ATC Tires Private Ltd. v. United States

• Decision Date: 25 June 2018
• Docket Number: Slip Op. 18–79,Court No. 17–00064
• Citation: 322 F.Supp.3d 1365
• Parties: ATC TIRES PRIVATE LTD. and Alliance Tire Americas, Inc., Plaintiffs, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

322 F.Supp.3d 1365

ATC TIRES PRIVATE LTD. and Alliance Tire Americas, Inc., Plaintiffs,

v.UNITED STATES, Defendant.

Slip Op. 18–79

Court No. 17–00064

United States Court of International Trade.

June 25, 2018

Eric C. Emerson and J. Claire Schachter, Steptoe & Johnson, LLP, of Washington, DC, argued for plaintiffs. With them on the brief was Christopher G. Falcone.

John J. Todor, Senior Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for defendant. With him on the brief were Chad A. Readler, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director. Of counsel was Jessica DiPietro, Office of the Chief Counsel for Trade Enforcement & Compliance, U.S. Department of Commerce, of Washington, DC.

OPINION

Katzmann, Judge:

In this case, the court enters territory rarely traversed by judicial decision—namely the intersection of foreign Special Economic Zone ("SEZ") and Export Oriented Unit ("EOU") programs with American laws that permit levying additional duties on certain imports entering the United States to offset the unfair competitive advantages enjoyed by foreign producers that are subsidized by their respective governments.¹ Plaintiffs ATC Tires Private Ltd. ("ATC") and Alliance Tires Americas, Inc. (collectively, "Alliance")² bring this action challenging the Department of Commerce's ("Commerce") final determination in a countervailing duty investigation covering certain new pneumatic off-the-road tires from India that incentives associated with Indian EOU and SEZ programs are countervailable subsidies. Countervailing Duty Investigation of Certain New Pneumatic Off-the-Road Tires from India: Final Affirmative Determination, and Final Affirmative Critical Circumstances Determination, in Part, 82 Fed. Reg. 2,946 (Dep't Commerce Jan. 10, 2017) ("Final Determination"), P.R. 545, and accompanying Issues and Decision Memorandum (Dep't Commerce Jan. 3, 2017) ("IDM"), P.R. 538. Specifically, Alliance argues that Commerce's determination that SEZ and EOU facilities were within the customs territory of India and countervailable is neither supported by substantial evidence nor in accordance with law. The court concludes that Commerce's determination was supported by substantial evidence and in accordance with law.

BACKGROUND

A. Legal Background

i. Countervailable Subsidies Generally.

To empower Commerce to offset economic distortions caused by countervailable subsidies and dumping, Congress enacted the Tariff Act of 1930. Sioux Honey Ass'n v. Hartford Fire Ins. Co., 672 F.3d 1041, 1046 (Fed. Cir. 2012). Under the Tariff Act's framework, Commerce may—either upon petition by a domestic producer or of its own initiative—begin an investigation into potential countervailable subsidies and, if appropriate, issue orders imposing duties on the subject merchandise. Id.; 19 U.S.C. §§ 1671, 1673.

Commerce determines that a countervailable subsidy exists where a foreign government provides a financial contribution which confers a benefit to the recipient. 19 U.S.C. § 1677(5)(B). A "financial contribution" includes "the direct transfer of funds, such as grants, loans, and equity infusions, or the potential direct transfer of funds or liabilities, such as loan guarantees" and "foregoing or not collecting revenue that is otherwise due." 19 U.S.C. § 1677(5)(D)(i)-(ii). A subsidy must also be specific to be countervailable, and an export subsidy is considered specific when it "is, in law or in fact, contingent upon export performance, alone or as 1 of 2 or more conditions [for benefit eligibility]." 19 U.S.C. § 1677(5A)(B).

ii. Special Economic Zones and Export Oriented Units in India.

