Tire Exporters Object to Commerce's 'Truncated' Presumption of State Control Analysis

The Commerce Department's analysis of whether a company from a non-market economy has rebutted the presumption of government control was improperly applied to exporters that are minority-owned by state-owned enterprises, exporters Aeolus Tyre Co. and Guizhou Tyre Co. said in a pair of opening briefs at the U.S. Court of Appeals for the Federal Circuit. Both companies said Commerce instead should have considered all four factors relating to the presumption of foreign state control and not just the "truncated analysis" of whether potential control over export activities via control of management selection was in play (Guizhou Tyre Co. v. United States, Fed. Cir. # 23-2163).

Aeolus and Guizhou Tyre said they both submitted enough evidence to rebut the presumption that they are controlled by the Chinese state, adding that Commerce needed to prove the companies were owned by the Chinese government. Commerce failed to do so as part of the seventh antidumping duty review on new pneumatic off-the-road tires, covering entries in 2014-15, both briefs argued.

For Aeolus, Commerce relied on a 2014 meeting in which state-owned enterprises voted to elect the company's board, which showed the "ordinary and democratic operations of a publicly-listed company." Just because state-owned enterprises voted to elect the board, the action doesn't amount to state control, particularly "since shareholders do not select management," the brief said. The vote only showed that ChinaChem, a state-owned shareholder in Aeolus, can participate in the exporter's decision-making, the brief said.

Guizhou Tyre said it rebutted the presumption of foreign state control since it showed the separation between itself and state-owned investor Guiyang Industry Investment Group Co. -- a firm that is supervised by the state-owned Assets Supervision and Administration Commission. Guiyang Industry is a shareholder in Guizhou Tyre. The exporter said it proved that Guiyang Industry has no control over the company's export pricing, contracting, management selection or profit distribution.

The AD respondent also objected to Commerce's reliance on 2012 and 2015 meetings in which Guiyang Industry voted to elect the board. Echoing the same arguments as Aeolus, Guizhou Tyre said the minority shareholder's voting only shows the standard democratic process inherent in private companies. Guizhou Tyre also said Commerce's evidence against its rebuttal needed to be especially strong, given that the agency had previously granted the exporter a separate rate.

Guizhou Tyre added that from the time it was granted a separate rate, the exporter's state-owned enterprise ownership actually went down from 33.84% to 25.20%, and Guiyang Industry's supervising entity "ceased conducting performance reviews" between the fifth and seventh AD reviews, when Commerce granted the company's separate rate request. In addition, Guizhou Tyre said that Guiyang Industry was "unable to pass its preferred proposals to appoint directors and distribute profits in May 2015," demonstrating that the exporter "is not always ultimately beholden to the government."

The Court of International Trade sustained Commerce's rejection of the exporters' separate rate requests in a May opinion (see 2305190026). The trade court remanded the issue after finding that Commerce failed to analyze all four factors leading it to the presumption of state control. The review was sustained after the court found that the agency made a finding on each prong. At the Federal Circuit, Aeolus and Guizhou Tyre now say that Commerce used a "truncated analysis" based on one factor, which is "inapplicable to minority [state-owned enterprise] ownership."