Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws
| Published date | 25 March 2024 |
| Record Number | 2024-05509 |
| Citation | 89 FR 20766 |
| Court | International Trade Administration |
| Section | Rules and Regulations |
Federal Register, Volume 89 Issue 58 (Monday, March 25, 2024)
[Federal Register Volume 89, Number 58 (Monday, March 25, 2024)]
[Rules and Regulations]
[Pages 20766-20841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-05509]
[[Page 20765]]
Vol. 89
Monday,
No. 58
March 25, 2024
Part II Department of Commerce-----------------------------------------------------------------------International Trade Administration-----------------------------------------------------------------------19 CFR Part 351Regulations Improving and Strengthening the Enforcement of Trade
Remedies Through the Administration of the Antidumping and
Countervailing Duty Law; Final Rule
Federal Register / Vol. 89 , No. 58 / Monday, March 25, 2024 / Rules
and Regulations
[[Page 20766]]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
19 CFR Part 351
[Docket No. 240307-0075]
RIN 0625-AB23
Regulations Improving and Strengthening the Enforcement of Trade
Remedies Through the Administration of the Antidumping and
Countervailing Duty Laws
AGENCY: Enforcement and Compliance, International Trade Administration,
Department of Commerce.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: Pursuant to its authority under the Tariff Act of 1930, as
amended (the Act), the U.S. Department of Commerce (Commerce) is
amending its regulations to enhance, improve and strengthen its
enforcement and administration of the antidumping duty (AD) and
countervailing duty (CVD) laws. Specifically, Commerce is revising some
of its procedures, codifying certain areas of its practice, and
enhancing certain areas of its methodologies and analyses to address
price and cost distortions, as well as certain countervailable
subsidies, in different capacities.
DATES: These amendments are effective April 24, 2024.
FOR FURTHER INFORMATION CONTACT: Scott McBride, Associate Deputy Chief
Counsel, at (202) 482-6292, Ian McInerney, Attorney, at (202) 482-2327,
Hendricks Valenzuela, Attorney, at (202) 482-3558, or Ariela Garvett,
Senior Advisor, at [email protected].
SUPPLEMENTARY INFORMATION:
General Background
On May 9, 2023, Commerce proposed amendments to its existing
regulations, 19 CFR part 351, to improve, strengthen and enhance its
enforcement of the AD and CVD laws.\1\ Relevant to this final rule are
the AD/CVD statutory and regulatory provisions in general, as well as
those pertaining to filing requirements, scope, circumvention, and
covered merchandise inquiries, the use of new factual information, the
CVD facts available hierarchy, surrogate value and CVD benchmark
selections, particular market situations (PMS), and certain types of
countervailable subsidies, which we summarize below.
---------------------------------------------------------------------------
\1\ See Regulations Improving and Strengthening the Enforcement
of Trade Remedies Through the Administration of the Antidumping and
Countervailing Duty Laws, 88 FR 29850 (May 9, 2023) (Proposed Rule).
---------------------------------------------------------------------------
Title VII of the Act vests Commerce with authority to administer
the AD/CVD laws. In particular, section 731 of the Act directs Commerce
to impose an AD order on merchandise entering the United States when it
determines that a producer or exporter is selling a class or kind of
foreign merchandise into the United States at less than fair value
(i.e., dumping), and the U.S. International Trade Commission (ITC)
finds material injury or threat of material injury to that industry in
the United States. Section 701 of the Act directs Commerce to impose a
CVD order when it determines that a government of a country, or any
public entity within the territory of a country, is providing, directly
or indirectly, a countervailable subsidy with respect to the
manufacture, production, or export of a class or kind of merchandise
that is imported into the United States, and when the ITC finds that
material injury or threat of material injury to that industry in the
United States.\2\
---------------------------------------------------------------------------
\2\ A countervailable subsidy is further defined under section
771(5)(B) of the Act as existing when: a government or any public
entity within the territory of a country provides a financial
contribution; provides any form of income or price support; or makes
a payment to a funding mechanism to provide a financial
contribution, or entrusts or directs a private entity to make a
financial contribution, if providing the contribution would normally
be vested in the government and the practice does not differ in
substance from practices normally followed by governments; and a
benefit is thereby conferred. To be countervailable, a subsidy must
be specific within the meaning of section 771(5A) of the Act.
---------------------------------------------------------------------------
On September 20, 2021, Commerce revised its scope regulations (19
CFR 351.225) and issued new circumvention (19 CFR 351.226) and covered
merchandise (19 CFR 351.227) regulations. See Scope and Circumvention
Final Rule, 86 FR 52300 (September 20, 2021) (Scope and Circumvention
Final Rule). See also Scope and Circumvention Proposed Rule, 85 FR
49472 (August 13, 2020) (Scope and Circumvention Proposed Rule). These
revised and new regulations became effective November 4, 2021. On
September 29, 2023, after publication of the May 2023 Proposed Rule,
Commerce identified some technical issues in those scope,
circumvention, and covered merchandise referral regulations, and
amended those regulations to address those issues.\3\ We have
incorporated those changes into these final revised regulations.
---------------------------------------------------------------------------
\3\ See Administrative Protective Order, Service, and Other
Procedures in Antidumping and Countervailing Duty Proceedings, 88 FR
67069, 67077-78 (September 29, 2023) (APO and Service Final Rule).
---------------------------------------------------------------------------
As we explained throughout the preamble to the Proposed Rule, the
purpose of these modifications and additions to our regulations is to
improve, strengthen and enhance the enforcement and administration of
the AD/CVD laws, make such enforcement and administration more
efficient, and to address factors which distort costs and prices--
factors that make the ``playing field'' less ``level'' for domestic
interested parties and can contribute to unfair trade. In order to
achieve the purpose of those regulations, Commerce may at times need to
request further documentation from interested parties that clarifies
the record to better understand the facts of a particular case. Other
times, Commerce may need to extend the deadline to issue a
determination so that its decision is fully informed and complete. To
address unfair trade adequately and appropriately, Commerce may need to
remove unnecessary restrictions in its regulations to address updated
challenges, like the agency's withdrawal of the prohibitive
transnational subsidies regulation. Commerce recognizes that in the
year 2024, there are complexities and challenges in international trade
which did not exist, or did not exist in the same manner or to the same
degree, when previous regulations were issued. Accordingly, Commerce
has determined that revisions and updates to Commerce's trade remedy
regulations are warranted.
Section 516A(b)(2) of the Act provides a definition of Commerce's
administrative record in AD/CVD proceedings and Sec. 351.104(a)(1)
describes in greater detail the information contained on the official
record. Nonetheless, interested parties sometimes make the mistake of
merely citing sources, or placing Uniform Resource Locator (URL)
website information, or hyperlinks, in their submissions to Commerce,
and then later presuming the information contained at the source
documents is considered part of the record. This becomes a problem, for
example, when parties submit their case briefs and rebuttal briefs on
the record pursuant to Sec. 351.309 and quote from, or otherwise rely
on, information or data derived from the cited sources that were never
submitted on the official record. Commerce therefore proposed adding
clarification on this point to Sec. 351.104(a)(1) in the Proposed
Rule.\4\ Commerce also proposed listing documents which do not need to
be
[[Page 20767]]
placed on the record, but can merely be cited, in the Proposed Rule.\5\
We received a large number of comments on these proposals, and as we
describe in greater detail below, we have revised Sec. 351.104 to
provide greater clarity on these issues.\6\
---------------------------------------------------------------------------
\4\ See Proposed Rule, 88 FR 29852-53.
\5\ Id.
\6\ Commerce also proposed a change to Sec. 351.301(c)(4),
which deals with the use of record information as well. However, the
comments Commerce received were overwhelmingly opposed to such a
change. Accordingly, Commerce is not making a change to the existing
provision as proposed.
---------------------------------------------------------------------------
In the Proposed Rule, Commerce proposed language to be added to the
regulations addressing scope, circumvention, and covered merchandise
inquiries pertaining to filing deadlines, clarification requests,
merchandise not yet imported but commercially-produced and sold,
extensions of time, regulatory restrictions covering new factual
information, and scope clarifications.\7\ Commerce subsequently
received comments from several interested parties on each of its
suggestions. In response to those comments, for the reasons we explain
below, Commerce has made certain modifications to its final
regulations--primarily on the language pertaining to scope
clarifications.
---------------------------------------------------------------------------
\7\See Proposed Rule, 88 FR 29853-57.
---------------------------------------------------------------------------
There are times when interested parties seek to file Notices of
Subsequent Authority with Commerce, in which a party argues in a given
segment of a proceeding that a new Federal court or Commerce decision
supports, contradicts, or undermines particular arguments before the
agency. However, Commerce's current regulations do not address the
timing for submitting Notices of Subsequent Authority, responsive
comments to a Notice of Subsequent Authority, and new factual
information regarding the filing of a Notice of Subsequent Authority,
nor the content requirements of a Notice of Subsequent Authority.
Commerce, therefore, proposed an addition to Sec. 351.301, at
paragraph (c)(6), to provide guidance for future Notices of Subsequent
Authority.\8\ We received comments on that proposal, and as we describe
in greater detail below, we have provided some additional language to
clarify this provision in response to those comments.
---------------------------------------------------------------------------
\8\Id., 88 FR 29857.
---------------------------------------------------------------------------
Section 776(d) of the Act provides that in circumstances in which
Commerce is applying adverse facts available (AFA) in selecting a
program rate pursuant to sections 776(a) and (b) of the Act, it may use
a countervailable subsidy rate determined for the same or similar
program in a CVD proceeding involving the same country. Alternatively,
if there is no same or similar program, Commerce may instead use a
countervailable subsidy rate for a subsidy program from a proceeding
that Commerce considers reasonable to use, including the highest of
such rates. Commerce developed its practice of applying its current
hierarchy in selecting AFA rates in CVD proceedings over many years,
preceding its codification into the Act, to effectuate the statutory
purpose of section 776(b) of the Act to induce respondents to provide
Commerce with complete and accurate information in CVD proceedings in a
timely manner. For purposes of these regulations, Commerce chose to
codify that hierarchy in a new paragraph of Sec. 351.308.\9\ We
received comments on that proposal in response to the Proposed Rule,
and in response to those comments we have modified certain language
pertaining to the CVD hierarchy in investigations.
---------------------------------------------------------------------------
\9\Id., 88 FR 29858.
---------------------------------------------------------------------------
In the Proposed Rule, Commerce acknowledged that both government
action and government inaction can benefit producers or exporters.\10\
For example, when a government issues a fee, fine, or penalty to a
company, yet never collects the payment, that revenue forgone is
considered a financial contribution pursuant to section 771(5)(D)(ii)
of the Act. Accordingly, Commerce proposed a new regulation at Sec.
351.529, which codifies its practice in countervailing such a
subsidy.\11\ In addition, Commerce proposed considering nonexistent,
weak, or ineffective property (including intellectual property), human
rights, labor, and environmental protections which may distort costs of
production in selecting surrogate values in accordance with section
773(c)(1) of the Act in Sec. 351.408.\12\ Likewise, in determining if
a product has been sold for less than adequate remuneration, Commerce
proposed considering the distortive effect of those same factors on
prices and costs in selecting a benchmark country price or prices, in
Sec. 351.511.\13\ Finally, Commerce proposed that those factors might
be the foundation of a cost-based PMS, and proposed two examples in the
Proposed Rule to reflect those factors, to be codified in Sec.
351.416.\14\ We received numerous comments on those proposals, and
although we have made no changes to the fees, fines, and penalties and
less than adequate remuneration proposed regulations, and only minor
edits to the surrogate value proposed regulation, we have made some
changes to the PMS regulation, for the reasons provided.
---------------------------------------------------------------------------
\10\Id., 88 FR 29858-61.
\11\Id.
\12\Id.
\13\Id.
\14\Id.
---------------------------------------------------------------------------
On November 18, 2022, Commerce issued an advanced notice of
proposed rulemaking indicating that it was considering issuing a
regulation that would address the steps taken by Commerce to determine
the existence of a PMS that distorts the costs of production. See
Determining the Existence of a Particular Market Situation That
Distorts Costs of Production; Advanced Notice of Proposed Rulemaking,
87 FR 69234 (November 18, 2022) (hereinafter, PMS ANPR). Commerce
received 19 comments in response to that notice and addressed or
incorporated many of those comments into its proposed regulation at
Sec. 351.416 in the Proposed Rule.\15 \In addition, Commerce proposed
regulatory provisions addressing both a sales-based PMS, as well as a
cost-based PMS.\16\ Its proposed regulation described information that
Commerce would normally consider in determining the existence of a PMS,
set forth information that Commerce would not be required to consider
in every case, and explained that under certain factual situations,
Commerce could determine that a cost-based PMS contributed to the
existence of a sales-based PMS.\17\ In addition, Commerce set forth 12
examples of circumstances that reflect a PMS that is likely to result
in a distortion to costs.\18\ The PMS regulation was the primary issue
Commerce received comments on in response to the Proposed Rule, and for
the reasons described below, Commerce has revised some of the language
throughout Sec. 351.416 for clarity and consistency in response to
many of those comments.
---------------------------------------------------------------------------
\15\Id., 88 FR 29861-67.
\16\Id.
\17\Id.
\18\Id.
---------------------------------------------------------------------------
In addition, Commerce proposed modifications to several of its CVD
regulations, including those covering benefit (Sec. 351.503), loans
(Sec. 351.505), equity (Sec. 351.507), debt forgiveness (Sec.
351.508), direct taxes (Sec. 351.509), export insurance (Sec.
351.520), and the attribution of subsidies to products in its CVD
calculations (Sec. 351.525). We received several comments in response
[[Page 20768]]
to some of those regulation changes and have made some revisions to
certain regulations in response, as set forth below.
Finally, in awareness of changes in the world economy, Commerce
proposed eliminating the current regulation prohibiting the
countervailing of certain transnational subsidies, Sec. 351.527, and
instead reserving it for future consideration.\19\ We received numerous
comments on this change to our regulations as well and have determined
to make no changes from the Proposed Rule, for the reasons explained
below.
---------------------------------------------------------------------------
\19\ Id., 88 FR 29870.
---------------------------------------------------------------------------
Explanation of Modifications From the Proposed Rule to the Final Rule
and Responses to Comments
In the Proposed Rule, Commerce invited the public to submit
comments.\20\ Commerce received 53 submissions from interested parties
providing comments, including domestic producers, domestic industrial
users, exporters, importers, foreign governments, and foreign entities.
We have determined to make certain modifications to the Proposed Rule
in response to certain issues and concerns raised in those submissions.
We considered the merits of each submission and analyzed the legal and
policy arguments in light of both our past practice, as well as our
desire to improve, strengthen, and enhance the administration and
enforcement of our AD/CVD laws.
---------------------------------------------------------------------------
\20\ Id., 88 FR 29850-51.
---------------------------------------------------------------------------
The preamble to the Proposed Rule provides background, analysis,
and explanation which are relevant to these regulations. With some
modifications, as noted, this final rule would codify those proposed on
May 9, 2023. Accordingly, to the extent that parties wish to have a
greater understanding of these regulations, we encourage not only
considering the preamble of these final regulations, but also a review
of the analysis and explanations in the preamble to the Proposed Rule.
In drafting this final rule, Commerce carefully considered each of
the comments received. The following sections generally contain a brief
discussion of each regulatory provision(s), a summary of the comments
we received, and Commerce's responses to those comments. In addition,
these sections contain explanations of changes Commerce made to the
Proposed Rule, either in response to comments or that it deemed
appropriate for conforming, clarifying, or providing additional public
benefit.
1. Commerce has revised Sec. 351.104(a)(1) and added Sec.
351.104(a)(3) through (7) to clarify the information sources that may
be cited in submissions without placing them on the official record and
the information sources that must be placed on the official record for
Commerce to consider them.
In the Proposed Rule, Commerce explained that it was updating Sec.
351.104(a), which describes in detail the information contained on the
official record, to reflect Commerce's long-standing interpretation
that mere citations and references (e.g., hyperlinks and website URLs)
do not incorporate the information located at the cited sources onto
the official record. Commerce explained that this was true whether the
citation is to sources such as textbooks, academic or economic studies,
foreign laws, newspaper articles, or websites of foreign governments,
businesses, or organizations.\21\ Commerce explained that if an
interested party wished to submit information on the record, it would
be required to submit the actual source material in a timely manner and
not merely share internet links or citations to those sources in its
questionnaire responses, submissions, briefs, or rebuttal briefs.
---------------------------------------------------------------------------
\21\ Id., 88 FR 29852-53. Commerce provided reasons that such an
update to the regulation was necessary, including to avoid the time
and resources it takes for Commerce to make filers remove
submissions from the record and resubmit them without arguments
relying on websites and URLs. Another reason for the policy is that
information on websites can, and frequently does, change. At the
time a weblink is placed on the record, the website might contain
certain information, but later in the segment of the proceeding,
that website and the information contained therein might change.
---------------------------------------------------------------------------
Commerce also explained, however, that there are exceptions to this
rule which it adopted over the years, and set forth those exceptions in
the proposed regulations at Sec. 351.104(a)(1). Specifically, Commerce
identified the following as sources which parties could cite and rely
upon, without placing the sources on the record: U.S. statutes and
regulations; published U.S. legislative history; U.S. court decisions
and orders; certain notices of the Secretary and ITC published in the
Federal Register, as well as decision memoranda and reports adopted by
those notices; and the agreements identified in Sec. 351.101(a).\22\
---------------------------------------------------------------------------
\22\ Id., 88 FR 29871.
---------------------------------------------------------------------------
Commerce explained that Commerce-authored ``Issues and Decision
Memoranda,'' included in that list of excepted citation sources, were
adopted by Federal Register notices and were ``not the separate
calculation and analysis memoranda that Commerce frequently uses in its
proceedings.'' \23\ Commerce stated in the preamble that
``{c{time} alculation and analysis memoranda'' included ``initiation
checklists, respondent selection memoranda, new subsidy allegation
memoranda, and affiliation/collapsing memoranda from other proceedings
or other segments of the same proceeding.'' Commerce provided that all
of those documents would not be considered to be on the official record
``unless they have been placed on the record by Commerce or one of the
interested parties to the proceeding.'' \24\ Furthermore, Commerce
explained that remand redeterminations, determinations issued pursuant
to section 129 of the Uruguay Round Agreements Act (URAA) (section 129
determinations), and scope rulings must ``each be submitted on the
official record of another segment or proceeding'' for Commerce to
consider the contents and analysis of those determinations in that
segment or proceeding.\25\
---------------------------------------------------------------------------
\23\ Id., 88 FR 29853.
\24\ Id.
\25\ Id.
---------------------------------------------------------------------------
A. The revised regulation addresses documents not originating with
Commerce, published in the Federal Register, containing proprietary
information, or not associated with an ACCESS barcode number.
Commerce received several comments on both the proposed regulation
language, as well as Commerce's description of its practice in the
preamble to the Proposed Rule. One commenter expressed concerns with
Commerce's restrictions on citations and references (e.g., hyperlinks
and website URLs) to documents not originating with Commerce. That
commenter suggested that if documents and information (e.g., academic
publications) were previously placed on the record in other segments or
proceedings, then parties should be able to cite those documents using
Enforcement and Compliance's Antidumping Duty and Countervailing Duty
Centralized Electronic Service System (ACCESS) barcode numbers, without
placing the sources anew on the record of the immediate segment.
However, there is no question that factual information that has been
filed by interested parties with Commerce originating outside of the
agency meets the definition of factual information under Sec.
351.102(b)(21). Furthermore, Sec. 351.301(c) requires that new factual
information be submitted on each
[[Page 20769]]
segment of the record under specific deadlines and in a certain form.
Accordingly, as each segment is composed of a separate record, and
information from outside of the agency should be placed on the record
for consideration, we will continue to maintain that requirement as it
applies to documents not originating with Commerce.
Certain commenters also expressed concerns that Commerce's list of
documents that it allows to be cited without placing the information on
the record was incomplete. Specifically, one party pointed out that
Commerce frequently allows citations to dictionary definitions without
requiring them to be separately placed on the record. Another commenter
noted that parties frequently cite World Trade Organization (WTO) panel
and appellate body (hereinafter the Panel and Appellate Body,
respectively) decisions, as well as North American Free Trade Agreement
dispute Panel decisions, without submitting those decisions on the
record. That party also suggested that Commerce should allow for all
Federal Government determinations and notices published in the Federal
Register (e.g., Presidential proclamations, Executive orders, and
United States Trade Representative (USTR) section 301 determinations,
etc.) to be cited without submitting them on the record. We agree with
all of those comments and have modified the proposed regulation to
include references to dictionary definitions, dispute settlement
determinations arising out of international agreements cited in Sec.
351.101 (Sec. 351.104(a)(3)(ii)), and Federal Register citations in
general (Sec. 351.104(a)(5)).
In addition, one party suggested that Commerce should also include
various U.S. Customs and Border Protection (CBP) rulings, including
those pertaining to the Harmonized Tariff Schedule of the United States
(HTSUS), on the list of documents not subject to the requirements of
Sec. 351.301. Many such rulings are on the CBP website, but it is as
time consuming for Commerce as it is for the interested parties to
research the rulings of other agencies not published in the Federal
Register. Accordingly, because interested parties bear the burden to
provide sources not originating with Commerce or published in the
Federal Register on the record, we have decided not to include CBP
rulings or unpublished determinations of any other agency, except for
the ITC in AD and CVD proceedings, on the list of sources excluded from
the filing and timing requirements of Sec. 351.301.
In revising the proposed regulations at Sec. 351.104(a) for this
final rule, Commerce has included new paragraphs (a)(3) through (7) to
further clarify which documents may be cited without submitting
information on the record under Sec. 351.301. Specifically, Commerce
has revised Sec. 351.104(a)(1) to largely reflect the current
regulatory language, but adds language that states that scope,
circumvention, or covered merchandise inquiries will be conducted on
the record of the AD segment of a proceeding when there are companion
orders.
Commerce has made no changes to Sec. 351.104(a)(2) but has added
an additional paragraph (a)(3) which specifically addresses ``filing
requirements for documents not originating with the Department.'' This
provision clarifies that if a document does not originate with
Commerce, it must be placed on the record, with the exception of the
aforementioned list of citations Commerce has historically permitted to
be cited without submitting such documents on the record. Notably, the
reference to Commerce memoranda and Federal Register notices and
determinations initially referenced in the Proposed Rule has been
removed from this listing because it is addressed elsewhere in the
revised regulation. This provision explains that unless a document not
originating with Commerce appears on the list of exceptions, the
procedural and timing requirements of Sec. 351.301 apply.\26\ It also
explains that each citation must be cited in full, and that Commerce
may decline to consider information sources in its analysis or
determination if those citations are not cited in full.
---------------------------------------------------------------------------
\26\ We note that the term ``the Department'' has been applied
for these provisions to clarify application to documents authored by
all Commerce employees distinct from the Secretary's determinations.
---------------------------------------------------------------------------
In the new Sec. 351.104(a)(4), Commerce has clarified that even
though parties may take proprietary, privileged, and classified
information from other segments of the same proceeding and place them
on the record of another segment, they cannot do so with mere
citations. All documents, even those originating with Commerce, which
contain business proprietary information must be placed on the official
record in their entirety in accordance with the filing and timing
restrictions of Sec. 351.301.
Furthermore, new Sec. 351.104(a)(5) clarifies that all of
Commerce's Federal Register notifications and determinations may be
cited by parties in submissions on the record without the requirement
that they be submitted on the official record, as long as those notices
and determinations are cited in full. If they are not cited in full,
Commerce may decline to consider those notifications or determinations
in its analysis. This is consistent with Commerce's longstanding
practice, and the provision states clearly that the procedural and
timing requirements of Sec. 351.301 do not apply to such documents.
Finally, Sec. 351.104(a)(7) states that public versions of
documents originating with Commerce from other segments or proceedings,
but which are not associated with an ACCESS barcode number for whatever
reason, including those documents issued before ACCESS was established,
must be filed on the record in their entirety to be considered by
Commerce in its analysis. Otherwise, the record would be incomplete
because other interested parties would not have access to the cited
documents. Therefore, the provision explains that the procedural and
timing requirements of Sec. 351.301 apply to such documents.
B. Public versions of unpublished documents originating with
Commerce and associated with an ACCESS barcode number.
The record issue which foreign exporters, foreign governments, U.S.
importers, U.S. consumers, and domestic industries all agreed upon
involved Commerce's treatment of unpublished Commerce determinations
associated with an ACCESS barcode number. Every commenter on Commerce's
treatment of the record in the Proposed Rule disagreed with Commerce
that public versions of draft and final remand redeterminations,
preliminary and final section 129 determination memoranda, and scope
ruling memoranda from other segments and proceedings, that are
associated with an ACCESS barcode number, should be required to be
placed on the administrative record of the segment before it. Several
commenters claimed that those sources do not meet the five definitions
of ``factual information'' in Sec. 351.102(b)(21), and therefore,
should not be subject to the filing and timing requirements for new
factual information in Sec. 351.301.
Instead, those commenters claimed that each of these documents is
an agency legal determination that should be treated like other agency
legal determination documents which are unpublished but are not
required to be submitted on the record of other segments or proceedings
(e.g., preliminary decision memoranda and final issues and decision
memoranda in investigations and administrative reviews). They suggested
that the mere
[[Page 20770]]
fact that those particular documents were not published in the Federal
Register does not make them any less agency legal determinations.
With respect to remand redeterminations in particular, some
commenters expressed confusion with how Commerce could conclude that
agency determinations issued pursuant to a Federal court proceeding and
then eventually affirmed and discussed in a public Federal court
holding could be treated as ``new factual information,'' incapable of
citation and reference in a subsequent Commerce proceeding without
submitting it on the segment of an administrative record. One commenter
pointed out that all remand redeterminations are publicly available on
the Public Access to Court Electronic Records (PACER) website,\27\ as
well as on ACCESS, and courts are free to consider documents from both
sources, which the commenter stated undercut a claim that this
information was ``new'' or merely ``factual.''
---------------------------------------------------------------------------
\27\ See Public Access to Court Electronic Records, available at
https://pacer.uscourts.gov.
---------------------------------------------------------------------------
In addition to those documents, however, all commenters expressed
concerns that the issue was much more extensive than just those three
examples. They suggested that every unpublished public analysis
document originating with Commerce and associated with an ACCESS
barcode number should be citable without submitting the agency analysis
document on the record. The commenters expressed concerns that there
was no factual or legal distinction between other AD or CVD analysis
memoranda and the preliminary and final issues and decision memoranda
which Commerce has permitted to be cited in arguments, briefs, and
rebuttal briefs without requiring them to be submitted on each record.
The commenters noted that ACCESS is Commerce's filing system and
Commerce analysis teams have the ability to retrieve any of the cited
documents from any segment instantly, as long as they have the
appropriate barcode number. Therefore, they suggested that Commerce
should provide a uniform citation for all submitters in using an ACCESS
barcode in their filings and apply that to all Commerce-authored
documents.
To the extent that Commerce explained in the Proposed Rule that
preliminary and final issues and decision memoranda could be cited
without placement on the record because those were adopted by reference
in a published Federal Register document, several commenters stated
their belief that there was no rational legal distinction between those
incorporated by a Federal Register document and those not incorporated
by a Federal Register document. However, even if there was a legal
distinction between the two types of memoranda based on reference in
the Federal Register, many commenters pointed out that Commerce
frequently cites many of its other analysis memoranda, such as post-
preliminary memoranda and new subsidy allegation memoranda in Federal
Register documents, yet the record information policy described in the
Proposed Rule would not allow any of those to be cited without
submitting them on the record.
Some commenters claimed that Commerce's historical treatment of
citations to various public and unpublished analysis memoranda was, at
times, inconsistent. In addition, they suggested that Commerce was
incorrect in treating any of those analysis memoranda as new facts
because just as the five definitions of ``factual information'' in
Sec. 351.102(b)(21) do not apply to remand redeterminations, section
129 determination memoranda, and scope rulings, they equally do not
apply to the rest of Commerce's other public analysis memoranda. They
acknowledged that each of those public memoranda analyze facts, just
like the aforementioned preliminary and final issues and decision
memoranda, but also recognized that the more important aspect of those
memoranda was that Commerce was making an analysis of those facts and
issuing policy and legal determinations based on those facts. They
expressed concerns that nothing in Sec. 351.102(b)(21) suggests that
the new factual information regulations were intended to apply to
Commerce analysis and calculation memoranda, and nothing in the
regulation was drafted with the intent of prohibiting parties from
citing past Commerce practice and relying on that practice for support
of arguments before the agency. In short, several of the commenters
stated that none of these memoranda are ``factual information,'' but
are instead the very basis for Commerce's policies and practices, and
therefore, interested parties should be able to cite them in all
documents, including briefs and rebuttal briefs, without having to
submit them on the record under certain timelines and certain
procedures as ``new factual information,'' pursuant to Sec. 351.301.
One commenter pointed out that in Commerce's 1997 regulations, in
responding to comments on Sec. 351.301, Commerce described the
information which could be relied upon in briefs and rebuttal briefs,
and stated that in ``making their arguments, parties may use factual
information already on the record or may draw on information in the
public realm to highlight any perceived inaccuracies . . . .'' \28\
That commenter noted that all of the public memoranda issued by
Commerce are in the public realm, and therefore, consistent with its
previous comments, Commerce should allow all of its public analysis
memoranda from other segments and proceedings to be cited without being
required to submit those memoranda on the record prior to the drafting
and submission of briefs and rebuttal briefs. Another commenter agreed
with this idea, noting that public versions of Commerce's documents are
``just as available to the public as Commerce's issues and decision
memoranda'' because anyone with an ACCESS account can obtain those
documents.
---------------------------------------------------------------------------
\28 \ See Antidumping Duties; Countervailing Duties; Final Rule,
62 FR 27295, 27332 (May 19, 1997).
---------------------------------------------------------------------------
Furthermore, several commenters found the approach described by
Commerce in the Proposed Rule to agency-authored documents to be
problematic with respect to post-preliminary determination and results
documents. Some commenters expressed concerns that adopting a wholesale
rule that prohibits parties from demonstrating in a case or rebuttal
brief that Commerce has taken a position in a preliminary determination
or administrative results that is inconsistent with the agency's
position in another segment or proceeding would result in Commerce
being unable to address inconsistencies in its approach across reviews
and likely lead to increased judicial oversight. Yet another commenter
explained that interested parties are confronted with a predicament
when they prepare case briefs, because, at the time that they answered
Commerce's questionnaires, they did not include in their submissions
all relevant Commerce memoranda that would aid Commerce in its
decision-making process. Therefore, because Commerce prohibits
citations to other relevant Commerce public determination memoranda in
briefs and rebuttal briefs, interested parties cannot provide Commerce
with necessary public references that would better inform Commerce's
final determinations. In addition, certain commenters argued that the
alleged ``new'' rule forced interested parties to identify and submit
all relevant memoranda 30 days prior to a preliminary determination or
results,
[[Page 20771]]
even if it later became evident that it might be beneficial to the
agency for the interested parties to cite to other Commerce memoranda.
Such restrictions, they stated, would lead to unnecessary
inconsistencies in Commerce's policies and practice.
Finally, another commenter expressed concerns that Commerce's
proposal is unlawful because it would deprive interested parties of a
transparent process and, for importers in particular, it would deprive
them of their due process rights under the Fifth Amendment of the
United States Constitution. That commenter suggested that Commerce's
proposal contradicts fundamental principle of transparency in
administrative law, citing Slater Steels Corps. v. United States, 279
F. Supp. 2d 1370, 1379 (CIT 2003) and MacLean-Fogg Co. v. United
States, 100 F. Supp. 3d 1349, 1362 (CIT 2015) for the concept that
there is a fundamental public interest in transparency in government.
That commenter explained that all of the public versions of Commerce-
originated documents at issue, including calculation and analysis
memoranda, are publicly available, and Commerce's issues and decision
memoranda frequently rely on such documents to complete the rationale
underlying the agency's determinations. The commenter noted that in
Chefline Corp. v. United States, 219 F. Supp. 2d 1303, 1309 (CIT 2002),
the U.S. Court of International Trade (CIT) recognized that when
``credible evidence from outside the record indicates a significant
error in the agency's determination,'' it would take judicial notice of
that information. Thus, the commenter advocated that Commerce allow
parties to cite past analysis documents in their briefs and rebuttal
briefs and avoid the inevitable litigation which would otherwise follow
under the approach suggested in the Proposed Rule.
In addition, that commenter expressed concerns that Commerce's
proposed changes to its regulation would also violate an importer's due
process rights under the Fifth Amendment. It stated that a fundamental
requirement of due process is for parties to have the ``opportunity to
be heard at a meaningful time and in a meaningful manner,'' citing
Mathews v. Eldridge, 424 U.S. 319, 332 (1976) and Young v. Dep't of
Housing and Urban Dev., 706 F. 3d 1372, 1376 (Fed. Cir. 2013). Further,
the commenter pointed to a U.S. Court of Appeals for the Federal
Circuit's (Federal Circuit) holding which held that ``the arbitrary
administration of law is subject to judicial intervention'' and that
parties are ``due a fair and honest process'' (NEC Corp v. United
States, 151 F. 3d 1361, 1370-71 (Fed. Cir. 1998)). The commenter
explained that the relevant deadlines for the submission of factual
information occur prior to Commerce's preliminary determinations, but
that in many instances, Commerce's reasoning or methodological choices
are not clear until it releases its preliminary determination. The
commenter explained that if an interested party is prohibited from
referencing a publicly available document in its case brief unless that
document has already been submitted on the record or is a preliminary
or final issues and decision memorandum, it is caught in an unfortunate
situation because interested parties could not know if certain
memoranda were relevant until after the preliminary determination or
results were issued, after the deadline for submitting information on
the record had passed. Thus, according to that commenter, this is a
clear deprivation of those parties' due process rights to be heard in a
meaningful manner.
Commerce's Response:
In response to all of the above comments, Commerce has decided to
make a substantial revision to its regulations. Pursuant to Sec.
351.104(a)(6), interested parties may, in all submissions, cite certain
public preliminary and final issues and decision memoranda in the
following segments, without the timing and filing restrictions of Sec.
351.301, as long as they are fully cited and accompanied by an ACCESS
barcode number in the citation: investigations, pursuant to Sec. Sec.
351.205 and 351.210; administrative reviews, pursuant to Sec. 351.213;
new shipper reviews, pursuant to Sec. 351.214; changed circumstances
reviews, pursuant to Sec. 351.216; sunset reviews, pursuant to Sec.
351.218; and circumvention inquiries, pursuant to Sec. 351.226.
Commerce has historically allowed all of these documents to be cited
without requiring them to be placed on the record of other segments or
proceedings, and Commerce will codify that practice in these
regulations.
In addition, the same citation allowance will also be applied to
public versions of preliminary and final scope rulings pursuant to
Sec. 351.225, and covered merchandise inquiries pursuant to Sec.
351.227, draft and final redeterminations on remand, and draft and
final redeterminations issued pursuant to section 129 of the URAA.
After consideration of the arguments pertaining to scope rulings,
remand redeterminations, and section 129 determinations from multiple
commenters, we agree that those documents should also be able to be
cited without the requirement that those documents be placed on the
administrative record. Like the other documents listed above, they are
statutory and regulatory public and final determinations made by
Commerce in individual segments of a proceeding.
Furthermore, Commerce has determined that four additional types of
documents argued by interested parties should also be able to be cited
without the requirement that those documents be placed on the
administrative record: initiation decision documents, such as
initiation checklists; memoranda which describe and analyze new subsidy
allegations; scope memoranda issued in an investigation; and post-
preliminary determination or results memoranda which address issues for
the first time after the preliminary determination or results has been
issued and before the final determination or results is issued. In the
first two types of documents, Commerce is making a determination to
initiate, or not initiate, based on certain information, while in the
third document Commerce is conducting an analysis on whether a product
is, or is not covered by the scope of an investigation. Finally, in the
fourth document, Commerce is making a determination for the first time
upon which parties may file comments. We find each of these documents
serves a unique purpose in the agency's proceedings and is largely
self-contained (i.e., they do not require Commerce employees to look
outside of the four corners of the document to understand the
analysis). Accordingly, we determine that Commerce and interested
parties should be able to cite to those documents in other segments or
proceedings without separately placing them on the record.
We emphasize that all citations must be cited in full. Commerce can
only consider and rely on a cited information source if it is able to
retrieve that information source, which may not be possible if the
citation to the information source is incomplete. Furthermore, we also
emphasize that unlike in past cases, the regulations will now require
that all of these document citations include reference to the
associated ACCESS barcode numbers. The inclusion of the associated
ACCESS barcode numbers in the citation is an additional requirement
from what was permitted before, but one that most commenters indicated
would be an improvement for parties both outside and within Commerce to
easily retrieve the documents and consider them in making preliminary
and final determinations. If the citations are not
[[Page 20772]]
cited in full, including the associated ACCESS barcode numbers, the
regulation states that Commerce may decline to consider the cited
information sources in its analysis or determination.
With respect to the other public documents authored by Commerce and
argued by the comments, it is important to stress that the conduct of
an administrative proceeding is a time-intensive, resource-intensive,
and fact-intensive endeavor. Although several commenters stated that
collapsing memoranda or calculation memoranda, for example, taken from
other segments or other proceedings are not ``factual information''
under the regulatory definition of the term in Sec. 351.102(b)(21), we
disagree with that assessment. A collapsing determination, under Sec.
351.104(f) requires that Commerce first determine if two entities were
affiliated during a particular period of investigation or review, and
then determine whether there is a significant potential for the
manipulation of prices or production between the two entities such that
they should be treated as one collapsed entity. Likewise, when Commerce
issues calculation memoranda, its calculations are based upon the
record and data before it in that particular segment of a proceeding.
Thus, although we agree with the commenters who noted that each
collapsing and calculation memoranda is a legal analysis and decision
by the agency, each of those memoranda also reflect conclusions based
on the facts unique to the segment of the proceeding in which they were
issued. Each document is publicly available, accessible on ACCESS,
potentially relevant to a segment or proceeding before Commerce, and
contains factual information being introduced on the record of the
ongoing segment or proceeding for the first time.
When Commerce employees are considering such submissions on the
record, they frequently must review the record of the segment from
which the memoranda at issue originated and review further information
on those records pertaining to those agency decisions to understand the
broader facts and context in which the decisions at issue were made by
the agency. It is a time-consuming exercise and, depending on the
complexity of the facts and the record of the other segment or
proceeding, can be difficult and may require that Commerce employees
put even more documents from those other segments or proceedings on the
record. This problem becomes even more profound when one recognizes
that there are dozens of decision memoranda issued by Commerce on a
monthly basis in various segments, with some of those documents being
more descriptive of the facts under consideration and self-contained
than others. Accordingly, for many decision memoranda not listed in
Sec. 351.104(a)(6), Commerce has determined that it would be best to
continue its practice of requiring interested parties pointing to those
analysis and decision memoranda from other segments and proceedings to
submit those documents on the record of the segment to which the
parties are arguing that those memoranda are relevant. We appreciate
that some interested parties explained that it would be easier for them
to simply cite all public Commerce decision memoranda, but their points
do not take into consideration the time and effort Commerce employees
already devote to analyzing the information placed on the record unique
to the segment before the agency. If Commerce were required to
independently review the details and context of the records of numerous
additional segments in each case, it would quickly become unmanageable.
In response to the arguments that Commerce has tried to prohibit
references to past practices and policies in issuing these regulations
(i.e., deprived interested parties of a transparent process or deprive
importers of their due process rights under the Fifth Amendment of the
United States Constitution) we disagree. Commerce believes, in fact,
that there is no support for such contentions. Interested parties may,
in fact, cite all of Commerce's public decision memoranda from other
segments and proceedings and rely on those memoranda for purposes of
their arguments in every case. There is no regulation that restricts
such citation or argument, and nothing in the Proposed Rule suggested
that Commerce would prevent reliance on such documents in any given
segment. These regulations merely require that when interested parties
cite public documents originating with Commerce, and where those
documents are not listed under Sec. 351.104(a)(6), then the interested
party must submit a copy of that public decision document on the record
of the segment in which it is participating. If the interested party is
already citing that document to support its claims, then the interested
party will naturally have access to the document and should be easily
able to take the additional step and submit the document on the record
of the segment at issue. If anything, Commerce concludes that this
additional step creates a procedure which is more, and not less,
transparent, than the practice advocated by the commenters, and in no
way deprives importers or any other party of their due process rights
under the Fifth Amendment of the United States Constitution.
Finally, with respect to the statements made by commenters on post-
preliminary determination and results submissions, we recognize that
parties may cite any of the documents listed in section Sec.
351.104(a)(6) to argue that Commerce acted inconsistently with its
practices or procedures in a preliminary Commerce determination. There
is no question that collapsing and calculation memoranda, for example,
from other segments might provide greater factual detail on certain
policies or practices, as suggested by some of the commenters. However,
it is the very factual specificity of the data in such documents which
we believe also warrants the provision of such documents and data on
the record for consideration in accordance with the timing and filing
requirements of Sec. 351.301. The inclusion of such documents on the
record allows analysts and interested parties to consider that
information in detail in determining the relevance of those previous
Commerce decisions to the facts on the record before the agency.
2. Commerce will not revise Sec. 351.301(c)(4), as proposed.
Section 351.301(c) is the provision in Commerce's regulations that
provides timelines and procedures for parties to place new factual
information on the official record, and allows other interested parties
the opportunity to respond to those submissions. Section 351.301(c)(4),
in particular, pertains to Commerce and its ability to submit new
factual information on the record. In light of multiple cases in which
parties have filed unrelated and irrelevant new factual information on
the record in response to Commerce's placement of a calculation
document on the record, Commerce proposed an exception to Sec.
351.301(c)(4) in the Proposed Rule, which would allow Commerce to place
a calculation or analysis memorandum from another segment or proceeding
on the record to clarify its practice in response to the parties'
arguments in their briefs and rebuttal briefs, while interested parties
could respond with comments, but not with further new factual
information.\29\
---------------------------------------------------------------------------
\29\ See Proposed Rule, 88 FR 29857.
---------------------------------------------------------------------------
Commenters were universally opposed to Commerce's proposal to amend
Sec. 351.301(c)(4) and to allow the agency to place agency analysis
and calculation memoranda on the record in
[[Page 20773]]
response to arguments made in briefs and rebuttal briefs without
allowing interested parties an opportunity to submit other agency
analyses or calculation memoranda in response. Certain commenters
expressed concerns that merely allowing responsive arguments, but not
responsive evidence, would severely limit interested parties' ability
to meaningfully respond to the documents placed on the record by
Commerce, and would prohibit interested parties from being able to
provide additional information showing that Commerce's past practice
and policies were inconsistent with that being claimed by the agency,
or, at minimum, clarifying minute distinctions between cases in which
those policies and practices were applied.
Several other commenters clarified that they were not opposed to a
restriction on unrelated, irrelevant, and non-responsive factual
information from interested parties, and some even indicated they would
support such limited restrictions, but those commenters stated that a
wholesale prohibition on responsive factual information was
unreasonable.
Commerce's Response:
In light of the comments received by Commerce in response to the
Proposed Rule on both the proposed changes to Sec. Sec. 351.104(a) and
351.301(c)(4), Commerce has determined that it agrees that the
regulation change, as proposed, would not provide interested parties
with sufficient opportunity to respond to information placed by
Commerce on the record late in a segment of a proceeding. Accordingly,
Commerce will not adopt the changes proposed to Sec. 351.301(c)(4) in
the Proposed Rule.
3. Commerce has made certain revisions to the proposed amendments
to Sec. Sec. 351.225, 351.226, and 351.227.
A. Commerce will accept responsive arguments pre-initiation in
scope and circumvention inquiries in Sec. Sec. 351.225(c)(3) and
351.226(c)(3), and allow responsive factual information pre-initiation
in circumvention inquiries.
In 2021, Commerce revised its regulations covering scope inquiries
at Sec. 351.225 and created new regulations addressing circumvention
inquiries pursuant to section 781 of the Act.\30\ The revisions were
extensive, and the reasons behind many of the changes were numerous.
One of the significant changes was the requirement that if an
interested party requested a scope ruling, the party must file a
standardized scope application. Section 351.225(c) provides a listing
of all of the required information for a scope ruling,\31\ and Sec.
351.226(c) largely incorporates the same requirements for a
circumvention inquiry request.\32\ Commerce explained in the Scope and
Circumvention Final Rule that it hoped that by listing criteria and
standardizing the filing requirements in scope and circumvention
inquiries, it would accelerate the process by allowing all of the
information necessary to initiate to be submitted on the record at
once, rather than requiring Commerce to issue supplemental
questionnaires and ask for further information, both before and after
initiation.
---------------------------------------------------------------------------
\30\ See Scope and Circumvention Final Rule, 86 FR 52300
(September 20, 2021) (Scope and Circumvention Final Rule).
\31\ Id., 86 FR 52313-15.
\32\ Id., 86 FR 52339-41.
---------------------------------------------------------------------------
In the Proposed Rule, Commerce noted that in the Scope and
Circumvention Final Rule, Commerce had indicated that parties would
have an opportunity to challenge the adequacy or veracity of a scope
ruling application or circumvention inquiry request. However, such an
opportunity was never codified in Sec. Sec. 351.225 and 351.226.\33\
Commerce's experience since the issuance of the scope and circumvention
rules was that it would be beneficial to the agency to allow
``interested parties, other than the applicant or a requestor, a clear
opportunity to submit comments to Commerce on the adequacy of the
application or request, within 10 days after the submission of the
application or request.'' \34\ Thus, such a change to the regulation
was proposed.
---------------------------------------------------------------------------
\33\ See Proposed Rule, 88 FR 29853, n. 9.
\34\ Id., 88 FR 29853.
---------------------------------------------------------------------------
Furthermore, Commerce explained that the factors considered in a
circumvention inquiry differ from a scope inquiry in that, for example,
circumvention inquiries frequently require Commerce to consider if
there were patterns of trade. Thus, Commerce explained in the Proposed
Rule that Commerce was also proposing that in circumvention inquiries
specifically, responsive new factual information could be provided in
that 10-day time period and that the party alleging circumvention could
respond five days afterwards with comments and new factual information
to rebut, clarify, or correct the interested parties' new factual
information. Commerce explained that it expected ``that by allowing for
both comments and new factual information in this manner,'' the record
would contain even greater amounts of information so that the agency
could determine if the criteria to initiate were satisfied.\35\
---------------------------------------------------------------------------
\35\ Id.
---------------------------------------------------------------------------
Commerce received several comments on these proposals. Some
commenters opposed allowing interested parties to file comments on a
scope application pre-initiation in scope inquiries and comments on a
circumvention inquiry request and new factual information pre-
initiation in circumvention inquiries. They complained that the
procedure would be burdensome and slow the process down for initiation,
when in fact, the new and revised regulations were intended to speed up
the process for scope and circumvention inquiries. They commented that
the proposed regulation changes would lead to a mini-investigation in
each case and create an adversarial process before the case was ever
even initiated, and that the very purpose of a scope or circumvention
inquiry is to gather information and to make a determination on the
basis of the record--not to conduct such an analysis pre-initiation.
Some commenters even pointed to a proposed bill pending before Congress
that would prohibit Commerce from accepting any unsolicited
communications from any person other than an interested party
requesting a circumvention inquiry pre-initiation and suggested that
Commerce should act in accordance with that proposed legislation and
codify the prohibition of all such submissions. Overwhelmingly, the
main concern from those opposed to the consideration of additional
information before initiation was that it would slow the process down.
In the alternative, some parties suggested that if Commerce
continues to accept comments and new factual information before
initiation, the date for such filings should not be due 10 days after
filing of a scope ruling application or circumvention inquiry request,
but instead after the administrative protective order (APO) is
established. They explained that this would give responsive submitting
parties more adequate time to review a scope ruling application or
circumvention inquiry request.
Commerce's Response:
Commerce has made no changes to the proposed Sec. Sec.
351.225(c)(3) and 351.226(c)(3) and will permit the submission of
arguments and information as provided in those regulatory provisions.
Since 2021, Commerce has conducted scope and circumvention inquiries in
which interested parties have indicated to Commerce that information in
a scope
[[Page 20774]]
ruling application or circumvention inquiry request was not accurate or
was missing key information, and it became evident that the regulations
did not adequately provide a means for such concerns to be raised and
considered in a timely fashion. These changes remedy that problem. We
believe allowing interested parties to file comments 10 days after the
filing of a scope application to address the adequacy of the
application, and file comments and new factual information 10 days
after the filing of a circumvention inquiry request to address the
adequacy of that inquiry request, is consistent with current practice,
is fair to all interested parties, and better informs Commerce so that
the agency does not initiate a scope inquiry or circumvention inquiry
on inaccurate or incomplete data. To the extent that the bill before
Congress proposed that Commerce should be prohibited from considering
information which would better inform the agency in determining to
initiate a segment, Commerce is in no way bound by that proposed
legislation and must prepare regulations which we believe best serve
the parties and the government.
To the extent that parties are concerned that this will slow down
the initiation process, it is the agency's belief that for scope ruling
applications, it should make no difference. If Commerce does not
initiate a scope inquiry or reject a scope application within 31 days,
it will be deemed initiated pursuant to Sec. 351.225(d)(1). For
circumvention inquiry requests, it is possible that the addition of new
factual information may delay initiation by a few days, as we explained
in the Proposed Rule and describe further below, but we believe that
greater amounts of information filed in a timely fashion will assist
the agency in making an informed and fair decision to initiate, or not
initiate, a circumvention inquiry.
Finally, we will continue to require the date for filing responsive
arguments, and in circumvention inquiries, new factual information, to
be 10 days from the filing of the application or request. The date of
issuance of the APO will differ from case to case, and one of the
purposes of these regulations is to standardize procedures and bring
predictability to scope and circumvention inquiries. We believe that 10
days from the date of submission on the record is adequate time for
interested parties to consider if there are reasons to be concerned
about the completeness or veracity of an application or circumvention
inquiry request, and if so, to raise those concerns with Commerce on
the record.
B. Commerce may request clarifications from a scope ruling
applicant or circumvention inquiry requestor, reset the initiation
deadline from the date of filing a complete response to the
clarification request, and extend the deadline for initiating a
circumvention inquiry by 30 days if an interested party has filed new
factual information in response to the circumvention inquiry request,
in the Sec. Sec. 351.225(d)(1) introductory text and (d)(1)(ii) and
(iii) and 351.226(d)(1) introductory text and (d)(1)(ii) and (iii).
Commerce explained in the Proposed Rule that one issue which has
arisen several times since the 2021 scope and circumvention regulations
were issued is that there have been proceedings in which Commerce
wished to seek clarification on one or more aspects of a submission,
but the regulation only permitted initiation or rejection of an
application.\36\ Frequently, Commerce may only seek answers, for
example, to less than a page of questions, and it is an inefficient use
of the agency's, scope applicants', and circumvention inquiry
requesters' time to reject a submission, and then have the requesters
resubmit everything with just the answers to those few questions added
to the application or request. Commerce, therefore, proposed a
modification to its scope and circumvention inquiry regulations to
reset the 30-day deadline to start after a party files a timely
response to a clarification request by Commerce.
---------------------------------------------------------------------------
\36\ See Proposed Rule, 88 FR 29854.
---------------------------------------------------------------------------
In addition, Commerce recognized that by allowing parties to submit
new factual information in response to a circumvention inquiry request
and allowing requesters to respond with new factual information on
surrebuttal, the additional data may require Commerce to extend beyond
the normal allowance of up to an additional 15 days if it is not
practicable for Commerce to initiate within 30 days. Accordingly,
Commerce proposed up to an additional 15-day extension in that
scenario, to allow a combined extension of no more than 30 days beyond
the original 30-day deadline if new factual information was submitted
on the record pre-initiation.\37\
---------------------------------------------------------------------------
\37\ Id., 88 FR 29856.
---------------------------------------------------------------------------
Commerce received several comments on these provisions. Most of the
commenters expressed a frustration that while the 2021 regulations had
created procedures in scope and circumvention inquiries that would lead
to 30-day initiations in scope inquiries, and no more than 45-day
initiations in circumvention inquiries, the addition of allowing
Commerce to seek clarification, and then resetting the 30-day clock
after a timely response to the clarification request, seemed to
undermine, or at least slow down, much of that expedient process. For
that reason, a few commenters objected to Commerce being able to seek
clarification, while others requested that Commerce limit its ability
to request clarification pre-initiation to a single request.
Likewise, several commenters objected to Commerce allowing for an
additional 15-day extension to initiate circumvention inquiries if new
factual information had been submitted on the record in response to a
scope application or circumvention inquiry request. They commented that
this would extend the period even further than the scope and
circumvention regulations anticipated when they were issued and would
be unnecessary and impractical. One commenter expressed concerns that
by extending the deadline from 30 days to 60 days, it was an open
invitation to exporters to ship additional circumventing merchandise to
the United States, to the detriment of domestic producers, because
those entries would not be covered by a subsequent circumvention
finding. They suggested that the best defense to prevent further
circumventing merchandise from being exported to the United States
would be to allow for no extensions and no additional information on
the record pre-initiation.
One commenter expressed disagreement with those commenters opposed
to allowing Commerce to seek clarification. That commenter stated that
it is a waste of time for Commerce and applicants or requestors to
refile because of a few small issues, which could have quickly been
resolved and provided to the agency upon request if given an
opportunity. That commenter explained that, in the past, foreign
exporters and importers took advantage of rejected circumvention
inquiry requests and shipped additional products to the United States
before domestic producers could refile their submissions with necessary
supplemental information (thereby allowing their merchandise shipped
pre-initiation from being covered by an affirmative circumvention
finding).
Another commenter suggested that if Commerce retains its ability to
seek clarification from scope ruling applicants or circumvention
inquiry requestors, Commerce should revise the regulation to allow
interested parties to submit comments on the adequacy of the responses
to Commerce's requests for clarification 10 days after they are
[[Page 20775]]
submitted or 10 days after an APO has been established, whichever is
latest.
Commerce's Response:
Commerce explained in the Proposed Rule that it is both fair and
more efficient to allow the agency to seek clarifications and reset the
10-day deadline rather than reject a scope ruling application or
circumvention inquiry request outright, when the agency just needs a
limited amount of clarifying information. It is evident that the
greatest concern from many commenters is that Commerce will use the
ability to seek comments as a de facto way to grant extensions and
delay scope and circumvention inquiries. That is not the purpose or
intention of that provision. If a scope ruling application is generally
incomplete and inadequate, Commerce will reject it. However, if
Commerce determines that it needs additional information to supplement
one or two sections of an application, for example, or it needs to
understand responses to a limited number of questions, Commerce should
be able to seek those answers without rejecting the scope application
or circumvention inquiry request. The purpose of these modifications to
the regulation is not to let the ``exception become the rule'' in this
regard--we agree that one of the purposes of the standardization and
the addition of express requirements in the scope and circumvention
regulations was to accelerate the process of initiating and conducting
scope and circumvention inquiries. The ability to seek clarification
should not be interpreted as a means for anyone to inhibit that
purpose.
Furthermore, the commenters that opposed allowing for an additional
15 days to consider whether or not to initiate a circumvention inquiry
expressed little understanding of the time and resources it takes for
an agency to consider record information and determine whether
initiation is warranted. We understand the desire of some commenters
for a speedy process, but as we explained above, we do not believe that
Commerce should ignore or prohibit facts and arguments in circumvention
cases that might undermine the accuracy or completeness of a
circumvention inquiry request. Commerce's determinations are based on
record information, and it is important that when the agency initiates
a scope or circumvention inquiry, it does so based on accurate and,
when possible, complete information.
We therefore continue to find that it is advisable for Commerce to
seek clarifications from applicants or requestors pre-initiation, when
necessary. Further, we find that allowing for an extra 15 days for the
agency to review and analyze new factual responsive information on the
record pre-initiation is not unreasonable.
Commerce does not, however, agree that the agency should allow
other parties to submit further, new factual information and arguments
on the record after a party files a timely submission in response to
Commerce's request for clarification, as suggested by some commenters.
If the facts are simple, then Commerce may be able to initiate quickly
after receiving the responses or reject the application or request
quickly as well. In other words, Commerce may not need, or want, 30
full days after the timely clarification response has been filed to
initiate a scope or circumvention inquiry. If Commerce was required to
allow parties to provide additional submissions after a clarification
has been requested and a response has been filed, we believe that there
would be too much of a possibility of unnecessary delay--the concern
expressed by most of the commenters on this issue. This would be true
whether the deadline is after the submission of the response or, as
some commenters suggested, after the APO has been established.
Therefore, we have not codified an additional layer of comments and
submission of new facts following the receipt of clarification
responses on the record, pre-initiation.
