Definition of 'Cross-Owned Input Supplier' in Question in CAFC Oral Arguments
In oral arguments Sept. 5, steel rebar petitioner Rebar Trade Action Coalition and Turkish exporter Kaptan Demir attempted to define whether a Turkish shipbuilding company, which sold scrap to Kaptan during the review period, was the exporter’s cross-owned input supplier (Kaptan Demir Celik Endustrisi ve Ticaret v. United States, Fed. Cir. # 24-1431).
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The Court of International Trade ruled in 2023 that the shipbuilder wasn’t (see 2311270059). CIT Judge Gary Katzmann explained that the steel scrap the manufacturer, Nur Gemicilik ve Tic, sold Kaptan wasn’t primarily dedicated to the exporter’s rebar production. As a result, he said, subsidies Nur received from the Turkish government couldn’t be attributed to Kaptan.
The arguments were heard by CAFC judges Raymond Chen, Richard Linn and Todd Hughes.
Maureen Thorson, counsel for Rebar Trade Action Coalition, said again Sept. 5 that the preamble to the countervailing duty statute doesn’t define “primarily dedicated” (see 2406120039). But, “by means of examples,” it “clarifies that the term reflects an input’s role in the manufacturing of the downstream product, including whether the input is used more or less directly in that production, and, as a result, imparts critical characteristics to the downstream product,” she said.
“The standard of review is difficult for you,” one of the judges said. “Because the question is whether substantial evidence supported Commerce’s decision.”
He disagreed that Commerce had departed too significantly from the language of the preamble in its determination. The preamble’s examples for “cross- -- whatever the word is -- [are] much more direct,” he said.
“Like, if someone produces semolina, they know it’s going to be used for pasta,” he said. "If somebody produces scrap metal, it can be used for a lot of things.”
Thorson argued that semolina could be used in a variety of other products, such as bread or cake. She also said that another preamble example is lined notebooks and pulp logs; the example let Commerce find that pulp logs were primarily dedicated to lined notebooks even though they could make “all kinds of different paper products,” she said.
The judge also said that the law requires a cross-owned input supplier to be almost solely dedicated to production of a particular input, whereas Nur’s scrap sales appeared “extremely ancillary” to its shipbuilding business.
In turn, Sosun Bae, the government’s attorney, agreed with the judge’s interpretation. She said the primary purpose of the statute is to ensure that exporters don’t exploit a loophole by “basically sectioning off your input supplier and then having the subsidies be attributed to that input supplier such that nobody was liable for the countervailing duty subsidies.”
This is only the case when an input supplier is primarily dedicated to the production of the input, she said.
The court asked whether a subsidy received by an input supplier that, such as in this case, is dedicated to more than just the input, would still result in a cheaper input.
Bae said that that would lead to a problem whereby inputs such as plastic or steel scrap would always have to be considered “primarily dedicated” to creation of any product, “no matter how wide their end use is.”
“I don’t think the Kaptan Group, whoever owns the group, would have sectioned off Nur as a shipbuilding company simply to avoid countervailing subsidies on a steel byproduct,” she said.
The subsidy itself was the provision of land for less-than-adequate remuneration, she continued. That, too, didn’t appear directed at the production of steel scrap.
The court also noted that the text of the law seems to focus on whether an input itself, not the producer, is primarily dedicated to a downstream product.
Bae agreed. She also acknowledged that nothing in the text of the regulation asks Commerce to look into the nature of an exporter’s business activities in determining whether an input is “primarily dedicated” to production of a downstream product. But she said the preamble “is certainly a view into how Commerce has intended the regulation to be interpreted,” and that it supports the department’s analysis.
Other provisions, such as the regulation’s upstream subsidy provision, could apply in situations such as the current one, she said.
And she said that the petitioner wasn’t challenging Commerce’s ability to use a producer’s business activities at all in its analysis -- it was challenging the weight the department afforded those activities.
Counsel for the exporter, in turn, emphasized again that Kaptan purchased only .003% of the scrap it used in the production of its rebar from Nur, and that Kaptan’s purchases were themselves less than .5% of Nur’s scrap sales.