United States: Federal Circuit Upholds Commerce’s Limited Interpretation of Section 129 Authority

Introduction

The U.S. Court of Appeals for the Federal Circuit (the "Federal Circuit") recently upheld the U.S. Department of Commerce's ("Commerce") narrow interpretation of the scope of section 129 determinations in ThyssenKrupp Acciai Speciali Terni S.p.A et. al v. United States.¹Domestic and foreign parties involved in Commerce investigations should take note that ThyssenKrupp upholds a longstanding Commerce practice to limit the scope of section 129 determinations to specific issues raised in the context of a WTO dispute. This article provides a brief background on section 129, and then discusses Commerce's application of section 129 and the ThyssenKrupp ruling.

Background on Section 129

Section 129 of the Uruguay Round Agreements Act (19 U.S.C. § 3538) outlines the statutory process for bringing agency determinations ruled inconsistent with the U.S. government's WTO obligations into compliance. (Section 123 is used when a WTO ruling requires a change in regulation or written practice.) Under section 129, the United States Trade Representative ("USTR") must first consult with Commerce and various congressional committees to determine the proper response. Next, the USTR may request that Commerce issue a section 129 determination to bring the challenged action into compliance with U.S. government obligations. Following this USTR directive, Commerce will issue a preliminary determination and invite interested parties to submit written comments, which sometimes contain allegations that are not part of the WTO determination. For example, a party's comments for a section 129 determination might request wholesale methodological changes or the correction of clerical errors that were not raised in the context of the WTO dispute. When Commerce receives such extraneous allegations, it must articulate its position on the scope of section 129.

In doing so, Commerce must interpret a vague section 129 statute. Section 129 provides only that "Commerce shall . . . issue a determination in connection with the particular proceeding that would render [Commerce's] action . . . not inconsistent with the findings of the panel or the Appellate Body." 19 U.S.C. § 3538(b)(2). Adverse WTO decisions similarly provide little guidance as they only direct Commerce to make determinations consistent with WTO agreements, but do not prescribe a specific manner. Thus, one can argue that Commerce is free to include anything in a section 129 determination that is not inconsistent with the underlying WTO ruling.

Commerce's Application of Section 129

Since 2001, Commerce has consistently determined that the sole purpose of section 129 is to reopen a determination for revision of those aspects of Commerce's original determination a WTO Panel or Appellate Body ruled inconsistent with the WTO agreements.² According to Commerce, section 129 determinations have a limited purpose and the existence of a section 129 proceeding "does not provide an excuse for a wholesale review of all issues in the underlying case."³ Accordingly, in the 2001 section 129 determination on Stainless Steel Sheet and Strip in Coils From Korea, Commerce declined to address alleged clerical errors from the original investigation in the context of the section 129 proceeding because the WTO Panel had made no ruling with respect to the alleged errors.⁴ Commerce followed this practice in 2003, ruling in Cut-to-Length Carbon Steel Plate from the United Kingdom that it would not reopen issues in the section 129 determination that the Appellate Body did not find WTO-inconsistent.⁵

Similarly, in the 2007 Stainless Steel Sheet and Strip in Coils from Italy section 129 determination, Commerce refused to adjust its final determination for alleged clerical errors that were not raised in the WTO dispute settlement proceeding or found to be inconsistent with U.S.-WTO obligations.⁶ Commerce further solidified its position in January 2009, explaining that "considering any factor or argument regarding the underlying . . . investigation that was not part of the WTO determination or the USTR's directive is outside the limited scope of bringing the . . . determination into conformity with the findings of the WTO."⁷ Thus, Commerce has limited the scope of section 129 for almost a decade.

Softwood Lumber - One of These Things is Not Like the Others

As is often the case with administrative determinations, one determination stands out for breaking the trend to limit the scope of section 129. In the 2005 section 129 determination on Certain Softwood Lumber Products From Canada, Commerce recalculated dumping rates after the WTO Appellate Body found Commerce's initial "zeroing" methodology to violate the Antidumping Agreement.⁸ ("Zeroing" is a controversial practice whereby Commerce does not give a foreign company credit for non-dumped sales in the dumping calculations, instead "zeroing "out non-dumped sales and calculating the margin based only on dumped sales.) The domestic industry argued that Commerce should apply a new methodology in the recalculation (using the so-called "transaction-to-transaction" method) to preserve zeroing, a methodology not addressed by the WTO Appellate Body.

