672 F.Supp. 1465 (CIT. 1987), 85-04-00558, Fabricas El Carmen, S.A., de C.V. v. United States
|Docket Nº:||Court No. 85-04-00558.|
|Citation:||672 F.Supp. 1465|
|Party Name:||FABRICAS EL CARMEN, S.A., de C.V., et al., Plaintiffs, v. The UNITED STATES, Defendant.|
|Case Date:||October 07, 1987|
|Court:||Court of International Trade|
Skadden, Arps, Slate, Meagher & Flom (Thomas R. Graham) for plaintiff Derivados Acrilicos, S.A.
Cabinet Hays (Alan S. Hays and Ben L. Irvin) and Green and Hillman (Richard G. Green) for all other plaintiffs.
Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch (J. Kevin Horgan), Civ. Div., U.S. Dept. of Justice, for defendant.
OPINION AND ORDER
Plaintiffs challenge an affirmative countervailing duty determination of the United States Department of Commerce, International Trade Administration (ITA) finding that a net bounty or grant of 3.7% ad valorem is bestowed upon certain Mexican textile mill products by export related FOMEX loans. 1 See, Certain Textile Mill Products from Mexico, 50 Fed.Reg. 10824 (Mar. 18, 1985) (final affirmative countervailing duty determination and order). Plaintiffs raise the following major issues in their motion for judgment upon an agency record pursuant to Rule 56.1 of the rules of this court:
(1) Whether the effects of Mexico's dual exchange system or other factors negate or offset any benefit which the FOMEX program might bestow upon exporters of textile mill products;
(2) Whether ITA erred in failing to use the Government of Mexico's cost of borrowing
in calculating the benefit bestowed by FOMEX loans;
(3) Whether ITA erred in disregarding increases in FOMEX interest rates, which were reported and known to ITA prior to both its preliminary and final determinations, but which took effect beyond the period under investigation;
(4) Whether ITA erred in failing to include data on certain companies in the base upon which a country-wide countervailing duty rate was calculated, particularly data on companies that were found to have received de minimis benefits or no benefits at all; and
(5) Whether ITA erred in failing to establish a two-tier countervailing duty deposit rate in this case.
ITA initiated its countervailing duty investigation on August 13, 1984, 49 Fed. Reg. 32894 (Aug. 17, 1984), and sent its first questionnaire to the Government of Mexico on August 24, 1984, defining the period of review as the calendar year 1983 and any fiscal quarters completed thereafter. P.R. 15. The period of review was subsequently limited to 1983. Certain Textile Mill Products from Mexico, 50 Fed.Reg. at 304 (preliminary determination) and 50 Fed.Reg. at 10825 (final determination). The Government of Mexico's response indicated, among other things, that the industry subject to investigation was made up of 2,150 companies, 95% of which were small or medium size firms, and that more than 85% of the industry's exports to the U.S. were represented by 27 listed exporters. P.R. 27 and Confidential Record (C.R.) 1 at I.A., I.B. and Exhibit C. ITA sent questionnaires to 26 of the 27 firms reported by the Government of Mexico. 2 Four of those 26 investigated companies either did not export the subject merchandise during the period of review, or produced products that were not included in the investigation. Six of the remaining 22 firms, as well as seven others, were excluded from ITA's determinations upon timely requests and verification that they did not receive greater than de minimis benefits. 50 Fed.Reg. at 302 (preliminary determination); 50 Fed.Reg. at 10825 (final determination).
The 16 remaining firms provided, in part, the basis for ITA's calculation of a country-wide countervailing duty rate resulting from the FOMEX program. ITA concedes, however, that it erred in its calculations. Defendant requests a remand after all contested issues have been resolved for the limited purpose of correcting its "computational" errors.
I. THE EFFECT OF THE CONTROLLED EXCHANGE RATE SYSTEM UPON BENEFITS RECEIVED FROM FOMEX LOANS
In 1982, the Government of Mexico decreed that two foreign exchange markets would function simultaneously in the country--one free-floating and the other subject to control. Foreign Currency Exchange Decree effective December 20, 1982 reprinted in [Statutory Volume] Doing Business in Mexico app. W2, W2-3 (S. Lefler ed. 1987) (English translation). 3
See Public Record (P.R.) 56 at II.I. According to the Government of Mexico, "[t]he controlled rate was applicable to all exports and services, except the maquiladora (in bond) industry, handcrafts and the tourist industry." 4 P.R. 56 at II.A. See P.R. 56 at II.I. The Foreign Currency Exchange Decree provides that exports which are subject to the controlled rate must be invoiced in foreign currencies, and that "[i]n no case shall exports be contracted to be paid in national currency." Doing Business in Mexico at app. W2-4 (Article Three of the Decree). It is claimed that during 1983, the period under investigation, the controlled rate was about 25% lower than the free market rate, P.R. 56 at II.I, and 31% lower than the international rate of exchange. P.R. 103 at III.A.1. Thus, pursuant to the Foreign Currency Exchange Decree, non-exempt exporters incur significant losses when they must exchange their U.S. dollar earnings for Mexican pesos at the less favorable controlled rate of exchange.
