CIT Backs Commerce's Finding That Scrap Maker Not Cross-Owned Input Supplier of Rebar Producer

The Court of International Trade in a Nov. 27 opinion sustained the Commerce Department's finding that ship building company Nur Gemicilik ve Tic, an affiliate of countervailing duty respondent Kaptan Demir Celik Endustrisi ve Ticaret, is not Kaptan's cross-owned input supplier. Judge Gary Katzmann upheld Commerce's finding that Nur's steel scrap was not necessarily primarily dedicated to Kaptan's rebar production, and its consideration of Nur's business activities as part of this analysis.

Commerce made the finding on remand as part of the 2018 CVD review on rebar from Turkey (see 2307250051). As a result, the agency didn't attribute subsidies received by Nur from the Turkish government to Kaptan, dropping the respondent's CVD rate to a de minimis margin. The petitioner argued that Commerce's determination that steel scrap is not primarily dedicated to downstream steel production was insufficiently supported.

Katzmann disagreed, taking issue with the petitioner's claim that Commerce has established a past practice where the agency "reflexively" treats steel scrap as a primarily dedicated input of rebar. In the 2018 review, Commerce said scrap is a common input among a variety of goods and used in a variety of production processes, and that the scrap sold to Kaptan was not made for downstream products. At most, what the petitioners showed "is that Commerce has in the past reached positive primary dedication conclusions on different facts," the judge said. But "Commerce's determination of whether steel scrap is primarily dedicated to downstream steel production is a fact-specific inquiry unique to each case," Katzmann said.

Even if there was a past practice establishing this, the petitioners' challenges to Commerce's explanation "address only peripheral aspects of Commerce's detailed explanation of the considerations underlying its characterization of the relationship of Nur's steel scrap to Kaptan's rebar," the opinion said. For instance, the petitioners argued that Commerce didn't identify products or industries using scrap beyond downstream steel products and thus didn't explain its reasons for finding the relationship between scrap and rebar to be more akin to the relationship between plastics and automobiles.

The judge said this argument "merely fulfills a self-fulfilling prophecy: after first constructing a category of 'downstream steel products' that by its terms sweeps in all conceivable downstream applications of steel scrap, Domestics then insist that Commerce failed in its Remand Results to enumerate examples of downstream applications of steel scrap that fall outside this maximally broad definition." Katzmann said that the standard touted by petitioners "would seemingly compel a primary dedication finding in the very hypothetical case that Commerce invoked to demonstrate a lack of primary dedication," and "in every case."

The petitioners' standard for primary dedication "wants for a limiting principle, and the court declines to adopt it."

Commerce's task on remand was to assess the range of downstream steel goods that scrap can be used to make and not to identify goods using scrap beyond downstream steel products, as petitioners suggest. This is exactly what Commerce did, the judge noted.

Addressing the second tier of the petitioners' challenge -- whether Commerce's analysis of Nur's business activity is lawful -- Katzmann said that the petitioners offered no support for their claim that the law bars analysis of an input supplier's business activity. The petitioners said that the preamble to the Federal Register notice promulgating its regulations on countervailing duties does not state that the input supplier's business activity is a relevant factor. Katzmann said that the petitioners "fail to explain why the Preamble should be treated as an exhaustive compendium of all relevant factors, or how the text of the Preamble 'indicates' what the 'salient issue' is."

The judge wrapped up the opinion by finding that Commerce backed its evaluation of Nur's business activities by substantial evidence. The petitioners claimed that Commerce failed to explain the "apparent contradiction between" the agency's reliance on Kaptan's representation that its purchases of steel scrap from Nur are "miniscule" in volume and Commerce's disavowal of a volume-based standard for assessing business activity. Katzmann said that "Commerce did not merely state that 'the limited nature of these transactions is not based on volume,' which would imply (as Domestics suggest) that the scrap sales were somehow limited in a manner other than their volume."

Instead, the agency said that the "significance of the limited nature of these transactions is not based upon volume." Commerce didn't conclude that Nur's shipbuilding activities cut against a finding of primary dedication "simply because the amount of steel scrap that Nur sold to Kaptan was small."

"The issue of whether an affiliate is a 'cross-owned input supplier' within the meaning of 19 C.F.R. 351.525(b)(6)(iv) is one of the most complicated and contentious issues in U.S. CVD law," Andrew Schutz, counsel for Kaptan, said in an email. "Commerce’s prior practice has been inconsistent to say the least in its 'primarily dedicated' analysis, often leaving lawyers scratching their heads on what exactly Commerce’s approach is. The Court today in its opinion did a good job highlighting this inconsistency and pointing out where the issues of contention have been," Schutz said.

"In ultimately agreeing with our position and other similar Commerce determinations, Commerce has created a newer more cogent analysis for this issue," Schutz said. "The Court rightly blessed this analysis as it is in line with both the Preamble and the regulation and has helped create a clearer and easier path forward for all interested parties in dealing with this issue in the future."

Lawyers for the petitioners in the case, including the Rebar Trade Action Coalition, didn't comment.

(Kaptan Demir Celik Endustrisi ve Ticaret v. United States, Slip Op. 23-167, CIT # 21-00565, dated 11/27/23; Judge: Gary Katzmann; Attorneys: Andrew Schutz of Grunfeld Desiderio for plaintiff Kaptan Demir Celik Endustrisi ve Ticaret; Matthew Nolan of ArentFox Schiff for plaintiff-intervenor Colakoglu Dis Ticaret; Sosun Bae for defendant U.S. government; John Shane of Wiley Rein for defendant-intervenors led by Rebar Trade Action Coalition)