Finally, we note that on September 29, 2023, Commerce revised the
language of Sec. Sec. 351.225(d) and 351.226(d) with some small
changes.\38\ The new language does not conflict with this revised
addition to the regulation, and Commerce is merging the two sets of
textual revisions together in the final regulation.
---------------------------------------------------------------------------
\38\ See APO and Service Final Rule, 88 FR 67077-78.
---------------------------------------------------------------------------
C. Commerce agrees that the proposed provisions under Sec. Sec.
351.225(f), 351.226(f), and 351.227(d) should be revised to reflect
that only the filing and timing restrictions set forth in Sec.
351.301(c) do not apply to the filing deadlines set forth in the scope,
circumvention, and covered merchandise regulations.
In Sec. Sec. 351.225(a), 351.226(a), and 351.227(a), each
provision states that ``unless otherwise specified, the procedures as
described in subpart C of this part (Sec. Sec. 351.301 through 351.308
and 351.312 through 351.313) apply to this section.'' There were
outstanding questions as what procedures were ``otherwise specified''
in Commerce's 2021 regulations, and in the Proposed Rule, Commerce
proposed that Sec. Sec. 351.225(f), 351.226(f), and 351.227(d) be
amended to incorporate language that stated that none of the procedures
described in subpart C applied to the scope, circumvention and covered
merchandise filing deadlines and procedures.\39\
---------------------------------------------------------------------------
\39\ See Proposed Rule, 88 FR 29854.
---------------------------------------------------------------------------
Three commenters pointed out that the language proposed by Commerce
inadvertently covered too many regulatory provisions, because there was
no reason to believe that the timing and filing provisions of
Sec. Sec. 351.225, 351.226, and 351.227 intended to forgo, for
example, the formatting requirements of Sec. 351.303, or the rules
pertaining to treatment of, access to, and use of business proprietary
information under Sec. 351.306. Those commenters suggested that, in
fact, Commerce intended only to state that Sec. 351.301(c) does not
apply to those regulations, because that is the general regulatory
provision that sets forth filing and timing restrictions for
submissions of factual information in AD and CVD inquiries.
Commerce's Response:
We agree with the commenters who stated that Commerce intended only
for the filing and timing restrictions of Sec. 351.301(c) to be
inapplicable to the scope, circumvention, and covered merchandise
regulations. Accordingly, we have revised the proposed language in
Sec. Sec. 351.225(f) and 351.226(f) to state that ``The filing and
timing restrictions of Sec. 351.301(c) do not apply to this paragraph
(f), and factual information submitted inconsistent with the terms of
this paragraph may be rejected as unsolicited and untimely,'' and
revised the proposed language in Sec. 351.227(d) to state that ``the
filing and timing restrictions of Sec. 351.301(c) do not apply to this
paragraph (d), and factual information submitted inconsistent with the
terms of this paragraph may be rejected as unsolicited and untimely.''
With respect to Sec. 351.301(b), Commerce expects that the types of
factual information submitted under Sec. Sec. 351.225(f), 351.226(f),
and 351.227(d) will normally be covered by Sec. 351.102(b)(21)(i) and
(ii). Accordingly, the written explanation requirements of Sec.
351.301(b) will continue to apply to those regulations.
D. Commerce will continue to allow for extensions to preliminary
circumvention determinations up to 90 days in Sec. 351.226(e)(1).
Section 351.226(e)(1) states that a preliminary circumvention
determination will be issued no more than 150 days after the
publication of the notice of initiation and does not
[[Page 20776]]
expressly provide for the opportunity of an extension. Furthermore,
Sec. 351.226(l)(2)(ii) provides that if Commerce preliminarily
determines that merchandise was circumventing an AD or CVD order during
a given period of time, and the merchandise was not being suspended
pursuant to those orders, Commerce will normally direct CBP to suspend
liquidation of all entries of the merchandise entered on or after
initiation and collect cash deposits on those entries. The preamble to
the Scope and Circumvention Final Rule explains the reason for this
sequence. In summary, Commerce determined that in most cases, the
publication of the initiation of a circumvention inquiry in the Federal
Register would be sufficient notice for producers, exporters, and
importers that their non-subject merchandise might subsequently be
determined to be subject to an order through a circumvention
determination.\40\ Thus, rather than direct suspension starting at the
date of an affirmative preliminary determination, the regulation
provides that normally Commerce will direct suspension, and the
collection of cash deposits, to be applied retroactively to entries on
or after initiation--thereby preventing parties from quickly shipping
merchandise after initiation to the United States in avoidance of
potential future ADs or CVDs.
---------------------------------------------------------------------------
\40\ See Scope and Circumvention Final Rule, 86 FR 52344-50.
---------------------------------------------------------------------------
In the Proposed Rule, Commerce explained that given the complexity
of certain circumvention inquiries, it was reasonable to expressly
provide for an extension to the issuance of a preliminary circumvention
determination.\41\ Commerce determined that a 90-day extension, for a
deadline of no more than 240 days from the date of publication of the
notice of initiation, was a reasonable extension amount, and emphasized
that this would not alter the maximum deadline for issuing a final
circumvention determination of 365 days.\42\
---------------------------------------------------------------------------
\41\ See Proposed Rule, 88 FR 29856.
\42\ Id., 88 FR 29856-57.
---------------------------------------------------------------------------
Multiple commenters objected to Commerce's addition of an extension
allowance to Sec. 351.226(e)(1). They expressed concerns that because
no suspension and collection of cash deposits would commence for
entries not already suspended under the AD or CVD orders until a
preliminary determination was issued, that any extension of a
preliminary determination would provide circumventing parties with a
longer time in which they could benefit from duty-free entry and
possibly evade the payment of ADs or CVDs altogether. The commenters
suggested that Commerce's ability to extend a preliminary circumvention
determination was unnecessary and that allowing for an extension
largely undermined the remedy provided in the Scope and Circumvention
Final Rule in Sec. 351.226(l)(2)(ii), perpetuating ongoing harm to
domestic producers. In particular, some commenters expressed concerns
that extending a preliminary circumvention determination by three
months could, in fact, guarantee that many entries which entered
earlier in the period of the inquiry, and were the foundation of a
circumvention allegation, would be liquidated without regard to any ADs
or CVDs, defeating the very purpose of a circumvention inquiry and
determination.
In the alternative, some commenters suggested that if Commerce
continues to allow for an extension of a preliminary circumvention
determination, then it should limit such an extension to only 45 days,
rather than 90 days. Others proposed that Commerce should limit an
extension to 50 days, to allow for no more than 200 days before
issuance of a preliminary determination after publication of the
initiation Federal Register notice. Those commenters also suggested
that Commerce should consider revising its regulations under Sec.
351.226(l), and permit suspension of liquidation of entries in every
circumvention inquiry starting immediately at initiation, rather than
waiting for a preliminary affirmative circumvention determination,
thereby mitigating the significant risk of merchandise being liquidated
as entered before Commerce issues its preliminary determination.
Commerce's Response:
Since Commerce issued its Scope and Circumvention Final Rule in
2021, Commerce has found good cause to extend multiple preliminary
circumvention determinations pursuant to Sec. 351.302(b). This is
because circumvention inquiries can be extremely complicated. For
example, in analyzing if merchandise was assembled or completed in a
third country in circumvention of AD or CVD orders, Commerce must
consider the five factors which establish if there was circumvention,
the factors which inform Commerce if a process of assembly or
completion is minor or insignificant, an analysis of patterns of trade,
a determination of affiliations, and consideration of increases in
imports of particular merchandise into the foreign country.\43\ If
there are multiple parties involved, such analyses require that
Commerce request a large amount of information from the interested
parties, and then analyze all of that data on the administrative
record. It has been the agency's experience that in many circumvention
inquiries, 150 days is simply not enough time for Commerce to gather
sufficient information, conduct such an analysis, and make a
preliminary determination.
---------------------------------------------------------------------------
\43\ See sections 781(b)(1), (2), and (3) of the Act.
---------------------------------------------------------------------------
We appreciate that parties are concerned that extending a
preliminary determination could possibly allow more entries of
merchandise to be liquidated without regard to ADs or CVDs than if
Commerce issued its preliminary circumvention determination earlier.
However, the presumption behind that complaint is that Commerce would
be able to adequately gather all of the necessary information and
conduct the necessary analysis of all of the statutory and regulatory
criteria needed in a preliminary circumvention determination within 150
days in every circumvention inquiry. Given the complexity and number of
circumvention determinations, not to mention other AD and CVD
proceedings demanding resources and time from Enforcement and
Compliance teams, we stress that such a presumption is mistaken.
Our experience has shown that there will be some circumvention
inquiries which do not require more time, or at least not an additional
90 days, to complete a preliminary circumvention determination. For
example, a circumvention inquiry with a single producer or exporter
conducted pursuant to a minor alterations allegation under section
781(c) of the Act might not require Commerce gather as much information
or conduct such a lengthy analysis as, for example, a further assembly
or completed circumvention allegation under section 781(a) of the Act,
in a case involving multiple producers or exporters. It is a case-by-
case determination, but ultimately, Commerce needs the flexibility to
extend its preliminary circumvention determination when the strains on
the record and the agency's resources require such an extension.
Furthermore, we continue to believe that Commerce should not direct
CBP to suspend liquidation and collect cash deposits on non-subject
merchandise not already suspended until it has made an affirmative
circumvention determination, as reflected in Sec. 351.226(l)(2)(ii),
for all of the reasons
[[Page 20777]]
provided in the Scope and Circumvention Final Rule. Therefore, we have
made no changes to Sec. 351.226(l).
In addition, although we appreciate why some commenters have
suggested that Commerce reduce the 90-day extension allowance to 45 or
50 days, we continue to believe that a 90-day allowance remains
appropriate. Just because the 90-day allowance exists in the regulation
does not mean that Commerce will always extend up to the full 90 days.
Furthermore, regardless of the length of the extension, Sec.
351.226(e)(2) still requires Commerce to issue its final circumvention
determination no later than 365 days from the date Commerce published
the initiation notice in the Federal Register.
Finally, we must emphasize that even if some additional entries
might be liquidated without regard to ADs or CVDs if Commerce extends a
preliminary circumvention determination, that extension will not
``undermine'' the circumvention law or defeat the very purpose of a
circumvention inquiry and determination, as some commenters alleged.
Commerce will continue to direct CBP to continue to suspend entries
which are already suspended at initiation under Sec. 351.226(l)(1).
Further, Commerce will continue to direct CBP to suspend entries of,
and collect cash deposits on, merchandise covered by an affirmative
circumvention determination retroactively to the date of initiation, in
accordance with Sec. 351.226(l)(2)(ii). That means that even if the
period in which Commerce made its preliminary determination was
extended, the effect of that decision will only reach further back to
cover more entries that have not yet been liquidated. Accordingly, most
of the remedy available without the extension provision in Sec.
351.226(e)(1) will remain in place with the addition of the extension
provision to Sec. 351.226(e)(1), and the benefit will be that Commerce
will be able to conduct its inquiry, complete its preliminary analysis,
and enter a preliminary circumvention determination consistent with its
statutory and regulatory obligations.
E. Commerce will continue to codify its practice that it will only
conduct a scope ruling of merchandise not yet imported if it has been
historically commercially produced and sold in Sec. 351.225(c)(1) and
(c)(2)(x).
Commerce explained in the Proposed Rule that although it will
conduct scope inquiries of merchandise not yet imported into the United
States, under its practice, it will only do so if that merchandise has
been commercially produced and sold.\44\ Commerce proposed to codify
that practice in Sec. 351.225(c)(1) and (c)(2)(x).
---------------------------------------------------------------------------
\44\ See Proposed Rule, 88 FR 29853.
---------------------------------------------------------------------------
Some commenters were critical of Commerce's practice and the
codification of that practice in the regulations. They expressed
concerns that the ``heightened standard'' would place an unreasonable
burden on applicants. They suggested that Commerce should clarify that
scope ruling applicants need only be required to provide evidence
available to them, and not be required in every case to prove that a
product has been commercially produced and sold because sometimes scope
applicants may not have access to such information. They pointed out
that the initial language of Sec. 351.225(c)(2) actually provides that
all of the information required in the application is based on language
that states, ``to the extent reasonably available to the applicant.''
\45\ Their concern was that that language proposed for Sec.
351.225(c)(1) states that the applicant ``must provide evidence that
the product has been commercially produced and sold,'' with no
``reasonably available'' language attached to it.\46\
---------------------------------------------------------------------------
\45\ See Sec. 351.225(c)(2).
\46\ See Proposed Rule, 88 FR 29871.
---------------------------------------------------------------------------
Commerce's Response:
It is Commerce's practice to require evidence that merchandise
which has not yet been imported into the United States was commercially
produced and sold in other foreign markets before Commerce will
initiate a scope inquiry on that merchandise. We have therefore not
changed the language in Sec. 351.225(c)(1) as proposed in the Proposed
Rule. As some of the commenters pointed out, there are many areas in
our law in which Commerce will consider allegations and complaints
based on information which is reasonably available to the party making
the allegation or claim. In this case, however, Commerce is extending a
service to review merchandise which has not yet even entered the United
States stream of trade. In providing such a service, it is therefore
critical that Commerce not expend its time and resources on sample
sales, prototypes, or mere models of merchandise not yet commercially
produced. It is also critical that Commerce not expend its time or
resources on merchandise which has never been commercially sold and
might never be commercially sold in the United States in the future.
Accordingly, the requirement that applicants provide evidence of both
of these factors is reasonable and Commerce will not revise its
practice or the proposed evidentiary standard in this final rule.
With respect to the language set forth in proposed Sec.
351.225(c)(2)(x), although it falls under the introductory language of
paragraph (c)(2), like all of the other elements requesting information
from scope ruling applicants, we wish to be clear that if an applicant
is unable to provide (1) a statement that the product has been
commercially produced, (2) a description of the countries in which the
product is sold, or has been sold, and (3) relevant documentation which
reflects the details surrounding the production and sale of that
product in countries other than the United States, then Commerce will
not conduct a scope inquiry of that merchandise. We have made one minor
change, however, from the Proposed Rule to Sec. 351.225(c)(2)(x)(B),
that allows evidence of countries in which merchandise is either
currently being sold, or evidence of countries in which the merchandise
``has been sold'' in the past. Although the contemporaneity of such
sales would be important, there is no requirement under Commerce's
practice that the sales must be currently made in other countries.
F. Commerce has modified its scope clarification regulation, Sec.
351.225(q), in response to the comments received.
Section 351.225(q) was added to the regulations in the Scope and
Circumvention Final Rule and Commerce explained in the Proposed Rule
that it was intended to codify Commerce's historical usage of such
clarifications to address scope-related issues not addressed by scope
rulings.\47\ The current regulation provides an example in which, after
Commerce has previously issued repeated interpretations of particular
language in a scope, Commerce issues a scope clarification that takes
the form of an interpretive footnote to the scope when the scope is
published or set forth in instructions to CBP. However, Commerce
explained in the Proposed Rule that this was not the only situation in
which Commerce issues a scope clarification post-order, and it
determined that the regulation would benefit by setting forth other
instances in the regulation in which a scope clarification would be
appropriate. Further, Commerce provided examples in which a scope
clarification could take different forms (e.g., Federal Register
notices, memoranda in the context of an
[[Page 20778]]
ongoing segment, and the aforementioned interpretive footnote).\48\
---------------------------------------------------------------------------
\47\ Id., 88 FR 29855-56.
\48\ Id.
---------------------------------------------------------------------------
Commerce received a few comments on the proposed changes to Sec.
351.225(q), primarily concerned with the breadth and reach of the
language of the provision. Commenters expressed concerns that Commerce
was trying to avoid the disciplines of the scope ruling regulation
requirements through the scope clarification provision. Commenters
worried that the provision was trying to avoid notice and comment, due
process protections, and essentially issue scope rulings without a
fulsome analysis. Some commented that the current language was
sufficient, while others questioned even the current (i.e., unmodified)
language of the provision, challenging the clause in Sec. 351.225(q)
which states that scope clarifications can be used to clarify ``whether
a product is covered or excluded by the scope of an order at issue
based on previous scope determinations covering the same or similar
products'' \49\ and asking how that analysis differs from the analysis
conducted under Sec. 351.225(k)(1)(i)(C).
---------------------------------------------------------------------------
\49\ See Sec. 351.225(q).
---------------------------------------------------------------------------
Some commenters suggested that all scope clarifications should be
published in the Federal Register, or that, at minimum, Commerce should
include all scope clarifications in the quarterly notice of scope
rulings published in the Federal Register in accordance with Sec.
351.225(o). They also objected to the fact that it is Commerce's
practice to issue scope clarifications in the context of ongoing
segments, instead of conducting a separate segment, like a scope
ruling, and allowing parties outside of the segment to comment on a
clarification. They stated that scope clarifications, by their nature,
are not company-specific and could affect the trading community
broadly.
Other commenters requested that Commerce explain in greater detail
its authority to interpret a scope through a scope clarification, and
one commenter protested Commerce's reference to the four scenarios set
forth in the proposed regulation as just examples, and its statement in
the Proposed Rule preamble that ``these examples are not exhaustive.''
\50\ That commenter expressed concerns that such broad language
provided uncertainty to the parties and, again, suggested that Commerce
was trying to evade the disciplines of a scope ruling analysis under
Sec. 351.225(k) through scope clarifications.
---------------------------------------------------------------------------
\50\ See Proposed Rule, 88 FR 29856.
---------------------------------------------------------------------------
Commerce's Response:
Commerce has considered the comments raised by the commenters and
concluded that the language of Sec. 351.225(q) should be narrowed and
revised to better reflect the purpose and form of a scope
clarification.
To begin, Commerce has the statutory and regulatory authority as
the administrator of the trade remedy laws to clarify the scope of an
order when the need arises. Commerce has a long history of issuing
clarifications in its proceedings, and there is no question that such
clarifications assist in the administration of the AD and CVD laws.
However, a scope clarification is not equivalent to a scope ruling or
scope determination, and Commerce never intended for the regulation to
equivocate the two through the codification of the original Sec.
351.225(q) or the proposed revision in the Proposed Rule. The
commenters have pointed to concerns with both the original and modified
language, and we understand those concerns. Thus, we have revised the
provision in response to those concerns.
First, in the introductory language to Sec. 351.225(q), Commerce
explains that a scope clarification may be issued in any segment of a
proceeding that provides an interpretation of specific language in the
scope of an order and addresses other scope-related issues, but makes
clear that a scope clarification may not analyze or determine whether a
product is covered by the scope of an order in the first instance,
outside of the situations explicitly listed in the regulation. The
purpose of a scope ruling, unlike a scope clarification, is to
determine if a specific physical product, in the first instance, is
covered or not covered by an AD or CVD order.
Next, rather than provide ``examples'' that were non-exhaustive, as
was set forth in the Proposed Rule, the new Sec. 351.225(q)(1)
provides four specific situations in which a scope clarification may be
applied. First, it may be used to determine if a product is covered or
excluded by the scope of an order if Commerce has previously issued at
least two scope determinations or rulings covering the same products
with the same physical characteristics. This is the example which is
set forth in the existing regulation. Such a situation arises, for
example, when one exporter exports a product with certain physical
characteristics, and Commerce issues a scope ruling on that product.
Then, another exporter exports a product with the same physical
characteristics, and Commerce issues a scope ruling on that product as
well. Then a third exporter exports a product, again, with the same
physical characteristics, and Commerce determines that rather than
repeat the same analysis through multiple scope rulings, a scope
clarification is the appropriate means of communicating its
determination in general going forward for that particular product with
specific physical characteristics.
In response to those commenters who requested that Commerce explain
the difference between this language and the analysis set forth in
Sec. 351.225(k)(1)(i)(C), in Commerce's analysis under Sec.
351.225(k), Commerce is considering whether a product is covered, or
not covered, by an AD or CVD order in the first instance, and is
looking to Commerce's earlier scope rulings and determinations covering
physically same or similar products under the order at issue, as well
as orders with same or similar scope language, for guidance. In the
example above, Commerce would likely consider the sources listed in
Sec. 351.225(k)(1)(i)(C) as part of its analysis of the products
exported by the first and second scope ruling applicants to determine
if both products are covered, or not covered, by the scope of an AD or
CVD order. It is only once Commerce continues to receive repeated
requests for scope rulings on the same physical product that Commerce
might determine, instead, to issue a general scope clarification
covering products with the same physical characteristics.
The second situation set forth in the regulation pertains to
section 771(20)(B) of the Act, for merchandise imported by, or for the
use of, the Department of Defense, in which coverage by the scope of an
AD or CVD order is not at issue. Under that provision, the issue is not
if the product is covered by an order, but if the merchandise is able
to avoid the payment of duties pursuant to the limited governmental
importation exception set forth in the statutory provision. The purpose
of a scope ruling is to determine if a product is covered by the scope
of an order, not if subject merchandise should be excluded from
coverage pursuant to a statutory exception to the trade remedy laws. In
that situation, a scope clarification is an appropriate means of
addressing the issue.
The third situation relates to language or descriptors in the scope
of an order that has been subsequently updated, revised, or replaced
under certain circumstances. The regulation explains that those
circumstances involve modifications to the language in the scope of an
order pursuant to litigation or a changed circumstances review under
section 751(b) of the Act, changes to HTSUS clarifications, as
administered by the ITC, and changes to
[[Page 20779]]
industrial standards set forth in a scope, as determined by the
industry source for those standards identified in the scope. Such
changes have the potential to lead to confusion and, therefore, in
those circumstances a scope clarification might be beneficial. For
example, sometimes, products covered by a particular HTSUS
classification set forth in an AD or CVD order following an
investigation may not be subsequently covered by that same HTSUS
classification when it is revised in the future. In that case, Commerce
might issue a scope clarification in an ongoing segment of a
proceeding, explaining that the HTSUS classifications are provided for
illustrative reasons, but are not binding on the merchandise covered by
a scope. Accordingly, if the product was covered at the time the AD or
CVD order was issued, Commerce could explain through a scope
clarification that the subsequent change in that classification would
not change the coverage status of merchandise under the AD or CVD
order.
Finally, the fourth situation pertains to the need for
clarification of an analysis conducted by Commerce in a previous scope
determination or scope ruling. The regulation provides an example where
Commerce previously determined in a country-of-origin determination,
pursuant to Sec. 351.225(j)(2), that the country-of-origin was
established at a certain stage of production where the agency
determined that the essential component of the product was produced or
where the essential characteristics of the product were imported. If
Commerce observes that a company in a segment of the proceeding has
divided that stage of production between two or more countries,
Commerce may need to clarify its previous country-of-origin analysis to
explain in which part of the stage of production was the essential
component produced or the essential characteristics imparted. Such an
analysis might not require a new scope ruling but could instead be
addressed through a scope clarification.
In response to those commenters suggesting that scope
clarifications should never be conducted in segments of proceedings,
and should always be published in the Federal Register, or at least be
published in the quarterly notice of scope rulings under Sec.
351.225(o), we disagree that publication in the Federal Register is
usually necessary. Historically, Commerce has addressed scope
clarifications in individual segments because the nature of a scope
clarification is such that it is targeted only to a limited issue
before the agency, like many other calculation and methodological
issues which Commerce normally faces in its investigations and
administrative reviews on a case-by-case basis. However, we recognize
that there may be situations in which a scope clarification may be less
specific to the case at hand and may have outsized effects on those
subject to an AD or CVD order in general. In that situation, Commerce
believes the agency would benefit from the broader participation of the
``trading community,'' as noted by one of the commenters. Accordingly,
removing the ``examples'' language from the proposed regulation,
Commerce has modified Sec. 351.225(q)(2) to provide that scope
clarifications may take the form of an interpretive footnote to the
scope when the scope is published or issued in its instructions to CBP,
in a memorandum issued in an ongoing segment of a proceeding, or, at
the discretion of the Secretary, in a Federal Register document. The
regulation provides that when the scope clarification is conducted as a
standalone segment, Commerce will publish a preliminary notice of scope
clarification in the Federal Register, provide parties with at least 30
days to file comments with the Secretary, and then address comments
received in a final notice of scope clarification published in the
Federal Register. To be clear, Commerce does not believe that the
publication of a scope clarification in the Federal Register will be
necessary for most scope clarifications, but Commerce does agree that
it should be an option available for Commerce in certain circumstances.
G. Commerce has made minor edits to Sec. Sec. 351.225(m)(2),
351.226(m)(2), and 351.227(m)(2) to clarify certain terms in those
provisions.
In reviewing the proposed revisions to the scope, circumvention,
and covered merchandise regulations, Commerce became aware that
language proposed for Sec. Sec. 351.225(m)(2), 351.226(m)(2), and
351.227(m)(2) stated that the Secretary would include on the record of
the CVD proceeding a copy of the ``final determination'' and a
``preliminary determination.'' \51\ We have concluded that such
language is not sufficiently clear. Therefore, in the final
regulations, we are revising that sentence in Sec. 351.225(m)(2) to
state that once the Secretary issues a final scope ruling on the record
of the AD proceeding, the Secretary will include a copy of the final
scope ruling memoranda, a copy of the preliminary scope ruling
memoranda if one had been issued, and ``all relevant instructions to
U.S. Customs and Border Protection.'' The language for Sec.
351.227(m)(2) will align with the circumvention language, but will
instead apply to a covered merchandise proceeding. We determine that
this change will provide added clarity on the information which will be
placed on the record of the CVD proceeding following a scope,
circumvention or covered merchandise determination issued on the record
of the companion AD proceeding.
---------------------------------------------------------------------------
\51\ See Proposed Rule, 88 FR 29872, 229873.
---------------------------------------------------------------------------
H. Commerce made no changes in responses to other scope and
circumvention issues raised in the comments on the Proposed Rule.
One commenter criticized Commerce's existing regulations that
require that scope, circumvention, and covered merchandise proceedings
in companion orders should be conducted on the record of the AD
proceeding. That commenter also suggested that Commerce should place
preliminary scope, circumvention, and covered merchandise rulings/
determinations on the record at the same time that those preliminary
determinations are placed on the AD record. Furthermore, that commenter
expressed frustration that although parties with an APO in previous AD
segments could move information from one AD segment to another under
the revised Sec. 351.306(b)(3), those who were not covered by an APO
in those segments could not.
Another commenter expressed concerns with the language of the
current standard APO, stating that it does not reflect the cross-
proceeding sharing provisions of Sec. 351.306(b)(3) and (4). They
offered suggestions for language to revise the standard APO once these
regulations become final.
Commerce's Response:
Commerce will continue to conduct scope, circumvention, and covered
merchandise segments covering companion orders on the record of the AD
segment. We will not place information on the CVD record following the
notification to interested parties that all subsequent filings should
be filed on the AD segment of the proceeding, as explained in
Sec. Sec. 351.225(m)(2), 351.226(m)(2), and 351.227(m)(2), until final
scope rulings and circumvention and covered merchandise determinations
are issued. With respect to the APO, Commerce intends to modify its
standard language to incorporate the changes to the regulation, but
those changes will not be reflected in the regulation and the APO will
not be revised until the effective date of the final rule.
4. Commerce has made certain revisions to the proposed amendments
[[Page 20780]]
to Notices of Subsequent Authority--Sec. 351.301(c)(6).
As Commerce explained in the Proposed Rule, sometimes while an
administrative segment is ongoing, a Federal court may issue a holding,
or Commerce may issue an administrative decision, in another case which
an interested party believes is directly applicable to an issue
currently before the agency.\52\ When that occurs, the interested party
may file on the record a Notice of Subsequent Authority. The uniqueness
of a Notice of Subsequent Authority is that the subsequent authority
may occur at any time, including after the time for new factual
information under Sec. 351.301(c) has passed, after briefs and
rebuttal briefs have been filed consistent with Sec. 351.309(c) and
(d), and possibly right up until Commerce issues a final determination
or final results in a segment of an AD or CVD proceeding.
---------------------------------------------------------------------------
\52\ Id., 88 FR 29857.
---------------------------------------------------------------------------
Currently, Commerce has no regulation guiding the filing of, or
receipt and use of, a Notice of Subsequent Authority, nor is there any
regulation allowing other interested parties to comment on such a
Notice. Further, there is no regulation which addresses the filing of a
Notice of Subsequent Authority in light of the administrative
procedures and deadlines which Commerce faces in the last few weeks of
a segment (e.g., meeting internally to get official clearances for the
agency's decisions and positions, drafting and finalizing positions,
completing calculations when necessary, and preparing documents for
publication in the Federal Register and for release to the parties
under the APO). Accordingly, under statutory deadlines, it might simply
be untenable for Commerce to consider a Notice of Subsequent Authority
in the days immediately preceding a final determination or final
results. Commerce, therefore, determined in the Proposed Rule that it
would be beneficial to issue a regulation which addressed the
procedures and deadlines for the filing of a Notice of Subsequent
Authority and a response to such a notice.\53\ It therefore proposed a
new regulatory provision, Sec. 351.301(c)(6), which stated that
Commerce would ``only be required to consider and address'' a Notice of
Subsequent Authority if it was filed 30 days or more before a final
determination or results deadline and a response to that Notice if it
was filed 25 days or more before that final determination or results
deadline.\54\ Furthermore, the proposed regulation set forth the
content requirements of such a Notice and responsive comments in Sec.
351.301(c)(6)(iii).
---------------------------------------------------------------------------
\53\ Id.
\54\ Id., 88 FR 29873.
---------------------------------------------------------------------------
Some commenters generally accepted Commerce's proposal, while four
commenters expressed concerns. Two commented that Commerce already had
sufficient discretion to consider and address Notice of Subsequent
Authority whenever and however it wished, and voiced concerns that
parties would abuse what they consider ``subsequent authority'' under
this provision. Another expressed concerns that not only did Commerce
have such discretion, but if Commerce was unable to consider arguments
before its final determination or results, then the party would have
the opportunity to appeal the decision and Commerce could address the
alleged authority in a remand redetermination. That party also stated
that Commerce's restriction of filing dates of 30 days and 25 days
might be unlawful, because when a precedential court or agency decision
is issued, Commerce is required by law to consider it and follow it,
regardless of whether the decision is issued one day or one month
before a final determination or decision. That commenter emphasized
that constraining parties to file by 30 days and 25 days would not
relieve Commerce of its legal obligation to follow binding precedent.
The three commenters therefore suggested that Commerce should not
implement the proposed Notice of Subsequent Authority provisions, or at
least not implement the timing restrictions, in the proposal.
The fourth commenter expressed concerns that the 30-day and 25-day
deadlines would lead to unnecessary litigation when subsequent
authorities, of which Commerce was aware, arose and Commerce
nonetheless issued final determinations or results inconsistent with
binding authorities. That commenter suggested that the regulation
should allow Commerce to consider extensions in certain circumstances,
or at least move the deadlines closer to the final determination or
results deadlines by 15 days.
Commerce's Response:
After consideration of the comments, we agree that the timing
language as proposed in Sec. 351.301(c)(6)(ii) was too restrictive
given Commerce's legal obligation to consider subsequent authorities
when possible. Accordingly, we have removed the language of Sec.
351.301(c)(6)(ii) which stated that Commerce would ``only be required
to consider and address'' Notices of Subsequent Authority and rebuttal
comments submitted within the 30-day and 25-day deadlines. Instead, the
revised language states only that Commerce ``will consider and
address'' Notices of Subsequent Authority and rebuttal comments filed
within those deadlines.
On the other hand, we also believe that interested parties should
file Notices of Subsequent Authority only when the authorities are
immediate and ``subsequent'' to agency actions. Commerce has timing
requirements in each of its segments for parties to make the agency
aware of relevant court and agency decisions as the segment progresses.
If a party is aware of the existence of an alleged binding authority
but does not alert Commerce of that alleged authority until 30 days
before the deadline for issuing the final determination or results, we
believe that such an action would be inconsistent with our normal
deadlines and an abuse of this provision. Accordingly, we have added a
second timing requirement to the regulation that Notice of Subsequent
Authority may only be filed within 30 days after the alleged subsequent
authority was issued.
In addition, a new sentence was added to the regulation which
states that given statutory deadlines, ``the Secretary may be unable to
consider and address the arguments and applicability of alleged
subsequent authorities adequately in a final determination or final
results if a Notice of Subsequent Authority or rebuttal submission is
submitted later in the segment of the proceeding.'' Finally, we edited
references to final results ``of administrative review'' to make it
just final results in general because a Notice of Subsequent Authority
may be filed in other administrative segments, such as circumvention
inquiry proceedings under section 781 of the Act and Sec. 351.226 or a
scope ruling proceeding under Sec. 351.225.
We appreciate the concerns expressed by the commenters that if a
court holding, for example, is binding on Commerce and arises
immediately before the issuance of a final determination or results,
Commerce may be lawfully bound by that holding despite the fact that
Commerce may also be administratively unable to consider and address
that holding before the agency decision is issued by a statutory
deadline. As one of the commenters stated, in that case, the only
option may be for parties to litigate the issue and have Commerce
address the subsequent authority in a remand redetermination.
[[Page 20781]]
Still, though, it is possible in some cases that Commerce may be able
to consider and address subsequent authorities and arguments in less
than 30 or 25 days before the deadline for a final determination or
final results, but Commerce's ability or inability to consider and
address subsequent authority in a truncated period of time would be
highly case-specific and cannot be guaranteed by the regulation.
Section 351.301(c)(6)(ii) primarily is intended to inform the
public that if Notices of Subsequent Authority are filed 30 days or
more before the deadline of a final determination or results, and a
response is filed 25 days or more before the deadline for a final
determination or results, Commerce will be able to consider and address
the alleged authority and arguments for and against its application to
the segment of the proceeding. Accordingly, if the alleged authority
was issued before those deadlines, interested parties must file their
Notice of Subsequent Authority by the 30-day deadline. If interested
parties wait to submit notice of the alleged authority after those
deadlines, or if the alleged authority was issued after those
deadlines, then Commerce's ability to consider and address the alleged
authority will be entirely dependent on the agency's administrative
resources and existing time constraints before the agency issues its
final determination or results.
5. Commerce has made certain revisions to the CVD AFA hierarchies
in--Sec. 351.308(j).
In 2015, in the Trade Preferences Extension Act (TPEA), Congress
added section 776(d) to the Act, which addresses Commerce's application
of AFA under sections 776(a) and 776(b). The provision discusses
Commerce's ability to select the highest CVD rate or highest dumping
margin in certain circumstances, provides that there are no obligations
to make certain estimates or address certain claims, and gives guidance
for Commerce in otherwise selecting a CVD rate or dumping margin from
the facts otherwise available.\55\ With respect to CVD proceedings, in
particular, section 776(d) of the Act states that Commerce may ``(i)
use a countervailable subsidy rate applied for the same or similar
program in a countervailing duty proceeding involving the same country;
or (ii) if there is no same or similar program, use a countervailable
subsidy rate for a subsidy program from a proceeding that the
administering authority considers reasonable to use.'' \56\ That
language implements, in general, Commerce's longstanding use of CVD AFA
hierarchies, and Commerce stated in the Proposed Rule that it was
codifying those hierarchies, in full, by adding a new paragraph to
Sec. 351.308.\57\
---------------------------------------------------------------------------
\55\ See TPEA of 2015, Public Law 114-27, 129 Stat. 362, 384
(2015), sec. 502, codified at 19 U.S.C. 1677e(b)(1).
\56\ See sections 776(d)(1)(A)(i) and (ii) of the Act.
\57\ See Proposed Rule, 88 FR 229858.
---------------------------------------------------------------------------
As a preliminary matter, although Commerce proposed that the CVD
AFA hierarchies be codified as Sec. 351.308(g) in the Proposed Rule,
we have subsequently concluded that other provisions found in section
776(d) of the Act, and parts of Commerce's AFA practice in general,
should be codified in Sec. 351.308 and should logically precede the
CVD AFA hierarchies in the regulation. Accordingly, we have moved the
CVD AFA hierarchies to Sec. 351.308(j) in this final rule, and have
reserved Sec. 351.308(g), (h), and (i) for future rulemaking.\58\
---------------------------------------------------------------------------
\58\ To prevent confusion, to the extent parties made arguments
about proposed Sec. 351.308(g) in their comments, we have referred
to those comments below as referencing Sec. 351.308(j).
---------------------------------------------------------------------------
In the CVD hierarchy regulation, Commerce provides for one
hierarchy for investigations in Sec. 351.308(j)(1) and a second
hierarchy for administrative reviews in Sec. 351.308(j)(2). In
addition, the regulation provides guidance on the application of the
CVD hierarchy in both types of segments in Sec. 351.308(j)(3),
providing that Commerce will treat rates less than 0.5 percent as a de
minimis rate, will normally determine a program to be a similar or
comparable program based on Commerce's treatment of the program's
benefit, and will normally select the highest program rate available in
accordance with the hierarchical sequence, unless Commerce determines
that the highest rate is otherwise inappropriate. In addition, in
accordance with section 776(c)(1) of the Act, which requires certain
facts available derived from secondary information to be corroborated,
Sec. 351.308(j)(3)(iv) states that when Commerce determines a CVD AFA
rate from secondary information using the hierarchy, it will determine
those facts available to be corroborated.
Commerce received several comments on the AFA CVD hierarchies.
Generally, the comments were supportive, though most of those
commenters expressing support for the provision opposed Commerce's
proposed use of an ``above-zero'' threshold in the first step of the
AFA hierarchy governing investigations, and instead suggested that the
regulation should include an ``above-de minimis'' threshold. While
these commenters recognized that the intention of the proposed rule was
to codify existing Commerce practice, they also commented that the
``above-de minimis'' threshold in no way conflicted with the statutory
language and, in fact, would better reflect the purpose and goals of
the AFA CVD hierarchy. Those commenters focused primarily on concerns
that parties could obtain a more favorable result by failing to
cooperate than if they had cooperated fully by gaming the ``above-
zero'' threshold, undermining Commerce's statutory directive to
discourage non-compliance. Further, some commenters also expressed
concerns that even though section 776(d)(3) of the Act was added by
Congress in the TPEA and explicitly states that in selecting an AFA
rate Commerce is not required to estimate what a CVD rate would have
been if the respondent had cooperated, or demonstrate that an AFA rate
reflects a respondent's ``alleged commercial reality,'' the ``above-
zero'' threshold implicitly considers both.
In addition, multiple commenters suggested revisions to the
proposed regulation as it relates to instances when Commerce may
determine that a rate selected from a hierarchy is inappropriate.
Section 351.308(j)(3)(iii) states that ``{the{time} Secretary will
normally select the highest program rate available in accordance with
the hierarchical sequence, unless the Secretary determines that such a
rate is otherwise inappropriate.'' One commenter noted that deviation
from the hierarchy may be necessary to ensure the statutory purpose of
AFA is achieved and stated that the placement of Sec.
351.308(j)(3)(iii) at the end of the regulatory provision made this
purpose seem like an afterthought. This commenter suggested moving a
portion of this paragraph to the introductory section of paragraph (j),
and subsequently deleting Sec. 351.308(j)(3)(iii).
Other commenters requested that Commerce elaborate on specific
instances in which Commerce may deviate from an AFA hierarchy or
otherwise deem a rate selected via a hierarchy to be inappropriate.
These suggestions included, inter alia, requests that: Commerce clarify
that the use of the word ``normally'' permits deviation from the
hierarchy when it fails to effectuate the purpose of the AFA statute;
an explicit statement that Commerce will not apply the hierarchy to
generate a de minimis CVD rate for uncooperative respondents; and
modifications to paragraph (j)(3)(iii) of Sec. 351.308 to specifically
note that Commerce may deviate from a hierarchy if the rate ``fails to
ensure that the party
[[Page 20782]]
does not obtain a more favorable result by failing to cooperate than if
it had cooperated fully, or is not sufficiently adverse so as to deter
future noncompliance.''
In addition, one commenter requested that Commerce clarify that it
will not apply lower AFA rates in response to the same types of
uncooperative responses regarding the same program from one segment of
a proceeding to another, while another commenter suggested that
Commerce must calculate ``a reasonably accurate estimate of the
respondent's actual rate'' and, therefore, should edit paragraphs
(j)(1)(iii) and (j)(2)(ii) and (iii) of Sec. 351.308 to read that
Commerce will ``apply the highest calculated above-de minimis rate for
the most similar or comparable program.''
Finally, another commenter expressed broad disagreement with the
proposed regulation, claiming that the application of an adverse
inference in CVD rate calculations is not permitted by the WTO and
inconsistent with the ``spirit'' of the CIT's understanding of the use
of AFA in general. This commenter referenced certain Panel and
Appellate Body decisions in support of its statement that the 1994 WTO
Agreement on Subsidies and Countervailing Measures (SCM Agreement) does
not allow the imposition of ``punitive'' measures and that the purpose
of Article 12.7 of the SCM Agreement is not to ``punish non-cooperating
parties.'' Further, that same commenter stated that Commerce's use of
AFA ``contradicts the legal principles'' expressed by the CIT,
referencing challenges to AD proceedings and CVD proceedings which did
not involve Commerce's application of the CVD AFA hierarchies.
Commerce's Response:
After consideration of the comments, we have determined to make one
change to the proposed regulation covering the AFA hierarchies. We are
replacing ``above-zero'' with ``above-de minimis'' in Sec.
351.308(j)(1)(i). While Commerce seeks to balance the dual goals of
relevancy and inducement in its application of AFA, it must do so while
properly effectuating the statutory goal of compliance and ensuring
that parties do not obtain a more favorable result by failing to
cooperate than if they had cooperated fully. We believe replacing the
``above-zero'' requirement with an ``above-de minimis'' threshold in
paragraph (g)(1)(i) of Sec. 351.308 better accomplishes this
objective, for the reasons stated by the commenters. For example, as
the commenters pointed out, there could be situations in which parties
obtain a more favorable result by failing to cooperate than if they had
cooperated fully through an abuse of the ``above-zero'' threshold. Such
an outcome would be unacceptable. We do not believe the same situation
would arise with the use of an ``above-de minimis'' threshold.
Accordingly, we have adopted the suggested revised standard in this
final rule.
On the other hand, we disagree with the one commenter's proposal to
move the ``normally select'' and ``unless the Secretary determines that
such a rate is otherwise inappropriate'' language in Sec.
351.308(j)(3)(iii) to elsewhere in the regulation. Section
351.308(j)(3) contains several generally-applicable rules and
principles for when Commerce is utilizing the AFA hierarchies, and we
believe a general principle that Commerce will select the highest
program rate available in accordance with the hierarchical sequence,
unless otherwise deemed inappropriate, is properly placed in this
section, whereas moving this statement to the introductory section
would not provide additional clarity. Moreover, we disagree that the
placement of paragraph (j)(3)(iii) in Sec. 351.308 does not indicate
that this provision is more or less important than any other in the
regulation.
Regarding the requests that we elaborate on specific instances in
which Commerce may deviate from an AFA hierarchy or otherwise deem a
rate selected via a hierarchy to be inappropriate in the regulation, we
have not elected to make such explicit declarations in this final rule,
as we believe that codifying such scenarios would unnecessarily inhibit
Commerce's flexibility to address situations on a case-by-case basis.
The introductory language of paragraph (j) of Sec. 351.308 states that
``the Secretary will normally select the highest program rate available
using a hierarchical analysis as follows . . .'' and further provides
in paragraph (j)(3)(iii) that ``{the{time} Secretary will normally
select the highest program rate available in accordance with the
hierarchical sequence, unless the Secretary determines that such a rate
is otherwise inappropriate'' (emphasis added). We believe this language
provides Commerce with sufficient flexibility to codify its long-
standing practice, but still allows Commerce to apply an alternative
AFA remedy in exceptional situations. It is Commerce's long-standing
practice that it will normally utilize the applicable hierarchy (either
for investigations or administrative reviews) when selecting a program
rate as AFA. However, we recognize that there may be certain instances
where Commerce must deviate from this default approach when the facts
of a given case or of a particular type of subsidy program across
several cases necessitate such deviation. For example, in certain CVD
investigations, we have determined that rather than apply an AFA CVD
hierarchy to certain non-responsive companies for particular income tax
programs, the facts on the record warranted an adverse finding that
those non-cooperative companies paid no income tax during the relevant
period.\59\ Pursuant to such a finding, we therefore determined to
apply the corporate income tax rate as the highest possible benefit
that could be applied for such programs.\60\
---------------------------------------------------------------------------
\59\ See, e.g., Countervailing Duty Investigation of Certain
Hardwood Plywood Products from the People's Republic of China: Final
Affirmative Determination, and Final Affirmative Critical
Circumstances Determination, in Part, 82 FR 53473 (November 16,
2017), and accompanying Issues and Decision Memorandum (IDM) at 8
(citing Aluminum Extrusions from the People's Republic of China:
Final Affirmative Countervailing Duty Determination, 76 FR 18521
(April 4, 2011), and accompanying IDM at the section, ``Application
of Adverse Inferences: Non-Cooperative Companies) (explaining that
Commerce applied an adverse inference that each of the non-
responsive companies paid no income tax during the period of
investigation and ``{the{time} standard corporate income tax rate
in China is 25 percent . . . . We, therefore, find the highest
possible benefit for all income tax exemption and reduction programs
combined is 25 percent (i.e., the income tax programs combined
provide a countervailable benefit of 25 percent).'').
\60\ Id.
---------------------------------------------------------------------------
Accordingly, given the wide variety of potential fact patterns and
unforeseen circumstances that Commerce may encounter in the future, we
do not believe specifically outlining and limiting the circumstances
Commerce may, or may not, deviate from its default methodology of
selecting the highest program rate in the regulation would be
beneficial to Commerce's application of AFA in CVD investigations and
administrative reviews in future cases.
Likewise, we will not place language in the regulations that states
that Commerce will or will not apply different AFA rates in response to
the same program for the same parties from one segment of a proceeding
to the next. Commerce applies two distinct hierarchical methodologies
for investigations and administrative reviews, and therefore,
naturally, the AFA rate which results from those two different
hierarchies might differ, even when applied to the same parties in a
different segment on the same proceeding. Commerce's use of different
hierarchies for investigations and administrative reviews, which
reflect inherent differences in the circumstances around investigations
versus administrative reviews, has been upheld by the CIT on multiple
[[Page 20783]]
occasions,\61\ accepting that ``the administrative review AFA hierarchy
achieves the dual goals of relevancy and inducing cooperation.'' \62\
Maintaining consistency in applying our CVD AFA hierarchy provides
predictability and transparency to parties involved in administrative
proceedings, and we see no reason to change that practice in these
regulations.
---------------------------------------------------------------------------
\61\ See, e.g., Clearon Corp. v. United States, 359 F. Supp. 3d.
1344, 1360-61 (CIT 2019) (sustaining Commerce's application of the
second step of the review hierarchy, noting the hierarchy method is
judicially approved); Essar Steel Ltd. v. United States, 908 F.
Supp. 2d 1306, 1310-11 (CIT 2013) (sustaining Commerce's application
of the second step of the review hierarchy and use of an adverse
rate calculated for Essar for a similar program in a previous
administrative review of the CVD order at issue), aff'd 753 F. 3d
1368 (Fed. Cir. 2014); and SolarWorld Ams. Inc. v. United States,
229 F. Supp. 3d 1362, 1366 (CIT 2017) (SolarWorld) (sustaining
Commerce's application of the second step of the review hierarchy
despite a lower rate than using the investigation hierarchy).
\62\ See SolarWorld, 229 F. Supp. 3d at 1370 (stating
``{t{time} he court assesses the methodology for reasonableness and
for sufficient explanation of the reasoning underlying the approach
. . .. Although it could be argued that a case-by-case hierarchy
system also would be reasonable, that possibility does not make
Commerce's hierarchy structure unreasonable.'').
---------------------------------------------------------------------------
The TPEA added section 776(d)(3)(A) to the Act which states that
Commerce ``is not required'' for ``any purpose'' to ``estimate what the
countervailable subsidy rate'' would have been if the party ``had
cooperated.'' \63\ Nonetheless, one commenter suggested that Commerce
should amend its hierarchies to do just that when applying AFA in CVD
proceedings. We have not adopted that suggestion in this final rule.
The proposed and final rule reflect Commerce's practice, which has been
upheld as in accordance with law by the CIT.\64\ Under that practice,
through the hierarchy, Commerce selects the highest above-de minimis
rate for similar or comparable programs, but not necessarily identical
or ``most'' similar programs. Under its practice, as now codified by
this final rule, Commerce determines a program to be a similar or
comparable program based on the Secretary's treatment of the benefit,
as stated in Sec. 351.308(j)(3)(ii).
---------------------------------------------------------------------------
\63\ See section 776(d)(3)(A) of the Act.
\64\ See Changzhou Trina Solar Energy Co. v. United States, 352
F. Supp. 3d 1316, 1329 (``Under Commerce's established
{hierarchy{time} methodology and consistent with the plain text of
the statute, Commerce selects a similar program, not necessarily the
most similar program.''); see also Bio-Lab Inc. v. United States,
487 F. Supp. 3d 1291, 1308 (CIT 2020) (``Selecting a program that is
similar is enough to satisfy the statute.'')
---------------------------------------------------------------------------
Finally, we disagree with the commenter who expressed concerns that
Commerce's CVD AFA hierarchy is inconsistent with the United States'
WTO obligations and the general AFA views of the CIT. Commerce's
practice and these regulations are fully in compliance with the United
States' WTO obligations. Furthermore, Commerce's use of CVD AFA
hierarchies has been sustained by the CIT on numerous occasions, as
noted earlier in this section. Thus, we find the commenter's suggestion
that Commerce may not utilize such AFA rates in its CVD calculations
(if circumstances warrant) to be unavailing and we have made no further
revisions to Sec. 351.308 other than as described above.
6. Commerce has made minor changes to its regulations addressing
government inaction which distorts certain costs through weak,
ineffective, or nonexistent property (including intellectual property),
human rights, labor, and environmental protections.
In the Proposed Rule, Commerce explained that because ``government
inaction and failure to enforce property (including intellectual
property), human rights, labor, and environmental protections lowers
the cost of production for firms in their jurisdiction,'' it was
proposing modifications to its regulations to consider such inaction
when determining if certain potential surrogate values, benchmark
prices, or input costs of production are potentially distorted or
otherwise not in accordance with market principles.\65\ Commerce
explained that this is because such firms are not paying a ``cost of
compliance'' to meet regulatory standards for which firms operating in
other jurisdictions are responsible.\66\ Commerce also discussed how
the economics literature explains this in terms of externalities and
public goods, identifying the fact that firms base their decisions
almost exclusively on direct cost and profitability considerations and
largely ignore the indirect societal costs of their production
decisions.\67\
---------------------------------------------------------------------------
\65\ See Proposed Rule, 88 FR 29859-61; see also OECD, OECD
Regulatory Policy Outlook 2018: Glossary, available at https://www.oecd-ilibrary.org/sites/9789264303072-51-en/index.html?itemId=/content/component/9789264303072-51-en, accessed February 2, 2021.
\66\ Id., 88 FR 29858-61.
\67\ Id., 88 FR 29859 (citing International Monetary Fund
(Thomas Helbling), ``Externalities: Prices Do Not Capture All
Costs,'' Finance & Development (date unspecified); Coase, Ronald,
``The Problem of Social Cost.'' Journal of Law and Economics, 3 (1):
1-44 (1960); Cornes, Richard, and Todd Sandler, The Theory of
Externalities, Public Goods, and Club Goods, Cambridge University
Press (1986); and Paul Samuelson, ``Diagrammatic Exposition of a
Theory of Public Expenditure,'' The Review of Economics and
Statistics, 37 (4): 350-56 (1955)).
---------------------------------------------------------------------------
Notably, although Commerce received several comments on the
proposed revisions to Sec. Sec. 351.408(d), 351.416(g)(10) and (11),
and 351.511(a)(2), it received no comments that challenged the concept
that weak, ineffective, or nonexistent real, personal and intellectual
property protections, human rights protections, labor protections, and
environmental protections can result in lower direct costs of
production that do not reflect indirect societal costs. Commerce
explained in the Proposed Rule that for each of these situations, there
are scenarios that can result in distorted costs of production (e.g., a
lack of environmental laws or the existence of slave, forced, or child
labor).\68\ Accordingly, Commerce explained that, consistent with its
statutory and inherent authority to select appropriate surrogate values
in determining a normal value for a non-market economy analysis, select
appropriate benchmarks prices in its less than adequate remuneration
analysis, and determine if a particular market situations exists that
distort costs of production, Commerce was codifying its ability to
consider such arguments if interested parties raised such claims and
provided sufficient evidence to support allegations.\69\
---------------------------------------------------------------------------
\68\ Id., 88 FR 29859.
\69\ Id.
---------------------------------------------------------------------------
A. Commerce does not agree with the overarching, generalized
concerns expressed by certain commenters.
Certain commenters expressed overarching concerns about Commerce's
proposals, claiming that Commerce did not have the appropriate
expertise or statutory authority to address the lack of various
``social'' protections in its analysis. One commenter suggested that
Commerce was ``attempting to set itself up as judge, jury and
executioner on matters of property rights, human rights, labor rights''
and ``environmental protections,'' and that by analyzing the
protections provided by various countries, Commerce was
``unilaterally'' ``asserting authority to stand in judgment of the
enforcement of various rights by other sovereign nations,'' despite the
fact that allegedly Commerce possesses no particular expertise in how
property rights (including intellectual property), human rights, labor
rights, or environmental protections should best be ``defined,
implemented and enforced.'' That commenter claimed that nothing in the
trade laws appoints Commerce to act as the ``global rights police'' and
expressed concerns that Commerce's proposal would ``punish respondents
for operating in countries that do not meet a U.S. administration's
policy preferences.''
Another commenter claimed that Commerce was trying to ``insert
social
[[Page 20784]]
considerations into AD calculations'' through ``social dumping,'' which
historically the United States did not advocate addressing in the AD
law. That commenter expressed concerns that by including social dumping
in its analysis, Commerce was inviting other countries to do the same,
and to punish United States' exporters because of the United States's
own alleged ``under enforcement of labor rights.''
Other commenters challenged Commerce's overall analysis as too
broad because it does not define what ``weak, ineffective, or
nonexistent property (including intellectual property), human rights,
labor, or environmental protections'' means in every case and does not
explain if objective international standards, U.S. standards, or other
standards are intended to be used in every case to determine if such
protections are deficient or not deficient.
Conversely, other commenters stated that not only was Commerce
acting within its statutory and inherent authority, but that Commerce's
proposal is too narrow, and Commerce should consider even more
scenarios involving property (including intellectual property), human
rights, labor, and environmental protections (and the resulting low or
nonexistent compliance costs). Specifically, those commenters suggested
that because a country could take immediate steps following an
allegation of a lack of effective protections in an effort to forestall
Commerce's actions and ``greenwash a failure to adopt and effectively
enforce such protections,'' Commerce should add a requirement to its
overarching language that Commerce would consider not only weak,
ineffective, or nonexistent protections, but also ``arbitrary''
protections with no lawful history or context. In other words, those
commenters advocated that interested parties should be able to argue
that an alleged protection in a given case was, in fact, set up solely
to avoid Commerce reconsidering prices or costs in its various
analyses, and that such ``arbitrary'' protections should not be treated
as actual or real protections by the agency.
Commerce's Response:
Commerce has the statutory and inherent authority to consider the
impact of weak, ineffective, or nonexistent protections on its analysis
of surrogate values, benchmark prices, and costs of production in its
PMS analysis. As explained in the Proposed Rule, it is well established
that Commerce has the authority to consider if potential benchmark
prices and potential surrogate values are distorted, and are,
therefore, inappropriate to use in its analysis.\70\ Not only have
courts affirmed such an authority, but Commerce's consideration of
potential labor surrogate values in light of evidence of the existence
of forced labor in potential surrogate countries was also prominent in
three cases before the CIT, again, cited in the Proposed Rule. \71\
---------------------------------------------------------------------------
\70\ Id., 88 FR 29860.
\71\ Id., at nn. 36 and 39 (citing, e.g., Ad Hoc Shrimp Trade
Action Comm. v. United States, 219 F. Supp. 3d 1286, 1292 (CIT 2017)
(citing Final Results of Redetermination Pursuant to Court Remand,
Ad Hoc Shrimp Trade Action Committee v. United States, Court No. 15-
00279, Slip Op. 17-27 (CIT March 16, 2017), dated June 6, 2017,
available at https://access.trade.gov/resources/remands/17-27.pdf,
aff'd Ad Hoc Shrimp Trade Action Comm. v. United States, 234 F.
Supp. 3d 1315, 1320 (CIT 2017)); Final Results of Redetermination
Pursuant to Court Remand, Tri Union Frozen Products Inc. et al. v.
United States, Consol. Court No. 14-00249, Slip Op. 17071 (CIT June
13, 2017), dated July 25, 2017, at 8-9, available at https://access.trade.gov/resources/remands/17-71.pdf, aff'd Tri Union Frozen
Prods., Inc. v. United States, 254 F. Supp. 3d 1290 (CIT 2017),
aff'd Tri Union Frozen Products, Inc. v. United States, 741 Fed.
Appx. 801 (Fed. Cir. 2018) (collectively, Tri Union Frozen);
Refillable Stainless Steel Kegs from the People's Republic of China:
Final Affirmative Determination of Sales at Less Than Fair Value and
Final Affirmative Determination of Critical Circumstances, in Part,
84 FR 57010 (October 24, 2019), and accompanying IDM at 35; and
Final Results of Redetermination Pursuant to Court Remand, New
American Keg v. United States, Slip Op. 21-30 (March 23, 2021),
dated July 7, 2021, at 3 (citing Tri Union Frozen), available at
https://access.trade.gov/resources/remands/21-30.pdf).
---------------------------------------------------------------------------
Commerce emphasizes that in each of the modified regulatory
provisions, the focus is on whether weak, ineffective, or nonexistent
protections distort prices or costs. This is the same distortion
analysis Commerce applies for all less than adequate remuneration
benchmarks and surrogate values if interested parties claim that those
prices or values are distorted. In that regard, the PMS examples at
issue are consistent with the other examples of a PMS set forth in
Sec. 351.416(g). Commerce will not use distorted potential benchmark
prices or distorted potential surrogate values, and its refusal to use
distorted values in its methodologies and calculations is not a novel
concept. Further, Congress explicitly directed Commerce in section
773(e) of the Act to consider ``another calculation methodology'' if it
determines that a PMS exists ``such that the cost of materials and
fabrication or other processing of any kind does not accurately reflect
the cost of production in the ordinary course of trade.'' Again, it is
standard practice for Commerce to consider arguments based on real-
world factors that can affect the cost of production, and to reject the
use of prices or costs which Commerce has determined to be distorted or
potentially distorted.
What would, in fact, be inappropriate would be for Commerce to
knowingly ignore real-world factors that distort or potentially distort
costs placed on the record. One of the commenters expressed concerns
that Commerce is trying to incorporate ``social dumping'' \72\ into its
AD analysis through these regulations. However, Commerce's intent
through these regulations is not to consider foreign government
policies into its calculations to effectuate change in those policies,
but instead to focus on one overarching analysis relevant to its
calculations: whether the record reflects that certain prices or costs
at issue were, more likely than not, distorted by identified weak,
ineffective, or nonexistent protections. Commerce has a great deal of
experience in analyzing if prices or costs are distorted, and it is in
accordance with that expertise that Commerce is issuing these
regulations.
---------------------------------------------------------------------------
\72\ ``Social dumping'' is defined as ``the practice of allowing
employers to lower wages and reduce employees' benefits in order to
attract and retain employment and investment.'' See Collins
Dictionary, ``Social Dumping,'' retrieved November 8, 2023, https://www.collinsdictionary.com/us/dictionary/english/social-dumping.
---------------------------------------------------------------------------
Accordingly, there is no validity to the concerns that Commerce is
trying to be a ``judge, jury and executioner'' on the property rights
(including intellectual property), human rights, labor rights, and
environmental protections administered and enforced by other countries,
nor that it is trying to act as ``global rights police'' through these
regulatory changes, nor that it is trying to push certain United States
``policy preferences.'' As Commerce recognized in the Proposed Rule,
every country retains discretion to pursue its own priorities,
including the implementation and enforcement of certain laws, policies
and standards for the public welfare.\73\ If Commerce determines that a
company were able to produce its merchandise for prices cheaper than
foreign competitors because it followed no workplace safety laws and
used forced or child labor, it would be both logical and reasonable for
Commerce to reject potential surrogate values derived from sales of
that merchandise in a non-market economy AD proceeding. On the other
hand, it would be illogical and unreasonable to ignore arguments and
record information that shows that those surrogate values are distorted
for fear of generalized claims that Commerce is trying to impose itself
as a global judge or policeman over other countries'
[[Page 20785]]
social-, environmental-, and property-welfare priorities. Such claims
are inconsistent with what the agency explained in the Proposed Rule
and are inconsistent with the regulatory modifications being proposed.
---------------------------------------------------------------------------
\73\ See Proposed Rule, 88 FR 29858.
---------------------------------------------------------------------------
Governments may implement and enforce their property (including
intellectual property), human rights, labor, and environmental laws and
protections as they believe appropriate, just as Commerce may continue
to apply its AD and CVD laws in a manner that rejects the use of
distorted prices and costs when it determines such a rejection is
supported by record information. Further, just as governments might
determine to take certain actions and provide certain subsidies to
certain industries, even though other authorities might reasonably
determine to countervail those subsidies, the same holds true when
governments determine to not take certain actions that require
compliance costs of producers within their borders. When governments
decide not to enact environmental restrictions on a factory's pollution
to protect the soil, water, air, or wildlife, or not to enforce
existing laws under which that factory would normally be required to
undertake costs to implement those protections, it is both logical and
reasonable that other countries may consider the impact such decisions
have on the costs of production for that factory in their AD
calculations. This is not, despite the criticisms of some of the
commenters, a judgment on the social welfare policies, priorities, and
laws of different countries. Instead, it is a recognition of economic
reality--the lack of enforcement of certain protections granted in
other countries, or the nonexistence of those protections under law
entirely, can have a notable impact on a company's or industry's costs
of production.
In sum, the proposed amendments to the AD and CVD regulations in
this regard are intended to allow for interested parties to raise
issues and supply information on the record about foreign government
inaction on implementing or enforcing certain articulated protections
and for Commerce to consider that inaction in its analysis and
calculations. Accordingly, Commerce rejects claims that it is
restricted by law from considering arguments and facts on the record
that certain prices or costs are distorted as a result of weak,
ineffective, or nonexistent protections in other countries.
In response to the concerns that Commerce is not an expert in labor
law, environmental law, human rights law, intellectual property law, or
property law in general, the agency is not holding itself out as an
expert in these areas. However, Commerce is the U.S. Government agency
with an expertise in analyzing costs of production in an AD analysis
and has a long-established practice of selecting surrogate values in
non-market economy cases and benchmark prices in less than adequate
remuneration CVD cases. One commenter expressed concerns that Commerce
was ``not equipped'' to consider the impact of weak, ineffective, or
nonexistent protections on costs and prices, but Commerce has decades
of experience of analyzing cost and price distortions. Accordingly, the
agency disagrees with that assessment of Commerce's knowledge,
experience, and abilities. The test Commerce applies in each of these
cases is one of price or cost distortion--not one of compliance with
international laws, agreements, or standards. Commerce needs to
consider only whether evidence on the record suggests that prices or
costs are lower than they would otherwise be as a result of weak,
ineffective, or nonexistent protections. If the answer to that question
is ``yes,'' a cost might not be appropriate to use as a surrogate
value, a price might not be appropriate to use as a benchmark for a
less than adequate remuneration case, and the reported cost of an input
might not be appropriate to use in Commerce's cost of production
calculations.
Furthermore, we disagree with the claim that Commerce must define
what ``weak'' or ``ineffective'' property (including intellectual
property), human rights, labor, and environmental standards are, in
every case, in these regulations. In fact, such decisions are fact-
specific and made on a case-by-case basis. In addition, Commerce does
not agree that it should consider or codify certain international
standards or sources for its analysis in each case for the same reason.
Indeed, trying to incorporate certain international standards,
specifically, into the regulations for this purpose could inhibit
rather than support an outcome appropriate with the facts and
circumstances in a specific case. For example, if the evidence on the
record reflected that laws in a given country meet certain
international standards, but the record also reflects that certain
government authorities have never required a factory or industry to
abide by those laws, thereby allowing certain factories or industries
to avoid compliance costs and produce and sell their merchandise for
lower prices, then a regulation setting forth international benchmarks
would not only be of little value, but also prevent the agency from
reviewing both the law and the facts as they apply to a business or
industry in that foreign country. This is not to say in certain cases,
with certain allegations, Commerce might not benefit from considering
an international standard, or other laws in the foreign country itself,
or even laws and standards in other countries, as part of its
determination whether certain protections are weak or ineffective. Just
as Commerce considers all of the information placed before it in other
cases involving surrogate values and determinations of benchmarks in
less than adequate remuneration cases, Commerce would conduct the same
type of analysis in determining if protections are weak or ineffective,
including in analyzing a PMS allegation under Sec. 351.416(g)(10).
Finally, we also disagree that Commerce should extend its analysis
to evaluate whether property (including intellectual property), human
rights, labor, and environmental protections are ``arbitrary.''
Regardless of the intention of a protection, if a producer was required
to pay a patent-owner for the rights to use certain technology, for
example, and that protection was enforced by the government, then
Commerce would not find that government inaction existed, nor that any
distortions resulted from such inaction. Even if the protections were
only temporary during the production period subject to examination, as
explained above, it is not Commerce's intention to judge why
protections exist, but only to determine if those protections were weak
or ineffective during that period of investigation or review and if the
costs of production were distorted because of those weak or ineffective
protections. Accordingly, we have not incorporated the suggestion to
include ``arbitrary'' as a factor for these proposed regulatory
revisions.
B. Commerce will analyze weak or ineffective protections by
entities entrusted or directed by the government to provide such
protections.
In addition to more general allegations and concerns involving
Commerce's proposals to amend its regulations to address the cost and
price distortions potentially arising from weak, ineffective, or
nonexistent property (including intellectual property), human rights,
labor, and environmental protections, Commerce received many individual
questions and concerns. For example, two commenters requested that
Commerce acknowledge that if an entity was entrusted or directed by the
government, but is not
[[Page 20786]]
a public body or government entity itself, with the responsibility of
providing some or all of the listed protections, then Commerce would
still conduct the same analysis it would apply if the government itself
was responsible for providing those protections, including within the
context of a PMS analysis under Sec. 351.416(g)(10).
Commerce's Response:
Commerce agrees with the premise that, no matter if the entity that
is supposed to provide a protection is a government-controlled entity
or is a private entity entrusted or directed by the government to
provide a protection, the agency's analysis will be the same in
determining if the protections at issue are weak or ineffective. As the
examples in Sec. 351.416(g) are only examples, Commerce determined
that it was not necessary to add further language about entrustment and
direction into that regulation; however, we agree that the crux of our
analysis is not the authority failing to grant an effective protection,
but rather the fact that the protection itself is ineffective and the
result is distorted prices or costs.
C. The factual information deadlines of Sec. 351.301(c)(3) apply
to some of these regulatory revisions.
One commenter requested that Commerce clarify that the deadlines
covering submissions of factual information to value factors of
production under Sec. 351.408(c) and measure the adequacy of
remuneration under Sec. 351.511(a)(2) found in Sec. 351.301(c)(3)
apply equally to proposed Sec. Sec. 351.408(d) and 351.511(a)(2)(v).
Commerce's Response:
Commerce confirms that factual information deadlines covering
submissions of factual information to value factors of production under
Sec. 351.408(c) and measure the adequacy of remuneration under Sec.
351.511(a)(2) found in Sec. 351.301(c)(3) apply equally to Sec. Sec.
351.408(d) and 351.511(a)(2)(v). To be clear, Sec. 351.408(d) does not
stand alone, but rather exists in addition to the surrogate value
methodology described in Sec. 351.408(c), which is the reason
paragraph (d) starts with the statement, ``Notwithstanding the factors
considered under paragraph (c) of this section . . . .'' Accordingly,
the deadlines applicable to Sec. 351.408(c) apply equally to Sec.
351.408(d).
D. Commerce may reject prices which are distorted but not
aberrational.
One commenter suggested that, with respect to Sec. Sec. 351.408
and 351.511, Commerce should clarify that prices or costs do not need
to be ``aberrational'' to be disregarded under the proposed government
inaction provisions.
Commerce's Response:
Commerce confirms that prices and costs may be distorted, but need
not be aberrational, for the agency to reject the use of a surrogate
value or benchmark for a less than adequate remuneration analysis. In
general, aberrational sales or costs are normally outliers--values
which are so high or so low, that they may not even appear to be
market-driven. Commerce would not normally consider aberrational sales
or costs in a surrogate value or less than adequate remuneration
analysis. However, for purposes of selecting a surrogate value or
determining the appropriate benchmark to measure the adequacy of
remuneration, prices or costs can be distorted by multiple factors
(e.g., weak, ineffective, or nonexistent protections) without being
considered aberrational. If the record contains potential surrogate
values or benchmark prices which Commerce determines are not distorted
and are from an economically comparable country that produces
comparable merchandise, then in choosing a surrogate, it will normally
prefer the non-distorted prices or costs over the distorted prices or
costs. That analysis need not require a finding that prices or costs
are aberrational in any way.
E. The revised regulations are consistent with the United States's
WTO obligations.
Some commenters expressed concerns that Commerce's consideration of
the impact of foreign government inaction on costs or prices
incorporates concepts not embodied in the relevant WTO agreements and
allows Commerce to manipulate its trade remedy laws in an effort to
force property (including intellectual property), human rights, labor,
and environmental standards on other WTO members. They commented that
the Agreement on Implementation of Article VI of the General Agreement
on Tariffs and Trade (AD Agreement) does not permit such
considerations, pointing to a dispute Panel decision in European Union-
Antidumping Measures on Biodiesel from Argentina, in which the dispute
Panel concluded that a dumping analysis is not intended to cover
certain distortions arising out of government actions or
circumstances.\74\ They also suggested that other international and WTO
agreements cover such matters satisfactorily.
---------------------------------------------------------------------------
\74\ See Report of the Panel, European Union--Anti-Dumping
Measures on Biodiesel from Argentina, WT/DS473/R, (May 23, 2016)
(European Union-Antidumping Measures on Biodiesel from Argentina),
at para. 7.240.
---------------------------------------------------------------------------
Commerce's Response:
Commerce's AD statute and regulations are in full compliance with
the United States' WTO obligations. Commerce is permitted under U.S.
law and the AD Agreement to consider factors that may objectively
distort costs of production. There is no obligation for WTO members
enshrined in any of the WTO Agreements to ignore price or cost
distortions caused by another government's decision to ignore or permit
a company to pollute, use slave labor, or discriminate in violation of
a country's own laws, or in absence of laws altogether, and therefore,
benefit from cheaper production costs. As we indicated above, Commerce
is codifying its consideration of the appropriate surrogate values,
benchmark prices, or input cost in an PMS analysis. These
considerations are not intended to impose any standards on any country.
Indeed, in the context of a surrogate value (which involves using
values from other countries for a non-market economy analysis) and less
than adequate remuneration analysis (which involves using prices from
other countries to determine an appropriate benchmark value), the
rejection of certain surrogates or benchmarks will have no bearing on
the countries from which those prices or costs originate in any way.
Thus, it is hard to see how such an analysis could ``punish'' the
source countries, as stated by some in their comments. Further, for
both a surrogate value and PMS analysis, Commerce's analysis under
Sec. Sec. 351.408 and 351.416 will normally be limited only to
``significant'' inputs, reflecting that Commerce's analysis will be a
targeted analysis focused only on certain alleged ``weak, ineffective,
or nonexistent'' protections and their impact on certain costs of
production, and no more.
Finally, we disagree that other WTO Agreements address Commerce's
concerns in this regard in any way. These modifications to the trade
remedy regulations address distortions in costs or prices caused by
weak, ineffective, or nonexistent protections, and other WTO Agreements
do not address such cost or price distortions.
F. Commerce need not reward more stringent protections by foreign
governments.
Two commenters requested that when Commerce conducts its surrogate
value analysis, if it finds that a potential surrogate value has
stronger environmental or other such protections than other potential
surrogate values, Commerce should ``make an allowance'' for that--
essentially improving chances for use of that surrogate value over
others. They make the same suggestion
[[Page 20787]]
for potential benchmark prices. Likewise, they suggested an offset to
an input cost in a PMS analysis to reflect strong social welfare
protections. They comment that doing so would be consistent with the
United States' support of renewable energy and climate change reduction
programs in other capacities.
Commerce's Response:
Commerce declines to elevate the use of certain potential surrogate
values or benchmark prices over others based on, for example, their
effective protection of the environment, in this rule. One of
Commerce's ultimate goals in this exercise is to select surrogate
values which are comparable to the factors of production reported by
the non-market economy. If a value is distorted, that may remove it
from consideration. However, Commerce is under no obligation to provide
offsetting extra credit based on excellent environmental, labor, human
rights, or property rights (including intellectual property)
protections. The same is equally true in selecting benchmark prices and
determining if the costs of an input as reported are reasonable.
Indeed, if anything Commerce believes that such an adjustment to those
values could create distortions rather than avoid them.
G. External concerns do not impact these regulations.
Some parties commented that United States businesses are actively
working to raise standards and protections in other countries, and they
suggested that these regulations should be withdrawn because other
countries might become frustrated and stymie those efforts. Other
parties stated that various environmental programs in other countries
meet the same goals as Commerce supposedly intends in these
regulations, and thus Commerce should not counteract those programs
when given the opportunity, consistent with the proposed regulations.
Commerce's Response:
As noted above, Commerce's concerns in issuing these regulations
are to use surrogate values and benchmark prices not distorted by weak,
ineffective, or nonexistent property (including intellectual property),
human rights, labor, or environmental protections. Likewise, it is also
Commerce's intention to not use input prices distorted by a PMS. The
efforts by outside parties and governments to strengthen such
protections in other countries are not at issue in these regulations,
and therefore, do not affect the content of these regulations.
H. Commerce will not codify additional procedures suggested by
certain commenters.
Certain commenters requested that in determining the existence of
foreign government inaction in Sec. Sec. 351.408, 351.511, and
351.416(g)(10) and (11), Commerce should directly address the burden of
proof in the regulation, describe how much the foreign government will
be required to participate, address how Commerce will consider
information on the record, and indicate if it intends to verify claims
of government inaction.
Commerce's Response:
When selecting a surrogate value or benchmark price, an interested
party alleging price or cost distortions has an obligation to place
information on the record to substantiate its claims. Likewise, the
same holds true if a party argues the existence of a PMS or if
government inaction is at issue. We see no need to add further detail
on the need for parties to provide Commerce with arguments and
information on the record.
With respect to how Commerce will consider such information, again,
it will weigh all of the information before it and make a determination
as to the appropriate surrogate value or benchmark price or determine
if a PMS exists.
Finally, under the statute, verification is only required in
investigations. However, Commerce may determine that verification is
warranted in other segments of a proceeding. Accordingly, Commerce has
determined not to codify a verification requirement in the regulation,
recognizing that in some situations, the government inaction and its
effect on prices or costs is evident, and little more is needed on the
record, while in others, the agency may need to gather more
information, and perhaps even conduct a verification, to fully
understand the objective facts of the alleged situation.
I. Commerce will not include additional, alternative language
suggested by commenters in the regulation.
Two commenters requested that Commerce should ``clarify'' in
Sec. Sec. 351.408 and 351.511 that interested parties are only
required to show that government inaction relating to a significant
input, or a labor input, existed and that there were ``depressed or
suppressed prices'' for that input--not that parties must actually
prove that the government inaction caused the depressed or suppressed
prices. They suggested that Commerce should specify in the regulations
that interested parties need only provide information available to
them, and that rather than demonstrating that an ``impact'' on prices
exists, as set forth in the proposed Sec. 351.511(a)(2)(v), Commerce
should use language about prices being ``suppressed or depressed.''
They also commented that Commerce should revise its language to only
require that an interested party submit the information which is ``best
available'' to them in making an allegation of distortions--not
``sufficient information'' as is currently set forth also in Sec.
351.511(a)(2)(v). Likewise, another commenter suggested that Commerce
should be flexible with interested parties and allow them to submit
reports and other third-party information that may not be
contemporaneous, but still supports their claims.
Commerce's Response:
Commerce will not modify the language in either Sec. 351.408 or
Sec. 351.511 as requested. First, we do not agree that ``best
available information'' is the correct standard for an allegation under
these regulations. If an interested party believes that government
inaction exists, and may have an impact on prices or costs, but does
not provide sufficient information to support such an allegation on the
record, Commerce will not pursue the issue further. An allegation of
cost or price distortions caused by weak, ineffective, or nonexistent
protections must be accompanied by sufficient information for Commerce
to determine that the allegation is reasonable. A mere allegation with
little supporting information will not suffice, even if that is the
only information available to the interested party making the
allegation.
With respect to the types and quality of documents Commerce might
accept for these allegations, we have also decided not to codify such
requirements at this time because, again, these are decisions made on a
case-by-case basis. Additionally, Commerce must maintain its own
flexibility in determining if the evidence of alleged government
inaction and distorted benchmark prices and surrogate values is
acceptable and sufficient to warrant further Commerce action. Instead,
for both Sec. 351.408(d)(1)(i) and (ii), we have added the words ``the
Secretary determines'' to clarify that it is Commerce, and not the
alleging parties, who will determine if the evidence is sufficient on
the record to support the alleged claim. Further, for Sec.
351.511(a)(2)(v) we have rearranged some of the text to make it clearer
that this provision pertains specifically to the Secretary's authority
to exclude
[[Page 20788]]
certain proposed benchmark prices from its analysis.
With respect to the need to use the phrase ``suppressed or
depressed'' prices or costs rather than the term ``impact'' in Sec.
351.511 or ``appropriate'' in Sec. 351.408, though we agree that
Commerce is primarily concerned about prices or costs being lowered by
distortions caused by government inaction, and therefore, in most if
not all cases under these provisions, Commerce will be focused on
``suppressed or depressed prices,'' we cannot ignore the fact that
artificially higher prices can be just as distortive as suppressed or
depressed prices. In accordance with its regulations, Commerce rejects
potential surrogate values and benchmark prices when they are distorted
and not just when they are suppressed or depressed. Accordingly, it
would be illogical for Commerce to use a surrogate value or benchmark
price which it determines is over-inflated for a reason(s) based on
record evidence and to revise the regulatory language to permit the
usage of distorted high prices. Accordingly, we are not making the
suggested revisions.
J. Commerce will not further refine the term ``limited number'' or
remove the restriction to ``significant inputs'' in Sec. 351.408(d).
Proposed Sec. 351.408(d) limited the surrogate values that
Commerce will consider disregarding based on an allegation of foreign
government inaction to only ``significant inputs or labor'' and when
the proposed surrogate value is ``derived from one country or an
average of values from a limited number of countries.'' \75\ In the
Proposed Rule, Commerce explained that such limitations are appropriate
because it anticipated that such an analysis could be resource
intensive.\76\ Commerce explained that it anticipated that the phrase
``limited number'' would ``normally involve averaged values that are
sourced from no more than three countries.'' \77\
---------------------------------------------------------------------------
\75\ See Proposed Rule, 88 FR 29874.
\76\ Id., 88 FR 29861.
\77\ Id., at n.41.
---------------------------------------------------------------------------
One commenter suggested that Commerce should more broadly define
the term ``limited number'' to not preclude a scenario where there may
be averaged values from dozens of countries, but where a significant
percentage of the value is derived from a limited number of countries.
Other commenters requested that Commerce should not limit its analysis
in a PMS allegation to ``significant inputs'' only, and their
suggestions equally apply to the same restriction placed in Sec.
351.408(d).
Commerce's Response:
We have determined not to remove the restriction of applying this
provision only to ``significant inputs or labor,'' nor will we remove
the restriction in the PMS regulation. In both provisions, an analysis
of the circumstance at issue (i.e., government inaction resulting in
weak, ineffective, or nonexistent protections) would require an
analysis of the facts and the law. Furthermore, it would require in
both provisions an analysis of the costs at issue and determination as
to whether they are distorted or likely distorted. We do not anticipate
that it would be reasonable for Commerce to conduct such an analysis
for all potential surrogate values in a given case. Accordingly, we are
not removing the restrictions set forth in the proposed regulation.
With respect to the definition of ``a limited number,'' we have not
codified that term because we think that it should be left to Commerce
on a case-by-case basis to determine how many countries may be at issue
in an allegation, the nature of the alleged government inactions, and
if an average of values will include countries with both government
inaction allegations and no government inaction allegations. It is
still Commerce's understanding that even three countries might be more
than a ``limited number'' if the allegations of government inaction
pertain to all three. Accordingly, we have made no change in this
regard for purposes of the final rule.
K. Commerce will not issue a regulation in the final rule that
countervails government inaction with respect to property (including
intellectual property), human rights, labor, and environmental
protections.
Two commenters suggested that Commerce should take the proposed
government inaction regulations and adapt them into the CVD law. They
commented that weak and ineffective government protections should be
countervailed as a subsidy which ultimately injures United States
industries.
Commerce's Response:
The purpose of these regulations is not to treat weak, ineffective,
or nonexistent government protections as a countervailable subsidy, but
instead to consider that the lack of protections has real-world impacts
on costs of production and prices, and reject the use of distorted
surrogate values, benchmark prices, or input costs if Commerce
determines that government inaction resulted in such distortions. We,
therefore, are not adopting this suggestion in the final rule.
L. Commerce has added text to Sec. 351.416(d)(3)(v) to clarify
that if Commerce looks to other countries to determine if certain
protections are weak, ineffective or nonexistent, Commerce will
normally consider countries that are economically comparable to analyze
the cost effects of government inaction.
Certain commenters expressed concerns with proposed Sec.
351.416(d)(2)(v), a provision which stated that Commerce may look to
information in other countries to determine if property (including
intellectual property), human rights, labor, or environmental
protections in the subject country are weak, ineffective, or
nonexistent. In doing so, the proposed provision stated that Commerce
may consider if those protections exist in those other countries and
are effectively enforced there.
One commenter suggested that the provision should be withdrawn
because it was unclear and not transparent as required by the WTO
Agreements. That commenter requested that Commerce should remove words
such as ``weak'' and ``ineffective,'' as they are too general and
provide Commerce with too much discretion. Further, the same commenter
suggested that because determinations of distortion are made on a case-
by-case basis, Commerce should not rely on its past analysis in other
cases under this provision to give it any guidance, as every government
action and inaction is unique and should be considered so in every
case.
Another commenter expressed concerns that nothing in United States
law permits Commerce to look to entirely different countries and
determine whether actual market prices would have been different if the
country under examination had, hypothetically, followed the policies
and practices of those different countries.
Commerce's Response:
Upon consideration of the general concerns about Commerce's
consideration of weak, ineffective, and nonexistent protections, as
well as the claims specific to this provision, Commerce has determined
that further clarification is necessary in the regulation. The proposed
Sec. 351.416(d)(2)(v) is now Sec. 351.416(d)(3)(v) and Commerce has
revised the regulation to include language which states: ``For purposes
of this paragraph (d)(3)(v), the Secretary will normally look to cost
effects on same or similar merchandise produced in economically
comparable countries
[[Page 20789]]
in analyzing the impact of such protections on the cost of
production.'' Commerce anticipated that an analysis under this
provision would cover same or similar merchandise, and would normally
be limited to economically comparable countries, but never stated that
in the Proposed Rule. Accordingly, we received concerns from various
parties that Commerce would look to the United States or similar
countries to determine ``acceptable'' property (including intellectual
property), human rights, labor, or environmental protections, even when
the country at issue is a developing country and in no way economically
comparable to the United States. Such an interpretation of that
provision was never the agency's intention.
For other alleged PMS allegations, Commerce does not intend to look
to the experience of other governments. However, Commerce continues to
find that if a country has wide-spread pollution, child labor, slavery,
or abuses of intellectual property or other property laws, it would be
illogical to compare labor values, for example, within the same country
to decide if a particular surrogate is distorted or useable.
Nonetheless, it would be equally illogical to look at values of
products in other countries that are not the same or similar to the
input or subject merchandise at issue. Furthermore, the experiences of
foreign governments may differ greatly, but if economies are
comparable, it is reasonable to believe that a comparison of property,
human rights, labor, and environmental protections on the cost of
production would be more appropriate than if the two economies were
vastly different. Commerce disagrees with the commenter who stated that
Commerce does not have the authority to use such an analysis to
consider if weak, ineffective, or nonexistent protections distorted
costs, but we do agree that in conducting such an analysis, Commerce
should be aware of both the similarities and the differences of the
subject country and the country being considered for comparison
purposes.
Accordingly, Commerce has retained the language covering this
provision in the Proposed Rule, but Commerce has added the
aforementioned sentence to provide greater clarity on how the analysis
under this provision would be conducted.
M. Commerce has added language to Sec. 351.408(d)(1)(i) and (ii)
to clarify that it is Commerce who determines if a value is derived
from a country that provides subsidies, that was subject to an AD
order, or is from a source with weak, ineffective, or nonexistent
protections.
In the proposed language for Sec. 351.408(d)(1)(i) and (ii), the
provisions stated that Commerce could reject the use of a potential
surrogate value if: (1) it was derived from a country that provides
broadly available export subsidies; (2) it was shown to be subsidized
in that country; (3) it was subject to an AD order; or (4) it was
derived from a facility, party, industry, intra-country region or a
country with certain weak, ineffective, or nonexistent protections.
Upon consideration of the language used in those proposed provisions,
Commerce concluded that the text at issue presumed that parties would
understand that it's Commerce who determines that one of those factors
applies. To provide clarification on this point in the final
regulations, Commerce has modified both paragraphs to note that
Commerce alone decides that the proposed surrogate value is derived
from such sources.
7. Commerce has substantially revised proposed Sec. 351.416, its
PMS regulation, in response to several comments.
On November 18, 2022, Commerce issued an advanced notice of
proposed rulemaking (PMS ANPR) in which it explained that the 2015 TPEA
amended section 773(e) of the Act to provide that if ``a particular
market situation exists such that the cost of materials and fabrication
or other processing of any kind does not accurately reflect the cost of
production in the ordinary course of trade,'' Commerce ``may use
another calculation methodology under this subtitle or any other
calculation methodology.'' \78\ Commerce recognized that the Act did
not define a PMS and did not identify the information which Commerce
should consider in determining if a market situation exists or is
particular. Commerce stated that it hoped to provide some clarity on
this issue in future regulations, which was why it was issuing the
advanced notice of proposed rulemaking.
---------------------------------------------------------------------------
\78\ See PMS ANPR, 87 FR 69234 (citing section 773(e) of the
Act).
---------------------------------------------------------------------------
In the PMS ANPR, Commerce referenced the limited legislative
history on the provision, in which it highlighted that a member of the
U.S. House of Representatives argued that the legislation would
``empower'' Commerce to be able to disregard prices or costs of inputs
that foreign producers purchased if Commerce concluded that those input
values were ``subsidized'' or ``otherwise outside the ordinary course
of trade.''\79\ Commerce also cited statements made on the U.S. Senate
floor by a U.S. Senator stating that the legislation would help stop
U.S. workers and manufacturers from ``being cheated'' by foreign
industries that were ``not playing fair'' and ``illegally subsidizing''
the production of certain products.'' \80\ Commerce accordingly invited
public comments on various factors it might consider in preparing a
regulation that would address ``the information which Commerce should
consider, or need not consider, in determining a PMS that distorts
costs of production.'' \81\ Commerce received 19 comments in response
from the public on this issue, from which it took many ideas
incorporated in the draft regulations, and others it addressed or
rejected in the preamble of the Proposed Rule.\82\
---------------------------------------------------------------------------
\79\ Id., 87 FR 69235 (citing the Congressional Record--House,
H4666, H4690 (June 25, 2015)).
\80\ Id. (citing the Congressional Record--Senate, S2899, S2900
(May 14, 2015)).
\81\ Id.
\82\ See Proposed Rule, 88 FR 29861-67, 29875-77.
---------------------------------------------------------------------------
Commerce received a significant amount of commentary on its
proposed Sec. 351.416 in the Proposed Rule, covering both sales and
cost-based PMS decisions. Commerce considered each comment and has
modified its proposed regulation in response to those comments.
Further, where Commerce disagreed with arguments made by the
commenters, it has addressed those comments below.
A. Commerce has the authority to issue its proposed PMS regulation.
Several commenters supported Commerce's authority to issue a
regulation that addresses both sales-based and cost-based PMS analyses
and thanked the agency for its attempts to provide clarity on the
issue, stating their belief that the proposed regulations would allow
for more effective implementation and enforcement of the cost-based PMS
provision in the Act. One commenter cited additional legislative
history for the concept that the amended trade laws were intended to
give Commerce ``flexibility in calculating a duty that is not based on
distorted pricing or costs'' in any situation ``when a PMS exists.''
\83\ One commenter expressed concerns that Commerce's proposed
regulations unnecessarily limit its authority to make cost-based PMS
determinations in listing sources of information which it may or may
not consider in a given case.
---------------------------------------------------------------------------
\83\ See S. Rep. No. 114-45 (2015) (Senate Finance Committee
Report), at 37.
---------------------------------------------------------------------------
Certain commenters expressed concerns, however, that Commerce may
not have the authority under the WTO AD Agreement, specifically under
Article 2.2.1.1 of the AD Agreement, to
[[Page 20790]]
address distorted costs through a PMS. Article 2.2.1.1 of the AD
Agreement states that ``costs shall normally be calculated on the basis
of records kept by the exporter or producer under investigation,
provided that such records are in accordance with the generally
accepted accounting principles of the exporting country and reasonably
reflect the costs associated with the production and sale of the
product under consideration.'' \84\ In a dispute brought before the
Appellate Body, the European Union determined that the cost of soybeans
in the production of biodiesel from Argentina was unreasonable because
the domestic prices of soybeans, the main raw material used by
biodiesel producers in Argentina, were found to be artificially lower
than international prices due to distortions created by the Argentine
export tax system.\85\ It therefore disregarded those costs in its AD
calculations. The Appellate Body concluded that this finding, alone,
was ``not, in itself, a sufficient basis under Article 2.2.1.1'' to
disregard those costs ``when constructing the normal value of
biodiesel.'' \86\ The Appellate Body stated that an investigating
authority was ``free to examine the reliability and accuracy of costs
recorded in the records'' of a producer to determine if all costs were
captured, were over-or-under-stated, or were not at arm's length,
thereby calling into question the reliability of the reported
costs.\87\ However, if the company's books and records reflected those
costs accurately, ``within acceptable limits,'' even if the costs
themselves were distorted by various factors, the Appellate Body
concluded that Article 2.2.1.1 did not permit investigating authorities
to reject the use of those costs as ``unreasonable.'' \88\ A subsequent
Panel adopted the Appellate Body's interpretation of Article 2.2.1.1 of
the AD Agreement and found that the European Union's rejection of
regulated natural gas input costs from Russia (which the European Union
concluded were far below market prices paid in the unregulated Russian
natural gas markets) in determining the costs to construct the normal
value of welded tubes and pipes from Russia was not in accordance with
Article 2.2.1.1, because the Appellate Body had concluded that the
``reasonably reflect the costs'' language pertains to the
reasonableness of a producer's records, and not the reasonableness of
the producer's costs themselves.\89\ The commenters pointed to these
cases and to Appellate Body and Panel conclusions in arguing that
Commerce's statute and proposed regulations were inconsistent with the
Appellate Body's interpretation of the AD Agreement. On that basis,
they suggested that Commerce should not issue a final PMS regulation
codifying and clarifying its cost-based PMS practice.
---------------------------------------------------------------------------
\84\ See Article 2.2.1.1 of the AD Agreement.
\85\ See European Union--Anti-Dumping Measures on Biodiesel from
Argentina, WT/DS473/AB/R (October 6, 2016), at para. 6.54.
\86\ Id. at para. 6.55.
\87\ Id. at para. 6.41.
\88\ Id.
\89\ See European Union--Cost Adjustment Methodologies and
Certain Anti-Dumping Measures on Imports from Russia (Second
Complaint), WT/DS494/R (July 24, 2020), at paras. 7.229-7.253.
---------------------------------------------------------------------------
Commerce's Response:
As a preliminary matter, Commerce is issuing its PMS regulations in
accordance with its statutory authority as the administrator and
enforcer of certain trade remedies codified in the Act. That includes
section 773(e) of the Act, which directs Commerce to use another
calculation methodology if it determines ``that a particular market
situation exists such that the cost of materials and fabrication or
other processing of any kind does not accurately reflect the cost of
production in the ordinary course of trade.'' To the extent that the
commenters believe that Commerce's proposed regulations are
inconsistent with the text of the AD Agreement, the Act itself is
consistent with U.S. obligations under the AD Agreement. As the
proposed regulations are in full compliance with the Act, we do not
believe this line of argument calls into question our ability to issue
regulations on the matter.
With respect to the United States' WTO obligations, Commerce
disagrees that the United States is prohibited by the AD Agreement from
considering and addressing costs of production distorted by only
certain government actions or inactions, but not others, in its AD
calculations. Commerce is permitted under U.S. law to consider factors
which may distort costs of production if record evidence indicates the
existence of such distortions. Likewise, Commerce is not prohibited by
the WTO Agreements to consider certain actions or inactions taken by
governments or other organizations that distort prices or costs in the
authorities' calculations through a PMS analysis. Neither the Act nor
the AD Agreement limit departures from the use of recorded costs in
determining normal value to circumstances where there is an inaccuracy
or unreasonable methodology or value used in determining the costs of
production recorded in the books and records of the subject producer.
Rather, as the TPEA makes clear, departures are warranted when the
costs themselves, however recorded, do not accurately reflect the cost
of production in the ordinary course of trade. The AD Agreement is
intended to help provide transparency and accuracy to AD calculations,
not to circumscribe the price and cost distortions which WTO members
should ignore or reject.
Finally, with respect to the concerns that Commerce has limited its
statutory authority through the proposed regulations, we do not believe
that the regulations curtail our authority. Instead, they notify the
public of the information that is normally relevant and significant to
our PMS determinations.
B. The Act permits Commerce to address a cost-based PMS without
also being required to address a sales-based PMS.
Three commenters took issue with Commerce's interpretation of the
Act in the Proposed Rule, as reflected in Sec. 351.416, that addresses
sales-based particular market situations separately from cost-based
particular market situations. Citing various CIT decisions, they
commented that it is not enough under the Act for Commerce to find that
the ``cost of materials and fabrication or other processing of any kind
does not accurately reflect the cost of production in the ordinary
course of trade,'' and that for Commerce to ``use another calculation
methodology'' under section 773(e) of the Act, Commerce is required to
reach further legal and factual conclusions that the perceived
distortion ``prevents a proper comparison'' to the U.S. price, under
sections 771(15)(C) and 773(a)(1)(B)(ii)(III) of the Act. They
suggested that Commerce's interpretation is ``inconsistent'' with the
governing statute and that the only distortion which Commerce can
address is a distortion at such a level that the distortion prevents a
proper price comparison with home market or third-country sales.
Key to their concern are the examples of ``sales and transactions''
listed in section 771(15) of the Act which defines ``ordinary course of
trade.'' Under the definition section of the Act, ``ordinary course of
trade'' means ``the conditions and practices which, for a reasonable
time prior to the exportation of the subject merchandise, have been
normal in the trade under consideration with respect to merchandise of
the same class or kind.'' \90\ That language is consistent with
Commerce's interpretation of the
[[Page 20791]]
Act, and the commenters do not suggest otherwise. However, after the
definition, it states that the administering authority ``shall consider
the following sales and transactions, among others, to be outside the
ordinary course of trade,'' and lists disregarded sales, disregarded
transactions, and ``{s{time} ituations in which the administering
authority determines that the particular market situation prevents a
proper comparison with the export price or constructed export prices.''
\91\ The commenters pointed out that in a Federal Circuit decision,
Hyundai Steel Co., \92\ the court affirmed a CIT holding that tied a
sales-based PMS with a cost-based PMS decision. The Federal Circuit in
Hyundai Steel Co. further held that the ``TPEA amendment to section
1677(15) linked the constructed value subsection with `situations in
which the administering authority determines that the particular market
situation prevents a proper comparison with the export price or the
constructed export price.' '' \93\ The commenters therefore suggested
that for Commerce to find and adjust for a cost-based PMS, it must
determine that the cost distortions create a price-based PMS that
prevents a proper comparison between the normal value and the export
price or constructed export prices.
---------------------------------------------------------------------------
\90\ See section 771(15) of the Act.
\91\ See section 771(15)(C) of the Act.
\92\ See Hyundai Steel Co. v. United States, 19 F.4th 1346,
1353-54 (Fed. Cir. 2021) (Hyundai Steel Co.).
\93\ Id.
---------------------------------------------------------------------------
In addition, one of the commenters expressed concerns that because
Article 2.2 of the AD Agreement only speaks to a PMS which addresses a
situation in which ``sales do not permit a proper comparison,'' the
proposed regulations appear to violate the United States' WTO
obligations.
Commerce's Response:
Commerce disagrees with the position taken by the three commenters
that Congress intended for Commerce to address a cost-based PMS that
distorts costs of production only if it also decided that the PMS would
also prevent a proper comparison of normal value with the export price
or constructed export price. Commerce does not believe that the Act
creates such an obligation and has never applied its cost-based PMS
analysis in that manner in any of its proceedings.
First and foremost, the second sentence of section 771(15) of the
Act, which lists examples of sales or transactions that are not in the
``ordinary course of trade'' is not exhaustive. By its terms, the
statute states that Commerce ``shall consider the following sales and
transactions, among others, to be outside the ordinary course of
trade'' (emphasis added), and then lists three examples, including a
sales-based PMS.\94\ Accordingly, a determination by Commerce that
certain costs of production are not reflective of the ordinary course
of trade (i.e., not ``normal in the trade under consideration with
respect to merchandise of the same class or kind'') could also result,
in the words of the Federal Circuit, ``in situations in which the
administering authority determines that the particular market situation
prevents a proper comparison with the export price or the constructed
export price.'' \95\ For this reason we have included paragraph (h) in
Sec. 351.416, which states that a cost-based PMS may contribute to a
PMS that prevents or does not permit a proper comparison of home market
or third-country sales prices with export prices or constructed export
prices. However, because a cost-based PMS could contribute to a sales-
based PMS, which the Federal Circuit acknowledged was possible due to
the TPEA amendments to section 771(15) of the Act,\96\ that possibility
does not logically dictate that Commerce cannot otherwise address costs
distorted by a PMS. Nor does the link between sections 773(e) and
771(15)(C) of the Act imply that Commerce's ability to ``use another
calculation methodology'' under section 773(e) of the Act when it
discovers distorted costs of production is severely curtailed only to
situations in which Commerce conducts a second analysis and makes a
second determination that the prevention of a proper comparison exists.
The statute simply does not require such an extensive and multi-tiered
analysis in every case in which Commerce determines the existence of a
cost-based PMS.
---------------------------------------------------------------------------
\94\ See section 771(15) of the Act.
\95\ See Hyundai Steel Co., 19 F.4th at 1353-54.
\96\ Id., 19 F.4th at 1354.
---------------------------------------------------------------------------
In addition, the commenters' interpretation conflicts with
Congress' intention in adding the cost-based PMS provision in the
statute. As explained above, Congress expressed that it intended to
give Commerce ``flexibility in calculating a duty that is not based on
distorted pricing or costs'' in any situation ``when a PMS exists,''
\97\ and Members of Congress expressed the hope that the additions to
the Act would give Commerce the ability to address distorted costs
incurred by foreign producers who were ``not playing fair.'' \98\ The
commenters' interpretation of the Act would allow Commerce to address
cost distortions only in a very limited subset of cases, contrary to
that intent.\99\ Furthermore, if Commerce could only make an adjustment
after finding a sales-based PMS in every case, it would limit
Commerce's flexibility to define what conditions lead to a PMS. That is
counter to Congress' intent, as shown through the legislative history
of the TPEA, where Members of Congress expressed a desire to give
Commerce greater flexibility, instead of limiting its flexibility, in
calculating a duty not based on distorted pricing or costs. Commerce
disagrees that such an interpretation of the Act is reasonable, as it
would lead to a result inconsistent with the very purpose of the
addition of the provision.\100\ Accordingly, we are not revising the
regulations to reflect such an interpretation of the Act.
---------------------------------------------------------------------------
\97\ See Senate Finance Committee Report at 37.
\98\ See Congressional Record-Senate, S2899, S2900 (May 14,
2015)).
\99\ Congress has recognized that Commerce may adjust its AD
calculations for cost distortions in a few sections of the Act,
including Commerce's ability to consider the existence of a cost-
distorting PMS in its calculations. For example, section
773(f)(1)(A) of the Act states that in calculating costs of
production, costs ``shall normally'' be calculated based on the
records of the exporter or producer of the merchandise, if such
records are kept in accordance with the generally accepted
accounting principles of the exporting and producing country and
``reasonably reflect the costs associated with the production and
sale of the merchandise.'' Commerce's long-standing interpretation
of that provision, as affirmed by the Federal Circuit in Thai
Plastic Bags, has been to adjust a company's reported costs of
production if Commerce determines that record evidence does not show
that the reported costs ``reasonably reflect'' the actual cost of
production. See Thai Plastic Bags Indus. Co. v. United States, 746
F. 3d 1358, 1363-69 (Fed. Cir. 2014).
In Thai Plastic Bags, the Federal Circuit affirmed Commerce's
determination that the respondent's reported labor and overhead
costs did not ``reasonably reflect'' the company's production costs
and held that Commerce's reallocation of the reported costs ``to
diminish'' the cost ``distortions'' reflected in the company's books
and records was supported by substantial evidence on the record and
in accordance with law.
\100\ See Church of the Holy Trinity v. United States, 143 U.S.
457, 459 (1892); and Public Citizen v. U.S. Dep't of Justice, 491
U.S. 440, 454 (1989) (discouraging an interpretation of a statute
which would lead to unreasonable, odd, and absurd results that are
inconsistent with the intent of Congress). To the extent that
commenters cite language from certain CIT decisions suggesting
possible alternative interpretations of the Act, those
interpretations were made within the restrictions of limited
arguments and specific facts in the cases before the Court. These
regulations are the first instance in which Commerce has provided an
extensive analysis of the history of the relevant statutory
provisions and the Federal Circuit's PMS holdings.
---------------------------------------------------------------------------
Finally, we agree that Article 2.2 of the AD Agreement pertains to
the ability of administering authorities to address sales-based
particular market situations, just as we agree that Article 2.2.1.1 of
[[Page 20792]]
the AD Agreement states that costs shall normally be calculated on the
basis of records kept by the exporter or producer under investigation,
provided that such records reasonably reflect the costs associated with
the production and sale of the product under consideration. Just
because one provision of the AD Agreement recognizes that an
administering authority may address a PMS which does not permit a
proper comparison of prices, does not mean that other types of
particular market situations which result in cost distortions cannot
also be addressed by administering authorities consistent with members'
WTO obligations.
C. Certain language in the proposed Sec. 351.416 required revision
for consistency and clarification.
In different claims about various provisions in the proposed
regulation, several commenters expressed concerns about word choices
and inconsistent language and terms being applied in proposed Sec.
351.416. We have considered those concerns and agree each of the
different sections contained certain terminology and phrases that
should be revised and clarified. Accordingly, for each section we will
describe the significant revisions made from the Proposed Rule below.
i. Section 351.416(a)--the introduction of the regulation and
definition of PMS.
Revisions:
In revised paragraph (a), Commerce has clarified that we are
defining both types of particular market situations. For a sales-based
PMS, we have clarified that a PMS can be a PMS that prevents or does
not permit a proper comparison of sales prices, as set forth in
sections 773(a)(1)(B)(ii)(III) and 773(a)(1)(C)(iii) of the Act. A
cost-based PMS is defined as a PMS that contributes to the distortion
of the cost of materials and fabrication or other processing of any
kind, such that the cost of production of the merchandise subject to an
investigation, suspension agreement, or AD order does not accurately
reflect the cost of production in the ordinary course of trade, as set
forth in section 773(e) of the Act.
In addition, numerous commenters requested that Commerce remove the
term ``distinct'' from paragraph (a), (c), (d), and (e), and we agree
with that request. The commenters suggested that nothing in the Act
requires a market situation to be ``distinct'' from other circumstances
or sets of circumstances in other countries, for example, and they fear
that courts will misinterpret such language as requiring an additional
obligation or analysis. They point out that, just as Commerce explained
in the Proposed Rule that a market situation need not be ``unique'' or
``excessively narrow in its application'' \101\ to be particular, there
is also no statutory requirement that a market situation must be
``distinct.'' We understand and share those commenters' concerns and
have therefore removed the term ``distinct'' from the final rule.
---------------------------------------------------------------------------
\101\ See Proposed Rule, 88 FR 29864.
---------------------------------------------------------------------------
ii. The evidentiary standard and requirements for filing a PMS
allegation Sec. 351.416(b).
Revisions:
In revised paragraph (b) of Sec. 351.416, Commerce has clarified
that if a PMS allegation has been made previously in the same
proceeding, or in a previous or ongoing different proceeding, the
interested party must identify the facts and arguments distinguishable
from those provided in the other segment or proceeding. To prevent any
confusion, because we have removed the word ``distinct'' in paragraphs
(a), (c), and (d) of the regulation, as described above, we have
revised the term distinct as used in proposed paragraph (b) to the word
``distinguishable.''
iii. Covering sales-based PMS determinations, including examples of
a sales-based PMS and the possible use of constructed value if Commerce
determines a sales-based PMS exists.
Revisions:
In revised paragraph (c), Commerce has explained that its analysis
is specific to the period of investigation or review and that it will
consider both circumstances and sets of circumstances in the home
market to determine if a PMS prevents or does not permit a proper
comparison of home market prices with export or constructed export
prices.
iv. Covering cost-based market situation determinations, including
the analysis applied by Commerce, a description of information it
normally finds beneficial in making such a determination, and a
description of information it finds to be of little value in most
cases--Sec. 351.416(d).
Revisions:
In revised paragraph (d) of Sec. 351.416, Commerce has clarified
that a cost-based PMS analysis is specific to a period of investigation
or review and that its analysis is conducted in three parts. First,
Commerce determines if a circumstance or set of circumstances existed
during the period of investigation or review that may have impacted the
costs of producing subject merchandise, or costs or prices of inputs
into the production of subject merchandise. Second, Commerce considers
if the cost of production was distorted and, therefore, did not
accurately reflect the costs of production of subject merchandise in
the ordinary course of trade during that period of time. Third,
Commerce determines if it is more likely than not that the circumstance
or set of circumstances at issue contributed to the distortion of the
costs of production of subject merchandise. If all three of these
factors exist, Commerce will determine the existence of a cost-based
PMS.
Furthermore, in a new paragraph (d)(2) of Sec. 351.416, Commerce
moved the references to the ``likelihood'' standard from each of the
proposed examples in paragraph (g) in the Proposed Rule and placed that
process of analysis in one section applicable to all cost-based PMS
allegations. The final regulation explains that in determining if a
circumstance or set of circumstances contributed to the distortion of
the costs of subject merchandise, Commerce will weigh the information
on the record and determine whether it is more likely than not that the
circumstances or set of circumstances at issue contributed to observed
cost distortions of subject merchandise during the period of
investigation or review. This is consistent with Commerce's standard
analysis of many facts and factors in its AD procedures. It is of
particular importance to an analysis such as this one in which certain
actions or inactions may impact costs of production, but proving a
direct cause and effect relationship may be extremely difficult, if not
impossible. Accordingly, a weighing of the record information and a
determination that a PMS more likely than not contributed to a
distortion of costs is the logical standard of analysis and satisfies
the intent of Congress in implementing the cost-based PMS provision in
the Act.
An additional modification made to paragraph (d) of Sec. 351.416,
and described above, is language included in paragraph (d)(3)(v) which
states that if Commerce considers an allegation that property
(including intellectual property), human rights, labor, or
environmental protections in the subject country are weak, ineffective,
or nonexistent, then Commerce may determine that it is appropriate to
look to the enforcement of such protections in other countries to
determine if a cost-based PMS existed during the period of
investigation or review. The additional language states that, for
purposes of that provision, the Secretary will normally look to cost
effects on same or similar merchandise produced in economically
comparable countries in analyzing the impact of such protections on the
cost
[[Page 20793]]
of production. This consideration was always the intention of the
agency, but a few commenters expressed concerns that Commerce would
consider other countries with very different economies in its analysis.
Accordingly, the agency has determined that this additional language
should be added to the regulation to clarify that normally Commerce
will look to countries with comparable economies in determining the
effects of such enforced protections.
In addition, in response to requests from several commenters
pertaining to proposed paragraph (d)(2)(ii), we have removed the term
``considerably'' from paragraph (d)(3)(ii) of Sec. 351.416 because, as
those commenters suggested, if Commerce will consider reports and
documentation that indicate lower prices for significant inputs would
likely result from certain governmental actions or inactions, there is
no requirement in the Act that those lower prices be ``considerably
lower,'' only that those prices not reflect costs or prices in the
ordinary course of trade (i.e., that they are distorted).
Next, in paragraph (d)(4) of Sec. 351.416, Commerce has revised
the introductory language of proposed paragraph (d)(3) stating that
``it will not be required'' to consider certain information, to an
explanation that given the nature of the listed information, even if
that information is all correct, that the provision of such information
on the record will not preclude Commerce from making a finding of a
cost-based PMS. We agree with those who commented that Commerce does
not have the authority to ignore record evidence, and the proposed
language raised concerns as to Commerce's intentions. However, the
purpose of this provision was, and continues to be, to provide guidance
that there are sources of information and related arguments which
parties have filed and raised with Commerce in the past which, in its
experience, generally do not assist Commerce's analysis. For example,
in the AD investigation of biodiesel from Argentina, Commerce found a
PMS existed, despite acknowledging that the source of the PMS (a
government export tax) had been in place for numerous years. Commerce
found that it was not ``precluded'' from finding a PMS ``where the
distortion at issue has occurred over several years'' and that ``the
fact that Argentina's soybean export tax regime has been in place since
2002 does not render its effects on Argentina's domestic soybean prices
within the ordinary course of trade.'' \102\ That conclusion is now
reflected in paragraph (d)(4)(iv). The submission of such information
and related arguments in most cases does nothing but distract Commerce
and other interested parties from focusing on the information on the
record which does assist the analysis. Accordingly, we have included
this ``does not preclude'' provision to hopefully benefit all parties
in providing guidance as to the information Commerce actually needs.
---------------------------------------------------------------------------
\102\ See Biodiesel from Argentina: Final Determination of Sales
at Less Than Fair Value and final Affirmative Determination of
Critical Circumstances, in Part, 83 FR 8837 (March 1, 2018)
(Biodiesel from Argentina), and accompanying IDM at Comment 3.
---------------------------------------------------------------------------
Lastly, paragraph (d)(4)(iv) of Sec. 351.416 removes general
references from proposed paragraph (d)(3)(iv) to historical policies
adopted by a government or nongovernmental entities. It now more
directly states the existence of the same or similar governmental or
nongovernmental actions in the subject country that preceded the period
of investigation or review will be of little to no relevance to
Commerce's analysis (as discussed in the preceding paragraph). The
removed language explaining that the pre-existence of government or
industry actions does not make circumstances or sets of circumstances
``market based'' or nullify distortions of costs during a period of
investigation or review remains true. However, because that language
seemed to create some confusion for the public, it was removed to
simplify the example of information that will not preclude the finding
of a PMS.
v. Addressing the factors which make a market situation
``particular''--Sec. 351.416(e).
Revisions:
Paragraph (e) of Sec. 351.416, which addresses factors to consider
in determining if a market situation is particular, was revised in this
final rule to use language consistent with other provisions in the
regulation and was updated to apply equally to both sales-based and
cost-based particular market situations. We agree with some of the
commenters who expressed concerns that it was illogical to have a
provision that defined what particularity meant for one type of PMS but
not the other. The final regulation explains that a market situation is
particular if it impacts prices or costs for only certain parties or
products in the subject country. Further, additional language was added
to paragraph (e)(1)(i) that explains clearly that Commerce's analysis
does not concern the number of parties or products, but rather whether
the market situation impacts only certain parties and products, as
opposed to the general population of parties or products in the subject
country.
vi. Addressing Commerce's ability to adjust, or not adjust, its
calculation for a cost-based PMS--Sec. 351.416(f)
Revisions:
Paragraph (f) of Sec. 351.416 was significantly revised to provide
greater clarity and explanation of Commerce's authority, once it finds
that a cost-based PMS exists, to address that PMS in its calculations.
Notably, the Act simply states in section 773(e) that Commerce ``may
use another calculation methodology under this subtitle or any other
calculation methodology.'' Accordingly, the revised paragraph (f) of
Sec. 351.416, which now clarifies that it only applies to particular
market situations under paragraphs (d) and (e), is divided into three
separate provisions. The first states generally that if Commerce
determines that a PMS exists in the subject country which has
contributed to a distortion in the cost of materials and fabrication or
other processing, such that those costs do not accurately reflect the
cost of production of subject merchandise in the ordinary course of
trade, Commerce may adjust for those distortions in its cost of
production calculations.
