[00:00:00] Speaker 00:
Our final case for today is Gujarat Floral Chemicals, LTD versus United States, docket number 24-1268.

[00:00:13] Speaker 00:
Counselor Drake, you have reserved five minutes of time for rebuttal.

[00:00:18] Speaker 00:
Is that correct?

[00:00:20] Speaker 00:
Yes.

[00:00:20] Speaker 00:
All right.

[00:00:21] Speaker 00:
You may begin.

[00:00:23] Speaker 04:
Good morning, Your Honors.

[00:00:24] Speaker 04:
May it please the court, Elizabeth Drake of Chagrin Associates.

[00:00:27] Speaker 04:
on behalf of the defendant, Appellant Dyken America, integrated.

[00:00:31] Speaker 04:
This case has one important legal issue that is presented to this court.

[00:00:37] Speaker 04:
Can commerce permissibly interpret its regulations to find that a non-physical input, such as electricity, is an input product that is primarily dedicated to production of a downstream product?

[00:00:50] Speaker 04:
Our position is yes.

[00:00:52] Speaker 04:
The trade court below erred by ruling that as a matter of law,

[00:00:57] Speaker 04:
Only an upstream product that bears a close physical relationship to the downstream product may be considered primarily dedicated to the production of that downstream product.

[00:01:08] Speaker 04:
The trade court stated that because energy is of universal application... Did you say that the court ruled with respect to upstream products?

[00:01:17] Speaker 04:
It ruled that electricity is not among the input products that can be covered by the attribution regulation

[00:01:24] Speaker 04:
for input products.

[00:01:26] Speaker 02:
Per se?

[00:01:27] Speaker 02:
You think they said that per se?

[00:01:29] Speaker 02:
I believe so, Your Honor.

[00:01:30] Speaker 02:
I don't believe it that way.

[00:01:32] Speaker 02:
I think that they were emphasizing the fact that the electricity was used to make many different products for more than one product, at least, in the production facility.

[00:01:43] Speaker 04:
So at page 1336 of the opinion, the court says they are not ruling on the issue of whether

[00:01:51] Speaker 04:
It can be a downstream product singular or downstream products plural.

[00:01:56] Speaker 04:
Instead, they said, because energy by its very nature can be used for many different products, it cannot be primarily dedicated

[00:02:04] Speaker 04:
to a downstream product, however defined, a single downstream product or multiple downstream product.

[00:02:09] Speaker 02:
I hear what you're saying.

[00:02:09] Speaker 02:
But a lot of the sentences at the end of the opinion, where they talk that, make that termination, I don't see them necessarily having a cursing rule, although I can understand the confusion you're mentioning.

[00:02:24] Speaker 04:
Yes.

[00:02:25] Speaker 04:
The fact that the decision is based on the nature of energy, that it can be used for many different end uses,

[00:02:35] Speaker 04:
makes it into a per se rule.

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And the fact that the court remanded directing commerce to eliminate the subsidy margin and not remanded to commerce to further justify its decision or explain how energy could be primarily dedicated to me supports the conclusion that it was a conclusion law.

[00:02:54] Speaker 02:
The language where they say electricity cannot be shown on this property.

[00:02:58] Speaker 04:
They do say that.

[00:02:58] Speaker 04:
To be primarily dedicated.

[00:03:00] Speaker 04:
Right.

[00:03:00] Speaker 04:
That's right, Your Honor.

[00:03:01] Speaker 04:
But they also say that

[00:03:04] Speaker 04:
It is energy and being a universal application is not remotely describable as an upstream product that is primarily dedicated

[00:03:13] Speaker 04:
to the production of the downstream product, as is required by the regulation.

[00:03:16] Speaker 02:
In this case.

[00:03:17] Speaker 02:
In this case.

[00:03:18] Speaker 02:
I mean, it doesn't say in this case, but how do you know that there's anything about this case, since this case is the one they're ruling on?

[00:03:25] Speaker 04:
So in this case, Your Honor, if the opinion was not a ruling of law but focused on the facts of this case, in the facts of this case, no one disputes that 100% of the energy that IWL produced

[00:03:39] Speaker 04:
was sold to GFCL for the production of downstream products.

[00:03:43] Speaker 02:
The CIT say that's not sufficient because it has to be primarily dedicated to the downstream product per the regulation.

[00:03:52] Speaker 04:
But that is not the basis of the decision, Your Honors.

[00:03:55] Speaker 04:
On page 1336, it says it's unnecessary for the court to decide whether the term downstream product plausibly could refer to a group consisting of all downstream products

[00:04:06] Speaker 04:
or a single downstream product.

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So the court specifically said, we are not deciding that issue.

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We are deciding that because of the nature of electricity itself, it cannot be primarily dedicated to a downstream product, however defined.

[00:04:22] Speaker 02:
If we disagree with your reading of the decision below,

[00:04:28] Speaker 02:
What is your response to that?

[00:04:30] Speaker 02:
That the decision should still be reversed.

