Royal Thai Government v. United States

Slip Op. 04-91

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: HONORABLE RICHARD W. GOLDBERG, SENIOR JUDGE

ROYAL THAI GOVERNMENT, ET AL.,

Plaintiffs,

v.
PUBLIC VERSION
UNITED STATES,
Consol. Court No. 02-00026
Defendant,

and

UNITED STATES STEEL CORP.,

Defendant-Intervenor.

[Court sustains in part and remands in part.]

Dated: July 27, 2004

Willkie Farr & Gallagher LLP (Kenneth J. Pierce and Jaemin Lee)
for Plaintiffs the Royal Thai Government and Sahaviriya Steel
Industries Public Company Limited.

Peter D. Keisler, Assistant Attorney General, David M. Cohen,
Director, Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (Thomas B. Fatouros); James K. Lockett, Of Counsel,
Office of Chief Counsel for Import Administration, United States
Department of Commerce, for Defendant United States.

Skadden, Arps, Slate, Meagher & Flom LLP (John J. Mangan) for
Defendant-Intervenor United States Steel Corporation.

OPINION

GOLDBERG, Senior Judge: In this action, Plaintiffs the Royal Thai

Government (“RTG”) and Sahaviriya Steel Industries Public Company

Limited (“SSI”) (collectively “Plaintiffs”) challenge the final
Cons. Court No. 02-00026 Page 2

affirmative countervailing duty determination reached by the U.S.

Department of Commerce (“Commerce”) in Certain Hot-Rolled Carbon

Steel Flat Products From Thailand, 66 Fed. Reg. 50410 (Oct. 3,

2001) (“Final Determination”). Defendant-Intervenor United

States Steel Corporation (“U.S. Steel”) also challenges certain

aspects of the Final Determination.1 The period of investigation

covers January 1, 1999 through December 31, 1999. Pursuant to

USCIT Rule 56.2, both Plaintiffs and Defendant-Intervenor move

for judgment on the agency record.

For the reasons that follow, the Court sustains in part and

reverses and remands in part the Final Determination. The Court

has jurisdiction over this matter pursuant to 28 U.S.C. §

1581(c).

I. STANDARD OF REVIEW

The Court will sustain the Final Determination 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). To

determine whether Commerce’s construction of the statutes is in

accordance with law, the Court looks to Chevron U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

The first step of the test set forth in Chevron requires the

1
Defendant-Intervenors/Plaintiffs Bethlehem Steel
Corporation, LTV Steel Company, Inc., and National Steel
Corporation were dismissed from this action in an order entered
by the Court on July 7, 2004.
Cons. Court No. 02-00026 Page 3

Court to determine “whether Congress has directly spoken to the

precise question at issue.” Id. at 842. It is only if the Court

concludes that “Congress either had no intent on the matter, or

that Congress’s purpose and intent regarding the matter is

ultimately unclear,” that the Court will defer to Commerce’s

construction under step two of Chevron. Timex V.I., Inc. v.

United States, 157 F.3d 879, 881 (Fed. Cir. 1998). If the

statute is ambiguous, then the second step requires the Court to

defer to the agency’s interpretation so long as it is “a

permissible construction of the statute.” Chevron, 467 U.S. at

842. In addition, “[s]tatutory interpretations articulated by

Commerce during its antidumping proceedings are entitled to

judicial deference under Chevron.” Pesquera Mares Australes

Ltda. v. United States, 266 F.3d 1372, 1382 (Fed. Cir. 2001)

(interpreting United States v. Mead, 533 U.S. 218 (2001)).

Accordingly, the Court will not substitute “its own construction

of a statutory provision for a reasonable interpretation made by

[Commerce].” IPSCO, Inc. v. United States, 965 F.2d 1056, 1061

(Fed. Cir. 1992).

II. DISCUSSION

A. Commerce’s Determination that SSI’s Debt Restructuring Was
Not De Facto Specific Is Supported by Substantial Evidence
and Otherwise in Accordance with Law.

The Asian financial crisis struck Thailand by July 1997,

resulting in an overall contraction of Thailand’s economy and
Cons. Court No. 02-00026 Page 4

severe depreciation of its currency, the baht. See Issues and

Decision Memorandum in the Final Affirmative Countervailing Duty

Determination: Certain Hot-Rolled Carbon Steel Flat Products from

Thailand (Sept. 21, 2001) (“Issues and Decision Memo”) at 16. In

an attempt to foster economic stability and protect against

further bank failures, the RTG began to implement economic

programs, including the Corporate Debt Restructuring Advisory

Committee (“CDRAC”), which was established in June 1998 by the

Bank of Thailand. Id. at 16-17. CDRAC established a voluntary

framework for independent debt restructuring negotiations between

private corporations and financial institutions. Id. This

framework involved the Debtor-Creditor Agreement and the Inter-

Creditor Agreement, which included: (1) the requirement that a

debtor negotiate with all creditors at once; (2) the designation

of an independent financial advisor to report on a debtor’s

financial condition; (3) the establishment of a time-bound

process with consequences for any party that did not adhere to

the procedures; and (4) the requirement that creditors reach a

consensus on the debt restructuring. Id. at 17.