The FOMEX programs at issue involve pre-export and export loans to firms exporting manufactured products. P.R. 36 at A.a.5 and A.a.6. Pre-export loans generally are made in Mexican pesos, though they were temporarily available in U.S. dollars. Export loans are to be made in U.S. dollars. Id.
A. THE POSITIONS OF THE PARTIES
The parties do not dispute that an exchange rate loss is incurred by firms repaying FOMEX peso loans, where U.S. dollar earnings are converted to pesos at the time of repayment at the controlled, rather than free, rate of exchange. Plaintiffs allege, however, that FOMEX "dollar" loans were actually paid out in pesos, at the controlled rate of exchange, and argue that as a result, firms also incurred exchange rate losses in the receipt of, and devaluation losses in the repayment of, FOMEX "dollar" loans. 5 ITA responds that there was insufficient evidence presented to consider the allegation that dollar loans were actually paid out in pesos, and that this allegation was not raised until after ITA had conducted its verification. The court finds that plaintiffs had ample opportunity to make a timely presentation of evidence to support this allegation, and they failed to do so. 6
It may be, however, that what plaintiffs mean by receipt of dollar loans in pesos is that those in plaintiffs' position seem to be required by law in some instances to sell at the official rate the foreign currency which they borrow. This appears to be a result of a general condition of receiving foreign currency loans, regardless of whether such loans are provided by the Mexican credit institutions or foreign financial institutions. See Doing Business in Mexico, W2-5 (Article Six of the Decree). The particular effect of this policy on the firms involved in this proceeding was not addressed by the parties in a timely manner during the administrative proceedings. Thus, ITA need not consider it.
ITA consistently has held that FOMEX loans confer countervailable benefits. See, e.g., Certain Iron-Metal Construction Castings from Mexico, 48 Fed.Reg. 8834 (Mar. 2, 1983); Carbon Black from Mexico, 48 Fed.Reg. 29564 (Jun. 27, 1983); Portland Hydraulic Cement and Cement Clinker from Mexico, 48 Fed.Reg. 43063 (Sept. 21, 1983); Lime from Mexico, 49 Fed.Reg. 35672 (Sept. 11, 1984). In these same cases, ITA also determined that Mexico's dual exchange rate system did not confer countervailable benefits. 7 Id. In this case, however, plaintiffs do not argue the independent countervailability (or lack thereof) of either program, but rather, argue that the operation of the two programs together negates any subsidy in connection with FOMEX loans.
Plaintiffs argue that there is no bounty or grant because Mexico's dual exchange rate system eliminates any benefit which exporting firms might receive from export-related FOMEX loans. In the alternative, they argue that in calculating the "net subsidy," the loss resulting from Mexico's exchange rate system should be deducted as an "application fee, deposit, or similar payment paid in order to qualify for, or to receive the benefit of the subsidy." 19 U.S.C. § 1677(6) (Supp. III 1985).
B. THE EXISTENCE OF A BOUNTY OR GRANT
Congress has granted ITA wide latitude in determining whether a bounty or grant exists. United States v. Zenith Radio Corp., 64 CCPA 130, 138, 562 F.2d 1209, 1216 (1977), aff'd, 437 U.S. 443, 98 S.Ct. 2441, 57 L.Ed.2d 337 (1978). See S.Rep. No. 249, 96th Cong., 1st Sess. 84 (1979). As noted previously, in other circumstances ITA has determined that FOMEX loans constitute bounties or grants.
Plaintiffs cite Robert E. Downs v. United States, 187 U.S. 496, 23 S.Ct. 222, 47 L.Ed. 275 (1903); G.S. Nicholas & Co. v. United States, 7 Ct.Cust.Appls. 97, T.D. 36426, 30 Treas. Dec. 857, aff'd, 249 U.S. 34, 39 S.Ct. 218, 63 L.Ed. 461 (1919); and Zenith Radio Corp. v. United States, 437 U.S. 443, 98 S.Ct. 2441, 57 L.Ed.2d 337 (1978) ( Zenith ) in support of the broad proposition that there must be an overall "benefit" to the exporter in order to find a bounty or grant. All three decisions involved the issue of whether rebates or remissions of indirect taxes are countervailable. In Downs and Nicholas the Treasury Department (the predecessor to ITA in these cases) imposed countervailing duties upon the excessive rebates or remissions of indirect taxes, while in Zenith Treasury
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