CIT Says Italian Law Doesn't Help Tire Exporter Rebut Presumption of Chinese State Control

Tire exporter Pirelli's claim that the labelling of its board members as "independent" under Italian law requires the Commerce Department to find that the company rebutted the presumption of Chinese state control "misses the mark," the Court of International Trade ruled on June 9. Again upholding the 2017-18 administrative review of the antidumping duty order on passenger vehicle and light truck tires from China, Judge Jennifer Choe-Groves said the question for Commerce is whether Pirelli rebutted the presumption of Chinese state control, not control by another company, which is what the "independent" label measures.

"The provisions of Italian law cited by Plaintiffs would not prevent a government controlled shareholder from appointing an individual that was independent of both the shareholder and Pirelli but still beholden to the interests or control of the Chinese government," the opinion said. "The mere fact that members of Pirelli Italy’s board of directors were designated as independent under Italian law is not enough to demonstrate an absence of Chinese government control."

The opinion was originally released in March and discussed many other of Pirelli's claims against Commerce's finding that the company failed to rebut the presumption of Chinese state control (see 2303200038). After Pirelli asked that the opinion be amended to consider the Italian law claims not considered by the court, the judge re-released her analysis, adding a discussion of Pirelli's arguments related to Italian law.

The original opinion, and now the June 9 document, found that there is not a different standard of proof for rebutting the presumption of government control in antidumping proceeding "based on the degree of the government’s ownership stake in a respondent exporter." Choe-Groves said she did not agree with the company's take that there is a lower standard of proof when the Chinese state is only a minority owner in a firm.

The question of whether Pirelli rebutted the state control presumption was previously answered in the negative for the exporter in a suit on the first review of this order. Pirelli challenged the presumption again in the present review, where it received an 87.99% dumping margin, since the company underwent changes to its corporate structure.

The exporter was bought by Chinese state-owned Chem China in 2015, and Commerce used this fact to find that it was owned by the Chinese government. Since this time, though, Pirelli showed Commerce that it made changes, including the fact that Chem China and the Silk Road Fund decreased their majority ownership in Pirelli Italy and Pirelli China to indirect minority ownership. The company also stopped public management with its holding company and all other companies, including Chem China, and altered the composition of its board of directors to require a majority to be designated as "independent" under Italian law. Commerce still said the respondent failed to rebut the state control presumption.

Pirelli claimed that this determination was improperly based on the presumption of theoretical government control rather than actual evidence of control. Choe-Groves said that while the agency's decision "might arguably create some ambiguity," Commerce correctly identified that in instances where the foreign state may only be the minority owner of a respondent, there is a need for further evidence. Taking into consideration this other evidence, Choe-Groves said that it was reasonable to consider the potential for control along with this extra evidence. The judge added that this evidence reasonably showed that Pirelli failed to rebut the presumption of government control.

In the review, Commerce based its decision on the third factor in the de facto government control test, which looks at whether the company has independence in picking its management. The exporter argued that this analysis was not enough since, according to the law, Commerce must look to how the state entity influences export activities. Pirelli said the agency must look at how the selection of management relates to the firm's export activities.

"The Court declines to adopt the approach asserted by Plaintiffs and alter the third factor of the de facto control test to read an additional requirement for Commerce to assess whether respondent has autonomy from government control in respondent’s export activities or export functions," the opinion said. Choe-Groves wrote that no authority was put forward to back the respondent's position.

Choe-Groves also reviewed whether the evidence supported Commerce's finding, coming away with the conclusion that it did. The agency said that Pirelli Italy and Chem China had a common chairperson and that Chem China was the largest individual shareholder in Pirelli. Adding other evidence, including the fact that a Chinese-owned firm was involved in picking a majority of the tire company's board, the agency said that Pirelli failed to rebut the presumption of Chinese state control. Choe-Groves found this reasonable, especially since Pirelli's own 2017 annual report confirmed that Pirelli Italy was indirectly controlled by Chem China.

(Pirelli Tyre Co. v. United States, Slip Op. 23-86, CIT # 20-00115, dated 06/09/23; Judge: Jennifer Choe-Groves: Attorneys: Daniel Porterof Curtis Mallet-Prevost for plaintiff Pirelli; Ned Marshak of Grunfeld Desiderio for plaintiff-intervenor New Continent; Sosun Bae for defendant U.S. government; and Nicholas Birch of Schagrin Associates for defendant-intervenors United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO)