Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws

Federal RegisterMay 9, 2023

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DEPARTMENT OF COMMERCE

International Trade Administration

19 CFR Part 351

[Docket No. 230424-0112]

RIN 0625-AB23

Regulations Improving and Strengthening the Enforcement of Trade Remedies Through the Administration of the Antidumping and Countervailing Duty Laws

AGENCY:

Enforcement and Compliance, International Trade Administration, Department of Commerce.

ACTION:

Proposed rule; request for comments.

SUMMARY:

Pursuant to its authority under Title VII of the Tariff Act of 1930, as amended (the Act), the U.S. Department of Commerce (Commerce) proposes to amend its regulations to enhance, improve and strengthen its enforcement of trade remedies through the administration of antidumping duty (AD) and countervailing duty (CVD) laws. In this proposed rule, Commerce would revise many of its procedures, codify many areas of its practice, and enhance certain areas of its methodologies and analyses to address price and cost distortions in different capacities. Commerce is seeking public comment on these proposed revisions to the AD and CVD regulations.

DATES:

To be assured of consideration, written comments must be received no later than July 10, 2023.

ADDRESSES:

Submit electronic comments only through the Federal eRulemaking Portal at

https://www.Regulations.gov,

Docket No. ITA-2023-0003. Comments may also be submitted by mail or hand delivery/courier, addressed to Lisa W. Wang, Assistant Secretary for Enforcement and Compliance, Room 18022, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230. An appointment must be made in advance with the Administrative Protective Order (APO)/Dockets Unit at (202) 482-4920 to submit comments in person by hand delivery or courier. All comments submitted during the comment period permitted by this document will be a matter of public record and will be available on the Federal eRulemaking Portal at

https://www.Regulations.gov

. Commerce will not accept comments accompanied by a request that part or all the material be treated as confidential because of its business proprietary nature or for any other

reason. Therefore, do not submit confidential business information or otherwise sensitive or protected information.

Any questions concerning the process for submitting comments should be submitted to Enforcement & Compliance (E&C) Communications office at

ECCommunications@trade.gov

or to Ariela Garvett, Senior Advisor, at

Ariela.Garvett@trade.gov

. Inquiries may also be made of the E&C Communications office during normal business hours at (202) 482-0063.

FOR FURTHER INFORMATION CONTACT:

Scott McBride, Associate Deputy Chief Counsel, at (202) 482-6292, Ian McInerney, Attorney, at (202) 482-2327, Hendricks Valenzuela, Attorney, at (202) 482-3558, or Brishailah Brown, Attorney, at (202) 482-5051.

SUPPLEMENTARY INFORMATION:

General Background

Title VII of the Act vests Commerce with authority to administer the AD/CVD trade remedy laws. In particular, section 731 of the Act directs Commerce to impose an AD order on merchandise entering the United States when it determines that a producer or exporter is selling a class or kind of foreign merchandise into the United States at less than fair value (

i.e.,

dumping), and material injury or threat of material injury to that industry in the United States is found by the U.S. International Trade Commission (ITC). Section 701 of the Act directs Commerce to impose a CVD order when it determines that a government of a country or any public entity within the territory of a country is providing, directly or indirectly, a countervailable subsidy with respect to the manufacture, production, or export of a class or kind of merchandise that is imported into the United States, and material injury or threat of material injury to that industry in the United States is found by the ITC.

A countervailable subsidy is further defined under section 771(5)(B) of the Act as existing when: a government or any public entity within the territory of a country provides a financial contribution; provides any form of income or price support; or makes a payment to a funding mechanism to provide a financial contribution, or entrusts or directs a private entity to make a financial contribution, if providing the contribution would normally be vested in the government and the practice does not differ in substance from practices normally followed by governments; and a benefit is thereby conferred. To be countervailable, a subsidy must be specific within the meaning of section 771(5A) of the Act.

On September 20, 2021, Commerce revised its scope regulations (19 CFR 351.225) and issued new circumvention (19 CFR 351.226) and covered merchandise (19 CFR 351.227) regulations.

See Scope and Circumvention Final Rule,

86 FR 52300 (September 20, 2021).

See also Scope and Circumvention Proposed Rule,

85 FR 49472 (August 13, 2020) (hereinafter “Scope and Circumvention Final Rule” and “Scope and Circumvention Proposed Rule”).

The revised and new regulations became effective November 4, 2021.

We have subsequently identified some corrections and improvements to the scope, circumvention, and covered merchandise referral regulations. On November 28, 2022, Commerce issued a proposed regulation which provided some technical amendments to those regulatory provisions.

This proposed rule provides additional substantive amendments to those provisions.

Id.

See Administrative Protective Order, Service, and Other Procedures in Antidumping and Countervailing Duty Proceedings: Proposed Rule,

87 FR 72916, 72921-27 (November 28, 2022). A final rule to those regulatory proposals is forthcoming.

On November 18, 2022, Commerce issued an advanced notice of proposed rulemaking, indicating that it was considering issuing a regulation that would address the steps taken by Commerce to determine the existence of a particular market situation (PMS) that distorts the costs of production.

Determining the Existence of a Particular Market Situation That Distorts Costs of Production; Advanced Notice of Proposed Rulemaking,

87 FR 69234 (November 18, 2022) (hereinafter “PMS ANPR”). Commerce requested public comment for 30 days in response to three questions which it posed in that notice, and received 19 comments.

Explanation of the Proposed Rule

We are proposing several modifications to the AD and CVD regulations to clarify and bring them into conformity with our practice and procedures, as well as to enhance and strengthen other regulatory provisions to enforce the trade remedy laws more effectively. The proposed changes are summarized here and discussed in greater detail below. We invite comments on these proposed regulatory changes and clarifications, including suggestions to improve these proposed regulations.

• Modify section 104 to clarify that references, citations, and hyperlinks to most documents provided in a submission do not incorporate the underlying referenced information on to the official record. The modification also explains the exception and the documents that meet the exception to this rule. This clarification is necessary because some interested parties over time have failed to put information on the official record such as website printouts and academic literature, creating confusion and inefficiencies.

• Modify sections 225, 226, 227, 301 and 306 to update and address scope, circumvention and covered merchandise issues that have arisen since Commerce amended and created those regulations in 2021. This includes addressing merchandise commercially produced, but not yet imported; the acceptance of pre-initiation submissions in response to scope applications and circumvention inquiry requests; the revision of time limits if Commerce seeks clarification on a scope application or circumvention inquiry request; clarification of when section 301 does and does not apply to such proceedings; a clarification of when “continue to suspend” language applies to entries pre-initiation in scope and covered merchandise proceedings; revisions to allow the sharing of information between AD and CVD segments when scope, circumvention, or covered merchandise inquiries for companion orders are conducted on the AD segment; providing greater detail on the application of scope clarifications; and allowing for extensions for initiation and preliminary circumvention determinations.

• Modify section 301 to allow Commerce to place previous analysis and calculation memoranda from other segments or proceedings on the record after written arguments have been submitted without being required to allow other parties to submit new factual information in response. Interested parties may still submit arguments as to the relevance of the agency analysis and calculation memoranda, but the submission of new factual information so late in the segment created unreasonable administrative burdens on the agency.

• Modify section 301 to address notices of subsequent authority submitted on the record and allow for the filing of responsive arguments and factual information.

• Modify section 308 to include the CVD adverse facts available hierarchy.

• Modify sections 408 and 511, and create new section 529, to address foreign government inactions that benefit foreign producers. This includes codifying Commerce's practice of determining that countervailable subsidies are conferred by certain unpaid or deferred fees, fines, and penalties. It also addresses the consideration of evidence on the record of weak, ineffective, or nonexistent property, intellectual property, human rights, labor, and environmental

protections and the impact that the lack of such protections has on the prices and costs of products in selecting surrogate values and benchmarks.

• Create a new section 416 to address a determination of the existence of a PMS, including a PMS such that the cost of materials and fabrication or other processing of any kind does not accurately reflect the cost of production in the ordinary course of trade. This regulation takes into consideration the comments received from the public in response to the

PMS ANPR

and addresses the elements that Commerce may consider in determining if a market situation exists that likely distorts the cost of production and if the market situation is particular. It also provides 12 examples of scenarios in which Commerce might determine the existence of a PMS which distorts the cost of production and indicates that allegations of a PMS must be accompanied on the record by relevant information reasonably available to the interested party making the allegation.

• Modify sections 503, 505, 507, 508, 509, 520, and 525 to provide guidance to the public by incorporating our long-standing practices into the regulations. This includes addressing subsidies provided to support compliance with government-imposed mandates; treatment of outstanding loans as grants after three years of no payments of interest and principal; the use of an outside investor standard in determining the benefit of an equity infusion; the allocation period in measuring the benefit of an equity infusion; the allocation period in measuring the benefit of debt forgiveness; the treatment of certain income tax subsidy benefits as not tied with respect to particular markets or products; the use of a five-year period to determine if the premium rates charged on export insurance are inadequate to cover long-term operating costs and losses; and the use of alternative methodologies in attributing export subsidies and domestic subsidies to certain products exported and/or sold by a firm.

1. References, Citations, and Hyperlinks Made in a Submission Do Not Place the Referenced Underlying Information on the Official Record—§ 351.104(a)(1)

Section 516A(b)(2) of the Act provides a definition of Commerce's administrative record in AD/CVD proceedings and § 351.104(a)(1) describes in greater detail the information contained on the official record. Nonetheless, interested parties sometimes make the mistake of merely citing sources, or placing Uniform Resource Locator (URL) website information, or hyperlinks, in their submissions to Commerce, and then later presuming the information contained at the source documents is considered part of the record. This becomes a problem, for example, when parties submit their case briefs and rebuttal briefs on the record, pursuant to § 351.309, and quote from, or otherwise rely on, information or data derived from the cited sources that were never submitted on the official record. Commerce at that point has one of two choices—either reject the submissions as containing untimely filed new factual information or inquire further with the parties to put additional information on the record. In light of the statutory and regulatory time limits by which Commerce must abide, gathering further information is often not a reasonable or viable option, particularly at such a late stage in the segment of the proceeding.

Therefore, Commerce is proposing that additional language be added to § 351.104(a)(1) to reflect its long-standing interpretation of the official record; expressly articulating that for the vast majority of source materials, mere citations and references, including hyperlinks and website URLs, do not incorporate the information located at the cited sources onto the official record. This is true whether the citation is to sources such as textbooks, academic or economic studies, foreign laws, newspaper articles, or websites of foreign governments, businesses, or organizations.

If an interested party wishes to submit information on the record, it must submit the actual source material in a timely manner, and not merely share internet links or citations to those sources in its questionnaire responses, submissions, briefs, or rebuttal briefs. Placement of such information on the record is the responsibility of the interested party and it is not Commerce's obligation to search for the information referenced by the links and citations. Commerce does not have the resources or time to independently gather such external data or information.

Information on websites can, and frequently does, change. At the time a weblink is placed on the record, the website might contain certain information, but later in the segment of the proceeding, that website and the information contained on it might change. We therefore emphasize that if interested parties wish to submit on the official record information derived from a website, they must make copies of each page and submit those copies on the record in a timely fashion.

Notably, there are a few limited exceptions to this understanding of the official record which Commerce adopted through its practice over the years. Commerce therefore also proposes identifying in the regulation those exceptions, all of which relate to certain publicly available sources. Commerce expects that, by including such information in the regulation, interested parties will better understand those limited exceptions, and may rely on those specified references and citations in making their arguments in those specific circumstances.

Specifically, parties may cite U.S. statutory and regulatory language, as well as publicly available U.S. court decisions and orders, without submitting copies of those legal sources on the record. Likewise, copies of certain U.S. legislative history sources, such as the Statement of Administrative Action,

and specific World Trade Organization international trade agreements identified in the regulation need not be submitted on the official record for Commerce to consider arguments pertaining to those sources. Finally, Commerce and the ITC publish determinations in the

Federal Register

, as well as public decision memoranda/reports which are adopted by those

Federal Register

notices, and copies of those determinations, memoranda, and reports need not be submitted on the record.

See

Statement of Administrative Action Accompanying the Uruguay Round Agreements Act, H.R. Doc. 103-316, Vol. 1 (1994) (SAA).

Commerce's preliminary and final issues and decision memoranda and ITC preliminary and final injury reports are unique among documents that are unpublished in the

Federal Register

but can be incorporated on the record by citation. For example, “Final Results of Remand Redetermination,” issued pursuant to court orders or under direction by a United States Mexico Canada Agreement dispute panel, preliminary and final section 129 determinations, issued pursuant to 19 U.S.C. 3538 (section 129 of the Uruguay Round Agreements Act) and the direction of the United States Trade Representative, and scope rulings, issued pursuant to § 351.225, are not published in the

Federal Register

. Accordingly, each of those Commerce determinations cannot be incorporated onto the record of another segment merely by citation under the § 351.104(a)(1) exception. Thus, remand redeterminations, section 129 determinations, and scope rulings must each be submitted on the official record of another segment or proceeding for Commerce to consider the contents and analysis of those determinations in that segment or proceeding. On the other hand, for example, if

only

the outcome of a section 129 determination is being referenced, (and not the parties' arguments, the facts, or Commerce's analysis), then the notice which Commerce publishes in the

Federal Register

at the very end of the section 129 segment that summarizes the ultimate results of the section 129 process can be cited for that limited purpose, because that conclusion has been published in the

Federal Register

See, e.g., Implementation of Determinations Pursuant to Section 129 of the Uruguay Round Agreements Act,

81 FR 37180 (June 9, 2018).

To be clear, the Commerce-authored “Issues and Decision Memoranda”

adopted by

Federal Register

notices are not the separate calculation and analysis memoranda that Commerce frequently uses in its proceedings. Calculation and analysis memoranda, which include, for example, initiation checklists, respondent selection memoranda, new subsidy allegation memoranda, and affiliation/collapsing memoranda from other proceedings or other segments of the same proceeding, are not on the record before Commerce unless they have been placed on the record by Commerce or one of the interested parties to the proceeding.

In sum, the language being proposed to include in § 351.104(a)(1) explains that if parties cite sources without submitting the source data or information on the record, unless Commerce or another interested party placed the information on the record or the information meets one of the articulated exceptions, Commerce will not consider the underlying information to be part of the official record and will not consider that underlying information in its analysis.

2. Conducting Scope Inquiries of Merchandise Not Yet Imported, But Commercially Produced and Sold—§ 351.225(c)(1)

It is Commerce's practice to allow parties, including importers of non-subject merchandise, to request a scope ruling, even if the product at issue is not yet imported, provided the product is in actual production. This language was codified in § 351.225(c)(1) (“An interested party may submit a scope ruling application requesting that the Secretary conduct a scope inquiry to determine whether a product,

which is or has been in actual production by the time of the filing of the application,

is covered by the scope of an order.”) (emphasis added). The benefit of allowing a scope ruling in that situation are twofold. First, it does not require an exporter and importer to expend the time and resources to ship and import its commercially traded merchandise to the United States for the sole purpose of getting a scope ruling. Second, it does not require Commerce to expend the time and resources to make a scope determination on a product that the company may decide to never export to the United States again, depending on the outcome of the agency's scope ruling.

The phrase “actual production” is not defined in the regulation. However, under Commerce's practice, for a product to be “actually” produced, it must be commercially manufactured and sold,

i.e.,

produced for sale in a market and then subsequently purchased.

That market could be the home market or a third country market, but in either case, it must be produced for sale and then sold in that market. In other words, the agency will not consider samples, prototypes, or mere models of merchandise to be “actually in production.” The policy reasons for that interpretation are clear: Commerce is under no obligation to issue a scope ruling for a product that may never be commercially produced, sold, or exported, and it would be unreasonable for the agency to devote time and resources to reviewing a product that is neither traded domestically nor internationally. As Commerce acknowledged in the Preamble to the

Scope and Circumvention Final Rule,

“Commerce sometimes conducts scope inquiries on merchandise that is already in commercial production but has not yet been exported to the United States. . . .”

See, e.g.,

Commerce's Letters, Second Unacuna Scope Inquiry Rejection Letter, dated December 23, 2014 (ACCESS barcode: 3249258-01) (“{Commerce} does not consider prototypes or models of merchandise to be `actually in production.' For merchandise to be `actually in production,' it has to be commercially produced—in other words, produced for sale in a market. That market could be the home market or a third country market, but in either case, it has to be produced for sale”); and “RNG International, Inc.'s Scope Inquiry: Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules from the People's Republic of China,” dated March 15, 2022 (ACCESS barcode: 4221972-01) (“Commerce does not consider prototypes or models of merchandise to be `in actual production.' For merchandise to be `in actual production,' it must be commercially produced—in other words, produced for sale in a market. That market could be the home market or a third country market, but in either case, it must be produced for sale”).

See Scope and Circumvention Final Rule,

86 FR 52314.

For consistency with Commerce's practice and because it would not be sensible to expend agency resources on a product which may never realistically enter the commerce of United States and become “subject” to an AD or CVD order, Commerce proposes certain revisions to § 351.225(c)(1). Commerce proposes adding language to § 351.225(c)(1) that indicates that if a product has not been imported into the United States, the scope applicant must provide additional evidence that the product was actually produced and sold. In addition, Commerce proposes adding a new provision, paragraph (c)(2)(x), to § 351.225, to direct an applicant to provide such evidence under this scenario.

3. Allowing Pre-Initiation Submissions in Response to Scope Ruling Applications and Circumvention Inquiry Requests—§§ 351.225(c)(3) and 351.226(c)(3)

The regulations under §§ 351.225, 351.226, and 351.227 currently do not provide guidance or procedures for pre-initiation submissions from interested parties other than the applicant in a scope inquiry and the requester in a circumvention inquiry. We indicated in the Preamble to the

Scope and Circumvention Final Rule

that we anticipated that after a scope ruling application has been submitted to the record, parties will have the opportunity to challenge the adequacy of the application before a decision is made to initiate or not initiate.

Subsequent to the revision of § 351.225 and creation of § 351.226, we discovered that the lack of guidance in the regulations with respect to such submissions has created some confusion. Accordingly, we have determined to revise the regulations in §§ 351.225(c)(3) and 351.226(c)(3) to provide interested parties, other than the applicant or requestor, a clear opportunity to submit comments to Commerce on the adequacy of the application or request, within 10 days after the submission of the application or request.

Id.,

86 FR 52316 (explaining that parties will “have an opportunity to file arguments with Commerce before initiation”).

Notably, the factors we consider in initiating a scope inquiry differ from a circumvention inquiry, in that we normally do not look at, for example, patterns of trade in most scope cases in determining whether to initiate a scope ruling. Because a circumvention inquiry often requires Commerce to review such additional information, we further propose that for circumvention inquiries, specifically, interested parties also be permitted to submit new factual information regarding the adequacy of the circumvention inquiry request with their comments, and then allow the requestor five days after the submission of the new factual information, to have an opportunity to submit comments and factual information to rebut, clarify, or correct the interested parties' new factual information. It is our expectation that, by allowing for both comments and new factual information in this manner, the record will be even more detailed for Commerce in determining whether the criteria needed to initiate a circumvention inquiry are satisfied.

4. Time Limit Revisions If Commerce Seeks Clarification on the Application or Request—§§ 351.225(d)(1) Introductory Text and (d)(1)(ii) and (iii), as Well as §§ 351.226(d)(1) Introductory Text and (d)(1)(ii) and (iii)

The regulations currently allow for Commerce only to reject or accept a scope application or circumvention inquiry request. However, there are instances in which the application or request may be generally acceptable, but Commerce still needs clarification on one or more aspects of the submission. We propose revising and adding provisions to both the scope and circumvention regulations to revise the time limitation for initiation if Commerce seeks clarification from the applicant or requestor and the applicant or requestor, in turn, provides responses to Commerce's requests for further information. Specifically, we would revise §§ 351.225(d)(1) introductory text and 351.226(d)(1)(ii) to allow for Commerce's decision to initiate or not initiate an inquiry to be made within 30 days after the submission of the applicant's or requestor's timely response to Commerce's questions. Under the current regulations, if Commerce does not reject a scope ruling application or initiate a scope inquiry within 31 days after the filing of the application, the application will be deemed accepted and the scope inquiry will be deemed initiated.

Likewise, a new § 351.225(d)(1)(iii) would be added to the scope regulations to allow for deemed initiation of a scope inquiry 31 days after the applicant's timely response to Commerce's questions were submitted with the agency. Further, a new § 351.226(d)(1)(iii) would be added to the circumvention regulations to clarify that Commerce will make its decision to initiate or not initiate a circumvention inquiry after it receives the requestor's timely response to Commerce's questions.

See

§ 351.225(d)(1)(ii).

It is Commerce's expectation that such a proposed change to the regulations, basing the initiation deadline on timely responses to the questions issued by Commerce seeking clarification of the application or circumvention inquiry request, instead of the date of submission of the application or request itself, will ensure a fair and more efficient process.

5. Clarifying What Provisions Under §§ 351.225, 351.226, and 351.227 Are the “Otherwise Specified” Procedures in Which §§ 351.301 Through 351.308 and 351.312 Through 351.313 Do Not Apply—§§ 351.225(f), 351.226(f), and 351.227(d)

Current §§ 351.301 through 351.308 and 351.312 and 351.313, generally, outline the procedures for the submission and use of factual information in Commerce proceedings. In particular, § 351.301 establishes the time limits for submissions of factual information. When Commerce issued its scope, circumvention, and covered merchandise regulations in the

Scope and Circumvention Final Rule,

Commerce included several new timing provisions that were intended to supplant certain provisions of § 351.301. Commerce intended to specify separate and distinct time limits for scope inquiries, circumvention inquiries, and covered merchandise referrals. Specifically, §§ 351.225, 351.226, and 351.227 all contain the same clause, “{u}nless otherwise specified, the procedures as described in subpart C of this part (§§ 351.301 through 351.308 and 351.312 through 351.313) apply to this section.”

Within §§ 351.225, 351.226, and 351.227, other time limitations have been specified for the submission of questionnaire responses and other documents. However, Commerce did not, in those provisions, specifically indicate where § 351.301 did not apply. Accordingly, we propose clarifying this matter in the regulations.

See

§§ 351.225(a), 351.226(a), and 351.227(a).

Specifically, Commerce proposes adding a new clause to §§ 351.225(f), 351.226(f), and 351.227(d) that expressly states that the time limits in these regulations are distinct and separate from the procedures outlined in § 351.301. For example: “{t}he procedures as described in subpart C of this part (§§ 351.301 through 351.308 and 351.312 through 351.313) do not apply to this paragraph, but are unique to scope ruling inquiries.” These changes will clarify which time limitations apply across scope inquiries, circumvention inquiries, and scope clarifications, respectively.

