Commerce's Cross-Owned Affiliate Finding Violates CVD Preamble, Precedent, Respondent Says

The Commerce Department did not properly conduct its "primarily dedicated" analysis when it found that Nur Gemicilik ve Tic is a cross-owned input supplier of plaintiff Kaptan Demir Celik Endustrisi ve Ticaret, Kaptan argued in an Oct. 11 reply brief at the Court of International Trade. The U.S.'s position that Nur is a cross-owned input supplier since scrap is used in the production of subject merchandise and all of Nur's scrap generation was sold to Kaptan, thus making it "primarily dedicated" to the downstream product, cuts against the words of the countervailing duty preamble and Commerce's own precedent, Kaptan said (Kaptan Demir Celik Endustrisi ve Ticaret v. United States, CIT #21-00565).

The case concerns the countervailing duty review on steel concrete reinforcing bar from Turkey covering entries from 2018. In the review, Kaptan listed Nur as one of its affiliates since the ship building company sold scrap to Kaptan, though the respondent said that since the amount was "extremely minuscule" compared with the amount bought from other suppliers, Nur could not qualify as a cross-owned input supplier (see 2110200026). Kaptan said the issue boiled down to the meaning of "primarily dedicated."

In its brief, the government said that this term can be looked at in two different ways: either the input is generally primarily dedicated to subject merchandise or "the input production of the specific company is dedicated almost exclusively to the respondent's production," Kaptan said. The U.S. claimed that regardless of the nature of the input supplier's overall business activity or the amount sold to the respondent, as long as almost all of the input maker's input is sold to the respondent, then it is "primarily dedicated." Kaptan took issue with this.

The respondent said the input supplier's overall business activity is relevant and that it has legal backing, particularly in the preamble. The preamble applies "where a subsidy is provided to an input producer whose production is dedicated almost exclusively to the production of a higher value added product -- the type of input product that is merely a link in the overall production chain."

"It then discusses the example of a plastics company selling to appliance or automobile manufacture[r]s," Kaptan said. "In that example, even if the production of the plastic company is primarily dedicated to the appliance or automobile manufactures, Commerce explains that attribution would not be appropriate because plastic itself is not primarily dedicated to appliances or automobiles. Thus, if input production was the only relevant inquiry, then Commerce would attribute the subsidies of the plastics producer."

Commerce's own precedent shows that the nature of the input is not the only thing Commerce needs to look to either, the brief said. For instance, in Commerce's CVD investigation on forged steel fluid end blocks from Germany, two cross-owned affiliates of the FEB respondent made and sold ingot and scrap to the respondent. Unlike in Kaptan's case, Commerce looked at the nature of the input and downstream products and production processes and specifically looked to the input suppliers' business activities. The U.S. "makes virtually no attempt to distinguish" the FEB matter with the present case, though when it does, it fails to explain how the nature of scrap can be primarily dedicated to Kaptan's downstream product but not the FEB respondent's product, Kaptan said.

"Given these facts, Nur should be considered like the input suppliers in FEBs and its production found to not be merely a link in Kaptan’s production and/or primarily dedicated to the downstream product," the brief said.