The second provision explains that if Commerce cannot precisely
quantify the distortions in the cost of production caused by the PMS
after consideration of the information on the record, it may use any
reasonable methodology to adjust its calculations to address those
distortions based on that record information. This provision was
expanded from the Proposed Rule to address concerns raised by
commenters that Commerce would ignore available and relevant record
information and make adjustments to its calculations using information
outside of the record unrelated to that information, which was never
Commerce's intention.
The third provision was added to reflect that even if Commerce
determines that a PMS exists, it may also determine that an adjustment
to its cost of production calculations is inappropriate based on record
information. There was language in most of the proposed examples in
Sec. 351.416(g) of the Proposed Rule which stated that Commerce would
only find a PMS existed if it could adjust for distortions in its
calculations of the cost of production. However, that was not an
accurate reflection of Commerce's analysis or practice, as pointed out
by some commenters. In fact, Commerce may determine that a cost-based
PMS exists, but not make an adjustment because it determines that an
[[Page 20794]]
adjustment is not appropriate, necessary, or warranted. Accordingly, we
removed that language from the examples of paragraph (g) and imported
the concept to paragraph (f), with additional explanation to provide
clarity. Specifically, the final rule provides guidance on factors
which Commerce may consider in determining if an adjustment is
appropriate: (1) whether the cost distortion is already sufficiently
addressed in its calculations in accordance with another statutory
provision, such as the transactions disregarded and major input rules
of sections 773(f)(2) and (3) of the Act; (2) whether a reasonable
method for quantifying an adjustment to the calculations is absent from
the record (e.g., no interested party has proposed a methodology to
address the cost-based PMS which would work in Commerce's
calculations); and (3) whether information on the record suggests that
the application of an adjustment to Commerce's calculations would
otherwise be unreasonable. We believe that describing such factors in
the regulations will better inform interested parties on the type of
information Commerce requires to make not only a cost-based PMS
determination, but also a separate determination as to whether an
adjustment can, or should, be made to its cost of production
calculations.
vii. Providing examples of cost-based particular market
situations--Sec. 351.416(g).
Revisions:
As explained above, Commerce moved references to the
``likelihood,'' weighing-of-evidence analysis, and its ability to
adjust cost calculations from the Sec. 351.416(g) examples provided in
the Proposed Rule to other provisions of the regulation.
Otherwise, most revisions to the text of the various examples were
implemented to bring the language of those provisions into conformity
with language used in other parts of Sec. 351.416. For instance, each
example now mentions that a determination of a cost-based PMS is based
on record information and is specific to the period of investigation or
review being examined by the agency. These changes were implemented in
this provision, as they were in other provisions, in response to
comments and concerns we received on this issue from multiple
commenters and to provide greater clarity as to Commerce's cost-based
PMS analysis.
One of the listed examples, paragraph (g)(9), was the source of
concern for several commenters, who stated that they believed that the
language of the provision was too broad and could open the door to
other governments making costs adjustments to the AD calculations of
U.S. exporters based on U.S. domestic policies only tangentially
related to business decisions, costs, or prices. They cited U.S.
industrial policies, supply chain measures, greenhouse gas emission
reduction programs, and trade restrictions pertaining to Russia's
invasion of Ukraine as examples that reflect government actions that
may ``otherwise influence'' the production of merchandise not only in
the United States, using a term Commerce included in the proposed
paragraph (g)(9) example. Upon consideration of those comments, we
agree that the proposed paragraph (g)(9) example was too broadly
written, and we have restricted it to only three mandated government
requirements--the use of a certain percentage of domestic-manufactured
inputs, the sharing or use of certain intellectual property or
production processes, or the formation of certain business
relationships with other entities to produce subject merchandise or a
significant input into the production of subject merchandise. We
believe this new language reflects the specific examples of potential
cost-distorting circumstances which Commerce sought to address in the
regulation.
Furthermore, in the proposed examples where Commerce had referenced
``state-owned enterprises,'' we have removed that term, as the focus of
Commerce's examples is more general than just that situation, focused
not on the type of government entity, but on whether a government,
government-controlled entity, or other public entity has taken actions,
or not taken certain actions, that result in distorted costs of
production. One party requested that Commerce define the term ``state-
owned enterprise,'' but because that term is now removed from this
regulation, there is no reason to define that term at this time. We
have, however, added greater context to the entire provision and
provided further description of the actions intended to be addressed by
paragraph (g)(12). Accordingly, the provision now explains that a cost-
based PMS may exist when ``nongovernmental entities take actions''
which the Secretary concludes can lead to cost distortions. It states
that such actions ``include, but are not limited to, the formation of
business relationships between one or more producers of subject
merchandise and suppliers of significant inputs to the production of
subject merchandise, including mutually-beneficial strategic alliances
or noncompetitive arrangements, as well as sales by third-country
exporters of significant inputs into the subject country'' for dumped
prices. We believe that this revised description of the example set
forth in paragraph (g)(12) better illustrates the type of
nongovernmental actions that can become a PMS which distorts a
producer's costs of production.
viii. Explaining that a cost-based PMS may contribute to a sales-
based PMS--Sec. 351.416(h).
Revisions:
The only revisions Commerce made to Sec. 351.416(h) were the same
revisions it made to other provisions: (1) bringing the language into
conformity with the Act's terminology; (2) explaining that Commerce's
determinations are based on record information; and (3) emphasizing
that its cost-based and price-based PMS determinations are specific to
the period of investigation or review at issue. Commerce received many
comments on this provision expressing very different perceptions and
claims on Commerce's authority in this regard. As explained above, some
commenters suggested that Commerce could only make adjustments for
cost-based PMS determinations that it determined based on record
evidence contributed to a sales-based PMS. However, other commenters
claimed that that regardless of record evidence, Commerce should always
presume that a cost-based PMS causes a sales-based PMS. In addition,
Commerce received a third group of comments that suggested that
Commerce has no authority to ever determine that a cost-based PMS can
contribute to a sales-based PMS.
For the reasons explained above, Commerce has concluded that the
Act does not require that Commerce must first determine a sales-based
PMS exists before it can make adjustments to its calculations for a
cost-based PMS. It also does not restrict Commerce from considering
that a cost-based PMS may contribute to a sales-based PMS, and in fact,
as pointed out by the Federal Circuit in Hyundai Steel Co., the ``TPEA
amendment to section 1677(15) linked the constructed value subsection
with `situations in which the administering authority determines that
the particular market situation prevents a proper comparison with the
export price or the constructed export price.' '' \103\ Accordingly, it
is reasonable to conclude that Congress intended to grant Commerce the
ability to consider cost-based particular market situations in
determining if a sales-based PMS exists. However, despite that ability
and
[[Page 20795]]
authority to consider such information, we continue to see no reason to
presume that the existence of a cost-based PMS always results in a
sales-based PMS, nor that a cost-based PMS cannot exist unless it also
creates a sales-based PMS. That does not reflect Commerce's experience
in administering and determining the existence of cost-based and sales-
based particular market situations. For these reasons, we have made no
further revisions to proposed Sec. 351.416(h).
---------------------------------------------------------------------------
\103\ See Hyundai Steel Co., 19 F.4th 1346, 1353-54.
---------------------------------------------------------------------------
D. Additional comments and requests specific to particular
paragraphs of proposed Sec. 351.416 but not directly incorporated into
the final rule.
As explained above, Commerce received 53 comments from different
governments, organizations, importers, producers, and exporters on many
different provisions in the proposed regulations, and in several of
those comments, commenters proposed changes or requested that Commerce
clarify further certain points in the preamble to the final rule.
Commerce provided its rationale for those changes which we incorporated
into the revised Sec. 351.416 above. For the remainder of suggested
edits which we did not incorporate, and in response to requests that we
clarify further certain points in the preamble, we address those
comments below.
i. Comments on the evidentiary standard of Sec. 351.416(b).
Several commenters commented on the evidentiary standard set forth
in proposed Sec. 351.416(b), which stated that interested parties must
include with their PMS allegation ``relevant information reasonably
available to that interested party supporting the claim.'' \104\
Various commenters supported, opposed, or sought further modification
of the allegation evidentiary standard. Those in support of the
standard explained that it reasonably reflects that petitioners
sometimes have only limited access to information about a PMS and,
therefore, a ``reasonably available'' standard is a realistic standard
to expect of parties making an allegation. The purpose of a PMS
examination, in the context of an investigation or review, is
ultimately to gather more information about the alleged circumstance or
set of circumstances allegedly distorting prices or costs, and to
determine if in fact a PMS actually exists in the first place. An
increased and unrealistic standard would make it more difficult for
Commerce to initiate a PMS examination, and possibly prevent Commerce
from addressing cost distortions as intended by Congress in placing the
cost-based PMS in the Act.
---------------------------------------------------------------------------
\104\ See Proposed Rule, 88 FR 29875.
---------------------------------------------------------------------------
However, two commenters objected to the standard, claiming that
Commerce's proposed language lowers the evidentiary threshold to allege
the existence of a PMS from its current practice. Section 351.404,
which covers the selection of the market to be used as the basis for
normal value, provides at Sec. 351.404(c)(2)(i) that Commerce may
``decline to calculate normal value in a particular market under
paragraph (c)(1) of this section'' if the Secretary determines that ``a
particular market situation exists that does not permit a proper
comparison with the export price or constructed export price.'' \105\
In the preamble to the AD regulations implementing that sales-based PMS
provision, Commerce explained that the ``party alleging the existence''
of a PMS ``has the burden of demonstrating that there is a reasonable
basis for believing'' that a PMS exists.\106\ The commenters suggested
that a ``reasonable basis for believing'' is a higher standard than
``relevant information reasonably available to that interested party
supporting the claim,'' and because Sec. 351.416(b) applies equally to
both sales-based and cost-based PMS allegations, Commerce's proposed
regulation lowers the PMS allegation standard from its past practice.
---------------------------------------------------------------------------
\105\ See Sec. 351.404(c)(2)(i).
\106\ See Antidumping Duties; Countervailing Duties; Final Rule,
62 FR 27295, 27357 (May 19, 1997) (1997 Preamble).
---------------------------------------------------------------------------
Those commenters expressed concerns that because Commerce does not
provide further guidance on the term ``reasonably available,''
petitioners could abuse the vague terminology, alleging whatever they
wanted on a case-by-case basis. They also expressed concerns that
Commerce could likewise abuse the terminology by arbitrarily
determining what is ``reasonable'' in each case as it determines
appropriate. They expressed concerns that Commerce's current
``reasonable basis'' standard is inconsistent with the statutory
presumption that Commerce uses a producer's reported costs of
production in its calculations, absent actual probative evidence that
cost distortions may exist in those books and records. They commented
that by allegedly lowering the evidentiary threshold using vague
terminology, Commerce is placing unnecessary burdens on respondents to
prove in each case that no PMS exists and requiring Commerce to expend
unnecessary resources on addressing incomplete allegations.
A third group of commenters requested that Commerce revise the
described evidentiary standard in Sec. 351.416(b) to always permit
parties making a cost-based PMS allegation to solely rely on cost-based
PMS determinations in a previous segment of the same proceeding under a
rebuttable presumption of the ongoing existence of a cost-based PMS. In
the Proposed Rule, Commerce explained that it would not adopt a
rebuttable presumption to apply to future proceedings once it had
determined the existence of a cost-based PMS in one segment of a
proceeding, as requested by several commenters in response to the PMS
ANPR, because unlike a non-market economy designation (which commenters
had used as an example), which applies to an entire economy, a cost-
based PMS is based on a circumstance or set of circumstances that may
or may not be ``particular to certain products or individuals in the
subsequent years.'' \107\ Some commenters continued to urge Commerce to
reconsider this decision, commenting that frequently Commerce has found
cost-based particular market situations to exist in subsequent segments
of a proceeding. They also pointed out that it is not uncommon, even in
the context of proceedings that do not involve the non-market economy
entity, for Commerce to rely on previous distortion findings in
subsequent proceedings unless parties rebut those earlier
determinations with new evidence, such as earlier agency findings that
certain world market prices are distorted, for example in the selection
of benchmarking prices for a less than adequate remuneration analysis,
pursuant to Sec. 351.511(a)(2)(iii). They suggested that, likewise, it
would be reasonable to allow those alleging a PMS which has already
been determined to distort costs in a previous segment of the
proceeding, to rely solely on that previous determination in their PMS
allegation submissions under Sec. 351.416(b). Additionally, they
suggested that such a presumption would be lawful and fair because
respondents could still respond with rebuttal factual information in
the investigation or review. Further, they commented that such a
presumption would decrease administrative burdens by not requiring
Commerce to do an extensive PMS cost-based analysis in every adjacent
12-month period.
---------------------------------------------------------------------------
\107\ See Proposed Rule, 88 FR 29865.
---------------------------------------------------------------------------
Finally, another commenter essentially advocated for the opposite
of those requesting a rebuttable presumption that a cost-based PMS
exists in subsequent segments of a
[[Page 20796]]
proceeding. That commenter requested that Commerce clarify that cost-
distortion findings are case-specific and suggested that Commerce
should never rely on its previous findings of cost-distortions in
previous segments of a proceeding, as facts such as prices and costs
are constantly changing and there is no guarantee that a cost-based PMS
found to exist in a particular period of investigation or review will
continue to exist in another. Such decisions, the commenter stated, are
to be made by Commerce based solely on the facts of the case before it.
Commerce's Response:
We have not revised the evidentiary standard as set forth in the
Proposed Rule in Sec. 351.416(b) in the final rule as requested by the
commenters. First, we disagree with the commenters who expressed
concerns that Commerce has somehow lowered its evidentiary standard
from ``a reasonable basis for believing'' to something less stringent.
While those commenters focused on the term ``reasonably available,'' we
believe the more important term in the clause at issue is ``supporting
the claim.'' If a PMS allegation is made with no evidence ``supporting
the claim,'' Commerce will not initiate on that PMS allegation. It is
Commerce's current practice to consider if the information accompanying
a PMS allegation is sufficient to support the claim of a PMS. If
Commerce determines that the information provided does not adequately
support the claim, but that the alleging party has the ability to
retrieve certain additional evidence to further support the allegation,
Commerce may request that the party submit the additional information
before the agency determines to initiate, or not initiate, a PMS
examination. We believe that standard is fully consistent with the
``reasonable basis for believing'' standard expressed in the preamble
to Sec. 351.404(c)(2).\108\
---------------------------------------------------------------------------
\108\ See 1997 Preamble, 62 FR 27357.
---------------------------------------------------------------------------
Furthermore, Commerce frequently uses a ``reasonably available''
standard in its AD and CVD proceedings; thus, the usage of such a
standard is fully consistent with Commerce's normal practice. For
example, in investigations, Congress provides in the Act that a
petition must contain information ``reasonably available to the
petitioner'' supporting its allegations.\109\ Furthermore, in
Commerce's regulations for investigations, scope inquiries and
circumvention inquiries, petitioners, applicants and requesters are all
required to provide ``reasonably available'' information in their
submissions.\110\ Thus, we disagree that the standard set forth in
Sec. 351.416(b) is unreasonable and have maintained that standard in
the final rule.
---------------------------------------------------------------------------
\109\ See sections 702(b)(1) and 732(b)(1) of the Act.
\110\ See Sec. Sec. 351.202(b), 351.225(c), and 351.226(c).
---------------------------------------------------------------------------
In addition, we are not implementing a rebuttable presumption in
our regulations for subsequent segments in the same proceeding at this
time. We agree with the commenter that pointed out that facts do
frequently change in a proceeding from year to year, such as prices and
costs for certain inputs, costs for subject merchandise, the
application of government programs, and nongovernmental actions that
may distort costs, and that Commerce must make both sales-based and
cost-based PMS determinations on a segment-to-segment basis. On the
other hand, we also agree with the commenters that noted that Commerce
has found cost-based particular market situations to exist in
sequential segments of the same proceeding, and that in a given case,
Commerce might conclude that previous cost-based PMS determinations
could form part of the ``relevant information reasonably available to
that interested party supporting the claim'' standard for purposes of
initiating a cost-based PMS examination. However, given the evolving
circumstances in sequential cases across AD orders, we have concluded
that such a determination is best left to be determined by Commerce on
a case-by-case basis and have determined not to codify such a
rebuttable presumption in Sec. 351.416(b).
ii. Comments on the second sentence of Sec. 351.416(b) and
Commerce's authority to self-initiate a PMS examination.
One commenter suggested that Commerce should delete the requirement
in the second sentence of Sec. 351.416(b) that if a similar PMS was
alleged in a previous segment of the same proceeding, the alleging
party must identify in the submission the facts and arguments which can
be distinguished from those provided in the previous segment. The
commenter stated that this provision does not provide certainty
regarding what will be required of alleging parties and could increase
Commerce's administrative burden. Furthermore, the commenter
interpreted this requirement to unreasonably force an alleging party to
identify the bases on which an opposing party could build an argument
against finding a PMS, based on the distinguishing features from the
previous segment, which the commenter suggested is a departure from
other allegations administered by Commerce.
Three other commenters requested that Commerce reaffirm its
authority to find a PMS in the context of an investigation or
administrative review, sua sponte, without an allegation by other
parties, when information on the record supports initiation, as
affirmed by the CIT for a sales-based PMS determination.\111\
---------------------------------------------------------------------------
\111\ In referencing the CIT, the commenters cite Atar, S.r.l.
v. United States, 33 CIT 658, 670 (June 5, 2009) (finding that
``{t{time} he general shortcoming in plaintiff's argument is that
neither the statute nor the regulations prohibit Commerce from
determining, even absent an allegation, that a third-country market
is affected by a particular market situation. Moreover, the Preamble
language, in stating that Commerce ``typically'' proceeds only upon
a timely allegation, does not state or imply that Commerce intended
to confine its own discretion such that it could not act sua
sponte'' (citing the 2017 Preamble, 62 FR 27357)) and (``{n{time} or
do the statute or regulations require Commerce to provide a
``substitute'' for such an allegation.'').
---------------------------------------------------------------------------
Commerce's Response:
We have not removed the requirement that parties submitting an
allegation similar to one made in a previous or ongoing segment of a
proceeding must identify the facts and arguments in the submission
which are distinguishable from those provided in the other segment, and
in fact, we have modified it to cover similar allegations in other
proceedings as well. As we stated in the Proposed Rule, it is a burden
on both the agency and other parties when an allegation is submitted in
a segment and the alleging party does not indicate where the facts or
claims diverge from previous allegations submitted to Commerce.\112\ To
the extent that the commenter believes it weakens its allegation to
point out distinguishing features from its previous allegations, if an
allegation cannot stand up to the evidentiary requirements set forth in
the regulation, then that fact suggests the allegation itself is weak.
---------------------------------------------------------------------------
\112\ See Proposed Rule, 88 FR 29862.
---------------------------------------------------------------------------
With respect to Commerce's ability to examine, and possibly
determine, the existence of a PMS without an allegation, we agree with
the commenters and the CIT that there are no statutory restrictions on
Commerce's ability to conduct such an examination sua sponte in the
context of its administrative proceedings. We do not believe that such
an unrestricted authority must be codified in the regulation, however.
iii. Comments on the examples of a sales-based PMS in Sec.
351.416(c)(1).
Commerce received multiple comments on the examples of a sales-
based PMS set forth in Sec. 351.416(c)(1)(i) through (iv).
a. Comments on past practice and the examples in Sec.
351.416(c)(1).
[[Page 20797]]
Several commenters requested that Commerce clarify that those
examples are intended to codify past agency practice and do not reflect
a change in practice.
Commerce's Response:
The examples are intended to illustrate a circumstance or set of
circumstances that may prevent or not permit a proper comparison of
prices in the home market or a third-country market and the export
price or constructed export price. As with the examples of a cost PMS
listed under paragraph (g), the examples under paragraph (c)(1) are not
entirely a codification of past practice, but, to some extent, indicate
the type of circumstance or circumstances Commerce anticipates might
result in the existence of a PMS. For example, Commerce has found a PMS
as the result of direct government control over the pricing of home
market sales.\113\ Moreover, ``government control over pricing to an
extent that home market prices cannot be considered competitively set''
is a specific example of a possible PMS identified by the Statement of
Administrative Action accompanying the Uruguay Round Agreements Act
(SAA).\114\
---------------------------------------------------------------------------
\113\ See Biodiesel from Argentina IDM at Comment 2.
\114\ See Statement of Administrative Action Accompanying the
Uruguay Round Agreements Act, H.R. Doc. 103-316, Vol. 1 (1994), at
822.
---------------------------------------------------------------------------
The other examples of a sales-based PMS listed in paragraph (c)(1),
while not taken from past practice, are not inconsistent with past
practice and do not reflect a change to what Commerce considers to be a
sales-based PMS. Rather, each example illustrates a circumstance in
which comparison market sales might not provide a proper comparison to
the export price or constructed export price.
b. Comments on the term ``may'' in Sec. 351.416(c)(1).
One commenter expressed its appreciation for Commerce setting forth
examples, stating that it will assist Commerce and interested parties
in quickly identifying sales-based particular market situations in
future cases with similar facts, while another commenter suggested that
Commerce should state that the examples set forth in Sec.
351.416(c)(1)(i) through (iv) ``will'' prevent or not permit a proper
comparison of prices, not ``may'' prevent a proper comparison of
prices, as was set forth in the Proposed Rule.
Commerce's Response:
In response to the first of the comments, we agree that by
providing examples of past sales-based particular market situations, we
hope to provide clarification as to the types of circumstances or sets
of circumstances that could prevent or not permit a proper comparison
of prices, but we disagree that such circumstances ``will'' prevent or
not permit a proper comparison of prices in every case. Every PMS
determination is based upon the information on the record of the
segment of the proceeding before Commerce. Accordingly, we have not
modified the language from ``may'' to ``will,'' as suggested.
c. Comments on the ``normalcy'' of certain government actions
described in Sec. 351.416(c)(1).
In addition, several commenters expressed concerns about the
specific examples set forth in the regulation, commenting that export
taxes, export limitations, anticompetitive regulations that confer
unique status on favored producers or create barriers to new entrants
to an industry, and direct government control over pricing of subject
merchandise can all be part of the normal ``conditions and practices''
applied by governments, producers, and exporters in the ordinary course
of trade under section 771(15) of the Act. They expressed concerns that
addressing ``anticompetitive regulations'' in this manner is
inconsistent with the intent of the AD law and that ``direct government
control over pricing'' may not necessarily lead to distortions in
prices.
They also suggested that these examples are already adequately
addressed through Commerce's non-market economy methodology, and that
Commerce would be acting inconsistently with the Act in addressing such
examples using a sales-based PMS analysis.
Other commenters suggested that to the extent each of these
examples involve government policies or broad economic phenomena, the
use of such examples in the regulation is inconsistent with the
``original intent'' of the AD Agreement.
Commerce's Response:
There is no support for the allegations that the examples listed as
possible sales-based particular market situations in Sec.
351.416(c)(1)(i) through (iv) are inconsistent with Commerce's
obligations under the Act or the United States' obligations under the
AD Agreement. Further, Commerce only applies a PMS analysis to market
economy countries and, therefore, there is no merit to the suggestion
that the examples raised would be addressed through Commerce's non-
market economy methodology. Additionally, as noted above, the examples
are illustrative and not exhaustive, and in every case, Commerce still
must determine if the facts on the record of a given investigation or
review before it support a finding of a sales-based PMS. The examples
provided could be particular market situations if the alleged
circumstances are shown to distort prices on the record of an
investigation or review, and are intended to provide the public with
guidance, but a PMS determination is one anchored in record evidence,
and Commerce will not determine the existence of a PMS without a
thorough analysis. Further, to the extent comparability between
comparison market prices and export or constructed export prices can be
addressed through another section of the Act (e.g., price adjustments
to normal value under section 773(a)(6) of the Act), Commerce may
determine an adjustment for the sales-based PMS is not appropriate.
Accordingly, we have made no changes to the examples set forth in the
Proposed Rule.
iv. Comments on the use of constructed value in Sec.
351.416(c)(3).
Section 351.416(c)(3) states that if Commerce determines the
existence of a sales-based PMS, it may conclude that it is necessary to
determine normal value by constructing a value in accordance with
section 773(e) of the Act and Sec. 351.405 of Commerce's regulations.
Certain commenters indicated their support for this provision, stating
that it is fully consistent with section 773(a)(4) of the Act, while
others requested that Commerce clarify that sales prices will only be
disregarded when a sales-based PMS is shown by record evidence to
prevent proper comparisons of prices, as required by both the Act and
the AD Agreement.
In addition, some commenters requested that Commerce ``make clear''
that it will seek to use home or third-country sales as the basis of
normal value to the extent possible, including using third-country
sales where a home market may be disqualified due to a PMS.
Commerce's Response:
Commerce agrees that Sec. 351.416(c)(3), as proposed, is
consistent with section 773(a)(4) of the Act and agrees that sales will
only be disregarded when the record evidence reflects that a PMS
prevented or did not permit a proper comparison of sales prices in the
home market or third-country market with export prices or constructed
export prices during the period of investigation or review. However,
the conclusion that the PMS prevents or does not permit a proper
comparison of comparison
[[Page 20798]]
market prices with export prices or constructed export prices will be
reached when the existence of a PMS is demonstrated. The question is
whether particular market circumstances prevent comparison market
prices from serving as the basis of ``normal value'' for purposes of
comparison with export or constructed export sales, not the extent to
which the PMS may affect comparison market prices or whether the PMS
affects both comparison market and export market prices evenly. Thus,
there is no need for additional analysis to determine that comparison
market sales cannot provide the basis for a proper comparison once they
are determined to be outside the ordinary course of trade via an
affirmative PMS finding.
In response to the request that Commerce codify a preference for
the use of third-country sales over constructed value for determining
normal value when home market sales are deemed outside the ordinary
course of trade and unusable, we note that the Proposed Rule did not
address Commerce's decision-making analysis in determining normal value
when Commerce concludes that no home market sales were made in the
ordinary course of trade during the investigation or review period. We
continue to determine that no such analysis is necessary in the final
rule.
v. Comments on Sec. 351.416(d)(1) as it applies to a cost-based
market situation.
As explained above, Commerce revised Sec. 351.416(d) in response
to many comments received on the provision. There were some comments,
however, with which we disagreed and did not incorporate changes into
the regulation. For example, two commenters expressed concerns with
Sec. 351.416(d) in its entirety and called for its removal, arguing
that it reverses the statutory burden of proof and requires exporters
to demonstrate that a cost-based PMS does not exist rather than
requiring those alleging the PMS to prove that it exists based on
record evidence. Another commenter suggested that Commerce should
remove all references to ``accurately reflect the cost of production''
throughout Sec. 351.416(d), including the header and Sec.
351.416(d)(1)(ii), and replace it with ``reasonably reflects the cost
of production,'' because the commenter expressed concerns that the term
``accurately reflect'' suggests a standard of precision which is
unrealistic and inconsistent with Commerce's emphasis in the draft
regulation that it need not quantify with precision the distortions
caused by a cost-based PMS.
In addition, two commenters suggested that section 733(e)(1) of the
Act requires that each cost or price distortion finding be respondent-
specific and unique to the costs paid for inputs compared to what
Commerce deems to be the amount that would have been paid in the
ordinary course of trade (i.e., absent the PMS). They suggested that in
investigations or reviews in which Commerce determines the existence of
a cost-based PMS, the regulation should indicate that Commerce will
determine on a transaction-by-transaction analysis whether reported
costs exceeded, or were exceeded by, the undistorted cost of an input.
For those transactions in which the reported costs exceed distorted
costs, those commenters suggested that Commerce should not apply a PMS
adjustment that covers those transactions.
Commerce's Response:
We disagree with the commenters who expressed concerns that the
regulation ``reverses'' the burden of proof. After a party makes their
allegation of a sales-based or cost-based PMS, Commerce still must
determine on the record if the evidence supports such a claim. Commerce
may issue questionnaires, will consider comments from all of the
interested parties, and weigh the evidence on the record to determine
if a PMS exists. The regulation provides additional guidance on
examples and factors Commerce normally will consider or find less
helpful, but in no way does it reverse any burden of proof.
Furthermore, we also have elected not to remove the term
``accurately reflect'' from the regulation. The language of section
773(e) of the Act specifically refers to a finding that the ``cost of
materials and fabrication or other processing of any kind does not
accurately reflect the cost of production in the ordinary course of
trade.'' If costs are distorted, they do not accurately reflect the
cost of production in the ordinary course of trade--no more and no
less. Commerce does not interpret the use of that phrase to mandate an
overly burdensome level of proof for interested parties and does not
interpret the phrase to mean that cost distortions must be precisely
quantified. Indeed, as explained in the Proposed Rule, the Federal
Circuit has already explicitly held that Commerce is not required to
precisely quantify a distortion in costs by the PMS to find the
existence of a PMS.\115\ The regulation is codifying Commerce's PMS
practice to assist in the administration and enforcement of the Act. We
do agree, however, that if the burden of proof is interpreted to be too
restrictive, Congress' intention that Commerce effectively address
cost-based particular market situations in AD investigations and
reviews would be greatly undermined.
---------------------------------------------------------------------------
\115\ See Proposed Rule, 88 FR 29863 (citing NEXTEEL Co., Ltd.
v. United States, 28 F.4th 1226, 1234 (Fed. Cir. 2022) (NEXTEEL)).
---------------------------------------------------------------------------
Finally, there is no language in the Act that requires Commerce to
determine on a transaction-by-transaction, or a company-by-company,
basis if reported costs exceeded undistorted costs during the period of
investigation or review. Accordingly, we have not incorporated into the
regulation the suggestion that a transaction-by-transaction analysis of
distorted costs is required in analyzing a cost-based PMS and
implementing an adjustment under paragraph (f).
vi. Comments on Commerce's proposed analysis that after weighing
all the information on the record, Commerce will determine if it is
more likely than not that a market situation contributed to a
distortion in the cost of production.
As explained above, Commerce has determined to remove references to
the analysis which it will conduct in weighing evidence of an alleged
market situation and determining if that circumstance or set of
circumstances contributed to the distortion in the cost of production
of subject merchandise during the period of investigation or review in
Sec. 351.416(g) and various other parts of the regulation. Instead, it
will address that analysis solely in Sec. 351.416 in the new paragraph
(d)(2). The new provision states that Commerce will determine if a
market situation existed during the relevant period by determining
whether it is more likely than not that the circumstance or set of
circumstances contributed to the distortions of cost of production
based on record information.
In the Proposed Rule, Commerce explained that it had received
comments in response to the PMS ANPR arguing that Commerce must prove
through a direct ``cause and effect'' standard that a market situation
caused cost distortions, while other comments suggested that Commerce
should just presume that all potential particular market situations
contribute to cost distortions.\116\ Commerce explained that a direct
``cause and effect'' test would not be realistic or appropriate because
sometimes the information to directly tie price and cost changes to
external factors might not be publicly available, or the nature of the
market situation
[[Page 20799]]
(e.g., the existence of slave labor or domestic content requirements)
might be such that although the impact might be demonstrated by the
weight of the evidence on the record, a direct and traceable ``cause
and effect'' standard simply would be unattainable and could not be
administered.\117\ However, Commerce also determined it could not
presume all potential cost based market situations had an impact on
costs or prices. As Commerce explained, a PMS determination is a
``fact-intensive'' analysis and a circumstance or set of circumstances
might distort costs in one case but not in another. Accordingly,
Commerce determined that ``on a case-by-case basis'' it would consider
``all relevant information on the record pertaining to an alleged cost-
based PMS and determine whether it is more likely than not that the
alleged'' market situation contributed to the distortions of prices or
costs in the subject country.\118\ We continue to believe that is the
only reasonable analysis available to the agency in light of the
realities of market situations that might contribute to distorted
costs, as shown through the examples in Sec. 351.416(g), and have
therefore codified that standard in the regulations.
---------------------------------------------------------------------------
\116\ Id., 88 FR 29866.
\117\ Id.
\118\ Id.
---------------------------------------------------------------------------
Despite Commerce's explanation in the Proposed Rule, certain
commenters suggested that the term ``such that'' in the statutory
language requires that when Commerce weighs the evidence on the record,
it cannot make a determination on the basis of the likelihood of a
market situation contributing to the distortion of costs and may only
make a determination on the basis of a direct ``cause and effect'' or
``pass-through'' analysis. In other words, they suggest that by using
the term ``such that,'' Congress expected that Commerce would only make
an adjustment to its calculations if there was evidence that a
circumstance or set of circumstances could be directly traced to a
distortion of costs of production.
To the extent that such an interpretation of the statute means that
Commerce might not be able to address certain market situations that
were likely to be contributing to the distortion of costs of
production, because they were not directly tied to specific cost
distortions, some commenters suggested that this outcome was
reasonable. They suggested that a cost-based PMS determination, and an
adjustment pursuant to that determination, was intended by Congress to
be an exception to the use of an entity's actual, recorded costs of
production and, therefore, was also intended by Congress to be a
rarely-used trade remedy. They expressed concerns that Commerce's use
of a ``likelihood'' standard is inconsistent with that intention, as is
the inclusion of many of the examples of a potential cost-based PMS in
proposed Sec. 351.416(g), which they suggest do not rise to the
standard of a rare or exceptional circumstance or set of circumstances
that are the direct cause of distortions in the cost of production.
Still, another commenter expressed concerns that Commerce's use of a
``likelihood'' analysis in weighing the evidence on the record not only
goes beyond the intentions of Congress in the statute, but also is such
a broad abuse of its authority that it is in violation of the
nondelegation doctrine of Article 1, Section 1 of the U.S.
Constitution. That commenter noted that the CIT in Jilin Forest
Industry \119\ recently held that agencies cannot willfully expand
their powers through continuous self-empowerment. The commenter argues
that through its use of a likelihood standard in the proposed
regulations, Commerce engaged in self-empowerment in the Proposed Rule
in violation of the nondelegation doctrine.
---------------------------------------------------------------------------
\119\ See Jilin Forst Industry Jinqiao Flooring Group Co. Ltd.
v. United States, Slip Op. 23-14 (CIT February 9, 2023) (Jilin
Forest Industry), at 33-34 and 36.
---------------------------------------------------------------------------
In advocating for the ``cause-and-effect'' or ``pass-through''
standard, some commenters pointed to a statement in NEXTEEL,\120\ where
the Federal Circuit faulted Commerce for not providing sufficient
evidence on the record about a countervailable subsidy, and for not
showing that the subsidies ``affected the price of the input'' to the
extent that they ``did `not accurately reflect the cost of production
in the ordinary course of trade.' '' \121\ In the Federal Circuit's
analysis, it pointed out that Commerce had neither made a ``finding
that any subsidies were passed through to the prices of {hot-rolled
coil{time} '' or ``that they affected Korean {oil country tubular goods
(OCTG){time} producers any more than OCTG producers elsewhere.'' \122\
On the basis of that language, the commenters suggested that Commerce
is required to use a ``pass-through'' analysis in every cost-based PMS
analysis.
---------------------------------------------------------------------------
\120\ See NEXTEEL, 28 F.4th at 1235.
\121\ See Proposed Rule, 88 FR 29866 (citing NEXTEEL, 28 F.4th
at 1235).
\122\ Id.
---------------------------------------------------------------------------
Furthermore, two more commenters expressed concerns that the
likelihood standard is too speculative, and that the use of such a
standard in weighing record evidence would result in PMS determinations
unsupported by record evidence.
Other commenters expressed their support for Commerce's use of a
likelihood standard, arguing that Commerce's proposal is administrable
and consistent with Congress's intent to effectively address particular
market situations that contribute to the distortion of costs of
production. They also expressed their support for Commerce's
interpretation of the Federal Circuit's holding in NEXTEEL articulated
in the Proposed Rule, stating that the Federal Circuit did not mandate
a ``cause-and-effect'' or ``pass-through'' requirement for subsidies or
other market situations.
Commerce's Response:
Congress amended the Act in 2015 to allow Commerce to consider
cost-based particular market situations in its proceedings to
effectively address what Congress perceived to be unfair use of
distorted costs by foreign entities in producing subject merchandise.
We disagree that the statute shows that Congress intended for Commerce
to consider cost-based PMS allegations only rarely, just as we would
disagree that the statute shows that Congress intended for Commerce to
consider such allegations in every AD investigation or review. As
reflected in Sec. 351.416(b), Commerce will consider a PMS allegation
if an interested party submits a timely allegation as to the existence
of a PMS along with information that supports the claim. In addition,
if record information before Commerce in an AD investigation or review
suggests the existence of a cost-based PMS, Commerce will conduct a
cost-based PMS analysis in that segment of the proceeding on that
basis. Such a consideration is not tied to any concept of rareness or
frequency. Accordingly, we find no merit in the suggestion that
Commerce should not use a likelihood standard because Congress intended
for a cost-based PMS analysis and adjustment to be rarely applied.
To be clear, under Sec. 351.416(d)(2), in determining whether a
cost-based PMS exists that has contributed to distortions in costs of
production, Commerce will weigh the record evidence and make a
determination on that basis. Commerce will not make a determination
that a cost-based PMS ``may or may not'' exist. Rather, Commerce will
make a determination that a cost-based PMS exists ``such that the cost
of materials and fabrication or other processing of any kind does not
accurately reflect the cost of production in the ordinary
[[Page 20800]]
course of trade,'' \123\ consistent with the language of section 773(e)
of the Act or it will find that there is insufficient evidence on the
record to make such a finding.
---------------------------------------------------------------------------
\123\ See section 773(e) of the Act.
---------------------------------------------------------------------------
The term ``such that'' is ``used to express purpose or result.''
\124\ Incorporating that definition into the statutory language,
Commerce will determine if there is sufficient record information to
find that, as a result of the cost-based PMS, there were distortions to
the costs of production. The PMS does not have to be the only
circumstance or set of circumstances contributing to a distortion in
costs, but merely one of the circumstances making such a contribution.
The key is that Commerce will determine if it is likely, that the
circumstance or set of circumstances at issue contributed to
distortions in the cost of production, and if it did, Commerce will
also determine whether or not it is appropriate to adjust its AD
calculations for that PMS. Such an analysis and determination are fully
consistent with the agency's obligations and authority under the Act.
It is a weighing exercise delegated by Congress to Commerce as the
administrator of the AD law and, therefore, we reject the argument that
applying a rational and reasonable ``likelihood'' test in this capacity
is a violation of the nondelegation doctrine of the U.S. Constitution.
---------------------------------------------------------------------------
\124\ See Collins Dictionary, ``such that,'' retrieved November
8, 2023, https://www.collinsdictionary.com/dictionary/english/such-that.
---------------------------------------------------------------------------
Despite the claims of several of the commenters, the Act does not
address the methodology or analysis Commerce must conduct in reaching
such a conclusion. Indeed, the Act is generally silent on the analysis
or methodology to be employed by Commerce in making all of its
evidence-based determinations in the Act. As the administrator of the
AD law, it is Commerce's authority and responsibility to determine the
appropriate methodology or analysis to use in reaching such a
determination. We have determined to codify in the regulation
Commerce's ``likelihood'' analysis because we appreciate that some
commenters have suggested that we should just presume causality, while
others have suggested that causality must be traced through from
beginning to end and shown in granular detail. For the reasons set
forth in the Proposed Rule, we reject both of those options and
conclude that the use of a ``more likely than not'' standard is
appropriate.\125\
---------------------------------------------------------------------------
\125\ See Proposed Rule, 88 FR 29866.
---------------------------------------------------------------------------
Furthermore, for the reasons explained in the Proposed Rule, we
disagree that the Federal Circuit mandated that Commerce apply a
``pass-through'' analysis when addressing a cost-distorting subsidy, or
any other type of cost-based PMS for that matter, in NEXTEEL.\126\ The
Federal Circuit was not faced with this issue, and the cited language
was provided to give examples of information which Commerce could have
provided, but did not, in proving that the existence of a subsidy
distorted costs in that case.\127\ We do not interpret the Federal
Circuit's language in NEXTEEL to direct Commerce to incorporate a
particular methodology or analysis across the board in determining if a
PMS has contributed to the distortion of costs of production.
---------------------------------------------------------------------------
\126\ Id.
\127\ See NEXTEEL, 28 F.4th at 1235.
---------------------------------------------------------------------------
Indeed, given the many types of cost-based particular market
situations which might distort costs of production, we strongly believe
that a mandated ``pass-through'' requirement would have overwhelmingly
negative consequences and undermine the purpose of the provision in the
Act in the first place. It would require that in many, if not most, of
the cases in which a cost-based PMS may exist, Commerce would be
prohibited from addressing that PMS because the nature of the PMS is
such that it is impossible or excessively difficult to directly tie the
market situation ``cause'' to the cost distortion ``effect.'' To put it
into perspective, it would be, at minimum, extremely burdensome and
costly for U.S. industries seeking trade remedy relief or the U.S.
Government, to use economic studies and other data to measure with
specificity the direct financial impacts of slavery on specific labor
wages, of intellectual property theft on the specific financial
benefits which should have been appreciated by the owner of a patent or
trademark, of export restraints on particular domestic prices, or of
domestic-content and technology transfer requirements on particular
costs of manufacturing. In fact, there is a possibility that none of
these examples of potential cost-based particular market situations
listed in Sec. 351.416(g) which would, given certain circumstances,
normally have distortive effects on costs of production, could be
directly traceable through a ``pass-through'' analysis. We do not find
such an interpretation to be reasonable or consistent with Congress'
intentions and have therefore rejected the calls by certain commenters
to revise the regulation to reflect a direct ``cause-and-effect'' or
``pass-through'' standard of weighing the evidence on the record in
reaching a final PMS determination.
vii. Comments on the lists of information which Commerce determines
to be, as a rule, relevant to cost-based PMS analysis.
Commerce received multiple comments on the list of information
which it proposed to be relevant, in general, to a cost-based market
situation analysis. One commenter expressed concerns that the
information listed in proposed Sec. 351.416(d)(2)(i) through (v) might
not always be available to the parties, and expressed a particular
concern about proposed paragraphs (d)(2)(i) through (iii) because
governments or independent entities or organizations might not always
produce such information. The commenter expressed a concern that if
such data are unavailable, Commerce might automatically determine that
there is insufficient record information to support the existence of a
cost-based market situation.
Another commenter suggested that Commerce consider removing
analyses of the price effects of government action and inaction in
proposed paragraphs (d)(2)(ii) and (iii) because each report or
documentation might define or interpret data differently and have
different understandings of terms such as ``fair market value'' or
``significant input,'' which could lead to confusion on the record.
That commenter expressed concerns that Commerce was relinquishing some
flexibility and discretion in including such reports and documentation
on the list of relevant sources.
A few commenters expressed concerns with the nature and quality of
foreign government and independent analytical and academic
organizations studies and reports. Some requested that Commerce clarify
that hypothetical results from such reports, such as the reference to
report conclusions in proposed paragraph (d)(2)(ii) that ``lower prices
for a significant input in the subject country would likely result from
government or nongovernmental actions or inactions taken in the subject
country or other countries,'' could not be the sole basis for a cost-
based market situation determination. Conversely, others expressed
concerns that Commerce might create a hierarchy among such reports and
studies, prioritizing certain studies over others on a claim that some
are more ``speculative'' than others due to a lack of source data. They
suggested that Commerce should make clear that just because one study
may be based on less information than another does not mean that
Commerce should automatically give it less weight. Instead, they
suggested that Commerce should
[[Page 20801]]
consider all information on the record and take into consideration the
reality that objective studies may not be available for every product
and industry.
Commerce also received comments from commenters who suggested for
every portion of the Proposed Rule in which Commerce relies on the term
``significant input,'' it should remove the term ``significant,''
because the use of that term would be overly restrictive. That term
appeared in proposed Sec. 351.416(d)(2)(i) through (iii) and (v) and
(d)(3)(ii) and in multiple examples listed in proposed Sec.
351.416(g). The commenters suggested that Commerce should remove the
restrictive term ``significant'' because section 773(e) of the Act does
not limit Commerce's authority in that manner, and in fact the Act uses
the term ``of any kind.'' They disagreed with Commerce's explanation in
the Proposed Rule that use of the term is necessary to prevent an
administrative burden, instead suggesting that no party would file a
PMS allegation for inputs which do not have a meaningful impact on the
cost of production after adjusting for distorted costs. One commenter
also expressed concerns that all ``significant'' inputs might not be
distorted, but that a combination of other less ``significant'' inputs
might be distorted and that the collected ``insignificant'' input
distorted costs would have an impact on the overall cost of production.
In addition, one commenter expressed concerns with Commerce's
comparison of prices paid for significant inputs used to produce
subject merchandise under the alleged market situation to prices paid
for the same input without the market situation, in the home market or
elsewhere, in proposed paragraph (d)(2)(i), alleging that section 773
of the Act ``does not allow for a comparison'' of input prices in one
country where a market situation allegedly exists and input prices in
other countries where no such situation exists.
Furthermore, another commenter expressed concerns with Commerce's
consideration of previous agency determinations or results that did or
did not support the existence of an alleged PMS with regard to the same
or similar merchandise in previous segments or proceedings. That
commenter requested that Commerce explain that each record is separate
and distinct and that it cannot presume an outcome or conclusion based
on previous determinations or results. An additional commenter
requested that Commerce emphasize that cost-based PMS determinations
are based on the facts on the record and not presumptions based on
information external to the record.
With respect to proposed paragraph (d)(2)(v), which pertained to
the consideration of the use of property (including intellectual
property), human rights, labor, and environmental protections in other
countries and is addressed to a greater extent above, one commenter
suggested that Commerce should remove the terms ``weak'' and
``ineffective'' entirely because neither term is defined and the terms
create too much discretion for Commerce to make a cost-based PMS
determination on an arbitrary basis. That commenter expressed concerns
that such a broad use of discretion is inconsistent with the United
States' WTO obligations. Likewise, other commenters expressed concerns
with the same provision, arguing that because the provision does not
explain how Commerce is going to consider various factors in doing
price comparisons between governments with distinguishable economies
and programs, Commerce should provide further guidance and standards in
the final rule or preamble. Those commenters also complained that no
burden of proof is set forth in this provision and that Commerce should
provide further guidance and standards on that burden in the final rule
or preamble. Lastly, those same commenters expressed concerns that
Commerce had not listed any environmental, labor, human rights, or
property (including intellectual property) standards in the regulation
or preamble, and absent such standards, Commerce might ``unfairly
penalize'' countries on a case-by-case basis for providing protections
in a way which is different, but not less effective, how the United
States provides protections.
In addition, another commenter expressed concerns with the
existence of proposed paragraph (d)(2)(v) altogether, stating that
Commerce's consideration of the actions or inactions of other
governments in determining whether or not costs are distorted during a
certain period of time is inconsistent with section 771(15) of the Act
and the SAA \128\ because both of those legal sources require that the
``ordinary course of trade'' analysis focus on the conditions and
practices generally made in the same market as merchandise being
examined. That commenter suggested that the law does not permit
Commerce to analyze conditions and practices in other countries as set
forth in proposed paragraph (d)(2)(v) because the prices and
protections which Commerce would analyze using such information would
not be costs incurred in the home market ``in the ordinary course of
trade'' during the period of investigation or review.
---------------------------------------------------------------------------
\128\ See SAA at 834 (noting that the SAA states that Commerce
``may consider other types of sales or transactions to be outside
the ordinary course of trade when such sales or transactions have
characteristics that are not ordinary as compared to sales or
transactions generally made in the same market'').
---------------------------------------------------------------------------
Finally, another commenter expressed concerns that proposed
paragraph (d)(2)(v) could be inconsistent with the United States' WTO
obligations because it may result in the United States demanding that
certain WTO members, for whom a PMS has been alleged, maintain certain
standards for environment, labor, human rights, and property (including
intellectual property) protections, while making no such demand of
other countries if no PMS has been alleged with respect to their
industries.
Commerce's Response:
As explained above, in response to certain comments, Commerce made
certain changes to the list of information which it will generally find
beneficial in most cases in determining the existence of a market
situation which distorts costs of production, and that list now appears
in Sec. 351.416(d)(3). However, Commerce has not revised that list in
response to the comments listed here, but instead addresses the
comments raised.
First, although the information sources listed in Sec.
351.416(d)(3)(ii) and (iii) will generally be helpful if complete and
timely, we agree with the commenter who suggested that sometimes, some
or all of these sources may not exist, may be incomplete, or may not be
current. We also agree that sometimes, even if the various reports and
documentation are timely and complete, there may be inconsistency
between the terminology used and presumptions upon which the data and
results provided rely. All of these concerns are standard concerns
whenever an agency relies on outside studies and reports, and Commerce
has a long history of familiarity with such potential concerns. None of
these predictable data concerns, however, dissuade us from recognizing
that despite those possible considerations, reports, and documents such
as those listed in Sec. 351.416(d)(3)(ii) and (iii) generally benefit
our cost-based PMS analysis.
Furthermore, we disagree that considerations of price and cost
effects remove Commerce's flexibility and discretion in administering
this area of law. By listing these sources, we believe the public and
Commerce both benefit
[[Page 20802]]
from knowing the types of information which Commerce considers
generally beneficial to a cost-based PMS analysis and in no way does it
remove Commerce's ability to consider alternative information or even
reject the listed sources if they suffer from inadequacies or other
problems which Commerce determines undermine the conclusions of the
listed sources on the record. To be clear, in response to one
commenter's concerns, Commerce will not automatically reject a cost-
based PMS allegation if the data listed in Sec. 351.416(d)(3) is not
on the record, including the reports and documentation listed in
paragraph (d)(3)(ii) or (iii), or even if the information is on the
record but proves to be unusable, or is unavailable, if other
information is on the record. Ultimately, Commerce's determination of a
cost-based market situation will be one based on all of the information
on the record before it, and not just the historically helpful sources
listed in Sec. 351.416(d)(3).
In response to the comments raised on the results of certain
``external'' reports which some commenters called ``hypothetical'' or
``based on presumptions,'' Commerce will make its determinations based
on the record as a whole. If a report includes solid data which
supports its conclusions, for example, and is not contradicted by other
information on the record, Commerce may determine based on record
evidence that a cost-based PMS exists, consistent with that report.
Claiming that a report's conclusions on price effects are
``hypothetical'' or ``presumptive'' ignores that fact that the reports
Commerce frequently has received from such sources have been based on a
great deal of data and analysis. For this reason, we continue to
include such sources in the list of documentation which Commerce
generally finds to be helpful to its cost-based PMS analysis. In
addition, we agree with the commenters who suggested that sometimes one
study may be based on less data than another. However, this fact alone
does not mean that the study with more data is necessarily more
accurate or beneficial. Commerce has no intention of creating a
``hierarchy'' of reports based on data sources, but instead will
consider all information on the record before it and determine the
relevance of such studies and reports individually on a case-by-case
basis.
Likewise, Commerce will continue to consider previous
determinations of the existence of a cost-based PMS by Commerce in
Sec. 351.416(d)(3)(iv) to be generally helpful. We do not disagree
that each record stands alone, but there is no question that if
Commerce has previously considered a circumstance or set of
circumstances in a subject country covering the same or similar
merchandise, that those analysis and facts are relevant to Commerce's
analysis.
Commerce makes a PMS determination specific to a period of
investigation or review, but if the merchandise, parties, and
circumstances are the same or similar, all of that information can be
extremely relevant to Commerce's analysis and ultimate conclusion.
With respect to the arguments that Commerce cannot lawfully compare
prices and costs outside the subject country and the alleged market
situation with prices and costs within the subject country under
proposed Sec. 351.416(d)(3)(i) and (v), we disagree that section 773
of the Act, or any statutory provision, hampers Commerce's analysis in
that manner. If a market situation distorts costs in a subject country,
sometimes there might be other prices of the same or similar
merchandise within the same country which can be compared for purposes
of determining if the circumstance or set of circumstances distorts
costs of production. One of the commenters cites language in the SAA
for its argument in this regard, which states that ``Commerce may
consider other types of sales or transactions to be outside the
ordinary course of trade when such sales or transactions have
characteristics that are not ordinary as compared to sales or
transactions generally made in the same market.'' \129\ We do not
disagree that when Commerce is able to compare costs to other non-
distorted costs in the same market, that is ``generally'' an
informative comparison and very likely the most informative comparison
available to Commerce.
---------------------------------------------------------------------------
\129\ Id.
---------------------------------------------------------------------------
However, in certain circumstances, the record may not reflect that
factual scenario. It may be that the entire market for an input or
subject merchandise within the subject country has been distorted, or
at least that certain merchandise is not being purchased or sold in
accordance with market principles anywhere in the subject country,
because of the nature and size of the alleged market situation. When
that is the case, it is completely reasonable and logical that Commerce
may consider prices and costs outside of the subject country of a
significant input into subject merchandise to determine if a cost-based
PMS exists. We know of no statutory, regulatory, or judicial
prohibition on Commerce considering such data in determining if certain
costs reasonably reflect the costs of production in the ordinary course
of trade. Indeed, Commerce has made this type of comparison in both
determining the existence of a cost-based PMS and in determining the
appropriate adjustment to remedy the PMS.\130\ As we have stressed,
Commerce's determination is based on the entire record, and information
about both internal and external costs and prices may assist Commerce
in determining whether the costs reported accurately reflect the cost
of materials and fabrication or other processing of any kind in the
ordinary course of trade, as required by section 773(e) of the Act.
---------------------------------------------------------------------------
\130\ See, e.g., Biodiesel from Argentina IDM at Comment 3.
---------------------------------------------------------------------------
We understand that some commenters believe that the phrase ``normal
in the trade under consideration'' and the term ``ordinary'' in the
statutory definition of ``ordinary course of trade'' in section 771(15)
of the Act suggests that even if costs of production were distorted, if
those costs were used by an examined producer or exporter in its normal
business practices, Congress intended for Commerce to determine that
those costs were ``ordinary'' and use those costs in its calculations.
We find that such an interpretation is inconsistent with the language
of section 773(e) of the Act requiring Commerce to consider whether
costs, as reported, ``accurately reflect the cost of production in the
ordinary course of trade,'' because under that interpretation all
reported costs would be ``accurate.'' That interpretation is also
inconsistent with the intentions of Congress for Commerce to address
foreign production costs benefiting from lower, distorted costs of
production. Accordingly, we find that such an interpretation of the
definition of ``ordinary course of trade'' would undermine the very
purpose of the cost-based PMS provision in the Act. Commerce will
therefore continue to address distorted costs in its cost-based PMS
analysis.
Furthermore, we are not removing the terms ``weak'' or
``ineffective'' in the regulation in describing certain protections,
nor will we try to set up standards or define those terms, as no
regulation could predict every and all possible scenario under this
provision. It is clearly a case-by-case analysis. A government may have
intellectual property protections in its laws but provides nothing but
a proverbial ``slap on the wrist'' for violations of the law, in no way
dissuading irresponsible
[[Page 20803]]
companies or individuals from violating those protections. Under any
definition, such a law and protections would be considered ``weak.''
Likewise, another government may have hypothetically strong protections
in its laws for protecting the waterways around a factory or for
protecting workforce health and safety, but if the evidence on the
record shows that the government does not enforce those laws or that
they are largely ignored by businesses and government officials alike,
there is no question that such laws and protections could be described
as ``ineffective.''
As we have described above, weak and ineffective property
(including intellectual property), human rights, labor, and
environmental protections may contribute to distorted prices and costs
of production, but might not contribute to any cost distortions, and a
conclusion by Commerce on such matters must be based on the record
evidence before it. As we have previously explained, in making such a
determination, Commerce will weigh all of the evidence on the record in
its analysis and determine if it is more likely than not that the
alleged market situation contributed to distorted costs of production.
We do not agree that Commerce's analysis, as set forth in the
regulation, ``unfairly penalizes'' countries for providing protections
in a manner differently from the United States. Commerce's
determination is not a ``penalty'' on a foreign government or a
subjective statement on the priorities and values of another sovereign
nation. It is an objective determination based on record evidence as to
whether the lack of certain compliance costs ordinarily associated with
certain enumerated protections contributed to a distortion in costs for
certain producers or exporters in the subject country. As we explain
above, we disagree with the generalized claims by certain commenters
that the AD Agreement requires the United States to use prices and
costs which it determines, based on record evidence, are distorted due
to weak, ineffective, or nonexistent protections in its calculations.
On the other hand, we fully agree with the commenters who expressed
concerns that different countries enforce certain protections through
different methods, and even if those methods may differ from the United
States, they may still prove to be strong and effective. Accordingly,
we believe that it would not be logical to set forth restrictive
standards in the regulation to determine what protections, or methods
of protection, are strong or weak, or effective or ineffective.
Instead, a determination of the strength and effectiveness of a
protection in the subject country is an analysis best left for
interested parties to argue and for Commerce to analyze, consider, and
determine on a case-by-case basis.
