Beijing Tianhai Indus. Co. v. United States

Decision Date06 February 2015
Docket NumberSlip Op. 15–14.,Court No. 12–00204.
Citation52 F.Supp.3d 1351
PartiesBEIJING TIANHAI INDUSTRY CO., LTD., Plaintiff, v. UNITED STATES, Defendant, and Norris Cylinder Company, Defendant–Intervenor.
CourtU.S. Court of International Trade

Mark E. Pardo and Andrew T. Schutz, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, of Washington, D.C., argued for plaintiff. With them on the brief was Francis J. Sailer.

Douglas G. Edelschick, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C., argued for defendant. With him on the brief were Stuart F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr., Assistant Director. Of counsel on the brief was Matthew D. Walden, Attorney, Office of the Chief Counsel for Import Administration, U.S. Department of Commerce, of Washington, D.C.

Edward M. Lebow and Nora L. Whitehead, Haynes and Boone, LLP, of Washington, D.C., argued for defendant-intervenor.

OPINION

EATON, Senior Judge:

This subsidy case is before the court on Beijing Tianhai Industry Co., Ltd.'s (“BTIC” or plaintiff) motion for judgment on the agency record challenging the final determination of the United States Department of Commerce (“Commerce” or the “Department”) in High Pressure Steel Cylinders From the People's Republic of China, 77 Fed.Reg. 26,738 (Dep't of Commerce May 7, 2012) (final affirmative countervailing duty determination), and accompanying Issues and Decision Memorandum (“Issues & Dec. Mem.”) (collectively, “Final Determination”), and the subsequent countervailing duty order published as High Pressure Steel Cylinders From the People's Republic of China, 77 Fed.Reg. 37,384 (Dep't of Commerce June 21, 2012) (countervailing duty order). For the reasons set forth below, Commerce's Final Determination is sustained.

BACKGROUND

In June 2011, in response to a petition filed by defendant-intervenor Norris Cylinder Company (defendant-intervenor), the Department initiated a countervailing duty investigation of high pressure steel cylinders from the People's Republic of China (“PRC”). High Pressure Steel Cylinders From the PRC, 76 Fed.Reg. 33,239 (Dep't of Commerce June 8, 2011) (initiation of countervailing duty investigation) (“Initiation Notice”). Commerce selected BTIC, together with its cross-owned1 affiliates, which included Tianjin Tianhai High Pressure Container Co., Ltd. (Tianjin Tianhai), as the mandatory respondent. Issues & Dec. Mem. at I. The period of investigation (“POI”) was January 1, 2010 through December 31, 2010. Issues & Dec. Mem. at II.A. The Department investigated whether BTIC and Tianjin Tianhai received countervailable subsidies2 by obtaining seamless tube steel (“steel tube”), an input in the manufacture of the valves, for less than adequate remuneration. See Initiation Notice, 76 Fed.Reg. at 33,241. As part of its investigation, the Department issued questionnaires to determine if the steel tube inputs purchased by BTIC and Tianjin Tianhai from third-party trading companies—steel tube that those third-party trading companies had purchased from the producers—were provided by “authorities,”3 as that term is used in 19 U.S.C. § 1677(5)(B), and whether a “benefit”4 was provided to BTIC and Tianjin Tianhai, as that term is used in 19 U.S.C. § 1677(5)(E)(iv) and 19 C.F.R. § 351.511.5

BTIC answered the questionnaires for itself and Tianjin Tianhai, describing their supply chain and indicating that one producer whose steel tube is at issue6 was a non-cross-owned affiliate of BTIC (the “Affiliated Producer”).7 The government of the PRC (the “PRC government”) provided the Department with ownership information for another steel tube producer (the “Unaffiliated Producer”), with which BTIC had no affiliate relationship.8

On October 18, 2011, the Department issued a Preliminary Determination, in which it found that the Affiliated Producer and the Unaffiliated Producer were both authorities under 19 U.S.C. § 1677(5)(B), providing financial contributions pursuant to 19 U.S.C. § 1677(5)(D)(iii), and that BTIC and Tianjin Tianhai received a benefit as described in 19 U.S.C. § 1677(5)(E)(iv). See High Pressure Steel Cylinders From the PRC, 76 Fed.Reg. 64,301, 64,305 (Dep't of Commerce Oct. 18, 2011) (preliminary affirmative countervailing duty determination and alignment of final countervailing duty determination with final antidumping duty determination) (“Preliminary Determination”). As a result, the Department preliminarily determined that the transactions through the third-party trading companies were countervailable transactions because the steel tube was provided by producers, which were authorities, and that a benefit was conferred on BTIC to the extent that a good (the steel tube) was provided for less than adequate remuneration. Preliminary Determination, 76 Fed.Reg. at 64,305.

