CAFC Questions Presence of Subsidies in Surrogate Financial Statements

U.S. Court of Appeals for the Federal Circuit Judges Kimberly Moore and Richard Taranto probed claims from both exporter Oman Fasteners and the U.S. during oral argument in a suit on the Commerce Department's selection of a surrogate financial statement in an administrative review of an antidumping duty order on steel nails from Oman (Mid Continent Steel & Wire v. United States, Fed. Cir. # 23-1039).

DOJ attorney Mikki Cottet defended Commerce's selection on remand of financial statements from Indian company Sundram Fasteners to calculate Oman Fasteners' constructed value (see 2208090008). Cottet explained that in the review, Commerce picked from 11 financial statements, nine of which were from companies that didn't produce steel nails or otherwise comparable merchandise. As a result, the agency was left with statements from Thai company Hitech and Sundram.

Moore questioned where this analysis was in Commerce's determination in the review, remarking that Cottet was making "great arguments." The judge said if the arguments were present in the agency's opinion, the case likely would be wrapped up.

In the review, Commerce originally picked Hitech for the constructed value calculation, despite concerns that the company benefited from subsidies. However, when the case was first before the Federal Circuit, the appellate court remanded the selection. As a result, the agency switched to Sundram, though Commerce noted that both Sundram and Hitech received subsidies (see 2204120060). The agency ultimately picked Sundram over Hitech, since the Indian firm's data was contemporaneous with the review period, while Hitech's was not.

On appeal, Michael House, counsel for Oman Fasteners, said Commerce erred in responding to the CAFC's remand order, since it failed to analyze the "nature and degree of the subsidies" in both the statements from Hitech and Sundram.

Moore questioned this position, noting that House's problem is that the "degree" of the subsidies is "infinitesimal." The judge said the evidence suggests the effect is "really small and unlikely to have any significant impact on the ultimate question" Commerce is deciding. "I don't love vacating and remanding for busy work when the outcome is not going to be favorable for your client," the judge quipped. Taranto also inquired about the extent of the subsidies, noting that they are "less than two one hundredths of a percent" of the companies' revenues.

House said the point is that Commerce never engaged in analysis of the subsidies' effects, adding that the situation before the CAFC is worse this time around because Sundram doesn't make products comparable to Oman Fasteners'.

The attorney added that the agency erred in refusing to reopen the record on remand. On this point, Moore said she generally has a "very deferential approach to Commerce's decision," adding that if she remands the case based on the lack of an explanation on the subsidies question, she doesn't see why Oman Fasteners should win on its claim regarding reopening the record.

The judge added that House put forward "two clear" errors of law committed by Commerce, regarding the subsidies and comparability of merchandise, but said the court can't opine on what Commerce should or shouldn't be willing to consider. To this, House said his argument is that Commerce failed to engage with the record by not looking at the effect of subsidies or conducting a proper comparative analysis as it was "instructed" to do.

Cottet said it's "not a fair statement to say that Commerce did not look into the subsidies," arguing that the agency is "bound to look at the record and make a determination" based on the information put before it. Looking at the statements from Hitech and Sundram, Cottet said "it's a wash," given the presence of subsidies in both. Cottet added that the agency's explanation of its Sundram pick is sufficient, given the discussion of the comparability of the merchandise and the contemporaneity of the data.