CIT Says Commerce Has Authority to Countervail Currency Undervaluation

However, Reif remanded the agency's decision to use Vietnam's currency undervaluation as a basis for imposing a CV duty on exporter Kumho Tire (Vietnam) Co. in the CVD investigation on passenger vehicle and light truck tires from Vietnam. The judge ultimately sent back elements of Commerce's finding that the subsidy is specific to the "traded goods sector" and that the currency undervaluation conferred a benefit to the exporter.

Reif said that the text of the CVD statute doesn't "exclude, expressly or otherwise, the undervaluation of currency from the definition of a countervailable subsidy." While Kumho Tire argued that specific delegations to the Treasury Department to address currency undervaluation make Treasury the only agency that can consider the practice, the judge said the CVD law doesn't create an exception to Commerce's authority for "practices that might be considered similar, parallel or related to those as to which another federal agency" can have authority under a different law.

And the court found there is "no indication in the legislative history that Congress intended to limit Commerce’s ability to countervail practices that might also be within the purview of other agencies."

Kumho Tire argued that Commerce's established practice makes clear that the agency doesn't have the authority to countervail currency undervaluation, noting various prior administrative decisions on the topic. Reif found all of the prior decisions presented by the exporter to address "different kinds of programs," that "reached conclusions on different legal issues," used "distinct legal standards" and "emphasized the factually distinct nature of the alleged subsidy programs under considerations."

As a result, these "sundry and sporadic instances do not comprise a practice," the decision held.

Kumho Tire also claimed that Congress acquiesced to Commerce's established practice of finding that it didn't have the authority to countervail currency undervaluation, arguing that Congress had knowledge of this limitation and refused to enact legislation granting the agency that authority. Reif said that no such agency practice existed and that no such congressional acquiescence took place. Various legislative histories show that Congress didn't consider legislation that would have overridden a practice in which Commerce couldn't countervail currency undervaluation, the decision said.

The exporter also argued that Congress ratified judicial or administrative interpretations of CVD law which said Commerce didn't have the authority to countervail currency undervaluation. Reif similarly dispatched with this claim, finding that there were no court decisions on the matter, meaning "there was no interpretation or practice that Congress could have ratified."

Even if such interpretations existed, no such ratification took place, the court held. The lone court ruling that discusses whether currency undervaluation could be a countervailable subsidy does so in non-precedential dicta, which isn't enough to amount to a "settled judicial construction," the court said. There's also "no indication" that Congress knew of, "let alone sought to ratify," this decision, Reif said.

The court upheld Commerce's finding that exchanges of U.S. dollars for Vietnamese dong amounts to a "direct transfer of funds" and thus stands as a financial contribution -- one of the requirements for countervailable subsidies. The statutory language is clear, Reif said, finding that the examples in the law of direct transfers of funds, which didn't include currency manipulation, are "illustrative" and not exhaustive.

The judge said Commerce's finding that the control and influence of the Vietnamese government over the exchange rates used by state-owned commercial banks and private banks satisfies the provision of the law requiring the government to entrust or direct the banks providing the financial contribution. The agency said such authority was granted due to broad government control at the state-owned banks' highest levels and the limits on the handling of currencies at the private banks.

However, where Reif took issue with Commerce's decision was on the issue of specificity.

During the investigation, Commerce considered whether the traded goods sector was the predominant user of the currency undervaluation, setting up an analysis with the traded goods sector as the numerator and USD currency conversions as the denominator. The agency relied on USD inflows to Vietnam as a proxy for the currency conversions, finding the universe of currency conversions to flow through four channels of exchange: exports of goods, exports of services, various portfolio and direct investment, and earned income from abroad.

The Vietnamese government didn't provide various information requested by Commerce, including data on the total USD inflow from the traded goods and services sectors and utilized foreign investment and inbound portfolio investment. However, the Vietnamese government offered alternative information, including "specifications for net commodity trade," one-way money transfer data, data for private investment and net foreign loans data.

Reif held that while it's clear that the agency didn't get the information it needed, what's "less clear" is "what precisely Commerce considered to be missing from the record" and why Vietnam's alternative data "was not usable to perform the necessary analysis."

The court also said it's unclear how the missing data relates to Commerce's conclusion that the four major channels of exchange are correct for estimating the total proportion of USD inflows Vietnam received. Reif lastly said Commerce must also explain its comment that there were "certain places where" the Vietnamese government "was unable to provide the information we requested for our evaluation."

The agency failed to specifically explain how Commerce used data on the record, which spans the State Bank of Vietnam to the IMF, to "derive the four channels analysis," what data wasn't provided and why "these elements prevented Commerce from using those data in its four channels analysis." Reif remanded the specificity analysis to account for these analytical gaps.

However, the judge rejected five additional challenges to the specificity analysis from Kumho Tire. Reif permitted Commerce's use of exporters as a whole to meet the statute's requirement that the subsidy be limited to a "group." The judge said the agency's specificity finding either doesn't violate or properly strays from prior administrative decisions, and he held that currency undervaluation isn't an export subsidy. Lastly, Reif rejected Kumho Tire's claim that Commerce's focus on the actual conversions of foreign currency into dong fails to address the actual impact of the exchange rate on Vietnamese firms.

In finding that the currency undervaluation amounted to a benefit to Kumho Tire, Commerce leaned heavily on a report from Treasury. The agency ultimately held that there was a 4.7% undervaluation of the Vietnamese dong against the U.S. dollar.

While Reif sustained nearly every element of Commerce's benefit analysis, he took aim at one element: a discrepancy noted by Kumho Tire between the Treasury report used by Commerce and a report Treasury sent to Congress in January 2020. In the report used by Commerce, Treasury said the Vietnamese government oversaw around $2.1 billion in net foreign exchange purchases over the four quarters through June 2019. In the congressional report, Treasury said the same number in the 2019 calendar year was around $22 billion.

Commerce said the six-month time difference is one cause of the difference and that its analysis before Commerce and Congress is different. The court said that "due to the size of the apparent discrepancy," these explanations fall short.

The court told Commerce to provide a "more clear and more thorough explanation. In particular, the court ordered Commerce to provide an explanation of the size of the discrepancy between the two reports in net purchases in foreign currency and how -- if that is the case -- the six-month non-overlapping period could have accounted for the discrepancy.”

Outside of this issue, Reif remanded Commerce's use of the Treasury report, and said that, contrary to Kumho Tire's claims, Commerce didn't illegally outsource the analysis to Treasury. The agency "fulfilled its responsibilities as the administering authority under § 1677(1) and consistent with the decisions of the Federal Circuit, this Court and other courts by reviewing, questioning and conducting analysis of the information and conclusions provided by Treasury," the decision said.

The court added that the statute doesn't require Commerce to "consider increased costs" in Vietnamese currency for inputs "that would allegedly offset any benefit."

(Kumho Tire (Vietnam) Co. v. United States, Slip Op. 24-115, CIT # 21-00397, dated 10/18/24; Judge: Timothy Reif; Attorneys: Vi Mai of Winton & Chapman for plaintiff Kumho Tire; Elizabeth Speck for defendant U.S. government; Saad Chalchal of Schagrin Associates for defendant-intervenor United Steelworkers)