Opinion ID: 211471
Heading Depth: 2
Heading Rank: 3

Heading: Commerce's Determination to Countervail the Entire Amount of Import Duty Exemptions

Text: 36 Commerce's ability to countervail import duty exemptions is governed by 19 C.F.R. § 351.519. In pertinent part, this regulation states: 37 (a) (1)(i) Remission or drawback of import charges. In the case of the remission or drawback of import charges upon export, a benefit exists to the extent that the Secretary determines that the amount of the remission or drawback exceeds the amount of import charges on imported inputs that are consumed in the production of the exported product, making normal allowances for waste. 38 . . . . 39 (a) (3)(i) Remission or drawback of import charges. If the Secretary determines that the remission or drawback . . . of import charges confers a benefit under paragraph (a)(1) . . . of this section, the Secretary normally will consider the amount of the benefit to be the difference between the amount of import charges remitted or drawn back and the amount paid on imported inputs consumed in production for which remission or drawback was claimed. 40 . . . . 41 (a) (4) Exception. Notwithstanding paragraph (a)(3) of this section, the Secretary will consider the entire amount of an exemption, deferral, remission or drawback to confer a benefit, unless the Secretary determines that: 42 (i) The government in question has in place and applies a system or procedure to confirm which inputs are consumed in the production of the exported products and in what amounts, and the system or procedure is reasonable, effective for the purposes intended, and is based on generally accepted commercial practices in the country of export. . . . 43 19 C.F.R. § 351.519 (2004). 44 Responding to the arguments the United States and U.S. Steel present on appeal, RTG maintains that the Court of International Trade correctly decided that Commerce's decision to countervail the entire import duty exemption was not supported by substantial evidence or was not in accordance with law. RTG argues that the Court of International Trade properly recognized the circularity of the construction Commerce sought to apply to 19 C.F.R. § 351.519. RTG characterizes Commerce as having countervailed the entire amount of SSI's import duty exemption for what it deemed to be an excessive amount for waste. (Appellee Br. 17.) According to RTG, by doing so Commerce elevated the exception of § 351.519(a)(4) over the rule of § 351.519(a)(3). RTG points out that waste is not mentioned in § 351.519(a)(4), and that the only mention of waste is in subsection § 351.519(a)(1). It argues that reading § 351.519(a)(4) as justification for countervailing an entire drawback program by simply finding an excessive allowance of any magnitude renders § 351.519(a)(3) meaningless. (Appellee Br. 20.) RTG contends that Commerce should countervail an entire program only when the program is unreasonable. RTG maintains that its system is reasonable based on the acceptable practices in Thailand, and it also faults Commerce for referencing an accounting book that it alleges says nothing about whether waste includes recoverable or saleable scrap. 45 Next, RTG, relying on a dictionary definition of waste, contends that waste that can be sold is still waste. (Appellee Br. 27.) Furthermore, citing 19 C.F.R. § 191.23(c), RTG points out that the U.S. Customs and Border Protection's own drawback regulations only allow drawback on imported input reduced by recoverable and saleable waste. But RTG maintains that these regulations support rather than defeat its arguments because they recognize that waste encompasses saleable scrap. (Appellee's Br. 31.) Finally, RTG argues that the Court of International Trade properly rejected Commerce's reliance on the two extraneous sources of yield information, the parallel antidumping investigation and the financial audit. It argues that the rejection of Commerce's reliance on these sources of information does not undercut Commerce's statutory authority, because Commerce could have relied on RTG's system. RTG, recognizing that the dispositive question is whether its system reasonably and effectively confirmed normal allowances for waste, argues that its system is reasonable and effective. RTG contends that the two other sources of information only included slightly lower yield factors, and that Commerce never even assessed the reasonableness of the other sources of information. 46 We conclude that Commerce's determination to countervail the entire amount of the import duty exemptions is supported by substantial evidence and is otherwise in accordance with law. Subsection 351.519(a)(1)(i) provides that a countervailable benefit exists where a program permits a drawback that exceeds the amount of import charges on imported inputs that are consumed in the production of the exported product, making normal allowances for waste. Moreover, pursuant to § 351.519(a)(4), the entire amount of the drawback is countervailable unless Commerce finds that 47 [t]he government in question has in place and applies a system or procedure to confirm which inputs are consumed in the production of the exported products and in what amounts, and the system or procedure is reasonable, effective for the purposes intended, and is based on generally accepted commercial practices in the country of export. . . . 