FINAL REDETERMINATION PURSUANT TO COURT REMAND
U.S. Steel Group v. United States
Court No. 99-08-00523, Remand Order (CIT November 21, 2000)
April 6, 2001
The Department of Commerce ("Department") has prepared these final results pursuant to a remand order from the U.S. Court of International Trade ("CIT") in U.S. Steel Group v. United States, Court No. 99-08-00523, dated November 21, 2000. The final results were originally due to be filed with the CIT on February 20, 2001; however, on February 15, 2001, the Department filed a motion with the CIT, seeking additional time to file the final results. The Court approved that consent motion on February 26, 2001, and on March 19, 2001, approved a second consent motion extending the filing date for the Department's final remand redetermination to April 6, 2001.
On October 22, 1998, in response to petitions filed by several domestic steel producers(1), the Department initiated antidumping duty investigations to determine whether imports of certain hot-rolled flat-rolled carbon steel products from the Russian Federation were being, or were likely to be, sold in the United States at less-than-fair value. Initiation of Antidumping Duty Investigations: Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Brazil, Japan, and the Russian Federation, 63 Fed. Reg. 56607 (Oct. 22, 1998). Subsequently, the Department issued questionnaires and received responses from several Russian exporters/manufacturers of the product under investigation.
On February 22, 1999, the Department and the Ministry of Trade of the Russian Federation ("MOT") initialed a proposed agreement to suspend the antidumping duty investigation. The next day, the Department solicited comments on the proposed agreement from interested parties. On February 25, 1999, the Department published its preliminary determination of sales at less-than-fair value. Notice of Preliminary Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From the Russian Federation, 64 Fed. Reg. 9312 (February 25, 1999) ("Preliminary Determination"). On April 5, 1999, in response to the Department's request, the Petitioners submitted comments to the agency addressing the proposed suspension agreement. On July 7, 1999, the Petitioners requested that, if the Department enters into a suspension agreement, that it nevertheless continue its investigation pursuant to section 734(g) of the Act.
Pursuant to section 734(l) of the Act, the Department entered into a suspension agreement with MOT on July 12, 1999, and shortly thereafter, issued its notice of Suspension of Antidumping Duty Investigation: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From the Russian Federation, 64 Fed. Reg. 38642 (July 19, 1999). In accordance with Petitioner's request, the Department also published its final determination of sales at less-than-fair value on July 19, 1999. See Final Determination of Sales At Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From the Russian Federation, 64 Fed. Reg. 38626 (July 19, 1999).
In August 1999, the International Trade Commission (ITC) issued its final determination that an industry in the United States is materially injured by reason of imports of certain hot-rolled steel products from Russia. Certain Hot-Rolled Steel Products from Brazil and Russia, Inv. No. 701-TA-384 (Final) and 731-TA-806 and 808 (Final), ITC Pub. No. 3223, August 1999.
Several domestic steel producers brought suit at the CIT, challenging the Department's determination to enter into a suspension agreement with the Russian Federation. Plaintiffs disputed the Department's findings in two memoranda that were adopted by the Department and incorporated by reference into the final suspension decision: the Public Interest Memorandum, and the Price Suppression Memorandum. On November 21, 2000, the CIT issued its opinion in U.S. Steel Group v. United States, Court No. 99-08-00523, Slip Op. 00-156 (CIT Nov. 21, 2000) ("U.S. Steel Group"), remanding two issues to the Department. On March 2, 2001, the Department issued its draft redetermination to the parties for their review and comment. The Department has analyzed the comments, and today issues its final redetermination pursuant to the Court's remand order of November 21, 2000.
The Department may enter into a suspension agreement provided that it meets certain criteria. These criteria are contained in section 734(l)(1) of the Act, which provides:
The administering authority may suspend an investigation under this part upon acceptance of an agreement with a nonmarket economy country to restrict the volume of imports into the United States of the merchandise under investigation only if the administering authority determines that-
(A) such agreement satisfies the requirements of subsection (d) of this section, and
(B) will prevent the suppression or undercutting of price levels of domestic products by imports of the merchandise under investigation.(2)
Subsection (d) further specifies that the administering authority may not accept a suspension agreement unless 1) it is satisfied that suspension of the investigation is in the public interest, and 2) effective monitoring of the agreement by the United States is practicable.(3)
Plaintiffs alleged that the Department's decision to enter into a suspension agreement was unlawful because it failed to meet two of the three statutory requirements: 1) that the agreement be in the public interest, and 2) that the agreement prevent price suppression or undercutting.
