Slip Op. 05-114
UNITED STATES COURT OF INTERNATIONAL TRADE
____________________________________
x
Essar Steel, Ltd. :
Plaintiff, :
Court No. 04-00239
v. : Before: Judith M. Barzilay, Judge
Public Version
United States :
Defendant :
and :
United States Steel Corporation, :
Defendant-Intervenor. :
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OPINION
[Plaintiff’s USCIT R. 56.2 Motion for Judgment Upon the Agency Record denied.]
Decided: August 30, 2005
Coudert Brothers, Kay C. Georgi, Esq., (Mark P. Lunn, Esq.) for Plaintiffs.
Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, Jeanne E. Davidson,
Deputy Director, (David D’Alessandris), Trial Attorney, U.S. Department of Justice, Commercial
Litigation Branch, Civil Division; Marisa Beth Goldstein, Office of the Chief Counsel for Import
Administration, U.S. Department of Commerce, of counsel, for Defendant.
Skadden, Arps, Slate, Meagher & Flom LLP, Robert E. Lighthizer, John J. Mangan, (Jeffrey D.
Gerrish), for Defendant-Intervenor.
BARZILAY, JUDGE:
Before the court is plaintiff Essar Steel Ltd.’s (“Essar’s”) USCIT Rule 56.2 Motion for
Judgment Upon the Agency Record, contesting certain determinations made by the Department
of Commerce, International Trade Administration (“Commerce” or “the government”) in Certain
Case No. 04-00239 Page 2
Carbon Steel Flat Products from India: Notice of Final Results of Countervailing Duty
Administrative Review, 69 Fed. Reg. 26,549 (May 13, 2004) (“Final Results”). Essar argues that
Commerce’s findings, that a Government of India (“GOI”) export promotion credit program
conferred a benefit upon Essar, were unsupported by the record. Because this court finds that a
benefit was conferred upon Essar when it received credits pursuant to the program, and that there
is no evidence on the record that Essar withdrew from the program or returned its credits during
the period of review1 (“POR”), for the reasons stated herein, plaintiff’s motion is denied.
I. Background
Plaintiff challenges Commerce’s decision to countervail the application of the Duty
Entitlement Passbook Scheme (“DEPS”) program to its shipment of the subject merchandise to
the United States during the applicable period of review. Under the DEPS, a company exporting
goods would earn credits from the GOI that exempt it from the payment of customs duties on
imports. Operating under this program, Essar processed a single shipment of product to the
United States during the POR, and accordingly earned credits. Essar argued before the agency
that this shipment was mistakenly processed, and that it took affirmative steps to neutralize or
reverse any benefit that may have been conferred by the GOI.
Commerce initiated an administrative review of a countervailing duty order on certain
hot-rolled carbon steel flat products from India, upon Essar’s timely request. See Initiation of
Antidumping and Countervailing Duty Administrative Review and Requests for Revocation in
Part, 68 Fed. Reg. 3009 (Dept. Commerce Jan. 22, 2003) (Public Record (“PR”) at 258). In
1
The POR in this case was from April 20, 2001 to December 31, 2002.
Case No. 04-00239 Page 3
response to Commerce’s Countervailing Duty Questionnaire, Essar initially claimed that it did
not use the DEPS during the period of review (“POR”), but subsequently acknowledged that it
had mistakenly processed one shipment of the subject merchandise to the United States under the
DEPS. See Essar’s Response to the Department’s Countervailing Duty Questionnaire (April 4,
2003) (PR at 271). After Essar realized that it had made such a shipment, in a letter to the Indian
Directorate General of Foreign Trade (“DGFT”), Essar requested that the GOI switch its
shipment to the Duty Free Replenishment Certificate program (“DFRC”), an alternative to
DEPS. The DGFT responded by directing Essar to take certain action.
During the following October and November, Commerce conducted verification of Essar
in India. At verification, Commerce confirmed that companies may switch between export
programs as long as no benefits have been claimed, and further that “[Essar] did not use a DEPS
credits license on sales of subject merchandise to the United States during the POR.” See
Memorandum from Tipten Troidl et. al., in Certain Hot-Rolled Carbon Steel Flat Products from
India, at 5-6, Inv. No. C-533-821 on the Verification Responses Submitted by Essar Steel, Ltd.
