Far East Machinery Co., Ltd. v. US

• Decision Date: 24 October 1988
• Docket Number: Court No. 87-01-00003.
• Parties: FAR EAST MACHINERY CO., LTD., Plaintiff, v. UNITED STATES, Defendant, Atcor, Inc., Sawhill Tubular Div., Cyclops Corp., and Wheatland Tube Corp., Defendants-Intervenors.
• Court: U.S. Court of International Trade

699 F. Supp. 309

12 CIT 972

FAR EAST MACHINERY CO., LTD., Plaintiff, v. UNITED STATES, Defendant, Atcor, Inc., Sawhill Tubular Div., Cyclops Corp., and Wheatland Tube Corp., Defendants-Intervenors.

Court No. 87-01-00003.

United States Court of International Trade.

October 24, 1988.

Davis, Wright & Jones, David Simon, Washington, D.C., for plaintiff.

John R. Bolton, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Jeanne E. Davidson, Civ. Div., U.S. Dept. of Justice, Washington, D.C., for defendant.

Schagrin Associates, Roger B. Schagrin, R. Alan Luberda and Paul W. Jameson, Washington, D.C., for defendants-intervenors.

OPINION AND ORDER

RESTANI, Judge:

Defendant-intervenors, Atcor, Inc., et al. (ATCOR) challenge the final results on remand of the first administrative review of an antidumping duty order issued by the United States Department of Commerce, International Trade Administration (ITA). The primary issue raised by defendant-intervenors is whether ITA erred in its less than fair value (LTFV) determination by allowing plaintiff FEMCO a duty drawback adjustment. Defendant-intervenors claim ITA erred in allowing the adjustment because plaintiff has not shown a "sufficient link" between duties paid on coil suitable for incorporation into the exported pipe and the rebated Taiwanese import duties. In addition, defendant-intervenors claim that ITA erred in not allocating the rebate received over plaintiff's worldwide exports of the subject product and in determining the scrap rate used in calculating the adjustment.

BACKGROUND

On May 7, 1984, ITA published its antidumping duty order in the matter of Circular Welded Steel Pipes and Tubes from Taiwan, 49 Fed.Reg. 19,369. Plaintiff FEMCO, though not a participant in the ITA's original investigation of sales at LTFV, produced merchandise which was subjected to an antidumping duty rate of 9.7 percent, the rate set for "all other manufacturers/producers/exporters" of covered steel products from Taiwan. Id. On September 6, 1985, plaintiff requested permission to participate in ITA's first annual review.¹ As a result of this review, ITA announced a final determination of a 41.22 percent dumping margin for plaintiff. Circular Welded Steel Pipes and Tubes from Taiwan, 51 Fed.Reg. 43,946 (Dec. 5, 1986) (final determination). In making its preliminary determination ITA disallowed plaintiff's claimed adjustment for import duty drawback (which according to plaintiff reflected the rebated Taiwanese import duties it had paid), because the claim was "insufficiently substantiated." Circular Welded Steel Pipes and Tubes from Taiwan, 51 Fed.Reg. 29,954 (Aug. 21, 1986). In the final determination, ITA noted that "a significant portion of the margin was due to the inadequacy of FEMCO's submission...." 51 Fed.Reg. 43,946, 43,948 (Dec. 5, 1986).

In January 1987, plaintiff FEMCO challenged the ITA determination before this court. Plaintiff claimed that it had substantiated its claim for duty drawback adjustment and that FEMCO's submissions satisfied the two-prong test which ITA uses to make its duty drawback determinations. At oral argument, plaintiff specifically referred to "Attachment F,"² a document included in FEMCO's September 29, 1986 submissions to ITA. ITA indicated in a subsequent submission that it did not focus upon this document in reaching its final results.

For reasons more fully explained in Far East Machinery Co. v. United States, 12 CIT ___, 688 F.Supp. 610 (1988), this court remanded the case to ITA with instructions to consider the information contained in Attachment F in its review of plaintiff's dumping margins. In its remand determination, ITA found that plaintiff was entitled to a duty drawback adjustment, and a corresponding dumping margin of 12.30 percent.

Defendant-intervenors, now challenge that result arguing primarily that ITA erred in granting FEMCO an adjustment for duty drawback because "FEMCO has not shown that a `sufficient link' exists between the duties paid on coil suitable for incorporation into the exported pipe and the rebate granted on that pipe." Defendant-intervenors' Brief at 1.

DISCUSSION

ITA has articulated a two-prong test to determine whether a party is entitled to a drawback adjustment to its United States price:

First, that the import duty and rebate are directly linked to, and dependent upon, one another.