In March 1999 CDRAC released a list of 351 companies (“351

list”) it considered priority targets for debt restructuring;

among those listed were SSI and its subsidiary, Prachuab Port

Company (“PPC”). Id. at 17-18. CDRAC subsequently released a

second list in April 1999 containing 316 companies, and a third
Cons. Court No. 02-00026 Page 5

list in the second half of 1999 naming an additional 1,027

companies for potential CDRAC participation. Id. The selection

criteria used in creating these lists were: (1) debtors with

sizeable credit outstanding; (2) debtors proposed by the Thai

Bankers’ Association, the Foreign Bankers’ Association, the

Association of Finance Companies, the Federation of Thai

Industries, and the Board of Trade of Thailand; (3) debtors that

expressed their intention to participate in the restructuring

process; and (4) debt restructurings involving multiple

creditors. Id.

However, SSI’s debt restructuring did not take place under

the CDRAC guidelines. Id. at 18. In fact, neither SSI nor PPC

even signed a Debtor-Creditor Agreement. See Memorandum In

Support Of The Determination Of The U.S. Department Of Commerce

And In Opposition To National Steel Corp, et al.’s Rule 56.2

Motion For Judgment On The Agency Record at 13. Rather, SSI’s

debt restructuring occurred in accordance with its Credit

Facilities Agreement between itself and its private creditors,

accommodating all forms of SSI’s debt: both short- and long-term

debt, from both secured and unsecured lenders, in baht and

foreign currency denominations, providing feasible repayment

terms. Issues and Decision Memo at 17-18. U.S. Steel claims

that SSI received a countervailable benefit by being placed on

the 351 list, and that Commerce erred in finding that any benefit
Cons. Court No. 02-00026 Page 6

conferred on SSI in Thailand’s 1999 debt restructuring response

to the Asian financial crisis was nonspecific and does not amount

to a countervailable subsidy. See National Steel Corporation, et

al.’s Memorandum of Law in Support of Judgment on the Agency

Record Pursuant to Rule 56.2 (“U.S. Steel Br.”) at 10-11.2 The

Court finds U.S. Steel’s argument unpersuasive.

A subsidy is de facto specific if it meets any one of the

four criteria set forth in 19 U.S.C. § 1677(5A)(D)(iii):

(I) The actual recipients of the subsidy, whether
considered on an enterprise or industry basis,
are limited in number.

(II) An enterprise or industry is a predominant user
of the subsidy.

(III) An enterprise or industry receives a
disproportionately large amount of the subsidy.

(IV) The manner in which the authority providing the
subsidy has exercised discretion in the decision
to grant the subsidy indicates that an enterprise
or industry is favored over others.

19 U.S.C. § 1677(5A)(D)(iii). 19 C.F.R. § 351.502 requires a

sequential analysis of the foregoing factors. If any one factor

warrants a finding of specificity, no further analysis is

required. 19 C.F.R. § 351.502(a).

2
The record is not clear as to whether the banks
restructuring SSI’s loans were government-owned, private, or a
combination of both. However, the Court finds this fact
irrelevant because the specificity issue is dispositive.
Cons. Court No. 02-00026 Page 7

1. The Actual Recipients of the Subsidy Were Not Limited
in Number.

“The specificity test [of 19 U.S.C. § 1677(5A)(D)(iii)] was

intended to function as a rule of reason and to avoid the

imposition of countervailing duties in situations where, because

of the widespread availability and use of a subsidy, the benefit

of the subsidy is spread throughout an economy.” Uruguay Round

Agreements Act, Statement of Administrative Action (“SAA”), H.R.

Doc. No. 316, vol. 1, 103d Cong., 2d Sess. (1994) at 261. Expert

opinions analyzed by Commerce concluded that the financial crisis

was a systematic meltdown of the entire Thai economy, resulting

in a fifty percent rate of non-performing loans. See Issues and

Decision Memo at 21. As a result, the companies named on the 351

list as priorities for debt restructuring represented a wide

spectrum of companies and industries, containing [ ] distinct

industries, as classified by their International Standard of

Industrial Classification Code. See Defendants’ Memorandum in

Opposition to Plaintiffs’ Motion for Judgment on the Agency

Record at 20; see also Memorandum for the File Through Barbara E.

