Trade Court Sends Back Specificity Finding on Chinese Tax Law, Use of AFA on China's EBCP

The Commerce Department didn't properly support its de jure specificity finding regarding a Chinese tax program that makes a resident enterprise's income derived from investment gains in another resident enterprise tax-exempt, the Court of International Trade ruled in an Oct. 11 opinion. Judge Jane Restani said the program, established under Article 26(2) of China's Enterprise Income Tax Law, is not tied to a specific enterprise or industry and thus fails the specificity analysis.

Remanding most of the 2019 review of the countervailing duty order on solar cells from China, Restani also sent back consideration of China's Export Buyer's Credit Program, use of a 2010 report from Coldwell Banker Richard Ellis on Thai land values in calculating the land benchmark and the data used to set the ocean freight benchmark. The judge did sustain, however, the land lease benefit finding in the 2017 review of the CVD order, which was left to coexist in the 2019 review.

“We were pleased with the decision, which reflects the Court’s growing frustration that Commerce is doggedly pursuing a subsidy allegation for a program that is not used in the United States, wasting the exporter’s, U.S. Customer’s, and the Court’s time and resources for years and years," said Greg Menegaz, counsel for Risen Energy Co.

In the review, respondent Risen said its cross-owned company, Risen Ningbo Electric Power Development Co., received benefits from the Article 26(2) program. Later in the review, respondent JA Solar Technology Yanghou also was found to receive benefits under the program. Commerce said this income was countervailable since the program is limited to enterprises with investment gains from investment in another resident enterprise.

Restani ruled that the benefit from this program clearly doesn't qualify for de jure specificity under the statute, which says that an "enterprise" is limited to a "unit of economic organization or activity." The agency "has not identified an adequately specific enterprise or industry that the Article 26(2) program is limited to," the opinion said. While a subsidy may be de jure specific if it is limited to an express list of companies, the program "is also not expressly limited to a list of companies," Restani held.

As part of the review, Commerce also hit both respondents with adverse facts available over their alleged use of the EBCP, given the Chinese government's failure to provide information on the program and both respondents' failure to offer complete non-use certifications from their U.S. customers. JA Solar provided a certification from its sole U.S. importer along with some, but not all, of its downstream customers. Risen provided certifications from three of its four non-affiliated customers, though its certification for the fourth customer was rejected as being untimely filed.

The government asked for a remand regarding JA Solar, explaining that it changed its practice to no longer require certifications from downstream customers. Restani obliged. As for Risen, the court said Commerce unfairly rejected the submission regarding the fourth customer. When Commerce found the company's certifications to be incomplete, it "essentially declared the responses deficient," and should have given Risen a chance to supplement the record as a result, the opinion said. On remand, Commerce should consider the rejected filing as complete, Restani held.

Restani noted that through the "long history of EBCP litigation in the court," there's been "an absolute dearth of evidence" that any U.S. company has ever used the program, nor has any party ever shown that a U.S. buyer received EBCP financing. So if Commerce attempts verification on remand, "the court expects that Commerce will not pursue onerous verification requirements," noting that rigorous verification may be needed if more evidence was on the record. "For now though, the court is unconvinced that Commerce would find any EBCP use."

Commerce also found in the review that JA Solar received a recurring benefit from land leases, using the 2010 Thai CBRE report to calculate the benefit. Restani cited a prior CIT opinion finding the use of this report to be insufficiently explained in her own rejection of the report.

JA Solar also asked the court to reopen the record of the 2017 review in which Commerce originally made the recurring benefit finding for the land lease program. To this, Restani found that "[l]itigation is not an endless opportunity to rewrite the record," since the respondent could have contested the recurring benefit in 2017. "It chose not to. Requiring JA Solar to live with the result of that decision is neither clearly erroneous nor manifestly unjust," the opinion said. The court touted the criticality of the "finality of administrative review."

On the issue of the ocean freight landmark, Commerce used an average of two data sets in the review: Xeneta and Descartes. The agency asked for a remand since it found in the most recent review of the CVD order on solar cells from China that materially similar Descartes data was not appropriate to use in developing the world market price. Restani granted the remand.

(Risen Energy Co. v. United States, Slip Op. 23-148, CIT Consol. # 22-00231, dated 10/11/23; Judge: Jane Restani; Attorneys: Gregory Menegaz of deKieffer & Horgan for plaintiffs led by Risen; Bryan Patrick Cenko of Mowry & Grimson for consolidated plaintiffs led by JA Solar Technology Yanghou; Joshua Kurland for defendant U.S. government)