Section 351.302(b) allows Commerce to extend “any time limit,” “unless expressly precluded by statute,” for “good cause,” and Commerce is not intending to modify that authority through this revision to its regulations. “Good cause,” is not a defined set of circumstances, and is determined on a case-by-case basis. We note that in the

Scope and Circumvention Proposed Rule,

85 FR 49496, proposed § 351.225(e)(1) stated that “Situations in which good cause has been demonstrated may include, but are not limited to” two examples, while in the final version of § 351.225(e)(2), it stated that “Situations in which good cause has been demonstrated may include,” followed by the same examples, with no explanation of why the “but are not limited to” distinguishing language was removed.

See Scope and Circumvention Final Rule,

86 FR 52375. To be clear, it was not Commerce's intention by adjusting the language between the

Proposed

and

Final Scope and Circumvention Rules

to suggest that the two examples of “good cause” found in § 351.225(e)(2) are exhaustive, which is evidenced by the continued use of the permissive phrase “may include.” It continues to be Commerce's understanding that any time the “good cause” standard appears in the AD and CVD regulations, a determination of “good cause” is left to the discretion of Commerce, based on the facts before it in a given case.

6. Clarifying Continued Suspension of Liquidation With Respect to Certain Segments of Commerce's Proceedings—§§ 351.225(l)(1) and 351.227(l)(1)

In scope and covered merchandise inquiries, if Commerce has issued a final determination in an administrative review, pursuant to § 351.212(b), or a rescission notice, pursuant to § 351.213(d), or automatic liquidation instructions are forthcoming, in accordance with § 351.212(c), and around the same time period Commerce determines to initiate a scope inquiry or covered merchandise inquiry, the current regulations do not indicate whether, upon initiation of the scope or covered merchandise segment of the proceeding, the suspension of liquidation of entries covered by the final determination, automatic liquidation instructions, or rescissions should be “continued” as that term is used in §§ 351.225(l)(1) and 351.227(l)(1). This issue arises if U.S. Customs and Border Protection (CBP) has not yet liquidated those entries, in accordance with 19 CFR part 159, when Commerce issues its suspension instructions under §§ 351.225(l)(1) and 351.227(l)(1).

We, therefore, propose modifications to those two provisions to explain that suspension of such entries should continue, as well as suspension of any other entries suspended by CBP in administering the AD and CVD laws and not yet liquidated, pending the completion of the scope or covered merchandise inquiries.

At this time, Commerce does not believe a similar adjustment to § 351.226(l)(1) is appropriate because the nature of a circumvention inquiry is such that merchandise which would have been covered by the aforementioned assessment instructions would not meet the description of non-subject merchandise that is allegedly circumventing an AD or CVD order.

7. Record Issues in Scope, Circumvention, and Covered Merchandise Inquiries for Companion AD and CVD Orders—§ 351.104(a); § 351.306(b); §§ 351.225(m)(2), 351.226(m)(2), and 351.227(m)(2)

Current paragraphs (m)(2) of §§ 351.225, 351.226, and 351.227

generally provide that if there are companion AD and CVD orders covering the same merchandise from the same country of origin, the application/request/referral pertaining to both orders must be placed only on the record of the AD proceeding. Further, if Commerce initiates an inquiry, it will conduct a single inquiry with respect to the product at issue for both orders only on the record of the AD proceeding. Once Commerce issues a final scope ruling/circumvention determination/covered merchandise determination on the record of the AD proceeding, Commerce will include a copy of that final determination on the record of the CVD proceeding. The purpose of these regulations was to address the issue of differing administrative records related to the same scope/circumvention/covered merchandise determination.

However, since the regulations were issued, Commerce identified an issue which must be addressed.

See Scope and Circumvention Proposed Rule,

85 FR 49484 (“By limiting the scope inquiry only to the record of one proceeding, the chances of incomplete records, or confusing records being filed with courts on appeal, should be lessened”).

Under Commerce's current practice, APO authorized representatives may use business proprietary information (BPI) from a previous segment and submit that information in certain subsequent segments within the same proceeding.

However, parties may not use BPI from a previous AD segment in a subsequent CVD proceeding, nor BPI from a previous CVD segment in a subsequent AD proceeding.

Therefore, it would not be possible for a party to submit relevant BPI from a previous CVD segment on the AD record that serves as the official record for the single inquiry covering both AD and CVD companion orders. This may inhibit interested parties from providing (and relying on) another party's BPI in support of their positions in a scope, circumvention, or covered merchandise inquiry. Likewise, there might be information which is on the record of the AD segment during the scope, circumvention, or covered merchandise inquiry which might prove to be helpful in future segments under the CVD order, but the current prohibition against using BPI from other proceedings would prevent Commerce from using and relying on such data.

See Antidumping and Countervailing Duty Proceedings: Administrative Protective Order Procedures; Procedures for Imposing Sanctions for Violation of a Protective Order,

63 FR 24391, 24398 (May 4, 1998).

Id.,

63 FR 24399.

To address these concerns, Commerce proposes amending § 351.306(b) to permit cross-order sharing of BPI between companion orders when paragraphs (m)(2) of § 351.225, § 351.226, or § 351.227 are invoked. Such language would allow for certain relevant BPI from a previous CVD scope, circumvention, or covered merchandise inquiry segment to be placed on the AD record of the scope, circumvention, or covered merchandise inquiry that is covering both companion orders under § 351.225(m)(2), § 351.226(m)(2), or § 351.227(m)(2). Likewise, it would also allow BPI from the AD record during a scope, circumvention, or covered merchandise inquiry to be submitted in subsequent CVD segments.

In addition, to help further clarify that the AD segment record is intended to be the official record of the scope, circumvention, or covered merchandise inquiry in the event of litigation, we propose adding new language to § 351.104(a) which explains that the record of the AD segment will normally be the official record for scope, circumvention, and covered merchandise segments covering companion AD and CVD orders.

For clarification of the information under §§ 351.225(m) and 351.226(m) that should be specifically on the AD record and CVD records, when there are companion orders affected by a scope or circumvention determination, we are proposing a revision of the opening sentence in paragraph (m)(2) of both provisions that states that scope ruling applications and circumvention inquiry requests are to be submitted on the records of both proceedings, but once they are received, Commerce will notify interested parties that all subsequent submissions must be submitted only on the record of the AD proceeding. This allows for an opening of the CVD segment, but then makes it clear that interested parties must subsequently file all their submissions on the AD segment, and not on the record of the CVD segment, for the remainder of the segment of the proceeding.

Commerce also proposes removing extraneous language about contacting CBP that was included in § 351.227(m) that was not included in §§ 351.225(m) and 351.226(m) and is unnecessary.

Finally, Commerce proposes adding at the end of §§ 351.225(m)(2), 351.226(m)(2), and 351.227(m)(2) language that says that in addition to a final scope ruling, circumvention determination, or covered merchandise determination being placed on the CVD record, a copy of the preliminary scope ruling, circumvention determination, or covered merchandise determination, if applicable, as well as “all relevant instructions to the Customs Service,” will also be placed on the CVD record at that time.

8. Providing Greater Detail on Scope Clarifications, Including Its Ability To Address the Governmental Exception Provision of Section 771(20)(B) of the Act—§ 351.225(q)

Historically, Commerce has used scope clarifications in investigations and after an order is issued in different ways, as we explained in the Preambles to both the

Scope and Circumvention Proposed Rule

and

Scope and Circumvention Final Rule.

A scope clarification is not intended to be a scope ruling, by which Commerce applies an analysis under § 351.225(k) to determine if something is covered by an AD or CVD order. Instead, scope clarifications are means by which Commerce otherwise addresses other scope-related items in any segment of the proceeding. For example, current § 351.225(q) provides an example in which Commerce, based on its previous scope determinations and rulings, may provide an interpretation of specific language in the scope of an order and reflect that interpretation in the form of an interpretive footnote to the scope when the scope is published or set forth in instructions to CBP.

See Scope and Circumvention Proposed Rule,

85 FR 49480-81, n. 51; and

Scope and Circumvention Final Rule,

86 FR 52336-37.

Although this is one means by which Commerce may use a scope clarification post-order, there are other instances in which Commerce has been faced with scope-related questions and Commerce has determined to address those questions in the form of a scope clarification. Accordingly, Commerce proposes modifying this provision to extend its description to be more comprehensive and illustrative.

For example, section 771(20)(B) of the Act states that merchandise which is subject to the scope of an order (and therefore a scope inquiry and scope ruling would be unnecessary) may be treated as not subject to the imposition of ADs or CVDs. In sum, it creates an exception to the imposition of ADs or CVDs for merchandise that is imported by, or for the use of, the U.S. Department of Defense. To qualify for this exception the subject merchandise must: (1) be acquired in accordance with a memorandum of understanding between the U.S. Department of Defense and a country; and (2) have no substantial nonmilitary use.

Commerce has addressed this provision infrequently, and only in the context of ongoing administrative reviews. Still, a scope clarification, by its nature, would be the appropriate means by which

Commerce could address the U.S. Department of Defense exception.

See

section 771(20)(B) of the Act.

In another example, at times, Harmonized Tariff Schedule (HTS) classifications have been updated and those updates have removed or revised HTS classification subheadings that were set forth in an AD or CVD order.

For a variety of reasons, Commerce might find it appropriate to clarify that an existing scope, which identified HTS classifications that no longer exist, applies to the updated and revised HTS classifications. One means to do this would be through a scope clarification.

See, e.g., Polyethylene Retail Carrier Bags from Indonesia, Malaysia, the People's Republic of China, Taiwan, Thailand, and the Socialist Republic of Vietnam: Final Results of the Expedited Sunset Reviews of the Antidumping Duty Orders,

86 FR 35478 (July 6, 2021), and accompanying Issues and Decision Memorandum (IDM) at 3;

see also 53-Foot Domestic Dry Containers from the People's Republic of China: Final Determination of Sales at Less Than Fair Value; Final Negative Determination of Critical Circumstances,

80 FR 21203 (April 17, 2015), and accompanying IDM at 23, n. 121.

Likewise, the written description of the scope may include references to various industry standards which may be revised or updated at some point. Again, Commerce could issue a scope clarification under § 351.225(q) to clarify which standards apply after such revisions or updates.

A scope clarification can also assist in clarifying the country of origin of a product. For example, if Commerce previously issued a country of origin determination (in an investigation or review), in which it described, as part of its analysis, that that the “essential characteristics were imparted” in producing the subject merchandise at one stage of the production of the subject merchandise under § 351.225(j)(2), and that the country of origin was established at that stage, it is possible that in a subsequent segment of the proceeding the record might reflect that parties did some processing to the merchandise immediately before, in, or after that generally-described stage in a third country, but the exact line of where the identified production stage begins and ends is under debate. Under such a scenario, if there is a question from the parties or CBP as to whether that processing was understood to be included in, or separate from, the described “essential characteristics” stage, Commerce could clarify the issue in a scope clarification. In other words, rather than conducting a new country of origin analysis, under such a scenario Commerce would be interpreting and clarifying its previous country of origin determination. Commerce could then issue a memo addressing this issue and issue instructions to CBP reflecting the results of its scope clarification.

Notably, scope clarifications can take different forms, such as the aforementioned footnote to the scope, a memorandum in the context of an ongoing segment of the proceeding, such as an administrative review, or even in a standalone “Notice of Scope Clarification” that would be published in the

Federal Register

. Moreover, these examples are not exhaustive, but we do expect that it would be helpful to identify them in our proposed regulations to provide greater clarity and certainty in this area of the AD and CVD laws.

Accordingly, Commerce proposes changes to § 351.225(q) that explain that scope clarifications can serve a broader purpose than the purpose narrowly articulated in the

Scope and Circumvention Final Rule.

9. Extensions of Initiation and Preliminary Determination Time Limits—§ 351.226(d)(1) and (e)(1)

After issuing § 351.226 in the

Scope and Circumvention Final Rule,

Commerce experienced certain timing difficulties with respect to the initiation of circumvention inquiries and issuing of preliminary circumvention determinations, under § 351.226(d)(1) and (e)(1), in some of its proceedings.

For initiations specifically, § 351.226(d)(1) allows Commerce a maximum of only 45 days, fully extended, in which to determine to initiate or not initiate a circumvention inquiry. However, given the complexity of certain cases and certain circumvention requests and the need to consider certain factors, such as, for example, whether there are patterns of trade, increases in imports, and potential affiliations between producers and exporters with those assembling merchandise under sections 781(a)(3) and (b)(3) of the Act, 45 days has proven to be insufficient time for Commerce to consider all of the relevant information on the record in many cases. In particular, it has proven most difficult when parties submitted new factual information on the record to challenge the adequacy of a circumvention inquiry request.

As we explain above, we have concluded that it would be beneficial to allow interested parties to submit both comments and new factual information in response to a circumvention inquiry request, and to allow the requestor to respond to such submissions with further responsive factual information. In accordance with that proposed modification to the regulations, Commerce proposes amending § 351.226(d)(1) to provide for three scenarios. First, Commerce will be required to make a determination to initiate or not initiate within 30 days after the submission of the request if Commerce is able to make such a determination based on the record evidence. Second, if it is not practicable to make such a determination in 30 days, and no party has submitted new factual information on the record in response to the circumvention request, then Commerce may extend its determination by an additional 15 days—to the current maximum of 45 days after submission of the request. Third, if the 30-day deadline proves to be impractical and interested parties have submitted new factual information on the record in response to the circumvention request, then Commerce will be permitted to extend the 30-day deadline by another 30 days—to a maximum of 60 days after the submission of the request in which to make a determination to initiate or not initiate a circumvention inquiry. We expect this timeline will provide Commerce with a better opportunity to make an informed decision as to whether the standards to initiate a circumvention inquiry have been met.

We note that we also propose amending the regulation at § 351.226(d)(1)(ii) so that if Commerce issues questionnaires to the requestor seeking clarification on certain issues, the deadlines described herein will be triggered off of the submission of the timely submitted responses to Commerce's questions, and not the submission of the circumvention inquiry request.

In addition to proposing an extension to the time limits for initiation, we also propose that the regulation be amended to allow for the extension of preliminary circumvention determinations. Section 351.226(e)(1) provides a deadline of no later than 150 days from the date of publication of the notice of initiation for the publication of the preliminary circumvention determination. Although the Act does not prohibit Commerce from extending preliminary circumvention determinations, no language was included in the regulation to expressly allow for an extension. Given the complexity of certain circumvention inquiries, we have determined that it is reasonable for Commerce to normally be able to extend the deadline for issuing a preliminary circumvention determination. Accordingly, Commerce proposes amending § 351.226(e)(1) to allow for a preliminary determination extension of up to 90 days (to provide a deadline of no later than 240 days from the date of publication of the notice of initiation) if Commerce concludes that an extension is warranted. Such a modification

would not alter the maximum deadline for a final circumvention determination of 365 days, set forth in § 351.226(e)(2).

10. Procedures for Commerce To Place Previous Analysis and Calculation Memoranda From Other Segments or Proceedings on the Record After Written Arguments Have Been Submitted But Before the Final Determination or Results Has Been Issued—§ 351.301(c)(4)

Pursuant to § 351.301(c)(4), Commerce may place new factual information on the record at any time, and when it does so, interested parties are permitted one opportunity to submit arguments and new factual information to “rebut, clarify, or correct” the factual information Commerce placed on the record, by a date set by Commerce. Throughout most of a segment of a proceeding, this regulation works as it should. However, since this regulation was issued, Commerce has on multiple occasions experienced a particular problem with this provision at the end of some of its segments, and that problem created unnecessary burdens for the agency in completing segments of its proceedings.

Specifically, in certain segments, after parties have submitted briefs and rebuttal briefs, in accordance with § 351.309, arguing that Commerce should take certain actions, Commerce has determined after consideration of those written arguments that in another proceeding, or segment of the same proceeding, it addressed the arguments now before it, in whole or in part. To explain how it addressed that issue or argument in the prior segment or proceeding, Commerce needed to rely on a calculation or analysis memorandum from that other segment or proceeding, and because calculation and analysis memoranda are new factual information, Commerce placed the memoranda on the record of the ongoing segment. Accordingly, consistent with § 351.301(c)(4), certain interested parties not only submitted arguments on the record challenging the applicability and relevance of the agency memoranda, but also submitted additional new factual information on the record, and Commerce was required to address both its previous practice, as well as the new factual information, whether or not directly applicable and responsive, in the final results or determination.

The benefit for Commerce to be able to place its former analysis and calculation memoranda on the record in response to arguments raised in the written arguments is evident, as is the opportunity for parties to argue why those former analysis and calculation memoranda are relevant or irrelevant. On the other hand, it is a significant burden on Commerce's time and resources to prepare and provide a meaningful response to new factual information placed on the record for the first time so late in the proceeding, and provides serious administrative and technical difficulties for the agency in issuing a timely and complete final determination or results.

For this reason, Commerce is proposing a modification to § 351.301(c)(4). Specifically, we are proposing that § 351.301(c)(4) be divided into two paragraphs: one paragraph applicable under the current procedures to nearly all submissions in a segment of a proceeding and one paragraph applicable specifically only after written arguments have been submitted to Commerce and Commerce subsequently determines, after considering those written arguments, that an agency analysis or calculation memorandum issued in another segment or proceeding is relevant to the ongoing segment. In that narrow situation, proposed § 351.301(c)(4)(ii) states that Commerce will identify on the record the issue to which the memorandum it is placing on the record appears to be relevant, and interested parties will subsequently have an opportunity to provide comments addressing the relevance of the memoranda and Commerce's analysis in the other segment to the issue to the agency. Interested parties will be able to argue that the facts and analysis in the memoranda are distinguishable from the facts and issues before Commerce in the immediate case, for example, but the regulation also makes clear under this narrow exception to the overall provision, that such comments on the agency calculation or analysis memorandum will not be permitted to be accompanied by new factual information.

11. Notices of Subsequent Authority—§ 351.301(c)(6)

At times while a segment is ongoing, a Federal court, such as the U.S. Court of International Trade (CIT) or U.S. Court of Appeals for the Federal Circuit (Federal Circuit), may issue a decision that an interested party believes is directly applicable to an issue currently before Commerce. Likewise, Commerce may address the issue, or a similar issue, in another segment or proceeding, and again, the interested party might believe that determination is directly applicable to the current segment. In those situations, a party might submit on the record of an ongoing proceeding a Notice of Subsequent Authority.

Our existing regulations do not address the timing of the submission of responsive comments and new factual information to the filing of a Notice of Subsequent Authority. Commerce is therefore proposing an addition to § 351.301, a paragraph (c)(6), which provides that interested parties have five days after the Notice has been submitted to provide responsive comments and factual information to rebut or clarify the Notice.

Furthermore, we recognize that when Commerce is in the last few weeks of the segment and is actively preparing the final determination or results, if a Notice of Subsequent Authority is submitted too close to the statutory deadline for the final determination or results, Commerce may not have enough time administratively to consider the arguments raised in the Notice and address them in the final determination or results.

Accordingly, we propose that § 351.301(c)(6) indicate that for Commerce to consider and address a Notice of Subsequent Authority in a final determination or results, it must be submitted with the agency no later than 30 days before the deadline for issuing the final determination or results. Likewise, for Commerce to consider responsive comments or factual information to the Notice of Subsequent Authority, responsive submissions must be filed no later than 25 days before the deadline for issuing the final determination or results.

Furthermore, to be assured that a Notice of Subsequent Authority is sufficiently complete for Commerce to consider, proposed § 351.301(c)(6) also explains that the Notice must identify the court decision or agency determination that is alleged to be authoritative to the issue before Commerce, provide the date the decision or determination was issued, explain the relevance of that decision or determination to the issue before Commerce, and be accompanied by a complete copy of the court decision or agency determination. Again, to be assured that Commerce has all the information that it needs to address the matter raised in the Notice of Subsequent Authority in its final determination or results, the regulation also requires that responsive comments directly address the contents of the Notice of Subsequent Authority and explain how the comments and accompanying information rebut or clarify the Notice.

12. The Countervailing Duty Adverse Facts Available Hierarchy—§ 351.308(g)

Section 776(d) of the Act provides that, in circumstances in which Commerce is applying adverse facts available in selecting a program rate, pursuant to sections 776(a) and (b) of the Act, Commerce may use a countervailable subsidy rate determined for the same or similar program in CVD proceedings involving the same country, or, if there is no same or similar program, Commerce may, instead, use a countervailable subsidy rate for a subsidy program from a proceeding that Commerce considers reasonable to use, including the highest of such rates. Commerce developed its practice of applying our current hierarchy in selecting adverse facts available rates in CVD proceedings over many years, even before it was codified into the Act, to effectuate the statutory purpose of section 776(b) of the Act to induce respondents to provide Commerce with complete and accurate information in CVD proceedings in a timely manner.

We believe clarifying the hierarchy in our AD/CVD regulations would be beneficial to those who participate in Commerce's CVD proceedings.

See Hyundai Steel Co.

United States,

319 F.Supp.3d 1327, 1354 (CIT 2018) (quoting

Timken Co.

United States,

354 F.3d 1345 (Fed. Cir. 2004) (“Commerce may employ adverse inferences about the missing information to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully”) (internal quotations and citations omitted));

see also TPEA Dates Notice,

80 FR 46793.

See

sections 771(15) and 773(e) of the Act.

See PMS ANPR,

87 FR 69234.

Commerce explained in the

PMS ANPR

that in 2022, the Federal Circuit issued a decision which provided Commerce with some guidance on factors which Commerce should continue to consider in determining whether a cost-based PMS exists and how to adjust for that cost-based PMS.

In light of that decision, Commerce determined that it was appropriate to issue regulations explaining the procedures to determine if a cost-based PMS exists, and other matters related to a PMS determination.

Id.

The Federal Circuit held in

NEXTEEL

that Commerce's finding that a cost-based PMS existed in Korea during the period of review was unsupported by substantial evidence.

In analyzing Commerce's PMS determination, the Federal Circuit appeared to reach at least four conclusions.

See NEXTEEL Co.

United States,

28 F.4th 1226 (Fed. Cir. 2022) (

NEXTEEL

(1) A cost-based PMS must cause costs to deviate from what they would have otherwise been in the ordinary course of trade.

Id.,

28 F.4th at 1234.

(2) A cost-based PMS must be particular to certain producers or exporters, inputs, or the market where the inputs are manufactured, during the relevant period.

Id.,

28 F.4th at 1234 and 1236.

(3) If the cost-based PMS involves a countervailable subsidy, Commerce's analysis should not be conclusory, but analyze if a subsidy existed during the period of review and indicate that the countervailable subsidy “affected” the costs of producing the subject merchandise or the prices and costs of an input into the cost of production.