Tillman, Certain Hot-Rolled Carbon Steel Flat Products from

Thailand: Analysis of the List of 351 Firms (“351 List Memo”) at

2. Further, only 32 of the 351 companies on the list are in the

primary metal production sector. See Issues and Decision Memo at

19. Given the numerous and diverse industries represented on the

351 list, the Court finds that Commerce did not err in its
Cons. Court No. 02-00026 Page 8

finding that the 351 list was not limited in number based on

industry or enterprise.

2. Neither SSI Nor the Steel Industry Were Predominant
Users of the Subsidy, and They Did Not Receive a
Disproportionately Large Amount of the Subsidy.

In its brief, U.S. Steel addresses the third prong of 19

U.S.C. § 1677(5A)(D)(iii), disproportion of benefits, as a

separate “level of benefits analysis” discussion. See U.S. Steel

Br. at 11-18. However, the Court finds that this analysis falls

within the predominant user and proportion of benefits prongs of

19 U.S.C. § 1677(5A)(D)(iii)(III)-(IV) and addresses it as such.

U.S. Steel alleges that Commerce failed to analyze properly the

benefits conferred by being placed on the 351 list. See id. at

16. However, the Federal Circuit has held that “[d]eterminations

of disproportionality and dominant use are not subject to rigid

rules, but rather must be determined on a case-by-case basis

taking into account all the facts and circumstances of a

particular case.” AK Steel v. United States, 192 F.3d 1367, 1385

(Fed. Cir. 1999). In AK Steel, the Court found that Commerce did

not err in demonstrating that there was no disproportionality

based on calculations of the relative percentage benefit rather

than the absolute benefit conferred. See id.

In the case at hand, Commerce’s evaluation of the amount of

the debt restructuring identified for each company and industry

on the 351 list concluded that SSI’s debt was less than that of
Cons. Court No. 02-00026 Page 9

some companies on the list, but not significantly greater than

that of many others on the list. See Issues and Decision Memo at

19-20. With [ ] percent of the total debt on the 351 list,

the primary metal industry did not represent an overwhelming or

disproportionate amount of the overall debt restructuring when

compared to other industries on the list.3 See id. at 20; see

also 351 List Memo at 2. Moreover, SSI’s portion of the total

debt on the 351 list was a mere [ ] percent, accounting for [

] baht out of a total of [ ] baht of

debt on the 351 list. See 351 List Memo at 2. In addition, the

351 list names companies in over 34 different industries, thus

lending further support to Commerce’s finding that SSI and the

steel industry were not the predominant or disproportionate users

of the subsidy’s benefit as an industry or enterprise. See id.

3. The Manner in which the RTG Exercised Discretion in
Granting the Subsidy Does Not Indicate that SSI or the
Steel Industry Were Favored Over Others.

In accordance with 19 U.S.C. § 1677(5A)(D)(iii)(IV), the RTG

exercised proper discretion in creating the 351 list, showing no

favor to any particular enterprise or industry. The RTG created

the 351 list based on the four criteria mentioned above. In its

3
All figures are based solely on the companies and
industries named on the 351 list, since U.S. Steel’s allegation
is limited to this list. However, as added support for
Commerce’s determination and the Court’s finding, the Court notes
that SSI and the steel industry represent an even lower
proportion of the total CDRAC-promoted debt for restructuring
when all lists created during the period of investigation are
considered.
Cons. Court No. 02-00026 Page 10

analysis, Commerce found that these criteria were consistently

applied. See Issues and Decision Memo at 20. Further, expert

opinion found that the CDRAC process was not tailored to any

specific industry group or sector, but rather, that the 351 list

was comprised of large debtors with many creditors in an attempt

to stabilize the Thai banking system. Id. at 21.

Accordingly, Commerce’s determination that SSI’s debt

restructuring was not de facto specific is sustained.

B. Commerce’s Decision Not to Investigate U.S. Steel’s Equity
Infusion Allegations Is Supported by Substantial Evidence
and Otherwise in Accordance with Law.

The Investment Promotion Act of 1977 (“IPA”), administered

by the Thailand Board of Investment (“BOI”), is designed to

provide investors with tax and duty exemptions and reductions.