(Dept. Commerce Dec. 8, 2003) (“Essar Verification Report”) (PR at 339).
On May 13, 2004, Commerce published the final results of its countervailing duty review.
See Final Results, 69 Fed. Reg. 26,549. In its Final Results, Commerce found that Essar earned
a credit under the DEPS on the shipment of the subject merchandise to the United States in 2002,
and that this provided a countervailable financial contribution which conferred a benefit at the
time of exportation and was specific. Id. Commerce also found that Essar’s steps towards
withdrawal from the DEPS program did not constitute a payback that extinguished any benefit
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conferred upon Essar.
II. Analysis
This court has jurisdiction pursuant to 28 U.S.C. § 1581(c). Commerce’s determination
must be affirmed unless it is “unsupported by substantial evidence on the record, or otherwise not
in accordance with law.” 19 U.S.C. § 1516a(b)(1)(B) (2000). Substantial evidence is defined as
“more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept
as adequate to support a conclusion.” Matsushita Elec. Indus. Co., Ltd. v. United States, 750
F.2d 927, 933 (Fed. Cir. 1984) (citation omitted). Under the substantial evidence standard of
review, the court must sustain Commerce’s determination if it is reasonable and supported by the
record evidence as a whole. See Hyundai Elecs. Co., Ltd. v. United States, 23 CIT 302, 53 F.
Supp. 2d 1334, 1338 (1999).
Essar argues that Commerce’s findings, that the DEPS provided a financial contribution
and conferred a benefit on Essar, are not supported by substantial evidence on the record and are
not otherwise in accordance with the law. Essar bases this argument on the fact that it never
“used” its DEPS credits, and the claim that it switched those credits to another non-
countervailable export program. Essar argues in the alternative that it withdrew from the DEPS
program, and that this constituted a payback that extinguished any benefit conferred upon Essar.
A. Whether DEPS provided a financial contribution and conferred a benefit
upon Essar
1. Financial Contribution
A “financial contribution” is conferred when a government foregoes or does not collect
revenue that is otherwise due, such as by granting tax credits or deductions from taxable income.
Case No. 04-00239 Page 5
19 U.S.C. § 1677(5)(D)(ii). In the present case, Essar processed one shipment of the subject
merchandise to the United States during the POR under the DEPS program, and the GOI
accordingly provided Essar with credits for the future payment of import duties. Commerce
verified, and Essar does not dispute, that “the DEPS program enables exporting companies to
earn import duty exemptions in the form of passbook credits rather than cash.” Preliminary
Results, 69 Fed. Reg. at 912 (PR at 912). Furthermore, “DEPS credits can be used for any
subsequent imports, regardless of whether they are consumed in the production of an export
product,” and “the credits are valid for twelve months and transferable.” Id. See also Issues and
Decision Memorandum, at 13 (PR at 13) (“an important aspect of the DEPS program is that these
licenses can be sold or traded for value”). Because Essar was granted credits for its shipment
under the DEPS program, Essar received a financial contribution from the Government of India.
2. Benefit
Essar argues that because it never “cashed in” its credits, it never received a benefit from
this financial contribution. Essar repeatedly cites to Commerce’s statement in its verification
report that “we confirmed that the company did not use a DEPS license on sales of subject
merchandise to the United States during the POR.” Essar Verification Report, at 7 (PR at 339).
Commerce explained that “the quoted passage simply means that Essar had not claimed any
imports against the shipment” – that although Essar received credits, it never utilized them for
the payment of import duties. Final Results, Issues and Decision Memorandum, Comment 2, at
13 (PR at 375). Commerce explained that benefits from the DEPS program are conferred as of
the date of exportation of the shipment for which the pertinent DEPS credits are earned rather
Case No. 04-00239 Page 6
than the date the DEPS credits are used. Essar challenges this calculation on an “as earned”
basis, and argues that Commerce should have calculated using an “as received” methodology.
Commerce’s regulations provide that it normally will consider a benefit as having been received,
but in cases of an exemption – as in the case at hand – it will consider a benefit as having been
received on the date of exportation. 19 C.F.R. § 351.519(b)(2). Seizing upon the word
“normally” in the regulation, Essar argues that because it did not use a DEPS license on sales of
subject merchandise to the United States during the POR, it rebutted the presumption in favor of
calculating benefits on an “as earned” basis.
