Trade Cases

Leibowitz on Trade: NEXTEEL v. United States

Written by John Packard

Trade attorney and Steel Market Update contributor Lewis Leibowitz offers the following update on events in Washington:

The Court of International Trade (CIT) has rejected the U.S. Commerce Department’s finding that a “particular market situation” justifies steep antidumping margins against South Korean exports of oil country tubular goods (OCTG) to the United States.

In a case decided on Jan. 2, but only made public last week, the CIT reviewed Commerce’s application of the Particular Market Situation (PMS) standard in issuing antidumping margins of nearly 25 percent on South Korean OCTG exported by NEXTEEL. The CIT ruled that the PMS finding was unsupported by substantial evidence and contrary to law, and ordered Commerce to reverse the PMS determination and recalculate the dumping margin rates.

There are several unusual aspects to the case. For one, Korean respondents generally receive very low dumping margins. While there are several theories advanced for this, the one with the most weight is that Korean producers simply don’t dump very much.

The second unusual aspect is the sequence of events in the PMS finding. The OCTG antidumping order was entered in September 2014.  On the first anniversary of the order in 2015, several South Korean producers (including NEXTEEL) requested an administrative review of the antidumping order.  In the preliminary determination of the review, issued in October 2016, Commerce determined a dumping margin for NEXTEEL of about 8 percent.  Maverick Tube then raised the PMS issue in the review of NEXTEEL’s sales; Commerce rejected the argument that a PMS existed in a memorandum dated Feb. 22, 2017, shortly after the inauguration of President Trump. Two weeks after the Commerce memorandum, presidential trade advisor Peter Navarro wrote a memorandum urging that Commerce reconsider its PMS determination. 

In the final determination, published in April 2017, Commerce reversed itself and found a PMS for NEXTEEL, raising NEXTEEL’s dumping margin to about 25 percent. Commerce accepted Maverick’s allegations, which they had rejected less than two months before, without citing any additional evidence to support its reversal of position.

On court review, Judge Jennifer Choe-Groves ruled that Commerce’s finding of a PMS was unsupported by substantial evidence and contrary to the law. There were quite a few reasons for this conclusion, but the court found inadequate support for the idea of an absence of a free market in Korea.

The PMS finding comes from 2015 legislation that was intended to allow Commerce to increase dumping margins by rejecting home market selling prices that may be affected by special circumstances dealing with production inputs, such as steel costs and electricity. For example, if Korean OCTG producers get cheap subsidized flat roll from China or special prices on electricity, it artificially depresses the production costs of their welded tubular goods.

Interestingly, when the government filed its brief in the CIT, the Justice Department did not defend Commerce’s action, but asked for a “voluntary remand” to give Commerce another chance to get the findings right. The court rejected the request for a voluntary remand and decided the issue based on the record before it. Based on that record, the court ruled that an affirmative finding of a particular market situation was not supported by substantial evidence and could not stand.

The court ordered that Commerce find no particular market situation and to recalculate dumping margins without adjusting home market prices and costs of production of inputs, such as flat rolled steel.

This case is extraordinary because the CIT ordered Commerce to make a finding of no “particular market situation.” The Court of Appeals for the Federal Circuit generally frowns upon CIT orders requiring Commerce to make findings against their will. That CIT order will probably be appealed to the Federal Circuit, where the case will go after the remands are finished. The government could ask for a stay of the ruling and an “interlocutory” appeal immediately instead of waiting for the case to be finally decided by the Court of International Trade. I do not know whether this approach will be chosen by the government here, but it could happen.

The unusual circumstances here are the negative preliminary determination on PMS and the Navarro memo weighing in on a decision committed to the Department of Commerce. The Navarro memorandum was heavy-handed in its mention of Tenaris, parent of Maverick Tube, which had just opened an OCTG facility in Texas. 

The NEXTEEL case shows that Commerce can find a “particular market situation,” but will be held to a rigorous standard.  The memorandum from Navarro added a strong aroma of bias and prejudice to this particular case, and the court responded negatively to that. While this presents a setback for the PMS argument, the situation was most unusual. The particular market situation theory is still viable in the proper case. 

Lewis Leibowitz

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