At issue in the case are Alliance's production facilities, one operating in an SEZ in Tamil Nadu and one operating in an EOU in Gujarat.³ Commerce has recognized that an SEZ may be established to manufacture goods and to serve as a free trade and warehousing area pursuant to India's SEZ Act of 2005. See Polyethylene Terephthalate Firm, Sheet, and Strip from India, 80 FR 46,956 (Dep't Commerce Aug. 6, 2015) (Preliminary Results), and accompanying Issues and Decision Memorandum ("Indian PET PDM 2015") at 13, unchanged by Polyethylene Terephthalate Firm, Sheet, and Strip from India, 81 FR 7,753 (Dep't Commerce Feb. 16, 2016). As the Government of India has explained: "SEZ/EOU units are designated areas located within India territory for the generation of additional economic activity within the country and for the promotion of exports. By Indian law, companies that operate SEZ/EOU units are entitled to exemptions from customs duties and from various taxes on goods and services that are imported and exported from SEZ/EOU facilities." Final Determination at 19–20 (summarizing the Government of India's comments). Companies in an Indian SEZ receive: (1) duty-free importation of capital goods and raw materials, components, consumables, intermediates, spare parts and packing material; (2) purchase of capital goods and raw materials, components, consumables, intermediates, spare parts and packing material without the payment of central sales tax thereon; (3) exemption from the services tax for services consumed within the SEZ; (4) exemption from stamp duty for all transactions and transfers of immovable property and related documents within the SEZ; (5) exemption from electricity duty on the sale or supply to the SEZ facility; (6) certain income tax exemptions; and (7) discounted land within an SEZ. Id. To be eligible for these benefits, all goods produced, excluding rejects and domestic sales, must be exported and must achieve a net foreign exchange ("NFE") goal—i.e., export a sufficient quantity of product—calculated cumulatively for a period of five years from the commencement of production. ATC's Resp. to Initial Countervailing Duty Questionnaire at 18–19 (Apr. 21, 2016) ("ATC Initial QR"), P.R. 156–58, 179, C.R. 98, 205, 219.

B. Factual and Procedural Background

On February 10, 2016, Commerce initiated a countervailing subsidy investigation into off-the-road tires from India.

Certain New Pneumatic Off-the-Road Tires From India, The People's Republic of China, and Sri Lanka: Initiation of Less–Than–Fair–Value Investigations, 81 Fed. Reg. 7,073 (Dep't Commerce), P.R. 54.⁴ ATC, a producer of pneumatic off-the road tires in India, was selected as a mandatory respondent.⁵ Final Determination; IDM. Commerce issued a questionnaire to the Government of India, which was then forwarded to ATC. Letter from Dep't of Commerce to Embassy of India Pertaining to Gov't of India, Respondent Questionnaire (March 2, 2016), P.R. 87. In response, ATC indicated that one of its plants is located in an SEZ governed by the SEZ Act of 2005 and another plant has EOU status. ATC Initial QR at 15–16, 23, Ex. 19. Both plants are exempted from customs duties and various taxes. Id.; Gov't of India Resp. to Part II of the Department's Countervailing Duty Questionnaire at 77–78 (Apr. 28, 2016) ("Gov't of India QR"), P.R. 194, C.R. 347. ATC also stated that, under Indian law, the plants are located outside the customs area territory of India. ATC Initial QR at 16–20, 23. ATC explained that companies operating in an SEZ or EOU must meet a certain NFE requirement or be subject to a penalty, and detailed the controls the Government of India imposes on the shipment of merchandise from SEZs to India's domestic tariff area. Id. at 17, 19.

Commerce issued its preliminary determination on June 20, 2016. Certain New Pneumatic Off-the-Road Tires from India, 81 Fed. Reg. 39,903 (Dep't Commerce), P.R. 464, and accompanying Issues and Decision Memorandum ("PDM"), P.R. 455. Commerce preliminarily determined that the SEZ and EOU facilities are within the customs territory of India and these programs are countervailable because: (1) program eligibility is contingent upon export performance; (2) the Government of India had not provided evidence that its record-keeping measures for the program are sufficiently stringent; and (3) the same programs had been found countervailable in previous determinations. PDM at 18–23. Commerce consequently considered unpaid duty exemptions on capital goods and raw materials imported under the programs to be interest-free loans—and thus countervailable benefits—made to ATC at the time of importation. Id. at 23.

At verification, the Government of India explained that the SEZ and EOU facilities are "considered to be bonded zones that are outside the domestic tariff area of India (DTA), and that they are both monitored in essentially the same manner."

Verification of the Questionnaire Resps. Submitted by the Gov't of India (Oct. 5, 2017) at 2, P.R. 512, C.R. 707. The Government of India described its program monitoring methods as follows. Companies "execute a security bond that allows these companies to import goods without the payment of duties at the time of import" and Indian customs officials monitor imports through a "closed system" initiated by a company notifying "[Indian] Customs of its intent to import capital goods or raw materials." Id."The actual physical goods" are "monitored based on the declaration forms regarding the goods" but "physical inspections [are] not normal." Id. The Government of India explained that they did not consider waste and consumption factors or provide for the monitoring of waste and scrap. Id. at 3. Customs officials had not audited ATC's manufacturing processes at ATC's SEZ location. Id. Exports from SEZs and EOUs are monitored in a similar fashion, and physical inspections are likewise atypical for EOU manufacturing. Id. ATC's explanation of the monitoring process was largely the same as the Government of India's description. Verification of the Questionnaire Resps. Submitted by ATC Tires Private Limited (Oct. 6, 2016) at 5 ("ATC Verification Resp."), P.R. 513, C.R. 708.

ATC submitted a case brief on October 17, 2016, arguing that...