Id. at 3. To receive IPA benefits, a company must apply to the

BOI for a Certificate of Promotion, which specifies the goods to

be produced, production and export expectations, and the benefits

requested. Id. at 4. The BOI grants Certificates of Promotion

at its own discretion after evaluating and approving companies.

Id. In addition, the BOI may actively promote projects in

particular industry sectors, as it did in offering promotion

privileges to the hot-rolled steel industry in Thailand. Id.

Thailand had considered establishing a private domestic

steel industry since the 1960s, but the lack of natural resources

and limited domestic demand made the creation of such an industry
Cons. Court No. 02-00026 Page 11

unviable. Id. By the late 1980s, however, developing market

factors in Thailand (namely, increased domestic demand) made a

flat-rolled steel industry feasible. Id. Thus, on August 2,

1988, the BOI formally announced its promotion of domestic steel

sheet production and requested applications from investors

interested in developing a steel facility in Thailand. Id.

SSI applied and was selected. Id. The BOI then approved a

package of benefits for SSI, including (1) cost reduction

measures, such as exemptions in import duties and corporate

taxes; (2) straight investment incentives, such as tax-free

dividends and foreign remittance; and (3) protection from

competition. Memorandum for the File Through Barbara E. Tillman,

Countervailing Duty Investigation of Certain Hot-Rolled Carbon

Steel Flat Products from Thailand: New Subsidy Allegation (“New

Subsidy Allegation Memo”) at 2. U.S. Steel claims that these

promotion privileges, which the BOI allegedly used to induce

private entities to invest in SSI from 1990 through 1994,

constitute countervailable subsidies. See U.S. Steel Br. at 3.

Commerce, however, refused to initiate an investigation into U.S.

Steel’s equity infusion allegations. See Issues and Decision

Memo at 34.

Commerce’s refusal to investigate the alleged equity

infusions is proper for two reasons. First, the allegations did

not reasonably appear to be countervailable. Second, they were
Cons. Court No. 02-00026 Page 12

not discovered within a reasonable time prior to the completion

of the investigation. The Court will address each rationale in

turn.

1. The Allegations Did Not Reasonably Appear to Be
Countervailable.

“This Court has consistently held that Commerce must

investigate only those allegations that reasonably appear to be

countervailable . . . .” Bethlehem Steel Corp. v. United States,

25 CIT 930, 932, 162 F. Supp. 2d 639, 642 (2001) (internal

quotation omitted). To meet this initiation standard, an equity

infusion allegation must be “supported by information

establishing a reasonable basis to believe or suspect that the

firm received an equity infusion that provides a countervailable

benefit[.]” 19 C.F.R. § 351.507(a)(7). “[A] benefit exists to

the extent that the investment decision is inconsistent with the

usual investment practice of private investors . . . in the

country in which the equity infusion is made.” Id. §

351.507(a)(1).

U.S. Steel claims that SSI was not equityworthy at the time

of its founding and that it would not have received equity

investment without government inducement of private investors.

See U.S. Steel Br. at 36. Thus, according to U.S. Steel, any

equity investment in SSI was inconsistent with the usual

investment practice of private investors. See id. However, an

objective examination of SSI’s equityworthiness demonstrates that
Cons. Court No. 02-00026 Page 13

SSI was indeed equityworthy at the time the equity infusions were

made. As a result, U.S. Steel’s equity infusion allegations do

not satisfy the initiation standard, and Commerce’s refusal to

initiate a formal countervailing duty investigation is supported

by substantial evidence.

19 C.F.R. § 351.507(a)(4)(i) sets forth a list of factors

Commerce may examine in making an equityworthiness determination,

including objective analyses of the future financial prospects of

a firm, market studies, and economic forecasts. See 19 C.F.R. §

351.507(a)(4)(i)(A). Moreover, in determining whether there

appears to be a countervailable subsidy, “Commerce [has]

sufficient latitude to weigh and analyze both negative evidence

and positive evidence.” Allegheny Ludlum Corp. v. United States,

25 CIT 816, 824 (2001) (citing Am. Lamb Co. v. United States, 785

F.2d 994, 997 (Fed. Cir. 1986)).

U.S. Steel points to the fact that BOI incentives were

initially offered for SSI, resulting in no investor response.

See U.S. Steel Br. at 38. Only after the BOI increased the

incentives it was offering did investors come forward. See id.

According to U.S. Steel, this fact proves that SSI was not

equityworthy at the time of its founding since SSI was not able

to attract investors without increased incentives. See id.
Cons. Court No. 02-00026 Page 14

However, in conducting its equityworthiness analysis,

Commerce found as follows:

Evidence on the record indicates that at the time of
SSI’s founding, economic conditions were right for the
development of a Thai hot-rolled steel industry: the
economy was growing rapidly and domestic demand for
hot-rolled steel was increasing and was being met
exclusively by imports. Indeed, the record shows that
the BOI promoted a hot-rolled steel industry to meet
this increasing domestic demand for hot-rolled steel
products.

New Subsidy Allegation Memo at 5. This is precisely the type of

market data that Commerce is allowed to consider under 19 C.F.R.

§ 351.507(a)(4)(i)(A). Thus, in light of Commerce’s findings

that the economy was growing rapidly and there was increasing

domestic demand for steel being met exclusively by imports, the

Court is satisfied that “from the perspective of a reasonable

private investor,” SSI “showed an ability to generate a

reasonable rate of return within a reasonable period of time.”

See 19 C.F.R. § 351.507(a)(4)(i).

Commerce is also allowed to examine current and past

indicators of the firm’s financial health in making its

equityworthiness determination. Id. § 351.507(a)(4)(i)(B). U.S.

Steel directs the Court’s attention to the fact that SSI had

annual operating losses from 1994 through 1999. See U.S. Steel

Br. at 37. However, as Commerce correctly found, any financial

data reflecting SSI’s operations after 1994 is irrelevant to an
Cons. Court No. 02-00026 Page 15

analysis of SSI’s equityworthiness in 1990. See New Subsidy

Allegation Memo at 4.

Because the Court finds that there is substantial evidence

on the record indicating that SSI was equityworthy at the time

the equity infusions were made, Commerce did not err in refusing

to initiate a formal investigation.

2. The Allegations Were Not Discovered Within a Reasonable
Time Prior to the Completion of the Investigation.

19 C.F.R. § 351.301(d)(4)(i)(A) states that new subsidy

allegations should be made at least forty days before the

scheduled date of the preliminary determination to ensure that

the agency has sufficient time to investigate the allegation. 19

C.F.R. § 351.301(d)(4)(i)(A); see also Bethlehem Steel, 25 CIT at

932, 162 F. Supp. 2d at 642. Here, U.S. Steel’s subsidy

allegation was not made until fourteen days before the scheduled

date of the Preliminary Determination, clearly violating 19

C.F.R. § 351.301(d)(4)(i)(A). See Petitioners’ April 6

Submission (“Subsequent Subsidy Allegation”) at 1, Public Record

(“P.R.”) 64, Confidential Record (“C.R.”) 18.

However, even where an allegation is untimely under 19

C.F.R. § 351.301(d)(4)(i)(A), a petitioner may “correct for its

lapse in diligence by presenting the issue to Commerce at a

reasonable time prior to the issuance of its final

determination.” Bethlehem Steel Corp. v. United States, 25 CIT

307, 313, 140 F. Supp. 2d 1354, 1361 (2001). U.S. Steel
Cons. Court No. 02-00026 Page 16

presented its equity infusion allegations to Commerce five months

before the scheduled date for the Final Determination. See Final

Determination, 66 Fed. Reg. at 50410; Subsequent Subsidy

Allegation at 1.

In Bethlehem Steel, the Court held that Commerce erred in

failing to investigate a “straightforward subsidy allegation”

made eighteen days before the preliminary determination (in

violation of 19 C.F.R. § 351.301(d)(4)(i)(A)), but four months

prior to the scheduled final determination. Bethlehem Steel, 25

CIT at 309, 313, 140 F. Supp. 2d at 1358, 1361. However, the

Court expressly “recognize[d] that when Commerce is faced

with . . . extraordinarily complex subsidy allegations it may

lack the resources or the time necessary to investigate the new

allegations[.]” Id. at 313, 140 F. Supp. 2d at 1361 (internal

quotation omitted). The present case implicates precisely that

concern. Indeed, “equityworthiness investigations are governed

by a higher initiation standard to compensate for their laborious

and difficult nature.” Allegheny Ludlum, 25 CIT at 828. Thus,

although four months may have been sufficient time in Bethlehem

Steel where a straightforward subsidy allegation was at issue,

the five months Commerce had in this case was not sufficient time

to investigate U.S. Steel’s complex equity infusion allegations.
Cons. Court No. 02-00026 Page 17

3. Commerce Did Not Deny U.S. Steel’s Basic Procedural
Rights.

U.S. Steel also argues that the Final Determination must be

remanded on procedural fairness grounds, since Commerce erred by

waiting until the Final Determination to notify the parties of

its decision not to initiate a formal investigation into the

equity infusion allegations. U.S. Steel Br. at 41-42. U.S.

