U.S. Court of International Trade overview: non-market economy cases in 2011.

Author:Davis, Mark David
Position:VI. Separate Rates through IX. Conclusion, with footnotes, p. 48-87

    In NME cases, Commerce still employs the legal fiction that all enterprises in China or Vietnam are owned or controlled by the Chinese or Vietnamese governments, unless the respondent proves its independence. (253) That proof is provided in file form of a "Separate Rate Application" that must be provided by every respondent in an investigation or administrative review. (254) Commerce will assign separate rates "only if the applicant can demonstrate [the] absence of both de jure and de facto governmental control over export activities." (255) Commerce analyzes government control or manipulation of NME firms via the de jure and de facto test which it set forth in 1994 in a ruling involving silicon carbide from China. (256) The presumption of de jure control may be rebutted with a showing of "(1) an absence of restrictive stipulations associated with an individual exporter's business and export licenses, (2) any legislative enactments decentralizing control of companies, and (3) any other formal measures by the government decentralizing control of companies." (257) The presumption of de facto government control may be rebutted if an exporter demonstrates that it:

    (1) ... [S]ets its own export prices independent of the government and without the approval of a government authority; (2) ... retains the proceeds from its sales and makes independent decisions regarding the disposition of profits or financing of losses; (3) ... has the authority to negotiate and sign contracts and other agreements; and (4) ... has autonomy from the government regarding the selection of management. (258)

    In 2011, the Court examined three distinct lines of cases with respect to Commerce's separate rates analysis. These were: (1) the extent to which a company has to demonstrate independence from government control; (2) certification and calculation requirements for determining the separate rate; and (3) whether a responding company call receive a separate rate even if Commerce determines that adverse facts available (AFA) is warranted. The first two issues are discussed in this Section, while a third issue is considered in a subsequent Section together with the other AFA cases the Court addressed in the year.

    1. What Constitutes Government Control?

      The Court addressed a pair of cases concerning what constitutes government control in Commerce's de jure and de facto analysis. In Qingdao Taifa IV, (259) the Court sustained the Third Remand Results (260) where Commerce had to determine "whether a government entity exercised nonmarket control over [Quingdao Taifa Group (Taifa)] sufficient to link the [China]-wide rate to Taifa" or, in the alternative, "to calculate a separate, substitute AFA rate if the [China]-wide rate was not warranted." (261) Subsequently,

      Upon reconsideration of the record evidence, Commerce concluded that "[a]lthough there is record evidence to demonstrate that Taifa is actually owned by the town government and there is reason to doubt the identity of an independent board of directors directing Taifa's activities in contradiction to how Taifa originally reported its ownership and management to [Commerce] ... there is insufficient record evidence to support a conclusion that Taifa operated under central government control." (262) The Court thus affirmed the Commerce remand decision in assigning Taifa a separate rate. (263)

      In Advanced Technology (264) the Court affirmed the principle that "'government ownership by itself is not dispositive' of government control." (265) "Firms that are wholly owned by the [Chinese] government are not barred, per se, from a separate rate." (266) In the present case, the respondent Advanced Technology & Materials Co. (Advanced Technology)--was owned by limited liability companies (LLC), but the Court was not convinced that Commerce sufficiently answered the question of the companies' structures and how they relate to the extent of government control. (267) While the parent companies were LLCs, the Court criticized Commerce's "refusal to make findings on the parent company, ... leav[ing] unrebutted the presumption that all companies within the NME entity, including parent companies, are subject to government control," since "controlling shareholders present a significant potential for manipulation." (268)

      The Court determined that several critical questions remained open as to the extent to which there was de facto independence and concluded that "although controlling shareholders may be too remote to actually influence ... two questions in the de facto analysis [independently setting export prices and entering into contracts], the [other] two factors are not easy questions." (269) Concerning the latter point, Court asked whether "a subsidiary [can] show independence from a majority shareholder on matters concerning management selection and the disposition of profits and assets? Evidence in this matter would seem to compel an answer in the negative." (270) As a result, the Court ordered "that, on remand, Commerce must further explain why its analysis of government control does not consider shareholder control, and why it deviated from its original test set forth in Cased Pencils." (271)