[00:04:33] Speaker 04:
Because first of all, 100% of the energy was dedicated to the production of downstream products.

[00:04:41] Speaker 04:
It was in fact dedicated.

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And so the regulation says downstream product, singular at the beginning and downstream products, plural at the end.

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1 USC section 1 says that singular terms and plural terms

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may include one another.

[00:05:00] Speaker 04:
Commerce uses the singular and the plural interchangeably in the preamble to the regulations.

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And Commerce in the prior decision online paper from Indonesia clarified that even the singular term, domestic, excuse me, downstream product, may refer to automobiles.

[00:05:18] Speaker 04:
It may refer to Ford cars.

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It may refer to specific models of Ford cars.

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So the term downstream product, even in the singular,

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is not the same as the term subject merchandise.

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And that's a very important distinction.

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Commerce could have used the words primarily dedicated to subject merchandise in the regulation, but it did not.

[00:05:42] Speaker 01:
So if the, to borrow from the hypothetical that your opposing counsel uses three times in the brief, if there's a tiny, tiny amount of electricity

[00:05:58] Speaker 01:
which is just thrown onto the grid in the factory, and by calculating the amount of electricity that's used for each of the products, only 1% of that tiny amount of electricity is used to produce this particular product.

[00:06:14] Speaker 01:
Still, the entire subsidy is charged against the product.

[00:06:19] Speaker 01:
Is that your position?

[00:06:20] Speaker 04:
Yes, Your Honor, and that is fair.

[00:06:22] Speaker 04:
Because, Your Honor, that is taken into account in Commerce's calculations, because

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they attribute the subsidy to the input product and the downstream products, plural.

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So the denominator of the calculation includes all of those downstream products.

[00:06:39] Speaker 01:
But if the factory makes every other product for domestic consumption and only this one product for exportation, that you would have, and this is a whopping margin, this counterweight of your duty margin is what, 26% or something like that.

[00:06:55] Speaker 01:
And that would come from,

[00:06:58] Speaker 01:
60 cents worth of electricity spread over 30 products?

[00:07:02] Speaker 01:
That would strike me as quite so odd as to be almost per se

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an unreasonable construction of the regulation.

[00:07:15] Speaker 01:
Why is it reasonable?

[00:07:16] Speaker 01:
Explain to me in what universe that makes sense.

[00:07:19] Speaker 04:
It's reasonable because that was the benefit amount that was calculated.

[00:07:23] Speaker 04:
That was not disputed or found to be an error by the court below.

[00:07:26] Speaker 01:
That was the amount of the subsidy for the land.

[00:07:29] Speaker 04:
That was the amount of the subsidy for the land allocated across all of the products that benefited from it.

[00:07:35] Speaker 01:
But what's the justification for that?

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if only one of the products is being explored.

[00:07:40] Speaker 04:
Because that actually is a conservative approach.

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It dilutes the benefit.

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If you only included the subject merchandise in the denominator, you would have a much higher subsidy margin.

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By including all of the downstream products in the denominator of the calculation, you are diluting the benefit across all of those products.

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And that's found to be 36% across all, or 26% across all of those products.

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So that is actually

[00:08:07] Speaker 04:
a methodology that ensures that if it is benefiting more than one downstream product, that all of those downstream product sales values are included in the denominator, which thus results in a lower subsidy rate than would otherwise be the case.

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So that's what makes it logical for commerce to match the universe of downstream products used with benefit calculation to the universe of downstream products.

[00:08:32] Speaker 04:
looked at in the attribution regulation.

[00:08:35] Speaker 00:
Why would we look at this part where it says a primary purpose is to be for incorporation in a particular downstream product?

[00:08:46] Speaker 00:
Look at that in terms of the subject merchandise.

[00:08:49] Speaker 00:
It seems like everything in CVD law and anti-dumping law, you have to

[00:08:56] Speaker 00:
have a connection to the product that's under investigation.

[00:09:00] Speaker 00:
Here it seems like your argument takes us away from that.

[00:09:05] Speaker 04:
Your Honor, no, the subject merchandise is included in the downstream product.

[00:09:10] Speaker 00:
But so is other merchandise.

[00:09:13] Speaker 04:
Exactly, and that happens all of the time where

[00:09:16] Speaker 00:
Yes, and that's why, as I said, it seems to me that in dumping law and C.E.D.

[00:09:24] Speaker 00:
law, you have to show a nexus to the subject merchandise because, you know, one company can be producing a mirage of things, talking about magnets only a certain type of magnet may be subject to the investigation.

[00:09:40] Speaker 00:
Why would this be different here?

[00:09:42] Speaker 04:
So it's a difference between the dumping law, which focuses on the costs and prices of specific subject merchandise, and the countervailing duty law, where subsidies might not be tied to the specific subject merchandise.

[00:09:54] Speaker 04:
Subsidies might be received by a company that produces all kinds of products.

[00:09:58] Speaker 04:
And so the way that commerce accounts for that.

