78 F.3d 1539 (Fed. Cir. 1996), 94-1457, Saarstahl AG v. United States

Docket Nº:94-1457, 94-1475.
Citation:78 F.3d 1539
Party Name:SAARSTAHL AG, Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant, v. INLAND STEEL BAR COMPANY, Defendant-Appellant.
Case Date:March 12, 1996
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 1539

78 F.3d 1539 (Fed. Cir. 1996)

SAARSTAHL AG, Plaintiff-Appellee,

v.

The UNITED STATES, Defendant-Appellant,

v.

INLAND STEEL BAR COMPANY, Defendant-Appellant.

Nos. 94-1457, 94-1475.

United States Court of Appeals, Federal Circuit

March 12, 1996

Rehearing Denied; Suggestion for Rehearing In Banc Declined

June 7, 1996.

Page 1540

Appealed from U.S. Court of International Trade; Judge Carman.

David L. Simon, Grunfeld, Desiderio, Lebowitz & Silverman, of Washington, DC, argued for plaintiff-appellee. With him on the brief was Max F. Schutzman. Of counsel was Jeffrey S. Grimson.

Jeffrey M. Telep, Attorney, Department of Justice, of Washington, DC, argued for defendant-appellant, The United States. With him on the brief were Frank W. Hunger, Assistant Attorney General and David M. Cohen, Director. Also on the brief were Stephen J. Powell, Chief Counsel, John D. McInerney, Senior Counsel and Edward S. Reisman, Attorney-Advisor, Office of Chief Counsel for Import Administration, Washington, DC, of counsel. Of counsel was Berniece A. Browne.

Charles Owen Verrill, Wiley, Rein & Fielding, of Washington, DC, argued for defendant-appellant, Inland Steel Bar Company. With him on the brief were Alan H. Price, Willis S. Martyn, III and Brian E. Rosen. Also on the brief were Alan Wm. Wolff, Michael H. Stein and John A. Ragosta, Dewey Ballantine, of Washington, DC, and John J. Mangan and D. Scott Nance, Skadden, Arps, Slate, Meagher & Flom, of Washington, DC. Of counsel was Peter S. Jordan, Wiley, Rein & Fielding, of Washington, DC.

Richard O. Cunningham, Sheldon E. Hochberg, William L. Martin, II and Peter Lichtenbaum, Steptoe & Johnson, of Washington, DC, were on the brief for Amicus Curiae, British Steel PLC.

Before MAYER, Circuit Judge, SKELTON, Senior Circuit Judge, and PLAGER, Circuit Judge.

Opinion for the court filed by Circuit Judge MAYER. Dissenting opinion filed by Circuit Judge PLAGER.

MAYER, Circuit Judge.

The United States appeals the judgment of the Court of International Trade, Consol. Case No. 93-04-00219 (June 7, 1994), vacating the final determination of the United States Department of Commerce in Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Germany, 58 Fed.Reg. 6233 (Dep't Comm. Jan. 27, 1993) (final affirmative countervailing duty determination) ("Final Determination "), as modified on remand in Remand Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Germany (Oct. 12, 1993) ("Remand Determination "). Commerce had determined that the arm's length sale of a subsidized government-owned company does not automatically terminate the countervailability of previously bestowed subsidies. Commerce also determined that a portion of the sales price paid by the private party for the steel company constituted repayment of a portion of the previously bestowed subsidies and extinguished the subsidies to the extent of the

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repayment. In vacating this decision "to the extent [that] Commerce determined [that] previously bestowed subsidies are passed through to a successor company sold in an arm's length transaction," Order at 1, the Court of International Trade held that the arm's length sale of the company extinguished any remaining "competitive benefit" from the prior subsidies, because the price presumably included the market value of any continuing competitive benefit. 858 F.Supp. at 193. For reasons set forth below, we reverse and remand.

Background

Between 1978 and 1985, Saarstahl Volklingen GmbH ("Saarstahl SVK"), a German steel company, received various subsidies from the West German federal government and the Saarland state government. These governments gave Saarstahl SVK guaranteed loans, government funds, and "RZVs," which are loans that must be repaid at face value, with repayment made contingent on Saarstahl SVK's return to profitability. When Saarstahl SVK could not make its principal payments, the governments assumed them, and Saarstahl SVK continued to amass RZVs.

Until 1986, Saarstahl SVK was wholly owned by Arbed Luxembourg ("Arbed"), a Luxembourg state-owned company. In that year, with Saarstahl SVK's financial condition continuing to deteriorate, Arbed transferred 76% of its ownership of Saarstahl SVK to the government of Saarland. Usinor-Sacilor, a French company that owned German steel producer AG der Dillinger Huttenwerke ("Dillinger") expressed interest in purchasing Saarstahl SVK if it was relieved of its debt burden. The governments therefore devised a restructuring plan that entailed the forgiveness of all of Saarstahl SVK's repayment obligations to the governments, as well as a portion of the company's debts to private banks.

On June 15, 1989, Saarstahl SVK was converted into a stock company called Dillinger Hutte Saarstahl AG ("DHS"). In exchange for Saarstahl SVK's assets and a capital contribution of DM 145.1 million, the Saarland government received 27.5% ownership interest in DHS. Usinor-Sacilor received 70% ownership of DHS in exchange for its shares in Dillinger. Arbed received 2.5% of DHS in exchange for a capital contribution of DM 8.9 million. On June 30, 1989, DHS transferred Saarstahl SVK's lead-bar assets to a newly formed subsidiary, Saarstahl AG ("Saarstahl").

Commerce initiated an investigation of Saarstahl on May 8, 1992, based on a petition filed by Inland Steel and Bethlehem Steel, and issued its preliminary determination on September 17, 1992. On January 27, 1993, in its final determination, Commerce determined that "[b]ecause the debt forgiveness was part of the deal negotiated to effect the merger," it benefited the newly formed company, not DHS's predecessor, and was thus countervailable. Final Determination, 58 Fed.Reg. at 6234. Commerce also determined that the debt forgiveness by private banks was countervailable, because it was required by the governments as part of a government-led debt reduction package, and because the governments guaranteed Saarstahl's future liquidity, "implicitly assuring the private banks that the remaining portion of Saarstahl's outstanding loans would be repaid." 58 Fed.Reg. at 6235. Following the International Trade Commission's affirmative injury determination, Commerce issued a countervailing duty order for the relevant products. 58 Fed.Reg. 15,325 (1993).

In the subsequent countervailing duty investigations in Certain Steel Products From Germany, 58 Fed.Reg. 37,315 (1993) (final determination), Commerce reconsidered the effect of privatization on the benefits from prior subsidies and determined that, although the privatization of a public company through an arm's length sale did not automatically extinguish the countervailability of the prior subsidies, the price paid for the company could constitute a partial repayment of the prior subsidies.

Commerce requested and was granted a remand to reconsider its original determination, and on remand adopted the methodology developed in the Certain Steel cases. Remand Determination: Certain Hot-Rolled Lead and Bismuth Steel Products from Germany (Oct. 12, 1993). It determined that the

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debt forgiveness amounted to a grant bestowed on Saarstahl in 1991, the benefit of which passed through to DHS after Saarstahl was privatized. It also determined that part of the Saarstahl sales price represented partial repayment of the subsidy and adjusted the countervailing duty margins accordingly, treating the purchase price for Saarstahl as payment for prior subsidies to the same extent that subsidies comprised Saarstahl SVK's net worth. On January 27, 1993, Commerce had imposed a countervailing duty of 17.28%. On remand, Commerce imposed a countervailing duty of 16.85%.

On June 7, 1994, the Court of International Trade upheld Commerce's determination that Saarstahl was privatized because it was supported by substantial evidence, but held that Commerce's privatization methodology was unlawful to the extent that it passed previously bestowed subsidies through to a successor company sold in an arm's length transaction. To that extent, the court vacated Commerce's final determination as modified on remand. The court held that the sale of Saarstahl to DHS in an arm's length transaction automatically extinguished subsidies previously bestowed on Saarstahl. Thus, DHS did not directly or indirectly receive a subsidy, and no countervailable event had occurred under 19 U.S.C. § 1671(a) (1994). The court acknowledged that it must accord deference to Commerce's interpretation of the statute it administers, but concluded that in this case that interpretation would alter Congress's intent.

Discussion

The issue is whether the Court of International Trade erred in vacating Commerce's final determination and holding that Commerce's privatization methodology is unlawful to the extent that it allows previously bestowed subsidies to be passed through to a successor company sold in an arm's length transaction. We review issues of statutory interpretation de novo. Suramerica de Aleaciones Laminadas, C.A. v. United States, 966 F.2d 660, 663 (Fed.Cir.1992); Chaparral Steel Co. v. United States, 901 F.2d 1097, 1100 (Fed.Cir.1990).

In the Court of International Trade, as in this court, Commerce's construction must be sustained if it...

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