Steel contends that Commerce should have issued an “initiation

memorandum” instead, detailing its reasons for refusing to

initiate an investigation. Id. at 42.

The Court is not persuaded by U.S. Steel’s meager argument

on this point. Indeed, U.S. Steel cites no authority to support

its contention. Moreover, no statute or regulation requires

Commerce to issue initiation memoranda or to notify the parties

within a certain amount of time that it is refusing to initiate a

formal investigation. Although U.S. Steel may have preferred to

be notified immediately of Commerce’s refusal to investigate so

it could “tak[e] steps to correct any evidentiary

deficiencies[,]” U.S. Steel overlooks the fact that there should

not have been any “evidentiary deficiencies” to correct. Id. 19

C.F.R. § 351.507(a)(7) explicitly requires a petitioner, in the

first instance, to support its equity infusion allegations with

“information establishing a reasonable basis to believe or

suspect that the firm received an equity infusion[.]” 19 C.F.R.

§ 351.507(a)(7). Here, U.S. Steel failed to provide Commerce
Cons. Court No. 02-00026 Page 18

with sufficient information to believe that SSI received a

countervailable equity infusion, and Commerce did not deny U.S.

Steel any procedural rights by waiting until the Final

Determination to notify U.S. Steel that its allegations were

insufficient.

Accordingly, Commerce’s refusal to initiate a formal

investigation into U.S. Steel’s equity infusion allegations is

sustained.

C. Commerce’s Decision to Countervail the Entire IPA Section
36(1) Drawback Program Is Not Supported by Substantial
Evidence and Is Not in Accordance with Law.

IPA Section 36(1) exempts companies from paying duties on

imports of raw and essential materials that are incorporated into

goods for export. Issues and Decision Memo at 8. SSI received a

duty exemption under Section 36(1) for its imports of steel slab,

which is the only raw material used to manufacture hot-rolled

steel coil subsequently exported by SSI. Memorandum in Support

of Motion for Judgment on the Agency Record Under Rule 56.2 Filed

by Plaintiffs the Royal Thai Government and Sahaviriya Steel

Industries Public Company Limited at 7. Manufacturing the steel

slab into hot-rolled coil consumes the slab and generates waste.

Id. Cognizant of this, the BOI approved a waste rate of [ ]

percent for SSI. Id. Commerce, however, found this approved

waste rate to be excessive by [ ] percentage points,

and then decided to countervail the entire amount of the
Cons. Court No. 02-00026 Page 19

exemption, rather than just the excessive amount of waste. Id.

Plaintiffs contest Commerce’s decision to countervail the IPA

Section 36(1) drawback program in its entirety, see id. at 9-12,

as well as Commerce’s finding that Section 36(1) does not provide

for a normal allowance for waste. See id. at 12-18.

19 C.F.R. § 351.519 governs the drawback of import charges

upon export. The relevant portions are as follows:

(a)(1)(i) Remission or drawback of import charges.
In the case of the remission or drawback of import
charges upon export, a benefit exists to the extent
that the Secretary determines that the amount of the
remission or drawback exceeds the amount of import
charges on imported inputs that are consumed in the
production of the exported product, making normal
allowances for waste.

(a)(3) Amount of the benefit–(i) Remission or
drawback of import charges. If the Secretary
determines that the remission or drawback . . . of
import charges confers a benefit under paragraph (a)(1)
. . . of this section, the Secretary normally will
consider the amount of the benefit to be the difference
between the amount of import charges remitted or drawn
back and the amount paid on imported inputs consumed in
production for which remission or drawback was claimed.

(a)(4) Exception. Notwithstanding paragraph
(a)(3) of this section, the Secretary will consider the
entire amount of . . . remission or drawback to confer
a benefit, unless the Secretary determines that:

(i) The government in question has in place and
applies a system or procedure to confirm which inputs
are consumed in the production of the exported products
and in what amounts, and the system or procedure is
reasonable, effective for the purposes intended, and is
based on generally accepted commercial practices in the
country of export[.]

19 C.F.R. § 351.519(a)(1)(i), (a)(3)(i), (a)(4)(i).
Cons. Court No. 02-00026 Page 20

Commerce determined that “the RTG does in fact have a system

in place to monitor and track the consumption and/or re-export of

goods imported under Section 36(1)[,]” as required by §

351.519(a)(4)(i). Issues and Decision Memo at 26. However,

Commerce asserts that IPA Section 36(1) does not make a normal

allowance for waste under § 351.519(a)(1)(i) for two reasons: (1)

the BOI did not isolate and examine the amount of inputs consumed

in the production of the exported products; and (2) the BOI did

not consider whether any of the scrap was recoverable and

saleable. Id. at 28. As a result, Commerce determined that the

RTG’s system for ascertaining which inputs are consumed in the

exported product, and in what amounts, is not reasonable or

effective for the purposes intended. Id. Consequently,

consistent with § 351.519(a)(4), Commerce decided to countervail

the entire amount of SSI’s import duty exemptions under IPA

Section 36(1). Id.