(1) Price Suppression or Undercutting
In its original suspension determination, the Department addressed the price suppression or undercutting criterion of the statute in its Price Suppression Memorandum, and incorporated that memorandum by reference in the final determination. Therein, the Department determined that the suspension agreement with MOT would "prevent price suppression and undercutting through the use of an initial moratorium period, followed by a period during which imports of Russian hot-rolled steel will be subject to both quantitative limits and minimum reference prices calculated to be at non-price suppressive levels."(4) The Department interpreted the price suppression provision in light of similar language in a related section of the Act and concluded that the statute does not require a suspension agreement to have absolutely no price effects, but rather, allows "for some amount of price affect [sic] on domestic price levels."(5)
Reviewing the Department's price suppression analysis, the CIT found it to be not in accordance with the law.(6) The Court reasoned that:
Commerce's proposed standard- "allow[s] for some amount of price affect [sic] on domestic price levels"-places no limit on Commerce's discretion to determine that an agreement prevents price suppression or undercutting. While we recognize that Commerce has substantial discretion to negotiate suspension agreements with nonmarket economies, Commerce has here adopted a standard that allows it, contrary to law, to exercise "unbounded" discretion.(7)
The Court remanded the Department's price suppression determination and directed it to either "articulate an appropriate legal standard for making its price suppression determination, or otherwise explain the connection between the facts found and the choice made pursuant to the statute."(8) Without addressing the merits of the argument, the Court disregarded the "significant degree" standard put forward in the Department's brief, finding it to be a "post hoc rationalization."(9)
Significantly, however, the Court also rejected the Plaintiffs' contentions that (1) the statute was clear on its face and (2) the statute plainly prohibited any price suppression under a suspension agreement. Rather, the Court found the statute to be ambiguous, because the word "prevent" could be meant to require an absolute exclusion of price suppression, or that the agreement "avert" or "impede" price suppression.(10) The Court remarked that "[t]he rules of statutory construction may present a clear choice on remand between differing interpretations of an ambiguous provision..."(11)
In light of the Court's determination, the Department hereby clarifies, in this redetermination, its interpretation of the statute. For the reasons articulated in our earlier Price Suppression Memorandum, we do not interpret the term "preventing price suppression" as establishing an absolute prohibition of any price effect under an agreement.(12) As the Court acknowledged, the word "prevent" need not refer to an absolute prohibition of price suppression or undercutting; it is permissible to read this as requiring less than complete exclusion of price suppression.
Although the statute, the legislative history, and the regulations do not contain a definition of price suppression or undercutting, Congress did not use these terms in isolation; on the contrary, these terms were enacted as part of "'a symmetrical and coherent regulatory scheme.'"(13) In this regard, it is significant that section 771(7)(C) of the Act directs the ITC to examine, for purposes of that agency's material injury analysis, whether the "effect of imports of such merchandise otherwise depresses prices to a significant degree or prevents price increases, which otherwise would have occurred, to a significant degree" (emphasis added by the Department).
Using the standard contained in the statute for the ITC's injury determinations as a guide, we believe that a suspension agreement concluded pursuant to section 734(l) of the Act must prevent imports of the subject merchandise from suppressing or undercutting prices of the domestic product to a significant degree. Thus, a subsection (l) agreement that prevents significant price suppression or undercutting satisfies the statutory requirement that such an agreement prevent price suppression or undercutting, and provides effective relief to the domestic industry.
In the case of Russian hot-rolled steel, the period leading up to the investigation was marked by an extremely large increase in the volume of Russian imports, coupled with substantial price undercutting. This combination of factors was the major cause of price suppression during the period examined by the ITC. Therefore, in this case, the Department has evaluated both the margin of price undercutting found by the ITC and import volumes in order to determine whether the suspension agreement would prevent significant price suppression or undercutting. Although this approach is appropriate for this agreement, other subsection 734(l) suspension agreements may present circumstances that could be effectively addressed through a different approach.(14)
Given the severity of the Russian hot-rolled steel import surge and price undercutting that had occurred, we determined that a prohibition on Russian hot-rolled steel imports should be put in place through December 31, 1999. Such a moratorium provided much-needed stability within the U.S. market and an opportunity for prices to recover. During the moratorium period, the suspension agreement eliminated all price suppression.
To provide effective relief once the moratorium ended, the Department determined that restrictions should be put in place on both the quantity of, and prices for, Russian imports. In particular, for the first year after the moratorium, the agreement limited imports from Russia to only 325,000 MT, which is less than 13 percent of the volume imported during the period leading up to the investigation (i.e., October 1997 through September 1998, the last twelve months for which there was data in the ITC's preliminary report period.)
In addition, the agreement required that Russian imports be sold at or above a reference price for the first year of $300/MT FOB U.S. port, including transportation expenses. This reference price ruled out the extremely low prices, as low as $237/MT CIF(15) in the 4th quarter of 1998, for Russian hot-rolled steel that occurred prior to the suspension agreement.
In order to evaluate whether this combination of volume and price restrictions prevents significant price suppression or undercutting, we have compared the total amount of price undercutting that occurred during the ITC preliminary report period (i.e., October 97-September 98) with the amount that would be eliminated with the restrictions in place. First, we identified the amount by which Russian prices undercut U.S. domestic prices in this period. According to the ITC preliminary determination, the U.S. domestic price during this period was approximately $353/MT.(16) The ITC report also contained the margin of Russian underselling during the four quarters of this period, a weighted-average amount of approximately 13.33 percent. See ITC Preliminary Report (US ITC Pub. 3142 at V-5 to V-9). Therefore, in absolute terms, the difference between the average prices for domestic and Russian hot-rolled steel during this period was approximately $47/MT.(17)
Second, we multiplied this absolute price difference by the volume of Russian imports in the same period to calculate the total amount of undercutting. During this period, the quantity of Russian imports was extremely high, totaling 2.66 million MT, according to the ITC Dataweb. By multiplying 2.66 million MT by the $47/MT price difference, the Department derived a total absolute amount of undercutting of approximately $125.1 million.
Third, we made the same type of calculation using the restricted volume and the reference price established by the agreement. As noted above, the initial reference price under the agreement was $300/MT FOB U.S. port.(18) Multiplying the difference between the U.S. price ($353/MT)(19)
and the reference price by the 325,000 MT limit for the first year, we arrived at an aggregate price difference of $17,225,000. This aggregate amount is less than 14% of the total amount of undercutting that occurred in the period leading up to the suspension agreement.
For a number of reasons, we believe that this analysis shows, on a conservative basis, that the agreement would prevent significant price suppression in the first year after the six-month moratorium. The combination of the initial volume restriction and minimum reference price in the suspension agreement would prevent more than 86 percent of the total price undercutting or underselling as compared to that which occurred in the comparison period.(20) Moreover, this 86 percent figure is conservative because it assumes that 100 percent of the price difference is attributable to undercutting and gives no account for price differences resulting from quality differences, differences in payment or delivery terms, or any other differences between U.S. and Russian steel which affect their relative prices.(21)
This calculation also is conservative because the volume of Russian imports in calendar year 1998 actually surged to 3.5 million MT, much higher than 2.66 million MT of Russian imports during the four quarters for which we had ITC underselling data, and which were used in this analysis. If we assume that the margin of underselling remained the same in calendar year 1998, the agreement would prevent over 90 percent of the price suppression or underselling.
With respect to the subsequent years in the agreement, the agreement keeps strong restrictions in place over the years. Volumes will grow moderately from the 325,000 MT in the initial export limit period but continue to be sharply limited to 500,000 MT in 2001, 675,000 MT in 2002, and 725,000 MT in 2003 (with provision for limited adjustment). The largest annual volume provided for under the agreement is limited to 725,000 MT, less than 30 percent of Russian imports during the period October 1997 through September 1998 and just over 20 percent of calendar year 1998 imports.
In addition, Russian producers will still have to set their price at or above a reference price tied to the one set for the first year of the agreement, which will continue to prevent the kinds of extremely low prices observed prior to the suspension agreement. Because market prices naturally change over time due to a variety of factors, the reference price set for the first year of the agreement could quickly become out of date unless it was subject to change.
For this reason, prices for these "out years" of the agreement will be determined by adjusting the established reference prices based on the change in the weighted-average unit import values for hot-rolled steel from all countries not subject to antidumping duty orders or investigations (with some maximum limitations on the increase or decrease to the reference prices). By tying the adjustment to import prices not covered by orders or investigations, the agreement allows the reference prices to adjust to changes in the market without allowing Russian prices to become a price driver. Consequently, while a mathematical analysis comparable to the one set out above for the initial reference period is not possible for these out years, the Department believes that on balance, the combination of a moratorium to restore market conditions, a price floor maintained in real terms via a price-adjustment mechanism, and modest progressive export limits meets the statutory requirement over the life of the agreement.
(2) Public Interest
The Department addressed the public interest criterion of the statute in its Public Interest Memorandum, and incorporated that memorandum by reference in the suspension determination. In that memorandum, the Department determined that the public interest would be served by entering into a suspension agreement with Russia because the agreement provided effective relief for the U.S. industry. Further, the Department determined that the suspension agreement would restrict import volumes and set a price floor for Russian hot-rolled steel, so that "the resultant increase in market certainty will benefit traders and consumers of Hot-Rolled Flat-Rolled Carbon-Quality Steel Products."(22)
Reviewing this determination, the CIT noted that it normally would decide first "whether Commerce's interpretation of the statute is in accordance with law." Slip Op. at 9. In this case, however, the CIT found that the Department had "not articulated an interpretation of the statute in the Public Interest Memorandum itself," but instead had made a finding of fact.
Although the Department offered a legal interpretation of the public interest standard in subsequent briefing, the CIT noted that this explanation was post hoc. Id. Moreover, the CIT found that the Department failed to provide any legal standard for what is "in the public interest," and likewise failed to explain the connection between its "market certainty" finding and its conclusion that the agreement was in the public interest. Slip Op. at 10. Without such an explanation, the CIT held, the Department's conclusion that the agreement was in the public interest was not reviewable, and the CIT was unable to determine whether the Department had exercised reasoned discretion. Id. Therefore, the CIT remanded the case to the Department, instructing it either to articulate a legal standard for making the public interest determination, or otherwise to explain the connection between the facts found and the choice made pursuant to the statute. Id. Upon remand, the Department now articulates the connection between the facts found in this case and the choice made pursuant to section 734(l) of the Act.
The statute provides that the Department shall not accept a subsection (l) agreement unless "it is satisfied that suspension of the investigation is in the public interest." Section 734(d)(1) of the Act. Neither the statute nor the legislative history defines the term "public interest" as it is used in this context. Therefore, Congress conferred broad discretion upon the Department in making this assessment.(23)
Two other sections of the Act, sections 704(a)(2)(B) and 734(a)(2)(B),(24) contain public interest provisions that explicitly require the Department to consider: (1) whether consumers are better off under a suspension agreement than under an antidumping duty order, (2) the relative impact on the international economic interests of the United States, and (3) the relative impact on the competitiveness of the domestic industry producing like merchandise, including any such impact on employment and investment in that industry. Sections 704(a)(2)(B) and 734(a)(2)(B) of the Act create a more specific, higher "public interest" standard than the unadorned "public interest" standard required pursuant to sections 734(d) and 734(l) of the Act. Although the Department is not required to apply this higher standard to the facts at issue in this case, the factors enumerated under the higher public interest standard nonetheless furnish a useful conceptual framework that the Department has used to inform its analysis pursuant to sections 734(d) and (l) of the Act.
U.S. Producer and Worker Interests
It is important to note that this suspension agreement is primarily intended to provide relief to, and improve the competitiveness of, the domestic industry injured by unfair trade. Therefore, the Department's determination that this agreement is in the public interest is based in significant part on an evaluation of the benefits to producers.
Plaintiffs state that the suspension agreement is not in the public interest because it will cause harm to domestic producers of hot-rolled steel and their workers. Plaintiffs further claim that the suspension agreement will permit the continued dumping of enormous amounts of Russian hot-rolled steel at prices that will prevent the U.S. industry from returning to full health. According to Plaintiffs, the volume and price levels under the suspension agreement will result in continued suppression of domestic prices. In sum, Plaintiffs believe that they would be better off with an antidumping duty order than under the suspension agreement.
While an order provides an effective means of addressing unfair trade, the suspension agreement entered into in this case also establishes effective relief and, in a number of respects, has distinct advantages when compared to an order. For example, the quantitative limits under the suspension agreement are inherently more stable and predictable than conditions under an order, insofar as an order does not contain a volume limitation, and the amount of duties actually imposed through the first administrative review could significantly change (up or down) from those found in the LTFV investigation. Moreover, the margins calculated in subsequent reviews could also vary substantially from the LTFV and first administrative review rates. In the Department's experience, while the initial dumping margins determined in an investigation may be quite high, those margins are typically greatly reduced in subsequent reviews. The stability of the suspension agreement has the added benefit of allowing petitioners to invest and plan for future growth.
In addition to the price and quantity provisions, the suspension agreement contains a number of provisions that strengthen the ability of the Department to prevent or address circumvention of the relief. These provisions are not available under an order. In addition to providing semi-annual reports of licensed U.S. sales of Russian hot-rolled steel, the Government of Russia must report third country and aggregate domestic sales of the subject merchandise. These reports are required whether or not administrative reviews of the agreement are requested. The suspension agreement also requires that the two governments exchange information and consult on any alleged circumvention. The agreement explicitly prohibits exchanges of merchandise designed to circumvent the agreement and provides for penalties for foreign exporters that are found to engage in such activities.
Producers also benefit from the suspension agreement because the agreement is linked to "The Agreement Concerning Trade in Certain Steel Products from the Russian Federation." See Agreement Concerning Trade in Certain Steel Products From the Russian Federation, signed July 12, 1999, available online under "Newly Added Items" at enforcement.trade.gov ("comprehensive agreement"). The comprehensive agreement controls the importation of a number of Russian steel products into the United States other than hot-rolled steel. Under the terms of the suspension agreement, the Department will terminate the suspension agreement if Russia withdraws from the comprehensive agreement. By linking the agreements, the Department has ensured that U.S. steel producers of hot-rolled steel, many of which are integrated producers of other steel products covered under the comprehensive agreement, benefit because of the protection from import surges provided by the comprehensive agreement across a wide array of steel products.
With respect to petitioners' concerns about the volume and price terms in the agreement, as noted above, the agreement effectively prevents significant price suppression or undercutting through the initial moratorium on imports and the subsequent volume and price restrictions. Moreover, the suspension agreement limits the import penetration (market share) of Russian producers to levels prevailing at a time (pre-1996) before imports of Russian steel reached crisis proportions and were harming for the U.S. steel industry: Russia's market share can increase to no more than 3 percent of the total United States market for hot-rolled steel, at the maximum quota level under the agreement.(25)
Therefore, under the agreement, the U.S. industry faces import penetration levels that did not precipitate any filing of requests for antidumping relief against the Russian Federation.
Consumer Benefits of the Suspension Agreement
Although the suspension agreement is primarily designed to increase the competitiveness of the domestic industry, it also benefits consumers.(26) Under this agreement, consumers can purchase Russian hot-rolled steel, albeit in limited quantities, at prices which are non-suppressive of U.S. domestic prices.
Further, the suspension agreement provides consumers with market certainty, particularly in contrast to an antidumping duty order. An order would create uncertainty because of administrative reviews that could periodically raise (or lower) the duties. Moreover, because the Department assesses antidumping duties on a retrospective basis, U.S. consumers of Russian steel would have to deal with the variable and contingent nature of antidumping duty liabilities. Additional uncertainty would occur if respondents did not cooperate with the Department, resulting in the use of adverse facts available and the generally higher antidumping duties that would result.
As a result of the continued but limited supply of Russian hot-rolled steel, as well as the increased certainty arising from a suspension agreement, the Department believes that U.S. consumers benefit from the suspension agreement. Hot-rolled steel is the largest merchant steel product, accounting for 20 percent of U.S. steel shipments, and is used in a wide variety of consumer and industrial goods, including automobiles, machinery, and electrical equipment. See Price Suppression Memorandum at 5. Thus, the Department finds the increased market certainty provided with respect to hot-rolled steel, in particular, to be in the public interest.
International Economic Interest of the United States
The Russian Federation has an immense steelmaking capacity that is an important sector of the Russian economy. In the past several years, as the domestic demand for Russian steel has declined, Russian steel producers have supported their economy by becoming major exporters. Today, steel exports provide substantial revenues to Russian steel producers and contribute to the stability of that nation's overall economy.
The Department believes that it is in the international economic interest of the United States to foster and support economic stability in Russia. The suspension agreement fosters stability and the transition of the Russian economy to a market system by permitting Russian steel producers, who collectively comprise an important sector of the overall Russian economy, to continue to sell hot-rolled steel in the United States, albeit within the significant disciplines of the suspension agreement. This allows the hot-rolled producers to have continued access to the U.S. market, while ensuring that such access is consistent with the requirements of section 734(l) of the Act.
The above discussion explains the Department's approach to the price suppression and public interest requirements for suspension agreements concluded under section 734(l) of the Act. The discussion explains how the instant suspension agreement prevents significant price suppression relative to the period leading up to the suspension agreement. The discussion further explains how the suspension agreement accounts for the public interest of U.S. domestic producers/workers and consumers, and how it is in the international economic interest of the United States.
Based on these findings, we conclude that the agreement prevents significant price suppression and is also in the public interest.