Even under Essar’s interpretation of the section 351.519(b)(2), reading the word
“normally” to imply a case-by-case approach where Commerce could deviate from its “normal”
practice of calculating benefits on an “as earned” basis, it is clearly within Commerce’s
discretion when and under what circumstances to do so. That Commerce exercised its discretion
not to deviate from its “normal” practice in this case does not mean that its methodology did not
accurately reflect any benefit conferred. Compare Al Tech Specialty Steel Corp., et. al. v. United
States, Slip Op. 04-114 (Sept. 8, 2004). As defendant-intervenor points out, Commerce has
consistently calculated the benefit from a duty exemption program on an “as earned” basis in
cases where it is provided as a percentage of the value of the exported merchandise on a
shipment-by-shipment basis, and where the exact amount of the exemption is known at the time
of export. See Certain Cut-to- Length Plate From India, 64 Fed. Reg. 73131, 73140 (Dep’t
Commerce Dec. 29, 1999) (final determ.); Certain Welded Carbon Steel Pipe and Tube and
Welded Carbon Steel Line Pipe From Turkey, 63 Fed. Reg. 18885, 18888 (Dep’t Commerce Apr.
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16, 1998 (final results); Cotton Shop towels from Pakistan, 61 Fed. Reg. 50273, 50275 (Dep’t
Commerce Sept. 25, 1996) (prelim. results). Essar argues that unique circumstances in this case,
which Essar argues establish that it was able to complete a withdrawal from the DEPS program,
mandate that Commerce deviate from its normal practice. As discussed below, however, the
court is not persuaded that Essar effectuated this withdrawal within the POR. Furthermore, that
Essar mistakenly processed its shipment under the DEPS program does not mandate a different
outcome. An agency’s interpretation of its own regulations is entitled to substantial deference.
Lee v. United States, 329 F.3d 817, 822 (Fed. Cir. 2003). Additionally, neither the relevant
statute nor the regulations require Commerce or this court to investigate the motivations or
intentions behind Commerce’s actions. Thus, Essar has not established any basis for overturning
Commerce’s decision to calculate any benefit received by Essar on an “as earned” basis, in
accordance with its normal practice. Commerce correctly determined that because Essar earned
DEPS credits program by processing its shipment of the subject merchandise to the United States
under this program, it obtained a financial contribution. Additionally, because Commerce acted
within its discretion to calculate the benefit earned from this financial contribution on an “as
earned” basis, Commerce correctly determined that Essar obtained a benefit.
Essar also argues that Commerce’s determination of the benefit from the DEPS on an “as
earned” basis is not consistent with the U.S. statute and legislative history underlying the statute,
and that it is further inconsistent with the WTO “benefit to the recipient” standard. Essar asserts
that 19 U.S.C. § 1677(5)(E) provides for an analysis of the timing of the benefit of a subsidy,
thereby allowing Commerce to determine the benefit in this case on an “as received” rather than
Case No. 04-00239 Page 8
an “as earned” basis. As defendant-intervenor points out, however, the legislative history of
section 1677(5)(E) indicates that this section “provides the standard for determining the existence
and amount of a benefit conferred through the provision of a subsidy.” H.R. Rep. 108-826 at 109
(1994). Neither the statute nor the legislative history mentions the timing of the benefit from a
subsidy. Commerce has filled this gap through its regulations, such as section 351.519(b)(2), and
its practice.
Essar also contends that Commerce’s determination, finding that a benefit was conferred,
does not satisfy the “benefit to the recipient” standard of the WTO Agreement on Subsidies and
Countervailing Measures (“SCM Agreement”). Essar points to Article 14 of the SCM
Agreement, which states that no benefit exists without the receipt of an advantage by comparison
with the market. As both Essar and defendant-intervenor point out, the WTO Appellate Body
found that the ordinary meaning of “benefit” encompasses some form of an “advantage” and
“favorable or helpful factor.” Canada – Measures Affecting the Export of Civilian Aircraft,
WT/DS70/AB/R at ¶ 156 (Aug. 2, 1999). Essar thus argues that because it requested GOI
approval to have its U.S. shipment transferred from the DEPS program to the DFRC and that it
never utilized its DEPS credits, it was not advantaged. As discussed above, however, the fact
that Essar obtained DEPS credits usable towards future imports indicates that it gained a benefit.