Furthermore, we do not agree that paragraph (d)(3)(v) is
inconsistent with the United States' WTO obligations. The United States
is not demanding certain property (including intellectual property),
human rights, labor, and environmental protections be applied in
certain countries, but not in others. Instead, the United States is
merely determining if weak, ineffective, or nonexistent protections in
the subject country had an impact on the cost of production. That
analysis is neutral among all countries and provides no preference for
one over the other. Accordingly, it does not create a conflict with the
United States' WTO most favored nation obligations.
Finally, we have declined to remove the term ``significant'' from
``significant input'' whenever that term arises in the regulations. If,
as some of the commenters stated, no party will make allegations on
``insignificant'' inputs because insignificant inputs will not have a
meaningful impact on the cost of production, after adjusting for
distorted costs, then the use of the term should be of no consequence
to parties making PMS allegations because the regulatory language will
reflect actual practice. However, if a combination of ``insignificant
inputs'' can, collectively and hypothetically, have a meaningful impact
on the cost of production, Commerce would anticipate that interested
parties would be inclined to make PMS allegations on those alleged
distorted costs as well, either individually or in the aggregate. We
have determined that the administrative and resource burden on the
agency to review and consider PMS allegations for several
``insignificant'' inputs in potentially numerous cases would, be
unreasonable and inhibit, or even prevent, the timely completion of the
proceeding in which such allegations are made. Accordingly, we have
retained the use of the term ``significant input'' throughout the PMS
regulations.
viii. The definition of ``ordinary course of trade'' does not
prohibit Commerce from determining that past government or
nongovernmental actions do not preclude a finding of distorted costs of
production under Sec. 351.416(d)(4)(iv) or otherwise undermines the
PMS examples set forth in Sec. 351.416(g).
Commerce included language in the Proposed Rule that stated that
the agency would ``not be required to consider'' certain information,
and as noted above, we received several comments that expressed
concerns that Commerce did not have the authority to prohibit
consideration of information on the record. We agree and have revised
the introductory language that was in proposed paragraph (d)(3) to
instead explain that the examples set forth ``will not preclude the
finding of a market situation'' in the introductory language of Sec.
351.416(d)(4). Commerce will not prohibit parties from submitting such
information on the record, and Commerce will consider their claims
based on that information, but even if all they state is true, we have
determined it is important to stress that Commerce normally will not
consider such arguments beneficial or persuasive to its analysis.
One of those examples, as proposed, spoke to ``the existence of
historical policies and previous actions taken or not taken by the
government or industry in the subject country,'' and we received
comments that essentially expressed concerns that such a provision was
too broad. As explained above, we have narrowed and simplified the
language in that provision to reflect what we were trying to address at
its core: ``The existence of the same or similar governmental or
nongovernment actions in the subject country that preceded the period
of investigation or review'' will not preclude the finding of a market
situation. As we explained in the Proposed Rule, in Commerce's
experience some parties have argued that ``because an export
restriction, or other market distorting policy or practice, has existed
for many years in the subject country, the costs resulting from those
actions or policies are now part of the `ordinary course of trade' for
that country.'' \131\ Commerce explained that it disagreed with that
interpretation and explained that cost distortions cannot become non-
distortive merely because of historical usage. As Commerce stated in
the Proposed Rule, ``the pre-existence of government actions or
inactions, or other circumstances, does not make those situations
market-based or nullify the distortion of costs during the relevant
period of investigation or review.'' \132\ Commerce also explained that
``actions taken by a foreign government that are not in accordance with
general market principles or otherwise result in price suppression will
normally distort costs of production every year they are in effect,''
and the mere fact that those actions previously existed will not
[[Page 20804]]
prevent Commerce from finding the existence of a cost-based PMS.\133\
---------------------------------------------------------------------------
\131\ See Proposed Rule, 88 FR 29863.
\132\ Id.
\133\ Id.
---------------------------------------------------------------------------
Despite Commerce's explanation in the Proposed Rule, some
commenters suggested that because the term ``ordinary course of trade''
is defined in section 771(15) of the Act as ``the conditions and
practices which, for a reasonable time prior to the exportation of the
subject merchandise, have been normal in the trade under consideration
with respect to merchandise of the same class or kind,'' such language
indicates that not only can Commerce not refuse to consider historical
information, it is, in fact, required to analyze historic conditions
over a ``reasonable'' period of time prior to the exportation of the
subject merchandise. In that regard, we agree that Commerce is required
to consider ``conditions and practices'' which are ``normal in the
trade'' for the subject merchandise during a period of time in
considering if costs are incurred in the ordinary course of trade. It
is for that reason we have modified the language in the regulation from
that proposed in the Proposed Rule.
However, we disagree with the premise that because government
actions, such as subsidies, nongovernmental actions, or government and
nongovernmental inactions, have been applied over time, that fact alone
``normalizes'' those actions and inactions, and requires Commerce to
consider those actions or inactions to be in the ``ordinary course of
trade,'' even if those actions or inactions have distortive effects on
prices and costs. The commenters suggesting such an interpretation of
the Act expressed concerns with Commerce's determination that past
actions or inactions do not prevent a finding of a cost-based market
situation in proposed Sec. 351.416(d)(3)(iv). They also commented that
all of the examples set forth in Sec. 351.416(g) of potential cost-
based particular market situations cannot be addressed in Commerce's
calculations if those government or nongovernmental actions existed in
a time period preceding an investigation or administrative review, with
some commenters claiming that most of the listed examples are just
common economic policies and global phenomena which are in the ordinary
course trade and are not particular to individual respondents.
As we explained above, we find that such an interpretation of
section 771(15) of the Act is inconsistent with the below-cost PMS
provision in section 773(e) of the Act, requiring Commerce to consider
whether costs, as reported, ``accurately reflect the cost of production
in the ordinary course of trade.'' \134\ Under such an interpretation
of ``ordinary course of trade,'' if all subsidies and government or
nongovernmental actions or inactions were considered ``normal,'' no
matter if they impacted costs or not, then all reported costs would be
considered ``accurate.'' Such an interpretation is illogical--the
statute does not turn a blind eye to government or nongovernmental
actions that distort costs of production under a blanket claim of
historic normalization.
---------------------------------------------------------------------------
\134\ See section 773(e) of the Act.
---------------------------------------------------------------------------
Furthermore, such an interpretation is also inconsistent with the
intentions of Congress for Commerce to address foreign companies
benefiting from lower, distorted costs of production through the below-
cost PMS provision. As Commerce explained in the PMS ANPR, members of
the U.S. House of Representatives and U.S. Senate expressed concerns
about inputs being ``subsidized'' or ``otherwise outside the ordinary
course of trade,'' \135\ and that U.S. industries were ``being
cheated'' by foreign industries that were ``illegally subsidizing''
certain products,'' \136\ in introducing the legislation into law. Such
language does not suggest that Congress intended to allow government or
nongovernmental actions or inactions that distort costs of production
to be considered ``normal'' or ``ordinary'' just because they were in
place before the period of investigation or review.
---------------------------------------------------------------------------
\135\ See PMS ANPR, 87 FR 69235 (citing the Congressional
Record--House, H4666, H4690 (June 25, 2015)).
\136\ Id. (citing the Congressional Record--Senate, S2899, S2900
(May 14, 2015)).
---------------------------------------------------------------------------
Accordingly, we have revised and simplified the regulation as
explained above in Sec. 351.416(d)(4)(iv) to more accurately explain
that the mere existence of the same or similar government or
nongovernmental actions in the subject country that preceded the period
of investigation or review will not preclude a finding of a market
situation. In addition, we have continued to provide all twelve of the
examples set forth in Sec. 351.416(g) in the Proposed Rule, with some
modifications, as described above.
ix. Providing a list of sources which Commerce determines will be
of little to no benefit in most cases to a cost-based PMS determination
in Sec. 351.416(d)(4) will not have a ``chilling effect'' on other
arguments.
Certain commenters approved of Commerce's listing of the types of
information that it generally does not find beneficial to a cost-based
PMS analysis. Such commenters considered the list to be helpful and
consistent with the Act and Federal Circuit precedent, citing NEXTEEL.
Those commenters suggested that by providing a list of sources which
generally do not benefit Commerce's analysis, interested parties will
be better aware of what arguments to make or not make in persuading the
agency that a cost-based PMS exists or does not exist, thereby saving
every participant's time and resources. In contrast, some commenters
also suggested that such a list was not necessary and might unduly
restrict Commerce's ability and flexibility to consider all of the
record evidence on a case-by-case basis.
Still other commenters expressed a concern that listing documents
which Commerce ``would not consider,'' creates a ``chilling effect''
and prevents parties from making good arguments based on record
evidence which might be uniquely appropriate to the case before the
agency. Those commenters expressed concerns that because of such
restrictions, parties might be predisposed to not even submit
information on the record which could otherwise be helpful to a cost-
based PMS analysis in a specific, given case. Still other commenters
expressed concerns that by including such a list, Commerce might even
be violating the due process rights of those who should be able to
provide any argument they wish to argue their positions before the
agency.
Commerce's Response:
In changing the introductory language of proposed Sec.
351.416(d)(3), which used the language ``will not consider,'' into the
``will not preclude a finding'' language in Sec. 351.416(d)(4), as
described above, Commerce has addressed any due process claims or
arguments that such a list might unduly restrict Commerce's ability and
flexibility to consider certain arguments and facts on the record.
Parties are not prevented from submitting information and arguments on
the record and Commerce will consider such arguments and facts, but we
continue to believe that the public benefits from understanding that
the agency generally finds little benefit to its analysis in most cases
when the listed information and arguments are submitted, for the
reasons explained in the Proposed Rule.
As for the concerns expressed for a ``chilling effect,'' in some
ways, that is the purpose of the regulatory provision to the extent
that it allows parties to better understand the value of making certain
arguments over others. No party should waste its time and resources
making an argument based on certain information which Commerce has
[[Page 20805]]
determined previously to be largely irrelevant to its cost-based PMS
analysis. One commenter suggested that Commerce should continue to just
address such views on a case-by-case basis and provide no list of
examples of arguments and facts that it frequently finds to be
irrelevant, but we have determined that the public benefits more from
the inclusion of those examples in the regulation and understanding
that such arguments are generally of little help to Commerce in
deciding if a cost-based market situation exists. Thus, Commerce does
not believe that the described examples of arguments and facts listed
under Sec. 351.416(d)(4) will have a ``chilling effect'' on valid
cost-based PMS allegations.
Section 351.416(d)(4)(i) provides that the lack of precision in the
quantifiable data relating to the distortion of prices or costs in the
subject country will not preclude the finding of a cost-based PMS.
Commerce provided a lengthy explanation for this provision in the
Proposed Rule.\137\ Certain commenters suggested that Commerce should
remove the provision from the list because they expressed concerns that
it might prevent parties from providing more accurate or precise data
in response to, or in making, a PMS allegation. Others expressed
concerns that it suggested that Commerce will not consider quantifiable
data at all in its analysis. Still, others expressed concerns that the
provision suggested that Commerce would conclude that it was acceptable
to rely on erroneous data in certain circumstances in making a cost-
based PMS adjustment where precise quantifiable data were unavailable.
Lastly, one commenter requested that Commerce explain that the
applicability of a data source is different from the precision of data
and, therefore, even if Commerce determines to retain the regulatory
provision, it should explain to the public that parties can still argue
that one data source is more applicable and appropriate than another
data source, and that decisions about the precision of quantifiable
data would only come after Commerce determined the appropriate data
sources to apply.
---------------------------------------------------------------------------
\137\ See Proposed Rule, 88 FR 29863.
---------------------------------------------------------------------------
Section 351.416(d)(4)(ii) addresses costs of production which would
allegedly exist absent a cost-based PMS, providing that without
objective data, Commerce would not find such ``hypothetical'' or
speculated costs to be of assistance to its analysis. One commenter
expressed concerns that the provision might preclude Commerce from
finding a PMS based on an input which, due to the PMS, makes up a
relatively small percentage of the cost of production. For example, a
single production input might, absent a PMS, represent a large
percentage of a manufacturer's cost of production. However, because of
a PMS, it may be significantly undervalued and instead represent a
small percentage of the manufacturer's reported cost of production. The
commenter reasoned that if Commerce refuses to consider a
``hypothetical'' cost analysis of what an input's value would be absent
the PMS, then it might fail to actually address the cost distortions in
the first place. The commenter therefore disagreed that arguments about
hypothetical costs are of no value and posited that Commerce should not
base its analysis only on ``significant'' inputs but rather on cost
distortions in inputs generally.
With respect to both of these provisions, one commenter expressed
agreement with the statement that Commerce made in the preamble to the
Proposed Rule, that in reviewing the record to determine if there is a
cost-based PMS, Commerce's ``analysis is usually qualitative, rather
than quantitative, in nature,'' in that Commerce is not required to
find a precise quantitative distortion to determine a PMS exists.\138\
In the Proposed Rule, Commerce explained that ``whether Commerce's
analysis is solely qualitative or both qualitative and quantitative,''
Commerce would ``consider all relevant information submitted on the
record by interested parties.'' \139\ Accordingly, the commenter
emphasized that even if precise quantifiable data are unavailable,
qualitative allegations and information can be useful if those
allegations and information are supported by objective record evidence.
The commenter stated that Commerce should note the importance of
qualitative allegations and information in the final rule.
---------------------------------------------------------------------------
\138\ Id., 88 FR 29862.
\139\ Id.
---------------------------------------------------------------------------
Commerce's Response:
We agree with the commenter that stated that qualitative
allegations and information, be it claims that forced labor in the
country has a suppressing effect on overall labor values, for example,
or that a government's technology transfer requirements possibly
distort the market price for particular products, can be extremely
useful to Commerce's cost-based PMS analysis, as long as those
allegations and information are supported by objective evidence on the
record. That is true under paragraph (d)(4)(ii) for both allegations of
a PMS and information provided in response to those allegations.
With respect to Sec. 351.416(d)(4)(i), we will not remove the
provision, but rather will state that we agree with the commenters who
wanted Commerce to emphasize that this provision is not meant to
prevent or dissuade parties from submitting more accurate or precise
data on the record. Like qualitative allegations and information
supported by objective evidence on the record, more comprehensive,
accurate and precise data are always appreciated and considered by
Commerce in its analysis when such information is placed on the record.
Commerce's cost-based PMS determinations are based on record evidence,
and we disagree with the commenter who expressed concerns that the
regulation suggests the agency would not consider quantifiable data or
the commenter who expressed concerns that Commerce was suggesting that
it would be acceptable to rely on erroneous data. Such claims are
unfounded. The purpose of Sec. 351.416(d)(4)(i) is to address those
situations in which some quantifiable data are on the record that
support finding the existence of a cost-based PMS, but commenters
suggested that because the data are not adequately precise, those data
are meritless or should be ignored. We continue to find that such
claims are of no benefit to Commerce's cost-based PMS analysis and have
therefore included that example on the list.
In response to the request that Commerce clarify that the
appropriateness of data sources is a different issue from whether the
quantifiable data are adequately precise as articulated in the
regulation, we agree with the commenter. There may be situations in
which there are multiple data sources before the agency and Commerce
will determine which data source is the appropriate data source to use
in its calculations based on the perceived benefits of each, including
the precision and detail of quantifiable data specific to the costs of
production of subject merchandise. In that case, if one data source has
more precise quantifiable data specific to the costs of production of
the subject merchandise than other data sources, that could be a
factor, among others, which leads Commerce to select that data source
as the one it uses for purposes of its analysis.
The scenario set forth in Sec. 351.416(d)(4)(i) addresses the
situation, which Commerce has experienced multiple times, in which
[[Page 20806]]
Commerce has determined to rely on certain data and interested parties
attempt to undermine the usefulness of the information by claiming that
the quantifiable data in that data base are insufficiently precise to
support a cost-based PMS allegation. It is that argument which Commerce
finds to be of no assistance to its analysis and to which Sec.
351.416(d)(4)(i) applies.
In response to the comments stating that Commerce's PMS analysis
might be undermined by the undervaluation of an input, thereby making
it appear to be insignificant on its face, absent an argument of a
hypothetical cost without the existence of a PMS under Sec.
351.416(d)(4)(ii), we disagree. The provision states explicitly that
allegations of speculated prices or costs of significant inputs
unsupported by objective data may prove to be of little value to
Commerce's PMS analysis. In the scenario raised by the commenters, if a
party alleged that a PMS undervalued a particular input, and provided
an objective analysis with data which reflect that the input would be
significant absent the existence of the alleged PMS, such an allegation
and data would be helpful to Commerce's analysis. However, if the
allegation was devoid of any objective analysis and data, then, as the
provision states, speculated prices and costs would be of little
assistance to the agency's analysis. The issue in such a situation
would not be, as suggested by the commenters, whether the input was
significant or not significant--that matter could be determined through
the PMS analysis. The issue under Sec. 351.416(d)(4)(ii) would be
whether the alleging party merely speculated about the prices or costs
of the input, or whether the PMS allegation was supported by objective
data on the record.
x. The factors listed by Commerce to determine if a market
situation is particular in Sec. 351.416(e) are in accordance with law.
Section 351.416(e) addresses factors Commerce will consider in
determining if a market situation is particular. As explained above,
Commerce has simplified the provision from that proposed and revised
certain language to bring it into conformity with other text in the
regulation, as requested by some commenters. Commerce has also modified
the language so that it applies equally to sales-based and cost-based
particular market situations. Certain commenters questioned Commerce's
decision to provide a separate particularity consideration from a
market situation determination, arguing that such a separate
consideration is unnecessary under the Act. However, we believe that
both the CIT and Federal Circuit have disagreed with this assessment in
various holdings and that Commerce is required in PMS determinations to
separately analyze if a market situation is particular to certain
parties or products in the subject country. Accordingly, we have
retained paragraph (e) to provide factors Commerce will consider as
part of its particularity analysis.
Some commenters also commented that Commerce should focus not on
whether a market situation ``impacts'' prices or costs for only certain
parties in paragraph (e)(1), but instead focus on whether a market
situation ``suppressed'' or ``lowered'' prices or costs for certain
parties. Although we do agree that in cost-based PMS analyses and
determinations, Commerce's primary concern will be whether a market
situation had a downward effect on costs of production to the
disadvantage of the domestic industry, we also recognize that sometimes
market situations may, counter to market principles, causing prices and
costs to both rise and fall. For purposes of determining whether a
market situation is particular, we do not see the distinction between
distortions which cause costs to decline or distortions which cause
costs to rise. The important part of the particularity analysis is
whether the market situation impacted prices or costs for only certain
parties or products in the subject country. Accordingly, we have
determined to maintain the use of the term ``impact'' in the regulation
in determining if a market situation is particular.
Comments on this provision otherwise essentially fell into one of
two interpretations of the word ``particular.'' One group of commenters
expressed concerns that Commerce misunderstood in the proposed
regulation what the term particular means and misunderstood various
statements made by the courts. They suggested that a market situation
cannot be particular if it exists in one form or another outside of the
subject country, for it must be unique only to the subject country.
They also suggested that it cannot be particular if it applies to
industries beyond those of producers of subject merchandise or inputs
into subject merchandise. They commented that a market situation is
only particular if it is limited, by its terms, to producers of subject
merchandise, and that any interpretation broader than that is lawfully
impermissible.
These commenters expressed concerns that Commerce's proposed
regulation indicated that a cost-based market situation could
contribute to distortions of costs for a large number of parties or
products, including parties and products with no relationship to
subject merchandise. They expressed concerns that such an analysis goes
beyond the intentions of Congress, and that the Act was amended only to
address particular programs which distort costs solely for subject
merchandise in the subject country, and no more.
Furthermore, one commenter suggested that because a Panel concluded
that the term ``particular'' in a price-based PMS case meant
``distinct, individual, single and specific,'' \140\ Commerce's
proposed regulations are WTO inconsistent because they allowed for
Commerce to adjust its calculations for market situations that applied
to industries far beyond such a limitation.
---------------------------------------------------------------------------
\140\ See Panel Report, Australia--Anti-dumping Measures on A4
Copy Paper, WTO Doc. WT/DS529/R (adopted 27 January 2020).
---------------------------------------------------------------------------
However, other commenters suggested that the term ``particular'' in
the Act is undefined and need not be limited to a particular country,
economy, or industry, and that even the Federal Circuit in NEXTEEL
recognized that a global phenomenon like the presence of low-priced
Chinese steel could contribute to a cost-based PMS in multiple
countries as long as there is ``sufficient particularity'' to the
market in question.\141\ Some commenters advocated adoption of the
proposed provision without a change. Other commenters advocated for
Commerce to maintain the factors set forth in the Proposed Rule for
particularity, but also requested that Commerce elaborate further on
the circumstance or set of circumstances that could impact prices or
costs for certain parties or products and the amount of impact which
Commerce would consider sufficient to make the market situation
``sufficiently particular'' for purposes of a PMS determination.
---------------------------------------------------------------------------
\141\ See NEXTEEL, 28 F.4th at 1237.
---------------------------------------------------------------------------
Commerce's Response:
We disagree with the commenters who suggested that Commerce is
required by the Act or the courts to limit its analysis only to
government actions in the subject country that are targeted solely to
producers of subject merchandise or inputs into subject merchandise.
The term at issue is ``particular market situation,'' and the focus is
on the distortion of costs of production for a cost-based PMS and
whether a comparison of sales is proper for a sales-based PMS. Some
situations may impact particular parties, other situations may impact
particular products, and others may be so
[[Page 20807]]
expansive as to impact a large number of parties and products among the
general population of the subject country. For a situation to be
considered particular, the key question is whether it has impacted only
certain parties or products or whether it is sufficiently broad as to
impact the general population of parties and products in the subject
country. We do not believe the analysis should be any further
complicated than that question.
Any other understanding of the term ``particular market situation''
in the context of a cost-based PMS would require Commerce to ignore
situations that distort costs in the subject country because a
situation could impact other manufacturers in the subject country as
well as manufacturers of the merchandise subject to an investigation or
order (e.g., all steel manufacturers could be impacted and not just
manufacturers of steel wheels). Such limitations on Commerce's ability
to determine if costs are distorted would be arbitrary and inconsistent
with the purposes of the cost-based PMS provision, and we find no
support of such a limitation in the Act. Section 351.416(e)(1)
clarifies that Commerce's analysis is relatively simple and
straightforward, as reflected by the 12 examples set forth in Sec.
351.416(g)--if a market situation distorts costs of production for only
certain parties or products in the subject country, it is particular.
With respect to the request from some commenters that Commerce
provide further analysis in its regulations or preamble as to the
amount of impact which Commerce would consider sufficient to make a
market situation ``sufficiently particular,'' we have determined that
such an analysis is a decision best left to be addressed on a case-by-
case basis. There are many different types of market situations, as
shown by the examples set forth in Sec. 351.415(g), and the
delineation between ``certain parties and products'' and ``the general
population of parties and products in the subject country'' would be
one best left to the facts on the case before Commerce. Accordingly, we
will not include any further direction, at this time, in the
regulation.
xi. Commerce's authority to determine the appropriate adjustment to
apply, as set forth in Sec. 351.416(f), is lawful.
As explained above, Commerce revised Sec. 351.416(f) as presented
in the Proposed Rule in several ways. The provision now clarifies that
when the Secretary is unable to precisely quantify the distortions to
the cost of production of subject merchandise to which the PMS
contributed, the methodology used by Commerce to determine an
appropriate adjustment will be based on record information. We have
also added a provision which states that Commerce may determine that an
adjustment is not appropriate even if it does find the existence of a
PMS if certain circumstances exist, with examples of such circumstances
listed. These changes were all made to the paragraph in response to
comments we received on the Proposed Rule.
There were additional comments on the provision from the public,
and suggestions which, after consideration, we determined not to
incorporate into the regulation. All commenters agreed that if the
information on the record provided a means of precisely quantifying the
distortion to costs, then an adjustment based on that quantification
was required. However, at that point there was disagreement. Some
commenters stated that if the distortion to costs cannot be quantified
precisely, then Commerce does not have the authority to make an
adjustment. Other commenters suggested that Commerce must still find a
means to quantify the distortion in some way based on record evidence
if it cannot quantify the distortions precisely. A third set of
commenters supported Commerce's proposed regulation and suggested that
Commerce should be free to use whatever information on the record it
believes appropriate to make an adjustment, consistent with the
language of section 773(e) of the Act, which states that Commerce may
use ``any other calculation methodology'' once a cost-based PMS is
determined to exist.\142\ That third set of commenters suggested that
whatever methodology Commerce determined to use in a given case should
be fact- and case-specific, and tied to the nature of the product at
issue and the availability of information.
---------------------------------------------------------------------------
\142\ These commenters suggested that such an analysis is
consistent with the Federal Circuit's opinion in NEXTEEL, which
stated nothing in the statute requires Commerce to precisely
quantify the distortion caused by a PMS in order to make an
affirmative PMS finding. See NEXTEEL, 28 F.4th at 1234.
---------------------------------------------------------------------------
For the other two sets of commenters, they pointed out that section
773(b) of the Act requires an analysis as to whether sales of subject
merchandise are outside the course of trade due to distorted costs.
They commented that Commerce failed in the Proposed Rule to address the
holdings by the CIT and Federal Circuit which held that the statute
does not permit Commerce to apply its below-cost test to transactions
it finds distorted by a PMS, and they requested that either Commerce
remove paragraph (f) entirely or address the legislative restrictions
and court decisions in the provision or the preamble to these
regulations.
They also suggested that, despite the Federal Circuit's holding in
NEXTEEL that Commerce need not quantify the cost distortions precisely
in adjusting for a cost-based PMS, Commerce cannot adjust its
calculations without some determination as to the amount of distortions
caused by a cost-based PMS and allowance for parties to make arguments
in each case to that effect. Otherwise, they suggested that any
adjustment to Commerce's calculations could not be based on a
``reasonable methodology.''
In addition, some commenters expressed concerns that in using the
term ``reasonable methodology,'' the regulations did not define what
methodologies are ``reasonable.'' Likewise, other commenters requested
that Commerce define what ``calculations'' are intended when the
regulation states that Commerce may adjust its calculations in
paragraph (f), again citing CIT and Federal Circuit holdings that stand
for the proposition that the statute does not contain a provision which
allows Commerce to apply a PMS adjustment for purposes of its below-
cost test.
Another commenter suggested that Commerce should include the term
``significant'' before the word ``distortions'' because Congress only
intended for significant cost distortions to be addressed by Commerce
in its calculations.
In addition, other commenters suggested that the regulation should
prohibit the application of AFA under sections 776(a) and (b) of the
Act in determining an adjustment for a cost-based PMS and prohibit the
consideration of previous Commerce determinations based on AFA.
Finally, those same commenters also suggested that Commerce should
prohibit the application of an adjustment for a cost-based PMS based on
a subsidy when Commerce has already countervailed a subsidy at issue in
the companion CVD proceeding to prevent the application of a double
remedy.
Commerce's Response:
The purpose of these regulations is to address Commerce's analysis
for determining the existence of a PMS. Paragraph (f) addresses the
fact that Commerce has the authority to adjust its calculations once it
determines the existence of a cost-based PMS. As several commenters
pointed out, we are restricted by the Act and the courts'
interpretation of the Act from making certain adjustments to our
calculations.
[[Page 20808]]
We are also aware, as some other commenters have noted, that recently
legislation has been proposed to Congress to remove those restrictions.
Accordingly, we have decided not to codify with any specificity the
adjustments Commerce may or may not make in its calculations in
paragraph (f), and instead have drafted the regulation using general
terminology which may apply if the status of the adjustments Commerce
can make to its calculations remains the same or changes. We will
therefore not define the terms ``reasonable methodology'' or
``calculations'' in the regulation, but we do recognize that at the
time these regulations are issued, Commerce is unable to adjust for a
cost-based PMS determination when performing the sales-below-cost test,
pursuant to section 773(b)(1) of the Act.
Likewise, we will not add the term ``significant'' before the term
``distortion in the cost of materials and fabrication or other
processing,'' or any other use of the term ``distortion'' in paragraph
(f) because the Act does not require such a restriction and we believe
that such a restriction would unreasonably limit Commerce's authority
to determine to adjust, or not adjust, its calculations as it finds
appropriate, on a case-by-case basis. There may be one proceeding in
which Commerce finds that a PMS contributed to one distortion in costs,
while in another proceeding it finds that the PMS contributed to
several different cost distortions. The addition of the word
``significant'' to the term would require Commerce to determine if a
single or combination of distortions met a standard of significance
before it could make an adjustment to its calculations in every case.
We will not include such an additional requirement in the regulation.
Notably, we have already limited our cost-based PMS analysis to
``significant'' inputs into the production of subject merchandise or
the subject merchandise itself; therefore, we see no reason to further
limit our analysis in paragraph (f) in the manner suggested by the
commenter.
In response to the request from certain commenters that the
regulation should impose an across-the-board prohibition on the use of
AFA under sections 776(a) and (b) of the Act in determining an
adjustment for a cost-based PMS or prohibit the consideration of
previous Commerce determinations based on AFA in making an adjustment,
we do not believe such regulatory prohibitions would be appropriate.
The appropriateness of the use of AFA is determined on a case-by-case
basis. For example, it is possible that in a given investigation or
review, Commerce might determine that a single respondent benefited
from a cost-based PMS. If Commerce requested information from the
respondent pertaining to the PMS allegation in the conduct of the
proceeding, and the respondent failed to act to the best of its ability
in providing the necessary information, then the application of AFA
under sections 776(a) and (b) in selecting from possible adjustments to
its calculations would be warranted. An across-the-board prohibition on
the use of AFA or previous agency determinations based on AFA would
unreasonably prevent such an application in that case. Accordingly, we
have not incorporated the suggested prohibitions into paragraph (j) of
Sec. 351.416.
With respect to commenters who suggested that Commerce should
prohibit the application of an adjustment for a cost-based PMS based on
the existence of a subsidy in an AD proceeding when Commerce has
already countervailed that subsidy in a companion CVD proceeding to
prevent the application of a double remedy in the regulation, we
disagree that such a regulatory restriction is necessary or warranted.
The AD and CVD laws are separate regimes that provide separate remedies
for certain unfair trade practices and in proceedings in which Commerce
has been faced with such an argument, Commerce found that neither the
Act nor the record evidence supported an ``adjustment of the AD remedy
to account for a putative overlap with the CVD remedy.'' \143\ In other
words, Commerce concluded that the existence of the CVD remedy was not
grounds to reconsider or adjust the PMS remedy in a companion dumping
investigation. Additionally, when that determination was appealed to
the Federal Circuit, the court upheld Commerce's determination that the
record did not support a finding that a double remedy resulted when the
same government action countervailed in a CVD proceeding was also the
basis of a cost-based PMS finding and adjustment in the companion AD
proceeding.\144\ Accordingly, no addition of such an all-encompassing
prohibition to paragraph (f) is warranted.
---------------------------------------------------------------------------
\143\ See Final Results of Redetermination Pursuant to Court
Remand, Vicentin S.A.I.C. et al. v. United States, Consol. Court No.
18-00111, Slip Op. 20-91 (CIT July 1, 2020), dated November 12,
2020, at 5-6, available at https://access.trade.gov/resources/remands/20-91.pdf.
\144\ See Vicentin S.A.I.C. et al. vs. United States, 42 F.4th
1372, 1381 (Fed. Cir. 2022) (Vicentin S.A.I.C.) (``{the PMS
adjustment{time} resulted in an adequate remedy for dumping, which
is not duplicative of the countervailing duty remedy.'').
---------------------------------------------------------------------------
Lastly, in response to the suggestion that Commerce cannot make an
adjustment to its calculations without some quantification of the
distortion of costs, we note that the purpose of Commerce's adjustment
is to address the observed cost distortions. Accordingly, in general,
Commerce's selected methodology will attempt to estimate the amount of
distortions in the cost of production of the subject merchandise
pursuant to that exercise. As noted above, we have modified the
language of the regulation to reflect that when Commerce uses a
reasonable methodology to determine an appropriate adjustment to its
calculations, that methodology will be based on record information. We
have not defined what adjustments Commerce may make to address those
cost distortions. Whatever methodology Commerce employs to determine
the appropriate adjustment (e.g., Commerce might determine at time it
is appropriate to replace a distorted value on the record with a
market-determined value, while other times Commerce might determine it
appropriate to adjust the reported costs with an amount to offset the
cost distortions) will be case-specific and depend on the facts on the
record and what information is provided to Commerce for purposes of
making an adjustment. Thus, we have determined it would not be
appropriate to set forth standards for quantifying the cost distortions
and determining an appropriate adjustment to its calculations in all
cost-based PMS determinations in the final regulation.
xii. The examples set forth in Sec. 351.416(g) help clarify the
types of actions and inactions Commerce may determine to be a PMS.
Several commenters expressed strong support for Commerce's decision
to include examples of government or nongovernment actions that may be
found to be a cost-based PMS in paragraph (g) of the regulation. They
stated that such examples will help inform both Commerce employees and
parties outside of Commerce as to the circumstances or set of
circumstances which sometimes distort costs of production of subject
merchandise and inputs into subject merchandise.
One commenter requested that Commerce emphasize that the list is
not comprehensive, and that there are many more circumstances beyond
the 12 examples that might be determined to be a cost-based PMS.
Other commenters provided multiple examples in which the
circumstances listed in paragraphs (g)(1) through (12) might not
distort costs and, therefore, would not always be determined to be
[[Page 20809]]
cost-based particular market situations. One commenter suggested in one
example that producers might respond to government export restrictions
by cutting production or input producers might simply pocket rebates
and, in both cases, the result would be no changes in prices or costs
of production.
Some of those commenters expressed concerns that including the 12
examples might confuse the public into thinking these circumstances
will always be, de facto, a cost-based PMS and they suggested that
Commerce should remove the examples altogether. Other commenters did
not suggest the removal of the examples, but instead, requested that
Commerce emphasize that these are just examples and that two similar
fact patterns can have very different impacts on the cost of
production, depending on facts specific to the record before the agency
in a specific proceeding.
For paragraph (g)(1), some commenters opposed the focus on
``global'' overcapacity--stating that mere ``overcapacity'' should be
sufficient for that example, global or otherwise. Others suggested that
any situation which is ``global'' in effect would not be particular
and, therefore, could not be a PMS. Still, others did not question that
Commerce has the authority to address global overcapacity in its
regulations, but rather suggested that such an analysis could lead to
legal disputes and trade tensions with other global partners. Those
commenters requested that Commerce remove that example from the
proposed regulation for diplomatic purposes.
For paragraph (g)(2), certain commenters suggested that government
ownership does not always lead to distorted costs, while another
commenter agreed with Commerce that direct and indirect actions
pertaining to inputs, particularly actions or inactions by the
government, can have significant impacts on the overall distortion of
costs of production.
For paragraphs (g)(4) and (5), two commenters suggested that
government intervention and export restrictions do not always cause
distortions, and they requested that Commerce emphasize in those
examples that Commerce must also find that costs of production were
distorted before finding the existence of a PMS.
For paragraph (g)(8), one commenter expressed its support for that
example, highlighting that financial assistance takes different forms
(e.g., tax incentives, such as rebates and exemptions). Another
commenter suggested that, despite the legislative history of the below-
cost PMS provision in the Act, Commerce should not address government
subsidies through the dumping law in a PMS determination, but instead
should address such concerns solely in a CVD proceeding. Still other
commenters suggested that government assistance is irrelevant in
calculating costs of production, but notwithstanding if there is
already a CVD companion order countervailing the subsidy at issue,
Commerce may not find a cost-based PMS if it results in the application
of a remedy twice for the same action, which is impermissible under
U.S. WTO obligations and U.S. law.
With respect to paragraph (g)(9), one commenter voiced its strong
endorsement for a finding that government actions which otherwise
influence the production of subject merchandise or significant inputs
can distort costs of production, such as technology transfer
requirements and, therefore, be an example of a below-cost PMS. Another
commenter, however, expressed concerns with the economics behind such
an example, because if Commerce is only concerned about suppressed
prices, then domestic content requirements and technology transfer
requirements might actually artificially raise prices and costs rather
than diminish them. That commenter suggested that because Commerce's
assumption that the government actions listed in this example only
distorts costs downward is flawed, paragraph (g)(9) should be removed
as an example.
With respect to paragraphs (g)(10) and (11), certain commenters
expressed their support for Commerce's acknowledgement that weak,
ineffective, or nonexistent property (including intellectual property),
human rights, labor, and environmental protections could impact costs
of production and could warrant an adjustment to Commerce's AD
calculations. Others, however, critiqued the regulations for providing
no guidance on how Commerce intends to address such allegations, what
sources it intends to use in determining if protections are weak or
ineffective, and how a respondent with no control over such government
policies could respond to questionnaires on the issue. As noted above,
still others expressed concerns that these provisions were in violation
of United States' international obligations and unfairly ``punished''
governments for administering their laws in a different manner than the
United States.
For paragraph (g)(12), one party requested that Commerce define the
term ``strategic alliance,'' while another suggested that adjusting
cost calculations based on prices derived from private company
arrangements was illogical because sometimes such arrangements increase
rather than decrease the costs of production and, if the companies are
affiliated, the Act already addresses distorted prices and costs
through the transactions disregarded and major input rules in sections
773(f)(2) and (3) of the Act.
Lastly, one commenter asked Commerce to consider that strategic
alliances do not require joint ownership, familial grouping, or formal
agreements to exist to distort costs. Therefore, this commenter
reasoned, Commerce should acknowledge that it will not disregard
relationships in which these circumstances may not be formally
recognized or named.
Commerce's Response:
Commerce agrees with every commenter that emphasized that the
examples in Sec. 351.416(g) are just illustrative and that the list is
not comprehensive (i.e., exhaustive). As multiple commenters argue,
governmental and nongovernmental actions and inactions frequently do
not contribute to the distortion of costs of production; thus,
depending on the facts in an individual case, the described example
simply may not be a cost-based PMS. That is made clear by the actual
text of each example, but because many commenters expressed concerns
about that fact, we are emphasizing in the preamble that these are just
examples, dependent on the facts of each case. Nonetheless, Commerce
also believes that listing examples provides a better illustration of
cost-based particular market situations than just a definition or test.
It certainly provides more guidance than not having examples at all, as
suggested by one commenter. Accordingly, we have retained each example
in the final regulation.
With respect to comments on the individual examples which are not
focused on case-specific distortions, Commerce responds as follows.
Commerce has retained the use of the term ``global''
before ``overcapacity'' in paragraph (g)(1) because that is the
intended example and one which Commerce has observed and addressed in
past proceedings.\145\ Commerce disagrees that it does not have the
authority to address distortions caused by global overcapacity in the
subject country, and Commerce does not believe the potential effects of
addressing global overcapacity on other
[[Page 20810]]
trading partners is relevant for purposes of the trade remedy laws.
---------------------------------------------------------------------------
\145\ See Circular Welded Carbon Steel Standard Pipe and Tube
Products from Turkey: Amended Final Results of Antidumping Duty
Administrative Review; 2020-2021, 88 FR 2606 (January 1, 2023), and
accompanying IDM at Comment 1.
---------------------------------------------------------------------------
In response to the comments on paragraph (g)(8), Commerce
agrees that government financial assistance can take many forms, but
disagrees that it cannot address subsidies through a cost-based PMS for
the reasons explained above and in the Proposed Rule.\146\ We emphasize
that financial assistance does not always mean that a subsidy is
countervailable, but it may still have an impact on costs of production
and, therefore, warrant a cost-based PMS determination. Further, as
explained above, even if Commerce has countervailed a subsidy in a
companion CVD investigation or review, that does not mean that the
application of a cost-based PMS adjustment results in a double remedy.
In fact, agency experience has shown that it does not.\147\
---------------------------------------------------------------------------
\146\ See Proposed Rule, 88 FR 29864-65.
\147\ See Vicentin S.A.I.C., 42 F.4th at 1377; see also Urea
Ammonium Nitrate Solutions from the Republic of Trinidad and Tobago:
Final Affirmative Determination of Sales at Less than Fair Value, 87
FR 37824 (June 24, 2022), and accompanying IDM at Comment 1.
---------------------------------------------------------------------------
With respect to the comments on paragraph (g)(9), Commerce
does not disagree that government actions which otherwise influence the
production of subject merchandise may sometimes distort prices and
costs downward, while other times, they may actually distort prices and
costs upward. In either case, such actions have a distortive impact on
costs of production. The existence of costs of production which are not
in the ordinary course of trade is a different issue from whether
Commerce should make an adjustment to its calculations in response to
those distortions under Sec. 351.416(f). Commerce has retained this
example in paragraph (g), however, as addressed above, Commerce has
modified the example to address only three articulated circumstances
which may impact prices and costs.
In response to the comments on paragraphs (g)(10) and
(11), for the reasons provided above, Commerce has determined that it
has the authority to address weak, ineffective, and nonexistent
protections that distort costs of production, and Commerce does not
believe that it would be appropriate at this time to set forth
standards and tests to address hypothetical scenarios in the
regulation. Such analyses and determinations will be fact-specific and
addressed by Commerce on a case-by-case basis. Furthermore, as Commerce
is only analyzing factors which distort costs of production, such an
analysis is in no way a violation of the United States' WTO
obligations.
Finally, with respect to paragraph (g)(12), Commerce has
revised the language to explain that the provision applies to
nongovernmental entities that, for example, form business relationships
between producers of subject merchandise and suppliers of significant
inputs to the production of subject merchandise, including mutually-
beneficial strategic alliances or noncompetitive arrangements, that
result in distortive prices and costs. This language adequately
describes the business relationships at issue in this example, and an
additional definition of strategic alliances is not necessary in the
regulation, as requested by one commenter. Furthermore, as the
transactions disregarded rule and major input rule of sections
773(f)(2) and (3) of the Act apply only in circumstances involving
affiliated entities, Commerce disagrees with the commenter that
expressed concerns that those provisions undermine the viability of
this example. As set forth in Sec. 351.416(f)(3)(i), Commerce may
determine not to apply an adjustment if it determines that either of
these provisions has sufficiently addressed the cost distortions caused
by a PMS, but the fact that a PMS has contributed to the distortion of
costs of production is a different issue than whether or not Commerce
should make an adjustment to its calculations. Likewise, some
nongovernmental entity actions may distort costs of production upward
while others might suppress prices and costs downward, but in either
case the fact that a PMS exists that distorted costs of production
during the period of investigation or review is not at issue. Again,
whether Commerce determines to adjust its calculations under Sec.
351.416(f)(3) is a different issue from whether or not a cost-based PMS
exists in the first place.
xiii. Cost-based particular market situations may contribute to a
sales-based PMS, as set forth in Sec. 351.416(h).
Several commenters expressed support for the inclusion of Sec.
351.416(h). Certain commenters suggested, however, that Commerce should
modify the language of Sec. 351.416(h) from ``may consider'' to ``will
consider'' to require Commerce to always consider if a cost-based PMS
contributes to a sales-based PMS. Those commenters suggested that
because Commerce did not explain under what scenarios it would consider
such a relationship to exist in the proposed regulation, it either must
make such a consideration mandatory in every case it finds the
existence of a cost-based PMS or set forth further guidance as to how
it will determine a possible linkage between the two market situations.
Another commenter likewise suggested that Commerce should revise its
regulation to make clear that it will thoroughly review record
information in every case in which it finds the existence of a cost-
based PMS to determine if improper comparisons between home market or
third-country market prices and export prices or constructed export
prices exist, in part, because of the cost distortions caused by the
cost-based PMS. In addition, still other commenters requested that
Commerce issue further guidance on the standards it would use to
conduct an analysis under this provision, including the burden on the
party alleging a connection between a cost-based PMS and a sales-based
PMS.
In addition, certain other commenters expressed concerns that
paragraph (h) is inconsistent with the Act. They pointed out that as
recently as 2020, Commerce agreed, stating its position that ``there is
no statutory basis for Commerce to find a price-based PMS using the
same data as Commerce used to find a cost-based PMS,'' \148\ and
suggested that the proposed regulatory provision stands for the
``exact'' opposite interpretation. Other commenters suggested further
that a cost-based PMS that impacts a physical input consumed
identically for the production of domestic and export sales cannot
generate a divergence that would frustrate a price-to-price comparison.
In support of this conclusion, they cited the aforementioned Federal
Circuit decision, Hyundai Steel Co., in which the court held that a PMS
``that affects costs of production would presumably affect prices for
domestic sales and export sales, so there would be no reason to adjust
only for home market prices.'' \149\ Both sets of commenters therefore
suggested that Commerce remove this provision from the regulation.
---------------------------------------------------------------------------
\148\ See Certain Cold-Rolled and Steel Flat Products from the
Republic of Korea: Final Results of Antidumping Duty Administrative
Review, 2017-2018, 85 FR 41995 (July 13, 2020) (Cold-Rolled Steel
from Korea), and accompanying IDM at Comment 1.
\149\ See Hyundai, Steel Co., 19 F.4th at 1355, n. 11 (citing
Husteel Co. v. United States, 426 F. Supp. 3d 1376, 1388 (CIT
2020)).
---------------------------------------------------------------------------
Commerce's Response:
Commerce made no revisions to Sec. 351.416(h) in response to these
comments. First, Commerce disagrees with the commenters that portrayed
this as the ``exact'' same scenario which Commerce was addressing in
Cold-Rolled Steel from Korea. Section
[[Page 20811]]
351.416(h) states that after Commerce determines the existence of a
cost-based PMS, it may determine, based on record information, whether
that PMS also contributed to a sales-based PMS. It does not say that it
will be the only factor contributing to a sales-based PMS, or that
Commerce will make its sales-based PMS determination using only the
``same data'' as it used to determine the existence of a cost-based
PMS. Furthermore, Commerce does not disagree with the Federal Circuit
in its logic that in many cases, if a market situation distorts costs
in the home market, it may, under certain facts, equally distort prices
for export sales and constructed export sales. For these reasons,
Commerce has not issued a provision that states that a cost-based PMS
always results in a sales-based PMS.
Instead, Sec. 351.416(h) suggests that a cost-based PMS may, under
certain facts, contribute to a circumstance or set of circumstances
that prevents or prohibits a proper comparison of home market or third
market sales to export or constructed export sales. Commerce knows of
no statutory restriction that prevents Commerce from considering
distorted costs of production as a factor, amongst others, that may
inhibit comparisons between sales in different markets. However,
Commerce also believes that such a determination would be case-specific
and may be highly dependent on other factors also contributing to a
sales-based PMS. Accordingly, Commerce does not believe it would be
appropriate to incorporate standards or guidance to hypothetical
scenarios in the regulation.
Likewise, we will not revise the ``may consider'' language in the
regulation to ``will consider,'' as requested by certain commenters.
Because, as Commerce has explained, the link between a cost-based PMS
and sales-based PMS would be highly dependent on the facts of a case,
Commerce believes that it would be a misuse of agency resources to
conduct such an analysis every time Commerce determines the existence
of a cost-based PMS. Instead, the provision allows for Commerce to
conduct such an analysis when an interested party makes a sales-based
PMS allegation, or if Commerce determines based on the facts before it
in an investigation or administrative review that such an analysis is
warranted. We have determined that making the analysis possible, but
not mandatory, is the appropriate standard to apply in the regulation.
Finally, with respect to the standard which a party alleging a
cost-based PMS has contributed to a sales-based PMS must meet, Commerce
believes it is the same standard as set forth in Sec. 351.416(b). The
alleging party must submit a timely allegation supported by relevant
information reasonably available to it in support of the allegation. We
see no reason why the standard should be different for an allegation of
a sales-based PMS with a cost-based PMS contribution, from that of an
allegation of a sales-based PMS without a cost-based PMS contribution.
xiv. Other comments pertaining to Sec. 351.416.
a. Commerce will not align the deadlines for filing sales-based and
cost-based PMS allegations.
Several commenters suggested that Commerce should align the
deadline for alleging a sales-based PMS with the deadline for alleging
a cost-based PMS, claiming that it would be easier to allege that a
cost-based PMS has contributed to a sales-based PMS if both deadlines
are set 20 days after a respondent submits its complete response to the
original questionnaire. One commenter requested that Commerce consider
moving that deadline to 50 days after a respondent has submitted its
questionnaire response, to allow parties time to analyze respondents'
questionnaire responses fully and determine if a PMS exists.
Commerce's Response:
Commerce did not modify its deadlines in the Proposed Rule and will
not modify its regulations to do so in the final regulation. Commerce
currently has the flexibility to set such deadlines without the
restriction of a regulation and there are resource-related and
administrative reasons for which Commerce has been reluctant to modify
these deadlines in the past. Accordingly, because we wish to retain the
flexibility to set such deadlines as necessary, there will be no
alignment of sales-based PMS and cost-based PMS allegation deadlines in
the final regulation.
b. Commerce will not eliminate its application of a non-market
economy analysis under section 773(c) of the Act, nor will it apply its
PMS analysis only to non-market economies.
One commenter proposed that Commerce eliminate its application of a
non-market economy analysis and instead apply a cost-based PMS analysis
on a case-by-case basis to government actions it determines are
distorting costs of production for all countries. That commenter
suggested that such an application of the cost-based PMS provision
would ensure fairer treatment for all types of economies in comparison
to its non-market economy methodology.
Another commenter suggested that, rather than apply its cost-based
PMS analysis to all market economies, Commerce should only apply the
cost-based PMS analysis to those countries which it determines are non-
market economies.
Commerce's Response:
Commerce finds no rationale to cease its application of the non-
market economy analysis set forth in section 773(c) of the Act, and no
reason that it should instead apply its cost-based PMS analysis only to
non-market economies. Accordingly, we will not incorporate either of
these suggestions into the regulation.
c. This regulation will increase transparency and accuracy in both
of Commerce's PMS analyses.
One commenter expressed concerns that Commerce's PMS regulations
might prove an obstacle to transparency and due process, as well as
reduce the accuracy of its AD decisions.
Commerce's Response:
We disagree that by setting forth in Sec. 351.416 Commerce's
analysis for determining if a sales-based PMS and cost-based PMS
exists, the regulation is creating an obstacle to transparency and due
process. In fact, it is the opposite. Commerce has issued extensive
proposed regulations and considered and addressed numerous comments on
those regulations to clarify and provide transparency as to its market
situation determinations. As a result of this regulation, Commerce's
policies and considerations in determining the existence of a PMS are
now expressed in greater detail and available for wider public
consideration and understanding than at any time in the agency's
history.
Furthermore, we disagree that this regulation in any way reduces
the accuracy of our AD determinations and decisions. Instead, by
addressing, in detail, market situations that prevent or prohibit a
proper comparison of home market and third market sales with export and
constructed export sales and governmental and nongovernmental actions
and inactions that contribute to the distortion of costs of production,
Sec. 351.416 increases, rather than decreases, Commerce's ability to
accurately calculate AD margins in its investigations and
administrative reviews.
8. Commerce has made no changes to the proposed amendment to the
CVD benefit regulation--Sec. 351.503.
In the Proposed Rule, Commerce indicated that it was revising Sec.
351.503 to divide existing paragraph (c) into two parts. The first part
reflects the existing language, with an additional explanation that
Commerce is not
[[Page 20812]]
required to consider whether there has been any change in a firm's
behavior because of a subsidy.\150\ The second part states that when
the government provides assistance to a firm to comply with certain
government regulations, requirements, or obligations, Commerce will
normally only measure the benefit of the subsidy (i.e., the government
assistance) and will not be required to also consider the cost to
comply with those regulations, requirements or obligations.\151\ These
modifications to the benefit regulation were intended to codify
Commerce's existing practices and policies.
---------------------------------------------------------------------------
\150\ See Proposed Rule, 88 FR 29867.
\151\ See id.
---------------------------------------------------------------------------
Commerce received comments on these proposed changes to its benefit
regulation, and based on some of the comments, it was evident that not
every submitter was aware of Commerce's long-standing practices in this
area of CVD law. On this basis alone we therefore believe that these
additions to the regulation will provide greater transparency to the
public.
In sum, Commerce received comments from nine parties on the
proposed amendments in Sec. 351.503(c). Of those, six of the
commenters supported the amended language within Sec. 351.503(c). Of
the remaining three commenters, two stated that Commerce failed to
provide sufficient clarity on defining the terms ``cost in complying''
and ``government-imposed regulation, or obligation.''
The new Sec. 351.503(c)(2) states that when a government provides
assistance to a firm to comply with a government regulation,
requirement, or obligation, the Secretary, in measuring the benefit
from the subsidy, will not consider whether the firm incurred a ``cost
in complying with the government-imposed regulation, requirement, or
obligation.''
In addition, one of the commenters stated that, contrary to what
the proposed regulation seems to suggest, Commerce cannot determine
that a countervailable subsidy exists or the amount, if any, of a
benefit conferred by focusing exclusively on what the government has
provided. This commenter suggested that the Act and the regulations
require Commerce to determine the type of financial contribution at
issue, and the benefit corresponding to that type of financial
contribution, by recognizing what, if anything, the foreign
manufacturer provided in return. For example, this commenter explained
that when a government transfers funds to a foreign producer, Commerce
cannot presume, looking exclusively at the funds transferred, that a
grant has been provided. Instead, the commenter explained that Commerce
must determine whether the funds constitute a loan, an equity infusion,
a purchase of goods, or a purchase of services. The differences in
these types of financial contributions depend on what, if anything, the
foreign producer provides in return. For example, a direct transfer of
funds would be a loan and not a grant if the foreign producer were to
provide payments of principal or interest in return to the foreign
government. Accordingly, this commenter expressed concerns with the
language of Sec. 351.503(c)(2), which it commented appears to suggest
that Commerce will only consider the government's actions, and not the
actions of the subsidy recipient, in determining a benefit.
Another party expressed concerns that Sec. 351.503(c)(2) is
inconsistent with section 771(6) of the Act, which the commenter stated
requires Commerce to subtract from the gross countervailable subsidy
received ``any application fee, deposit, or similar payment paid in
order to qualify for, or to receive, the benefit of the countervailable
subsidy.''
That same commenter also stated that the new Sec. 351.503(c)(2) is
also inconsistent with section 771(5)(E)(iv) of the Act. Section
771(5)(E)(iv) of the Act states that when the government provides a
good or service, Commerce will determine whether a benefit is provided
by examining whether the price paid by the recipient for the government
good or service was for ``adequate remuneration.'' The Act provides
that the adequacy of remuneration will be based on ``prevailing market
conditions'' that include ``price, quality, availability,
marketability, transportation, and other conditions of purchase or
sale.'' Therefore, this commenter suggested that section 771(5)(E)(iv)
of the Act requires that Commerce account for the full costs associated
with respondent's eligibility and receipt of a countervailable subsidy,
while the changes to the regulation appeared to reject full
consideration of all those associated costs.
Another commenter expressed concerns that Sec. 351.503(c)(2) was
overly broad and in conflict with the plain language of the statute and
provided an example to support its comment. This commenter hypothesized
a situation in which a foreign producer purchased land from the
government for the development of its manufacturing facility and the
land purchase agreement required the producer, as a condition of the
land sale, to upgrade a public road for a neighboring community as a
public service that otherwise would be undertaken by the government.
This commenter suggested that under that proposed situation, Commerce's
regulation would ignore important information as part of its analysis.
Lastly, one commenter stated that specifically in the context of
environmental subsidies, Commerce's proposed across the board refusal
to consider compliance costs conflicts with the Biden Administration's
support for the renewable energy and climate change reduction programs.
The commenter raised its concern that Commerce's proposed regulation is
especially problematic with regards to compliance costs associated with
environmental standards. For instance, a government may regulate the
carbon emission standards of a foreign producer. That foreign producer
may face significant costs in meeting the government's emission
standards that may otherwise outweigh any benefit that the government
would offer the foreign producer in return for meeting these standards.
Nevertheless, under the proposed regulation, Commerce would disregard
foreign producers' resources expended even where the overall program
conferred no measurable benefit for the foreign producer. This
commenter requested that Commerce must not adopt a regulation that
would confer a benefit when no such benefit exists. It commented that
this is not the appropriate time for Commerce to amend its existing
regulations to clarify that compliance costs with a government program
(e.g., an incentive program relating renewable energy) cannot be
considered as an offset and instead essentially treat these compliance
costs as a grant.
Commerce's Response:
In response to the commenters who stated that Commerce has not
provided an adequate explanation of the terms ``cost in complying with
the government-imposed regulation, requirement, or obligation,'' we
note that in the Proposed Rule, Commerce explained that much of the
agency's interpretation of the Act and examples were originally set
forth in the CVD Preamble.\152\
---------------------------------------------------------------------------
\152\ See Proposed Rule, 88 FR 29867 (citing Countervailing
Duties: Final Rule, 63 FR 65348, 65361 (November 25, 1998) (CVD
Preamble)).
---------------------------------------------------------------------------
However, given the comments from these two commenters, Commerce has
concluded that it would be prudent to repeat the discussion and
explanation of compliance costs and a government-imposed mandate.