Plaintiffs' Comments and the Department's Responses
Comment 1: Plaintiffs claim that in the Draft Redetermination, the Department failed to comply with the Court's instruction to establish legal standards for determining whether the Agreement prevents price suppression or undercutting, and that the Draft Redetermination continues to leave the Department with the "unbounded discretion" that the Court found unlawful. In addition, Plaintiffs argue that the Department should have used economic modeling to predict the likely effects of the suspension agreement, and to measure these likely effects against the standard it set, to determine whether the volume and price levels in the agreement will prevent price suppression or undercutting.
Department's Response: The Department disagrees with Plaintiffs' contentions, because they are based on erroneous readings both of the Court's order and of the underlying statutory provisions. Plaintiffs assail the Department's Draft Redetermination on the grounds that the Department purportedly has "fail[ed] to comply with the Court's instruction to establish legal standards for determining whether the Agreement prevents price suppression or undercutting..." Plaintiffs' Comment at 2. Later in the same submission, however, Plaintiffs concede that the Court's order provided the Department with two clear choices: either to "articulate an appropriate legal standard for making its price suppression determination, or otherwise explain the connection between the facts found and the choice made pursuant to the statute." Slip Op. at 14. See Plaintiffs' Comment at 6. On remand, the Department chose to do the latter, in full compliance with the Court's instructions; although Plaintiffs may have preferred a different result, the Department was entitled to respond to the Court's remand in this manner.
The Department likewise disagrees with Plaintiffs' argument that the Department has attempted to retain "unbounded discretion" in the Draft Redetermination. The Plaintiffs' argument proceeds from the erroneous premise that the Department was required to set a universal, bright-line test in order to comply with the Court's instructions. Nothing in the Court's order or in the statute requires such a test. Congress could have imposed such a bright-line test, or otherwise directed the Department to consider a particular set of factors in making such determinations, but it declined to do so. We believe the Court recognized this when it gave the Department the option to explain the connection between the facts found and the choice made pursuant to the statute. Suspension agreements have long been the exception for how unfair trade investigations are resolved and in each case, the provisions of the agreement are carefully tailored based on the particular facts of the case, the legal requirements governing the subsection of the suspension agreement provisions at issue, and the information available to the Department at the time it negotiates the suspension agreement. In light of this experience, a bright-line, one-size-fits-all standard, such as Plaintiffs advocate, would be inappropriate due to the case-specific, fact-intensive inquiry that is required of the Department.
On remand, the Department has clarified its interpretation that a suspension agreement pursuant to section 734(l) of the Act must prevent imports of the subject merchandise from suppressing or undercutting prices to a significant degree.(27) In the remand, the Department explained how preventing significant price suppression or undercutting satisfies the statutory requirement that such an agreement prevent price suppression or undercutting, and provides effective relief to the domestic industry. The Department thereby has not retained the "unbounded discretion" that the Court found in our original decision. According to the Court, the original decision, interpreting the statute to allow for "some amount" of price effect, was contrary to law because it "place[d] no limit on the Department's discretion to determine that an agreement prevents price suppression or undercutting." Slip Op. at 13. By contrast, the "significant degree" standard articulated on remand does limit the Department's discretion to find that an agreement prevents price suppression or undercutting; whereas "some amount" could be read broadly to mean "any amount," "significant degree" limits the amount of price suppression or undercutting that would be permissible under a suspension agreement.
Plaintiffs argue that the Department should employ an economic model in order to estimate future price levels under the suspension agreement.(28) Plaintiffs specifically recommend using a book titled Measuring the Costs and Benefits of Protection: A Partial Equilibrium Approach, by Donald J. Rousslang and John W. Suomela.
Economic modeling is just one analytical framework that could be brought to bear on this matter. However, the Department is not statutorily required to employ economic modeling in its analyses. We have affirmatively described the framework which we utilized and proffer our analysis to the Court to stand on its own merits. Contrary to Plaintiffs' assertion, the issue is not whether the Department should have used an economic model to reach its determination, but rather, whether the Department's interpretation and application of the statute was reasonable, and entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-843 (1984). If the Court finds the Department's interpretation of the statute to be reasonable, it is irrelevant that there may be other reasonable interpretations that the Department did not choose to apply. In writing section 734(l) of the Act, Congress did not choose to define what it meant by price suppression and undercutting, implicitly delegating to the Department the task of giving these terms meaning. As Chevron makes clear, in such cases "a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency." See Chevron, 467 U.S. at 844. Even if the Court prefers a reasonable interpretation that differs from that chosen by the agency, the Court should defer to the agency's reasonable interpretation. As the Chevron court noted, "The court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding." See Chevron, 467 U.S. at 843.
Moreover, the circumstances and time limits under which suspension agreements are concluded, as Congress provided for in the statute, dictate the framework under which the Department must operate and inform its determination not to use economic modeling. As noted above, each suspension agreement is distinctly tailored to address the specific industry and subject merchandise in question along with the factual scenarios which gave rise to the antidumping investigation. Further, this tailoring of the agreement occurs within a very short time window, typically between the preliminary and final determinations of a dumping investigation, and is the result of negotiation between the Department and, in this case, another government. For these reasons, the Department does not find that economic modeling, which could take a significant amount of time and effort to achieve, is an efficient tool for achieving the Department's statutory obligations.
Rather than attempting to surmount the type of data problems described above in the relatively brief period provided by the statute for concluding a suspension agreement, the Department elected to rely on a qualitative analysis similar to that used by the ITC, namely, employing historical data and trends to come up with an assessment of the impact of imports on market conditions. This methodology fully comports with the Department's statutory obligations for finding that the agreement prevents price suppression or underselling.