Id.,

28 F.4th at 1235-36.

(4) Finally, Commerce is not required to precisely quantify a distortion in costs by the PMS to find the existence of a PMS, but if Commerce is able to quantify the distortion, such a quantification may help support a finding of the existence of a PMS.

Id.,

28 F.4th at 1234.

In light of the Federal Circuit's holding and analysis in

NEXTEEL,

as well as our experience in administering the PMS provision over the past several years, we determined that it was appropriate to revisit Commerce's approach to analyzing and determining the existence of a PMS that distorts costs of production.

Therefore, the PMS ANPR requested public comment and, in particular, information on the

following: (1) identify information which they believe Commerce should consider in determining if a PMS exists which distorts the costs of production if that information is reasonably available and relevant to the PMS allegation; (2) identify information which they believe Commerce should not be required to consider when determining if a PMS exists; and (3) provide comments on adjustments which Commerce may make to its calculations when it determines the existence of a PMS, but the record before it does not allow for the precise quantification of cost distortions.

We received 19 submissions providing responses to our questions, and offering additional suggestions and other views and arguments.

See PMS ANPR,

87 FR 69235.

Id.

After considering Commerce's practice, the Federal Circuit's analysis in

NEXTEEL,

and the submissions we received in response to the

PMS ANPR,

we propose that we issue a new regulation—“§ 351.416 Determination of a particular market situation.” The proposed regulation has multiple paragraphs. The first proposed paragraph, (a), defines the two types of PMS identified in the statute—a PMS that prevents a proper comparison of sales prices in the home country market with U.S. export prices and constructed export prices (a “sales-based PMS”), and a PMS that distorts the costs of production of the merchandise subject to an investigation, suspension agreement, or an AD order (a “cost-based PMS”).

Proposed paragraph (b) of § 351.416 explains that an interested party making an allegation of a PMS must support that allegation on the record with information that is relevant to the allegation and reasonably available to that interested party. Commerce recognizes that sometimes importers and domestic producers, for example, may not have access to foreign prices and costs; thus, Commerce will expect that they provide only evidence with their claim that is reasonably available. That being said, if they are alleging the existence of a PMS that was alleged and/or analyzed in a previous segment of the same proceeding, the proposed regulation also explains that they must identify the facts and arguments in the submission which are distinguishable from the previous segment. It is a burden on both the agency and other parties when an allegation is submitted in a segment and the alleging party does not indicate where the facts or claims diverge from previous allegations before Commerce.

Proposed paragraph (c) of § 351.416 addresses a sales-based PMS, and in proposed § 351.416(c)(1) provides examples of such particular market situations in the home market. Furthermore, proposed § 351.416(c)(2) explains that similar government actions and inactions in a third country to those examples may prevent third country prices from being properly compared to export prices and constructed export prices. Finally, in proposed § 351.416(c)(3), the proposed regulation explains that when Commerce determines that a circumstance or set of circumstances prevents a proper comparison between foreign market sales prices and export prices or constructed export prices, Commerce may conclude that it is necessary to determine normal value by using a constructed value, in accordance with section 773(e) of the Act and § 351.405.

The remainder of proposed § 351.416 addresses a cost-based PMS analysis. Proposed paragraph (d) of § 351.416 explains that the first step in Commerce's analysis is to determine if the record information supports a determination that a market situation exists. Commerce will review the record information to determine if a distinct circumstance, or set of circumstances, exists that distorts the cost of production, such that: (1) the costs of materials and fabrication do not accurately reflect the cost of production in the ordinary course of trade; and (2) the record evidence reflects that the distinct circumstance or set of circumstances being alleged likely contributed to the distortion in prices or costs of a significant input, or the costs of production. This analysis is usually qualitative, rather than quantitative, in nature, although sometimes a market situation can be shown through a quantitative analysis—such as the nonpayment of trade remedies upon importation in a foreign country, or the reimbursement by a foreign government for the payment of trade remedies. In either case, whether Commerce's analysis is solely qualitative or both qualitative and quantitative, paragraph (d)(2) of proposed § 351.416 explains that Commerce will consider all relevant information submitted on the record by interested parties, and provides some examples of information that Commerce has determined to be especially helpful in its analysis of alleged market situations: (1) comparisons of prices with and without the existence of the market situations; (2) detailed reports and documentation issued by foreign governments, market analysis organizations, or academic institutions that analyze government and nongovernmental programs and actions and conclude that considerably lower prices for a significant

input into the production of subject merchandise would likely result; (3) similar reports that analyze, instead, price deviations for significant inputs and conclude that such deviations resulted, in whole or in part, from certain government or nongovernmental actions; and (4) Commerce's previous determinations, whether they be preliminary, final, or in a remand redetermination, that information on the record did, or did not, support the existence of the alleged PMS. Commerce also includes an additional type of information on the list, (5), which is unique to allegations of a market situation due to weak, ineffective, or nonexistent property, intellectual property, human rights, labor, and environmental protections, in that pursuant to such an allegation, Commerce will consider information derived from other countries where those protections are allegedly effectively enforced to determine if the lack of protections in the subject country contributed to cost distortions.

As noted above, Commerce has intentionally not defined the term “significant” for purposes of its usage in the term “significant input” in these regulations. This is because we have found that an input might at times be the most expensive input, while at other times the value of the input may be small but the importance or uniqueness of the input to the function or existence of the product makes it significant. For example, the cost of a unique microchip in manufacturing an electronic device might be relatively inexpensive in comparison to other inputs into the production of the device, but because of the importance of the microchip to the functions of the device, if the cost of the microchip is suddenly reduced by two-thirds, the considerable change in price might have out-sized effects on the overall cost of production of the device. We would find that such an input in that scenario is also a “significant” input.

In requesting information from the public in the

PMS ANPR,

Commerce not only requested comments on the type of information that would be helpful to consider in most PMS analyses, but also requested comments on information that Commerce would not be required to consider, as a rule, in every case involving a cost-based PMS analysis.

The reason behind this question is one of administrability and practicability. It has been our experience that some parties will provide information to Commerce that may seem relevant, but does not assist the agency's analysis. To save all parties involved time and effort, we have therefore determined to propose that Commerce not be required to consider

four types of information and associated arguments in every cost-based PMS analysis.

See PMS ANPR,

87 FR 69235.

Id.

This is not to say that Commerce is prohibited from considering such information and arguments, but we propose that Commerce be not required in most cases to consider data that, based on the agency's experience, are not helpful to the PMS analysis.

For the first example of information that we will not be required to consider as part of our analysis in most of our cost-based PMS cases, in paragraph (d)(3) of proposed § 351.416, we describe an argument in which a party claims that because the interested party alleging the existence of a PMS is unable to provide data on the record precisely quantifying the distortions of prices or costs in the market of the subject country, that inability to quantify the distortions with precision should prohibit a finding of a PMS. We do not find the lack of precision in the quantifiable data relating to the distortion of costs to be fatal to a PMS determination. Accordingly, we have proposed in the regulation that we will not normally consider challenges to the precision of such quantifiable data in our cost-based PMS analysis. As we explain above, the Federal Circuit in

NEXTEEL

explicitly stated that Commerce is not required to precisely quantify a distortion in costs by the PMS to find the existence of a PMS.

This is logical because often Commerce has information on the record that shows certain governmental or nongovernmental actions (or inactions) that are likely to have an impact on the costs of production of subject merchandise in the market of the subject country, given the nature of the action or inaction and the product at issue, but no party has quantified, with precision, that impact. In such a case, the record might reflect that it is reasonable to determine that a PMS exists from the evidence before Commerce, but some interested parties would argue that we nonetheless should be prohibited from making such a determination because of the absence of precise quantifiable data. Although Commerce has the authority to consider such an argument, such an argument is typically unhelpful to our analysis. We therefore propose that Commerce would not be required to consider such an argument in its PMS analysis.

See NEXTEEL,

28 F.4th at 1234.

Second, we propose that Commerce would not be required to consider speculative costs or prices. In the event that an interested party speculates what the costs of the subject merchandise, or prices or costs of a significant input into the production of subject merchandise, would be absent the alleged market situation, or its contributing circumstances, without objective documentation to support such speculation, we would not be required to consider such speculative costs or prices in our analysis. Although Commerce need not use precise quantifiable data to find the existence of a PMS, Commerce also should not rely on mere hypotheticals and speculations, with no objective data to support such claims. Accordingly, we propose that Commerce not be required to address proffered costs and prices in its PMS analysis if those costs and prices are not supported by independent and government studies, former Commerce cost-based PMS determinations, or certain other economic information.

Third, we proposed that Commerce not be required to consider information about actions taken or not taken by governments, state enterprises, or other public entities in other market economy countries in comparison with the actions taken or not taken by the government of the subject country. In general, actions taken by each government that might distort costs within its own borders have no bearing on the market-distorting actions taken by governments in other countries. An exception is when Commerce is considering whether government inaction in providing certain protections distorts the costs of production in the subject country, in which case Commerce might find certain actions taken by other governments in other countries to be informative and potentially beneficial. In such cases, if a government provides weak, ineffective, or nonexistent property, intellectual property, human rights, labor, or environmental protections to a producer of subject merchandise or a supplier of significant inputs into the production of subject merchandise, the lack of such protections might distort the costs of production, but the only potential way to identify such distortions is to consider the protections granted by other governments to similar industries in other countries and the costs of production for those similar industries under such governmental protections. Therefore, we propose that Commerce would not normally be required to consider the actions or inactions of governments of countries other than the subject country in our analysis, except when there are alleged market situations involving government failures to implement or enforce certain protections.

Finally, we propose that Commerce would not be required to consider references to historical policies and previous actions taken by the government of the subject country with respect to the subject merchandise or a significant input into the production. Parties sometimes claim that because an export restriction, or other market-distorting policy or practice, has existed for many years in the subject country, the costs resulting from those actions or policies are now part of the “ordinary course of trade” for that country, and thus Commerce cannot determine that such actions or policies “distort” costs. We do not find such a claim to be persuasive. As the proposed regulation states, “the pre-existence of government actions or inactions, or other circumstances, does not make those situations market-based or nullify the distortion of costs during the relevant period of investigation or review.” We find that actions taken by a foreign government that are not in accordance with general market principles or otherwise result in price suppression will normally distort costs of production and will continue to distort costs of production every year they are in effect. Therefore, we propose that Commerce not be required to consider such unreasonable claims and information in its market situation analysis.

When Commerce determines the existence of a market situation in the subject country such that the cost of materials and fabrication or other processing does not accurately reflect the cost of production in the ordinary course of trade, proposed paragraph (e) of § 351.416 requires that Commerce next consider if that market situation is particular. Under proposed paragraph (e)(1) of § 351.416, a market situation is particular if the resulting distortions in prices or costs impact only certain products or certain parties in the subject country. The distinction turns on whether the situation impacts a “particular market,” or all market activity in the country. If it impacts all market activity in a country in some way, Commerce must determine whether the market situation impacts certain parties or products to a greater extent than others, and is therefore still “particular” for purposes of a PMS analysis, or if the impact is generally spread uniformly among the country as a whole. In response to the numerous comments which we received from outside parties on this issue, proposed paragraph (e)(1) of § 351.416 also makes clear that: (1) a market situation may be considered particular even if a large number of distinct products or parties are affected; (2) a market situation can exist in multiple countries and still be considered “particular” for purposes of

a PMS analysis if Commerce determines that the market situation distorts the costs of only certain products or affects only certain parties in the subject country; and (3) a market situation can be determined to be particular in several distinct circumstances, and can be particular to certain products, importers, producers, exporters, purchasers, users, enterprises, or industries, either individually or in combination with other entities. It is important to emphasize that although this list of particular entities that might be affected by a PMS is not exhaustive, multiple outside parties requested that Commerce emphasize in its regulations that for a market situation to be particular, it need not be “unique” or excessively narrow in its application. We agree with those concerns, and believe the language in the proposed regulation, including the list of particular entities that might be affected by potential market situations, will provide clarity in that regard.

