Tire Exporter to CAFC: Commerce Used Wrong Legal Standard in Assessing Separate Rate Bid

Tire exporter Pirelli Tyre told the U.S. Court of Appeals for the Federal Circuit that the Commerce Department improperly applied its own legal framework for assessing whether the company rebutted the presumption of Chinese state control in the third review of the antidumping duty order on passenger vehicle and light truck tires from China. Filing a reply brief on Feb. 9, Pirelli said the agency ignored the policy's explicit directive to link all four of the factors concerning de facto foreign state control to a company's "export activities" (Pirelli Tyre Co. v. United States, Fed. Cir. # 23-2266).

Pirelli said that Commerce "would have this Court read that background language and chapeau out of the bulletin and focus only on the text of the four factors." The agency said that once the third factor -- which relates to the foreign state's control of a company's management selection -- is untethered from control over export activities, "any indication that a state-owned entity can exert influence on management decisions anywhere in the corporate tree of a respondent is somehow sufficient to demonstrate that this prong has been satisfied" (see 2401120047).

The U.S. said the "expressio unius cannon supports this reading" since two of the four factors do mention export activities. In response, Pirelli said that that argument is unpersuasive in light of the "explicit requirement to focus on export activities in both the background discussion and chapeau" -- both of which were drafted by Commerce.

The requirement that each factor be linked to export activities "is especially important here because of the attenuated connection between the alleged source of government influence and the underlying separate rate applicant," Pirelli added. The company said there are various elements of its "corporate organization," that "affirmatively prevented Chinese influences" on the company's export pricing decisions.

Pirelli requested a separate rate in the review, though Commerce rejected the request on the grounds that Pirelli Italy, the exporter's "ultimate parent three corporate levels above Pirelli Tyre," was not "sufficiently independent" of the Chinese state.

Pirelli also called into question the agency's use of the rebuttable presumption of foreign state control, claiming there to be a "fundamental disconnect" between presumptions understood in law and what Commerce is using.

The U.S. said Pirelli's suggestion that Commerce initially analyzed the company's separate rate eligibility based on the presumption of foreign state control instead of the "typical substantial evidence standard" is "egregious." But the exporter said that's exactly what Commerce did, because the agency's decision memorandum explicitly said that Commerce continues to find that Pirelli "has failed to rebut the presumption of de facto government control." The agency "rested on the failure to overcome a presumption that companies with a state-owned shareholder are themselves controlled by the state." The only legal question now is whether Commerce did this legally, the brief said.

While Commerce can find after reviewing the evidence that Pirelli was not eligible for a separate rate, the agency's explicit statement makes it unclear "what Commerce did here," Pirelli argued. "And indeed, the only affirmative statement from Commerce suggests that its decision rested on an unrebutted presumption of control, not substantial evidence that established control."

Arguments from the U.S. and the AD petitioner fail to clarify the "differing and distinct roles of the presumption initially, and then the subsequent inquiry on the merits under the substantial evidence standard," and the Federal Circuit should be loath to "accept this unexplained application of Commerce's rebuttable presumption," the brief said.

Pirelli said the evidence itself didn't support the conclusion that it failed to rebut the presumption of Chinese state control. Commerce's finding that the company's shareholding structure allowed Chinese firms to control the exporter's "operational activities" is unsupported, it said, arguing that a majority of Pirelli Italy's board of directors are independent from the Chinese shareholders.

Lastly, Pirelli defended CIT's decision to review Italian law in assessing the company's separate rate application after the U.S. said the appellate court shouldn't consider Italian law. While the trade court ultimately relied on Italian law to side with Commerce, Pirelli said that when "properly understood," the law confirms that "after Pirelli's relisting [on the Milan stock exchange] the Chinese shareholders did not have de facto control over Pirelli."