Comment 2: Plaintiffs claim that the Department's price suppression analysis incorrectly focuses on what the agreement removes from the market, instead of focusing on what the agreement allows in the market. In addition, they claim that the Department's approach arbitrarily permits different results, depending on the dollar amount of undercutting found to have occurred during the period of investigation. Further, Plaintiffs argue that the Department's approach is "backward looking" because it fails to project future price levels.
Department's Response: The Department disagrees with the "glass-half-empty" scenario sketched out by Plaintiffs. In the case of Russian hot-rolled steel, it is difficult to see how focusing on the volume of Russian steel the agreement removes from the U.S. market (almost all of the surge) is materially different from focusing on what import volumes are allowed to enter the U.S. market (very little), from a price suppression standpoint. While 3.5 million metric tons (MMT) entered the U.S. market in 1998, at the height of the import surge, the agreement provided for a six-month moratorium period in 1999, meaning that no Russian hot-rolled steel was permitted to enter the United States during this moratorium period. Following the moratorium period, the agreement permits 325,000 MT in 2000, 500,000 MT in 2001, 675,000 MT in 2002, and 725,000 MT in 2003. These figures represent a fraction of Russia's 1998 import volumes, ranging from less than one-tenth in 2000 to only about one-fifth of Russia's 1998 import volumes in the final year of the agreement. More importantly, if we assume that U.S. apparent domestic consumption will be steady at 1998 levels, Russian imports under the suspension agreement will be limited to a maximum of three percent of U.S. apparent consumption in 2003.
Moreover, the suspension agreement will ensure that the import penetration (market share) of Russian producers is limited to levels prevailing at a time (pre-1996) before imports of Russian steel reached crisis proportions and were harming the U.S. steel industry: Russia's market share can increase to no more than 3 percent of the total United States market for hot-rolled steel, at the maximum quota level under the agreement.
In addition to establishing stringent import volumes, the agreement requires that Russian imports be sold at or above a reference price for the first year of $300/MT FOB U.S. port, including transportation expenses. As discussed above, this reference price ruled out the extremely low prices, as low as $237/MT CIF(29) in the 4th quarter of 1998, for Russian hot-rolled steel that occurred prior to the suspension agreement.
The Department analyzed these maximum import volumes, in combination with the minimum reference price requirements of the agreement, and determined that the agreement would prevent price suppression or undercutting. Indeed, now that the agreement has been implemented, the combination of price controls and a quota have permitted only very limited imports of Russian hot-rolled steel, far less in fact than if quotas alone had been imposed. Actual market experience indicates that the disciplines imposed by the suspension agreement have drastically reduced the amount of Russian hot-rolled steel entering the United States to 166,231 MT(30) in 2000, an amount equal to 51 percent of the 2000 export limit established in the suspension agreement. Because of the combination of price requirements and the quantitative limitations, the agreement prevents the ability of Russian imports of the subject merchandise from significantly suppressing prices in accordance with the statute.
The Department disagrees with Plaintiffs' contention that its approach to price suppression and undercutting arbitrarily and perversely permits different results, depending on the dollar amount of undercutting found to have occurred during the period of investigation. With exaggerated strokes, Plaintiffs paint a picture of "absurd result[s]" which would occur if the Department were to apply a price-suppression standard that required the elimination of a fixed percentage of the total amount of undercutting. As outlined above, the Department has not set such a universal standard, because the relevant inquiry is highly case-specific and fact-intensive. It is precisely in order to ensure that the remedy provided by a suspension agreement closely matches the injury complained of that the Department must make a case-specific determination, based on the facts and circumstances at hand. In other circumstances, such as where the import surge is significantly larger, it may indeed be appropriate to insist on the elimination of a higher percentage of the total amount of undercutting in order to conclude a suspension agreement. However, those facts are not before us, and this only underscores further the need for the Department to consider each case on its own merits.
We also disagree with Plaintiffs' argument that the Department improperly used a backward-looking analysis in making its price suppression determination; instead, Plaintiffs believe we should have attempted to project future price levels. Under the statute, any determination, including one to conclude a suspension agreement, must be supported by substantial evidence on the record. In determining whether to conclude a suspension agreement, the Department must consider what the effects of the agreement will be in the future, but these effects are not knowable, with certainty, until the future comes to pass. However, the unknowability of the future effects does not prevent the Department from entering into suspension agreements; we simply have to take a reasonable approach to achieve the goal - preventing price suppression and meeting the public interest standard - in a manner that is consistent with the statute and the record evidence. In this case, the Department took the only information that was knowable, i.e., the history of Russian imports into the U.S. market, and their effects on the U.S. market, and projected the future effects of the suspension agreement on that basis. In applying these historic facts to the suspension agreement, the Department met its obligation under the statute, namely, to eliminate price suppression caused by a surge of low-priced imports of Russian hot-rolled steel.
Comment 3: Plaintiffs argue that the Department erred in using the total dollar amount of price underselling to measure price suppression. The margin of price underselling is not a reasonable proxy for price suppression because it may falsely indicate that price suppression is occurring where it is not, and therefore is useless for predicting whether an industry can tolerate imports at the level specified in the suspension agreement.
