investigation and the key issue concerns a duty drawback adjustment to us price the question here is whether the commerce department can add to its historical criteria for duty drawback adjustments the requirement that a respondent prove that it imported raw material actually suitable for use in the production of the products exported to the united states had this two part criterion is there sufficient link and that's an issue that concerns an analysis of the turkish or foreign country law regarding to the drawback and in the turkish system there is this concept of equivalent goods so on a on what they call an inward processing certificate that governs these things that you  example it will import two hundred thousand tons of hot well coil and a couple of different tire of categories according to the thickness of the coil and it will export one hundred ninety thousand ton foreign country in the world right and we don't have any say as to whether or not to test the concept of equivalency or whatever other concept another country would come up with that would put them in this basket that we're willing to  import chocolate and get a drawback on that because chocolate's not an input to pipe so commerce check so that they look at that they look at the at the drawback certificates and they see coil pipe and because they all ways see that as a pattern they say the system works the system is not giving drawback on something that's not capable of being used on the  exportation but the the case law goes and this goes way back to the eighty's authorizes except commerce has ability need to analyze whether the foreign system is working in a way that the substitution materials are appropriate for the customs purposes  dumping purposes and they have found time and again there's a lot of these turkish cases and they found in the original taiwan cases in the from coke aces for instance that the foreign systems did have an appropriate structure for linking imports and exports and that the eight digit h t s structure is an adequate structure and if i'm not mistaken the united states works in the same way it's in our agency briefing but it's not hasn't been an issue here and so the turkish system works on a certificate basis a company like you joe will apply to import one hundred thousand tons of corals export ninety five thousand tons of pipes electronically that the turkish customs computer system looks at these looks at this application and says ok granted and then each time you jel imports calls it counts them again it's actually turkish customs counts those calls against that in word processing certificate each time you gel exports pipes turkish customs counts them against that and we're processing certificates so it's always happening in a balanced way incomers knows this perfectly well and that the question is this suitability for use criterion that commerce is now talking about it would be ok by me by you jel  how it was doing its calculus and commerce has always interpreted that's the statute in a sort of a they have the authority to see if there's a bonafide system if drawback exists as a system as a bona fide system if you look back at the front case in the eighty's what just shudras dani said there was that the substitution principle in the taiwanese system that was at issue there was a pretty broad structure but it was not so broad as to be meaningless and and commerce certainly has the authority to determine whether there is a drawback system in existence that defines things adequately to be deemed a drawback in the first place it's not an ambiguity in the statute it's how commerce gets to the definition of drawback because they say if if the drawback system allowed you to import chocolate and got a drawback when you export steel pipe then it's not any rebate by reason of the exportation because it's not a bona fide system  gels database of imports and exports under it's in word processing start difficult so you can see the line item of the o c t g that was export into the united states you can see that when that certificate was closed all these imports were properly balanced against all these exports and so the rebate was given by reason of the exportation into ral haitians what is meant by the subject merchandise now we have that that's never been an issue we export it osi t g v that's not the issue before the court the issue here is whether we imported a raw material a very sophisticated product that operates under a lot of pressure and so forth so you have to have a specific on a coil it's in the same eight digit tariff category as all the coils but it happens that for these couple of hundred tons out of hundreds of thousands of ton these couple hundred tons that we produce that we're o c t j we didn't import those calls but they were our that we could claim the o c t g you could just east could you would just of easily have used the stuff that was imported from china or we did import from china in fact but we could have imported j fifty five calls it just happens that in that period we did but there's no reason  that we couldn't have the policy argument is that and i mean and i have a core always twenty tons and you're exploiting hundreds of thousands of tons of pot and you're getting some from an import some from domestic and there's no way that customs because customs is administrating a system there's no way that customs can link this imported oil to this export apart in fact there's no way that a manufacturer can do that either it's the i mean it has always been the us since eighty seven when i started working on these drawback is you have to you cannot run a drawback system without substitution drawback explaining you have to step back a little bit here the whole purpose of when congress does the dumping calculation the whole purpose of the eighty statute is to account for subject merchandise fellated items so that when you're doing a proper comparison procedure all along in terms of how it's interpreted apply this well to these certain similar circumstances where the statute says do drawbacks provision here does not speak to the particular issue before the court here which is whether the evaluates the duty brought the drug that provision never reached that because if found that as a threshold matter the provision just doesn't apply in the situation in the facts before it in this case because you chel did not could not use that i that the hot roll coyle's that it says it couldn't use that import for the subject merchandise into use the analogy that counsel gave you your counsel said just like chocolate could not be used as an input to make the subject merchandise