Just as the regulations under proposed paragraph (d)(2) of § 351.416 list information which Commerce normally will consider helpful in determining if a market situation exists that distorts the costs of production, proposed paragraph (e)(2) lists information which Commerce will likely find helpful in determining if a market situation is particular. Specifically, the provision states that Commerce may consider all relevant information submitted on the record by interested parties including, but not limited to, the size and nature of the market situation, the volume of merchandise potentially impacted by the price or cost distortions resulting from the market situation, and the number and nature of the potential entities affected by those price or cost distortions.

We recognize that each type of PMS is distinct and different from others and, therefore, the factors Commerce considers in its particularity analyses will largely vary from market situation to situation. For example, if Commerce determines that a particular company has been permitted to produce subject merchandise without providing effective pollution controls or labor, health, and safety protections, the analysis Commerce will conduct to determine if such a circumstance is particular will be different from an analysis of a country-wide non-countervailable subsidy that benefits producers of certain aluminum products. For this reason, in these proposed regulations, we have refrained from identifying information which should not be required as part of our particularity analysis, because data which are important to determine if one market situation is particular might in fact be unimportant for another.

In the

PMS ANPR

we also requested “comments on adjustments which Commerce may make to its calculations when it determines the existence of a PMS, but the record before it does not allow for the quantification of cost distortions.”

As a matter of clarification, the Federal Circuit held in

NEXTEEL

that nothing “in the statute requires Commerce to quantify the distortion

precisely.

”

Accordingly, under proposed paragraph (f) of § 351.416, if Commerce is “unable to precisely quantify distortions in costs based on record information,” then Commerce may use any reasonable methodology to adjust its calculations based on the relevant information available. This proposed language was developed after consideration of the many adjustments suggested by outside parties including previously calculated CVD rates, regression analysis models, a benchmarking analysis, and the use of surrogate values. Although we agree that each of these suggested adjustments to Commerce's cost calculations might be warranted in certain circumstances, we propose that, as a general matter, when a PMS cannot be precisely quantified, Commerce may use a methodology to adjust its calculations that is reasonable based on the facts in the record before it.

See PMS ANPR,

87 FR 69235.

See NEXTEEL,

28 F.4th at 1235 (emphasis added).

Many commenters on the

PMS ANPR

also indicated that it would be beneficial to both Commerce and the public if the regulations provided examples of particular market situations that distort, or contribute to the distortion of, the costs of production in the subject country. Therefore, proposed paragraph (g) provides 12 examples of potential particular market situations that alone, or in conjunction with other examples, may be addressed by Commerce in its AD calculations.

In two of the examples (examples six and seven), a foreign government does not require an importer, producer, or exporter of the subject merchandise to pay duties or taxes associated with certain trade remedies for a significant input, or the foreign government rebates the duties or taxes paid by those parties.

Because in both of those examples the market distortion can be precisely quantified by the unpaid or rebated duties, those examples do not require further analysis.

For example, Commerce has found the nonpayment of ADs and safeguard measures to be a PMS.

See, e.g., Circular Welded Carbon Steel Pipes and Tubes from Thailand: Final Results of Antidumping Duty Administrative Review and Final Determination of No Shipments; 2017-2018,

84 FR 64041 (November 20, 2019), and accompanying IDM at Comment 2.

Each of the remaining 10 examples requires that Commerce: (1) identify the potential market situation; (2) analyze and determine if the potential market situation likely contributes to cost or price distortions (and is therefore, in fact, a market situation); (3) analyze and determine whether the market situation is particular; and (4) assess whether the cost or price distortions “can be addressed in the Secretary's calculations of the costs of production.”

The first five examples apply only when the alleged PMS contributes to price or cost distortions of a significant input into the production of subject merchandise in the subject country. The first example involves the concern of global overcapacity; regardless of the impact of such overcapacity of the significant input on other countries, if the supply of the input is excessive enough to contribute to distortions of the price or cost of that input in the subject country, Commerce may address that overcapacity through its calculations.

On the other hand, the second, third, fourth, and fifth examples pertain to circumstances involving the foreign government; specifically market situations in which: (A) the foreign government, a state-owned enterprise or other public entity is the predominant producer of a significant input; (B) the foreign government, a state-owned enterprise, or other public entity intervenes in the market for a significant input; (C) the foreign government limits exports of a significant input; and (D) the foreign government imposes export taxes on a significant input.

Four of the remaining examples involve government, state-owned enterprise, or other public entity actions or inactions that contribute to distortions to either the price or the cost of a significant input into the production of subject merchandise, or directly to the overall cost of production of the subject merchandise itself. The eighth and ninth examples pertain to market situations in which those entities either provide direct financial assistance or other support to producers or exporters of the subject merchandise or significant inputs,

or otherwise

influences the production of subject merchandise or significant inputs through indirect actions, such as domestic-content and technology transfer requirements. The tenth and eleventh examples pertain to government inaction, in which the foreign government or other public entity provides weak or ineffective property, intellectual property, human rights, labor, or environmental protections, which contribute to distortions in the costs of production of the subject merchandise or price or cost of significant inputs, or provides no protections whatsoever, and again, the result is the likely distortion of the costs of production of the subject merchandise or price or cost distortions of a significant input.

To be clear, government assistance may take the form of a subsidy, whether countervailable or not, but may also take other forms. A countervailable subsidy requires that the subsidy be a financial contribution that provides a benefit and is specific.

See

sections 771(5) and (5A) of the Act. However, government assistance need not be countervailable to distort cost of production.

Therefore, Commerce may consider if non-countervailable government assistance satisfies the criteria of a cost-based PMS.

Finally, the last example involves no government involvement, but instead pertains to business relationships between producers and input suppliers, such as strategic alliances or noncompetitive arrangements, in which the prices of the significant inputs are not determined in accordance with market-based principles, and those relationships likely contribute as well to distortions in the costs of production.

As we explain above, there are many types of distinct circumstances and sets of circumstances that may distort the costs of production in a subject country, and many combinations of potential products and parties that may be particularly impacted by those situations. Accordingly, although we believe these 12 examples are illustrative and helpful, we wish to make clear that the list of examples in proposed paragraph (g) of § 351.416 is not intended to be exhaustive.

Finally, we acknowledge in proposed paragraph (h) of § 351.416 that when Commerce determines the existence of a cost-based PMS, it is possible that in some cases that Commerce may conclude that the cost-based PMS contributes to the existence of a price-based PMS, in accordance with section 771(15) of the Act. We expect that including this provision in the regulation will provide additional clarity to our enforcement of both types of particular market situations addressed in the Act.

The proposed regulation does not include a “cost-based improper comparison” provision as suggested by some commenters, in which Commerce would presume as a matter of course that when it determines that there is a cost-based PMS that distorts the market to a certain degree, a proper comparison between foreign market prices and U.S. prices would automatically no longer be possible and Commerce would therefore determine normal value using a constructed value. Even in hypothetical situations in which a cost-based PMS is so distortive that it alone could lead to an improper comparison of prices between markets, Commerce would still need to consider the facts of the record before it, in the first instance, before reaching such a conclusion. We do not believe that it would be appropriate for the proposed regulations to incorporate such a presumption as to Commerce's conclusions on such a matter, and therefore the proposed regulation does not contain such a presumption.

Commerce considered certain other suggestions by commenters and, although many were helpful and relevant, we have declined to include them in this proposed rule. For example, one commenter suggested that Commerce expand its consideration of government assistance in its cost-based PMS analysis to include transnational subsidies,

i.e.,

subsidies conferred by the government of a country that is not the exporting country in which the class or kind of merchandise is produced, exported, or sold. As we have not, to date, applied a cost-based PMS analysis in any investigation or administrative review to transnational subsidies, and believe that such an application in the first instance would require analysis and consideration of the program and facts unique to that program, we do not consider it appropriate to incorporate such an analysis into the proposed regulations.

In addition, we have not incorporated submission deadlines in the proposed § 351.416, but do want to emphasize that moving the deadline for the sales-based PMS allegation later in the proceeding, as suggested by some commenters, would make it more difficult for the agency to determine if a PMS exists that prevents a proper comparison of foreign market prices and U.S. prices. Thus, although we continue to have the ability to set time limits outside of these regulations in our investigations and administrative reviews, we have not proposed and do not intend to modify either of the deadlines for submitting a sales-based or cost-based PMS allegation.

Furthermore, this proposed rule does not incorporate a general “rebuttable presumption” in its regulations, as suggested by commenters, that reflects that, when Commerce determines that a cost-based PMS exists in the subject country such that the cost of materials and fabrication or other processing does not accurately reflect the cost of production in the ordinary course of trade in a particular segment of a proceeding, in future segments of the same proceeding Commerce would presume that the distortion of costs and a PMS continues to exist until a producer or exporter provides affirmative evidence that rebuts that presumption and shows that costs are no longer being distorted by the PMS. Commerce considered whether such a general presumption should exist only for those interested parties who were actually reviewed when Commerce found a PMS to exist in the first place, whether the presumption should apply to all potential parties impacted by a PMS in a given AD investigation or administrative review, or whether the presumption should apply to all future parties potentially impacted by a PMS under a given AD order. There was even a comment that Commerce should “carry” a PMS determination “across cases” such that an affirmative PMS finding in a particular market in one case would establish the existence of a PMS in that same market in other cases involving different merchandise unless new information is placed on the record of those other cases that contradicts that presumption.

Commenters frequently emphasized that, as with Commerce's non-market economy presumption, under section 773(c) of the Act, a finding of a cost-based PMS is also an acknowledgement that there are “non-market principles” at play, and therefore, like the non-market economy presumption, when Commerce finds a cost-based PMS to exist, the burden to prove that it no longer exists in future segments should lie with the alleged recipients and beneficiaries of the cost-based PMS and not with Commerce.

This proposed rule does not include a general cost-based PMS rebuttable presumption because, unlike a non-market economy designation, which applies to the entire economy, a cost-based PMS is focused on a distinct circumstance or set of circumstances, and may be particular to certain products or individuals one year, and then not apply to those products or individuals in the subsequent years. In fact, it is our observation that it is not uncommon for the existence of a PMS to change from period to period. Although “non-market principles” can be at play in finding that a PMS distorts costs, and some particular market situations may reliably continue from year to year, given the wide variety of types of particular market situations, the multiple possible PMS beneficiaries, and the constantly changing nature of

certain cost-based particular market situations, we determine that incorporating a general and overarching rebuttable presumption into these regulations for all cost-based particular market situations is inappropriate at this time.

