CIT Says Commerce Can Exclude de Minimis Companies From CVD Order in Expedited Review

The Court of International Trade on April 22 sent back the Commerce Department's decision not to attribute subsidies received by lumber suppliers to respondents in an expedited countervailing duty review on Canadian softwood lumber. Judge Mark Barnett said that if Commerce continues to find that the respondents are the producers of the subject lumber, the agency must reconsider its decision to require an upstream subsidy allegation for lumber purchases within the class of covered merchandise.

In addition, the judge said the agency's decision not to attribute the unaffiliated suppliers' subsidies to the respondents "lacks clear, affirmative statements regarding the agency's views on respondent-remanufacturers and respondent-sellers," along with the agency's reasons for applying the "relevant legal principles in the chosen manner."

Barnett also remanded Commerce's use of exporter Fontaine's FY 2014 tax returns to conduct a benefit calculation for the 2015 review period. However, the judge sustained Commerce's instructions to CBP excluding the companies that received a de minimis rate from the CVD order, along with the decision to countervail logging tax credits from the Canadian and Quebec governments.

The case returned to the trade court after the U.S. Court of Appeals for the Federal Circuit ruled that Commerce had the authority to conduct expedited CVD reviews (see 2304250061). In light of the ruling, Barnett found that review was proper under Section 1581(i), the court's "residual" jurisdiction, since expedited CVD reviews are made under Section 1677f-1(e), which is not one of the decisions under Section 1516a(a)(1) that are reviewable under Section 1581(c).

In all, the court addressed three issues: the treatment of the de minimis respondents, the decision not to attribute suppliers' subsidies to the respondents and logging tax credits issued by the governments of Canada and Quebec. Barnett didn't substantively address one claim from the petitioner on Commerce's benchmark in calculating a benefit for Canada's property tax assessment on timberland for failure to exhaust administrative remedies.

Treatment of de Minimis Companies

The petitioner, the Committee Overseeing Action for Lumber International Trade Investigations or Negotiations, claimed that Commerce violated its regulations when it found de minimis rates received by companies under review exempted them from the CVD order. The petitioner said the CVD review should have triggered Commerce's regulation governing the retroactive "assessment" of duties, which subjects companies to the annual administrative review process.

Barnett held that "Commerce adhered to the plain language of the regulation and Commerce’s prior interpretation of the provisions" in telling CBP to exclude the de minimis companies. The agency's regulations confirm that a CVD expedited review doesn't trigger the "assessment provision," because, as Commerce explained, the point of the expedited review is to give a noninvestigated exporter its "own cash deposit rate" before the first anniversary month of the order. Since the agency reviews the original period of investigation, exclusion from the CVD order is proper.

After the expedited review, the order "no longer provided a basis for the suspension of liquidation of those companies’ entries or the collection or retention of cash deposits," the court said.

Supplier Subsidies

The committee pointed to evidence on the record showing that two of the respondents -- Rustique and the affiliated companies Les Produits Forestiers D&G and Portbec -- bought lumber from unaffiliated suppliers and either further processed it before export to the U.S. as subject lumber or resold it without further processing. The petitioner said Commerce should "establish combination rates" or "cumulate subsidies."

The agency refused because it never received an upstream subsidy allegation and thus "lacked a basis to attribute subsidies" given to unaffiliated suppliers. Commerce added that it has held off from looking at whether a subject merchandise producer whose goods are resold by the respondent received subsidies "when the amount of such resales is small relative to the respondent's overall sales."

Barnett said Commerce erred in relying on the lack of an upstream subsidy allegation and that the agency "failed to engage with the Coalition's arguments concerning remanufacturing and, in particular, the type of 'minor' activities that may constitute 'remanufacturing.'" As a result, lumber suppliers that would otherwise be covered "would appear to be able to escape duties by selling merchandise through a 'remanufacturer' with a more favorable rate," the court noted.

If the respondents are still found to be the producers of the merchandise, "Commerce must reconsider or further explain its determination to require an upstream subsidy allegation for purchases of lumber that is within the class or kind of covered merchandise," the opinion said.