The Canadians opposed arguing that Commerce could not apply a different methodology to bring its determination into compliance with the Appellate Body ruling. But Commerce determined to adopt a new methodology even though the Appellate Body did not consider the methodology adopted.⁹ Thus, Commerce temporarily changed direction in this case, broadly interpreting section 129 to allow substantive methodology changes never under review by the Appellate Body. This section 129 scope determination was never tested in court.¹⁰

Treatment by the Federal Circuit - Reasonable (But Not Required)

ThyssenKrupp affirmed Commerce's decision not to correct clerical errors newly raised in a section 129 determination. This section 129 determination arose after the European Communities challenged the legality of Commerce's zeroing methodology employed in Certain Stainless Steel Sheet and Strip in Coils from Italy. During the section 129 determination to comply with the Appellate Body's ruling, the U.S. industry alleged clerical errors in the underlying investigation and requested Commerce to address them. Following its normal practice, Commerce refused and limited the scope of the section 129 determination to issues raised as part of the WTO dispute. The U.S. industry then challenged this decision before the courts.

Employing a so called "Chevron" analysis, the Federal Circuit first determined that the intended scope of the section 129 statute is ambiguous. The court then ruled that Commerce's interpretation to limit the scope of section 129 proceedings is reasonable given considerations of finality and fairness.¹¹ Thus, court precedent now supports Commerce's narrow interpretation of the scope of section 129 proceedings.

Conclusion

Commerce's practice to limit the scope of section 129 is practical if nothing more. One can easily imagine the chaos and uncertainty created by a system whereby parties to section 129 proceedings could argue for any change so long as it was considered "in conformity" with the WTO Panel or Appellate Body Report. And articulating a standard for accepting some changes unrelated to the WTO proceeding, but not others, would prove difficult. Likewise, refusing to reopen extraneous issues serves the interest of finality.

Commerce has clearly demonstrated that its inclined to limit the scope of section 129 proceedings to only address WTO-inconsistent practices. But Commerce has been very careful not to refer to their practice as a "policy." That is, they retain discretion and could still reverse course. Given the ambiguity in the section 129 statute, it's possible that a court would uphold a much broader interpretation of the scope of section 129. And it's important to note that the Federal Circuit's ruling in ThyssenKrupp only held that Commerce's limited scope interpretation was reasonable, not that it was required. Thus, it's not difficult to imagine Commerce exercising its discretion to expand the scope of a section 129 determination in a politically charged case, as it did in Softwood Lumber. Still, given almost 10 years of (mostly) consistent application of the section 129 statute, trade practitioners can expect that Commerce will continue to limit the scope of section 129 and refuse to consider factors or issues not part of the subject WTO determination.

Footnotes

1. No. 2009-1383, 2010 U.S. App. LEXIS 8493 (Fed. Cir. Apr. 23, 2010).

2. See, e.g., Final Results for the Section 129 Determination: Certain Stainless Steel Sheet and Strip in Coils from Italy, 72 Fed. Reg. 54640 (Dep't of Commerce Sep. 26, 2007), Issues and Decision Memorandum at 8.

3. Implementation of the Findings of the WTO Panel in US--Zeroing (EC): Notice of Determinations Under Section 129 of the Uruguay Round Agreements Act and Revocations and Partial Revocations of Certain Antidumping Duty Orders, 72 Fed. Reg. 25621 (Dep't of Commerce May 4, 2007).

4. See Amendment of Final Determinations of Sales at Less Than Fair Value: Stainless Steel Plate in Coils From the Republic of Korea; and Stainless Steel Sheet and Strip in Coils From the Republic of Korea, 66 Fed. Reg. 45279 (Dep't of Commerce Aug. 28, 2001).

5. See Section 129 Determination: Final Results of Expedited Sunset Review of Cut-to-Length Carbon Steel Plate from the United Kingdom, 68 Fed. Reg. 64858 (Dep't of Commerce Nov. 17, 2003), Issues and Decision Memorandum at 9.

6. Final Results for the Section 129 Determination: Certain Stainless Steel Sheet and Strip in Coils from Italy, 72 Fed. Reg. 54640 (Dep't of Commerce Sep. 26, 2007), Issues and Decision Memorandum at 8.

7. Notice of Determination Under Section 129 of the Uruguay Round Agreements Act and Partial Revocation of the Antidumping Duty Order on Frozen Warmwater Shrimp From Thailand, 74 Fed. Reg. 5638 (Dep't of Commerce Jan. 30, 2009), Issues and Decision Memorandum at 14.

8. Notice of Determination Under Section 129 of the Uruguay Round Agreements Act: Antidumping Measures on Certain Softwood Lumber Products From Canada, 70 Fed. Reg. 22636 (Dep't of Commerce May 2, 2005).

9. Certain Softwood Lumber Products From Canada, 70 Fed. Reg. 22636 (Dep't of Commerce May 2, 2005).

10. The Appellate Body later found this form of zeroing to be substantively problematic. The underlying case was then settled and its section 129 scope question was never addressed by a U.S. court.

11. ThyssenKrupp, No. 2009-1383, 2010 U.S. App. LEXIS 8493 (Fed. Cir. Apr. 23, 2010).

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