To measure the adequacy of remuneration, Commerce sought to construct a benchmark price,9 representative of the market price for steel tube, in accordance with 19 C.F.R. § 351.511(a)(2). Commerce's hierarchy, contained in its regulation, directs it to “normally” rely on “a market-determined price for the good or service resulting from actual transactions in the country in question.”19 C.F.R. § 351.511(a)(2)(i) ; see also Countervailing Duties, 63 Fed.Reg. 65,348, 65,377 (Dep't of Commerce Nov. 25, 1998). Where “there is no useable market-determined price with which to make the comparison,” however, the regulation directs the Department “to measure the adequacy of remuneration by comparing the government price to a world market price where it is reasonable to conclude that such price would be available to purchasers in the country in question.” 19 C.F.R. § 351.511(a)(2)(ii).

Using ownership information provided by the PRC government, the Department found that 38 percent of steel tube production in the PRC during the POI was manufactured by companies that had been designated by Commerce as state-owned. Preliminary Determination, 76 Fed.Reg. at 64,305. Finding that this level of government ownership was substantial, the Department determined preliminarily “that domestic prices in the PRC for [steel tube were] distorted such that they [could not] be used as a tier one benchmark.” Preliminary Determination, 76 Fed.Reg. at 64,305. Having found domestic prices in the PRC for steel tube to be unusable, the Department instead used world market prices available to purchasers in the PRC (i.e., a tier-two benchmark) as a benchmark for steel tube. See Preliminary Determination, 76 Fed.Reg. at 64,305. Thus, Commerce preliminarily relied on free on board (“FOB”)10 and export prices submitted by defendant-intervenor, which were reported in SteelOrbis11 for exports from Italy, when determining the value of the steel tube provided. Preliminary Determination, 76 Fed.Reg. at 64,305. It then added delivery charges to the benchmark price, which included, among other things, inland freight charges. See Preliminary Determination, 76 Fed.Reg. at 64,305. Commerce also added the value of the import duties reported by the PRC government and the value-added tax (“VAT”)12 applicable to imports of steel tube into the PRC. Preliminary Determination, 76 Fed.Reg. at 64,305.

Following the Preliminary Determination, in its case brief before Commerce, plaintiff argued that the transactions involving the third-party trading companies could not be countervailed because (1) the Affiliated Producer was an affiliate of BTIC and Tianjin Tianhai, and (2) the Unaffiliated Producer was not an authority. See BTIC Group's Administrative Case Br. at 16, 23, CD 92 at bar code 3065133–01 (Mar. 23, 2012), ECF Dkt. No. 18 (“BTIC's Case Br.”).

Plaintiff also submitted additional proposed benchmark information in the form of SteelOrbis prices of steel tube from Ukraine and Iran. When submitting these prices, plaintiff argued that the value of the benefit, if in fact there was any, should have been calculated using the Ukrainian price data it supplied, because those prices were more specific to the size of steel tube that BTIC and Tianjin Tianhai used. See BTIC's Case Br. at 35–37. Alternatively, plaintiff proposed that, in the event that Commerce did not use the Ukraine data, it should instead use the lowest world market price during each month. BTIC's Case Br. at 38. As a third option, plaintiff suggested that the Department average all of the prices on the record to obtain a world market benchmark price. See BTIC's Case Br. at 41.

In addition, plaintiff contended that Commerce should not have added the VAT and import duties. BTIC's Case Br. at 41–42. According to plaintiff, neither BTIC nor Tianjin Tianhai was required to pay the VAT or import duties on imported steel tube used for export.See BTIC's Case Br. at 41.

In its Final Determination, the Department made one departure from the Preliminary Determination. Rather than rely on the Italian prices as the world market price, as it had done in its Preliminary Determination, Commerce accepted plaintiff's suggestion and averaged the prices available on the record (from Ukraine, Italy, and Iran) to calculate the benchmark price. See Issues & Dec. Mem. at cmt. 8. This action followed.

STANDARD OF REVIEW

“The court shall hold unlawful any determination, finding, or conclusion found ... to be unsupported by substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i).

DISCUSSION
I. Legal Framework

Under the trade statute, a countervailable subsidy is found to be present where “an authority ... provides a financial contribution ... to a person and a benefit is thereby conferred.” 19 U.S.C. § 1677(5)(B)(i). The Department, however, is directed to determine “whether a subsidy exists ... without regard to whether the subsidy is provided directly or indirectly on the manufacture, production, or export of merchandise.” Id. § 1677(5)(C). When determining the amount of any subsidy under tier...

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