Commerce believes
[[Page 20813]]
that this explanation will not only provide a sufficient understanding
of these concepts to interested parties but also provides a fuller
explanation as to why Commerce has adopted this practice for at least
the last 25 years.
To begin, a determination of whether a benefit is conferred is
completely separate and distinct from an examination of the ``effect''
of a subsidy. In other words, a determination of whether a firm's costs
have been reduced or revenues have been enhanced bears no relation to
the effect of those cost reductions or revenue enhancements on the
firm's subsequent performance (e.g., its prices or output). In
analyzing whether a benefit exists, Commerce is concerned with what
goes into a company, such as enhanced revenues and reduced-cost inputs.
Commerce is not concerned as much with what the company actually does
with the subsidy. The agency's emphasis on reduced-cost inputs and
enhanced revenues is derived from elements contained in the examples of
benefits in section 771(5)(E) of the Act and in Article 14 of the SCM
Agreement. In contrast, the effect of government actions on a firm's
subsequent performance, such as its prices or output, cannot be derived
from any elements common to the examples in section 771(5)(E) of the
Act or Article 14 of the SCM Agreement.
For example, as a hypothetical, imagine a situation in which the
government establishes new environmental restrictions that require a
firm to purchase new equipment to adapt its facilities, and that the
government also provides the firm with subsidies to purchase that new
equipment. Now, however, assume that the government's subsidies do not
fully offset the total increase in the firm's costs (i.e., the net
effect of the new environmental requirements and the subsidies leaves
the firm with costs that are higher than they previously were). In this
situation, the Act treats the imposition of new environmental
requirements and the subsidization of compliance with those
requirements as two separate actions. A subsidy that reduces a firm's
cost of compliance remains a subsidy that is subject to the Act's
remaining tests for countervailability even though the overall effect
of the two government actions, taken together, may leave the firm with
higher costs.
As another example, assume a government promulgated safety
regulations requiring auto makers to install seatbelts in back seats,
and then gave the auto makers a subsidy to install the seatbelts, but
the subsidies did not fully offset the total increase of the auto
maker's costs. Similar to the environmental restriction subsidies
described above, we would draw the same conclusion from this situation.
In the two examples, the government action that constitutes the benefit
is the subsidy to install the equipment, because this action represents
an input cost reduction. The government action represented by the
requirement to install the equipment will not be construed as an offset
to the subsidy provided to reduce the costs of installing the
equipment.
Thus, if there is a financial contribution and a firm pays less for
an input than it otherwise would pay in the absence of that financial
contribution (or receives revenues beyond the amount it otherwise would
earn), that is the end of the inquiry insofar as the benefit element is
concerned. Commerce need not consider how a firm's behavior is altered
when it receives a financial contribution that lowers its input costs
or increases its revenues.
Section 771(5)(C) of the Act explains that the ``benefit'' and the
``effect'' of a subsidy are two separate concepts. While there must be
a benefit for a subsidy to exist, section 771(5)(C) of the Act
expressly provides that Commerce ``is not required to consider the
effect of the subsidy in determining whether a subsidy exists.'' This
message is reinforced by the SAA,\153\ which states that ``the new
definition of subsidy does not require that Commerce consider or
analyze the effect (including whether there is any effect at all) of a
government action on the price or output of the class or kind of
merchandise under investigation or review.''
---------------------------------------------------------------------------
\153\ See SAA at 926.
---------------------------------------------------------------------------
Paragraph (c) of Sec. 351.503 in the current regulation further
reinforces this principle by stating affirmatively that, in determining
whether a benefit is conferred, Commerce is not required to consider
the effect of the government action on the firm's performance,
including its prices or output, or how the firm's behavior otherwise is
altered.
With respect to the statement made by one of the commenters that
Commerce is required to consider what a foreign manufacturer ``provided
in return'' in order to determine the type of financial contribution
provided, Commerce clarifies that the payment for a government good or
service or the payment of interest or principal on a loan is not the
same thing as a ``cost of compliance,'' as set forth under Sec.
351.503(c).
The methodologies for calculating the benefit for a financial
contribution provided in the form of a loan or the provision of a good
or service are set forth within both the Act and the current CVD
regulations. To use one of the examples above, assume a government
promulgated safety regulations requiring automakers to install
seatbelts in back seats and then gave the auto makers a subsidy to
install the seatbelts. The government subsidy to the automaker was in
the form of a loan. While we would not consider and offset the cost of
the automaker for the cost and installation of the seatbelts in the
calculation of the loan benefit, we would still calculate the loan
benefit as required by the methodology set forth in the Act and in our
regulations by taking the difference between what the automaker paid on
the government loan and the amount of interest the automaker would have
paid on a comparable loan that it could actually obtain on the market.
The decision by the government to provide a subsidy to assist a firm
with complying with an existing government-imposed regulation,
requirement or obligation is a separate and discernible action from the
action in which the government imposed the regulation, requirement, or
obligation. Therefore, each of these actions is treated separately
under the Act.
However, on a more basic level, when a government imposes a
regulation, requirement or obligation on a party, a government has no
further obligation to provide assistance to a party to comply with that
regulation, requirement, or obligation. For example, governments
normally impose an obligation on parties to pay taxes. However, if the
government, through an action or government obligation, then exempts,
in whole or part, the taxes that a particular party is obligated or
required to pay, then that exemption is a financial contribution, and
if that program is found to be specific and provide a benefit, the tax
exemption could be determined to be a countervailable subsidy. In other
words, just as the tax obligation is separate from the countervailable
exemption, so too would a government requirement that automobiles carry
seatbelts be separate from a government subsidy to pay for some of the
compliance costs to install seatbelts in the first place.
In response to the comment that Sec. 351.503(c)(2) is inconsistent
with section 771(6) of the Act, which the commenter stated requires
Commerce to subtract from the gross countervailable subsidy received
``any application fee, deposit, or similar payment paid in order to
qualify for, or to receive, the benefit of the countervailable
subsidy,''
[[Page 20814]]
Commerce must first note that this reading of section 771(6) of the Act
is incorrect. Section 771(6) of the Act explicitly states that ``the
administering authority may subtract from the gross countervailable
subsidy'' (emphasis added). The statutory use of the word ``may''
instead of the word ``shall'' or ``will'' does not establish a
requirement but provides the administering authority with a level of
discretion with respect to the criteria set forth within section 771(6)
of the Act.
In addition, the commenter also misunderstands the use of the term
``application fee, deposit, or similar payment paid.'' The costs for
complying with an imposed obligation or requirement are not like an
application fee, deposit, or similar payment to receive the benefit of
a countervailable subsidy. For example, if the government requires that
an industrial mill remove harmful materials from industrial gases
before being released into the environment and the mill purchases a
scrubber to comply with that requirement, then the mill did not make an
``application fee, deposit, or similar payment'' within the meaning of
section 771(6) of the Act. The industrial mill simply paid for a piece
of capital equipment. That payment was not a cost of receiving a
subsidy, it was the simple exchange of money for a good.
Indeed, the commenter's interpretation of section 771(6) of the Act
is inconsistent with how subsidies and the costs of compliance operate.
Under an interpretation of the Act proposed by the commenter, assume
that the government imposes a 30 percent income tax on all firms but
provides high-tech firms with a 50 percent reduction in their income
taxes. Under the commenter's interpretation of section 771(6) of the
Act, Commerce would be required to deduct the amount of income taxes
the firms paid from the amount of the 50 percent income tax subsidy
reduction the high-tech firms received because the income taxes they
were required to pay constitute an ``application fee, deposit, or
similar payment paid'' to qualify or receive the benefit from the
income tax subsidy. Accordingly, the commenter misunderstood section
771(6) of the Act and, consequently, the language of the new Sec.
351.503(c)(2) of our regulations.
As noted above, this commenter also expressed concerns that the new
Sec. 351.503(c)(2) of our regulations is inconsistent with section
771(5)(E)(iv) of the Act. Section 771(5)(E)(iv) of the Act states that
when the government provides a good or service, Commerce will determine
whether a benefit is provided by examining whether the price paid by
the recipient for the government good or service was for ``adequate
remuneration.'' The adequacy of remuneration will be based on
``prevailing market conditions'' that include ``price, quality,
availability, marketability, transportation, and other conditions of
purchase or sale.'' Therefore, the commenter suggested that section
771(5)(E)(iv) of the Act requires that Commerce account for the full
``costs'' associated with a respondent's eligibility and receipt of a
countervailable subsidy. In putting forth such an interpretation, the
commenter provided no further support other than a general allegation.
Further, in alleging that Commerce must account for ``costs'' under
that statutory provision, the commenter did not note that term
``costs'' does not actually appear in section 771(5)(E)(iv) of the Act.
In response, it is worth pointing out that Sec. 351.503(c)(2)
refers to ``subsidies'' and ``assistance'' provided to comply with a
government-imposed regulation, requirement, or mandate. Thus, it is
clear from the language of Sec. 351.503(c)(2) that tax incentives,
loans, and grants would fall with the purview of this new regulation.
Under section 771(5)(E) of the Act, the concept of ``adequate
remuneration'' and ``prevailing market conditions'' do not apply to
subsidies provided in the form of tax incentives, grants, or loans.
However, if the subsidy or assistance at issue within Sec.
351.503(c)(2) did take the form of a provision of a good or service,
then the benefit calculation of the provision of the good or service
would certainly be determined based upon the criteria set forth under
section 771(5)(E)(iv) of the Act.
In addition, as noted above, one commenter expressed concerns that
Commerce's modification to Sec. 351.503(c) is overly broad and in
conflict with the plain language of the Act based on a hypothetical
situation. Specifically, that commenter suggested that if a foreign
producer purchased land from the government for the development of its
manufacturing facility and the land purchase agreement required the
producer, as a condition of the land sale, to upgrade a public road for
a neighboring community as a public service that otherwise would be
undertaken by the government, then under the contract, the producer
would be required to build the road and the government would be
required to reimburse the producer for 80 percent of the road
construction cost. Under that hypothetical, the producer would absorb
20 percent of the cost, but the commenter stated that under Commerce's
proposed regulatory changes, the road building obligation under the
land purchase agreement could be misconstrued as a ``government-imposed
mandate,'' the foreign producer's road building cost as a ``compliance
cost,'' and the government's reimbursement under the contract as
``compliance assistance.'' The commenter expressed concerns that
Commerce would therefore, under the revised regulation, misinterpret
the contract, misinterpret the condition of sale, and incorrectly
ignore the respondent's contribution and costs. According to the
commenter, Commerce would consider only the value of the government's
reimbursement as a grant when, according to the contract, the foreign
producer was paying a purchase premium for the land by incurring costs
in the amount of 20 percent of the construction of a road.
Commerce disagrees with the presumed outcome of the commenter's
hypothetical. Whether a government act or program conveys a
countervailable subsidy is solely determined under the criteria that is
set forth under the Act and the CVD regulations, and not under contract
law. If a government signs a contract to provide a company with $200
million to build a manufacturing facility, the fact that there is a
contract to provide the recipient with a $200 million grant does not
allow the government grant to fall outside the scope of the CVD law.
In addition, these types of hypotheticals demonstrate why such
examples may not always be helpful in applying a practice or preparing
a regulation. Any decision as to the countervailability of a government
action or program, and the calculation of any benefit conferred by that
government action, can only be based on a complete set of facts with
respect to the provision of government assistance. One can make few
general observations with respect to this example because it lacks
several critical facts and details. Assuming the provision of land was
specific (from the example the commenter concedes that there is a
financial contribution), the analysis of whether there is a benefit
would be made under section 771(5)(E)(iv) of the Act and Sec. 351.511.
However, based on the lack of specifics within the example, it would be
useless to opine as to how this example would be treated under Sec.
351.503(c).
Even with respect to the analysis of whether the provision of land
was provided for adequate remuneration as defined by the statute and
CVD regulations, there are many questions which remain outstanding
under such a hypothetical as to how the producer's
[[Page 20815]]
absorption of 20 percent of the road construction should be treated.
For example, for the provision of land to other firms, Commerce would
need to know if the government required that those firms pay the full
cost to the company to construct the roads at issue. Commerce would
also need to know the details as to the criteria listed in the land
purchase contracts between the private parties, and, when the land was
sold to the producer, and if the government included land that had the
sole road that connected the neighboring community to other communities
in the area. Furthermore, Commerce would want to know, as part of its
analysis, if after construction the producer had sole use of that road.
Therefore, we disagree that the outcome of this hypothetical scenario
can be determined under the limited set of facts put forth by the
commenter. Furthermore, we disagree with the commenter's assumption
that Commerce would ``misconstrue'' or ``misunderstand'' anything from
such a contract on the administrative record because of the language
being added to Sec. 351.503(c).
In response to the commenter's policy comments on environmental
subsidies and the current administration's support for renewable energy
and climate change reduction programs, any decision of whether a
government action or program provides a countervailable benefit can
only be made with respect to the criteria that are set forth within the
Act and the CVD regulations. Nowhere in Sec. 351.503(c) is Commerce
proposing to treat compliance costs as a grant, and we have fully
described above how compliance costs are treated with respect to our
analysis of the benefit conferred by the provision of a countervailable
subsidy. Lastly, we agree with the commenter that Commerce's
regulations should not confer a benefit when no such benefit exists,
and Commerce sees nothing in the modifications to Sec. 351.503(c)
which would do such a thing.
9. Commerce has made certain changes to the proposed amendment to
the CVD loan regulation--Sec. 351.505.
For the regulation pertaining to loans, Commerce has determined to
move current Sec. 351.505(d) to a new Sec. 351.505(e) and add a new
provision in paragraph (d) titled ``Treatment of outstanding loans as
grants after three years of no payments of interest or principal.''
While it is rare to encounter this issue, Commerce has concluded that
it is important to codify a practice and methodology to address
situations where the government has not collected any loan payments for
a long period of time to promote both clarity and consistency in our
administration of the CVD law.
The revisions to Sec. 351.505(d) address loans upon which there
have been no payments of interest and principal over a long period of
time. Our current practice is that when we examine these types of loans
in which there have been no payments of either interest or principal
over an extended period of time, we treat them as interest-free loans.
It is evident, however, that if the foreign government or a government-
owned bank has not collected payments on an outstanding loan after a
three-year period, the foreign government made a decision to simply not
collect loan payments at all. Commerce has therefore created this
provision to address the scenario if no loan payments have been made to
the government or a government-owned bank on a loan for three years.
Under that situation, Commerce will normally treat the outstanding loan
as a grant. To ensure consistency with section 771(5)(E)(ii) of the
Act, we also are stating that we would not treat this type of loan as a
grant if the respondent can demonstrate that this nonpayment of
interest and principal is consistent with the terms of a comparable
commercial loan that it could obtain on the market.
We received comments from 11 interested parties with respect to the
amendment incorporated into Sec. 351.505(d), with six of the parties
supporting this new regulation on the treatment of loans. However, one
of the parties supporting this new regulation stated that Commerce
should clarify: (1) that the benefit should include both outstanding
principal and any unpaid accrued interest; (2) that for loans with a
balloon payment of principal due at the end of term, the nonpayment of
interest should be sufficient grounds to treat the loan as a grant; and
(3) for uncreditworthy firms, accrued interest should be calculated
using an uncreditworthy benchmark.
In addition, Commerce received the following comments on the
proposed change to Sec. 351.505(d):
One commenter suggested that Commerce should defer to the
actual terms of the loan contract and that the three-year triggering
period does not account for different payment terms that may be present
in the loan contract;
A second commenter stated that it was not clear whether
the exception regarding whether the nonpayment is consistent with the
terms of a comparable commercial loan applies to loans made under
``balloon'' payment terms (i.e., loans that do not require payments for
an extended period and then require larger interest and principal
payments once the grace period has expired);
A third commenter stated that a loan is a different
financial contribution from a grant, as a loan requires an obligation
of repayment while a grant does not require such an obligation, and a
loan is usually provided by a bank, whereas grants are usually provided
by a government;
A fourth commenter expressed concerns that Commerce's
proposed change shifts the burden to a respondent to show that it could
obtain a comparable loan, and that such a shift in a burden of
provision was inappropriate; and
A fifth commenter suggested that that Sec. 351.505(d) is
not needed because the existing regulations already allow Commerce to
decide when a loan may be treated as a grant.\154\
---------------------------------------------------------------------------
\154\ See Sec. 351.505(d)(2) (allowing Commerce to treat the
loan as a grant if the event upon which repayment depends is not a
viable contingency); see also Sec. 351.508 (allowing Commerce to
treat the total of principal and interest as benefits in the case of
an assumption or forgiveness of a debt).
---------------------------------------------------------------------------
In addition, some of the commenters stated that the three-year
period set forth by Sec. 351.505(d) is arbitrary, particularly because
in the United States, the statutes of limitation set by individual
states on debt collection range from three to 15 years for written
contracts, with six years being the most common threshold.
Commerce's Response:
In the Proposed Rule, we proposed a three-year period as the
triggering time period for treating a loan as a grant.\155\ After
consideration of the concerns raised by the commenters, we continue to
believe that a three-year period is the appropriate amount of time for
which nonpayment on the outstanding loan can lead to Commerce treating
the loan as a grant. Respondents may demonstrate, however, that the
loan should not be treated as a grant by showing that they could obtain
a comparable loan with these terms of nonpayment.
---------------------------------------------------------------------------
\155\ See Proposed Rule, 88 FR 29867.
---------------------------------------------------------------------------
As noted above, one of the parties stated that Commerce should
clarify that the benefit should include both outstanding principal and
any unpaid accrued interest. We agree that it is the normal practice of
Commerce to include both the amount of principal and any accrued,
unpaid interest that would have been paid when a government forgives or
assumes a firm's debt when that debt obligation was provided in the
[[Page 20816]]
form of a loan.\156\ However, with respect to the situation addressed
under Sec. 351.505(d), there has not been a formal case of debt
assumption or forgiveness. In such a situation, the government, for
whatever reason, has simply stopped collecting payments on the
outstanding loan. In a prior period of review in which that loan was
outstanding, we may have already treated the nonpayment on the loan as
an interest-free loan, and thus, calculated a benefit based on the
amount of interest paid on the loan (i.e., zero) and the amount of
interest that would have been paid on a loan from a commercial bank.
Therefore, in those instances, Commerce determines that it would be
inappropriate to treat accrued, unpaid interest as a grant because we
had already calculated a countervailable benefit to account for that
unpaid interest. Because whether to include any accrued, unpaid
interest in the benefit calculation will be dependent on case-specific
facts, we have not included that suggested provision within Sec.
351.505(d). Instead, the decision of whether to include any accrued,
unpaid interest in the benefit calculation will be made on a case-by-
case basis. If there is a determination that the firm was
uncreditworthy at the time the relevant government-provided loan was
made, we agree with that commenter that any accrued interest that is to
be treated within our benefit determination will be calculated using an
uncreditworthy benchmark as set forth within Sec. 351.505.
---------------------------------------------------------------------------
\156\ See Sec. 351.505(a).
---------------------------------------------------------------------------
That same commenter also suggested that for loans with a balloon
payment of principal due at the end of term, Commerce should indicate
in the regulation that the nonpayment of interest should be sufficient
grounds to treat the loan as a grant.
With respect to this comment and other comments made with respect
to ``balloon'' loans, such loans would fall within the definition of
``comparable commercial loans'' under both section 771(5)(E)(ii) of the
Act and Sec. 351.505 of the CVD regulations. Therefore, Commerce has
concluded that the three-year trigger period, in addition to taking
into account the exception provided for receipt of a comparable
commercial loan, should also consider the terms of the loan contract.
Thus, we have modified the final version of Sec. 351.505(d).
Specifically, the additional language will state that the Secretary
will normally treat a loan as a grant if ``no payments on the loan have
been made'' (versus the proposed language--``no payments of interest
and principal have been made'') in three years unless the loan
recipient can demonstrate that nonpayment is consistent with the terms
of a comparable commercial loan it could obtain on the market ``or the
payments on the loan are consistent with the terms of the loan
contract.''
In response to the concerns raised by other commenters, Commerce
agrees that loans require a repayment obligation and grants do not
carry that repayment obligation. However, once a governmental provision
of funds no longer has an obligation of repayment, or once the
government waives or no longer collects repayment of those funds, then
those funds (i.e., loans) effectively become a grant, and Commerce has
an established practice of treating those funds as a grant. Moreover,
whether a loan is normally provided by a bank or grants are normally
provided by a government is irrelevant as to whether a loan or a grant
provided by a government constitutes a financial contribution and a
benefit under the Act.
With respect to the issue of burden shifting, we disagree that this
regulatory change shifts a burden onto a respondent to show that it
could obtain a comparable loan. Only the respondent has the information
to demonstrate that the nonpayment on the outstanding loan is
consistent with the terms of a comparable commercial loan it could
obtain on the market, or that the nonpayment on the loan is consistent
with the terms of the loan contract. Notably, the language regarding a
comparable commercial loan that a recipient could obtain on the market
is taken directly from section 771(5)(E)(ii) of the Act.
Commerce does not dispute the claim that statutes of limitation set
by individual states on debt collection range from three to 15 years.
However, we do not believe that such a fact is relevant to this change
in the regulation. Section 351.505(d) does not address a situation
where there is an ongoing legal dispute between the government and an
individual firm regarding a debt that is being contested or where the
government is seeking to collect a debt from the loan recipient.
Instead, the regulation addresses a situation where the government, for
whatever reason, is no longer requesting payment from a recipient of a
government loan. If a loan recipient can demonstrate that the
outstanding debt is under a legal dispute with the government or that
the government is actively seeking loan payment from the recipient,
then this regulatory provision will not apply, and Commerce will not
treat that disputed loan debt as a grant under this provision.
Regarding the three-year ``triggering-period,'' as Commerce
explained in the Proposed Rule, Commerce first sought to determine
whether there was a clear standard used within the banking sector with
respect to the treatment of ``bad debt'' or the treatment of
outstanding loans in which payment has not been made based on the terms
of the loan contract.\157\ Such standards normally provide discretion
to the individual bank to determine when it has no reasonable
expectations of recovering the contractual cash flows on a financial
asset. Unfortunately, Commerce determined that these practices did not
provide sufficient administrative and public clarity and guidance for
purposes of the CVD regulations.\158\
---------------------------------------------------------------------------
\157\ See Proposed Rule, 88 FR 29867.
\158\ Id.
---------------------------------------------------------------------------
Based upon these conclusions, Commerce decided to adopt a three-
year period, which we believe is appropriate after considering all of
the comments we received on this provision. We believe that a three-
year period is a reasonably long period of time because it will only
apply to a very limited number of loans. To be clear, Commerce rarely
encounters investigated loans in which the loan terms do not require
the payment of interest for an entire three-year period. In addition,
we rarely have investigations on government loan programs in which it
is alleged that the government does not require at least payment of
interest or principal within a three-year period, or that the
regulations under which the investigated loan program operates does not
require any loan payment within a three-year period. Furthermore,
although some commenters characterized a three-year period as
``arbitrary,'' notably none of the commenters provided a useful
alternative period.
Nevertheless, it is important to emphasize that under Sec.
351.505(d), the three-year period provides an exception and not the
rule. If the loan recipient can demonstrate that nonpayment is
consistent with the terms of a comparable commercial loan it could
obtain on the market, then the three-year triggering period will not
apply. Furthermore, as we explain above, we have modified the proposed
regulation to also allow a loan recipient to demonstrate that the
payments on the loan are consistent with the terms of the loan
contract. Accordingly, the three-year triggering period under this
regulation will only apply if a loan recipient cannot show either of
these situations to be true.
[[Page 20817]]
In response to the comments that Commerce already has the ability
to treat a loan as a grant under existing Sec. Sec. 351.505(d)
introductory text and (d)(2) and 351.508, we note that while we do have
current regulations that allow Commerce to decide when a loan may be
treated as a grant, the new regulation at Sec. 351.505(d) applies to
loans that would not fall under the current regulations at Sec. Sec.
351.505(d)(2) and 351.508. Accordingly, we disagree that Commerce
already has the ability to treat loans such as this as grants and
believe that this additional modification to the regulation is
necessary.
Lastly, we note that Commerce is moving current Sec. 351.505(d) to
a new Sec. 351.505(e) which addresses the treatment of a contingent
liability interest-free loan. Under this current provision, Commerce
will treat a contingent liability interest-free loan as a grant, if at
any point in time, Commerce determines that the event upon which
repayment depends is not a viable contingency. However, this regulation
does not address the situation where the recipient firm either has
taken the required action or achieved the contingent goal and the
government has not required repayment of the contingent loan. While
Commerce considers a future amendment to this section of the loan
regulation to account for non-repayment when the recipient has met the
contingent action or goal and the government has not taken repayment,
for now Commerce may address this issue under the new Sec. 351.505(d).
10. Commerce has made certain changes to the proposed amendment to
the CVD equity regulation at Sec. 351.507.
Commerce is making two significant changes in this final rule to
its equity regulation. First, it is modifying current Sec. 351.507(c)
by moving the existing language to a new Sec. 351.507(d) and adding a
new provision in paragraph (c), titled ``Outside investor standard.''
This outside investor standard codifies Commerce's long-standing
practice in which the analysis of equity is conducted with respect to
whether an outside private investor would make an equity investment
into that firm under its usual investment practice, not whether a
private investor who has already invested would continue to invest.
Second, Commerce is adding language to the description of the
allocation of the benefit in the new Sec. 351.507(d). Currently, the
benefit conferred by equity will be allocated over the same time period
as a non-recurring subsidy under Sec. 351.524(d), which is the average
useful life (AUL) of assets. This standard works well for the vast
majority of the cases in which Commerce finds a countervailable equity
benefit, which usually has been the case with respect to an equity
infusion into a state-owned steel company. However, in a few cases,
such as DRAMs from Korea,\159\ Commerce has determined that the AUL of
the assets results in an unreasonable period of time in which to
provide relief to the domestic industry from unfair and distortive
foreign government subsidies, counter to the purpose of the CVD law. To
prevent such an unfair and distortive allocation, the modified language
of Sec. 351.507(d) will provide that the benefit conferred by an
equity infusion shall be allocated over a period of 12 years or the
same time period as a non-recurring subsidy under Sec. 351.524(d),
whichever is longer.
---------------------------------------------------------------------------
\159\ See Final Affirmative Countervailing Duty Determination:
Dynamic Random Access Memory Semiconductors from the Republic of
Korea, 68 FR 37122 (June 23, 2003) (DRAMs from Korea), and
accompanying IDM at Comment 8.
---------------------------------------------------------------------------
In the Proposed Rule, Commerce proposed new regulatory language and
provided an extensive background on Commerce's 40-year history in
implementing and enforcing the outside investor standard.\160\ One
commenter noted that the first sentence of the new proposed Sec.
351.507(c) referred to a ``new private investor,'' but then in the
second sentence referred to both an ``outside private investor'' and a
non-outside ``private investor.'' That commenter suggested that
Commerce clarify that the first sentence was intended to refer to a
``new outside private investor.'' Commerce agrees that such a
suggestion would be appropriate and provide clarity to the regulation,
and it has modified the regulation in accordance with that suggestion
in the final rule.
---------------------------------------------------------------------------
\160\ See Proposed Rule, 88 FR 29867-69.
---------------------------------------------------------------------------
Otherwise, Commerce has determined to make no further changes to
its proposed Sec. 351.507(c) and (d). Commerce's provision of the
history and reasoning behind both changes is set forth extensively in
the Proposed Rule, and Commerce will not reiterate that entire history
or reasoning in this preamble to the final rule.
In response to our request for comments on our Proposed Rule, we
received 15 comments from interested parties to the changes in our
equity regulation with nine of these parties supporting the revisions.
The six parties that objected to the proposed revisions to the equity
regulation objected to both of the proposed changes to the regulation.
We are addressing the challenges to the two changes separately below.
A. Commerce's codification of its outside investor standard is
lawful and reasonable.
With respect to the outside investor standard, some commenters
expressed concerns that Commerce failed to consider the viewpoint of an
``inside'' investor, and they alleged that such a failure could not be
reconciled with section 771(5)(E) of the Act, which states that ``a
benefit shall normally be treated as conferred where there is a benefit
to the recipient if the investment decision is inconsistent with the
usual investment practice of private investors, including the provision
of risk capital, in the country in which the equity infusion is made.''
Section 351.507(a)(1) has the same language. Thus, those commenters
commented that both the Act and the regulations do not make a provision
for ``outside private investors,'' and that the only statutory language
pertains to ``private investors.'' Those commenters stated that if a
government with an existing investment in a company makes an equity
investment on terms that comport with the terms that ``inside'' private
investors with similar investments would have accepted, then the
investment decision is consistent with the usual investment practice of
private investors and there is no countervailable benefit under the
statute. These commenters also stated that there are essentially no
differences in the motivation and analysis in the investment decisions
between internal private investors (i.e., owner-investors) and outside
private investors.
One of the commenters stated that a rational investment decision
based on commercial principles does not exclude the reason for
continuing to invest to protect income of previous investments, citing
the 1986 CVD investigation determination in Groundfish from
Canada.\161\ Likewise, that commenter also noted that in a 1989 CVD
investigation, Steel Wheels from Brazil,\162\ Commerce stated that a
``a rational investor does not let the value of past investments affect
present or future decisions,'' which demonstrates the consistency of
business logic between inside and outside investors.\163\
---------------------------------------------------------------------------
\161\ See Final Affirmative Countervailing Duty Determination;
Certain Fresh Atlantic Groundfish from Canada, 51 FR 10041, 10047
(March 24, 1986) (Groundfish from Canada).
\162\ See Final Affirmative Countervailing Duty Determination;
Steel Wheels from Brazil, 54 FR 15523, 15529-30 (April 18, 1989)
(Steel Wheels from Brazil), and accompanying IDM at Comment 10.
\163\ Id.
---------------------------------------------------------------------------
Another commenter noted that in the 1993 CVD investigation
determination in Certain Steel Products from
[[Page 20818]]
Austria,\164\ Commerce explained that a distinction between inside
investors and outside investors is unreasonable stating that
``{Commerce{time} has expressed the view that the perspectives of
inside and outside investors cannot legitimately be distinguished.''
\165\ As such, that commenter pointed out that Commerce stated that an
inside investor can therefore act with the same rational motivations as
an outside investor and ``not let the returns of past investments
affect present or future decisions.'' \166\ This commenter stated that
even though the question in Certain Steel Products from Austria was
whether Commerce should adopt a different standard for inside
investors, Commerce's reasoning is also applicable to the inverse--an
outside investor standard is also unreasonable because there is no
legitimate reason to distinguish between the two.
---------------------------------------------------------------------------
\164\ See Final Affirmative Countervailing Duty Determination:
Certain Steel Products from Austria, 58 FR 37217, 37249 (July 9,
1993) (Certain Steel Products from Austria), at the General Issues
Appendix.
\165\ Id.
\166\ Id.
---------------------------------------------------------------------------
Lastly, one commenter generally objected to Commerce's use of an
outside investor standard, arguing that it is not reasonable because
Commerce can neither categorically determine that no debt-to-equity
conversion can meet the reasonable investor test, nor categorically
determine that no inside investor is able to make an investment that
will generate a reasonable rate of return within a reasonable period of
time.
Commerce's Response:
At its core, the criticisms of Commerce's outside investor standard
are criticisms of its overall equity analysis which has been in place
since at least 1986. As noted, Commerce explained the history of this
practice and the reasoning behind its policy and practices in the
Proposed Rule.
As a preliminary point, Commerce fundamentally disagrees that
section 771(5)(E) of the Act, which states that ``a benefit shall
normally be treated as conferred where there is a benefit to the
recipient if the investment decision is inconsistent with the usual
investment practice of private investors, including the provision of
risk capital, in the country in which the equity infusion is made,''
\167\ is in any conflict with the outside investor standard.
---------------------------------------------------------------------------
\167\ See section 771(5)(E) of the Act.
---------------------------------------------------------------------------
Before the enactment of the URAA on December 8, 1994, which
implemented the changes to the Act as a result of the Uruguay Round and
the creation of the WTO, and the SCM Agreement, specifically, section
771(5) of the Act defined one type of subsidy as the provision of
capital on ``terms inconsistent with commercial considerations.'' \168\
The URAA amended the Act and stated that a benefit is conferred in the
case of an equity infusion ``if the investment decision is inconsistent
with the usual investment practice of private investors.'' However,
while the language changed from ``terms inconsistent with commercial
considerations'' to ``inconsistent with the usual investment practice
of private investors,'' this did not denote a change in the benefit
analysis with respect to whether a firm is equity-worthy.
---------------------------------------------------------------------------
\168\ See Trade Agreements Act of 1979, Public Law 96-39, 80
Stat. 144 (July 26, 1979) (Trade Agreements Act of 1979).
---------------------------------------------------------------------------
The SAA reveals that under the revised benefit section under the
URAA at section 771(5)(E) of the Act, the only replacement with respect
to our established methodology in determining whether a benefit exists
was with respect to the provision of goods and services and in
determining whether there is a benefit conferred by a government loan
guarantee.\169\ In addition, Sec. 351.507(a)(4) of our current CVD
regulations states that the Secretary will consider a firm to have been
equity-worthy if the Secretary determines that, from the perspective of
a reasonable private investor examining the firm at the time the
government-provided equity infusion was made, the firm showed an
ability to generate a reasonable rate of return within a reasonable
period of time. In determining whether a benefit is conferred within
the meaning of section 771(5)(E) of the Act, we note that the Act does
not define ``the usual investment practice of private investors.''
However, the CVD equity regulation states that a reasonable private
investor will make its investment decisions based on whether the
investment will ``generate a reasonable rate of return within a
reasonable period of time.'' \170\ This standard is set forth in Sec.
351.507(a)(4) and is taken from the 1989 Proposed Rules.\171\ Thus, the
standard used in the examination of whether there is a benefit
conferred by the government provision of equity was identical under
both section 771(5)(E) of the Act and section 771(5) of the pre-URAA
version of the Act. That standard was also addressed by the CIT in the
Court decisions, BSC I \172\ and BSC II.\173\
---------------------------------------------------------------------------
\169\ See SAA at 927.
\170\ See Sec. 351.507(a)(4).
\171\ See Countervailing Duties Notice of Proposed Rulemaking
and Request for Public Comments, 54 FR 23366, 23381 (May 31, 1989)
(1989 Proposed Rules).
\172\ See British Steel Corp. v. United States, 605 F. Supp. 286
(CIT 1985) (BSC I).
\173\ See British Steel Corp. v. United States, 632 F. Supp. 59
(CIT 1986) (BSC II).
---------------------------------------------------------------------------
At the time of the CIT decisions in BSC I and BSC II, section
771(5) of the Act defined one type of subsidy as the provision of
capital on ``terms inconsistent with commercial considerations.'' \174\
In BSC II, the CIT relied upon the definition of ``commercial
considerations'' that was established a year earlier in BSC I. In BSC
I, with respect to the provision of equity capital, the CIT construed
the ``commercial considerations'' test to mean that an investment is
consistent with commercial considerations if a reasonable investor
could expect a reasonable rate of return on its investment within a
reasonable period of time. Moreover, pertaining to the question of
whether government funds are provided to a company under conditions
inconsistent with commercial considerations, in 1979, the Subcommittee
on Trade of the House Committee on Ways and Means observed that in its
interpretation of the Act ``with regard to the provision of capital,
`commercial considerations' shall mean consideration of whether at the
time the capital is provided, the recipient is required, and can be
expected within a reasonable period of time, to derive from its
operations a reasonable rate of return on its invested capital.'' \175\
---------------------------------------------------------------------------
\174\ See Title I of the Trade Agreements Act of 1979 (adding
section 771(5) of the Act, which defined the term ``subsidy'').
\175\ See Summary of Recommendations in Legislation Implementing
the Multilateral Trade Negotiations, 96th Cong., 1st Sess. 4 (Comm.
Print 21 (1979)).
---------------------------------------------------------------------------
Thus, it is clear from the language in the Act, the CVD
regulations, and the legislative history that ``the usual investment
practice of private investors'' is that a reasonable private investor
will make its investment decisions based on whether the investment will
``generate a reasonable rate of return within a reasonable period of
time.'' Otherwise, what ``private investors'' Commerce considers
reasonable for purposes of its equity analysis was left by Congress for
Commerce to discern through its practice and regulations over time. As
Commerce explained in the Proposed Rule, over a 40-year span of time,
Commerce concluded that the standard of the private investor should be
based on an outside private investor and is now codifying that
practice.
In response to the claims that there is ``no'' difference in the
motivations and
[[Page 20819]]
investment analysis between owner-investors and outside private
investors, Commerce must highlight that through 40 years of practice,
many interested parties have disagreed with that assessment. For
example, in the aforementioned Steel Wheels from Brazil, when Commerce
evaluated government equity infusions from the point of view of a
private outside investor, a respondent argued that its motive as an
owner-investor was to maximize average returns on its past and future
investments into the steel company, not to marginal returns on
investments as an outside investor would.\176\ Likewise, in Stainless
Steel Plate from the United Kingdom,\177\ the respondent claimed that
by focusing exclusively on considerations that would motivate the
investment decisions of an outside investor, Commerce incorrectly found
British Steel Corporation (BSC) to be unequity-worthy during the review
period. The respondent argued that unlike an outside investor, as an
owner it had to consider taking steps to minimize BSC's losses and to
encourage the company's return to profitability. Furthermore, in the
Certain Steel Products from Austria investigation, respondents argued
that an inside investor's decision may reflect a desire to reduce or
forestall an expected loss rather than to increase returns on
investment. They argued that an inside investor may make an additional
investment to help save the firm from insolvency.\178\
---------------------------------------------------------------------------
\176\ See Steel Wheels from Brazil, 54 FR 15529 and IDM at
Comment 10.
\177\ See Stainless Steel Plate from the United Kingdom; Final
Results of Countervailing Administrative Review, 51 FR 44656
(December 11, 1986) (Stainless Plate from the United Kingdom).
\178\ See Certain Steel Products from Austria, 58 FR 37249.
---------------------------------------------------------------------------
In addition to the respondents stating that there are differences
in the motivations and investment analysis between owner-investors and
outside private investors, the CIT has explicitly recognized these
differences in motivations. The CIT in BSC II acknowledged that while
it may make sense for an owner to want to continue to run a loss-making
operation so long as variable costs are recovered, this standard is
inapposite to investment decisions by investors acting according to
economically rational considerations to look for a return on investment
with a reasonable time.\179\ Likewise, in Hynix Semiconductor,
Inc.,\180\ the CIT expressly affirmed Commerce's approach that ``the
existence and status of previous investments in a company are
extraneous considerations when weighing new investment in the same
company.'' \181\ The CIT called this approach the ``expected utility
model,'' which was another name for the outside investor standard, and
relied on BSC II in ruling against the respondent plaintiff's argument
that Commerce should take the perspective of an existing investor
considering a new investment to bolster prior investments.\182\
---------------------------------------------------------------------------
\179\ See BSC II, 632 F. Supp at 64-65.
\180\ See Hynix Semiconductor, Inc. v. United States, 425 F.
Supp. 2d 1287 (CIT 2006) (Hynix Semiconductor, Inc.).
\181\ Id., 425 F. Supp. 2d at 1313.
\182\ Id.
---------------------------------------------------------------------------
All of these arguments and decisions reflect what Commerce
explained in the Proposed Rule: the motivations of an owner-investor
can, and frequently do, differ from that of an outside private
investor, and Commerce's practice, and now regulations, consider the
actions of a reasonable outside private investor in its equity
analysis. Forty years of precedent and practice demonstrate that inside
investors sometimes may base investment decisions on criteria other
than whether the investment will ``generate a reasonable rate of return
within a reasonable period of time,'' while outside private investors
will generally not be inclined to base investment determinations on
those other criteria.
In response to the statements by the one commenter with regard to
Groundfish from Canada and Steel Wheels from Brazil, there is no
validity to the commenter's points because Commerce believes that the
commenter misunderstood the Commerce determinations made in those
cases. In both cited cases, Commerce explicitly rejected the decisions
of the insider investor to make additional equity investments into
financially troubled companies because Commerce recognized that the
motivations of inside investors may be different from those of outside
private investors.\183\
---------------------------------------------------------------------------
\183\ See Groundfish from Canada; see also Steel Wheels from
Brazil.
---------------------------------------------------------------------------
With respect to the commenter that quoted certain language from
Certain Steel Products from Austria to support its claim against the
outside investor standard, we also believe that commenter may be
confused as to the details of that investigation. In the Certain Steel
Products from Austria investigation, respondents stated that an inside
investor may make an additional investment to help save the firm from
insolvency. Therefore, the respondents were essentially arguing that
with respect to an equity analysis for investments made by owners,
Commerce should adopt a different analysis specifically for inside
investors that may have different motivations than those of an outside
investor. Commerce rejected this argument, declining to create two
investor standards and apply two investor equity tests. In any case,
that is not the issue with respect to this regulation. Here, the issue
is Commerce codifying its single practice of applying an outside
investor standard in an equity analysis.
Finally, in response to the commenter who suggested that Commerce
cannot categorically determine either that no debt-to-equity conversion
can meet the reasonable investor test, nor that no inside investor is
able to make an investment that will generate a reasonable rate of
return within a reasonable period of time, we believe that commenter
misunderstood Commerce's practice. As we explained in the Proposed
Rule, Commerce has been using the outside investor standard since at
least 1986. In all that time, Commerce has never claimed that a debt-
to-equity conversion cannot meet the equity-worthy standard of
generating a reasonable rate or return within a reasonable period of
time. In addition, Commerce has never made a comprehensive finding that
an inside investor is unable to make an investment that would generate
a reasonable rate of return within a reasonable period of time. This
amendment to Sec. 351.507 incorporates into the equity regulation our
long-standing practice with respect to the use of an outside investor
standard, but it in no way suggests changes to the agency's existing
practice as suggested by that commenter. All of Commerce's
determinations made with respect to the provision of equity are made on
a case-by-case basis with an analysis of all the facts on the record in
a manner consistent with the Act and the CVD regulations. There is no
comprehensive exception or policy whereby all debt-to-equity
conversions or investments made by an insider investor fail the
standard of the equity-worthy test of being able to generate a
reasonable rate of return within a reasonable period.
The codification of our outside investor standard continues our
longstanding practice of examining whether a provision of equity, be it
direct through new funds or through a debt-to-equity conversion,
confers a countervailable benefit by examining whether the provision of
equity will generate a reasonable rate of return within a reasonable
period of time. This means that when there is a private inside investor
or a private debtor converting existing debt in a firm into equity, our
equity analysis will be based
[[Page 20820]]
on the standard of an outside private investor (i.e., whether that new
investment will generate a reasonable rate of return within a
reasonable period of time). If we determine that a private insider
investor or private party converting debt-into-equity provides a new
equity investment that is consistent with the outside investor
standard, then we will normally consider that private investor prices
are available within the meaning of Sec. 351.507(a)(2) and will use
those prices in determining whether the government provision of equity
confers a benefit. In situations where the government is the sole owner
and investor into a firm, we will also use the outside private investor
standard to determine whether the government provision of equity into
the firm will generate a reasonable rate of return within a reasonable
period of time. Other criteria used by the government such as trying to
rescue an insolvent firm or recover its previous investments will not
be consistent with ``the usual investment practice of private
investors.''
B. Commerce's modification to the allocation of an equity benefit
is reasonable.
The commenters who disagreed with Commerce's changes to its equity
regulation also challenged the amendment to the regulation regarding
the allocation of an equity benefit over a minimum period of 12 years
or the AUL established for the investigation or administrative review,
whichever is longer. These commenters raised these same comments with
respect to this identical amendment to the allocation period for debt
forgiveness under Sec. 351.508(c).
Those commenters stated that Commerce has allocated the benefit
from non-recuring subsidies over the AUL of the relevant industry for
decades and should not modify that allocation methodology for any
reason. Acknowledging that Commerce provided the DRAMs from Korea
investigation as an example of an unreasonable allocation period based
on the AUL of the product (wherein the AUL was five years), the
commenters stated that because the allocation period was based on real-
world experience of that industry and a typical research and
development (R&D) cycle and life span for equipment, Commerce was
incorrect in concluding that the allocation period was in any way
unreasonable.
Furthermore, those commenters characterized the 12-year allocation
period for equity as arbitrary. They commented that any allocation
applied by Commerce should relate to the subject merchandise at issue,
instead of an arbitrary minimum of 12 years. As Commerce explained in
the Proposed Rule,\184\ according to the Congressional Research
Service, the vast majority of U.S. CVD measures during that period were
applied to four industries: (1) base metals; (2) products of chemical
and allied industries; (3) resins, plastics, and rubber; and (4)
machinery and electrical equipment.\185\ Looking to the Modified
Accelerated Cost Recovery Asset Life Table,\186\ Commerce determined
that those four industries fall under five asset classes, which, when
averaged, results in a 12-year AUL of assets for the class. Put another
way, the allocation period for non-recurring subsidies for the vast
majority of Commerce's CVD measures since 1995 was 12 years.
Accordingly, Commerce proposed a 12-year minimum allocation period to
provide relief to the domestic industry from the harm caused by certain
foreign government countervailable equity subsidies.
---------------------------------------------------------------------------
\184\ See Proposed Rule, 88 FR 29868-69.
\185\ Id.
\186\ See Internal Revenue Service Publication 946 (2021), Table
B-2, the Modified Accelerated Cost Recovery Asset Life Table.
---------------------------------------------------------------------------
The commenters explained, however, that not all industries fall
within those four industries, and for several industries, such as the
industry at issue in DRAMs from Korea, the AUL of the product is less
than 12 years. In making this claim, the commenters stated that
Commerce's admitted reason for setting such an allocation minimum was
to allow it to continue to countervail non-recurring subsidies for
industries whose assets turn over relatively quickly. Therefore, they
challenged a 12-year allocation period for those industries with
shorter amortization rates, arguing that it would ``artificially
extend'' the AUL to 12 years and, accordingly, distort the benefit
calculation.
They also commented that Commerce's allocation minimum would
unreasonably include a calculation of benefit associated with costs of
capital, where Commerce builds into its allocation methodology a
discount rate associated with the responding parties' costs of
borrowing. In addition, the commenters expressed concerns that the
application of the proposed revision would lead to an extended
allocation period for non-recurring subsidy programs that would
increase the retroactive period for each subsidy program. They
suggested that by extending the allocation period, subsidy projects
that no longer benefit the company during the investigation period
could be captured erroneously in the CVD calculation. As a consequence,
they commented that the calculated subsidy rate could end up in excess
of the actual subsidy received by the company.
In the alternative, they suggested that if Commerce continues to
insist on a 12-year allocation period for equity (and debt
forgiveness), then it should establish that period as a rebuttable
presumption and not a hard rule and permit parties an opportunity to
demonstrate that the under-12, company-specific AUL is reasonable.
Commerce's Response:
All countervailable benefits must be determined based on the
specific facts on the record and must be determined in accordance with
the Act and Commerce's CVD regulations. No one is arguing otherwise.
However, consistent with the Act and CVD regulations, the calculation
of benefits conferred by countervailable subsidies are not subject to
different rules based upon the merchandise being investigated. The
benefit from a $10 million grant is $10 million, regardless of the
recipient, the merchandise being produced by the grant recipient, or
the AUL of the merchandise being produced. To be clear, at issue in
this regulation is not the calculation of a subsidy benefit, despite
some of the points made by the commenters, but instead the allocation
of that benefit over a certain period of time.
With respect to the allegation that the allocation period of a
subsidy benefit must be specific to the subject merchandise, the
commenters cite no provision in the Act to support such a claim. In
fact, for many types of subsidies, the benefit is allocated to the year
of receipt which takes no measure of the type of merchandise that is
subject to the investigation or administrative review. In truth, the
Act is silent as to the allocation period for a subsidy; thus,
Commerce's proposed changes to both Sec. 351.507(d) and Sec.
351.508(c) to include a 12-year minimal allocation period in the case
of equity and debt forgiveness is fully consistent with Commerce's
statutory authority to apply the CVD law in a reasonable and
administrable manner.
Even our current allocation regulation at Sec. 351.524(b)
explicitly acknowledges that, for many subsidies, Commerce does not
always allocate the benefit from non-recurring subsidies over the AUL
of subject merchandise. Under Sec. 351.524(b), Commerce will allocate
or expense the benefit from a non-recurring subsidy only to the year of
receipt if the subsidy benefit is less than 0.5 percent of relevant
sales. Therefore, two companies in the same investigation, and thus
producing the
[[Page 20821]]
same subject merchandise, could have the identical subsidy benefit
allocated over different periods.
With respect to the arguments that an allocation period of five
years was reasonable in DRAMs from Korea and based upon a typical R&D
cycle and life span for equipment, Commerce must first clarify that
neither the allocation period nor the AUL tables used in our cases are
based upon R&D cycles for the industry producing subject merchandise.
Accordingly, that particular fact is irrelevant to the arguments
challenging this regulatory change. The current regulations base the
allocation period on the AUL of the assets.
In DRAMs from Korea, the government led a massive bailout of a
financially-troubled firm by converting debt into equity and by
forgiving debt to allow that firm to remain financially viable so it
would not cease operations.\187\ The forgiveness of debt and equity
provisions were not specific to subject merchandise nor to the
equipment that manufactured the subject merchandise.\188\ Instead, the
government-led bailout was a complete restructuring of the firm's
capital formation to ensure the continuation of the firm's
operations.\189\ The forgiveness of debt and equity provisions
undertaken at the direction of the government ensured the survival of
Hynix and the company continued to operate for more than 20 years after
the provision of these subsidies, a period much longer than five years.
Thus, it is clear that the economic benefit, or the ``commercial
impact'' of these subsidies, to use the argument of various commenters,
is much longer than five years.
---------------------------------------------------------------------------
\187\ See DRAMS from Korea IDM at Comment 7.
\188\ Id. at 12.
\189\ Id.
---------------------------------------------------------------------------
As the CIT stated in BSC I, fundamentally, the value of a subsidy
must be measured in accordance with its benefit to the recipient, which
is not necessarily limited to the period of time assets are actually
used.\190\ Similarly, in other cases like Certain Steel Products from
Austria, respondents also stated that the governments' decisions to
provide new equity funds was not related to the production of subject
merchandise but to help save firms from insolvency.\191\
---------------------------------------------------------------------------
\190\ See BSC I, 605 F. Supp. at 295-96.
\191\ See Certain Steel Products from Austria, 58 FR 37249.
---------------------------------------------------------------------------
With respect to the general issue of allocation periods, it is
important to note the history of this issue. There are no statutory,
economic, or financial rules that mandate the choice of an allocation
period, and theoretically one could argue that a subsidy benefits a
firm forever, thereby rendering arbitrary any period short of the
actual lifespan of the firm or facilities.
As noted above, the Act is silent with respect to the allocation of
benefits, and what little legislative history there is on the subject
deals with the shape of the benefit stream rather than its length. At
most, the legislative history exhorts Commerce to use a ``reasonable''
method of allocation.\192\ Commerce first explained its general
policies on the allocation of subsidies focusing on the provision of
grants provided for the purchase of capital equipment in the 1982
Subsidies Appendix.\193\ Commerce stated in that document that the
legislative history of the Act required that where a grant was bestowed
specifically to purchase capital equipment that the benefit flowing
from the grant should be allocated in relation to the useful life of
that equipment. Moreover, a subsidy for capital equipment should also
be ``front-loaded'' in these circumstances. That is, it should be
allocated more heavily to the earlier years of the equipment's useful
life, reflecting its greater commercial impact and benefit in those
years.\194\
---------------------------------------------------------------------------
\192\ See Senate Report on Trade Agreements Act of 1979, No.
249, 96th Cong., 1st Sess. (July 17, 1979), at 85-86.
\193\ See Final Affirmative Countervailing Duty Determinations;
Certain Steel Products from Belgium, 47 FR 39304, 39317 (September
7, 1982), at Appendix 2--Methodology (containing the 1982 Subsidies
Appendix).
\194\ Id., 47 FR 39316.
---------------------------------------------------------------------------
The Senate Report to the legislative history of the Trade
Agreements Act of 1979 explained that there was ``a special problem in
determining the gross subsidy with respect to a product in the case of
nonrecurring subsidy grants or loans, such as those which aid an
enterprise in acquiring capital equipment or a plant. Reasonable
methods of allocating the value of such subsidies over the production
or exportation of the products benefiting from the subsidy must be
used.'' \195\ The House Report to the same Act also noted the ``special
problem with regard to subsidies which provide an enterprise with
capital equipment or a plant. In such cases, the net amount of the
subsidy should be amortized over a reasonable period, following the
beginning of full-scale commercial operation of the equipment or plant,
and assessed in relation to the products produced with such equipment
or plant during such period.'' \196\ Thus, both the Senate and House
Reports on the issue of the allocation of nonrecurring subsidies noted
that the allocation should be over a ``reasonable time period.'' The
House Report went slightly further with respect to grants that were
provided for the purchase of capital equipment stating that the subsidy
could be amortized based on the commercial operation of the capital
equipment.\197\
---------------------------------------------------------------------------
\195\ See S. Rep. No. 249, 96th Cong., 1st Sess. at 85.
\196\ See House Report on Trade Agreements Act of 1979, No. 96-
317, 96th Cong., 1st Session. (July 3, 1979), at 74-75.
\197\ Id.
---------------------------------------------------------------------------
For the 1982 steel investigations that were the subject of the 1982
Subsidies Appendix, the allocation period of 15 years was based on
Internal Revenue Service (IRS) data for integrated mills in the United
States. Commerce used this IRS data because it sought a uniform period
for allocation and one that reflected the estimated average life of
steel assets worldwide.\198\ Commerce stated that it could not
calculate the average life of capital assets on a company-by-company
basis since different accounting principles, extraordinary write-offs,
and corporate reorganizations yielded extremely inconsistent
results.\199\ In determining whether a grant was to be allocated or
expensed, Commerce determined to allocate grants that were large (i.e.,
at least $50 million) and specifically provided for the purchase of
capital equipment. Where the grant was small (e.g., grants generally
less than one percent of the company's gross revenues) and provided for
items that are generally expensed in the year purchased such as wages
or purchases of material, Commerce expensed the subsidy in the year the
grant was received.\200\
---------------------------------------------------------------------------
\198\ See 1982 Subsidies Appendix, 47 FR 39317.
\199\ Id.
\200\ Id.
---------------------------------------------------------------------------
Commerce next addressed the allocation period in the 1984 Subsidies
Appendix.\201\ Commerce again stated that on the question of the
allocation of subsidies, the legislative history revealed nothing more
concrete than a directive that {Commerce{time} use ``reasonable
methods.'' \202\ Commerce stated that funds provided under government
direction or directly by the government provide a subsidy to the extent
that the recipient pays less for the funds than it would on the market.
In
[[Page 20822]]
the case of a loan, this is the difference between the cash flows
(i.e., the company's receipts and payments) on the loan under
examination and the cash flows for a comparable commercial loan taken
out by the same company.\203\ For equity, it is the difference between
what the government paid for a share of the company and what the market
would have paid for the share.\204\ For grants, the saving to the
recipient is the face value of the grant--that is, the difference
between what the company paid for the funds (i.e., zero), and what it
would have to pay on the market to receive the funds (i.e., the face
value of the grant).\205\
---------------------------------------------------------------------------
\201\ See Cold-Rolled Carbon Steel Flat-Rolled Products from
Argentina: Final Affirmative Countervailing Duty Determination and
Countervailing Duty Order, 49 FR 18006, 18016 (April 26, 1984), at
the Subsidies Appendix (1984 Subsidies Appendix).
\202\ Id.
\203\ Id.
\204\ Id.
\205\ Id.
---------------------------------------------------------------------------
Differences in cash flows can arise in a single moment, as with
grants (i.e., complete receipt of the funds at once), or over several
years, as with long-term loans (i.e., through periodic repayment).\206\
The point at which the difference in cash flows occurs does not always
coincide with the economic benefit of the subsidy, and therefore, does
not necessarily provide an appropriate schedule for assessing CVDs. The
economic benefit is diffused around the time that the cash flow
differential occurs. For example, it would be inappropriate to allocate
a $1 billion grant received on March 17, 1984, entirely to March 17,
1984. The grant continues to benefit the company after that date, and
thus, Commerce would not counteract the economic benefit of the grant
by assessing CVDs to products exported on only that single day.
Therefore, to counteract the benefit of such actions, Commerce had to
determine an appropriate period over which to allocate benefits and
decide how much of the benefit to allocate to each year.
---------------------------------------------------------------------------
\206\ Id.