Department's Response: In the instant case, suppression of U.S. market price was the result of the collective effect of price underselling and the large volume of imports of Russian hot-rolled steel. As detailed above, the suspension agreement severely limits import volumes and requires that Russian and U.S. market prices diverge by no more than the amount that historical data suggests relates to - among other factors - differences in product quality.(31) To give an indication of the overall effect of these constraints on price and quantity under the agreement, an analytical tool was needed that (1) incorporates both price and quantity variables and (2) overcomes the problem of price and volume being measured in different units (price is measured in dollars/MMT and volume in MMT). For that analytical tool, the Department used the product of the margin of price underselling and the volume of "undersold" imports. The 86 percent reduction in the value of this summary statistic is not, as Plaintiffs argue, a standard or test of price suppression prevention, but is, instead, simply a summary statistic of the significant effect that the agreement will have on the price and volume of imports of Russian hot-rolled steel.
The Department disagrees with the Plaintiffs' argument that price underselling is not a suitable proxy for price suppression because price underselling is, in this case, the root cause of price suppression. By materially eliminating the cause of price suppression, the Department is preventing price suppression itself.
Plaintiffs' proposal to measure price suppression necessarily involves the use of a counterfactual price, i.e. a projection of what the U.S. market price would be if imports of Russian hot-rolled steel were zero.(32) But such a counterfactual price can be obtained only through the use of economic modeling, which the Department elsewhere in this remand has explained is not suited for the type of determination that the Department must make in the context of concluding a suspension agreement.
Comment 4: Plaintiffs assert that domestic producers would be better off under an antidumping duty order than under the suspension agreement.
Department's Response: The Department disagrees with the basis of Plaintiffs' argument because the statute does not require that the Department find that the benefits of a suspension agreement entered into pursuant to section 734(l) of the Act exceed the benefits of an antidumping duty order. As we discuss above, section 734(l) of the Act does not define "public interest," but merely requires that suspension agreements with nonmarket economy countries must satisfy the requirements of subsection (d) of that section. Section 734(d)(1) of the Act specifies that the administering authority may not accept an agreement unless it is satisfied that suspension of the investigation is in the public interest, but likewise does not define what is in the public interest. In order to give meaning to this term, the Department has examined two other sections that contain distinct, additional public interest factors: sections 704(a)(2)(B) and 734(a)(2)(B) of the Act. Nothing in the statute requires us to apply the higher standard contained in those provisions; we merely have used these factors to inform our decision.
Section 734(a)(2)(B)(iii) specifies that, in terminating investigations on the basis of a quantitative restriction agreement, the Department shall take into account the relative impact on the competitiveness of the domestic industry producing the like merchandise, including any such impact on employment and investment in that industry. To that end, the Department informed its analysis by examining the impact of the instant suspension agreement on the competitiveness of the domestic steel industry and, as we outlined above, has found that the agreement provides substantial benefits to the domestic industry. The agreement sets a minimum floor price for Russian hot-rolled steel, coupled with strict limitations on the volume of such steel that may be imported each year, an arrangement that is inherently more stable and predictable than conditions under an order.(33) The agreement further benefits domestic producers by providing strong anti-circumvention language, including penalties for foreign exporters who engage in circumvention, and by imposing stringent reporting requirements that apply regardless of whether administrative reviews of the agreement are requested; these provisions ensure the integrity of the agreement and provide transparency in the import market for Russian hot-rolled steel. Taken together, these measures provide substantial benefits to the domestic industry.
We recognize that these benefits are different from those that would accrue to the domestic industry under an antidumping order; however, to the extent that it is possible to weigh these different benefits against one another, any difference in the relative benefits is minimal. Having examined the impact of the agreement on domestic producers, as well as on consumers, and on the international economic interests of the United States, we have determined that the agreement is in the public interest.
Plaintiffs appear to believe that the Department must compare the benefits to the domestic industry of an order to those of a suspension agreement, and enter into a suspension agreement only when it will be more beneficial to the domestic industry than an order. See Plaintiffs' Comment at 11. Although this explicit requirement does apply to agreements eliminating injurious effect, pursuant to section 734(c)(2)(A)(i), this language does not apply to suspension agreements concluded under section 734(l), and there is no basis for interpreting it here.
Timothy J. Hauser
1. Bethlehem Steel Corporation, Ispat Inland Inc.; LTV Steel Company, Inc.; National Steel Corporation; U.S. Steel Group, a Unit of USX Corporation; California Steel Industries; Gallatin Steel Company; Geneva Steel; Gulf States Steel, Inc.; Ipsco Steel Inc.; Steel Dynamics; Weirton Steel Corporation; and Independent Steelworkers Union, (collectively "Petitioners").
2. Section 734(l)(1) of the Act.
3. Section 734(d) of the Act.
4. Pub. Doc. 313 (Def. Pub. App. 7) at 1.
5. Id. at 3. As the Department noted, "...because the vast majority of antidumping cases brought against non-market economies such as Russia involve fungible commodities, the introduction of even a small quantity of merchandise should, under basic supply and demand theory, have some tendency to affect prices." Id.
6. Slip Op. at 13.
7. Slip Op. at 13-14 (footnote in original omitted).
8. Slip Op. at 14. The Court declined to undertake a "substantial evidence" review of the Department's factual findings regarding price suppression or undercutting, pending the Department's remand redetermination. Slip Op. at 14, n. 9.
9. Slip Op. at 14, n. 8.
10. Slip Op. at 12-13.
11. Slip Op. at 14.
12. See supra, note 5.
13. See Food and Drug Admin. v. Brown & Williamson Tobacco Corp., No. 98-1152 (U.S. March 21, 2000), 2000 WL 289576 at *7 (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 569 (1995)).
14. For example, the ITC does not always provide public margins of underselling in its preliminary injury reports; therefore, we may not be able to apply this analysis to all agreements pursuant to section 734(l) of the Act. Also, while the statute requires the Department to eliminate price suppression or undercutting when concluding certain other types of agreements, the Department lacks the authority to address both price and volume in such other types of agreements; thus, other types of price suppression or undercutting analyses would be necessary.