Essar could have used the credits or traded them at any time in the future. Furthermore, as
discussed below, no record evidence exists to suggest that Essar’s request to transfer from the
DEPS program to the DFRC program was ever granted or effectuated by the GOI.
Case No. 04-00239 Page 9
B. Whether Essar effectuated a payback by withdrawing from the DEPS
program
Essar argues in the alternative that Commerce’s determination that Essar failed to
extinguish any benefits earned from its participation in the DEPS program by withdrawing and
transferring to the DFRC program, was unsupported by substantial evidence and not in
accordance with the law. In essence, Essar argues that record evidence establishes that it
accomplished the transfer, thereby extinguishing any benefits that may have been conferred under
the DEPS program.
Arguing that it extinguished any benefit conferred by the DEPS program, Essar points to
actions it took subsequent to processing its DEPS application. On April 23, 2003, Essar
requested that the GOI take certain action. See Essar Verification Report, Verification Exhibits,
Exhibit 7 (Confidential Record (“CR”) at 339). On May 21, 2003, the GOI gave Essar directions
regarding its request. See id. Finally, on October 17, 2003 Essar followed the GOI’s directions.
See id. Essar also points out that Commerce verified that “it is possible to switch programs as
long as no exports have been claimed against the license.” Id. at 5 (PR at 339). Taken together,
Essar argues that this sequence of events establishes conclusively that it accomplished a payback
by (1) not using the DEPS license in sales of subject merchandise to the United States and (2)
requesting a GOI transfer to the DFRC program.
According to Commerce’s established practice, prior subsidies can be eliminated by
subsequent events under certain circumstances. See Pure Magnesium from Israel, 66 Fed. Reg.
49351 (Dept. Commerce Sept. 27, 2001) (final determ.); Pure Magnesium and Alloy Magnesium
from Canada, 57 Fed. Reg. 30946 (Dept. Commerce July 13, 1992) (final determ.); Certain
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Computer Aided Software Engineering Products from Singapore, 55 Fed. Reg. 12248 (Dept.
Commerce Apr. 2, 1990) (final determ.). Those circumstances, however, have not been
established in this case. Specifically, there is no indication that any action was taken within the
POR by the GOI in response to Essar’s request for transfer. Essar’s April 23 letter merely
requested a transfer. The DGFT’s May 21 response only directed Essar to approach the Indian
Customs for one action. Essar’s Ver. Exhibit 7 (CR at 339). As defendant-intervenor correctly
argues, a mere request to transfer the DEPS credits cannot constitute repayment or
extinguishment of the financial contribution and benefit from those credits. Essar itself admits
that the record does not contain a letter of approval by Indian Customs of its transfer request.
Reply Brief in Support of Pl’s R. 56.2 Mot. for Judgment on the Agency Record at 4.
At oral argument, counsel for Essar directed the court’s attention to correspondence from
the GOI purportedly indicating that it had granted Essar’s request to withdraw from the DEPS
program and transfer to the DFRC program. This court’s review, however, is limited to the
record before it. While the court is cognizant of the difficulties faced by importers in dealing
with government bureaucracies on the one hand, and strictly defined periods of review on the
other, the fact remains that pursuant to 19 C.F.R. §§ 351.519(c) and 351.524(a), recurring
benefits are allocated in the year they are received. Thus, a party cannot repay a recurring
subsidy after the period of review has ended. Unfortunately for plaintiff, no record evidence
exists demonstrating that Essar effectuated a withdrawal from the DEPS program and conversion
to the DFRC program. Commerce correctly determined that Essar failed to accomplish a
payback of the benefits conferred under the DEPS program.
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Therefore, it is hereby
ORDERED that plaintiff’s motion for judgment on the agency record is denied.
August 30, 2005 /s/ Judith M. Barzilay
_____________________________ ______________________________
New York, NY Judith M. Barzilay, Judge