Second, that the company claiming the adjustment can demonstrate that there were sufficient imports of imported raw materials to account for the duty drawback received on the exports of the manufactured product.

ITA, "Study of Antidumping Adjustments Methodology and Recommendations for Statutory Change" 26-27 (Nov. 1985) (1985 Adjustment Study); Carlisle Tire & Rubber Co. v. United States, 11 CIT ___, 657 F.Supp. 1287 (1987).³

The first prong of this test requires ITA to analyze whether the foreign country in question makes entitlement to duty drawback dependent upon the payment of import duties. This court in Roquette Freres v. United States, 7 CIT 88, 92, 583 F.Supp. 599, 603 (1984) held that no adjustment is proper when the payment of import duties is not a precondition to a refund upon export. See also Tapered Journal Roller Bearings and Parts Thereof from Italy, 49 Fed.Reg. 2,278, 2,280 (Comment 5) (Jan. 19, 1984) (where rebates may be received absent payments of duties, the fact that the firm under investigation actually paid duties and received a rebate is irrelevant).

The second prong of the test requires the foreign producer to show that it has imported a sufficient amount of raw materials (upon which it has paid import duties) to account for the exports, based on which it is claiming rebates. Under this prong, the duty drawback adjustment to United States price is limited to the amount of import duty actually paid. Though there is no requirement that specific input be traced from importation through exportation before allowing drawback on duties paid, see 1985 Adjustment Study, at 26, in this case ITA determined that the producer must establish that the imported product addressed by the quantity test of the second prong is suitable for use in the exported product occasioning the rebate. ITA found upon remand that plaintiff imported a sufficient quantity of coil of the correct specification during the appropriate period to make the pipe which was exported, and for which pipe duties were refunded.

Although the two prongs of ITA's test are set out independently of one another,⁴ until relatively recently neither plaintiff nor defendants articulated their arguments so as to clearly identify the prong of the test to which they are referring. ITA has now resolved, based on Attachment F, that plaintiff satisfied the second prong of the test. This no longer appears to be an issue; attention is now focused on the first prong.

Duty Payment as a Prerequisite for Drawback

Defendant-intervenors argue that ITA has erred in granting an adjustment to U.S. price for drawback of duties because the Taiwanese duty drawback program for pipe does not require as a prerequisite for refund, payment of duties on coil of the exact specification suitable for the standard pipe at issue. Defendant-intervenors assert that the issue is "not in any way resolved by the fact that FEMCO coincidentally did import enough coils of the appropriate size, grade, type and quality to cover its exports of the standard pipe under review to the United States." Defendant-intervenors' brief at 4. As a basis for its argument, defendant-intervenors allege that the duties which were rebated by Taiwan upon FEMCO's exportation of the standard pipe under review in this case, were actually paid on coils which could not have been used to produce the particular type of pipe exported. Thus, according to defendant-intervenors there was no link between either the duties paid on imported coils and the rebate payment, or between those coils and the pipe exported. Id.

Defendant-intervenors, however, have cited very little to support their allegation that the Taiwanese system does not meet the linking requirements of the first prong of the ITA test.⁵ In fact, all parties seem to agree that Taiwan does require a producer to demonstrate that a nexus exists between import duties paid and export rebates received. The documentation submitted supports the conclusion that in order to receive a full rebate upon export of steel pipe an exporter must show that it has imported quantities of "steel coil" equal to the tonnage of pipe exported plus the tonnage expected to become scrap during manufacturing.⁶ It does not appear to be coincidental that plaintiff paid duties on steel coil in order to get a rebate upon exported steel pipe. There was a link between payment of duties on coil and refund of duties on pipe. The issue now in dispute is whether the linkage requirement in the Taiwanese system is so broad as to render it a nullity in relation to the United States trade laws.

In Huffy Corp. v. United States, 10 CIT ___, 632 F.Supp. 50, 53 (1986) the court held that it is not sufficient that a producer pay import duties upon raw materials and then receive a corresponding rebate upon the exportation of the finished product. Instead, a foreign country must make payment of import duties a prerequisite to receipt of an export rebate in order to qualify for an adjustment to U.S. price under 19 U.S.C. § 1677a(d)(1) (1982). With regard to bicycles to which rebates were calculated based on average rates of use of imported parts, the Huffy court stated, "an allocation of import duties may give rise to an adjustment to United States price provided import duties are actually paid and rebated, and there is a sufficient link between the cost to the manufacturer (import duties paid) and the claimed adjustment (rebate granted.)" 632 F.Supp. at 53.

In the present case, defendant-intervenors argue that Taiwan's linkage requirement, as applied to the steel pipe...