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Commerce Illegally Altered Policy of 'Rebuttable Presumption' of Foreign State Control, Tire Company Argues

The Commerce Department failed to link its finding of the Chinese government's control over exporter Pirelli Tyre Co.'s management to the company's export activities, Pirelli told the U.S. Court of Appeals for the Federal Circuit in its Oct. 24 opening brief. The agency "adopted an unlawful interpretation and application of the rebuttable presumption" of government control as part of the 2017-18 antidumping duty review of passenger vehicle and light truck tires from China, the brief said (Pirelli Tyre Co. v. United States, Fed. Cir. # 23-2266).

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Commerce continued to rely on this faulty presumption despite "voluminous evidence rebutting the factual premise" the agency ultimately relied on, Pirelli said. In particular, the exporter said the Chinese government shareholders only held minority ownership stakes in Pirelli Italy, the majority of Pirelli Italy's board was made up of "independent directors," and Pirelli Italy had to adopt procedures to prevent the "very type of undue influence that Commerce has inferred" to comport with Italian law.

"There is no evidence whatsoever that the Chinese Government exercised de facto control over Pirelli Tyre's export activities; in fact, all the record evidence demonstrates the contrary," the brief said.

In the review, Pirelli sought a separate AD rate by claiming that it rebutted the presumption of Chinese government control. The company was bought by Chinese state-owned Chem China in 2015, and Commerce used this fact to find that it was owned by the Chinese government.

Since this time, though, Pirelli showed Commerce that it made changes to its corporate structure, including the fact that Chem China and the Silk Road Fund decreased their majority ownership in Pirelli Italy and Pirelli China to indirect minority ownership. The company also altered the composition of its board of directors to require a majority to be designated as "independent" under Italian law. Commerce still said the respondent failed to rebut the state control presumption. That position was upheld by the Court of International Trade in June (see 2306120055).

Now at the Federal Circuit, Pirelli argues that Commerce "ignored its own framework for linking evidentiary findings to conduct" relevant to AD proceedings. A key element of Commerce's practice explicitly focuses on "export functions" and not general business operations -- a practice the agency ignored in the present review, the brief said. In addition, the rebuttable presumption mechanism has "morphed from a reasonable tool of administrative efficiency when there is only a limited record to an unlawful per se evidentiary assumption that substitutes for substantial evidence."

Commerce "rewrote" its policy by combining findings "disconnected from any assessment of 'export functions'" and then wielding the rebuttable presumption "to create a near impossible hurdle to overcome," Pirelli said.