48 19 C.F.R. § 351.519(a)(4) (2004). Only when Commerce finds that the government in question has the system required by § 351.519(a)(4) does it normally consider the amount of the benefit to be the difference between the amount of import charges remitted or drawn back and the amount paid on imported inputs consumed in production for which remission or drawback was claimed pursuant to § 351.519(a)(3)(i). Here, following the requirements of § 351.519(a)(4), Commerce determined that RTG's system for determining which inputs are consumed in the exported product, and in what amounts, is not reasonable because the system did not isolate and examine what was consumed in the production of the exported products and it did not consider in its analysis whether any of the scrap was recoverable and saleable. We see no reason to second guess the determination of Commerce that a system that does not account for recoverable and saleable scrap is not a reasonable system. In short, we defer to the expertise of Commerce in concluding that normal allowances for waste do not include allowing drawback on recoverable and saleable scrap. Unlike RTG, we do not fault Commerce for referencing accounting principles discussed in an accounting book to determine that recoverable and saleable scrap cannot be considered waste because it does have value and can be sold. Furthermore, we reject RTG's reliance on a dictionary definition of the term waste. We also note that, contrary to RTG's argument, U.S. Customs and Border Protection's regulation on this very same issue, 19 C.F.R. § 191.23(c), supports Commerce's finding that reasonable systems do not allow drawback on imported inputs that are recoverable and resold. 49 The Court of International Trade found Commerce's logic to be circular. It understood Commerce to be countervailing the entire duty exemption because Commerce believes that any excess waste necessarily makes a system unreasonable. The court stated that [t]he problem with [Commerce's] logic is that it renders § 351.519(a)(3)(i) meaningless, because there could never be a situation where only the excessive portion of the exemption would be countervailed. Decision, 341 F.Supp.2d at 1324. Contrary to the characterization of Commerce's decision by RTG and the Court of International Trade, however, Commerce did not countervail the entire drawback program simply because the program allowed for some amount of excessive drawback. We understand Commerce to have countervailed the entire drawback program because it found that program to be unreasonable for systematically allowing impermissible drawback of recoverable and resaleable scrap, resulting in unduly large amounts of impermissible drawback. We defer to this interpretation and application of § 351.519, Commerce's own regulation, because it is reasonable. See Lee v. United States, 329 F.3d 817, 822 (Fed.Cir.2003) (A great amount of deference is owed to an agency's interpretation of its own regulations.); NSK, Ltd. v. Koyo Seiko Co., 190 F.3d 1321, 1326 (Fed.Cir.1999) ([W]e accord substantial deference to Commerce's interpretations of its own regulations.). Commerce's application of § 351.519(a)(4) here does not mean that there could never be a situation where only the excessive portion of the import duty exemption would be countervailed. For example, Commerce might countervail only excess drawback when the excess drawback is caused by random rather than systematic error. As another example, Commerce might only countervail excess drawback that is relatively very small. 50 RTG agrees that Commerce should countervail an entire program when the program is unreasonable, but maintains that its system is reasonable based on the generally acceptable practices in Thailand. The Court of International Trade agreed. The requirement of a reasonable and effective system, however, is separate from the requirement that the system reflect local commercial practices. According to the text of 19 C.F.R. § 351.519(a)(4), to have only excess drawback countervailed, a system must be (1) reasonable, (2) effective for the purposes intended, and (3) based on generally accepted commercial practices in the country of export. The language of the regulation does not clearly require that Commerce analyze the reasonableness of a system only from the perspective of the home country. Thus, we defer to Commerce's interpretation of its own regulation as allowing the reasonableness of a system to be evaluated using general accounting principles that might not be prevalent in the country of export, as that interpretation of the regulation is reasonable. See Lee, 329 F.3d at 822; NSK, 190 F.3d at 1326. Applying that principle here, we conclude that Commerce's reference to general accounting principles used outside Thailand was not reversible error. 51 Finally, we disagree with RTG's argument that the Court of International Trade was correct to disallow consideration of information generated by the parallel antidumping investigation and the financial audit. Commerce should be allowed to verify the data that foreign systems generate using information generated through independent financial and production audits. Indeed, pursuant to 19 U.S.C. § 1677m(i) and 19 C.F.R. § 351.307, Commerce is required to verify the factual basis for its determinations. And while the Court of International Trade was concerned that Commerce did not assess the reasonableness of the waste rates identified in these sources, Commerce did assess the reasonableness of the waste rates identified by RTG in light of the significant percent differences between the waste rates identified in those sources and RTG's reported waste rate. Investigating the reasonableness of RTG's system in light of these significant percent differences was not improper. 52 For the foregoing reasons, we conclude that Commerce's determination to countervail the entire amount of the import duty exemptions is supported by substantial evidence and is otherwise in accordance with law.