighter products relative to the residual oils, including carbon black feedstock, bunker fuel oil and asphalt, but the level of carbon black feedstock production appears at least to some extent determined by the overall mix of products produced by PEMEX.

Although PEMEX operates nine catalytic crackers in Mexico, the carbon black producers obtained feedstock of catcracker bottoms primarily from only two facilities located at Ciudad Madero and Salamanca. The two carbon black producers have located their plants close to the two PEMEX refineries, assumedly to obtain this important input economically by reducing transportation costs. The record does not show what happens to the catcracker bottoms from the remaining seven refineries and whether these bottoms are suitable for carbon black feedstock, but the parties have stipulated that small quantities of catcracker bottoms may be blended under carefully controlled conditions into the residual fuel oil pool of a refinery.

An understanding of the provision and pricing of carbon black feedstock and natural gas in Mexico begins with the National Industrial Development Plan (NIDP or the Plan), which offers a comprehensive strategy for industrial growth extending through 1990. Its explicit aim is "to facilitate a dynamic, orderly and steady economic growth."3 Record, Exhibit F at p. To promote the production of basic consumer goods, the increase of industrial competitiveness in world markets, the exploitation of Mexico's natural resources, and economic integration, the Plan calls for the use of subsidies to encourage exports, domestic production in priority sectors, and economic development in targeted regions. See supra note 1. Many of these programs are administered through governmental financial institutions whose resources are strengthened by earnings from petroleum exports. On the other hand, Mexico limits the export of oil reserves to avoid becoming reliant on such exports and uses its remaining oil for the benefit of emerging industry. See Joyner, Petroleos Mexicanos in a Developing Society: The Political Economy of Mexico's National Oil Industry, 17 Geo.Wash.J. Int'l L. & Econ. 63, 82 (1982).

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