Federal Circuit Says Exporter Owned by Labor Union Didn't Rebut Presumption of Chinese State Control

The U.S. Court of Appeals for the Federal Circuit on April 14 upheld the Commerce Department's finding that antidumping duty respondent Zhejiang Machinery Import & Export Corp. (ZMC) did not rebut the presumption of Chinese state government control, barring its claim to a separate rate in an AD review. Judges Sharon Prost, Jimmie Reyna and Todd Hughes ruled the decision was reasonable because a labor union, which is subject to Chinese government control, is the majority shareholder of ZMC "and has overlapping membership with the employee stock-ownership committee" (ESOC).

ZMC requested a separate rate in an administrative review of the AD order on tapered roller bearings and parts thereof, finished or unfinished, from China. After looking at the exporter's ownership structure, Commerce said the company failed to rebut the presumption of government control -- a decision upheld by the Court of International Trade (see 2106230033).

The respondent is ultimately operated, via multiple layers of ownership, by the state-run Zhejiang Provincial State-owned Assets Supervision and Administration Commission and a labor union for ZMC parent company Zhejiang Sunny I/E Corp. Commerce found that Sunny's government-run ESOC runs the labor group. The court said Sunny's trade union was a subsidiary of the only legally allowed trade union in China, making it controlled by the government.

ZMC argued on appeal that the union could not actually or potentially control the exporter because the union could not make capital contributions and thus had no voting rights. Commerce should have instead focused on the majority of ZMC's shares being held by the 20 employees who formed the ESOC and had true voting rights, ZMC said. The company said the "mere passive membership of the ESOC in a labor union" is not enough to establish Chinese state control.

Reyna, who wrote the opinion, said there is no dispute the labor union legally stands as the majority shareholder of ZMC. "Even if ZMC were correct that the ESOC exercises majority shareholder rights, the common membership of the ESOC members with the labor union (and one union official) shows that the GOC has the potential to exercise control over the ESOC through its labor union members and, consequently, over Sunny and ZMC," the opinion said

The court said ZMC's corporate documents don't back its claim the labor union cannot exercise any voting rights. "ZMC has not shown whether all shareholder rights are tethered to capital contributions," Reyna said, nor does the record show any instance where Sunny was unable to flex its influence as a majority shareholder due to Chinese government influence via the labor union. Board meeting minutes showed only the labor union-elected board members voted on matters.

"Even if this is the first case where an exporter is arguing that the voting shareholder is an employee stock ownership committee, Commerce’s determination of de facto government control, based on ZMC’s corporate structure comprising union membership and overlapping ownership with a union official, paired with an absence of support for ZMC’s argument of restricted GOC control over the ESOC, is reasonable and supported by substantial evidence," Reyna said.

(Zhejiang Machinery Import & Export Corp. v. U.S., Fed. Cir. # 21-2257, dated 04/14/23; Judges: Sharon Prost, Jimmie Reyna and Todd Hughes; Attorneys: Adams Lee of Harris Bricken for plaintiff-appellant Zhejiang Machinery Import & Export Corp.; Kelly Krystyniak for defendant U.S. government)