CAFC Judges Question Statutory Interpretations, Deference of 'Substantially Dependent' Analysis in CVD Case

Judges at the U.S. Court of Appeals for the Federal Circuit during a March 7 oral argument prodded various statutory interpretations of U.S. countervailing duty law as it pertains to finding whether demand for a good is "substantially dependent" on an upstream product for purposes of assigning countervailing duties. If substantial dependence is established, Commerce may attribute subsidies to a raw agricultural grower to a later stage producer.

The judges also questioned what deferential standard to afford to the Commerce Department in answering this question, with Judge William Bryson asking the DOJ attorney what the standard of review should be if Chevron deference is scrapped by the Supreme Court (Asociacion de Exportadores e Industriales v. United States, Fed. Cir. # 23-1162).

In response to Bryson's inquiry on what the government's interpretation of the statute would be if there were no Chevron deference, DOJ attorney Tara Hogan said that the statute should be afforded extra weight. Hogan said the U.S. agrees "that the statute requires Commerce to evaluate the degree to which demand for the prior stage product is dependent on the latter stage project," and that while this is "something more than de minimis," it doesn't necessarily have a specific 50% threshold.

Bryson and Judge Sharon Prost both noted the lack of direct delegation to Commerce on how to decide if a product is substantially dependent on the latter stage product. To this, Hogan said that if the court finds the agency's decision doesn't comply with the "substantially dependent language," then the decision is an "unreasonable application" of the statute.

The case concerns the CVD investigation on ripe olives from Spain, in which Commerce found that Spanish olive growers receive a subsidy provided raw olive growers. The agency said demand for certain raw olive varietals is substantially dependent on table olives. After this finding was remanded by the Court of International Trade, Commerce divided the market into olive varietals grown for making table olives, varietals grown as mill olives used to make olive oil and varietals used for either purpose, dubbed "dual-use" olives.

Using this construct, Commerce said that the demand for raw olive varietals mainly for use in making table olives is "substantially dependent on the demand for processed table olives." After another remand, the agency calculated a consumption ratio of 55.28%, which it said represented the percentage of raw olives turned into table olives. The numerator of the ratio was made of the "total tonnage of table olives processed from biologically distinct bale and dual-use raw olive varietals," while the denominator was made up of the "total tonnage of biologically distinct table and dual-use raw olive varietals." CIT upheld the approach (see 2209140052).

At the oral argument, Prost questioned a Spanish olive trade group's interpretation of the statute, which would read in a 50% threshold test. The judge noted that the law does not include the word "all" or "substantially all" in relation to the substantial dependence test. Matthew McCullough, counsel for a Spanish olive trade group, said that the "substantially dependent" language encapsulates a quantitative and qualitative component, which are characterized as being "substantially all" and a "single line of production." This is evidenced by "very thorough" legislative history at Congress and Commerce, McCullough said.

In response, Judge Leonard Stark noted that this isn't how the court conducts statutory interpretation, since it first looks at the text, which says "substantially dependent." Stark said the court doesn't "go back and say, 'What were senators thinking about at the time they came up with substantially dependent?'"

Prost then asked, given McCullough's concession that an analysis of whether a good is substantially dependent on a latter stage product differs by industry, if deference is owed to Commerce to review the particular industry. In response, McCullough said that here, the olive industry "has a very specific context, and that is the context in which olive oil dwarfs on a consumption basis raw olives and table olives. Dual-use olives are the majority of olives used to produce table olives" and are also "equally suited to olive oil. In the context of substantially dependent demand, you could never say that those dual-use olives are dependent on table olive demand. They would easily be absorbed by a much, much larger consumption base for olive oil."