[00:10:00] Speaker 00:
But at some point, you have to tie it to a product.

[00:10:02] Speaker 04:
It has to relate to that product.

[00:10:05] Speaker 00:
And in this case, that relationship is called what?

[00:10:09] Speaker 00:
It's called primarily dedicated.

[00:10:11] Speaker 04:
Correct, exactly.

[00:10:13] Speaker 00:
It's primarily dedicated to the production of downstream products.

[00:10:18] Speaker 00:
And I take it those downstream products is the one that's being investigated?

[00:10:22] Speaker 04:
Correct.

[00:10:23] Speaker 04:
The PTFE chemical product is among the downstream products that benefited from the fact that IWL, subsidized by the government of India, produced energy and provided 100% of that energy

[00:10:38] Speaker 04:
to the producer, Lujerat, of both PTFE, the subject merchandise, and other chemical products.

[00:10:44] Speaker 01:
But the argument you're making now, it seems to me, it brings us back to the singular plural issue, because it depends on the word product to be interpreted to mean all products that are downstream of the electricity, right?

[00:10:59] Speaker 04:
In this case, it was.

[00:11:01] Speaker 04:
In the other cases that were cited in the CBE preamble, such as the lumber case,

[00:11:08] Speaker 04:
The timber was being provided to produce lumber.

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The lumber producers also produced sawdust, chips, other products that were also sold.

[00:11:18] Speaker 04:
It was still found to be primarily dedicated and used as an illustrative example of how commerce would determine whether or not an input was primarily dedicated to the production of a downstream product.

[00:11:29] Speaker 01:
But that seems to me doesn't necessarily answer the question that would be raised if the product

[00:11:37] Speaker 01:
the downstream product were sawdust.

[00:11:40] Speaker 01:
If sawdust was only 1% and the timber and lumber were 95% of what was produced by the factory.

[00:11:50] Speaker 01:
Let me ask you a process question here.

[00:11:52] Speaker 01:
I notice there's an empty chair over there.

[00:11:56] Speaker 01:
Normally, I would expect to see the government in the position of the Commerce Department.

[00:12:03] Speaker 01:
They're not here.

[00:12:05] Speaker 01:
They have not taken an appeal.

[00:12:07] Speaker 01:
Do you know why?

[00:12:12] Speaker 01:
Let me ask the question this way, because I normally, and I would say pretty much exclusively, when the government loses a case in a court, including the CIT, the case has to be processed through the Solicitor General's office, the Department of Justice, and the Solicitor General says either go or don't go.

[00:12:30] Speaker 01:
Correct.

[00:12:30] Speaker 01:
Now, I have no idea what the process was in this case.

[00:12:34] Speaker 01:
And maybe you can enlighten me.

[00:12:35] Speaker 01:
But normally, if the government doesn't show up, that's an indication that the Solicitor General's office decided not to take an appeal.

[00:12:44] Speaker 04:
Yes, Your Honor.

[00:12:45] Speaker 04:
I cannot speak to the decision-making process.

[00:12:47] Speaker 04:
I know that the remand was filed under respectful protest.

[00:12:52] Speaker 04:
I know that there have been other cases where the defendant intervener has appealed to this court.

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Commerce has not participated for whatever reason.

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And the defendant intervener has prevailed.

[00:13:01] Speaker 04:
So perhaps the judgment of the Civil Service General as to the merits of the case is not always the same as the judgment of this court as to the merits of the case.

[00:13:10] Speaker 04:
And so that's why defendant interveners have the right to bring an appeal, regardless of whether the government appeals.

[00:13:17] Speaker 00:
So this regulation we're looking at, it's been changed, right?

[00:13:21] Speaker 04:
In December, yes, there were revisions.

[00:13:24] Speaker 04:
And one of those revisions was to specify

[00:13:27] Speaker 04:
that electricity, energy, et cetera, can be one of the inputs found to be primarily dedicated to the production.

[00:13:33] Speaker 00:
Commerce in that regulation kind of tries to address at least in this case what's going on here.

[00:13:40] Speaker 00:
Correct.

[00:13:42] Speaker 00:
So the decision we have will have effect only with respect to the prior regulation, correct?

[00:13:51] Speaker 01:
Yes.

[00:13:52] Speaker 01:
Do you know if there are other proceedings under that regulation that are still pending?

[00:13:56] Speaker 04:
Yes, it only went into effect in December.

[00:14:00] Speaker 01:
No, I mean the prior regulation.

[00:14:02] Speaker 04:
Oh, possibly, yes.

[00:14:03] Speaker 04:
But you're not aware of any.

[00:14:05] Speaker 04:
I would believe, yes, there would still be one, because the new regulation only went into effect recently.

[00:14:11] Speaker 04:
So yes, there are existing proceedings.

[00:14:13] Speaker 02:
Are you aware of proceedings?

[00:14:17] Speaker 04:
There must be dozens, hundreds of reviews that are going on.