same as those corals that are imported could not be used to make such merchandise and as that is just to move back again is that in the position that commerce has consistently taken him in never came up before this is the first case the such a factual situation came up so didn't speak to the question but i think it can be viewed either way it can be viewed as when you look at the statute it simply does not it there is a requirement that it must be used in the subject merchandise so camp i think if you got go either right because of those original importations any and by reason of the exportation of the subject rich interests of the united states well that's why the government has decided to rebate the any import duties i think you do have to read it together by reason of the exportation of the subject merchandise so this import duty that it the respondent miscarrying here is not by reason of the exploitation of subject merchandise because it cannot be or maybe the government decides that we're going to rebate not just for the expiration of the goods that was used but for acquittal so why wouldn't the government's decision that's the reason that is the reason that the government is rebating it's just not using the same criteria that you would be right but even if the government that if that is correct in the government is doing that that's really not a dumping issue in fact doesn't mean you make the adjustment under this provision that's really in for lack of better way of saying it's really next for subsidy the government is saying ok you can get a rebate for any exploiting any such any merchandise and that's really an export subsidy on that's going on in the country green and that's why for argument yes the duties have not been collected for the input that's going into the subject merchandise so correct court described it so yes i think it further supports commerces decision in this case but he doesn't think he answered the question that's correct the issue was not with for the court inside that's correct it's just we just said that for the supports our a skewed price comparison because what's going on here is that in a normal antidumping proceeding commerce will evaluate whether a foreign good has been sold unfairly in the united states by looking at on the one hand the price in the united states and on the other hand the price of the good in the foreign country where it's made what you trolls are going for is to increase the u s price by the amount of the import duty of a material that is not and is not and cannot be used to make the good that's been expert united states and so that price is not reflected in the price of the good in the foreign market so you can have a skewed price comparison that's essentially flipping the statutory purpose on its head right exactly the country provides the rebate that's right but the reason why that matters is and as my colleague from the department of justice said that would affect the effectively the export subsidies the reason why it a comes into the antidumping context is that if the good is used to make if it's in if the material for which there is the import duty is used to make the foreign good then that import duty is built into the price situation where duty drawback arises that's when the ingredient is used to make the foreign good and so the import duty is built in the price for good and then when you have the rebate in the end the product is export into the united states ingredients are incapable of being used to make the foreign good that import duty that it's got its name that isn't built in the price is that the test were applied that all kinds of tests floating around here but it's not capable of use i thought your test would tradeoff right because if you wanted to make sure that the good had been used it would require lots of proof by everyone about you know which particular input was using which particular good export united states and that's a trade off about you know getting the most accurate margins versus the amount of pro capable of using it there's some ability in that so i don't think fungibility should really play a role here at all because again the question isn't about fungible good but about the prices and the comparison of price in the us in the form good and if the foreign  under the facts of this case we know it's i mean even if it's not capable of use it of course it's not been used and and so in this case where we have not even that it wasn't used but that's incapable of being used that makes it a really easy test to your honor david simon again and i want to try to clear something up and of a huge number of cases in every drawback case the court and the agency have both agreed that it is not necessary to link imports and exports to have the drawback adjustment you do not have to show any actual use this is a long substitution drawback concept it has always been this way you cannot have a drawback such a system that doesn't work and commerce acknowledges that you're not saying that this circumstance specific factual i'm saying we don't know one way or the other that that has never been a test the test has always been is the subs in is is is the foreign government substitution system ok or is it ok to allow substitutability on an eight digit h t s basis that's always been the issue that this time and commerce doesn't say anything different in this case except they make a new test a threshold test that they have never done before that we have to prove for each export to the united states that we imported raw material capable of ll and export o c t j this is the new test that they're applying now and it's extremely dangerous because it right chad out it completely writes out of the drawback analysis the entire concept of substitution my next case will be i presume something that is that in which we had more than three lines of data in our drawback application and and database before commerce before the turkish government in that case i'm going to have to show that for pipes of eighteen different specifications i had thirty six different specifications of clay all each of them enough quantity to make all of those pipes because once you throw out substitution drawback you from your then having to link the actual grade of the input with the actual grade of the products export it even if you don't have to show they were used you would have to show that they are capable of being used and once you're go down that path you have no more substitution drawback system and it's it it's just an unworkable exercise at that point here this is an easy case in a way i understand the intuitive appeal of this case