---------------------------------------------------------------------------
Commerce first attempted to codify different allocation periods for
subsidies in the 1989 Proposed CVD Rules.\207\ Commerce stated in the
preamble to the 1989 Proposed CVD Rules that it would consider the use
of a set 10-year allocation period for all non-recurring benefits
before issuing its final rules; however, it never issued those final
rules. In the decades since the 1989 Proposed CVD Rules, Congress has
not addressed the allocation period for subsidies in the Act, deferring
the issue to Commerce's expertise. Accordingly, through its practice,
Commerce has developed allocation rules to ensure that a reasonable
method of allocation will provide adequate relief to the domestic
parties with respect to offsetting the injurious effect of unfair
foreign government subsidies and to ensure consistency and
predictability in the allocation period. Towards that end, Commerce has
implemented through the formal rule-making process allocation rules
that differentiate between different forms of financial contributions
and for different types of subsidy benefits. We have different
allocation rules for non-recurring subsidies and recurring
subsidies.\208\ We even have allocation rules that differentiate
whether a non-recurring subsidy will be allocated over an AUL or only
allocated (i.e., expensed) in the year of receipt.\209\ Moreover,
recurring subsidies are allocated (i.e., expensed) in the year of
receipt regardless of the merchandise that is under investigation.\210\
---------------------------------------------------------------------------
\207\ See 1989 Proposed Rules, 54 FR 23376-77.
\208\ Id.
\209\ Id., 54 FR 23383-84.
\210\ Id.
---------------------------------------------------------------------------
Different types of subsidy programs also have different allocation
periods wholly unrelated to the recipients' production operations.
There are specialized allocation rules for loans.\211\ There are
different allocation periods for income tax programs \212\ and
different allocation periods for the provision of goods and
services.\213\ None of the allocation periods for these common subsidy
programs are related to the production of subject merchandise or
related to the AUL of the recipients' capital assets.
---------------------------------------------------------------------------
\211\ Id., 54 FR 23376-77.
\212\ Id., 54 FR 23374-75.
\213\ Id., 54 FR 23375-76.
---------------------------------------------------------------------------
For grant programs, there are different allocation periods based on
the purpose of the grants. For example, grants provided for R&D, export
promotion, or training are allocated to the year of receipt,\214\ while
grants for capital equipment are allocated over time based on the AUL,
except in instances where the grant benefit for capital equipment is
less than 0.5 percent of the recipient's relevant sales.\215\ Thus, if
each of the respondents in an investigation receive a $30 million grant
to purchase equipment used to manufacture subject merchandise, the
grant received by one respondent could be allocated to the year of
receipt due to the size of its sales revenue while, for the other
respondent, that identical grant is allocated over time.
---------------------------------------------------------------------------
\214\ Id., 54 FR 23384.
\215\ Id., 54 FR 23385.
---------------------------------------------------------------------------
For example, if a respondent received a $30 million tax credit
based on a firm's purchase of equipment used to manufacture subject
merchandise, it would be allocated (fully expensed) in the year that it
uses the tax credit to reduce its income tax liability. On the other
hand, another respondent, instead of receiving a $30 million tax
credit, might have instead received a $30 million grant to purchase
equipment used to manufacture subject merchandise. Under that
hypothetical, instead of the benefit being fully allocated to one year,
the benefit would instead be allocated over time. Similarly, Commerce
could calculate a $30 million countervailable benefit from the
provision of capital equipment for less than adequate remuneration to a
firm and under the allocation rules established by the CVD regulations,
the benefit would be allocated (i.e., expensed) in the year in which
the firm paid for the capital equipment.
In sum, Commerce has adopted and codified different allocation
rules for different types of subsidies over the past 40 years,
consistent with the Act and the legislative history of this issue.
Throughout that period, for purposes of the CVD law, Commerce has
concluded that the purpose of an allocation period is to provide
adequate relief to domestic parties with respect to offsetting the
injurious effect of unfair foreign government subsidies. Further,
Commerce has also determined that an allocation period for a subsidy
should ensure consistency and predictability across CVD
proceedings.\216\ This understanding of the purposes of an allocation
period has consistently been Commerce's starting point in determining
an appropriate allocation period for a subsidy.
---------------------------------------------------------------------------
\216\ Id., 54 FR 23376-77.
---------------------------------------------------------------------------
Accordingly, we believe that the allocation periods set forth
within Sec. Sec. 351.507(d) and 351.508(c)(1) to account for the
unique nature of equity and debt forgiveness subsidies are not only
consistent with those purposes, but also consistent with Commerce's
statutory and regulatory obligations.
In addition to the challenge to the 12-year minimal allocation
period in general, one commenter expressed concerns that by extending
the AUL to 12 years for industries with shorter amortization rates,
Commerce's allocation methodology would introduce a distortive
calculation of benefit associated with costs of capital. This commenter
stated that this would occur where Commerce builds into its allocation
methodology a discount rate associated with the responding parties'
costs of borrowing. As a preliminary matter, Commerce agrees that it
calculates the discount rate based on a respondent's cost of borrowing.
[[Page 20823]]
However, that calculated discount rate is unrelated to the allocation
period and would not change based on the allocation period. Thus, we
disagree that it would create any distortions as stated by the
commenter. Under Sec. 351.524(d)(3), the discount rate is based upon a
company's costs of long-term, fixed rate loans for the year in which
the government agreed to provide the subsidy. For example, if the
government agreed to provide a subsidy to a respondent in 2020,
Commerce would calculate the discount rate based on the respondent's
costs of borrowing in 2020. That calculation would not change if the
allocation period was three, eight, or 12 years. In fact, two companies
with the identical AUL can have different costs of borrowing, and thus
can have different calculated discount rates. Therefore, we disagree
that the modified regulation would introduce any distortions into
calculations of benefit associated with costs of capital.
Lastly, in response to the commenter that requested that Commerce
should, at minimum, make the 12-year minimum allocation period a
rebuttable presumption, we do not agree that such an option would be a
reasonable change to the regulation. Adopting this suggestion would
undermine our reasons, described above, for providing a predictable
minimum 12-year allocation period for equity and debt forgiveness
subsidies. Moreover, the proposal is also inconsistent with the
treatment of the allocation periods for other types of subsidy programs
within our regulations such as loans, loan guarantees, income tax
programs, the provision of goods and services, and recurring grants, in
which the allocation period of the subsidy benefit is not established
as a rebuttal presumption.
11. Commerce has made no further changes to the proposed amendment
to the CVD debt forgiveness regulation, Sec. 351.508.
For the debt forgiveness regulation, we are modifying Sec.
351.508(c), which currently allocates the benefit of debt forgiveness
over the same period of time as a non-recurring subsidy under Sec.
351.524(d). The modification to paragraph (c) would measure the
allocation by that period, or over a period of 12 years, whichever is
longer.
The current standard tied to the AUL of assets works well for the
vast majority of the cases in which Commerce finds a countervailable
debt forgiveness benefit, as the provision of debt forgiveness is
normally part of a government-led restructuring package for a state-
owned steel company. However, there are cases, as discussed in the
Proposed Rule and in the equity section above, where this regulatory
standard leads to a result that appears to be inconsistent with the
purpose of the CVD law to provide relief to the domestic industry from
unfair and distortive foreign government subsidies.
Therefore, we are modifying Sec. 351.508(c) of our CVD regulations
to state that Commerce will treat the benefit from debt forgiveness as
a non-recurring subsidy and will allocate the benefit to a particular
period in accordance with Sec. 351.524(d), or over 12 years, whichever
is longer. We explained both in the Proposed Rule and further above in
the equity section why we selected the allocation period of 12
years.\217\
---------------------------------------------------------------------------
\217\ See Proposed Rule, 88 FR 29868-69.
---------------------------------------------------------------------------
We received comments from 11 parties with respect to this amendment
to our debt forgiveness regulation, with six of the parties supporting
the revisions to this regulation. The parties that expressed opposition
to this revision expressed the same concerns with respect to the
identical revision to the equity regulation. Accordingly, for further
analysis on these comments, and the reasoning behind our decision to
continue to amend the 12-year minimum allocation period in Sec.
351.508(c), see the equity section above.
12. Commerce has made no further changes to the proposed amendments
to the CVD regulations covering direct taxes, Sec. 351.509.
For purposes of the CVD regulation addressing direct taxes, we are
adding a new paragraph (d) to Sec. 351.509, which states that benefits
from income tax-related subsidies are not tied to particular products
or markets. In the CVD Preamble, Commerce stated that it considers
certain subsidies such as payments for plant closures, equity
infusions, debt forgiveness, and debt-to-equity conversions as not tied
to certain products or markets because they benefit all
production.\218\ Commerce also stated in the CVD Preamble that we
recognized that there may be scenarios where the attribution rules that
are set forth under Sec. 351.525 do not precisely fit the facts of a
particular case, and that we are ``extremely sensitive to potential
circumvention of the countervailing duty law.'' \219\ Moreover,
Commerce concluded that if subsidies allegedly tied to a particular
product are in fact provided to the overall operations of a company,
Commerce will attribute the subsidy over sales of all products by the
company.\220\ In addition, in the years following the issuance of the
current CVD regulations, Commerce determined with respect to a tying
claim of tax credits that tax credits reduce a firm's overall tax
liability which benefits all of the firm's domestic production and
sales.\221\
---------------------------------------------------------------------------
\218\ See CVD Preamble, 63 FR 65400.
\219\ Id.
\220\ Id.
\221\ See Large Residential Washers from the Republic of Korea:
Final Affirmative Countervailing Duty Determination, 77 FR 75975
(December 26, 2012) (Washers from Korea), and accompanying IDM.
---------------------------------------------------------------------------
Therefore, based on the language in the CVD Preamble and our
experience since the issuance of the current CVD regulations, we have
added a provision to the CVD regulations that states, ``If a program
provides for a full or partial exemption, reduction, credit, or
remission of an income tax, the Secretary normally will consider any
benefit to be not tied with respect to a particular market under Sec.
351.525(b)(4) or to a particular product under Sec. 351.525(b)(5).''
In accordance with this provision, if subsidies in fact benefit the
overall operations of a firm, even if they are allegedly tied to a
particular product or market, we will attribute the subsidy to all
sales of all the firm's products.
We received comments from five parties that supported this amended
provision and another commenter who generally concurred with the
amendment but stated that Commerce should retain discretion with
respect to the allocation of the benefit if they grant the direct tax
program based on a specific market or product. In addition, two
commenters stated that Commerce should not implement this proposal. One
of these commenters stated that it is Commerce's long-standing practice
to evaluate the purpose of the subsidy in determining whether the
subsidy is tied, and that Commerce does not trace how the subsidy is
used. In addition, according to that commenter, Commerce has not
offered a reason for its proposed departure from its long-established
attribution rules. The other commenter stated that the proposed change
under Sec. 351.509(d) provides Commerce with greater discretion in
deciding when a tax is tied to a particular market or product and it is
not clear how Commerce will exercise that discretion, nor does the
preamble indicate why Commerce needs such discretion. That commenter
also expressed concerns that this amendment would contradict section
701(a)(1) of the Act, which states that Commerce must establish that
the government or a public entity is providing, directly or indirectly,
a countervailable subsidy with respect to
[[Page 20824]]
the manufacture, production, or export of merchandise under
investigation.
Commerce's Response:
As a preliminary matter, we agree with the commenter that stated
that Commerce has a long-standing practice when analyzing whether a
subsidy benefit is tied to a particular product or particular market.
It was in the 1982 Subsidies Appendix that Commerce published the
criteria for determining whether a subsidy is tied, and that standard
is the one that is still used and reflected in the CVD Preamble. Under
this standard, a subsidy benefit is ``tied'' when the intended use is
known to the subsidy giver and so acknowledged prior to or concurrent
with the bestowal of the subsidy. This is the standard that Commerce
will continue to use with respect to whether a subsidy benefit is tied
to a particular product or market.
However, in the CVD Preamble, Commerce explicitly recognized that
there may be scenarios where the attribution rules that are set forth
under Sec. 351.525 do not precisely fit the facts of a particular case
and emphasized that it was ``extremely sensitive to potential
circumvention of the countervailing duty law.'' \222\ Moreover,
Commerce concluded that if subsidies allegedly tied to a particular
product are in fact provided to the overall operations of a company,
Commerce will attribute the subsidy over sales of all products by the
company. Direct tax programs reduce or eliminate income taxes paid by a
firm, which by their very nature benefit the overall operations of the
recipient firm.
---------------------------------------------------------------------------
\222\ See CVD Preamble, 63 FR 65400.
---------------------------------------------------------------------------
We disagree with respect to the comment that this amendment
contradicts section 701(a)(1) of the Act. Section 701(a)(1) of the Act
does not establish an attribution methodology to be used for any type
of countervailable program, much less for a program that provides for a
full or partial exemption, reduction, credit, or remission of an income
tax. This section of the Act requires Commerce to investigate and
quantify countervailable subsidies provided directly or indirectly to
the manufacture, production, or exportation of subject merchandise,
which we are doing under the new language at Sec. 351.509(d). Section
351.509(d) is fully consistent with the requirements in section
701(a)(1) of the Act and no commenter provided further reasoning to
suggest otherwise.
We also disagree with the commenter that stated that Commerce has
not offered a reason for its proposed departure from its long-
established attribution rules. In the Proposed Rule, Commerce sought
public comment and explicitly stated why we were making this amendment
with respect to the attribution of direct taxes, citing language in the
CVD Preamble that explained that the attribution rules under Sec.
351.525 may not precisely fit the facts of a particular case.\223\
Moreover, Commerce explained in the Proposed Rule that the CVD Preamble
explicitly concluded that if subsidies allegedly tied to a particular
product are in fact provided to the overall operations of a company,
Commerce will attribute the subsidy over sales of all products by the
company, and that direct tax benefits addressed under Sec. 351.509
meet the ``tying'' exception criterion established in the CVD
Preamble.\224\ These types of direct tax programs reduce or eliminate
income taxes paid by a firm. Income taxes are based on a firm's total
taxable income which is comprised of the overall tax liability
generated from all the firm's production and sales. Thus, these types
of direct tax programs benefit the overall domestic production of the
firm. No commenter provided any type of support or reasoning that would
contradict our conclusion that a program that provides for a full or
partial exemption, reduction, credit, or remission of an income tax
reduces the overall tax liability of a firm which is generated from all
the firm's production and sales.
---------------------------------------------------------------------------
\223\ See Proposed Rule, 88 FR 29869.
\224\ Id.
---------------------------------------------------------------------------
Commerce also disagrees with the commenter who stated, with no
cited support, that this amendment amounts to tracing how a subsidy is
used. In the CVD Preamble, Commerce stated the concept of fungibility
related to the issue of whether Commerce could, or should, trace the
use of specific funds to determine whether such funds were used for
their stated purpose.\225\ Neither the fungibility of money nor the
tracing of the use of a subsidy is relevant to this amendment to our
regulations. Under the provisions of Sec. 351.509(d), Commerce is in
no way suggesting that it will trace the use of a subsidy through a
company's books and records to determine whether subsidy funds were
used appropriately (i.e., for their intended use). Indeed, there is no
proposal that Commerce will go through a firm's books and records to
ascertain which sales, costs, funds, and expenses contributed to the
firms total taxable income in order to calculate or attribute the
benefit conferred from a program that provides for a full or partial
exemption, reduction, credit, or remission of an income tax. Instead,
the revised language merely explains that if a program provides for a
full or partial exemption, reduction, credit, or remission of an income
tax, Commerce normally will consider any benefit to be not tied with
respect to a particular market or product.
---------------------------------------------------------------------------
\225\ See CVD Preamble, 63 FR 65403.
---------------------------------------------------------------------------
We also did not implement the suggestion that Commerce should
retain discretion with respect to the allocation of the benefit if the
granting of the direct tax program was based on a specific market or
product. Acceptance of this suggestion would directly contradict the
reasons for implementing Sec. 351.509(d). Income taxes are based on a
firm's total taxable income which is comprised of the overall tax
liability generated from all the firm's production and sales. Thus,
these types of direct tax programs benefit the overall production of a
firm. This fundamental element of a program that provides for a full or
partial exemption, reduction, credit, or remission of an income tax
does not change whether the granting of the income tax exemption,
reduction, remission, or credit is based on a specific market or
product.
Lastly, one commenter suggested that the change to Sec. 351.509(d)
provides Commerce with greater discretion in deciding when a tax is
tied to a particular market or product, and it commented that it was
not clear how Commerce would exercise such discretion. We believe that
this party has misread or misinterpreted the language within Sec.
351.509(d). The language within Sec. 351.509(d) does not provide
Commerce with greater discretion to decide when a direct tax is tied to
a particular market or product. In fact, one could argue that it limits
Commerce's discretion in some ways. Specifically, Sec. 351.509(d)
states that Commerce normally will not find a program that provides for
a full or partial exemption, reduction, credit, or remission of an
income tax to be tied to a particular market or product. Nonetheless,
as explained in the Proposed Rule and CVD Preamble, Commerce currently
has the discretion to determine if subsidies allegedly tied to a
particular product are in fact provided to the overall operations of a
company, and if it makes such a determination, the agency may determine
to attribute the subsidy to sales of all products by the company. The
revision to Sec. 351.509(d) neither increases nor takes away that
discretion from the agency.
13. Commerce has made no further modifications to its proposed
changes to the CVD regulation covering export insurance--Sec.
351.520(a)(1).
[[Page 20825]]
With respect to export insurance, Commerce is modifying Sec.
351.520(a)(1) to include a period of time (normally five years) over
which Commerce may examine whether premium rates charged were
inadequate to cover the long-term operating costs and losses of the
program. If Commerce determines that those rates were inadequate to
cover such costs and losses during that period of time, then it may
determine that a benefit exists.
As Commerce explained in the CVD Preamble,\226\ this standard of
benefit for export insurance is based on paragraph (j) of the
Illustrative List.\227\ In the CVD Preamble, Commerce stated that in
determining whether the premiums charged under an export insurance
program covered the long-term operating costs and losses of the
program, we anticipated that we would continue to make that
determination based on the five-year rule.\228\ Since 1998, when the
current CVD regulations were published, we have consistently applied a
period of five years to analyze whether the premiums charged under an
export insurance program are adequate to cover the long-term operating
costs and losses of the program.\229\ Therefore, we are amending Sec.
351.520(a) to include the five-year period considered in Commerce's
standard export insurance benefit analysis. Accordingly, any allegation
made with respect to an export insurance program should be based on a
five-year period to satisfy Commerce's standard benefit analysis for
this program. All the comments received with respect to Sec.
351.520(a) supported this change.
---------------------------------------------------------------------------
\226\ Id., 63 FR 65385.
\227\ See Illustrative List of Export Subsidies, annexed to the
1994 WTO Agreement on Subsidies and Countervailing Measures as Annex
I (Illustrative List); see also SAA at 928 (``Unlike existing
section 771(5)(A)(i), new section 771(5) does not incorporate the
Illustrative List of Export Subsidies into the statute. The
Illustrative List, an annex to the Tokyo Round Code, continues in
modified form as Annex I to the Subsidies Agreement. However, the
Illustrative List has no direct application to the CVD portion of
the Subsidies Agreement. . . . It is the Administration's intent
that Commerce adhere to the Illustrative List except where the List
is inconsistent with the principles set forth in the implementing
bill'').
\228\ See CVD Preamble, 63 FR 65385.
\229\ See, e.g., Washers from Korea, 77 FR 75975; and Bottom
Mount Combination Refrigerators-Freezers from the Republic of Korea:
Final Affirmative Countervailing Duty Determination, 77 FR 17410
(March 26, 2012), and accompanying IDM at Comment 2.
---------------------------------------------------------------------------
14. Commerce has made no further amendments to its regulation
covering the calculation for ad valorem subsidy rates and attribution
of subsidies to a product, Sec. 351.525.
Commerce is making a minor change to the language within paragraphs
(b)(2) and (3) of Sec. 351.525, which concern the attribution of an
export subsidy and a domestic subsidy. Currently under existing Sec.
351.525(b)(2), when Commerce determines that a subsidy is specific
within the meaning of sections 771(5A)(A) and (B) of the Act, because
the subsidy is in law or fact contingent on export performance, alone
or as one of two or more conditions, Commerce will attribute that
export subsidy only to products exported by the firm. Similarly, when
Commerce determines that a subsidy program is specific as a domestic
subsidy as defined within the meaning of section 771(5A)(D) of the Act,
then under existing Sec. 351.525(b)(3), Commerce will attribute that
domestic subsidy to all products sold by the firm, including products
that are exported.
As currently written, both Sec. 351.525(b)(2) and (3) use the
language ``the Secretary will,'' without condition. Under this
amendment, the language used in both paragraphs (b)(2) and (3) of Sec.
351.525 will be changed to ``the Secretary will normally.'' The change
to this section of the regulation will not change our established
practice of allocating an export subsidy only to products exported by
the firm and allocating domestic subsidies to all products sold by the
firm, including exports. The insertion of the word ``normally'' into
both paragraphs (b)(2) and (3) would merely ensure that there is no
perceived conflict with the language in paragraphs (b)(2) and (3) and
the language in Sec. 351.525(b)(7) that allows Commerce to attribute a
subsidy to multinational production under extremely limited
circumstances. In addition, the proposed insertion of the word
``normally'' into both paragraphs (b)(2) and (3) of Sec. 351.525
indicates a limited provision of Commerce's discretion.
One point which was not made in the Proposed Rule, which we
emphasize in this final rule with respect to this regulation, involves
export subsidies. An export subsidy is defined under section 771(5A)(B)
of the Act as a subsidy that is, in law or fact, contingent upon export
performance, alone or as one of two or more conditions. If Commerce
determines that a subsidy is an export subsidy because it is contingent
upon export performance as one of two or more conditions, the fact that
other conditions are not contingent upon export performances is not
itself sufficient to depart from the standard attribution and
allocation methodology that an export is solely attributed and
allocated to products that are exported by the firm.
Commerce received several comments on this regulation that
supported this change to Sec. 351.525(b)(2) and (3). However, there
were some submissions in which commenters expressed opposition to this
amendment. Most of these commenters explained that the amendment should
not be adopted because it would create ``excessive unpredictability''
and ``standardless uncertainty'' through agency discretion into the
calculation of a subsidy rate. Those commenters expressed concerns that
by introducing the word ``normally'' into the attribution rules for
export subsidies and domestic subsidies, which are clear and well-
established, without any boundary to that discretionary language,
Commerce was creating uncertainty where none needs to exist.
In addition, one commenter expressed concerns that the addition of
the term ``normally'' to this regulation would contradict section
701(a)(1) of the Act, which states that Commerce must establish that
the government or a public entity is providing, directly or indirectly,
a countervailable subsidy with respect to the manufacture, production,
or export of merchandise under investigation.
Commerce's Response:
We disagree that the insertion of the word ``normally'' into
paragraphs (b)(2) and (3) of Sec. 351.525 will create unpredictability
and uncertainty in the attribution of export and domestic subsidies.
While Commerce does not disagree that the term ``normally'' provides a
small degree of flexibility or discretion, such flexibility or
discretion is narrow. ``Normally'' means usually or regularly \230\--in
other words, the standard practice. If Commerce were to attribute
export subsidies not to products exported by a firm, or to attribute
domestic subsidies not to products sold by a firm, Commerce would have
to provide a reason on the record for not following its normal
practice. Commerce does not see how this would make the agency's
practice ``unpredictable'' or ``standardless.'' Indeed, the term
``normally'' indicates the very existence of a standard.
---------------------------------------------------------------------------
\230\ See Collins Dictionary, ``Normally,'' retrieved November
9, 2023, https://www.collinsdictionary.com/us/dictionary/english/normally.
---------------------------------------------------------------------------
In fact, the use of the term ``normally'' and its equivalent, ``in
general,'' have appeared in most of Commerce's CVD regulations for at
least 25 years, and even Sec. 351.525(b) itself starts with the words
``in general.'' Throughout that time period, Commerce has
[[Page 20826]]
administered its CVD regulations and has never had problems with
``excessive unpredictability'' and ``standardless uncertainty,'' as
suggested by some of the commenters. Accordingly, we disagree that
adding the term ``normally'' to Sec. 351.525(b)(2) and (3) will create
any of the confusion suggested by certain commenters.
Lastly, in response to the commenter that expressed concerns that
this change would contradict section 701(a)(1) of the Act, we disagree.
Section 701(a)(1) of the Act does not set forth an attribution
methodology to be used with respect to either a domestic subsidy or an
export subsidy. This section of the Act requires that Commerce
investigate and quantify countervailable subsidies provided directly or
indirectly to the manufacture, production, or exportation of subject
merchandise. The addition of the term ``normally'' to Sec.
351.525(b)(2) and (3) in no way undermines or contradicts that
analysis. Therefore, this modification to the regulation does not in
any way contradict section 701(a)(1) of the Act.
15. Commerce has determined to withdraw its transnational subsidy
regulation, Sec. 351.527.
After considering the comments received on our proposal to withdraw
this section, Commerce has determined to repeal the current
transnational subsidies regulation. In repealing this regulation, we
clarify that when appropriate, Commerce will investigate and
countervail transnational subsidies (i.e., subsidies provided by a
government or public entity in one country that benefit producers or
exporters in another country).
Section 701 of the Act does not impose geographic limitations on
countervailing unfair foreign subsidies. As was explained in the CVD
Preamble, Sec. 351.527 was derived from now-repealed section 303(a)(1)
of the Act.\231\ When Sec. 351.527 was promulgated, Commerce's
administrative experience at that time was that normally governments
were subsidizing manufacturing and production activities in their own
countries rather than subsidizing manufacturing and production abroad.
Consistent with the experience at that time, upon promulgating Sec.
351.527, in 1998, Commerce repeated this perspective and, accordingly,
stated, ``{i{time} n our view, neither the successorship of section 701
for Subsidies Code members nor the repeal of section 303 by the
{Uruguay Round Agreements Act (URAA){time} , eliminated the
transnational subsidies rule, and there is no other indication that
Congress intended to eliminate this rule.'' \232\
---------------------------------------------------------------------------
\231\ See CVD Preamble, 63 FR 65405. Section 303 (19 U.S.C.
1303) was repealed in 1994, effective January 1, 1995, pursuant to
the URAA.
\232\ See Proposed Rule, 88 FR 29870 (citing 1997 Proposed CVD
Rules, 62 FR 8847, referencing the subsidy attribution regulation
covering multinational firms).
---------------------------------------------------------------------------
Since that time, the assumptions underlying Commerce's
interpretation of section 701 of the Act have changed. In the
intervening two decades, Commerce has observed increasing instances in
which a government subsidizes foreign production. As a result, we now
believe that our past regulatory interpretation of section 701 of the
Act was overly restrictive and not required by statute. Commerce's
self-imposed restriction on its ability to countervail subsidies only
if those subsidies were provided to entities of a country solely by the
government of that country, when subsidies from other foreign
governments would otherwise be determined countervailable under the CVD
law and injurious to producers of the domestic like product, is
inconsistent with the very purpose of the CVD law. Section 701 of the
Act does not require such a restrictive interpretation.
We received numerous comments expressing strong support for
eliminating the current transnational subsidies regulation. These
commenters argue that Commerce has the statutory authority to
investigate and countervail transnational subsidies. Whereas the now-
repealed section 303(a)(1) of the Act previously focused on the
administering authority's analysis of subsidization on
``article{s{time} or merchandise manufactured or produced in
{the{time} country {of bestowal{time} ,'' this limiting language was
repealed by section 261(a) of the URAA, as well as the entirety of
section 303 of the Act.\233\ In place of the now-repealed section 303
of the Act, section 701 of the Act introduced a new subsidy definition,
in which there is no limitation on Commerce's authority to investigate
the ``subject country'' or otherwise circumscribe the ``country'' from
which the subsidy emanates.\234\
---------------------------------------------------------------------------
\233\ See SAA at 923. The SAA accompanying the URAA explains the
change, in relevant part, as follows: ``under existing law, section
303 applies in the case of a country which is not a `country under
the Agreement' and contains its own definition of subsidy. In light
of the new subsidy definition contained in the Subsidies Agreement,
it is unnecessary and confusing to retain section 303.''
\234\ See Aerolineas Argentinas v. United States, 77 F.3d 1564,
1575 (Fed. Cir. 1996). The Federal Circuit has pronounced a clear
rule: ``When a statute has been repealed, the regulations based on
that statute automatically lose their vitality. Regulations do not
maintain an independent life, defeating the statutory change.''
---------------------------------------------------------------------------
Numerous commenters provided specific examples of the increasing
prevalence in which a government provided a subsidy that benefits
foreign production. Several commenters cited the People's Republic of
China's (China) ``Belt and Roade Initiative'' (BRI) as a primary
example. One such commentator explained that subsidies associated with
China's BRI program have propped up third country export platforms for
a variety of industries. Another commentator explained that programs
like China's BRI have driven a rapid expansion of Chinese industrial
capacity in third countries with significant government support, which
both displaces sustainable, market-based investment and perpetuates
global distortion. Significantly, industrial capacity projects under
the BRI often proceed with support from investment funds that have the
trappings of international lending or development institutions but that
are ultimately vehicles for Chinese industrial policy initiatives. In
certain industries, including the steel industry, BRI-linked subsidies
have transplanted excess capacity into third countries, resulting in a
proliferation of non-market production that has avoided AD/CVD orders
on unfairly traded imports directly from China.
Commerce's Response:
We agree with these comments. Section 701 of the Act does not
impose geographic limitations on countervailing unfair foreign
subsidies. Section 351.527 was promulgated over 25 years ago in a
global trade environment much different than the current trade
environment. Specifically, the subsidization landscape of 25 years ago
related primarily to transnational transactions involving foreign
aid.\235\ In contrast, in today's subsidization landscape, governments
provide cross-border equity infusions, fundings, loans, etc., and they
are no longer limited to foreign aid. Rather, they are provided to
[[Page 20827]]
promote the grantor country as well as the recipient's country
manufacturing capacities for a particular industry.\236\ We also have
observed direct investments in a third country from state-owned
enterprises, with backings from state-owned policy banks, promoting the
specific grantor country's industry policies.\237\
---------------------------------------------------------------------------
\235\ See, e.g., Final Affirmative Countervailing Duty
Determination; Fuel Ethanol from Brazil, 51 FR 3361 (January 27,
1986), and accompanying IDM (determining funds that were provided by
the World Bank with the Government of Brazil (GOB) required to match
the World Bank's fund commitment. While Commerce countervailed the
portion attributed to GOB funds, it found that the portion of funds
provided by the World Bank not countervailable); Final Affirmative
Countervailing Duty Determinations; Certain Steel Products from the
Republic of Korea, 47 FR 57535 (December 27, 1982), and accompanying
IDM (determining funding for helping war reparations are the result
of unique circumstances and reflect political and economic
considerations that are outside of the realm of activities which are
contemplated by the CVD law. Thus, Commerce could not envision an
instance in which benefits flowing from payments of war reparations
confer subsidies within the meaning of the Act).
\236\ See, e.g., Economic Statecraft in China's New Overseas
Special Economic Zones, International Food Policy Research Institute
(March 2012), found at https://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/126834/filename/127045.pdf.
\237\ Id.
---------------------------------------------------------------------------
Some commenters argue that, regardless of whether Commerce removes
Sec. 351.527, the statute prohibits Commerce from countervailing
transnational subsidies. One commenter points out that the statute only
gives Commerce the authority to impose a countervailing duty on
merchandise from a single country. Therefore, they argue that the
statute clearly establishes that Commerce's investigations, and
subsequent imposition of countervailing duties as a result of its
investigations, are limited to a single country (i.e., ``a'' country).
We are unpersuaded by this argument. As some commenters
acknowledged, the text of section 701 of the Act does not prohibit
Commerce from finding that a transnational subsidy is countervailable
and further, section 701 of the Act allows Commerce to countervail a
subsidy from multiple countries if those countries are part of an
international consortia.
Another commenter relied on repealed section 303(a)(1) of the Act
and the 1993 General Issues Appendix,\238\ which provided guidance on
pre-URAA determinations, arguing that Congress intended section 701(a)
of the Act to have to the same meaning and application as the language
in repealed section 303(a)(1) of the Act. We find this comment also to
be unpersuasive. As explained above, the language in section 303 of the
Act was repealed in its entirety, and the language that existed in
section 303(a)(1) was revised and is different from that found in the
language codified, pursuant to the URAA, in section 701(a) of the Act.
---------------------------------------------------------------------------
\238\ See Certain Steel Products from Austria, 58 FR 37217, at
Comment 2 of the General Issues Appendix.
---------------------------------------------------------------------------
Some commenters noted practical constraints with respect to
transnational subsidy allegations, particularly the risk of imposing
unreasonable evidentiary obligations on the government of the exporting
countries and, exporting enterprises, as well as the government or
other entities of third countries. We acknowledge these concerns, but
believe that it is premature to speculate as to Commerce's future
evidentiary standards for allegations or findings on various potential
transnational subsidies. The existence of a transnational subsidy would
be a case-specific one, and Commerce will not speculate on what
evidence is needed to allege or prove the existence of a
countervailable transnational subsidy without analyzing in the first
instance the record evidence presented in a particular proceeding.
As the administering authority for countervailing duty proceedings,
it is Commerce's charge to enforce U.S. CVD law, such that U.S.
industries are receiving the fullest extent of the remedy provided by
the statute. As the dynamics of global trade continue to evolve and
foreign governments implement novel approaches to subsidization, the
removal of Sec. 351.527 strengthens Commerce's ability to accomplish
its statutory mission to assess and remedy unfair foreign trade
practices that harm U.S. workers, farmers, and companies.
16. Commerce has made no further modifications to its new CVD
regulation covering fees, fines, and penalties--Sec. 351.529.
Commerce explained in the Proposed Rule that when a government
fails to enforce its regulations, requirements, or obligations by not
collecting a fee, a fine, or a penalty, such inaction can be considered
a countervailable subsidy.\239\ In that case, the government has
forgone revenue it was otherwise due, therefore, benefiting the party
not paying the fee, fine, or penalty, pursuant to section 771(5)(D)(ii)
of the Act. There are various examples of a government providing
benefits to parties through inaction. For example, a firm might have
owed certain fees to the government for management of waste disposal,
certain fines for violations of occupational safety and health
standards in its facility, or certain penalties for non-compliance with
other labor laws and regulations that were never paid. A government may
also have failed to take any action to collect fees, fines, or
penalties that were otherwise due in the first place. In both
scenarios, it is Commerce's long-standing practice to treat unpaid and
deferred fees, fines, and penalties as a countervailable subsidy, no
matter if the government took efforts to seek payment, recognized that
no payment had been made, or indicated to the company that it was
permitting a payment to be deferred. Section 351.529 of the Proposed
Rule codified that practice.
---------------------------------------------------------------------------
\239\ See Proposed Rule, 88 FR 29858.
---------------------------------------------------------------------------
Paragraph (a) under Sec. 351.529 explains that a financial
contribution exists if Commerce determines that a fee, fine, or penalty
which is otherwise due has been forgone or not collected within the
meaning of section 771(5)(D)(ii) of the Act, with or without evidence
on the record that the government took efforts to seek payment or
acknowledged nonpayment or deferral.
Paragraph (b) explains that if the government has exempted or
remitted a fee, fine, or penalty, in part or in full, and Commerce
determines that it is revenue which has been forgone or not collected
in paragraph (a), then a benefit exists to the extent that the fee,
fine, or penalty paid by the party is less than if the government had
not exempted or remitted that fee, fine, or penalty. Likewise, also
under proposed paragraph (b), if Commerce determines that payment of
the fee, fine, or penalty was deferred, it will determine that a
benefit exists to the extent that appropriate interest charges were not
collected, and the deferral will normally be treated as a government
loan in the amount of the payments deferred, according to the
methodology described in Sec. 351.505. The language for determining
the benefit for nonpayment or deferral is similar to other revenue
forgone benefit regulations, such as Sec. 351.509, covering direct
taxes, and Sec. 351.510, covering indirect taxes and import charges
(other than export programs).
Commerce received several comments on this proposed regulation. We
have determined to make no modification to the proposed regulation in
response to those comments for the reasons provided below.
Several commenters approved of Commerce's codification of its
practice in this regard. One commenter expressed its support for the
fact that Commerce may find the existence of a countervailable subsidy
even if the government has not taken efforts to seek payment or grant
deferral, or otherwise acknowledged nonpayment of the fee, fine, or
penalty. Under their view, an unpaid obligation is an unpaid
obligation, regardless of the actions taken by the government. That
commenter suggested that Commerce might also include in the regulation
that it could rely on evidence from third parties, such as reports by
international or non-governmental organizations to establish the
existence of an unpaid fee, fine, or penalty.
Other commenters supporting the regulation expressed concerns that
the
[[Page 20828]]
regulation, as drafted, could be interpreted too narrowly to only apply
when the nonpayment of a fee, fine, or penalty is unique to a
particular party, and not when a law or other government measure
generally imposes an exception to the payment of a fee, fine, or
penalty for certain industries, enterprises, or other groups. The
commenters expressed concerns that respondents or foreign governments
could argue that payment of a fee, fine, or penalty would not be
``otherwise due'' or ``otherwise required'' under that scenario. They
therefore requested that Commerce clarify in the final rule that it
will consider a financial contribution to have been conferred under
this provision even when non-payment of fees, fines, or penalties by
certain entities is provided for by law.
Additional commenters supporting the provision expressed concerns
that the regulation was too narrow in addressing government inaction,
and that it should also apply to the other examples Commerce described
in the preamble to the Proposed Rule--specifically, weak, ineffective,
or nonexistent property (including intellectual property), human
rights, labor, and environmental protections. Those commenters
suggested that Commerce should determine that the government inaction
in those situations is a financial contribution that provides a benefit
specific to those industries and enterprises benefiting from lower
costs and, therefore, Commerce should countervail that government
inaction in practice and in its regulations.
Other commenters focused on the ``otherwise due'' language. One
sought further clarification as to when the benefit of an unpaid fee,
fine, or penalty is ``otherwise due.'' Another commenter, focusing both
on the ``otherwise due'' language, as well as on the regulatory
language stating that there need not be evidence of affirmative
government demands for payment, commented that the word ``due'' means
``immediately enforceable,'' and therefore, in the absence of an
automatic or formal final assessment of the fee, fine, or penalty,
claimed that Commerce lacks the statutory authority to treat the non-
collection of such obligations as a countervailable subsidy. In other
words, for example, if a law is passed that exempts certain companies
from paying certain fines, until those fines actually come due and the
government demands payment, the commenter stated that the revenue
cannot be due or ``forgone.'' Therefore, the commenter suggested that
Commerce should provide for this alleged revenue forgone limitation in
the regulation.
Another commenter stated that the proposed regulation presents a
vague definition of government inaction and unreasonably expands the
scope of subsidies permitted by law, while other commenters expressed
concerns that Commerce's practice and the regulation undermines the
sovereign authority of foreign regulatory and enforcement agencies to
determine the extent to which they will pursue, settle, or dismiss
these types of claims. They expressed concerns that this regulation
fails to account for legitimate disputes between the foreign government
regulatory or enforcement authority and the foreign producer,
including, for example settlements of litigation in which the
government determines that a lesser amount, or nonpayment, of a fee,
fine, or penalty is acceptable, as part of a bigger settlement package.
Commerce's Response:
In response to the request that Commerce include in the regulation
that the agency could rely on evidence from third parties, such as
reports by international or non-governmental organizations, to
establish the existence of unpaid fees, fines, or penalties, Commerce
has determined that no such additional language is needed. It is
Commerce's practice in determining if there is a financial
contribution, including a financial contribution in the form of revenue
forgone, to consider all of the information on the record before it.
That would include international and non-governmental organization
reports, but it could also include other sources of information.
Therefore, consistent with long-standing established practice, in
making any findings or determinations under this regulation, Commerce
will analyze and consider all of the facts and information on the
record of the proceeding. Accordingly, Commerce has determined not to
include the language suggested by that commenter in the regulation.
With respect to the suggestion that Commerce should clarify that
Sec. 351.529 applies when the law itself excludes certain industries,
enterprises, or other groups from paying certain fees, fines, or
penalties, Commerce does not disagree that it could apply, but we do
not believe that the regulation should be revised. Without question, a
de jure exemption in the law from the requirement to pay a fee, fine,
penalty, direct tax, indirect tax, or import charge, or an exemption
from the requirements of various laws, regulations, or programs, can
confer a countervailable subsidy within the meaning of the Act.
However, Commerce can address such subsidies in its application of the
CVD law with or without Sec. 351.529. The issue is whether language
specific to exclusions from payment by statute or regulation should be
added to this regulatory provision unique to fees, fines, and
penalties. We have decided that the inclusion of such language would be
inappropriate because similar language does not exist in the regulatory
provisions for direct taxes, indirect taxes, import charges, and other
relevant revenue forgone examples.
Section 771(5)(D)(ii) of the Act states that there is a financial
contribution conferred by forgoing or not collecting revenue that is
otherwise due, (e.g., granting tax credits or deductions from taxable
income), and the SAA states that although section 771(5)(D) of the Act
provides a list of four broad categories of government practices that
constitute a ``financial contribution,'' the examples of particular
types of government practices under each of these categories are not
intended to be exhaustive.\240\ Therefore, the range of government acts
or practices that constitute revenue forgone is broad. We are concerned
that if we applied the suggested language in this particular regulatory
provision, but not to others where it would also naturally apply, a
court might incorrectly hold that we intended for such a requirement to
only apply to some, and not all, of the regulations addressing revenue
forgone by a government through nonpayment or non-collection of certain
obligations. That is not Commerce's intention because de jure
exemptions from payment of financial obligations are countervailable
across the board for all types of revenue forgone by the government.
Thus, we are not including the suggested language in Sec. 351.529.
---------------------------------------------------------------------------
\240\ See SAA at 927.
---------------------------------------------------------------------------
In response to the commenters who suggested that Commerce should
include the ability of the agency to countervail weak, ineffective, or
nonexistent property (including intellectual property), human rights,
labor, and environmental protections in this regulation, we disagree
that such a request is consistent with our intentions in issuing Sec.
351.529. Section 351.529 is intended to codify our long-standing
practice of treating unpaid and deferred fees, fines, and penalties as
a countervailable subsidy. It was never intended to address all
subsidies conferred by government inaction.
However, this regulation was also never intended to preclude
Commerce from addressing either the inactions or measures of a
government under the other forms of financial contributions
[[Page 20829]]
defined within the statute. Section 701(a) of the Act requires Commerce
to impose a CVD equal to the countervailable subsidies conferred either
directly or indirectly upon the manufacture, production, or exportation
of subject merchandise. Therefore, any government act, measure, or
practice that provides a financial contribution and a benefit within
the meaning of sections 771(5)(D) and 771(5)(E) of the Act and is
specific within the meaning of section 771(5A) of the Act is
countervailable. In addition, our regulations explicitly acknowledge
that there may be cases where a government program is not covered by a
specific rule and provide for a general rule as to the benefit
measurement for those types of programs.\241\ Accordingly, although
Commerce finds that it would be inappropriate to include other areas of
government inaction in a regulation drafted to address, specifically,
the nonpayment of fees, fines, and penalties, Commerce also finds that
the refusal to include such language in the regulation in no way
supports or detracts from the commenters' points with respect to the
countervailability of other forms of government inaction.
---------------------------------------------------------------------------
\241\ See Sec. 351.503(a) and (b).
---------------------------------------------------------------------------
With regard to the arguments about the term ``otherwise due,'' the
financial contribution, and the related benefit, under the language of
this regulation is the amount of the payment that was required of a
party but was not made or was made only in part. Given the potential
range of fees, fines, and penalties that could fall within this
regulation and the various foreign government regulations, policies,
and practices that may cover any of these fees, fines, and penalties,
Commerce does not believe that it can provide further guidance in the
regulation as to the timing of benefits. The timing of the benefit will
differ depending on the facts on the record (e.g., the terms of a fine,
the various forms the fine might take, and types of payment that a
party may use to pay for all, or some, of the fine). Thus, further
language in the regulation on the timing of a benefit could be
counterproductive and unnecessarily limit Commerce's ability to address
the timing of a benefit based on the unique facts of a record before
it.
Moreover, with respect to the alleged definition of revenue
``otherwise due'' and revenue forgone, we disagree with that
commenter's understanding of the CVD law in general. Section 771(5)(D)
of the Act defines one type of financial contribution as forgoing or
not collecting revenue that is otherwise due. Congress, in creating and
enacting the CVD law, did not provide a statutory definition for the
word ``due.'' Thus, the commenter's presented definition of ``due'' is
not binding. Indeed, the explicit language within the Act uses the
phrase ``not collecting'' without the use of any qualifier such as
``automatic'' or ``final assessment,'' as suggested by the commenter.
Although not a controlling definition, even the cite to Black's Law
Dictionary used by the commenter itself for the term ``due'' does not,
in fact, include within its definition the words ``automatic'' or
``final,'' as suggested by the commenter.\242\
---------------------------------------------------------------------------
\242\ See Black's Law Dictionary, 2nd Ed., ``due,'' retrieved
November 8, 2023, https://thelawdictionary.org/due. (``Owing;
payable; justly owed. That which one contracts to pay or perform to
another; that which law or justice requires to be paid or done'' and
``Owed, or owing, as distinguished from payable. A debt is often
said to be due from a person where he is the party owing it, or
primarily bound to pay, whether the time for payment has or has not
arrived'').
---------------------------------------------------------------------------
Furthermore, the commenter's points with respect to the limitations
of a revenue forgone analysis are illogical. For example, if a
government creates an income tax law which sets the corporate income
rate at 25 percent and makes it applicable to all corporations except
those in the car industry, it would be nonsensical to claim that a
countervailable subsidy has not been provided to the car industry
because no bill was demanded of the car manufacturers. In creating this
income tax law, the government undertook an act or practice to exempt
one industry from income taxes. Similarly, if a government created a
law to address the releasing of pollutants into the water which
provided for fines of companies that violate this law, but specifically
exempted or simply did not include the car industry within this law,
this exclusion or exemption would provide a financial contribution and
benefit under the statute to the car industry if it was determined that
an investigated car manufacture released pollutants into the water, and
the benefit would be based on the amount of the fines it otherwise
would have been assessed under the law if it were any manufacturer
other than a car manufacturer.
In addition, it is counterintuitive to argue that a financial
contribution within the meaning of section 771(5)(D)(ii) of the Act
would not exist if a government exempts an enterprise or industry from
the requirements of a law, regulation, or program that imposes fees,
fines, or penalties (or taxes for that matter). Indeed, with respect to
exporters, a government providing exporters with such exemptions is the
very definition of an export subsidy, a type of countervailable subsidy
explicitly referenced in section 771(5A)(B) of the Act. As the U.S.
Supreme Court stated in Zenith,\243\ the CVD law was intended to offset
the unfair competitive advantages that foreign producers would
otherwise enjoy from export subsidies provided by their governments,
and the points made by the commenter on revenue forgone in this context
would be contrary to those intentions. Accordingly, Commerce will not
include the limitations suggested by that commenter in Sec. 351.529.
---------------------------------------------------------------------------
\243\ See Zenith Radio Corporation v. United States, 437 U.S.
443, 455 (1978) (Zenith).
---------------------------------------------------------------------------
With respect to the claim that the regulation presents a vague
definition of government inaction and unreasonably expands the scope of
subsidies, we disagree. The regulation is limited only to the
nonpayment of fees, fines, and penalties, and the regulation explicitly
addresses revenue forgone by the government it was otherwise due,
thereby, providing a financial contribution that benefits the party not
paying the fee, fine, or penalty.
We also disagree with that same commenter's claim that the
regulation unreasonably expands the scope of subsidies which Commerce
may lawfully address. Section 351.102(a)(25) of our regulations state
that ``government-provided'' is a shorthand expression for an act or
practice that is alleged to be a countervailable subsidy. Under section
771(5)(D) of the Act, a government act or practice may provide a
financial contribution, which under section 771(5)(E) of the Act may
confer a benefit to the recipient. If Commerce determines under section
771(5A) of the Act that the financial contribution providing a benefit
is specific, then Commerce may countervail that subsidy.\244\ Moreover,
as noted above, the SAA states that section 771(5)(D) of the Act
provides a list of four broad categories of government practices that
constitute a ``financial contribution,'' and that the examples of
particular types of government practices under each of these categories
are not intended to be exhaustive.\245\ The nonpayment and non-
collection of fees, fines, and penalties is a clear example of revenue
forgone under section 771(5)(D) of the Act, and therefore, this
regulation in no way ``expands'' the scope of subsidies which Commerce
may address in its CVD law.
---------------------------------------------------------------------------
\244\ See SAA at 925.
\245\ Id. at 927.
---------------------------------------------------------------------------
Finally, in response to the concerns of certain commenters that
Sec. 351.529 undermines the sovereign authority of
[[Page 20830]]
foreign regulatory and enforcement agencies to determine the extent to
which they will pursue, settle, or dismiss these types of claims, we
disagree. Neither the Act nor the SCM Agreement ``undermine{{time} the
sovereign authority'' of foreign governments, and this regulatory
provision is consistent with both.
For example, a foreign government is free to subsidize its car
industry; however, the Act and the SCM Agreement allow the United
States government to offset those subsidies with countervailing duties.
If a foreign government does not wish to collect a fee, fine, or
penalty that should have been paid by one of its domestic car
manufacturers, it is free not to do so as well. Commerce is not
suggesting that the foreign government cannot prioritize the collection
of certain financial obligations by certain parties over others.
However, under both the Act and the SCM Agreement, just as the foreign
government has the right to not collect foreign fees, fines, and
penalties, the United States has the right to countervail that non-
collection of foreign fees, fines, and penalties by the foreign
government.
With respect to the issue about settlements and litigation,
Commerce recognizes that where there is the presence of an independent
judiciary system, there could be a legitimate legal dispute between two
parties such as a government agency and a private company with respect
to money or taxes due. That could lead to a court holding that the
private party pay less or no fees, fines, and penalties. It could also
lead to the payment of less or no fees, fines, or penalties pursuant to
a larger litigation settlement between the government and a private
company. Commerce recognizes such holdings and settlements arising out
of litigation occur both in the United States, as well as other
countries, and that the existence of such holdings and settlements
could be facts on the record before Commerce in considering whether to
countervail or not countervail the nonpayment and non-collection of
certain fees, fines, or penalties.
However, it is important to emphasize that the judgment of an
independent court on a legitimate legal dispute is different from a
court accepting a settlement of a dispute between the government and a
private party. Unlike a court holding, a settlement of a debt, fee, or
fine between a government and a private party could constitute both a
financial contribution and a benefit under the Act regardless of
whether that settlement has been sanctioned by a court. The
countervailability of such a subsidy would be based on the facts on the
record.
We understand that foreign governments may decide to waive the
payment of certain fees, fines, and penalties for a host of reasons,
including litigation, and ultimately such a waiver is a benefit to the
recipient regardless of the motivations of the foreign government.
Accordingly, we disagree with the commenters that stated that Commerce
cannot countervail the nonpayment of fees, fines, or penalties
depending on the reason provided for such a waiver by the foreign
government. Nonpayment and non-collection of fees, fines, and penalties
is, by any other identifier, nonpayment and non-collection of fees,
fines, and penalties, and in many cases, Commerce will be able to
countervail such nonpayment and non-collection as revenue forgone by
the foreign government in accordance with Sec. 351.529.
17. Commerce is changing each reference to Customs Service in part
351 of its regulations to U.S. Customs and Border Protection and adding
a definition of U.S. Customs and Border Protection--Sec.
351.102(b)(53).
The Customs Service, which was created on July 31, 1789, was
integrated into a new agency, the U.S. Customs and Border Protection,
on March 1, 2003. However, Commerce's antidumping and countervailing
duty regulations continue to refer to the agency which administers the
trade remedy laws in part 351 as the Customs Service, other than in the
definition of ``Customs Service'' in current Sec. 351.102(b)(14).
Commerce is now amending its regulations in this final rule to remove
the term Customs Service, wherever it appears, and to replace it with
the correct agency name--U.S. Customs and Border Protection.
Furthermore, Commerce has added a definition for the term U.S. Customs
and Border Protection to its regulations.
18. Commerce is adding the definition of the term ``days'' to
clarify that the term normally means calendar days when used throughout
part 351--Sec. 351.102(b)(14).
Commerce's regulations currently do not define whether the term
``days,'' when used throughout part 351, references calendar days or
business days, and Commerce is frequently asked by outside parties
whether certain regulatory deadlines are based on calendar or business
days. Commerce has consistently treated the term ``days'' in its
regulations, with no further qualifier, to mean calendar days.\246\
Accordingly, to add clarity to the regulations, Commerce is amending
the regulation at Sec. 351.102(b)(14), replacing the definition of
``Customs Service'' with the definition of the term ``days.'' The
definition of ``days'' states that for purposes of deadlines and time
limits for submissions, if the term ``days'' is used, without a
qualifier, the term will generally mean calendar days. If Commerce
intends in a particular provision to use business days instead, then
the definition states that the regulation will explicitly indicate that
the business day alternative applies.\247\
---------------------------------------------------------------------------
\246\ See e.g., Sodium Nitrite from India: Preliminary
Affirmative Determination of Sales at Less Than Fair Value,
Postponement of Final Determination, and Extension of Provisional
Measures, 87 FR 50604 (August 17, 2022) (stating, in accordance with
Sec. 351.210(b), ``Commerce will make its final determination no
later than 135 days after the publication of this preliminary
determination.''); and Sodium Nitrite from India: Final Affirmative
Determination of Sales at Less Than Fair Value, 88 FR 1052 (January
6, 2023) (announcing Commerce's final determination signed on
December 30, 2022, or 135 calendar days after the preliminary
determination).
\247\ See, e.g., Sec. 351.304(d)(1) (stating that a submitter
must take certain actions ``within two business days after receiving
the Secretary's explanation'').
---------------------------------------------------------------------------
Summary of Changes From the Proposed to the Final Rule
Commerce has made the following changes to the regulatory text in
the Proposed Rule that are reflected in the final regulatory text and
preamble of this final rule as follows:
Commerce has revised Sec. 351.102(b)(14) to define the term
``days'' to explain that the term generally means calendar days and not
business days, and if Commerce wishes for business days to be applied,
it will explicitly state as such.
Commerce revised Sec. 351.104(a)(1) and added Sec. 351.104(a)(3)
through (7) to identify the information sources that may be cited in
submissions without submitting them on the official record and the
information sources that must be submitted on the official record for
Commerce to consider them in the ongoing segment of a proceeding. All
citations to public documents from other segments and proceedings which
may be cited without submitting them on the record must include the
ACCESS barcode in the citation.
Commerce determined to not revise Sec. 351.301(c)(4) as was
presented in the Proposed Rule, in agreement with the commenters who
expressed concerns that the proposed revision would not provide
interested parties with sufficient opportunity to respond to
[[Page 20831]]
information placed by Commerce on the record late in a segment of a
proceeding.
Commerce revised Sec. Sec. 351.225(f), 351.226(f), and 351.227(d)
to reflect that only the filing and timing restrictions set forth in
Sec. 351.301(c) do not apply to the filing deadlines set forth in the
scope, circumvention, and covered merchandise regulations. Further, in
response to comments and concerns from outside parties, the proposed
amendments to Sec. 351.225(q) have been revised to limit and further
clarify the situations in which a scope clarification may be applied,
and the means by which it may be issued. Commerce also made minor edits
to the terminology proposed in Sec. Sec. 351.225(m)(2), 351.226(m)(2),
and 351.227(m)(2) to clarify what preliminary and final documents from
scope, circumvention, and covered merchandise segments should be placed
on the CVD record once a proceeding covering companion orders is
completed on the AD record.
Commerce revised certain language in the newly proposed Sec.
351.301(c)(6), clarifying that Commerce can only guarantee that it will
address Notices of Subsequent Authority filed within 30 days of the
issuance of the alleged authority and 30 days before a final
determination or final results deadline (and 25 days before a final
determination or final results deadline for rebuttal comments), but
removed proposed language which would have stated that Commerce would
not consider and address submissions after the pre-final determination
and results deadlines. Commerce agreed with commenters who explained
that when Commerce is able, it must address subsequent authorities, but
notes that the regulation explains that Commerce may not be able to
consider and address such authorities if there is little time after the
submission is filed before the issuance date of a final determination
or results.
With respect to the proposed amendments to Sec. 351.308, Commerce
revised the lettering to have the CVD AFA hierarchy appear at paragraph
(j), reserving paragraphs (g), (h), and (i) for future rulemaking to
codify, in part, additions Congress made to section 776 of the Act in
2015. Furthermore, in response to multiple comments, Commerce removed
its ``above-zero'' threshold in the first step of the CVD AFA hierarchy
for investigations, and instead replaced it with a ``above-de minimis''
threshold to better reflect the statutory purpose of AFA to induce
cooperation by interested parties.
