US Says Presumption of State Control Doesn't Vanish for Minority SOE Firms With Minimal Evidence

The presumption of foreign state control in antidumping duty cases doesn't disappear after the exporter presents "minimal contradictory evidence," the government said in a reply brief on May 1 at the U.S. Court of Appeals for the Federal Circuit. Contrary to claims made by exporters Aeolus Tyre Co. and Guizhou Tyre Co., the government said, the Commerce Department "has long required respondents to demonstrate autonomy with respect to" all four criteria used to assess freedom from foreign state control, even for companies only minority-owned by a government entity (Guizhou Tyre Co. v. United States, Fed. Cir. # 23-2163).

Guizhou Tyre argued last month that Commerce misapplied the presumption of foreign state control standard in the 2014-15 review of the antidumping duty order on new pneumatic off-the-road tires from China (see 2404190049). The company cited a 1992 CAFC decision, Aukerman Co. v. R.L. Chaides Constr. Co., to claim that the federal rules utilize the "bursting bubble theory of presumptions." Under this theory, a presumption "completely vanishes upon the introduction of evidence sufficient to support a finding of the nonexistence of the presumed fact."

In response, the U.S. urged the court to ignore this ruling, claiming it's an "abrogated patent case." In Aukerman, the Federal Circuit said that laches, or sitting on your rights, can defeat a claim for damages incurred within the six-year window set out in the Patent Act, but in 2017, the Supreme Court said that the laches can't be "interposed as a defense against damages where infringement occurred within" the six-year window.

Either way, Aukerman's talk of the "presumption of laches" runs "far afield from the specialized administrative context in this case," the government said. The present case, unlike Aukerman, concerns a challenge to the nonmarket economy methodology presumption, which has "long been sustained by this Court," the U.S. said, citing Sigma Corp. v. U.S. "Appellants have not provided any coherent reason for applying a rule from an abrogated patent case to govern Commerce’s exercise of discretion in this context -- and there is none," the brief said.

Aeolus Tyre and Guizhou Tyre also said Commerce departed from its past practice of allowing a "truncated" analysis only for respondents that are majority state-owned enterprises (SOE). The government said these claims "misunderstand Commerce's methodology." While the agency has recently discussed majority ownership in recent decisions, it has done so to clarify its practice to show that "where a government entity holds a majority ownership share, either directly or indirectly," that ownership "in and of itself precludes a finding of de facto autonomy."

In cases with minority SOE, "Commerce considers additional indicia of control -- in addition to the degree of government ownership -- in considering whether the government" can control a company's general operations, the brief said.

The government also said that the evidence supports the finding that Aeolus Tyre and Guizhou Tyre are controlled by the Chinese state. In both cases, state-owned entities were the minority and controlling shareholders. For Aeolus, it was ChinaChem, and for Guizhou Tyre, it was Guiyang Industry Investment Group Co.

For both companies, the state-owned entities "dominated" shareholder meetings and used their ownership stakes to pick board members who then picked senior management, the U.S. said. In addition, for Guizhou Tyre, "shareholder meetings in 2015 demonstrated that GIIG could effectively re-do prior shareholder votes to achieve GIIG’s preferred result," the brief said.