Commerce Unwillingly Conducts Pass-Through Analysis, Calls it 'Evidentiary Burden'

The Commerce Department on March 12 reluctantly conducted a pass-through analysis to show, by court order, that a remedy wasn't being redundantly applied by both AD and CVD orders on biodiesel from Indonesia due to a government subsidy that lowered the cost of an input (Wilmar Trading PTE Ltd. v. U.S., CIT # 18-00121).

To justify a finding in its AD investigation determination that the subsidy-influenced price decrease for an input didn't affect an exporter’s AD margin, the department said it had to conduct a pass-through analysis. It did so, but said it disagreed strongly with the court both in regard to the potential existence of a double remedy and to the purpose of the legislation governing the pass-through analysis procedure.

In its second remand order of a 2018 case, the Court of International Trade had asked Commerce to reverse or explain its choice to disregard crude palm oil prices, and instead use world prices, when calculating exporter Wilmar’s normal value in its AD investigation on biodiesel from Indonesia (see 2312120071).

The court pointed out that the result was a double remedy, as alterations to the prices of an input -- caused by the Indonesian government’s 2015 export tax on that input -- had already been addressed by the department’s concurrent CVD investigation.

Commerce said it disagreed with the court’s holding.

“We note that the antidumping duty (AD) and CVD laws are separate regimes that provide separate remedies for distinct unfair trade practices,” the department said in its remand redetermination.

Neither the 1930 Tariff Act nor the record “would support a downward adjustment of the AD remedy to account for a putative overlap with the CVD remedy,” Commerce said; the statute only discusses a potential overlap in “two narrow circumstances” that didn't apply to this situation, it said. This was supported by “Congressional silence” on the issue, it said.

However, “under respectful protest,” Commerce said it now determined that the 2015 export levy wouldn't affect the U.S. prices of Indonesian biodiesel, though it proceeded to argue that the process it had to use to do so was “an evidentiary burden that should not be placed on Commerce.”

To make that determination, it said it had to figure out whether the subsidy countered in its CVD investigation had also impacted the Indonesian biodiesel’s normal value. This could only be found out by conducting a “pass-through analysis” to determine whether or not that subsidy impacted the exporter’s U.S. price, Commerce said.

If the subsidy’s effect on the dumping margin equation "is limited to lowering U.S. price (as would be the case if the subsidy’s influence on normal value is removed through the use of a world market value), some portion of the differential determined by the [less-than-fair-value] equation is the result of the countervailed subsidy,” it said. “If, however, the countervailed subsidy affects neither U.S. price nor normal value, the evenhandedness of the countervailed subsidy’s effects is maintained and no portion of the [dumping margin] differential can be attributed to the subsidy.”

A pass-through analysis determines that a subsidy does influence an exporter's prices if, first, the subsidy is shown to have affected an exporter's manufacturing costs, and, second, if the change in its manufacturing costs impacted the exporter's goods’ prices, Commerce said. These two steps are called a “subsidies-to-cost link” and a “cost-to-price link,” respectively.

There is no cost-to-price link visible as a result of the 2015 subsidy, Commerce said. It said that “U.S. and foreign producers base the price of biodiesel sold in the United States” on futures contracts traded on the New York Mercantile Exchange. Record evidence affirmed that Wilmar had done so as well, it said. Therefore, it said it concluded there was no link between the subsidy and U.S. prices, and thus between the subsidy and Wilmar’s normal value.

However, the department argued that the pass-through analysis process is an “evidentiary burden” that is not clearly based in statute.

The analysis requires a “misplaced” assumption that foreign governments’ subsidies “typically reduce U.S. prices” and that, in certain cases, Commerce can and should prove otherwise.

“The assumption that all domestic subsidies are fully passed through to export prices or that the effect of subsidies on export prices can be determined with any degree of certainty is misplaced,” it said.

It also argued that the history of the 1930 Tariff Act “provides no grounds for concluding that Congress’ action was based upon specific and rigid presumptions about the pass-through effect of subsidies on export prices other than a seeming recognition that export subsidies could affect price comparability for dumping purposes.” More recent provisions of the Tariff Act that govern similar issues are “significantly more complex,” providing Commerce more rigorous guidelines, the department said.

It said that it didn't believe the pass-through section of the Act had been intended to prevent double remedies, saying “there seems to be no basis to find that Congress intended to create a presumption of pass-through and to place a burden on Commerce to rebut that presumption, in contradiction to its design of” the pass-through section of the Act.