Commerce made minor changes to its regulations addressing
government inaction which distorts prices or costs through weak,
ineffective, or nonexistent property (including intellectual property),
human rights, labor, and environment protections. Specifically,
Commerce modified Sec. 351.416(d)(2)(v) of the PMS regulation to
clarify that if Commerce looks to the actions of governments in other
countries to analyze the cost effects of government inaction, it will
normally consider only the actions of governments in comparable
economies. Furthermore, Commerce revised the proposed language for
Sec. 351.408(d)(1)(i) and (ii) to clarify that it is Commerce who
determines as part of its surrogate value analysis if a proposed value
on the record ``was derived'' from a country that provides broadly
available export subsidies,'' that particular instances of
subsidization occurred with respect to a proposed surrogate value, and
that a proposed surrogate value was subject to an AD order, or was
derived from a facility, party, industry, intra-country region or a
country with weak, ineffective, or nonexistent protections.
Commerce substantially revised its proposed PMS regulation, Sec.
351.416, in response to many outside comments on the regulation. Such
revisions include the following: (1) addition and revision of
terminology throughout the regulation for consistency and
clarification; (2) clarification in Sec. 351.416(a) that the
regulation is defining both sales-based particular market situations
and cost-based particular market situations; (3) the removal of the
terms ``distinct'' and ``considerably'' from proposed Sec. 351.416(a),
(b), (c), (d), and (e), so as not to create any confusion that further
standards or tests are required as part of Commerce's PMS analysis; (4)
revisions to Sec. 351.416(c) to explain that Commerce's sales-based
PMS analysis is limited to certain period of investigation or review;
(5) revisions to Sec. 351.416(d) to clarify that Commerce's analysis
is limited to the relevant period of investigation or review, and is
divided into three parts--a finding of a circumstance or set of
circumstances that impacts costs or prices, a finding that costs were
distorted, and a finding that it is more likely than not that the
circumstances or set of circumstances at issue contributed to the
distortion of the costs of production of the subject merchandise; (6)
additional changes to Sec. 351.416(d) to clarify Commerce's analysis
of a cost-based PMS allegation, including a listing of information in
Sec. 351.416(d)(4) that will not preclude it from finding the
existence of a PMS; (7) modifications to Sec. 351.416(e) to explain
that a market situation's particularity is not determined by the number
of impacted parties, but only if it applies to certain parties and
products, and that the provision applies equally to both sales-based
and cost-based PMS determinations; (8) extensive changes to Sec.
351.416(f)--explaining that if Commerce determines the existence of a
cost-based PMS, it can adjust its calculations of the cost of
production, and if it cannot precisely quantify the distortions in the
cost of production caused by the PMS, then it can use any reasonable
methodology to adjust its calculations based on record information.
Furthermore, the regulation provides that even if Commerce determines
the existence of a cost-based PMS, it may determine to make no
adjustment if it believes an adjustment is not warranted, and the
regulation provides guidance on factors which Commerce may consider in
determining if an adjustment is appropriate; (9) revisions to certain
language used in its proposed examples of cost-based particular market
situations in Sec. 351.416(g), a refinement of the circumstances
described in Sec. 351.406(g)(9), and provision of more extensive
descriptions of nongovernmental actions in Sec. 351.416(g)(12) that
could become a PMS which distorts a producer's costs of production; and
(10) certain minor revisions to Sec. 351.416(h) to bring that
provision into conformity with the language of other provisions of the
PMS regulation.
Commerce modified the proposed amendment to Sec. 351.505(d), the
loan regulation, to state that Commerce will normally treat a loan as a
grant if no ``payments on the loan'' have been made in three years
unless the loan recipient can demonstrate that nonpayment is consistent
with the terms of a comparable commercial loan it could obtain on the
market or ``the payments on the loan are consistent with the terms of
the loan contract.'' Commerce made the modifications to allow for
parties to show that the payments on the loan were consistent with the
terms of a contract, and not to treat accrued, unpaid interest in every
case as a grant, as proposed in the Proposed Rule, in response to
comments filed on the record addressing ``balloon'' loans and the case-
specific nature of the inclusion, or exclusion, of accrued, unpaid
interest in Commerce's benefit calculations.
Commerce also made a small change to its proposed amendments to
Sec. 351.507(c), its equity regulation, adding the word ``outside'' to
the term ``private investor,'' to clarify that the sentence was meant
only to apply to
[[Page 20832]]
outside private investors, and not private investors within a company.
Lastly, the Customs Service was integrated into a new agency, the
U.S. Customs and Border Protection, in 2003. Commerce amended its
regulations in this final rule to remove the term ``the Customs
Service,'' wherever it appears, and to replace it with the correct
agency name--U.S. Customs and Border Protection. In furtherance of that
modification, Commerce has also added a definition of U.S. Customs and
Border Protection at Sec. 351.102(b)(53).
Classifications
Executive Order 12866
The Office of Management and Budget has determined that this final
rule is significant for purposes of Executive Order 12866.
Executive Order 13132
This final rule does not contain policies with federalism
implications as that term is defined in section 1(a) of Executive Order
13132 of August 4, 1999, 64 FR 43255 (August 10, 1999).
Paperwork Reduction Act
This final rule does not contain a collection of information
subject to the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Regulatory Flexibility Act
The Chief Counsel for Regulation has certified to the Chief Counsel
for Advocacy of the Small Business Administration under the provisions
of the Regulatory Flexibility Act, 5 U.S.C. 605(b), that the rule would
not have a significant economic impact on a substantial number of small
business entities. A summary of the need for, objectives of, and legal
basis for this rule is provided in the preamble and is not repeated
here. Commerce did not receive comments opposing this certification in
response to the Proposed Rule. Thus, a Final Regulatory Flexibility
Analysis is not required and has not been prepared.
List of Subjects in 19 CFR Part 351
Administrative practice and procedure, Antidumping, Business and
industry, Confidential business information, Countervailing duties,
Freedom of information, Investigations, Reporting and recordkeeping
requirements.
Dated: March 8, 2024.
Ryan Majerus,
Deputy Assistant Secretary for Policy and Negotiations, performing the
non-exclusive functions and duties of the Assistant Secretary for
Enforcement and Compliance.
For the reasons stated in the preamble, the U.S. Department of
Commerce amends 19 CFR part 351 as follows:
PART 351--ANTIDUMPING AND COUNTERVAILING DUTIES
0
1. The authority citation for 19 CFR part 351 continues to read as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 1202 note; 19 U.S.C. 1303
note; 19 U.S.C. 1671 et seq.; and 19 U.S.C. 3538.
0
2. In part 351, remove the text ``the Customs Service'' wherever it
appears and add in its place the text ``U.S. Customs and Border
Protection''.
0
3. In Sec. 351.102, revise paragraph (b)(14) and add paragraph (b)(53)
to read as follows:
Sec. 351.102 Definitions.
* * * * *
(b) * * *
(14) Days. Deadlines and time limits for submissions with the
Secretary that reference a number of ``days,'' will generally mean
calendar days. If certain deadlines or time limits are intended to
apply to business days instead, which are Monday through Friday, except
Federal holidays, then the applicable regulatory provisions
implementing such deadlines or time limits will explicitly indicate the
use of the business day alternative.
* * * * *
(53) U.S. Customs and Border Protection. U.S. Customs and Border
Protection means United States Customs and Border Protection of the
United States Department of Homeland Security.
0
4. In Sec. 351.104, revise paragraph (a)(1) and add paragraphs (a)(3)
through (7) to read as follows:
Sec. 351.104 Record of proceedings.
(a) * * *
(1) In general. The Secretary will maintain an official record of
each antidumping and countervailing duty proceeding. The Secretary will
include in the official record all factual information, written
argument, or other material developed by, presented to, or obtained by
the Secretary during the course of a proceeding that pertains to the
proceeding. The official record will include government memoranda
pertaining to the proceeding, memoranda of ex parte meetings,
determinations, documents published in the Federal Register, and
transcripts of hearings. The official record will contain material that
is public, business proprietary, privileged, and classified. For
purposes of section 516A(b)(2) of the Act, the record is the official
record of each segment of the proceeding. For a scope, circumvention,
or covered merchandise inquiry pertaining to companion antidumping and
countervailing duty orders conducted on the record of the antidumping
duty segment of the proceeding, pursuant to Sec. Sec. 351.225,
352.226, and 351.227, the record of the antidumping duty segment of the
proceeding normally will be the official record.
* * * * *
(3) Filing requirements for documents not originating with the
Department--(i) In general. Documents not originating with the
Department must be placed on the official record for the documents to
be considered by the Secretary in the Secretary's analysis and
determinations. With the exception of the sources enumerated in
paragraph (a)(3)(ii) of this section, mere citations to hyperlinks,
website Uniform Resource Locators (URLs), or other sources of
information do not constitute placement of the information from those
sources on the official record. Unless the exceptions of paragraph
(a)(3)(ii) apply, the filing and timing requirements of Sec. 351.301
apply to such information.
(ii) Exceptions for publicly available documents not originating
with the Department. The following publicly available sources of
information not originating with the Department will be considered by
the Secretary in the Secretary's analysis and determinations when fully
cited by submitting parties without the requirement that the
information sources be placed on the official record: United States
statutes and regulations; published United States legislative history;
United States court decisions and orders; Federal Register notices and
determinations; Commission reports adopted by reference in the Federal
Register; dictionary definitions; international agreements identified
in Sec. 351.101(a) and dispute settlement determinations arising out
of those international agreements. The Secretary may decline to
consider sources of information in its analysis or determination that
are not cited in full.
(4) Filing requirements for proprietary, privileged, and classified
information. When lawfully permitted, all proprietary, privileged, and
classified information, including documents originating with the
[[Page 20833]]
Department containing such information from another segment of the same
proceeding, must be placed on the official record in their entirety for
the Secretary to consider that information in its analysis and
determinations, and the filing and timing restrictions of Sec. 351.301
apply to such information.
(5) Notices and determinations originating with the Department and
published in the Federal Register. All notices and determinations
originating with the Department and published in the Federal Register
may be cited by parties in submissions for consideration by the
Secretary without the requirement that the notice or determination be
placed on the official record, as long as those notices and
determinations are cited in full. The Secretary may decline to consider
notices or determinations that are not cited in full. Section 351.301
does not apply to Federal Register notices and determinations.
(6) Public versions of certain unpublished documents originating
with the Department which may always be referenced by citation without
placing the information on the record. Public versions of the following
documents originating with the Department derived from other segments
and proceedings may be cited in submissions for consideration by the
Secretary without being placed on the record, as long as those
documents are cited in full. In providing a citation to a document
originating with the Department, the submitter must explain in the text
of the submitted document the factual and legal reasons for which the
submitter is citing the document and an Enforcement and Compliance
Antidumping Duty and Countervailing Duty Centralized Electronic Service
System (ACCESS) barcode number associated with the document must be
included as part of the citation. If an ACCESS barcode number is not
included in the citation or is incorrectly transcribed, or the document
is not cited in full, the Secretary may decline to consider the cited
decision document in its analysis or determination. The timing and
filing restrictions of Sec. 351.301 shall not apply to these
documents:
(i) Preliminary and final issues and decision memoranda issued in
investigations pursuant to Sec. Sec. 351.205 and 351.210;
(ii) Preliminary and final issues and decision memoranda issued in
administrative reviews, pursuant to Sec. 351.213;
(iii) Preliminary and final issues and decision memoranda issued in
new shipper reviews, pursuant to Sec. 351.214;
(iv) Preliminary and final issues and decision memoranda in changed
circumstances reviews, pursuant to Sec. 351.216;
(v) Preliminary and final issues and decision memoranda in sunset
reviews, pursuant to Sec. 351.218;
(vi) Preliminary and final decision memoranda issued in scope
inquiries pursuant to Sec. 351.225, circumvention inquiries pursuant
to Sec. 351.226, and covered merchandise inquiries pursuant to Sec.
351.227;
(vii) Draft and final redeterminations on remand;
(viii) Draft and final redeterminations issued pursuant to section
129 of the Uruguay Round Agreements Act;
(ix) Initiation decision documents, such as initiation checklists;
(x) New subsidy allegation memoranda;
(xi) Scope memoranda issued in an investigation; and
(xii) Post-preliminary determination or results memoranda
addressing issues for the first time in the period of time between
preliminary and final determinations or results.
(7) Special rules for public versions of documents originating with
the Department with no associated ACCESS barcode numbers. Public
versions of documents originating with Commerce in other segments or
proceedings under paragraph (a)(6) of this section but not associated
with an ACCESS barcode number, including documents issued before the
implementation of ACCESS, must be submitted on the record in their
entirety to be considered by the Secretary in its analysis and
determinations and are subject to the timing and filing restrictions of
Sec. 351.301.
* * * * *
0
5. In Sec. 351.225:
0
a. Revise paragraph (c)(1);
0
b. Add paragraphs (c)(2)(x) and (c)(3);
0
c. Revise paragraph (d)(1);
0
d. Add introductory text to paragraph (f);
0
e. Revise paragraph (l)(1);
0
f. In paragraph (l)(5), remove ``the Customs Service's'' and add in its
place ``the U.S. Customs and Border Protection's''; and
0
g. Revise paragraphs (m)(2) and (q).
The revisions and additions read as follows:
Sec. 351.225 Scope rulings.
* * * * *
(c) * * *
(1) Contents. An interested party may submit a scope ruling
application requesting that the Secretary conduct a scope inquiry to
determine whether a product, which is or has been in actual production
by the time of the filing of the application, is covered by the scope
of an order. If the product at issue has not been imported into the
United States, the applicant must provide evidence that the product has
been commercially produced and sold. The Secretary will make available
a scope ruling application, which the applicant must fully complete and
serve in accordance with the requirements of paragraph (n) of this
section.
(2) * * *
(x) If the product has not been imported into the United States as
of the date of the filing of the scope ruling application:
(A) A statement that the product has been commercially produced;
(B) A description of the countries in which the product is sold, or
has been sold; and
(C) Relevant documentation which reflects the details surrounding
the production and sale of that product in countries other than the
United States.
(3) Comments on the adequacy of the request. Within 10 days after
the filing of a scope ruling application under paragraph (c)(1) of this
section, an interested party other than the applicant is permitted one
opportunity to submit comments regarding the adequacy of the scope
ruling application.
(d) * * *
(1) Acceptance and initiation of a scope inquiry based on a scope
ruling application. Except as provided under paragraph (d)(1)(ii) or
(d)(2) of this section, within 30 days after the filing of a scope
ruling application, the Secretary will determine whether to accept or
reject the scope ruling application and to initiate or not initiate a
scope inquiry, or, in the alternative, paragraph (d)(1)(ii) will apply.
(i) If the Secretary determines that a scope ruling application is
incomplete or otherwise unacceptable, the Secretary may reject the
scope ruling application and will provide a written explanation of the
reasons for the rejection. If the scope ruling application is rejected,
the applicant may resubmit the full application at any time, with all
identified deficiencies corrected.
(ii) If the Secretary issues questions to the applicant seeking
clarification with respect to one or more aspects of a scope ruling
application, the Secretary will determine whether or not to initiate
within 30 days after the applicant files a timely response to the
Secretary's questions.
(iii) If the Secretary does not reject the scope ruling application
or initiate the scope inquiry within 31 days after the filing of the
application or the receipt of
[[Page 20834]]
a timely response to the Secretary's questions, the application will be
deemed accepted, and the scope inquiry will be deemed initiated.
* * * * *
(f) Scope inquiry procedures. The filing and timing restrictions of
Sec. 351.301(c) do not apply to this paragraph (f), and factual
information submitted inconsistent with the terms of this paragraph may
be rejected as unsolicited and untimely.
* * * * *
(l) * * *
(1) When the Secretary initiates a scope inquiry under paragraph
(b) or (d) of this section, the Secretary will notify U.S. Customs and
Border Protection of the initiation and direct U.S. Customs and Border
Protection to continue the suspension of liquidation of entries of
products subject to the scope inquiry that were already subject to the
suspension of liquidation, and to apply the cash deposit rate that
would be applicable if the product were determined to be covered by the
scope of the order. Such suspension shall include, but shall not be
limited to, entries covered by the final results of administrative
review of an antidumping or countervailing duty order pursuant to Sec.
351.212(b), automatic assessment pursuant to Sec. 351.212(c), and a
rescinded administrative review pursuant to Sec. 351.213(d), as well
as any other entries already suspended by U.S. Customs and Border
Protection under the antidumping and countervailing duty laws which
have not yet been liquidated in accordance with 19 CFR part 159.
* * * * *
(m) * * *
(2) Companion antidumping and countervailing duty orders. If there
are companion antidumping and countervailing duty orders covering the
same merchandise from the same country of origin, the requesting
interested party under paragraph (c) of this section must file the
scope ruling application pertaining to both orders on the records of
both the antidumping duty and countervailing duty proceedings. If the
Secretary accepts the scope applications on both records under
paragraph (d) of this section, the Secretary will notify the requesting
interested party that all subsequent filings should be filed only on
the record of the antidumping duty proceeding. If the Secretary
determines to initiate a scope inquiry under paragraph (b) or (d) of
this section, the Secretary will initiate and conduct a single inquiry
with respect to the product at issue for both orders only on the record
of the antidumping duty proceeding. Once the Secretary issues a final
scope ruling on the record of the antidumping duty proceeding, the
Secretary will include on the record of the countervailing duty
proceeding a copy of the scope ruling memoranda, a copy of the
preliminary scope ruling memoranda, if one had been issued, and all
relevant instructions to U.S. Customs and Border Protection.
* * * * *
(q) Scope clarifications. The Secretary may issue a scope
clarification at any time which provides an interpretation of specific
language in the scope of an order and addresses other scope-related
issues but does not address or determine whether a product is covered
by the scope of an order in the first instance other than in the
situations listed in this paragraph (q).
(1) Scope clarifications may be used in the following situations to
clarify:
(i) Whether a product is covered or excluded by the scope of an
order based on two or more previous scope determinations covering
products which have the same or similar physical characteristics
(including chemical, dimensional, and technical characteristics);
(ii) Whether a product covered by the scope of an order, and for
which coverage is not at issue, is not subject to the imposition of
antidumping or countervailing duties pursuant to a statutory exception
to the trade remedy laws, such as the limited governmental importation
exception set forth in section 771(20)(B) of the Act;
(iii) Whether language or descriptors in the scope of an order that
are subsequently updated, revised, or replaced, in the following
circumstances, continue to apply to the product at issue:
(A) Modifications to the language in the scope of an order pursuant
to litigation or a changed circumstances review under section 751(b) of
the Act;
(B) Changes to Harmonized Tariff Schedule classifications, as
administered by the Commission; and
(C) Changes to industrial standards set forth in a scope, as
determined by the industry source for those standards identified in the
scope; and
(iv) To clarify an analysis conducted by Commerce in a previous
scope determination or scope ruling. For example, an issue may arise as
to whether certain processing, observed in a segment of proceeding and
conducted in a third country, falls within a stage of production
previously determined by the Secretary in a country-of-origin analysis
in the same proceeding, pursuant to paragraph (j)(2) of this section,
to be the stage of production at which the essential component of the
product is produced or where the essential characteristics of the
product are imparted.
(2) Scope clarifications may take the form of an interpretive
footnote to the scope when the scope is published or issued in
instructions to U.S. Customs and Border Protection, or in a memorandum
issued in an ongoing segment of a proceeding. At the discretion of the
Secretary, a scope clarification may also take the form of preliminary
and final notices of scope clarification published in the Federal
Register. If the Secretary decides to publish preliminary and final
notifications of scope clarification, it must provide interested
parties at least 30 days after the publication of the preliminary
notification of scope clarification to file comments with the
Secretary. The Secretary will address those comments in the final
notification of scope clarification published in the Federal Register.
0
6. In Sec. 351.226:
0
a. Add paragraph (c)(3);
0
b. Revise paragraphs (d)(1) and (e)(1);
0
c. Add introductory text to paragraph (f);
0
d. In paragraph (l)(5), remove ``the Customs Service's'' and add in its
place ``the U.S. Customs and Border Protection's''; and
0
e. Revise paragraph (m)(2).
The additions and revisions read as follows:
Sec. 351.226 Circumvention inquiries.
* * * * *
(c) * * *
(3) Comments and information on the adequacy of the request. Within
10 days after the filing of a circumvention inquiry request under
paragraph (c)(1) of this section, an interested party other than the
requestor is permitted one opportunity to submit comments and new
factual information regarding the adequacy of the circumvention inquiry
request. Within five days after the filing of new factual information
in support of adequacy comments, the requestor is permitted one
opportunity to submit comments and factual information to rebut,
clarify, or correct that factual information.
(d) * * *
(1) Initiation of a circumvention inquiry. Except as provided under
paragraphs (d)(1)(ii) and (d)(2) of this section, within 30 days after
the filing of a request for a circumvention inquiry, the Secretary will
determine whether to accept or reject the request and whether to
initiate or not initiate a
[[Page 20835]]
circumvention inquiry. If it is not practicable to make such
determinations within 30 days, the Secretary may extend the 30-day
deadline by an additional 15 days if no interested party has filed new
factual information in response to the circumvention request pursuant
to paragraph (c)(3) of this section. If interested parties have filed
new factual information pursuant to paragraph (c)(3) of this section,
the Secretary may extend the 30-day deadline by an additional 30 days.
(i) If the Secretary determines that the request is incomplete or
otherwise unacceptable, the Secretary may reject the request, and will
provide a written explanation of the reasons for the rejection. If the
request is rejected, the requestor may resubmit the full request at any
time, with all identified deficiencies corrected.
(ii) If the Secretary issues questions to the requestor seeking
clarification with respect to one or more aspects of a circumvention
inquiry request, the Secretary will determine whether or not to
initiate within 30 days after the requestor files a timely response to
the Secretary's questions.
(iii) If the Secretary determines that a request for a
circumvention inquiry satisfies the requirements of paragraph (c) of
this section, the Secretary will accept the request and initiate a
circumvention inquiry. The Secretary will publish a notice of
initiation in the Federal Register.
* * * * *
(e) * * *
(1) Preliminary determination. The Secretary will issue a
preliminary determination under paragraph (g)(1) of this section no
later than 150 days after the date of publication of the notice of
initiation of paragraph (b) or (d) of this section. If the Secretary
concludes that an extension of the preliminary determination is
warranted, the Secretary may extend that deadline by no more than 90
additional days.
* * * * *
(f) Circumvention inquiry procedures. The filing and timing
instructions of Sec. 351.301(c) do not apply to this paragraph (f),
and factual information submitted inconsistent with the terms of this
paragraph may be rejected as unsolicited and untimely.
* * * * *
(m) * * *
(2) Companion antidumping and countervailing duty orders. If there
are companion antidumping and countervailing duty orders covering the
same merchandise from the same country of origin, the requesting
interested party under paragraph (c) of this section must file the
request pertaining to both orders on the record of both the antidumping
duty and countervailing duty segments of the proceeding. If the
Secretary accepts the circumvention requests on both records under
paragraph (d) of this section, the Secretary will notify the requesting
interested party that all subsequent filings should be filed only on
the record of the antidumping duty proceeding. If the Secretary
determines to initiate a circumvention inquiry under paragraph (b) or
(d) of this section, the Secretary will initiate and conduct a single
inquiry with respect to the product at issue for both orders only on
the record of the antidumping duty proceeding. Once the Secretary
issues a final circumvention determination on the record of the
antidumping duty proceeding, the Secretary will include on the record
of the countervailing duty proceeding copies of the final circumvention
determination memoranda, the final circumvention determination Federal
Register notice, the preliminary circumvention determination memoranda,
the preliminary circumvention determination Federal Register notice,
and all relevant instructions to U.S. Customs and Border Protection.
* * * * *
0
7. In Sec. 351.227:
0
a. Add introductory text to paragraph (d);
0
b. In paragraph (d)(5)(i), remove ``The Customs Service'' and add in
its place ``The U.S. Customs and Border Protection'';
0
c. Revise paragraphs (l)(1);
0
d. In paragraph (l)(5), remove ``the Customs Service's'' and add in its
place ``the U.S. Customs and Border Protection's''; and
0
e. Revise paragraph (m)(2).
The addition and revisions read as follows:
Sec. 351.227 Covered merchandise referrals.
* * * * *
(d) Covered merchandise inquiry procedures. The filing and timing
restrictions of Sec. 351.301(c) do not apply to this paragraph (d),
and factual information submitted inconsistent with the terms of this
paragraph (d) may be rejected as unsolicited and untimely.
* * * * *
(l) * * *
(1) When the Secretary publishes a notice of initiation of a
covered merchandise inquiry under paragraph (b)(1) of this section, the
Secretary will notify U.S. Customs and Border Protection of the
initiation and direct U.S. Customs and Border Protection to continue
the suspension of liquidation of entries of products subject to the
covered merchandise inquiry that were already subject to the suspension
of liquidation, and to apply the cash deposit rate that would be
applicable if the product were determined to be covered by the scope of
the order. Such suspension shall include, but shall not be limited to,
entries covered by a final results of administrative review of an
antidumping or countervailing duty order pursuant to Sec. 351.212(b),
automatic assessment pursuant to Sec. 351.212(c), and a rescinded
administrative review pursuant to Sec. 351.213(d), as well as any
other entries already suspended by U.S. Customs and Border Protection
under the antidumping and countervailing duty laws which have not yet
been liquidated in accordance with 19 CFR part 159.
* * * * *
(m) * * *
(2) Companion antidumping and countervailing duty orders. If there
are companion antidumping and countervailing duty orders covering the
same merchandise from the same country of origin, and the Secretary
determines to initiate a covered merchandise inquiry under paragraph
(b)(1) of this section, the Secretary will initiate and conduct a
single inquiry with respect to the product at issue only on the record
of the antidumping duty proceeding. Once the Secretary issues a final
covered merchandise determination on the record of the antidumping duty
proceeding, the Secretary will include on the record of the
countervailing duty proceeding a copy of the final covered merchandise
determination memoranda, the final covered merchandise determination
Federal Register notice, the preliminary covered merchandise
determination memoranda and preliminary covered merchandise
determination Federal Register notice, if a preliminary determination
was issued, and all relevant instructions to U.S. Customs and Border
Protection.
* * * * *
0
8. In Sec. 351.301, add paragraph (c)(6) to read as follows:
Sec. 351.301 Time limits for submissions of factual information.
* * * * *
(c) * * *
(6) Notices of subsequent authority--(i) In general. If a United
States Federal court issues a decision, or the Secretary in another
segment or proceeding issues a determination, that an interested party
believes is directly relevant to an issue in an ongoing segment of the
[[Page 20836]]
proceeding, that interested party may submit a Notice of Subsequent
Authority with the Secretary. Responsive comments and factual
information to rebut or clarify the Notice of Subsequent Authority must
be submitted by interested parties no later than five days after the
submission of a Notice of Subsequent Authority.
(ii) Timing restrictions for consideration. The Secretary will
consider and address a Notice of Subsequent Authority in its final
determinations or final results which is submitted no later than 30
days after the alleged subsequent authority was issued and no later
than 30 days before the deadline for issuing the final determination or
results. Rebuttal submissions must be filed no later than 25 days
before the deadline for issuing the final determinations or results.
Given statutory deadlines for administrative proceedings, the Secretary
may be unable to consider and address the arguments and applicability
of alleged subsequent authorities adequately in a final determination
or final results if a Notice of Subsequent Authority or rebuttal
submission is submitted later in the segment of the proceeding.
(iii) Contents of a notice of subsequent authority and responsive
submissions. A Notice of Subsequent Authority must identify the Federal
court decision or determination by the Secretary in another segment or
proceeding that is alleged to be authoritative to an issue in the
ongoing segment of the proceeding, provide the date the decision or
determination was issued, explain the relevance of that decision or
determination to an issue in the ongoing segment of the proceeding, and
be accompanied by a complete copy of the Federal court decision or
agency determination. Responsive comments must directly address the
contents of the Notice of Subsequent Authority and must explain how the
responsive comments and any accompanying factual information rebut or
clarify the Notice of Subsequent Authority.
0
9. In Sec. 351.306, revise paragraph (b) to read as follows:
Sec. 351.306 Use of business proprietary information.
* * * * *
(b) By an authorized applicant. (1) An authorized applicant may
retain business proprietary information for the time authorized by the
terms of the administrative protective order (APO).
(2) An authorized applicant may use business proprietary
information for purposes of the segment of the proceeding in which the
information was submitted.
(3) If business proprietary information that was submitted to a
segment of the proceeding is relevant to an issue in a different
segment of the same proceeding, an authorized applicant may place such
information on the record of the subsequent segment as authorized by
the APO of the segment where the business proprietary information was
submitted.
(4) If business proprietary information that was submitted to a
countervailing duty segment of the proceeding is relevant to a
subsequent scope, circumvention, or covered merchandise inquiry
conducted on the record of the companion antidumping duty segment of
the proceeding pursuant to Sec. 351.225(m)(2), Sec. 351.226(m)(2), or
Sec. 351.227(m)(2), an authorized applicant may place such information
on the record of the companion antidumping duty segment of the
proceeding as authorized by the APO of the countervailing duty segment
where the business proprietary information was submitted.
(5) If business proprietary information that was submitted to a
scope, circumvention, or covered merchandise inquiry conducted on the
record of a companion antidumping duty segment of the proceeding
pursuant to Sec. 351.225(m)(2), Sec. 351.226(m)(2), or Sec.
351.227(m)(2) is relevant to a subsequent countervailing duty segment
of the proceeding, an authorized applicant may place such information
on the record of the companion countervailing duty segment of the
proceeding as authorized by the APO of the antidumping duty segment
where the business proprietary information was submitted.
* * * * *
0
10. In Sec. 351.308, add reserved paragraphs (g) through (i) and
paragraph (j) to read as follows:
Sec. 351.308 Determinations on the basis of facts available.
* * * * *
(g)-(i) [Reserved]
(j) Adverse facts available hierarchy in countervailing duty
proceedings. In accordance with sections 776(d)(1)(A) and 776(d)(2) of
the Act, when the Secretary applies an adverse inference in selecting a
countervailable subsidy rate on the basis of facts otherwise available
in a countervailing duty proceeding, the Secretary will normally select
the highest program rate available using a hierarchical analysis as
follows:
(1) For investigations, conducted pursuant to section 701 of the
Act, the hierarchy will be applied in the following sequence:
(i) If there are cooperating respondents in the investigation, the
Secretary will determine if a cooperating respondent used an identical
program in the investigation and apply the highest calculated above-de
minimis rate for the identical program;
(ii) If no rate exists which the Secretary is able to apply under
paragraph (j)(1)(i), the Secretary will determine if an identical
program was used in another countervailing duty proceeding involving
the same country and apply the highest calculated above-de minimis rate
for the identical program;
(iii) If no rate exists which the Secretary is able to apply under
paragraph (j)(1)(ii), the Secretary will determine if there is a
similar or comparable program in any countervailing duty proceeding
involving the same country and apply the highest calculated above-de
minimis rate for the similar or comparable program; and
(iv) If no rate exists which the Secretary is able to apply under
paragraph (j)(1)(iii), the Secretary will apply the highest calculated
above-de minimis rate from any non-company-specific program in a
countervailing duty proceeding involving the same country that the
Secretary considers the company's industry could possibly use.
(2) For administrative reviews, conducted pursuant to section 751
of the Act, the hierarchy will be applied in the following sequence:
(i) The Secretary will determine if an identical program has been
used in any segment of the proceeding and apply the highest calculated
above-de minimis rate for any respondent for the identical program;
(ii) If no rate exists which the Secretary is able to apply under
paragraph (j)(2)(i), the Secretary will determine if there is a similar
or comparable program within any segment of the same proceeding and
apply the highest calculated above-de minimis rate for the similar or
comparable program;
(iii) If no rate exists which the Secretary is able to apply under
paragraph (j)(2)(ii), the Secretary will determine if there is an
identical program in any countervailing duty proceeding involving the
same country and apply the highest calculated above-de minimis rate for
the identical program or, if there is no identical program or above-de
minimis rate available, determine if there is a similar or comparable
program in any
[[Page 20837]]
countervailing duty proceeding involving the same country and apply the
highest calculated above-de minimis rate for the similar or comparable
program; and
(iv) If no rate exists which the Secretary is able to apply under
paragraph (j)(2)(iii), the Secretary will apply the highest calculated
rate for any non-company-specific program from any countervailing duty
proceeding involving the same country that the Secretary considers the
company's industry could possibly use.
(3) When the Secretary uses an adverse facts available
countervailing duty hierarchy, the following will apply:
(i) The Secretary will treat rates less than 0.5 percent as de
minimis;
(ii) The Secretary will normally determine a program to be a
similar or comparable program based on the Secretary's treatment of the
program's benefit;
(iii) The Secretary will normally select the highest program rate
available in accordance with the hierarchical sequence, unless the
Secretary determines that such a rate is otherwise inappropriate; and
(iv) When applicable, the Secretary will determine an adverse facts
available rate selected using the hierarchy to be corroborated in
accordance with section 776(c)(1) of the Act.
Sec. 351.402 [Amended]
0
11. In Sec. 351.402, remove ``the Customs Service's'' and add in its
place ``the U.S. Customs and Border Protection's'' in paragraph
(f)(2)(ii).
0
12. In Sec. 351.408, add paragraph (d) to read as follows:
Sec. 351.408 Calculation of normal value of merchandise from
nonmarket economy countries.
* * * * *
(d) A determination that certain surrogate value information is not
otherwise appropriate--(1) In general. Notwithstanding the factors
considered under paragraph (c) of this section, the Secretary may
disregard a proposed market economy country value for consideration as
a surrogate value if the Secretary determines that evidence on the
record reflects that the use of such a value would be inappropriate.
(i) In accordance with section 773(c)(5), the Secretary may
disregard a proposed surrogate value if the Secretary determines that
the value is derived from a country that provides broadly available
export subsidies, if particular instances of subsidization occurred
with respect to that proposed surrogate value, or if that proposed
surrogate value was subject to an antidumping order.
(ii) In addition, the Secretary may disregard a proposed surrogate
value if the Secretary determines based on record evidence that the
value is derived from a facility, party, industry, intra-country region
or a country with weak, ineffective, or nonexistent property (including
intellectual property), human rights, labor, or environmental
protections.
(2) Requirements to disregard a proposed surrogate value based on
weak, ineffective, or nonexistent protections. For purposes of
paragraph (d)(1)(ii) of this section, the Secretary will only consider
disregarding a proposed market economy country value as a surrogate
value of production if the Secretary determines the following:
(i) The proposed surrogate value at issue is for a significant
input or labor;
(ii) The proposed surrogate value is derived from one country or an
average of values from a limited number of countries; and
(iii) The information on the record supports a claim that the
identified weak, ineffective, or nonexistent property (including
intellectual property), human rights, labor, or environmental
protections undermine the appropriateness of using that value as a
surrogate value.
(3) The use of a surrogate value located in a country which is not
at a level of economic development comparable to that of the nonmarket
economy. If the Secretary determines, pursuant to this section, after
reviewing all proposed values on the record derived from market economy
countries which are at a level of economic development comparable to
the nonmarket economy, that no such proposed value is appropriate to
value a specific factor of production, the Secretary may use a value on
the record derived from a market economy country which is not at a
level of economic development comparable to that of the nonmarket
economy country as a surrogate to value that specific factor of
production.
(4) The use of a surrogate value not located in a country which is
a significant producer of comparable merchandise. If the Secretary
determines, pursuant to this section, after reviewing all proposed
surrogate values on the record derived from market economy countries
which are significant producers of merchandise comparable to the
subject merchandise, that no such proposed value is appropriate to
value a specific factor of production, the Secretary may use a value on
the record derived from a market economy country which is not a
significant producer of merchandise comparable to the subject
merchandise as a surrogate to value that specific factor of production.
0
13. Add Sec. 351.416 to read as follows:
Sec. 351.416 Determination of a particular market situation.
(a) Particular market situation defined. A particular market
situation is a circumstance or set of circumstances that does the
following as determined by the Secretary:
(1) Prevents or does not permit a proper comparison of sales prices
in the home market or third country market with export prices and
constructed export prices; or
(2) Contributes to the distortion of the cost of materials and
fabrication or other processing of any kind, such that the cost of
production of merchandise subject to an investigation, suspension
agreement, or antidumping order does not accurately reflect the cost of
production in the ordinary course of trade.
(b) Submission requirements when alleging the existence of a
particular market situation. When an interested party submits a timely
allegation as to the existence of a particular market situation in an
antidumping duty proceeding, relevant information reasonably available
to that interested party supporting the claim must accompany the
allegation. If the particular market situation being alleged is similar
to an allegation of a particular market situation made in a previous or
ongoing segment of the same or another proceeding, the interested party
must identify the facts and arguments in the submission which are
distinguishable from those provided in the other segment or proceeding.
(c) A determination that a particular market situation prevented or
did not permit a proper comparison of prices existed during the period
of investigation or review. The Secretary may determine that a
particular market situation, identified in paragraph (a)(1) of this
section, existed during the period of investigation or review if a
circumstance or set of circumstances prevented or did not permit a
proper comparison between sales prices in the home market or third
country market of the foreign like product and export prices or
constructed export prices of subject merchandise for purposes of an
antidumping analysis.
(1) Examples of particular market situations in the home market
that may prevent or do not permit a proper
[[Page 20838]]
comparison with U.S. price. Examples of a circumstance or set of
circumstances in the home market that may prevent or not permit a
proper comparison of prices, and are therefore particular market
situations, include, but are not limited to, the following:
(i) The imposition of an export tax on subject merchandise;
(ii) Limitations on exports of subject merchandise from the subject
country;
(iii) The issuance and enforcement of anticompetitive regulations
that confer a unique status on favored producers or that create
barriers to new entrants to an industry; and
(iv) Direct government control over pricing of subject merchandise
to such an extent that home market prices for subject merchandise
cannot be considered competitively set.
(2) Examples of particular market situations in a third country
market that may prevent or not permit a proper comparison of prices. In
situations where third country prices may be needed to calculate normal
value in a dumping calculation, the Secretary may determine that third
country prices cannot be properly compared to export prices or
constructed export prices for reasons similar to those listed in
paragraph (c)(1) of this section.
(3) The use of constructed value may be warranted if a proper
comparison of prices is prevented or not permitted. If the Secretary
determines that a particular market situation prevented or did not
permit a proper comparison of sales prices in the home market or third
country market with export prices or constructed export prices during
the period of investigation or review, the Secretary may conclude that
it is necessary to determine normal value by constructing a value in
accordance with section 773(e) of the Act and Sec. 351.405.
(d) A determination that a market situation existed during the
period of investigation or review such that the cost of materials and
fabrication or other processing of any kind does not accurately reflect
the cost of production in the ordinary course of trade--(1) In general.
For purposes of this paragraph (d)(1), the Secretary will determine
that a market situation, identified in paragraph (a)(2) of this
section, existed during the period of investigation or review if the
Secretary determines the following, based on information on the record:
(i) A circumstance or set of circumstances existed that may have
impacted the costs of producing subject merchandise, or costs or prices
of inputs into the production of subject merchandise;
(ii) The cost of materials and fabrication or other processing of
any kind, including the prices of inputs used to produce subject
merchandise, were not in accordance with market principles or
distorted, and therefore did not accurately reflect the cost of
production of subject merchandise in the ordinary course of trade; and
(iii) The circumstance or set of circumstances at issue contributed
to the distortion of the cost of production of subject merchandise.
(2) The Secretary will determine if it is more likely than not that
a circumstance or set of circumstances contributed to distorted costs
or prices. In accordance with paragraph (d)(1)(iii), the Secretary will
weigh the information on the record and determine whether it is more
likely than not that the circumstance or set of circumstances
contributed to the distortion in the cost of production of subject
merchandise during the period of investigation or review, and
therefore, that a market situation existed during that period.
(3) Information the Secretary may consider in determining the
existence of a market situation. In determining whether a market
situation existed in the subject country such that the cost of
materials and fabrication or other processing did not accurately
reflect the cost of production of subject merchandise in the ordinary
course of trade during the period of investigation or review, the
Secretary will consider all relevant information placed on the record
by interested parties, including, but not limited to, the following:
(i) Comparisons of prices paid for significant inputs used to
produce subject merchandise under the alleged market situation to
prices paid for the same input under market-based circumstances, either
in the home country or elsewhere;
(ii) Detailed reports and other documentation issued by foreign
governments or independent international, analytical, or academic
organizations indicating that lower prices for a significant input in
the subject country would likely result from governmental or
nongovernmental actions or inactions taken in the subject country or
other countries;
(iii) Detailed reports and other documentation issued by foreign
governments or independent international, analytical, or academic
organizations indicating that prices for a significant input have
deviated from a fair market value within the subject country, as a
result, in part or in whole, of governmental or nongovernmental actions
or inactions;
(iv) Agency determinations or results in which the Secretary
determined record information did or did not support the existence of
the alleged particular market situation with regard to the same or
similar merchandise in the subject country in previous proceedings or
segments of the same proceeding; and
(v) Information that property (including intellectual property),
human rights, labor, or environmental protections in the subject
country are weak, ineffective, or nonexistent, those protections exist
and are effectively enforced in other countries, and that the
ineffective enforcement or lack of protections may contribute to
distortions in the cost of production of subject merchandise or prices
or costs of a significant input into the production of subject
merchandise in the subject country. For purposes of this paragraph
(d)(3)(v), the Secretary will normally look to cost effects on same or
similar merchandise produced in economically comparable countries in
analyzing the impact of such protections on the cost of production.
(4) No restrictions based on lack of precise quantifiable data,
hypothetical prices or actions of governments and industries in other
market economies. In determining whether a market situation exists in
the subject country such that the cost of materials and fabrication or
other processing do not accurately reflect the cost of production in
the ordinary course of trade, the following will not preclude the
finding of a market situation:
(i) The lack of precision in the quantifiable data relating to the
distortion of prices or costs in the subject country;
(ii) The speculated cost of production of the subject merchandise,
or the speculated prices or costs of a significant input into the
production of the subject merchandise, unsupported by objective data,
that a party claims would hypothetically exist in the subject country
absent the alleged particular market situation or its contributing
circumstances;
(iii) The actions taken or not taken by governments, government-
controlled entities, or other public entities in other market economy
countries in comparison with the actions taken or not taken by the
government, state enterprise, or other public entity of the subject
country, with the exception of information associated with the
allegations addressed in paragraph (d)(3)(v) of this section; and
(iv) The existence of the same or similar government or
nongovernment actions in the subject country that
[[Page 20839]]
preceded the period of investigation or review.
(e) Factors to consider in determining if a market situation is
particular--(1) In general. If the Secretary determines that a market
situation exists under paragraph (c) or (d), the Secretary must also
determine if the market situation is particular. A market situation is
particular if it impacts prices or costs for only certain parties or
products in the subject country. In reaching this determination, the
following applies:
(i) A particular market situation may exist even if a large number
of certain parties or products are impacted by the circumstance or set
of circumstances. The Secretary's analysis does not concern the
specific number of products or parties, but whether the market
situation impacts only certain parties or products, or the general
population of parties or products, in the subject country;
(ii) The same or similar market situations can exist in multiple
countries or markets and still be considered particular for purposes of
this paragraph (e)(1) if the Secretary determines that a market
situation exists which distorts sales prices or cost of production for
certain parties or products specifically in the subject country; and
(iii) There are varied circumstances in which a market situation in
a subject country can be determined to be particular, and a market
situation may apply only to certain producers, importers, exporters,
purchasers, users, industries, or enterprises, individually or in any
combination.
(2) Information the Secretary may consider in determining if a
market situation is particular. In determining if a market situation in
the subject country is particular in accordance with paragraph (e)(1)
of this section, the Secretary will consider all relevant information
placed on the record by interested parties, including, but not limited
to, the following:
(i) The size and nature of the market situation;
(ii) The volume of merchandise potentially impacted by the price or
cost distortions resulting from the market situation; and
(iii) The number and nature of the entities potentially affected by
the price or cost distortions resulting from a market situation.
(f) The Secretary may adjust its calculations to address
distortions to which a particular market situation under paragraphs (d)
and (e) of this section has contributed--(1) In general. If the
Secretary determines a particular market situation exists in the
subject country which has contributed to a distortion in the cost of
materials and fabrication or other processing, such that those costs do
not accurately reflect the cost of production of subject merchandise in
the ordinary course of trade, in accordance with sections 771(15) and
773(e) of the Act, the Secretary may address such distortions to the
cost of production in its calculations.
(2) Imprecise quantification of the distortions. If, after
consideration of the information on the record, the Secretary is unable
to precisely quantify the distortions to the cost of production of
subject merchandise in the ordinary course of trade to which the
particular market situation has contributed, the Secretary may use any
reasonable methodology based on record information to adjust its
calculations to address those distortions.
(3) The Secretary may determine not to adjust its calculations. If
the Secretary determines that a particular market situation exists in
the subject country which has contributed to the distortions to the
cost of production, but that an adjustment to its calculations of the
cost of production of subject merchandise is not appropriate based on
record information, the Secretary may determine not to adjust its
calculations. In determining whether an adjustment is appropriate, the
Secretary may consider the following:
(i) Whether the cost distortion is already sufficiently addressed
in its calculations in accordance with another statutory provision,
such as the transaction disregarded and major input rules of sections
773(f)(2) and (3) of the Act;
(ii) Whether a reasonable method for quantifying an adjustment to
the calculations is absent from the record; and
(iii) Whether information on the record suggests that the
application of an adjustment to the Secretary's calculations would
otherwise be unreasonable.
(g) Examples of particular market situations which contribute to
distortions in the cost of materials and fabrication or other
processing of any kind, such that those costs do not accurately reflect
the cost of production in the ordinary course of trade. Examples of
particular market situations which may contribute to the distortion of
the cost of production of subject merchandise in the subject country,
alone or in conjunction with others, include, but are not limited to,
the following:
(1) A significant input into the production of subject merchandise
is produced in such amounts that there is considerably more supply than
demand in international markets for the input and the Secretary
concludes, based on record information, that regardless of the impact
of such overcapacity of the significant input on other countries, such
overcapacity contributed to distortions of the price or cost of that
input in the subject country during the period of investigation or
review;
(2) A government, government-controlled entity, or other public
entity in the subject country owns or controls the predominant producer
or supplier of a significant input used in the production of subject
merchandise and the Secretary concludes, based on record information,
that such ownership or control of the producer or supplier contributed
to price or cost distortions of that input in the subject country
during the period of investigation or review;
(3) A government, government-controlled entity, or other public
entity in the subject country intervenes in the market for a
significant input into the production of subject merchandise and the
Secretary concludes, based on record information, such that the
intervention contributed to price or cost distortions of that input in
the subject country during the period of investigation or review;
(4) A government in the subject country limits exports of a
significant input into the production of subject merchandise and the
Secretary concludes, based on record information, that such export
limitations contributed to price or cost distortions of that input in
the subject country during the period of investigation or review;
(5) A government in the subject country imposes export taxes on a
significant input into the production of subject merchandise and the
Secretary concludes, based on record information, that such taxes
contributed to price or cost distortions of that input in the subject
country during the period of investigation or review;
(6) A government in the subject country exempts an importer,
producer, or exporter of subject merchandise from paying duties or
taxes associated with trade remedies established by the government
relating to a significant input into the production of subject
merchandise during the period of investigation or review;
(7) A government in the subject country rebates duties or taxes
paid by an importer, producer or exporter of subject merchandise
associated with trade remedies established by the government related to
a significant input into the production of subject
[[Page 20840]]
merchandise during the period of investigation or review;
(8) A government, government-controlled entity, or other public
entity in the subject country provides financial assistance or other
support to the producer or exporter of subject merchandise, or to a
producer or supplier of a significant input into the production of
subject merchandise and the Secretary concludes, based on record
information, that such assistance or support contributed to cost
distortions of subject merchandise or distortions in the price or cost
of a significant input into the production of subject merchandise in
the subject country during the period of investigation or review;
(9) A government, government-controlled entity, or other public
entity in the subject country mandates, through law or in practice, the
use of a certain percentage of domestic-manufactured inputs, the
sharing or use of certain intellectual property or production
processes, or the formation of certain business relationships with
other entities to produce subject merchandise or a significant input
into the production of subject merchandise and the Secretary concludes,
based on record information, that those requirements contributed to
cost distortions of subject merchandise or distortions in the price or
cost of a significant input into the production of subject merchandise
in the subject country during the period of investigation or review;
(10) A government, government-controlled entity, or other public
entity in the subject country does not enforce its property (including
intellectual property), human rights, labor, or environmental
protection laws and policies, or those laws and policies are otherwise
shown to be ineffective with respect to either a producer or exporter
of subject merchandise, or to a producer or supplier of a significant
input into the production of subject merchandise in the subject country
and the Secretary concludes, based on record information, that the lack
of enforcement or effectiveness of such laws and policies contributed
to cost distortions of subject merchandise or distortions in the price
or cost of a significant input into the production of subject
merchandise during the period of investigation or review;
(11) A government, government-controlled entity, or other public
entity in the subject country does not implement property (including
intellectual property), human rights, labor, or environmental
protection laws and policies and the Secretary concludes, based on
record information, that the absence of such laws and policies
contributed to cost distortions of subject merchandise, or distortions
in the price or cost of a significant input into the production of
subject merchandise in the subject country during the period of
investigation or review; and
(12) Nongovernmental entities take actions which the Secretary
concludes, based on record information, contributed to cost distortions
of subject merchandise or distortions in the price or cost of a
significant input into the production of subject merchandise in the
subject country during the period of investigation or review. Actions
that result in distortive prices and costs by nongovernmental entities
covered by this example include, but are not limited to, the formation
of business relationships between one or more producers of subject
merchandise and suppliers of significant inputs to the production of
subject merchandise, including mutually-beneficial strategic alliances
or noncompetitive arrangements, as well as sales by third-country
exporters of significant inputs into the subject country for prices for
less than fair value.
(h) A particular market situation which contributes to distortions
in the cost of materials and fabrication or other processing of any
kind, such that the costs do not accurately reflect the cost of
production in the ordinary course of trade, may also contribute to a
particular market situation that prevents or does not permit a proper
comparison of prices. If the Secretary determines that a particular
market situation existed during the period of investigation or review
such that the cost of materials and fabrication or other processing of
any kind did not accurately reflect the cost of production of subject
merchandise in the ordinary course of trade, the Secretary may
consider, based on record information, whether that particular market
situation also contributed to the circumstance or set of circumstances
that prevented, or did not permit, a proper comparison of home market
or third country sales prices with export prices or constructed export
prices, in accordance with section 771(15)(C) of the Act.
0
14. In Sec. 351.503, revise paragraph (c) to read as follows:
Sec. 351.503 Benefit.
* * * * *
(c) Distinction from effect of subsidy--(1) In general. In
determining whether a benefit is conferred, the Secretary is not
required to consider the effect or impact of the government action on
the firm's performance, including its costs, prices, output, or whether
the firm's behavior is otherwise altered.
(2) Subsidy provided to support compliance with a government-
imposed mandate. When a government provides assistance to a firm to
comply with a government regulation, requirement or obligation, the
Secretary, in measuring the benefit from the subsidy, will not consider
whether the firm incurred a cost in complying with the government-
imposed regulation, requirement, or obligation.
* * * * *
0
15. In Sec. 351.505, revise paragraph (d) and add paragraph (e) to
read as follows:
Sec. 351.505 Loans.
* * * * *
(d) Treatment of outstanding loans as grant after three years of no
payments of interest or principal. With the exception of debt
forgiveness tied to a particular loan and contingent liability
interest-free loans, addressed in Sec. 351.508 and paragraph (e) of
this section, the Secretary will normally treat a loan as a grant if no
payments on the loan have been made in three years unless the loan
recipient can demonstrate that nonpayment is consistent with the terms
of a comparable commercial loan it could obtain on the market, or the
payments on the loan are consistent with the terms of the loan
contract.
(e) Contingent liability interest-free loans--(1) Treatment as
loans. In the case of an interest-free loan, for which the repayment
obligation is contingent upon the company taking some future action or
achieving some goal in fulfillment of the loan's requirements, the
Secretary normally will treat any balance on the loan outstanding
during a year as an interest-free, short-term loan in accordance with
paragraphs (a), (b), and (c)(1) of this section. However, if the event
upon which repayment of the loan depends will occur at a point in time
more than one year after the receipt of the contingent liability loan,
the Secretary will use a long-term interest rate as the benchmark in
accordance with paragraphs (a), (b), and (c)(2) of this section. In no
event may the present value (in the year of receipt of the contingent
liability loan) of the amounts calculated under this paragraph exceed
the principal of the loan.
(2) Treatment as grants. If, at any point in time, the Secretary
determines that the event upon which repayment depends is not a viable
contingency, the Secretary will treat the outstanding balance of the
loan as a grant received
[[Page 20841]]
in the year in which this condition manifests itself.
0
16. In Sec. 351.507, revise paragraph (c) and add paragraph (d) to
read as follows:
Sec. 351.507 Equity.
* * * * *
(c) Outside investor standard. Any analysis made under paragraph
(a) of this section will be based upon the standard of a new outside
private investor. The Secretary normally will consider whether an
outside private investor, under its usual investment practice, would
make an equity investment in the firm, and not whether a private
investor who has already invested in the firm would continue to invest
in the firm.
(d) Allocation of benefit to a particular time period. The benefit
conferred by an equity infusion shall be allocated over a period of 12
years or the same time period as a non-recurring subsidy under Sec.
351.524(d), whichever is longer.
0
17. In Sec. 351.508, revise paragraph (c)(1) to read as follows:
Sec. 351.508 Debt forgiveness.
* * * * *
(c) * * *
(1) In general. The Secretary will treat the benefit determined
under paragraph (a) of this section as a non-recurring subsidy and will
allocate the benefit to a particular year in accordance with Sec.
351.524(d), or over a period of 12 years, whichever is longer.
* * * * *
0
18. In Sec. 351.509, add paragraph (d) to read as follows:
Sec. 351.509 Direct taxes.
* * * * *
(d) Benefit not tied to particular markets or products. If a
program provides for a full or partial exemption, reduction, credit, or
remission of an income tax, the Secretary normally will consider any
benefit to be not tied with respect to a particular market under Sec.
351.525(b)(4) or to a particular product under Sec. 351.525(b)(5).
0
19. In Sec. 351.511, add paragraph (a)(2)(v) to read as follows:
Sec. 351.511 Provision of goods or services.
(a) * * *
(2) * * *
(v) Exclusion of certain prices. In measuring the adequacy of
remuneration under this section, the Secretary may exclude certain
prices from its analysis if interested parties have demonstrated, with
sufficient information, that those prices are derived from countries
with weak, ineffective, or nonexistent property (including intellectual
property), human rights, labor, or environmental protections, and that
the lack of such protections would likely impact such prices.
* * * * *
0
20. In Sec. 351.520, revise paragraph (a)(1) to read as follows:
Sec. 351.520 Export insurance.
(a) * * *
(1) In general. In the case of export insurance, a benefit exists
if the premium rates charged are inadequate to cover the long-term
operating costs and losses of the program normally over a five-year
period.
* * * * *
0
21. In Sec. 351.525, revise paragraphs (b)(2) and (3) to read as
follows:
Sec. 351.525 Calculation of ad valorem subsidy rate and attribution
of subsidy to a product.
* * * * *
(b) * * *
(2) Export subsidies. The Secretary will normally attribute an
export subsidy only to products exported by a firm.
(3) Domestic subsidies. The Secretary will normally attribute a
domestic subsidy to all products sold by a firm, including products
that are exported.
* * * * *
Sec. 351.527 [Removed and Reserved]
0
22. Remove and reserve Sec. 351.527.
0
23. Add Sec. 351.529 to read as follows:
Sec. 351.529 Certain fees, fines, and penalties.
(a) Financial contribution. When determining if a fee, fine, or
penalty that is otherwise due, has been forgone or not collected,
within the meaning of section 771(5)(D)(ii) of the Act, the Secretary
may conclude that a financial contribution exists if information on the
record demonstrates that payment was otherwise required and was not
made, in full or in part. In making such a determination, the Secretary
will not be required to consider whether the government took efforts to
seek payment or grant deferral, or otherwise acknowledged nonpayment,
of the fee, fine, or penalty.
(b) Benefit. If the Secretary determines that the government has
exempted or remitted in part or in full, a fee, fine, or penalty under
paragraph (a) of this section, a benefit exists to the extent that the
fee, fine, or penalty paid by a party is less than if the government
had not exempted or remitted that fee, fine, or penalty. Further, if
the government is determined to have deferred the payment of the fee,
fine, or penalty, in part or in full, a benefit exists to the extent
that appropriate interest charges are not collected. Normally, a
deferral of payment of fees, fines, or penalties will be treated as a
government provided loan in the amount of the payments deferred,
according to the methodology described in Sec. 351.505.
[FR Doc. 2024-05509 Filed 3-22-24; 8:45 am]
BILLING CODE 3510-DS-P