[00:14:21] Speaker 04:
I don't know which ones necessarily involve this particular regulation, but the new regulation only

[00:14:25] Speaker 04:
went into effect very recently.

[00:14:27] Speaker 04:
And so usually an administrative review takes longer than a year.

[00:14:30] Speaker 04:
An investigation takes longer than a year.

[00:14:32] Speaker 04:
So there would be many that are still pending that would not be impacted by the new regulation.

[00:14:37] Speaker 01:
And I take it that the new regulation doesn't have retroactive effect.

[00:14:40] Speaker 01:
No.

[00:14:41] Speaker 04:
That's only.

[00:14:42] Speaker 01:
So everything that is involved in this case is purely the old regulation.

[00:14:49] Speaker 01:
That is how I believe there's a fixed duty, which will either be paid or relieved.

[00:14:54] Speaker 04:
Correct.

[00:14:55] Speaker 04:
And I believe, Your Honor, one of the reasons that this court's opinion is so important in this case is that now that the new regulation is in effect, once it is imposed on an energy input, I believe respondents would say, but the CIT says energy is of universal application.

[00:15:13] Speaker 04:
It cannot be considered primarily dedicated because the new regulation still has the language primarily.

[00:15:19] Speaker 04:
dedicated.

[00:15:21] Speaker 00:
I wanted to ask you this question before you sat down and I know you're out of time, you're well into rebuttal time and all, but what difference does it make that in this case we're dealing with energy?

[00:15:35] Speaker 00:
Would it be the case that the same thing is true with respect to any third party input that deals with the consumable, something that's consumed in the manufacturing process, like oil, water, gas, things of that nature?

[00:15:52] Speaker 04:
Yes.

[00:15:52] Speaker 04:
The court below seems to be saying that if the input is capable of being used in other products that are not among the downstream product, then it cannot be primarily dedicated

[00:16:05] Speaker 04:
So even if, in fact, 100% of the input is used in the downstream product, if, in theory, it could be used in other products under the lower court's view, it cannot, by definition, be found to be primarily dedicated.

[00:16:19] Speaker 00:
So the fact that it's energy here really doesn't matter.

[00:16:21] Speaker 04:
Excuse me, sir?

[00:16:22] Speaker 00:
The fact that it's energy in this case doesn't matter.

[00:16:27] Speaker 04:
The court below does talk a lot about having a close physical relationship

[00:16:32] Speaker 04:
and being part of a link in the production chain, et cetera.

[00:16:37] Speaker 04:
So there did seem to be some concern about being a physical input rather than a non-physical input.

[00:16:43] Speaker 04:
But there was also this concern about it has to be something that can only be used for the downstream product, regardless of the factual situation, if it could have theoretically been used to produce something else.

[00:16:54] Speaker 04:
then it cannot be primarily dedicated.

[00:16:56] Speaker 04:
We don't read the language as that restricted.

[00:16:58] Speaker 00:
And one last question, for me anyway.

[00:17:02] Speaker 00:
The price charge between the electricity manufacturer and the primary product manufacturer, was that a market price?

[00:17:13] Speaker 04:
That price was not relevant, Your Honor.

[00:17:16] Speaker 04:
Because the benefit calculation was

[00:17:19] Speaker 04:
based just on the price paid for the land, the subsidized land, compared to a market benchmark for that land.

[00:17:25] Speaker 04:
That was the subsidy benefit.

[00:17:27] Speaker 04:
And then the benefit was divided over the combined sales of the input producer and the downstream producer, eliminating inter-company sales.

[00:17:36] Speaker 00:
So the subsidy conferred in this case was land.

[00:17:41] Speaker 04:
That's correct.

[00:17:41] Speaker 04:
It was the provision of land to the electricity producer.

[00:17:44] Speaker 01:
But to follow up on Judge Rainier's question, if they paid market price for the electricity, then I'm not sure I understand why that isn't an important factor cutting against the imposition of a duty.

[00:17:57] Speaker 04:
That would be a factor under upstream subsidy analysis.

[00:18:01] Speaker 01:
Why isn't it a factor here?

[00:18:03] Speaker 04:
Because the electricity producer and the chemical producer are cross-owned.

[00:18:08] Speaker 04:
And so Commerce said,

[00:18:10] Speaker 04:
because they're cross-owned, they can basically use each other's assets however they want.

[00:18:15] Speaker 01:
And so we don't need to... But if the use of the asset by the downstream manufacturer is at market cost, where's the benefit?

[00:18:29] Speaker 04:
The benefit is that the benefit went to someone.

[00:18:32] Speaker 04:
We don't know if it went to the electricity producer or to the chemical producer.

[00:18:36] Speaker 04:
The fact is they're cross-owned.

[00:18:38] Speaker 01:
And so you're saying that I infer that what you're saying is that because the

[00:18:45] Speaker 01:
cross-owned companies as a whole got a subsidy, that the fact that they didn't use the subsidy to produce the lower cost electricity doesn't matter because they got X amount of money and it benefited them generally.