15. According to U.S. Census Bureau IM145 Import Data. Although the shipment terms FOB U.S. and CIF above are different, in substance they are approximately equivalent because both terms include freight, and because the insurance included under CIF is a relatively minor element.
16. This is the weighted average of U.S. FOB prices in the ITC preliminary report, rounded to the nearest dollar.
17. Calculated as $353/MT x 13.33 percent = $47.05.
18. The Russian price was calculated as $255/MT plus $45 for transportation cost (64 FR 38644, i.e., reference prices are F.O.B. port of export). Further, while the price differential between the average domestic price in the ITC report and the minimum Russian reference price is approximately $48.60/MT, the annual average price difference between Russian average unit values and domestic prices has been consistently high, $65/MT during the years 1994 to 1996, significantly higher than the differential with the reference price under the agreement. See also the Price Suppression Memorandum.
19. For purposes of this calculation, we have used the $353/MT price from the ITC preliminary report. During the negotiation of the suspension agreement, the Department had identified other reliable sources of U.S. prices for the same period covered by the ITC's data which indicated lower average U.S. domestic prices. For example, the Purchasing Magazine contained a transaction survey price of $348/MT that reflected a broader market price for hot-rolled steel than that reported in the ITC preliminary report, which was based on a survey response covering a smaller portion of the U.S. market in this investigation. If we were to use the lower domestic price as a basis for comparison with the average Russian import values, such a comparison would result in a lower amount of undercutting than that identified in the ITC's preliminary report.
21. For example, most grades of Russian steel are generally considered to be of much lower quality for reasons including problems with packaging and transportation damage, and unsuitableness for certain uses (such as automobile manufacturing) because of failure to meet important surface quality requirements. (See ITC, Certain Hot-Rolled Steel Products from Japan, Publication no. 3202 (Washington D.C., June 1999), II-8.)
22. Pub. Doc. 314 (Def. Pub. App. 8) at 2.
23. "As stated by the Supreme Court, '[w]here Congress uses terms that have accumulated settled meaning under either equity or the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.'" NSK Ltd. v. United States, 115 F.3d 965, 974 (Fed. Cir. 1997) (quoting NLRB v. Amax Coal Co., 453 U.S. 322, 329 (1981)). Here, the established meaning of the word "satisfied" refers to a highly-subjective state of mind. See Merriam-Webster's Collegiate Dictionary 1038 (10th ed. 1999) (defining "satisfy" as "to make happy: PLEASE"); see also Humane Society v. Clinton, 44 F. Supp.2d 260, 269 (CIT 1999) (holding that the statutory phrase "satisfactorily concluded" refers to a discretionary action), appeal docketed, No. 99-1360 (Fed. Cir. April 26, 1999).
24. Sections 704(a)(2)(B) and 734(a)(2)(B) of the Act provide special rules for terminating countervailing duty investigations and antidumping investigations, respectively, pursuant to quantitative restriction agreements.
25. The maximum import penetration figure was calculated by dividing (1) the largest annual volume provided for under the agreement of 725,000 MT in 2003 by (2) U.S. apparent consumption of 24.4 million MT in 1999; future U.S. consumption of hot-rolled steel is assumed to be fixed at 1999 levels, which is consistent with apparent U.S. consumption of hot-rolled steel changing less than 4 percent between 1996 and 1999. Moreover, while complete data for year 2000 is not yet available, data through October 2000 indicate U.S. consumption has risen this year, and the general trend has been to increase since 1995.
26. Consumers in this discussion are defined to include producers using hot-rolled steel as a direct input, as well as consumers of finished products that have hot-rolled steel in some form incorporated in them.
27. This is the same standard under which the ITC has rendered all of its decisions without any finding of unbounded discretion. Congress did not set a standard for what the ITC should consider to be price suppressive import levels, therefore they have discretion to interpret a standard (See Torrington Co. v. United States, 790 F.Supp. 1161, 1171 (CIT 1992), citing H. Rep. No. 100-40 at 131 (1987)).
28. Just as the ITC is not required to undertake quantitative analysis or economic modeling to make its injury determination, see USEC, Inc. and United States Enrichment Corporation v. United States, Slip Op. 01-08 at 27 (Ct. Int'l Trade 2001) (ITC not required to explain its use, or lack thereof, of economic models) - a determination which involves many of the same price, volume, and market factors the Department considers in making its price suppression determination - the statute similarly does not require the Department to use economic modeling to measure price suppression.
29. According to U.S. Census Bureau IM145 Import Data. Although the shipment terms FOB U.S. and CIF above are different, in substance they are approximately equivalent because both terms include freight, and because the insurance included under CIF is a relatively minor element.
30. Information compiled from USITC Dataweb, based on data for HTS numbers covered by the Agreement.
31. For example, most grades of Russian steel are generally considered to be of much lower quality for reasons including problems with packaging and transportation damage, and unsuitableness for certain uses (such as automobile manufacturing) because of failure to meet important surface quality requirements. (See ITC, Certain Hot-Rolled Steel Products from Japan, Publication no. 3202 (Washington D.C., June 1999), II-8.)
32. i.e., a measure based on import volumes of Russian steel allowed under the agreement at a given point in time and general market supply and demand conditions prevailing at the same time.
33. As we noted above, this true because an order does not contain a volume limitation, and the amount of duties actually imposed through the first administrative review could significantly change (up or down) from those found in the LTFV investigation.