    2. Certification of Separate Rate Applications and Responses

      The question of who can certify a responding company's separate rate application was percolating in the Court as a result of Commerce's new regulations with respect to company certifications, which were issued in early 2010. (272) The change in the certification language meant that the company officials who certified the preparation and veracity of the responses were under more stringent requirements than the earlier regulation. (273) The Court first started examining this new issue in two related cases (Calgon Carbon and Hebei Foreign) in 2011 involving Chinese respondents.

      In Calgon Carbon, (274) and the follow-up case in Hebei Foreign, (275) the Court faced an interesting situation as to what constitutes certification of the responses by a company official. In Calgon Carbon, the Court found that Commerce's decision to revoke Hebei Foreign Trade & Advertising Corp.'s (Heibi Foreign) separate rate status was erroneous because its response was certified by an individual later found to not be a company official. (276) The Court remanded the matter to Commerce to explain how it is applying the new certification as it relates to the requirement as to whether the certifying officials must be employees. (277) Specifically, the Court instructed Commerce that, "[i]f Commerce chooses to require formal employee status" as part of the section 351.303(g) certification requirements, "Commerce must first make clear" that it will impose "such a strict interpretation of [this] regulation." (278)

      Furthermore, the Court found that "Commerce did not articulate how the statements on record as a whole support its finding that [the official in question] was not a formal employee." (279) Thus, Commerce's "[r]eliance on a single unclear statement by a party outside the respondent corporation to the exclusion of half a dozen others to the contrary does not rise to the level of substantial support." (280) Finally, the Court was even clearer in its instructions that if the certifying company official "was in a position to know the facts but was not an employee ill the sense required by Commerce, then Commerce must re-open the record to allow Hebei Foreign to attempt to find someone who fulfills the regulatory requirement." (281)

      "On remand, Commerce clarified that ... 19 C.F.R. [section] 351.303(g)(1) requires certification by a current employee of the respondent and that the 'employer-employee' relationship is distinguished from independent contractor or agent of the party relationships." (282) Due to the fact that the original certifying official was more of an agent than an employee, Commerce requested--and Hebei Foreign provided--new company certifications, signed by the Chief of Hebei Foreign and one other employee who significantly prepared the response. (283) "The [revised] certifications stated that [the Chief of Hebei Foreign] and [the other employee] 'prepared or supervised the preparation' of the responses in question." (284) Furthermore, "Hebei Foreign provided tax return and payroll information for [the Chief of Hebei Foreign] and payroll information for [the other employee], which Commerce determined satisfied the definition" that the certifying official be "employed by" the responding company. (285) As a result, Commerce granted Hebei Foreign a separate rate. (286) The Court sustained the remand results, upholding Commerce's employees-only certification requirement and its reliance on the new information provided by the respondent. (287)


    AD investigations and reviews on imports of merchandise from NMEs differ from similar actions against market economy countries in that the NME producers' actual costs of production are ignored. (289) As a "surrogate" for the supposedly unreliable NME-based costs, Commerce derives the normal value of the subject merchandise by collecting the manufacturer's production inputs (including overhead) per unit of finished product, which are then valued with reference to the values of such factors in an appropriate surrogate market economy country. (290) Thus, in NME dumping cases, surrogate values (SV) play a vital role in the calculations, and SV disputes often arrive at the Court of International Trade. In 2011, the Court issued opinions dealing with issues arising out of challenges to Commerce's SVs for material inputs, financial ratios, energy inputs, movement expenses, and by-products.

    1. Domestic Prices Versus Import Prices in Determining Surrogate Value for Raw Material Inputs

      Commerce selects the appropriate SVs on a case-by-case basis, following general guidelines set forth in its Policy Bulletin 04.1. (291) The law and case precedent grants "considerable discretion"...

To continue reading