CAFC Says No 50% Threshold for Assessing Substantial Dependence in CVD Cases on Ag Products

The U.S. Court of Appeals for the Federal Circuit said on May 20 that the Court of International Trade was wrong to impose a 50% threshold in determining whether demand for a processed agricultural product is "substantially dependent" on its raw upstream iteration for purposes of assigning countervailing duties.

Judges Sharon Prost, William Bryson and Leonard Stark said that the Commerce Department shall receive "considerable discretion" in determining whether such demand is substantially dependent due to the general nature of the terms "substantially dependent." The use of these general terms shows Congress' understanding that analyzing dependence "is a holistic determination." Congress meant for Commerce to make the decision "based on the circumstances of each case."

In all, the appeals court sustained the agency's decision to attribute subsidies received by Spanish raw olive growers under the EU's Common Agricultural Policy to the respondents in the CVD investigation on ripe olives from Spain.

Three groups of Spanish olive exporters, led by Asociacion de Exportadores e Industriales de Aceitunas de Mesa (Asemesa), said that the law establishing the substantial dependence standard, 19 U.S.C. 1677-2, was meant to establish a high demand threshold. Asemesa cited the law's legislative history, which it said established that the change was made to account for a loophole in trade laws, whereby subsidies to producers of raw ag products could escape CV duties after the good was processed and exported.

Two prior CVD cases -- pork from Canada and rice from Thailand -- saw exporters use this loophole. In those cases, nearly all of the raw product went into processing for the exported product. Asemesa said Congress' intent was for the demand for the prior stage product to be, "at a minimum, as dependent on the demand for the latter stage products as it was in those two cases."

Bryson, writing for the court, rejected this claim, saying it's refuted by the actual language of the statute and the legislative history. While Congress took great note of these cases, there's nothing to suggest that it meant for Commerce to only be limited to circumstances akin to those found in the two CVD cases.

The court then bucked the 50% threshold established by CIT, noting the great discretion Commerce is to be afforded in undertaking the substantial dependence analysis. Bryson noted that Chevron deference doesn't apply here due to the general nature of the terms "substantially dependent." As a result, the case "is more properly viewed as one involving implied delegation of adjudicative authority to the agency rather than deference to the agency’s interpretation of an ambiguous statute.”

The court didn't say the 50% threshold plays no part in the analysis, holding that "the fact that a large percentage of a prior stage product is processed into a given latter stage product is strong evidence that the demand for the prior stage product substantially depends on the demand for the latter stage product." A "pure numerical test" is "not what the statute calls for" but can be one of many factors in assessing substantial dependence, the opinion said.

Asemesa also challenged three other elements of Commerce's analysis, and fell short on all three.

It said Commerce "misconstrued the raw olive market," in which raw olives are made either into table olives or olive oil. Commerce identified three ultimate categories of olive varietals: mill olives, which are made into olive oil; table olives; and dual-use olives, which can be made into either product. For its analysis, the agency said the prior stage product is "table and dual-use raw olive varietals that are biologically distinct from other raw olive varietals," while the latter stage product is table olives.

Commerce noted that five varietals -- manzanilla, gordal, carrasqueña, hojiblanca, and cacereña -- accounted for 95% of table olive production, while the other 5% are dual-use varietals. While Commerce assumed nearly all table olive varietals are made into table olives, the court said there's at least "anecdotal evidence" that some mill olives were made into table olives and that some table olives were made into olive oil. Bryson said this doesn't make Commerce's characterization of the market wrong, however, since there's not more evidence "about how much cross-use existed between pure table and pure mill varietals."

However, the court did find that Commerce erred in its treatment of cacereña and other dual-use varietals. In assessing dependence, Commerce divided the volume of table olives taken from the relevant varietals by the total volume of olives from those vareitals. Since the agency "lacked varietal-by-varietal data for the volumes of hojiblanca, cacereña and other dual-use olives grown for mill," Commerce failed to properly exclude cacereña and other dual-use olives from the numerator.

The agency removed cacereña and other dual-use varietals grown for mill olives from its analysis but failed to remove these varietals grown for table olives. Had Commerce properly made these exclusions, the result would have been a 48.95% dependence figure between the prior and latter stage products.

Bryson clarified that because the court is rejecting the 50% threshold established by CIT, this analysis still shows substantial dependence between the exports and the raw olives. Nearly "half of all olives from the relevant varietals are ultimately processed into table olives," making this figure valid, the court said.

(Asociacion de Exportadores e Industriales v. United States, Fed. Cir. # 23-1162, dated 05/20/24; Judges: Sharon Prost, William Bryson, Leonard Stark; Matthew McCullough of Curtis Mallet-Prevost for plaintiff-appellants led by Asemesas; Tara Hogan for defendant-appellee U.S. government; Raymond Paretzky of McDermott Will for defendant-appellee Coalition for Fair Trade in Ripe Olives)