Trade Court Remands 'Absurd' Specificity Finding in CVD Investigation on Moroccan Fertilizer
The Commerce Department failed to justify its finding that a subsidy to exporter OCP from a program for relief from tax fines and penalties was de facto specific, the Court of International Trade held on Jan. 8. Remanding the countervailing duty investigation on phosphate fertilizers from Morocco for a second time, Judge Timothy Stanceu said the agency's altered defense of its specificity finding was no less "absurd" than it was in the first go-round.
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Commerce initially said the program was de facto specific after relying on the first statutory specificity factor, which concerns whether the actual recipients of the subsidy are "limited in number." Stanceu rejected this position after finding that the agency "illogically" compared the number of corporate taxpayers recipients of penalty relief to the total number of corporate taxpayers and not to the "total number of corporate taxpayers who incurred penalties" (see 2309150066).
The first time around, Stanceu said the resulting figure is "essentially meaningless from the standpoint of determining the 'specificity' of the program because the numerator and denominator were not logically comparable." The only taxpayers who could have applied for relief were those that incurred a tax penalty and satisfied the requirements to pay all taxes they owed. The court said the actual recipients of the subsidy, "that happened to be corporations," can "scarcely be described as 'limited in number.'"
On remand, Commerce changed its justification of the specificity finding, arguing that the covered industry received a "disproportionately large amount of the subsidy" (see 2401160060). The judge said this change "does not make its decision any less absurd."
Taking his cues from the Statement of Administrative Action accompanying the Uruguay Round Agreements Act (SAA), Stanceu said that "Commerce must distinguish between subsidies that are provided to or used by discrete segments of the economy and those that distribute a benefit throughout the entire economy." As a result, the statutory factor Commerce relied on "must be interpreted consistently with this guiding principle, but Commerce has not done so here," the court said.
The agency failed to cite any evidence showing that the "broad availability of the program does not provide a benefit to the entire economy." Stanceu said this "broad scope crosses all lines of economic 'diversification,'" adding that the benefit can "be seen as benefiting the country’s economy at large through sound tax administration."
Commerce argued that OCP got a share of reductions in fines or penalties that was disproportionately large, noting that its share was 82.87 times larger than the average amount received by other Moroccan companies. In response, OCP noted that it was only the 10th largest recipient of benefits from the program, despite being Morocco's largest employer and accounting for 5% of the nation's GDP. Commerce replied by claiming that neither the Moroccan government nor OCP gave information that would draw a correlation between a "company's size and the amount of tax fines and penalties it incurs."
Stanceu blasted this response, holding that it "defies logic and common sense."
The agency failed to cite any evidence to back its "assumptions that a company’s total reduction in tax fines or penalties has no relationship to the total amount of its revenue or to the total taxes for which it is liable," the decision said. "Nor did Commerce make any attempt to demonstrate that OCP got some preferential treatment or other atypical benefit from the Moroccan government’s administration of the widely available tax fine and penalty relief program."
Stanceu also sent back Commerce's allocation of OCP's headquarters, support and debt costs for use in the exporter's cost of production calculation regarding its manufacture of phosphate rock. The agency initially excluded these costs but then accepted OCP's allocation of them on remand following a previous rebuke from the trade court.
Petitioner The Mosaic Co. made various arguments against this move, only one of which stuck. The petitioner said Commerce failed to consider its proposed alternative for allocating the costs to the production of phosphate rock. The agency said the alternative methodology relies on various estimations of OCP's reported costs, which it has not had time to fully analyze.
The judge held that if the agency "believed it would require additional time to prepare its Remand Redetermination, it was free to request an extension from the court for that purpose." The failure to evaluate the alternative methodology "was unreasonable per se."
Lastly, Stanceu rejected OCP's challenge to Commerce's calculation of a constructed profit rate regarding the agency's analysis of whether the company received mining rights for less than adequate remuneration. After having the profit rate previously remanded, Commerce altered the denominator of the calculation, shifting it downward.
OCP argued on remand that the agency's calculation "impermissibly represents profit on a company-wide basis rather than profit for the production of phosphate rock.” The court said that while the exporter didn't fail to raise the issue administratively, it did fail to raise it in its initial motion for judgment at the trade court.
(The Mosaic Co. v. United States, Slip Op. 25-3, CIT Consol. # 21-00116, dated 01/08/25; Judge: Timothy Stanceu; Attorneys: Stephanie Hartmann of Wilmer Cutler for plaintiff Mosaic Co.; William Isasi of Covington & Burling for defendant-intervenor OCP S.A.; Ravi Soopramanien for defendant U.S. government)