Opinion ID: 686571
Heading Depth: 3
Heading Rank: 1

Heading: Nature and Effects of the Subsidy (Section 1677(7)(E)(i), (F)(i)(I))

Text: 34 The ITA subsidy report discussed reasons for Venezuela's export bond program. The Venezuelan producers explained in the report that the bond program, which accounts for almost all of the gross subsidy on Venezuelan EC rod, only compensates for official overvaluation of the Bolivar. Subsidy Report, 53 Fed.Reg. at 24,769 (Comment 2). 3 The Venezuelan producers also contended that the prevailing free market exchange rate correlated with the subsidy. Id. at 24,769-70. Southwire did not controvert these contentions. See id. 35 ITC, apparently conceding that the export bond program compensated for Venezuelan exchange rate constraints, found that this program still provided an even more important incentive to imports. Threat Determination, 1988 ITC LEXIS 64, at  16 n. 34. The export bond program, however, only facilitated the opportunity for Venezuelan producers to compete in export markets on a level playing field. Thus, the bond program did not provide Venezuelan producers with a subsidy advantage over U.S. manufacturers. ITC did not consider this, and thus did not comply with section 1677(7)(E)(i)'s requirement that ITC consider the likely effects of any subsidy. 36 The record as a whole does not show any significant potential harm to domestic industry, but suggests that the subsidy program only compensates the Venezuelan producers for a competitive disadvantage. Thus, the record does not suggest a real threat to the domestic EC rod industry. 37 2. Venezuelan Production Capacity Likely to Result in a Significant Increase in EC Rod Imports (Section 1677(F)(i)(II), (IV)) 38 The Venezuelan producers have spare production capacity. ITC consequently found that Venezuelan capacity to produce EC rod may soon increase. Threat Determination at  16. On the other hand, as the Court of International Trade pointed out, the record shows that Venezuelan producers are not likely to obtain enough primary aluminum to increase EC rod production. See Suramerica, 818 F.Supp. at 358-60 (summarizing record). Due to transportation costs, Venezuelan EC rod producers cannot afford to purchase primary aluminum on the world market. Id. at 358-59. Nor can they share in pending increases in the supply of Venezuelan primary aluminum, which are nearly all committed to other uses. Id. at 359. 39 As the Court of International Trade correctly observed, [t]he issue is whether the Venezuelans are going to replace domestic market share to the point of posing an imminent threat of injury. Suramerica, 818 F.Supp. at 372. Upon a careful review of the record, the court found no basis for holding that the Venezuelan producers can readily obtain increased supplies of primary aluminum. 4 Id. at 360, 372. The record as a whole, as the court showed, does not suggest a real threat that the Venezuelan producers can acquire sufficient primary aluminum to significantly increase their imports to the United States. 40 3. Increase in Market Penetration to an Injurious Level (Section 1677(7)(B)(i)(I), (F)(i)(II)) 41 United States market penetration by Venezuelan EC rod imports stabilized after 1985. During 1984-85, when United States market penetration increased, [i]mports from Venezuela made a modest entry into the United States ... in part because it served Southwire's interests.... The Venezuelan imports were also welcomed by other members of the EC rod industry.... Suramerica, 818 F.Supp. at 369. Southwire itself purchased large amounts of Sural's 1984-85 imports. Id. at 368. Indeed Southwire advised Sural on making sales in the United States. Id. As the Court of International Trade correctly noted, Southwire's cooperation during the only period when market penetration by Venezuelan imports significantly increased undercuts Southwire's protestations about Venezuelan imports posing a real threat. Id. at 374. 42 4. Probability that Imports Will Enter the United States at Depressive or Suppressive Prices (Section 1677(7)(B)(i)(II), (F)(i)(IV)) 43 In five of nine comparisons with the domestic price, the price of Venezuelan rod was lower; in the other four, the domestic rod price was lower. Suramerica, 818 F.Supp. at 357-58. Furthermore, the fabrication component of the domestic EC rod price--the portion of the EC rod price above the cost of primary aluminum--has increased since 1984. Id. at 370. Thus the price of the value added by domestic EC rod manufacturers has risen despite the presence of Venezuelan imports. 44 The majority of domestic consumers of EC rod preferred domestic rod over Venezuelan rod unless the foreign product was much less expensive. The ten comparison prices, however, did not show marked price differences. Thus, the record suggests that Venezuelan rod will have little depressive or suppressive effect on domestic prices, both because its prices are not significantly lower and because consumers prefer domestic rod. See Threat Determination, 1988 ITC LEXIS 64, at  58 (Dissenting Views of Acting Chmn. Brunsdale) (record facts, including erratic shipments of Venezuelan EC rod and Buy-American requirements in utility and governmental purchases, tend to indicate a low elasticity of substitution between Venezuelan and domestic EC rod). 45 ITC noted that Venezuelan imports enjoyed transportation freight advantages in the United States because most sales occurred within 100 miles of their ports of entry. Id. at  20. These same freight costs, however, prevent Venezuelan producers from competing effectively for sales in other areas of the country. 