[00:18:59] Speaker 01:
Exactly.

[00:18:59] Speaker 04:
And commerce is instructed by the statute not to look at what the effect of the subsidy is.

[00:19:05] Speaker 04:
Who gave it to whom?

[00:19:07] Speaker 04:
The fact that they're cross-owned and they got a subsidy means that that subsidy needs to be rebuilt.

[00:19:13] Speaker 00:
Otherwise, everybody would be setting up third party corporations and breaking up.

[00:19:17] Speaker 04:
And that's exactly why commerce promulgated this rule is to prevent the circumvention of the countervailing duty law by a company spinning off as a separate corporate entity its provider of electricity, its provider of water, its provider of other inputs and shielding subsidies to the production of those inputs.

[00:19:34] Speaker 01:
But that would apply in the upstream subsidy setting as well, wouldn't it?

[00:19:37] Speaker 04:
Well, they would have to be separate, totally separate, not cross-owned.

[00:19:41] Speaker 04:
Here you could just name it company A, company B, but we're still cross-owned and we can still enjoy each other's assets.

[00:19:47] Speaker 04:
The upstream subsidy provision only applies when there's no cross ownership.

[00:19:51] Speaker 02:
Their upstream subsidy provision comes from the statutory.

[00:19:55] Speaker 02:
Exactly.

[00:19:56] Speaker 02:
And is this downstream analysis?

[00:19:58] Speaker 02:
Is it only regulatory?

[00:20:00] Speaker 02:
Or is there any statutory basis for it?

[00:20:02] Speaker 04:
So the statutory basis is that the countervailing duty statute says that commerce shall countervail subsidies provided, whether indirectly or directly, with relation to the subject merchandise.

[00:20:16] Speaker 04:
It further says that commerce shall not take into account, whether it's indirect or direct, and shall not countervail a subsidy merely based on what effects it might have.

[00:20:27] Speaker 04:
It doesn't have to measure the effects of the subsidy in order to countervail it.

[00:20:31] Speaker 04:
So those statutory directions.

[00:20:34] Speaker 02:
That's the statutory basis for the regulation.

[00:20:36] Speaker 04:
Yes, because commerce was concerned that if it allowed companies to remain cross-owned but to

[00:20:44] Speaker 04:
shield some of those subsidies from countervailability, it wouldn't be fulfilling its statutory mandate to countervail all subsidies provided, whether directly or indirectly, to a subject merchandise.

[00:20:57] Speaker 00:
Okay.

[00:20:57] Speaker 00:
Thank you for your... Thank you for your indulgence.

[00:21:00] Speaker 00:
All right.

[00:21:03] Speaker 00:
Councilor Coyle?

[00:21:05] Speaker 03:
Coyle.

[00:21:07] Speaker 00:
Did I get it right?

[00:21:09] Speaker 03:
Very close, Your Honor.

[00:21:11] Speaker 03:
Good morning.

[00:21:12] Speaker 03:
Still morning.

[00:21:14] Speaker 03:
If they may please record, my name is Diane Acquia, representing the plaintiff of Valencia.

[00:21:21] Speaker 01:
So let me ask a question based on the last exchange with your opposing counsel.

[00:21:29] Speaker 01:
Is it the case that under the statutory upstream subsidy that if you have a

[00:21:39] Speaker 01:
a large subsidy that's given to a company in which there's cross-ownership that is not taken into account in determining the countervailing duty?

[00:21:55] Speaker 01:
Do you understand the question?

[00:21:56] Speaker 03:
No, I'm not sure I understand.

[00:21:58] Speaker 01:
OK.

[00:21:58] Speaker 01:
What I was understanding, counsel, of the say is that in the cross-ownership setting,

[00:22:05] Speaker 01:
that the regulation takes cognizance of the cross ownership and treats them effectively as the same thing.

[00:22:12] Speaker 01:
But I thought I understood her to say that that's not true of the statutory upstream subsidy.

[00:22:18] Speaker 01:
So that even though they are cross-honored, the two companies are treated as entirely separate.

[00:22:26] Speaker 01:
And therefore, a subsidy to A is not attributed to B. I think the difference between

[00:22:35] Speaker 03:
When commerce may investigate a subsidy under the upstream subsidy statute versus the cross-owned regulation that we were talking about, you can have, yes, depends on affiliation.

[00:22:52] Speaker 03:
Commerce has said in the preamble to the CBD regulations that when you have cross-ownership, you can go under this regulation.

[00:22:58] Speaker 01:
But I'm asking about the statute.

[00:23:01] Speaker 01:
With the upstream subsidy statute, does that, in effect, not apply to interrelated companies?

[00:23:09] Speaker 01:
What am I missing here?

[00:23:11] Speaker 01:
I had the impression that that was not the case, but counsel seemed to be saying that that's the way the statute works.

[00:23:19] Speaker 03:
So the upstream subsidy statute does not have a restriction on whether the two companies are cross-owned or not.

[00:23:29] Speaker 03:
In fact, they can be affiliated.

[00:23:31] Speaker 03:
And a subsidy can be investigated under the upstream subsidy statute, even if the companies are affiliated but not cross-owned.

[00:23:39] Speaker 03:
The major difference between investigating a subsidy under the upstream subsidy statute is that there are additional tests that the law has included.

[00:23:50] Speaker 03:
So for example, the upstream subsidy includes a determination of competitive benefit.

[00:23:58] Speaker 03:
includes a determination of whether it is a substantial cost.

[00:24:04] Speaker 03:
The subsidy represents a substantial cost of the downstream product.

[00:24:11] Speaker 03:
So it is essentially the path that commerce has taken here is it is in some respect a simpler path because all that commerce has to show is that the

[00:24:27] Speaker 03:
Subsidy is primarily dedicated to the downstream product.

[00:24:34] Speaker 01:
Products, according to the appellant here.

[00:24:40] Speaker 03:
Well, that is not the text of the regulation, Your Honor.

[00:24:43] Speaker 01:
Well, I understand.

[00:24:44] Speaker 01:
But the argument, based on 1 U.S.C.

[00:24:48] Speaker 01:
1, or whatever it is, is that that's what the regulation means.

[00:24:53] Speaker 03:
Well, the regulation cannot be read in that manner because it would be inconsistent with the overall definition of the subsidy essentially in Section 701A.

[00:25:12] Speaker 03:
So Section 7701A talks about commerce imposing countervailing duties based on the net countervailable subsidy provided

[00:25:23] Speaker 03:
directly or indirectly, but with respect to the manufacture, production, or export of a class or kind of merchandise.

[00:25:31] Speaker 03:
So it is not the downstream product, but a class or kind of merchandise.

[00:25:38] Speaker 03:
The statute then continues to say that if the ITC also determines that there is an injury to the domestic industry by reason of import of that merchandise, then there shall be imposed upon such merchandise

[00:25:53] Speaker 03:
a counter-available duty.

[00:25:55] Speaker 03:
So the structure of Section 701 of the Tariff Act indicates, expresses this fundamental principle that the counter-available subsidy is tied to a class or kind of merchandise.

[00:26:10] Speaker 02:
The response that what I understood opposing counsel to be arguing is that there's some sort of mathematical approach to it where you determine the percentage that would apply to the subject merchandise by looking at all of the downstream products.

[00:26:25] Speaker 02:
What's your response to that?

[00:26:28] Speaker 03:
I believe that we need to take a step back because what counsel is suggesting is true when you're looking at the calculation of the subsidy for the respondent.

[00:26:40] Speaker 03:
not for a cross-owned affiliate.

[00:26:43] Speaker 03:
So commerce normally attributes a subsidy to the products produced by the entity that receives the subsidy.

[00:26:52] Speaker 03:
So in that case, let's say GFCL, GFCL produces multiple downstream products, and as counsel has said, yes, the denominator will include all of those products.

[00:27:04] Speaker 03:
But that is the case for GFCL, the company that produces

[00:27:08] Speaker 03:
the subject merchandise, PTFE resin.

[00:27:12] Speaker 03:
What is happening here is that a cross-dome affiliate that is in a completely different business, it does not produce PTFE resin, rather it's in the business of producing wind turbines, happens to sell an incidental amount of electricity to its cross-dome affiliate.

[00:27:31] Speaker 03:
Now, the argument that council made, again, it's applicable as far as GFCO's denominator,

[00:27:39] Speaker 03:
I would understand that there.

[00:27:41] Speaker 03:
But when it comes to a cross-owned company, we first have to see if that electricity input is primarily dedicated.

[00:27:50] Speaker 03:
Then in the second step, if it's primarily dedicated, we will attribute that subsidy over the denominator that includes all of the products.

[00:28:01] Speaker 03:
But essentially, council is skipping the first step of the regulation, which says,

[00:28:07] Speaker 03:
The input from the Crosstown Company has to be primarily dedicated.

[00:28:12] Speaker 01:
Well, dedicated to what?

[00:28:15] Speaker 01:
It's where the runner meets the road.

[00:28:17] Speaker 03:
Yes.

[00:28:18] Speaker 01:
Because if it's to every product they produce, then they almost per se satisfy the regulation.

[00:28:23] Speaker 01:
If it's to one product, then that's a tougher sell.

[00:28:28] Speaker 03:
Yes, Your Honor.

[00:28:28] Speaker 03:
But textually, the regulation itself does say product.

[00:28:34] Speaker 03:
The regulation itself

[00:28:36] Speaker 03:
Now, if the Commerce's regulation itself would have used class or kind of merchandise, that would have solved the conundrum, but it doesn't.

[00:28:44] Speaker 03:
It uses downstream product.

[00:28:48] Speaker 02:
Is it singular?

[00:28:49] Speaker 02:
Is what you're emphasizing?

