CAFC Questions Tire Exporters' Separate AD Rate Bids at Oral Argument
The U.S. Court of Appeals for the Federal Circuit questioned both exporters Guizhou Tyre Co. and Aeolus Tyre Co. and the U.S. government during oral argument on the exporters' challenge to the Commerce Department's finding that Guizhou Tyre and Aeolus didn't show independence from Chinese state control in the seventh review of the antidumping duty order on new pneumatic off-the-road tires from China (Guizhou Tyre Co. v. United States, Fed. Cir. #s 23-2163, -2165).
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Jordan Kahn, counsel for Guizhou Tyre and Aeolus, opened the proceeding by noting that both companies noted in the review that they are minority state-owned enterprises. Kahn said that in the fifth AD review, Commerce granted Guizhou Tyre a separate rate, finding it independent from government state control, but denied it a separate rate in the seventh review.
Judge Todd Hughes said that's the "way these reviews work," since the record is separate in every review and the agency had different evidence. In the seventh review, Commerce found that despite Guizhou Tyre's minority state-owned interest, the agency said that that minority interest "effectively controls the board," Hughes noted, asking what's wrong with that conclusion.
In response, Kahn said Commerce "moved the goal posts" between the two reviews, noting that the record had much more evidence in support of Guizhou Tyre's position between the fifth and seventh reviews. Hughes said that "if we accept the facts as they've argued up here, which is that despite the fact that it's minority ownership, it's still effectively government control, because the people that show up at the shareholder meetings are all government entities, and nobody else has any voting power." The judge referenced facts on the record showing that there was one time the minority was voted against but that this position was reversed three months later at another board meeting.
Hughes asked if there's only minority control but the minority effectively has complete control, does that show de facto control over the separate rate respondent. In response, Kahn said there "still needs to be a nexus to production, commercial or export decisions." Hughes brushed this off as decided by a recent CAFC decision Pirelli Tyre v. U.S. in which the court said the U.S. doesn't have to show a link between the selection of management and the company's export activities (see 2502110030).
The judge said the evidence showing that the only board members with enough of a percentage of shares to even call a board meeting are government-owned entities and the fact that the lone vote of dissent against the government was overturned seem "to be the exact evidence of de facto government control." If the government-owned minority can convene meetings "until they can get what they want, then that seems to me de facto control."
Judge Raymond Clevenger then questioned what standard applies in the case of minority government ownership, pressing Kahn on his claim that in the case of minority ownership there must be evidence of actual government control as opposed to just potential control. Clevenger also noted that two of Guizhou Tyre's arguments regarding what factors Commerce can rely on in making separate rate determinations are "foreclosed by Pirelli," only leaving the exporter's argument that the agency's decision was arbitrary and capricious.
Hughes also pressed DOJ attorney Stephen Tosini, who opened his remarks by claiming that "Pirelli controls" and that the facts are in line with that decision. The judge asked Tosini if "we have to do a little bit more here," since Commerce did grant Guizhou Tyre a separate rate in the fifth review and found that the board was largely the same.
In response, Tosini referenced a CIT decision, Advanced Technology & Materials Co. v. U.S., which said Commerce can reasonably draw an inference that a board has control over export activities if the shareholders can select the board. Judge Richard Taranto pressed Tosini on how this applies to Commerce's differing conclusions between the fifth and seventh reviews, asking the attorney what changed between the reviews. Tosini replied by saying that before this review, the agency didn't "look with the same detail into board composition and draw that same inference as to whether control of the board would therefore translate into control of management activities."
Hughes then noted that Commerce has now taken a "more nuanced view," that recognizes that "even minority control can effectively" control.
In his rebuttal, Kahn also discussed the evidence supporting the rejection of Aeolus' separate rate application, arguing that Aeolus has now "rectified" the intertwining of operations between Aeolus and its minority-owner state-owned entity. Ultimately, Kahn said, it's "very disconcerting to put on a small amount of evidence and get the separate rate, and then put on a mountain of evidence and get denied the separate rate."