CIT Tells Commerce to Drop Subsidy Over Input Supplier's Provision of Electricity
The Court of International Trade in a Jan. 24 opinion ordered the Commerce Department to drop to zero a 26.50% estimated subsidy rate for the provision of land to an affiliate of respondent Gujarat Fluorochemicals Limited (GFL) that was included in GFL's countervailing duty rate in a CVD investigation. Judge Timothy Stanceu said Commerce should not have included the subsidy because the agency overlooked the type of relationship the regulation requires between subsidies to inputs and the downstream product in the production chain.
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The case concerns the countervailing duty investigation on granular polytetrafluoroethylene from India, during which GFL was hit with a 31.89% CVD rate derived from 10 different subsidy rates. The respondent contested two of the rates: a 26.50% rate for a 30-year lease of a land tract by the State Industrial Development Corp. to Inox Wind, a GFL affiliate, and a 0.12% rate for the provision of land to GFL by the Gujarat Industrial Development Corp. (GIDC). Commerce found the 30-year lease to Inox, a company that produces electricity only for GFL, which "pertained to land to be used for the construction of manufacturing facilities, was for less than adequate remuneration" (LTAR).
The statute requires Commerce to conduct an upstream subsidy investigation whenever it suspects an upstream subsidy. An upstream subsidy refers to one other than an export subsidy. Given by an authority, it confers a competitive benefit on the subject merchandise and has a "significant effect on the cost" of making the goods. The agency did not carry out an upstream subsidy investigation of the electricity input in this case, though if it had, it would have had to consider evidence that questioned whether the input had bestowed a competitive benefit or had a significant effect on the final product's cost. When it included the estimated subsidy rate in GFL's margin for this program, Commerce instead used an alternative methodology "entirely a creation of the Department's regulations."
The case rested on the application of this regulation, 19 C.F.R. Section 351.525(b)(6)(iv), which says that if there is cross-ownership between an input supplier and a downstream producer, and production of the input is mainly dedicated to production of the downstream product, Commerce will attribute subsidies received by the input producer to the "combined sales of the input and downstream products" made by both corporations. Stanceu said provision of electricity is not mainly dedicated to the production of the granular PTFE and Commerce misunderstood the production chain.
Commerce justified its use of the regulation by noting that GFL was Inox's only customer, but the judge held this was "not sufficient to meet the 'primarily dedicated' standard imposed by the regulation." Whether an input is mainly dedicated to the production of the downstream product instead primarily hinges on the role the input has as a "link" in the production chain, Stanceu clarified.
"The electricity used to power [GFL's] manufacturing facilities might be described as an 'input,' but its role in the manufacturing of the finished products at the [GFL] facilities is not analogous to the role timber performed in producing lumber or the role semolina performed in pasta making," the opinion said. "Electricity used to power an entire production plant cannot fairly be characterized as 'merely a link in the overall production chain' of the finished products that are made there. It is energy, and, being of universal application, is not remotely describable as an upstream product that is 'primarily dedicated to the production of the downstream product' as is required by § 351.525(b)(6)(iv)."
Holding that inclusion of the subsidy rate was not allowed by the regulation, the judge said its collection "must cease." Stanceu said "the court will direct Commerce to delete the 26.50% estimated subsidy rate from the overall estimated subsidy rate in the redetermination it files in this case."
Turning to the 0.12% rate for the provision of land by GIDC, the judge called out Commerce's final decision memorandum for not including any analysis of benefit or specificity finding for the subsidy rate. GFL challenged the decision on the grounds that Commerce reached an erroneous conclusion based on a "flawed analysis of benchmark data." While the agency requested a voluntary remand to further consider the analysis, Stanceu said such a remand would presume that the land leases were for LTAR, instead sending the issue back for Commerce "to reconsider in the entirety the decision to include the 0.12% estimated subsidy rate on the GIDC issue."
(Gujarat Fluorochemicals v. U.S., Slip Op. 23-9, CIT #22-00120, dated 01/24/23, Judge Timothy Stanceu. Attorneys: John Gurley of ArentFox for plaintiff Gujarat Fluorochemicals Liimited; Daniel Roland for defendant U.S. government; Elizabeth Drake of Schagrin Associates for defendant-intervenor Daikin America)