The U.S. focused on whether the lumber can be characterized as an input, though the court said this is "nonresponsive" to the question of whether inputs that otherwise are subject to the order can be considered "upstream" of the exports. Barnett remanded so that the agency can fully address the issue and "reconcile its position with seemingly inconsistent earlier agency statements" regarding what constitutes an input.

As for Commerce's justification that the amount of resales was small relative to the exporter's overall sales, Barnett noted two issues: "Commerce’s practice did not account for the unusual circumstances of CVD expedited reviews" and the agency didn't address whether accounting for suppliers' subsidies will make the difference between de minimis and above de minimis rates. The issue isn't the unaffiliated suppliers exporting goods made by the de minimis companies, as Commerce framed it, but rather the respondents exporting goods made by unaffiliated suppliers that would otherwise be subject to a higher CVD rate, the court said.

Logging Tax Credits

Logging companies in Quebec are required to pay a 10% tax on logging income "in addition to federal and provincial income taxes." The Canadian government issues a tax credit for two-thirds of the tax, while the Quebec government credits the rest of the tax. Commerce said the credits were a financial contribution via forgone revenue and conferred a benefit.

Exporter Rustique and the Canadian and Quebecois governments challenged the decision to countervail the tax credits and to use Fontaine's FY 2014 tax returns to assess the benefit despite the credits applying for FY 2015. The court sustained the former decision but remanded the latter.

Barnett said the record doesn't support the parties' claim that the logging tax wouldn't exist but for the credits forgiving the tax. While the Canadian and Quebecois governments said the policy rationale is to avoid double taxation, the "existence of a general policy against double taxation does not, however, substantiate the assertion that the logging tax and the tax credits must stand or fall together," the judge said.

While the parties said Commerce should have considered the logging tax and tax credits to constitute a single subsidy program, Barnett said no evidence was identified "calling into question Commerce’s decision not to treat tax credits enacted by different government entities as a single program, or any examples of Commerce doing so." Barnett also struck down the claim that the tax credits "confer no benefit" since they result in Rustique paying the same tax rate as non-logging firms since each tax credit lowers the exporter's tax burden.

The court added that Commerce "correctly rejected" the Canadian government's claim that Commerce should treat the tax as a payment used to qualify for the credits so that the amount of the tax would be deducted from any subsidy. The law lets the agency subtract from the gross subsidy the amount of any "application fee, deposit, or similar payment" paid to get the benefit of the subsidy. Barnett found that the Canadian government's argument reads the word "similar" out of the statute.

"If this were true, then any tax for which a government provides a corresponding credit could be deducted from the final subsidy rate," the opinion said.

Where the court remanded Commerce's action was on the use of the exporter's FY 2014 tax returns. Barnett said finding the proper date for calculating a benefit "is a factual matter specific to each case, and Commerce's experience must yield to those facts." The record shows Fontaine made FY 2014 payments in 2014 and FY 2015 payments in 2015, meaning the date of payment and date of filing "do not align."

“Commerce's focus on 'definitive knowledge of the amount of or benefit from the tax credits'” led to the “agency’s failure to grapple with record evidence that undermined its decision," the judge said.

(Committee Overseeing Action for Lumber International Trade Investigations or Negotiations v. United States, Slip Op. 24-50, CIT Consol. 19-00122, dated 04/22/24; Judge: Mark Barnett; Attorneys: Sophia Lin of Picard Kentz for plaintiff Committee Overseeing Action for Lumber International Trade Investigations or Negotiations; Alan Kashdan of Blank Rome for consolidated plaintiff Government of Canada; Nancy Noonan of ArentFox Schiff for consolidated plaintiff Government of Quebec; Mark Lehnardt of Law Offices of David L. Simon for consolidated plaintiff/defendant-intervenor Fontaine Inc.; John Magnus of TradeWins for consolidated plaintiff/defendant-intervenor Mobilier Rustique; Elizabeth Speck for defendant U.S. government; Aaron Hutman of Pillsbury Winthrop for defendant-intervenor Government of New Brunswick; Edward Lebow of Haynes and Boone for defendant-intervenors Les Produits Forestiers D&G and Marcel Lauzon; Rajib Pai of Sidley Austin for defendant-intervenors led by North American Forest Products Ltd.; Yohai Baisburd of Cassidy Levy for defnedant-intervenor Scierie Alexandre Lemay & Fils Inc.)