Finally, there were several comments on the appropriate analysis which Commerce should apply in determining if a PMS is distorting the cost of production. There were certain commenters that suggested that if Commerce qualitatively determines the existence of a market situation, Commerce should presume from that conclusion that distortions in prices or costs are caused by the PMS. On the other hand, there were commenters that suggested that Commerce must prove a “causal link” between a PMS and cost distortions to prove that the costs do not accurately reflect the cost of production in the ordinary course of trade. One commenter even suggested that a cost-based PMS can

only

exist if it is so distortive as to create a price-based PMS that prevents a proper comparison, while other commenters expressed concerns with Commerce's description in its

PMS ANPR

of the Federal Circuit's analysis in

NEXTEEL

with respect to countervailable subsidies, suggesting that Commerce incorrectly claimed that the Federal Circuit required a “pass-through” analysis for Commerce to find the existence of a PMS under those circumstances.

In considering comments on the appropriate standard that Commerce should apply in determining whether a PMS is distorting the cost of production, we recognize the real-world complexities and effects of particular market situations in concluding that a direct cause and effect analysis is simply not realistic or appropriate. For example, prices for specific inputs might not be publicly available for comparison purposes, or it might be impossible to precisely quantify the distortive effects of unenforced intellectual property protections, the failure to impose environmental protections, the use of slave or forced labor, or the imposition of domestic content or technology transfer requirements. Unquestionably, all these circumstances could contribute to market distorting situations, but adopting a direct “cause and effect” or “pass through” analysis would allow many of those market-distorting situations to avoid being addressed as a PMS. Accordingly, we have not adopted a “cause and effect” standard in this proposed rule to identify the impact of a PMS on cost (and input price) distortions.

On the other hand, neither have we adopted a presumption that all potential cost-based particular market situations distort costs absent information on the record that would support a claim of such distortion or suggest that an impact on costs or prices occurred or might be occurring. We do not believe such a presumption would be reasonable given the fact-intensive nature of PMS determinations.

Accordingly, under proposed paragraph (g) of § 351.416 Commerce will consider, on a case-by-case basis, all relevant information on the record pertaining to an alleged cost-based PMS and determine whether it is more likely than not that the alleged market situation is contributing to the distortion of prices or costs in the subject country. Using this “likely to contribute to price or cost distortions standard,” Commerce will take into consideration both the nature and details of an alleged PMS, as well as information relative to the costs of production of the subject merchandise or prices and costs of a significant input into the production of the subject merchandise. We believe that such a standard reflects the reality of a cost-based PMS analysis, while still being tied to the relevant evidence on the record pertaining to possible cost or price distortions.

We emphasize that our PMS analysis is based on record evidence. Although Commerce does not believe the application of a direct cause-and-effect analysis to particular market situations would satisfy the purpose of the legislation, and could in fact allow programs to go unaddressed that otherwise impact and suppress the costs of production, substantial evidence on the record still must support a determination that a PMS was more likely than not to contribute to distortions in the prices or costs of significant inputs or the cost of producing the subject merchandise. Therefore, Commerce may only find the existence of a PMS if the parties have submitted sufficient record information to demonstrate that the market situation exists, there has been a distortion in costs, and the market situation has more likely than not contributed to that distortion in costs.

With respect to the Federal Circuit's analysis in

NEXTEEL,

Commerce determined in an antidumping administrative review that the Korean government provided subsidies to producers of hot-rolled steel flat products in Korea, and that those subsidies distorted the market costs of Korean hot-rolled coil (HRC), a significant input into the production of the merchandise under review. Indeed, Commerce concluded in the administrative review that because HRC, as an input, constituted approximately 80 percent of the cost of the subject merchandise, any distortions to the cost of HRC would have a significant impact on the overall production costs of that merchandise. In determining the existence of the countervailable subsidy, Commerce relied on its determination in the preceding investigation, which was based on application of adverse facts available, pursuant to sections 776(a) and (b) of the Act. The Federal Circuit, upon review of the record before it, and the remand redeterminations issued by Commerce in the litigation, concluded that even after the agency provided more analysis on remand, “the record evidence is at best mixed on whether significant Korean government subsidies existed during the period of review.”

Further, after explaining that Commerce was required to show the subsidies “affected the price of the input” to the extent that they “did `not accurately reflect the cost of production in the ordinary course of trade,' 19 U.S.C. 1677b(e),” the Federal Circuit explained that Commerce had neither made a “finding that any subsidies were passed through to the prices of HRC,” or, referencing back to the particularity requirement, “that they affected Korean OCTG producers any more than OCTG producers elsewhere.”

See NEXTEEL,

28 F.4th at 1235.

Id.,

28 F.4th at 1235-36.

We agree with the commenters who have explained that the Federal Circuit in this decision was not claiming that Commerce was obligated to apply a “pass-through” analysis every time it analyzes a countervailable subsidy to determine if that subsidy has also resulted in a cost-based PMS. We do not believe that the Federal Circuit's statement was intended to create a new obligation for Commerce to apply to allegations that a countervailable subsidy creates a cost-based PMS. Further, there is nothing in the Act, legislative history, or even in the facts of the administrative review which was before the Court in

NEXTEEL

that would suggest that Commerce is required to conduct an analysis which it would not normally even be required to apply in a CVD investigation or administrative review.

However, it is evident that the Federal Circuit did not believe that the conclusory nature of Commerce's analysis of the alleged PMS in the case before it, which was associated with countervailable subsidies to Korean HRC producers, was an adequate basis to determine the existence of that particular cost-based PMS.

The Federal Circuit mentioned that evidence was “at best mixed” of the continued existence of the subsidies at issue during the period of review, but also highlighted that there was essentially no analysis of the alleged effects of those

subsidies on the input at issue, Korean HRC. In light of the Federal Circuit's expressed concerns in

NEXTEEL,

we propose these regulations to provide a less conclusory and more methodical analysis when examining if a subsidy-based PMS exists. Accordingly, we believe that for most alleged cost-based particular market situations, the incorporation of a “likely to contribute to price or cost distortions” step in Commerce's PMS analysis, separate and removed from the identification of the market situation is not only reasonable, but satisfies the Federal Circuit's emphasis that an objective analysis determine if a PMS “affects” prices or costs.

15. Benefit—§ 351.503

This proposed rule includes a proposed amendment involving Commerce's CVD benefit regulation at § 351.503. We are proposing that we divide paragraph (c) of § 351.503 into two paragraphs. The first paragraph would incorporate existing paragraph (c), with an additional explanation that Commerce is not required to consider whether there has been any change in a firm's behavior because of a subsidy.

The proposed second paragraph would be new and would explain that when the government provides assistance to a firm to comply with certain government regulations, requirements, or obligations, Commerce will normally only measure the benefit of the subsidy and will not be required to also consider the compliance costs themselves. This proposed paragraph is not intended to change existing § 351.503, which is based on the statutory language within sections 771(5)(C) and 771(6) of the Act and was originally explained by examples in the CVD Preamble explicitly demonstrating this point.

However, we are proposing this additional language for clarity on the issue of compliance costs so that parties will understand that if the firm accrues additional costs through compliance with government obligations, those costs need not be part of Commerce's benefit analysis of the subsidy.

See CVD Preamble,

63 FR 65361.

16. Loans—§ 351.505

With respect to Commerce's CVD loan regulation, we propose moving current § 351.505(d) to a new § 351.505(e) and adding a new provision in paragraph (d) titled “Treatment of outstanding loans as grants after three years of no payments of interest or principal.”

Proposed new § 351.505(d) addresses loans upon which there have been no payments of interest and principal over a long period of time. Our current practice is that when we examine these types of loans in which there have been no payments of either interest or principal over an extended period of time we treat them as interest-free loans. It is evident, however, that if the foreign government or a government-owned bank has not collected interest or principal payments on an outstanding loan after a three-year period, the foreign government made a decision to simply not collect that interest or principal at all. We therefore propose that, if no interest and principal payments have been made to the government or a government-owned bank on a loan for three years, Commerce would normally treat the outstanding loan as a grant. To ensure consistency with section 771(5)(E)(ii) of the Act, we also propose that we would not treat this type of loan as a grant if the respondent can demonstrate that this nonpayment of interest and principal is consistent with the terms of a comparable commercial loan that it could obtain on the market.

We propose a three-year period as the triggering time period for treating a loan as a grant. We considered standard practices for the period in which banks write off bad debt; however, these practices did not provide sufficient administrative and public clarity and guidance for purposes of the CVD regulations. For example, according to a survey by the Bank for International Settlements, most jurisdictions do not prescribe a timeline for the write-off of loans, leaving this to the discretion of banks.

According to the World Bank Group, loans are usually written off if there are no realistic prospects of recovery.

International Financial Reporting Standards (IFRS) 9 requires a whole or partial write-off if “an entity has no reasonable expectations of recovering the contractual cash flows on a financial asset.”

According to the

Financial Accounting Manual for Federal Reserve Banks, January 2017

at Chapter 81.02, a bank should recognize an allowance for loan loss when it is probable that the bank will be unable to collect all amounts due, including both the contractual interest and principal payments under the loan agreement. Therefore, we propose a three-year period of nonpayment of interest and principal on the outstanding loan to identify when an outstanding loan would be treated as a grant. As noted, respondents may demonstrate that the loan should not be treated as a grant by showing that they could obtain a comparable loan with these terms of nonpayment.

See Non-Performing Loan Write-Offs: Practices in the CESEE Region,

Policy Brief—September 2019, World Bank Group, at 4.

Id.

at 2.

Id.

17. Equity—§ 351.507

For Commerce's equity regulation, we propose moving current § 351.507(c), with minor modifications, to a new § 351.507(d) and adding a new provision in paragraph (c) titled “Outside investor standard.”

The proposed investor standard would codify our long-standing practice in which the analysis of equity is conducted with respect to whether an outside private investor would make an equity investment into that firm under its usual investment practice, not whether a private investor who has already invested would continue to invest. Although not explicitly discussed in the

CVD Preamble,

in our analysis as to whether a firm is equityworthy, Commerce makes a distinction therein between “inside” shareholders and private “outside” investors.

The

CVD Preamble

states that under the

1989 Proposed Regulations,

an equityworthy firm was one that showed “an ability to generate a reasonable rate of return within a reasonable period of time,” and in 1998 Commerce codified that understanding in § 351.507(a)(4)(i).

See CVD Preamble,

63 FR 65373.

Id.

(referencing

Notice of Proposed Rulemaking and Request for Public Comments (Countervailing Duties),

54 FR 23366 (May 31, 1989) (

1989 Proposed Regulations

Id.

This standard has long been part of Commerce's practice. For example, in 1986, in

Groundfish from Canada,

Commerce found that the company, Fishery Products International Limited (FPIL), was unequityworthy at the time of its reorganization. Although one private investor exchanged debt for an equivalent amount of equity in FPIL at the time of the government equity infusion, we did not consider that transaction to be an appropriate gauge by which to measure the government's infusion because, at that time, it seemed that the private investor's only chance for recovering the money it had already loaned to FPIL was to help it reorganize. Therefore, Commerce recognized that in

Groundfish from Canada

there may be motivations of an inside investor or lender to provide additional equity into a firm to keep the firm from failing in

an attempt to recover a previous investment.

See Final Affirmative Countervailing Duty Determination; Certain Fresh Atlantic Groundfish from Canada,

51 FR 10041, 10047 (March 24, 1986) (

Groundfish from Canada

Also in 1986, Commerce explained in

Stainless Plate from the United Kingdom

that examining past investments and sunk costs may be useful tools for corporate management in deciding how long to operate a loss-incurring company, or in evaluating proposed projects, but they are not relevant to the reasonable investor test used in our analysis of equityworthiness.