[00:28:50] Speaker 02:
Yes.

[00:28:51] Speaker 02:
How do you respond to the point made that it doesn't say subject merchandise?

[00:28:54] Speaker 02:
Because they could have chosen, Commerce could have chosen to use that language, and that would have been more clear as well.

[00:29:03] Speaker 03:
It's true, but the regulation has to be read in a harmonious way with the statute.

[00:29:09] Speaker 03:
So the fact that commerce selected to use downstream product, the only way to read that in a harmonious way with the statute is to read it as subject merchandise.

[00:29:23] Speaker 03:
And in fact, it is also the way it is described in the CBD preamble doesn't suggest that it would apply across

[00:29:31] Speaker 03:
a multitude of products, of all the downstream products.

[00:29:36] Speaker 03:
The CVD preamble also supports the interpretation that it is the product at issue.

[00:29:44] Speaker 01:
You're talking about the plastic automobile and appliance example.

[00:29:48] Speaker 03:
Yes.

[00:29:50] Speaker 03:
That is a particularly good example.

[00:29:53] Speaker 03:
But also the way that commerce

[00:29:57] Speaker 03:
explains what is the purpose of the subsidy.

[00:30:03] Speaker 02:
Can I ask you about the plastic example, just for a minute while you're thinking about that.

[00:30:07] Speaker 02:
On the plastic example, the emphasis there for why it doesn't apply is because the plastic is used for two different things.

[00:30:15] Speaker 02:
Is that how you read it, or is there something else that I should be understanding from that example?

[00:30:20] Speaker 03:
No, it's also the fact that plastic is versus appliances versus automobiles.

[00:30:28] Speaker 03:
You don't have that strong connection as you would have in the case of timber being used in the production of lumber, or semolina being used to make pasta, or in the case of the Indian lime paper case, pulp

[00:30:46] Speaker 03:
pulp logs and pulp being used.

[00:30:49] Speaker 02:
What if it was plastic for a particular device, say a laptop of a particular kind made by a particular manufacturer?

[00:31:01] Speaker 03:
Well, again, it is dependent on each case.

[00:31:04] Speaker 03:
So in that particular case, you'd have to see if that plastic was considered a link in the production process, which is another term that the CVD- No, we just look at primarily directed to.

[00:31:18] Speaker 02:
That's the language that a regulation uses.

[00:31:20] Speaker 02:
So why do we have to look at link?

[00:31:22] Speaker 02:
Why wouldn't we just say, this plastic is being made specifically for this product?

[00:31:29] Speaker 02:
It's primarily directed to the production of a particular kind of laptop.

[00:31:37] Speaker 03:
And there could be factual situations where that could be true.

[00:31:42] Speaker 03:
But as a general proposition, I think what the CVD preamble is trying to say is that plastic is not going to be

[00:31:51] Speaker 03:
It's not, by definition, primarily dedicated to an automobile production or to an appliance.

[00:32:00] Speaker 02:
Do you believe the CIT's decision to say electricity can never be primarily directed to the creation of anything?

[00:32:07] Speaker 03:
No.

[00:32:07] Speaker 03:
It is in this specific case, Your Honor, because the facts here are quite extreme.

[00:32:14] Speaker 03:
The electricity provided was incidental

[00:32:18] Speaker 03:
IWL's production itself, and the quantity of the electricity that was sold was minute.

[00:32:30] Speaker 03:
The question is, that electricity can it even be traced all the way to the production of such merchandise?

[00:32:35] Speaker 00:
Why wasn't it found to be de minimis?

[00:32:38] Speaker 00:
The amount of electricity used, why wasn't it, at the end of the day, just considered de minimis?

[00:32:43] Speaker 00:
Because it wasn't much at all, was it?

[00:32:45] Speaker 00:
It was the excess, electricity,

[00:32:49] Speaker 00:
from the production of wind turbines?

[00:32:52] Speaker 03:
It was the electricity produced by two prototype turbines.

[00:32:58] Speaker 01:
That they were testing.

[00:32:59] Speaker 03:
That they were testing, yes.

[00:33:01] Speaker 03:
So essentially testing the turbines itself goes to the core production of IWO, which is not a production of electricity.

[00:33:09] Speaker 03:
Their core production is to make wind turbine generators.

[00:33:14] Speaker 03:
The subsidy that they got from the SIDC was a lease subsidy for production of turbines, not of electricity.

[00:33:24] Speaker 03:
Electricity was incidental to their main production of turbines.

[00:33:30] Speaker 00:
And the phrase link in the overall production chain, that's actually taken out of the CBD preamble.

[00:33:39] Speaker 03:
That's correct, Your Honor.

[00:33:41] Speaker 03:
Yes, so this was one of the ways that the CVD preamble.

[00:33:45] Speaker 03:
So if it's not clear what the regulation says, what primarily dedicated is just on the face of the regulation, the CVD preamble has these helpful examples to indicate what is considered to be primarily dedicated and how commerce is going to make this determination in cases going forward.