The Court finds Commerce’s logic to be circular. The main

thrust of § 351.519 is to allow Commerce to countervail only that

portion of a duty exemption corresponding to an excessive

allowance for waste, as long as the drawback program is otherwise

reasonable. However, under Commerce’s interpretation of §

351.519, the entire duty exemption is countervailable whenever

the exporting country’s § 351.519(a)(4)(i) system allows for an

excessive amount of waste (no matter how small), since such waste
Cons. Court No. 02-00026 Page 21

necessarily makes the system unreasonable. The problem with this

logic is that it renders § 351.519(a)(3)(i) meaningless, because

there could never be a situation where only the excessive portion

of the exemption would be countervailed.

It is a basic tenet of statutory construction that effect

must be given to every clause and word of a statute. See Duncan

v. Walker, 533 U.S. 167, 174 (2001); Len-Ron Mfg. Co. v. United

States, 24 CIT 948, 964, 118 F. Supp. 2d 1266, 1281 (2000).

Because Commerce’s application of § 351.519(a)(4)(i) essentially

reads § 351.519(a)(3)(i) out of the regulations, the Court finds

that Commerce’s reasoning is not in accordance with law. As a

result, the Court cannot sustain Commerce’s decision to

countervail the entire Section 36(1) drawback program.4

The question remains, however, whether IPA Section 36(1)

permits an excessive allowance for waste, since any such

4
Moreover, Commerce’s decision to countervail the entire
drawback program is inconsistent with Commerce’s prior
interpretation of § 351.519. In Final Affirmative Countervailing
Duty Determination: Certain Hot-Rolled Carbon Steel Flat Products
From India, 66 Fed. Reg. 49635 (Sept. 28, 2001), Commerce
concluded that the government of India applied a reasonable and
effective system to confirm which inputs were consumed in the
production of the exported products and in what amounts, thereby
satisfying § 351.519(a)(4)(i). See Issues and Decision
Memorandum: Final Results of the Countervailing Duty
Investigation: Certain Hot-Rolled Carbon Steel Flat Products from
India at Cmt. 5. However, Commerce noted that India’s system
allowed for duty drawback on certain items that, although used in
the production of the subject merchandise, were not consumed in
the production process. Id. Significantly, Commerce found that
only the excess duty drawback (i.e., the “over-rebate”) – as
opposed to the entire duty drawback program – was
countervailable. Id.
Cons. Court No. 02-00026 Page 22

excessive amount clearly is countervailable under §

351.519(a)(3)(i). Commerce’s determination that Section 36(1)

permits an excessive allowance for waste is largely based not on

the quantity of waste at issue, but rather on the end use to

which the waste is put. See Issues and Decision Memo at 27.

Commerce reasons that because the waste was resold domestically

as scrap (and, by definition, waste is something that “a company

is unable to recover and use”), there was an excessive allowance

for waste. Id. at 10; see also Defendants’ Memorandum in

Opposition to Defendant-Intervenors’ Motion for Judgment Upon the

Administrative Record at 19-21.

Commerce’s argument is without merit. Section 351.519 does

not draw a distinction between waste that can be resold as scrap

and waste that cannot be resold as scrap. Rather, §

351.519(a)(1)(i) directs that “a benefit exists to the extent

that . . . the amount of . . . drawback exceeds the amount of

import charges on imported inputs that are consumed in the

production of the exported product, making normal allowances for

waste.” 19 C.F.R. § 351.519(a)(1)(i) (emphasis added). Under

the regulation, it does not matter what ultimately happens to the

waste, as long as there is a normal allowance for waste.

