CIT Remands Specificity Finding of Germany's KAV Program in Fluid End Blocks CVD Investigation

The Commerce Department must revisit its countervailing duty rate calculations for the Electricity Tax Act and the Energy Tax Act and its finding that Germany's KAV program is de jure specific, the Court of International Trade ruled in an Oct. 12 opinion made public Oct. 20. However, Judge Claire Kelly upheld the remaining points of contention in the case brought by BGH Edelstahl Siegen. including whether Commerce properly initiated the CVD investigation, the finding that the administrative record is complete, and "the determination that the provisions of the Electricity Tax Act and the Energy Tax Act, the EEG and KWKG Reduced Surcharge Programs, the ETS Additional Free Emissions Allowances, and the CO2 Compensation Program are countervailable subsidies."

The case concerns the CVD investigation on forged steel fluid end blocks from Germany. BGH challenged the final determination on three grounds: the legality of the decision to start the investigation, Commerce's alleged failure to include ex-parte communications in the record, and the determination that seven programs used by BGH were countervailable subsidies.

The respondent first argued that the CVD petition failed to clear the legal standard for initiation of an investigation. Kelly said that while Commerce did allow three amendments to the petition, it has the discretion to do so and also has an obligation to seek additional information on any countervailable programs. For the ex parte communications, Kelly said that the respondent failed to establish a reasonable basis to believe that ex parte communications happened in the investigation or that the record is incomplete.

The company pointed to a letter from Rep. Mike Kelly, R-Pa., to the commerce secretary to argue that there was an ex parte meeting with the director of the Office of Trade and Manufacturing Policy that could be related to the investigation. "Such speculation is inadequate to establish a reasonable basis to believe that the record before the court is incomplete," the opinion said.

BGH further argued that Commerce wrongly determined that the seven following programs were countervailable, provided a benefit, had their rates calculated properly or were specific: the Electricity and Energy Tax Acts, the EEG and KWKG reduced surcharge programs, EU Emissions Trading System (ETS) additional free emissions allowances, CO2 compensation program, and KAV program.

Kelly first looked at the Electricity and Energy Tax Acts which impose taxes on electricity and energy while also providing exemptions from those taxes. Certain sections of the acts dole out relief to companies undergoing specific manufacturing processes. BGH argued that the acts are not countervailable since the government of Germany (GOG) does not provide a financial contribution, the company does not receive a benefit and the provisions are not specific. Kelly said the acts provide a financial contribution because when the government carves out instances where money is not due, it makes a financial contribution. "If not for the tax exemption, BGH would owe more money to the GOG," Kelly said.

As for the benefit the relief provides, BGH said the taxes are not meant to raise government revenues but rather to curb greenhouse gas emissions and thus fail to constitute a benefit. Kelly deemed this "unavailiing since neither the statute nor the regulation considers purpose of the tax." BGH also argued that the absolute amount of tax it paid as a large energy user is way more than smaller energy users, though Kelly ruled that the amount paid in absolute terms "has no bearing on whether the GOG applied a provision to reduce the amount of tax liability to BGH." The court also held that the acts are de facto specific since they are limited to specific products and manufacturing processes. The judge supplied this ruling with evidence, listing the amount of companies in the manufacturing sector who were eligible for or actually received the various exemptions.

Where Commerce erred, though, was in failing to consider the cost of complying with the acts, Kelly ruled. Since Commerce did not address this, Kelly sent the issue back. However, related to the CVD rate calculations, Kelly did uphold Commerce's decision not to consider the absolute value of total energy taxes BGH paid.

The EEG and KWKG surcharges made under the Special Equalization Scheme (SES), meanwhile, are mechanisms to distribute the cost of promoting renewable energy sources to electricity buyers. In this system, network operators must connect to and prioritize installations making EEG electricity. GOG sets the tariffs which network operators (NOs) pay to installation operators, which sell it at prices on the spot market which is "frequently less" than the legally imposed price paid to installation operators. The SES says that GOG can certify customers as electricity-intensive undertakings (EIU) entitled to a reduction of the surcharge. The German government forgoes revenue in this system meaning the SES constitutes a financial contribution, the court said.

Kelly ruled that this scheme confers a benefit to BGH since it was able to receive energy for a lesser cost, and that it was de jure specific since it involves an authority giving a specific industry limited access to a subsidy. In this case, the energy intensive criteria favored enterprises requiring large amounts of electricity. As for the CVD rate calculation of this program, Kelly said neither the statute nor Commerce's regulations allow the agency to assess a taxpayer's total tax paid in comparison to other taxpayers, as BGH would've liked.

The fifth program considered was the EU ETS additional free emissions program. Commerce found that BGH did not have to buy additional carbon emissions allowances due to free allowances it was given by the German government. Kelly said that BGH erected a "straw man" to claim that GOG nor the EU collected revenues on the free allowances. Rather, the issue is whether Germany "forgoes revenue when it gives additional free allowances to companies on the carbon leakage list like BGH." The program is de jure specific since it is limited to companies on the carbon leakage list, the judge said. Kelly further said that the purchase of additional allowances in this case is "irrelevant," regardless of BGH's argument.

The sixth program was a CO2 compensation program in which BGH received payment in compensation for higher electricity costs. BGH said the program does not give a countervailable benefit and only offsets the burden imposed by the ETS. Kelly said Commerce reasonably found the program provided a direct transfer of funds and that BGH got payments it would have never received without the program, ensuring that the scheme provided a financial contribution for a benefit. Again, the program was limited to companies on the carbon leakage list, making it de jure specific.

As part of the KAV program -- the seventh and final contested by BGH -- municipalities must make public transport routes available for the laying and operation of power and gas pipelines by local NOs. Use of the routes is governed by a concession agreement between the NO and the municipality that sets the concession fee the operator must pay the municipality for such use. The operators can pass these concession fees on to their customers. German law, though, says that these concession fees may not be agreed to or be paid for electricity given to certain special contract customers. By blocking operators from paying concession fees from these customers, the German government makes sure that this select group of customers are relieved of paying concession fees that would otherwise be passed to the operators.

Kelly ruled this was not specific. Commerce argued that it was de jure specific since it limits relief to special contract customers whose average price per kWh in the calendar year is lower than the average revenue per kWh from the supply of electricity to all special contract customers. "However, limiting the availability of a program may not be de jure specific if the criteria are neutral, i.e., do not favor some industries over others," the judge said. "… Here, unlike the case with the Electricity Tax Act, Energy Tax Act, Reduced EEG and KWKG Surcharges, and the ETS Program, Commerce does not explain how this program favors certain industries over others or otherwise explicitly limits usage as to who may apply."