[00:34:09] Speaker 03:
And there have been other cases where commerce indeed has found, for example, there is one case that involves a Korean steel producer, POSCO, and one of its cross-stone affiliate, POSCO Plantek.

[00:34:26] Speaker 03:
POSCO Plantek produces equipment that it sells

[00:34:32] Speaker 03:
for multiple types of jobs.

[00:34:35] Speaker 03:
It's not dedicated specifically to steel production, and that is exactly what Commerce found.

[00:34:41] Speaker 03:
That production, that equipment, is not dedicated to steel production.

[00:34:46] Speaker 03:
It can be used in multiple types of industrial projects, so it is not primarily dedicated.

[00:34:54] Speaker 03:
So there are multiple examples in commerce's practice that we have tried to illustrate in our briefs of what is primarily dedicated and what is not.

[00:35:04] Speaker 03:
And the electricity here, the facts here, are just so extreme that we would ask the court to sustain the CIT's decision.

[00:35:15] Speaker 00:
OK.

[00:35:15] Speaker 00:
Thank you for your argument.

[00:35:18] Speaker 00:
Thank you.

[00:35:18] Speaker 00:
I'm sorry.

[00:35:19] Speaker 00:
Any other questions?

[00:35:32] Speaker 00:
Council, we will restore your rebuttal time.

[00:35:35] Speaker 04:
Thank you, Your Honor.

[00:35:36] Speaker 04:
I greatly appreciate that.

[00:35:38] Speaker 04:
First of all, going to the downstream products singular, downstream products plural.

[00:35:44] Speaker 04:
Commerce has used them interchangeably.

[00:35:47] Speaker 04:
And in the CBD preamble, talking about what the purpose of this rule is, it highlights the lumber case, it highlights the pasta case, and it says

[00:35:56] Speaker 04:
We believe that in situations such as these, the purpose of a subsidy provided to the input producer is to benefit the production of both the input and downstream products plural.

[00:36:08] Speaker 04:
So we believe that it is consistent with the way that commerce established the regulation to read downstream product singular and downstream products plural as interchangeable.

[00:36:21] Speaker 01:
How do you view the

[00:36:23] Speaker 01:
third example in the preamble of the plastic automobile appliance.

[00:36:26] Speaker 04:
It's a very short example to attribute subsidies to a plastics company to the production of cross owned corporations producing appliances and automobiles.

[00:36:36] Speaker 04:
So it's not clear exactly what that situation would be.

[00:36:38] Speaker 04:
It sounds to me like if the plastics company is providing it to one company that produces automobiles and another company that produces appliances and your case is on appliances, it's not being

[00:36:51] Speaker 04:
primarily dedicated to the appliance producer's downstream products, because it's also being sold to the automobile producer.

[00:37:00] Speaker 04:
But in our case, 100% of the energy is being provided to the producer of the PTFE, who also produces other downstream products with that energy.

[00:37:10] Speaker 04:
So it's distinguishable from a case where a plastics company has two separate

[00:37:14] Speaker 04:
producers, one of automobiles.

[00:37:16] Speaker 04:
It doesn't say that.

[00:37:18] Speaker 04:
Because that's how I understand it.

[00:37:22] Speaker 04:
It's not, I agreed it's not completely clear.

[00:37:25] Speaker 00:
Do you have a citation to the statute that gives commerce the authority to promulgate the regulation that we're dealing with?

[00:37:33] Speaker 04:
Yes, your honor.

[00:37:33] Speaker 04:
That would be 16

[00:37:40] Speaker 04:
71A, 19 USC 1671A that requires commerce to impose a countervailing duty on merchandise that if it finds that the government is providing directly or indirectly a countervailable subsidy with respect to the manufacturer production or export of that merchandise.

[00:38:01] Speaker 00:
Okay, thank you.

[00:38:02] Speaker 04:
And I would just like to quickly address the example that Ms.

[00:38:07] Speaker 04:
Playa raised of the Cold World Steel case on Korea, where they found that the subsidies to the input producer were not primarily dedicated to the downstream product, because those input products were in fact being provided to other uses and not just to the downstream product producer.

[00:38:28] Speaker 04:
That is distinguishable for this case, where

[00:38:31] Speaker 04:
100% of the energy was, in fact, sold solely to the downstream producer that produced PTFE.

[00:38:39] Speaker 04:
And so this is a consistent way of reading the regulation to actually look at the facts of each case and not just the theory of whether the input could have been used for other uses.

[00:38:49] Speaker 04:
Here, commerce based its decision on the facts.

[00:38:52] Speaker 04:
It was supported by the facts.

[00:38:53] Speaker 04:
And therefore, we believe the CIT was an error in setting that site.

[00:38:58] Speaker 04:
Thank you.

[00:38:59] Speaker 00:
Well, we think the parties were the arguments.

[00:39:02] Speaker 00:
This court now rises in recess.