46 Again, the Court of International Trade observed that Southwire apparently counseled Sural to cut its prices in 1984 and 1985. Suramerica, 818 F.Supp. at 368. Southwire did not challenge this finding on appeal. Southwire itself, the largest U.S. producer of EC rod, did not perceive lower prices for Venezuelan EC rod to pose a threat of material injury. On the record as a whole, the pricing data do not show such a threat. 47 5. Substantial Increases in U.S. Inventories of Imported EC Rod (Section 1677(7)(F)(V)) 48 United States inventories of Venezuelan EC rod increased from 4,000 tons in 1987 to almost 7,500 tons in the first quarter of 1988. The Court of International Trade correctly put this amount in the context of its potential effect on the U.S. market. See Suramerica, 818 F.Supp. at 374. With a 1987 U.S. market of 346,000 tons, the increase of Venezuelan inventories was not substantial. The record does not suggest that the increase in Venezuelan inventory levels, small compared to domestic consumption of EC rod, poses a real threat to the domestic industry. 49 6. Condition of the Domestic Industry (Section 1677(7)(B)(i)(III), (C)(iii)) 50 The Court of International Trade noted: The financial data relating to the [domestic] EC rod industry show a decline in most financial indicators during 1985, followed by consistent upward movement thereafter. Suramerica, 818 F.Supp. at 357. The court further attributed the health of the rod industry to rising demand catching up with shrinking capacity, the result of large-scale industry rationalization after the United States became completely electrified in the early 1980's. Id. at 355-57. The domestic industry has remained consistently profitable. Id. at 357. 51 The record provides at best limited support for ITC's interpretation of the condition of the domestic industry as improving but still vulnerable. ITC employed data from 1984, the time of a cyclical high in the domestic EC rod industry, id. at 356, as its benchmark in assessing the condition of the U.S. industry. Furthermore, ITC itself acknowledged that the financial data on which it relied was limited in value because most domestic EC rod is produced by vertically integrated manufacturers who consume the EC rod internally. Threat Determination, 1988 ITC LEXIS 64, at  10. Thus ITC's conclusion rests on incomplete data compared to an inappropriate benchmark. The domestic EC rod industry does not appear to be particularly susceptible to injury by reason of Venezuelan imports. 52 7. Other Demonstrable Adverse Trends (Section 1677(7)(F)(i)(VII)) 53 ITC asserted that the European Economic Community (EEC), another export market for the Venezuelan industry, has a quota system with dramatically increased tariffs for imports beyond the limit. Venezuela reportedly had already exceeded its quota for 1988. Threat Determination at  20 n. 44. Southwire and ITC contend on appeal that the EEC quota might cause Venezuelan producers to divert imports to the United States and threaten domestic industry. 54 The Court of International Trade found that ITC relied on information without proper substantiation and ignored a letter the Venezuelan producers offered in rebuttal. Suramerica, 818 F.Supp. at 371. Even assuming the accuracy of the tariff information, however, it shows no more than a possible motive for Venezuelan producers to increase their imports to the United States. This record evidence does not show an imminent threat of material injury. 8. Industry Views 55 One domestic EC rod industry member, Alcoa, affirmatively opposes these petitions. Suramerica, 818 F.Supp. at 361. The others neither have experienced nor expect negative effects on their EC rod business as a result of Venezuelan imports. Id. at 366. Thus, those with the greatest stake in competition with foreign producers have not publicly indicated that they perceive imports as threatening. 56 Even the private explanations of members of the industry for their reluctance to support Southwire's petition do not negate the Court of International Trade's conclusion that the industry perceives no imminent threat. Two do not support the petitions even privately. Two others stated that they might support the petitions, had they not chosen to put other corporate interests first. Corporations threatened with material injury, however, would hardly place other corporate priorities ahead of survival. These other superseding priorities suggest that these domestic industry members do not perceive a real and imminent threat of material harm. 9. Views of Other Interested Parties 57 The Court of International Trade correctly considered the views of interested domestic parties outside the EC rod industry as relevant to whether the industry faces a threat of material injury. Suramerica, 818 F.Supp. at 361-63. Southwire challenges the credibility of the outside parties. This objection goes to the weight and not the relevance of their views. ITC erred by ignoring them. 10. Summary 58 The lack of significant support for the petitions and the equivocal evidence as to the factors listed in the statute are not substantial evidence that the domestic EC rod industry faces a real threat of imminent material injury. The Court of International Trade correctly overturned ITC's threat determination for lack of substantial evidence.