Record evidence shows that IPA Section 36(1) makes a normal

allowance for waste. The RTG has specific procedures for
Cons. Court No. 02-00026 Page 23

determining what constitutes waste,5 and Commerce verified that

the BOI actually applied these procedures when it approved SSI’s

waste rate under Section 36(1).6 See, e.g., RTG Verification

Report at 8-11, P.R. 117, C.R. 33; SSI Verification Report at 7-

10, P.R. 116, C.R. 32. In determining SSI’s approved waste rate,

BOI engineers visited SSI’s mill to examine SSI’s production

capacity, processes, and efficiencies. See RTG Verification

Report at 8, P.R. 117, C.R. 33. Moreover, as Commerce concedes,

the BOI requires SSI to provide yield information annually, and

BOI officials visit SSI’s mill regularly to monitor SSI’s

5
BOI Announcement No. Por. 6/1997 defines “waste” as:

3.1 raw materials prior to, during, or after the
production process which are flawed, not
conforming to standards or are not usable for
the original purpose to which they were
designed;

3.2 leftovers of raw materials or by-products;

3.3 products, or parts of products or things
produced from raw materials which are flawed,
not conforming to standards or are not usable
for the original purpose to which they were
designed.

Royal Thai Government’s Supplemental Questionnaire Response at
Exhibit 4 (May 31, 2001), P.R. 87.
6
The approved waste rate under Section 36(1) aligns closely
with that of the RTG Customs Service under the RTG’s regular duty
drawback provision, see SSI Verification Report at Exhibit 24,
P.R. 116, C.R. 32, which has been ruled acceptable by both
Commerce and the Court. See Allied Tube & Conduit Corp. v.
United States, 25 CIT 23, 29-30, 132 F. Supp. 2d 1087, 1093-94
(2001).
Cons. Court No. 02-00026 Page 24

compliance with its IPA Section 36(1) conditions. See Issues and

Decision Memo at 9.

In light of the substantial steps taken by the RTG to ensure

that IPA Section 36(1) makes a normal allowance for waste,

Commerce erred in relying on two extraneous sources of

information7 to support its finding that the waste rate is

excessive. See id. at 9-10. Rather, Commerce should have

limited its review to whether, based on generally accepted

commercial practices in Thailand, IPA Section 36(1) makes a

normal allowance for waste. See 19 C.F.R. § 351.519(a)(4)(i)

(stating that the system to confirm which inputs are consumed in

the production of the exported products must be “based on

generally accepted commercial practices in the country of

export”). Because the Court finds that Section 36(1) does make a

normal allowance for waste, there is no excessive waste to be

countervailed, and the benchmark issue raised by U.S. Steel is

therefore moot.

III. CONCLUSION

For the aforementioned reasons, the Court finds Commerce’s

determination that any benefit conferred on SSI in the 1999 debt

7
The extraneous sources on which Commerce relied are “an
independent financial review” and “yield and waste information
reported in the companion antidumping investigation.” Issues and
Decision Memo at 9. While these two sources show yield factors
slightly below that approved for SSI by the BOI, Commerce failed
to assess the reasonableness of these alternative waste rates.
As a result, the Court finds Commerce’s reliance on them to be
misplaced.
Cons. Court No. 02-00026 Page 25

restructuring was nonspecific to be supported by substantial

evidence and otherwise in accordance with law. In addition,

Commerce’s refusal to initiate a formal investigation into U.S.

Steel’s equity infusion allegations is supported by substantial

evidence and otherwise in accordance with law. However,

Commerce’s decision to countervail the entire IPA Section 36(1)

drawback program is not supported by substantial evidence and is

not in accordance with law. Because of the Court’s disposition

of the drawback issue, Plaintiffs’ challenge to Commerce’s

determination that SSI and PPC received a countervailable

regional subsidy through the provision of electricity at less

than adequate remuneration is moot.

Commerce determined the total estimated countervailable

subsidy rate for SSI to be 2.38 percent ad valorem. Final

Determination, 66 Fed. Reg. at 50411. The portion of the total

rate corresponding to Commerce’s decision to countervail the

Section 36(1) drawback program is 0.58 percent ad valorem.

Issues and Decision Memo at 10. Thus, since the Court holds that

the drawback program is not countervailable, the revised subsidy

rate is 1.80 percent ad valorem. However, the de minimis

countervailing duty rate for Thailand is less than two percent

because of Thailand’s status as a developing country for purposes

of United States countervailing duty law. See 19 U.S.C. §

1671b(b)(4)(B); Developing and Least-Developed Country
Cons. Court No. 02-00026 Page 26

Designations under the Countervailing Duty Law, 63 Fed. Reg.

29945, 29948 (June 2, 1998). Accordingly, the Court remands the

drawback issue to Commerce with instructions to find that the

total estimated net countervailing subsidy rate is de minimis.

As a result, Commerce is instructed to find that no

countervailable subsidies are being provided to the production or

exportation of certain hot-rolled carbon steel flat products from

Thailand.

A separate order will be issued accordingly.

/s/ Richard W. Goldberg
Richard W. Goldberg
Senior Judge

Date: July 27, 2004
New York, New York