Trade Court Sends Commerce's Duty Drawback Adjustment Methodology in Turkish Aluminum Sheet AD Case

Katzmann said he's also remanding the case because Commerce didn't "substantively address" two arguments made by the petitioners, the Aluminum Association Common Alloy Aluminum Sheet Trade Enforcement Working Group and its members.

The issue centers around Turkey's system of rebating import duties paid by Turkish manufacturers on inputs, called the Inward Processing Regime. Under this system, holders of Inward Processing Certificates can either get refunds of import duties paid "upon the closure of a" certificate or it can pay no duties at the time of importation and submit a guarantee for the amount that's otherwise owed. Under both options, a certificate holder "remains liable for any import duties incurred until it exports a sufficient quantity of qualifying merchandise to close the IPC," the court summarized.

Should a certificate fail to not close, the Turkish government retroactively collects all customs duties. Commerce originally decided not to apply a duty drawback adjustment until a certificate closed, though the practice has evolved. At one point, the agency only required a "mere demonstration that" the exporter applied for closure of the certificate, though now the practice requires "some indication from the" Turkish government that the certificate was approved.

In the investigation on aluminum sheet from Turkey, Commerce applied the adjustment to all of Assan's U.S. sales even though only some of them directly contributed to the receipt of duty exemptions. The agency set a per-unit duty drawback rate for the exports attributable to the closed certificate and applied the adjustment to all of Assan's sales.

The petitioner said this violated the law, and Katzmann agreed.

The judge said the methodology illicitly raised Assan's export price by more than the import duties set by the exporting country "which have been rebated" or not collected "by reason of the exportation of the subject merchandise to the United States." The U.S. said that applying the closed-certificate-derived adjustment to open-certificate sales still reflects the duties exempted for the period of investigation since one closed certificate is "used as a proxy for other" certificates in the drawback calculation.

Katzmann ruled that these claims "assert reasonableness but do not demonstrate it: neither the Government nor Assan explains why it was reasonable for Commerce to adjust the calculated price of open-IPC sales using a per-unit adjustment derived from duties exempted under a closed IPC." The court said it doesn't read the governing statute, 19 U.S.C. 1677a(c)(1)(B), "to allow deeming the background operation of an IPC scheme to confer exempt status on certain unexempted duties under open IPCs for the narrow purpose of calculating drawbacks."

The government sought to justify its practice by relying on the U.S. Court of Appeals for the Federal Circuit's ruling in Uttam Galva v. U.S., which concerned an Indian exporter's use of both imported and Indian-origin inputs in its exports. The appellate court said that Commerce can't reduce the export price based on "the estimated proportion of drawback-earning U.S.-bound exports" of goods that incorporate non-dutiable input materials from the exporting country. The court said that Commerce must adjust the export price by the "full amount of the exemption," regardless of the destination of the imports that received the exempted duties.

Katzmann noted that while Commerce "avoided the Uttam Galva pitfall in this case," there are other ways to run afoul of the statute, including by increasing the export price "by an amount that includes duties which have been collected and not rebated," which is what Commerce "appears to have done."

The agency also failed to grapple with two claims from the petitioner, the court said. The first said that Commerce illegally applied a closed-certificate adjustment to open-certificate sales. Instead of "addressing the Association's argument directly," the agency discussed how the record shows that a "reasonable link exists between the duties imposed and those rebated or exempted."

Commerce "raised the specter of 'tracing,'" where the agency violates Uttam Galva by trying to match imported inputs to exported outputs, though the judge said this kind of "tracing" is not at issue here. What the association is concerned about wasn't addressed in Uttam Galva, the court noted. The point of Uttam Galva is to have Commerce avoid the "difficult, if not impossible, task of" finding whether the raw materials actually came from imported or domestic sources.

Here, "Commerce has not established that linking U.S. sales to corresponding IPCs is as Herculean a task as linking, for example, specific imported physical steel coils to specific exported physical steel pipes (by analyzing a production process in a foreign country)," the court said. In fact, it's a task "that Commerce has suggested that it is capable of completing in this case," the opinion said.

Commerce also failed to address the petitioner's claim that duty exemptions under a closed certificate don't all amount to exemptions by way of export to the U.S. since the closed certificate has export destinations other than the U.S. and exports not in the period of investigation. "Commerce made no mention of this specific statutory argument beyond this summary," the judge said.

(Assan Aluminyum Sanayi ve Ticaret v. United States, Slip Op. 24-44, CIT Consol. # 21-00246, dated 04/11/24; Judge: Gary Katzamnn; Attorneys: Leah Scarpelli of Arent Fox for plaintiff Assan Aluminyum Sanayi ve Ticaret; Kyle Beckrich for defendant U.S. government; John Herrmann of Kelley Drye for defendant-intervenors led by Aluminum Association Common Alloy Aluminum Sheet Trade Enforcement Working Group)