See Stainless Steel Plate from the United Kingdom; Final Results of Countervailing Administrative Review,

51 FR 44656 (December 11, 1986) (

Stainless Plate from the United Kingdom

See Final Affirmative Countervailing Duty Determination: Certain Steel Products from Austria,

58 FR 37217, 37225 (July 9, 1993) (

Steel Products from Austria

), at the General Issues Appendix.

Commerce provided further explanation regarding the outside investor standard in the 1989 CVD investigation of

Steel Wheels from Brazil.

Commerce explicitly stated that we do not examine equityworthiness based on the motivations of an owner-investor. Commerce explained that a rational investor does not let the value of past investments affect present or future decisions. The decision to invest is dependent only on the marginal return expected from each additional equity investment and these investments should not be affected by past investments or sunk costs.

See Final Affirmative Countervailing Duty Determination; Steel Wheels from Brazil,

54 FR 15523, 15529-30 (April 18, 1989) (

Steel Wheels from Brazil

), at Comment 10.

Subsequently, in 1993, within the General Issues Appendix attached to the

Steel Products from Austria

CVD final determination, Commerce provided further elaboration on the standard and prospective nature of Commerce's equityworthy analysis with respect to similar insider investor arguments raised by various respondents.

Commerce stated that the fact that an inside investor may be influenced by other considerations extending beyond the attractiveness of the particular investment cannot be permitted to determine whether or not a subsidy arises out of that new investment. Consequently, the absence or presence of previous investments, and the status of those investments in terms of whether they have generated profits or losses, are extraneous considerations when looking at the equityworthiness of potential additional investments in a firm.

See Steel Products from Austria,

58 FR 37225 (General Issues Appendix).

Nearly two decades later, in 2012, in

Refrigerators from Korea,

Commerce did not rely on the equity investments made by private investors that participated with the government in a conversion of debt into equity as a benchmark for measuring equityworthiness.

Commerce explained that the requirement for making an equityworthiness determination pursuant to § 351.507(a)(4) is to determine whether a reasonable private investor, at the time the government-provided equity infusion was made, would invest in a firm based on the firm's ability to generate a reasonable rate of return within a reasonable time. The private investors that participated with the government in the debt-to-equity conversions were existing creditors attempting to mitigate their losses from non-performing loans; they were not considering whether or not to purchase shares based on the projected rates of return. Commerce concluded its analysis of the issue by stating that the standard for determining whether a firm is equityworthy is not whether a private investor who already has invested in the firm would continue to invest, but rather whether an outside private investor would make an equity investment.

See Bottom Mount Combination Refrigerator-Freezers from the Republic of Korea: Final Affirmative Countervailing Duty Determination,

77 FR 17410 (March 26, 2012) (

Refrigerators from Korea

), and accompanying IDM at Comment 26.

Id.

In nearly 40 years of case precedent, in Commerce's analyses of whether a company is equityworthy and whether an equity investment by the government or an authority provides a benefit, Commerce normally examines the investment from the perspective of whether an outside private investor would make that investment, not from the perspective of whether an investor who already has invested in the firm would continue to make new investments. The actions of a private investor that already has equity or debt in a company that is subject to an equityworthiness examination would be considered from the perspective of a new private investor making an initial investment in the firm and not from the perspective of an owner, shareholder, or creditor of the firm. Accordingly, we have reflected that standard in the proposed modification to the regulation.

The other proposed change to the equity regulation is to modify the allocation period of the benefit. Currently, the benefit conferred by equity will be allocated over the same time period as a non-recurring subsidy under § 351.524(d), which is the average useful life (AUL) of assets. This standard works well for the vast majority of the cases in which Commerce finds a countervailable equity benefit. However, there are cases such as

DRAMs from Korea

where this regulatory standard can lead to a result that appears to be inconsistent with the purpose of the CVD law to provide relief to the domestic industry from unfair and distortive foreign government subsidies.

See Final Affirmative Countervailing Duty Determination: Dynamic Random Access Memory Semiconductors from the Republic of Korea,

68 FR 37122 (June 23, 2003) (

DRAMs from Korea

), and accompanying IDM at Comment 8.

DRAMs from Korea,

Commerce investigated a massive government-led bailout and debt restructuring of the semiconductor manufacturer Hynix Semiconductor, Inc. (Hynix) that was implemented in 2001, to prevent the company's financial collapse. An essential part of this 2001 government-led bailout of Hynix was the conversion of existing debt into equity and the forgiveness of debt. While Commerce found that this massive government bailout provided countervailable subsidies to Hynix in the form of both debt-to-equity conversion and debt forgiveness, the AUL for the dynamic random access memory semiconductors industry was only five years. Therefore, due to the five-year AUL period, the determination that this massive 2001 government bailout of Hynix provided countervailable subsidies to Hynix provided relief to the U.S. industry for only two years after the issuance of the CVD order.

As the administering authority, we have concluded that a situation like that in

DRAMs from Korea,

where a massive countervailable government bailout of a firm or industry will be offset by CVDs for only such a limited period, is unreasonable. Therefore, we propose to modify § 351.507 to state that the benefit conferred by an equity infusion shall be allocated over a period of 12 years, or the same period as a non-recurring subsidy under § 351.524(d), whichever is longer.

We have chosen the allocation period of 12 years in accordance with an analysis of Commerce's CVD measures from 1995 to 2020, conducted by the Congressional Research Service in 2021.

According to the Congressional Research Service, the vast majority of U.S. CVD measures during that period were applied to four industries: (1) Base Metals; (2) Products of Chemical and Allied Industries; (3) Resins, Plastics, and Rubber; and (4) Machinery and

Electrical Equipment.

Looking to the Modified Accelerated Cost Recovery Asset Life Table,

we determined that those four industries fall under five asset classes, which, when averaged, results in a 12-year class life of asset. Put another way, the AUL for the vast majority of products subject to CVD measures since 1995 has been 12 years. We have concluded that 12 years is a reasonable allocation period for purposes of our CVD calculations on average, and accordingly, have incorporated that allocation period into our regulations.

See Trade Remedies: Countervailing Duties, Congressional Research Service,

R46882, dated August 23, 2021, at 15, Figure 5 “CVD Measures By Sector.”

Id.

See

Internal Revenue Service Publication 946 (2021), Table B-2, the Modified Accelerated Cost Recovery Asset Life Table.

We expect that a provision such as this will provide equitable relief to the domestic industry from the harm caused by certain foreign government countervailable subsidies and have proposed a similar modification to the debt forgiveness regulation.

18. Debt Forgiveness—§ 351.508

For the debt forgiveness regulation, we propose a modification to § 351.508(c), which currently allocates the benefit of debt forgiveness over the same period of time as a non-recurring subsidy under § 351.524(d). The modification to paragraph (c) would measure the allocation by that period, or over a period of 12 years, whichever allocation period is longer.

The current standard, tied to the AUL of assets, works well for the vast majority of the cases in which Commerce finds a countervailable equity benefit. However, there are cases such as

DRAMs from Korea,

as discussed above, where this regulatory standard leads to a result that appears to be inconsistent with the purpose of the CVD law to provide relief to the domestic industry from unfair and distortive foreign government subsidies.

See DRAMs from Korea,

68 FR 37122 and accompanying IDM.

Therefore, we propose modifying § 351.508(c) of our CVD regulations to state that Commerce will treat the benefit from debt forgiveness as a non-recurring subsidy, and will allocate the benefit to a particular period in accordance with § 351.524(d), or over 12 years, whichever is longer. We explain above why the use of 12 years, which is based on an average of the AULs for the vast majority of products covered by U.S. CVD measures, is reasonable and appropriate. We expect that such a provision will provide equitable relief to the domestic industry from the harm caused by certain foreign government countervailable subsidies. As noted above, this proposed change to the allocation period for a debt forgiveness subsidy is similar to the proposed change to the equity regulation modification of the allocation period of the benefit.

19. Direct Taxes—§ 351.509

For purposes of the CVD regulation addressing direct taxes, we propose adding a new paragraph (d), which addresses income tax-related subsidies that are untied to particular products or markets. In the

CVD Preamble,

Commerce stated that we consider certain subsidies such as payments for plant closures, equity infusions, debt forgiveness, and debt-to-equity conversions, not to be tied to certain products or markets because they benefit all production.

Commerce also stated in the

CVD Preamble

that we recognized that there may be scenarios where the attribution rules that are set forth under § 351.525 do not precisely fit the facts of a particular case, and that we are “extremely sensitive to potential circumvention of the countervailing duty law.”

Moreover, Commerce concluded that if subsidies allegedly tied to a particular product are in fact provided to the overall operations of a company, Commerce will attribute the subsidy over sales of all products by the company.

In addition, in the years following the issuance of the current CVD regulations, Commerce determined with respect to a tying claim of tax credits that tax credits reduce a firm's overall tax liability which benefits all of the firm's domestic production and sales.

See CVD Preamble,

63 FR 65400.

Id.

See Large Residential Washers from the Republic of Korea: Final Affirmative Countervailing Duty Determination,

77 FR 75975 (December 26, 2012) (

Washers from Korea

), and accompanying IDM.

Therefore, based on the language in the

CVD Preamble

and our experience since the issuance of the current CVD regulations, propose to add a provision to the CVD regulations that, if a program provides for a full or partial exemption, reduction, credit, or remission of an income tax, we will normally consider any benefit not to be tied with respect to a particular market under § 351.525(b)(4) or to a particular product under § 351.525(b)(5). In accordance with this provision, even if subsidies are allegedly tied to a particular product, if they in fact benefit the overall operations of a firm, we will attribute the subsidy to all sales of all the firm's products.

To be clear, these types of direct tax programs reduce or eliminate income taxes paid by a firm. Income taxes are based on a firm's total taxable income which is comprised of the overall tax liability generated from all the firm's domestic production and sales. Thus, these types of direct tax programs benefit the domestic production of a firm overall.

Furthermore, we emphasize that the codification of this practice under § 351.509(d) will not impact the attribution standards for export subsidies and domestic subsidies that are set forth under § 351.525(b)(2) and (3). The determination of whether a program is an export subsidy or domestic subsidy is made solely under the specificity section of the statute at sections 771(5A)(B) and (D) of the Act; therefore, the attribution of export subsidies and domestic subsidies is based on the specificity of a subsidy, not with respect to the standard of whether a benefit from a countervailable subsidy is tied or untied.

20. Export Insurance—§ 351.520

With respect to export insurance, we propose a modification to § 351.520(a) to include a period of time, normally five years, over which Commerce may examine whether premium rates charged were inadequate to cover the long-term operating costs and losses of the program. If they were inadequate to cover such costs and losses during that period of time, then Commerce may determine that a benefit exists.

As Commerce explained in the

CVD Preamble,

this standard of benefit for export insurance is based on paragraph (j) of the Illustrative List.

In the

CVD Preamble,

Commerce stated that in determining whether the premiums charged under an export insurance program covered the long-term operating costs and losses of the program, we anticipated that we would continue to make that determination based on the five-year rule.

Since

1998, when the current CVD regulations were published, we have consistently applied a period of five years to analyze whether the premiums charged under an export insurance program are adequate to cover the long-term operating costs and losses of the program.

Therefore, we are proposing to amend § 351.520(a) to include the five-year period considered in Commerce's standard export insurance benefit analysis.

See CVD Preamble,

63 FR 65385.

See

Illustrative List of Export Subsidies, annexed to the 1994 World Trade Organization Agreement on Subsidies and Countervailing Measures as Annex I (Illustrative List);