In NME antidumping investigations or annual administrative reviews following the issuance of an antidumping order, the Department presumes that all companies within the NME country are subject to government control and therefore should be assigned the same dumping duty rate. However, companies that rebut that presumption by demonstrating the absence of both de jure and de facto government control over their export activities can obtain a duty rate that is separate from the NME-wide duty rate. That separate rate will usually be either the rate that is individually calculated for a company, if the company is an investigated (mandatory) respondent, or if the company was not individually investigated, the average of the dumping rates calculated for the companies that were selected as mandatory respondents.1
An NME participant seeking separate rate status must demonstrate that its export operations meet a test that considers three de jure and four de facto control factors.
The de jure factors are:
- An absence of restrictive stipulations associated with an individual exporter’s business and export licenses;
- Any legislative enactments decentralizing control of companies; and
- Any other formal measures by the government decentralizing control of companies.
The de facto factors are:
- Whether the export prices are set by, or subject to the approval of, a governmental authority;
- Whether the respondent has authority to negotiate and sign contracts and other agreements;
- Whether the respondent has autonomy from the central, provincial and local governments in making decisions regarding the selection of its management; and
- Whether the respondent retains the proceeds of its export sales and makes independent decisions regarding disposition of profits or financing of losses.
The Diamond Sawblades Separate Rates Determination and Its Aftermath
The Department’s analysis of the de jure and de facto factors has changed as a result of litigation before the U.S. Court of International Trade (USCIT) involving a 2006 antidumping order covering diamond sawblades and parts thereof from the People’s Republic of China (P.R.C.). In that litigation, which was not concluded until 2014, after two remands by the USCIT and an affirmance by the U.S. Court of Appeals for the Federal Circuit, 2 the Department’s initial decision to grant separate rate status to a Chinese respondent was reversed.
In the original investigation and in response to the first remand by the USCIT, the Department found that the Chinese exporter at issue was independent of government control, in law and in fact. As the Department explained in its initial redetermination, while the respondent’s majority shareholder was 100 percent owned by a P.R.C. State-Owned Assets Supervision and Administration Commission (SASAC), there was no evidence that the SASAC (and hence the Government of China) had the ability to exercise control over the respondent. The Department found that the corporate form of the majority shareholder insulated it from government control, and therefore it could not pass on government control to the respondent. Further, the Department found that the Company Law of the P.R.C., the respondent’s articles of association, the ability of the respondent’s board to select its own management over export operations, as well as board resolutions and minutes documenting management appointments and profit distribution decisions, demonstrated the absence of both de jure and de facto control by the government.
The USCIT, however, questioned whether the Department was conflating the de jure and de facto analyses: “[G]iven that the separate rate test factors are not facially restricted to obvious “direct” control of export pricing, e.g., via export licensing, the court . . . [is] mystified as to why Commerce reflexively interprets the Company Law to preclude the P.R.C. Government, de jure, from lawful control, de facto, through ownership of a company including its export operations.”3 The USCIT therefore instructed the Department to reconsider its determination.
In its second redetermination, the Department reversed its position. It found that the Chinese laws and regulations at issue, including the Company Law, “are not dispositive” with regard to control. “[R]ather, they demonstrate a legal ability on the part of the exporter to control its own commercial decision-making. This merits an additional analysis of the record evidence to ensure that there is an absence of de facto government control.”4 The Department then “further scrutinized the record” and concluded that, because the 100 percent SASAC-owned majority shareholder was the only shareholder with the right to nominate all board members, including board members active in the selection of respondent’s managers, the respondent was not autonomous. The fact that the respondent exporter satisfied all of the other de jure and de facto considerations, including independently negotiating prices with customers, was irrelevant. So long as one of the seven factors was not satisfied, it could not qualify for a separate rate.
More recently, in an investigation involving carbon and certain alloy steel wire rod from the P.R.C., the Department elaborated on its revised approach, stating that, in light of the diamond sawblades proceedings, it has “concluded that where a government entity holds a majority ownership share, either directly or indirectly, in the respondent exporter, the majority ownership holding in and of itself means that the government exercises or has the potential to exercise control over the exporter’s operations generally. . . . Consistent with normal business practices, we would expect any majority shareholder, including a government, to have the ability to control, and an interest in controlling, the operations of the company, including the selection of management and the profitability of the company.”5
NME exporters, therefore, are now on notice that where there is a majority NME government-owned entity in its chain of ownership they bear a greater—if not insurmountable—burden of demonstrating, as a matter of fact, that notwithstanding the authority and incentive on the part of the government to control the company’s operations, no such government control actually was exercised.
The Separate Rates Application
For each antidumping proceeding involving an NME country, the Department requires respondents seeking separate rate treatment to complete an extensive application.6 To address the seven de jure and de facto control factors, the application requests detailed information and supporting documents about numerous aspects of the respondent’s business, such as: its structure, ownership and affiliations (including the identities of the company’s and affiliates’ shareholders and the shareholders’ owners and shareholders), the company’s and affiliates’ management and their selection processes, the affiliations of each board member and manager with government entities, the company’s decision-making processes with respect to profit distributions, and price negotiations with customers. A typical completed application can run more than 1,000 pages, including the narrative explanations and the necessary supporting documentation.
Until February, NME respondents were given 60 days from the date of initiation of an investigation or review by the Department to submit a separate rate application. Alternatively, an NME respondent could submit the completed application within 30 days in order to provide the Department with an opportunity to review the application and advise the respondent of deficiencies, which the respondent would then have an opportunity to address and rectify prior to the 60-day deadline. Entities that did not take advantage of the early filing option—and many have not—and whose applications were deemed insufficient to establish independence from government control were not guaranteed an opportunity to improve their applications.
In February, however, the Department quietly cut the 60-day deadline in half and eliminated the option for early filing that previously provided NME companies with the opportunity to clarify an application the Department deems insufficient. In footnotes to Federal Register notices of initiation of investigations and reviews since February, and in the first footnote in the application itself, the Department now has set a single 30-day deadline from the date of initiation for NME respondents to file separate rate applications. Given the greater level of detailed support now necessary for respondents with even indirect majority ownership by a government entity to establish that their operations are independent of government control, the 30-day deadline represents a potentially significant stumbling block to attaining separate rate status.
To address the new circumstances, NME companies whose products are subject to U.S. antidumping proceedings will now need to mobilize quickly to respond to the filing of antidumping petitions and to prepare for upcoming administrative reviews. Commencement of preparation of a separate rate application, including collection of the extensive but essential supporting documentation and evaluation of whether indirect ownership relationships with NME government entities can be effectively addressed and independence from government control established, should not wait until formal initiation by the Department.
1 An exception to this rule provides that where an investigated company is determined to have a rate of zero or de minimis (defined as 2 percent or less in an investigation and less than 0.5 percent in a review) or its rate is based entirely on facts available (because it refused to cooperate), that company’s rate will be excluded from the calculation of the average rate for non-investigated companies found eligible for separate rate status.
2 Advanced Technology & Materials Co. Ltd. v. United States, 885 F.Supp. 2d 1343 (CIT 2012), 938 F. Supp. 2d 1342 (CIT 2013), aff’d pursuant to Fed. Cir. R. 36, 581 Fed. Appx. 900 (CAFC 2014).
3 885 F.Supp 2d at 1355.
4 Final Results of Redetermination Pursuant to Remand Order, Diamond Sawblades and Parts Thereof from the People’s Republic of China (May 6, 2013) at 13.
5 See Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China, Inv. No A-570-012, Preliminary Decision Memorandum at 6-7, 79 Fed. Reg. 53169 (September 8, 2014) (emphasis added), unchanged in Final Determination, 79 Fed. Reg. 68860 (November 19, 2014).
6 The Separate Rate Applications for China and Vietnam are posted on the Department’s website. In administrative reviews, respondents that previously were granted separate rate status can maintain that status if they timely file a Separate Rate Certification that there have been no changes with regard to their de jure and de facto independence from government control.
If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work, or
|Brenda A. Jacobs
|Shawn M. Higgins
Sidley Trade Remedies Practice
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