CAFC Says 'Cross-Ownership' Reg Depends on Benefit to Input, Downstream Product

Bryson, writing a concurring opinion, said he also would have affirmed the trade court's decision on the grounds that the regulation "is inapplicable here," since the input sold to Gujarat, wind power, wasn't "primarily dedicated" to the production of the downstream product, PTFE resin.

In the investigation, Commerce attributed a land lease subsidy received by Inox Wind to Gujarat, since "cross-ownership existed between the two companies." During the last month of the investigation period, Inox sold two windmills to Gujarat. Before the sale, though, Inox tested the windmills and sold Gujarat the wind power produced by the windmills during this period. This power was commingled with power from other sources and used to power Gujarat's production facility, which makes the subject PTFE resin, among other goods.

The wind accounted for only 1.03% of the total power consumed by this facility, with only 0.07% of the power used to make PTFE resin, the court noted. Commerce applied its cross-ownership regulation and attributed the land lease subsidy received by Inox, which the agency countervailed at 26.5%, to Gujarat. CIT rejected this move, and Commerce dropped this CVD rate on remand (see 2404010055).

At the heart of the issue is Commerce's cross-ownership regulation, 19 C.F.R. 351.525(b)(6)(iv), which says Commerce will attribute subsidies received by an input producer to the downstream product producer if there's "cross-ownership between an input supplier and a downstream producer, and production of the input product is primarily dedicated to production of the downstream product." At issue was whether Inox's wind power was "primarily dedicated" to Gujarat's downstream product of PTFE resin.

Reyna, writing for the court, said the case is one of "regulatory interpretation" and that the regulation turns on whether the point of the subsidy is to benefit the production of the input and the downstream product.

The court began its analysis with the CVD Preamble, which says there must be some type of link between the production of the input and the production of the downstream products so that the "subsidies on the former benefit the latter." However, the CVD Preamble doesn't list "all scenarios where such a connection is present," though it has "instructive" examples, the judge noted. The CVD Preamble says it's reasonable to attribute subsidies on timber that's primarily dedicated to lumber production and subsidies to semolina primarily dedicated to pasta production, though it says it's unreasonable to attribute subsidies to a plastics maker to the production of companies that make appliances and automobiles.

The agency said where it's investigating companies that make appliances and automobiles, it will rely on the "upstream subsidy provision" to "capture any plastics benefits which are passed to the downstream producer." Reyna said the "takeaways" from these examples are that "an input product and a downstream product that share a physical connection may trigger the application of" the cross-owned regulation, and "at a minimum, mere consumption of the input by the downstream producer is not enough to trigger" the regulation.

As a result, the court said the cross-ownership regulation "requires some level of connection (apart from primary, or sole, consumption) between" production of the input and the downstream product for the input to be "primarily dedicated" to the production of the downstream product. While Reyna said the court isn't defining the "exact level of connection needed," primary or sole consumption alone is "too broad of a standard and foreclosed by the Preamble."

The fact that Gujarat was the only buyer of Inox's wind energy doesn't change the outcome, the court added. There's "no indication from the regulation or the CVD Preamble that if the downstream producer was the sole customer of the input, that fact alone would trigger" the regulation, Reyna said. While petitioner Daikin America argued that the regulation must be applied broadly to achieve its goal of "prevent circumvention," the court noted that Commerce didn't adopt the "automatic attribution" rule when promulgating the regulation, instead opting for the "primarily dedicated" rule.

In all, the court said the "primarily dedicated" provision doesn't "turn on whether the input was primarily, or solely, consumed by the downstream producer," but rather is a "fact-intensive inquiry focused on production" that looks to answer whether the purpose of a subsidy given to the input producer is to benefit the production of the input and downstream products.

In concurring with the ruling, Bryson added that he would also affirm the trade court's ruling on the basis that the wind power wasn't "primarily dedicated" to the production of the PTFE resin. The tiny amount of energy sold to Gujarat "was plainly not enough to justify a conclusion that the electricity Inox sold to Gujarat was 'primarily dedicated' to the production of the exported PTFE."

Daikin claimed the electricity was "primarily dedicated" to the production of the resin because Inox supplies all the electricity it produces to Gujarat "without limitation as to the "types of input product, downstream product, or input producers and downstream producers that are covered.” However, Bryson said this "theory is based on an unjustifiably broad interpretation of the term 'downstream product,' seemingly to include anything produced by Gujarat by using electricity."

(Gujarat Fluorochemicals v. United States, Fed. Cir. # 24-1268, dated 10/08/25; Judges: Jimmie Reyna, William Bryson and Kara Stoll; Attorneys: Diana Quaia of ArentFox Schiff for plaintiff-appellee Gujarat Fluorochemicals; Elizabeth Schagrin of Schagrin Associates for defendant-appellant Daikin America)