Federal Circuit affirms Almond Bros. and Union Steel – after years of unnecessary uncertainty

News & Insights
Jul 26, 2013

Earlier this month, the Federal Circuit in Almond Bros. v. United States (Fed. Cir. July 1, 2013) dismissed a challenge to the 2006 Softwood Lumber Agreement term that Canada distribute funds to members of a domestic softwood lumber industry group brought by lumber companies that were not members.  The Office of the U.S. Trade Representative negotiated this term as part of a comprehensive settlement of the longstanding dispute over Canadian softwood lumber practices.  Although the Court of International Trade initially dismissed for lack of jurisdiction, the Federal Circuit reversed and ordered the case to proceed.  Almond Bros. Lumber Co. v. United States (Fed. Cir. 2011).  The CIT thereafter dismissed on multiple bases.  Almond Bros. Lumber Co. v. United States (CIT 2012).

The Federal Circuit in upholding the CIT recognized wide USTR discretion to resolve trade conflicts.  Judge Reyna, the Federal Circuit’s only former trade practitioner, explained that the plaintiffs failed to state a claim for which relief could be granted because the SLA compensation allocation was “committed to the discretion of the USTR and therefore beyond judicial review.”  The claim that USTR unconstitutionally favored certain industry members was rejected, given the rational basis for compensating only those who “organized the necessary industry support, including financial support and the submission of questionnaire responses, legal briefs, and industry trade data, for the petitions that caused the government to initiate investigations.”

The Almond Bros. result is similar to that reached in the Federal Circuit’s ruling Union Steel v. United States (Apr. 16, 2013) upholding the Department of Commerce’s calculation of antidumping duties with the “zeroing” methodology.  This latest in a long line of zeroing cases resolved whether Commerce could use zeroing in administrative reviews but not in investigations.  The Federal Circuit had twice in 2011 reversed the CIT and remanded for Commerce to explain why it used zeroing in one proceeding but not the other.  Dongbu Steel Co. v. United States (Fed. Cir. 2011); JTEKT Corp. v. United States (Fed. Cir. 2011).  Judge Wallach, the only Federal Circuit jurist elevated from the CIT, readily found the agency analysis sufficient in Union Steel: “Commerce’s decision to use or not use the zeroing methodology reasonably reflects unique goals in differing comparison methodologies. . . .  Commerce’s differing interpretation is reasonable because the comparison methodologies compute dumping margins in different ways and are used for different reasons.” The Federal Circuit reached the correct result in both cases, despite requiring a circuitous route back to the CIT in each.  Given their expertise, government agencies are empowered with discretion to fashion international trade disputes and calculate antidumping duties.  In neither Almond Bros. nor Union Steel did government agencies exceed the bounds of their statutory authority – as eventually found by the Federal Circuit.  However, the issues having both been initially remanded engendered years of uncertainty.  The delay was particularly problematic with respect to zeroing, as scores of cases were held up pending resolution of whether Commerce properly calculated antidumping duties.

The Federal Circuit should have resolved both Union Steel and Almond Bros. in the first instance.  While Commerce may not have squarely addressed the inconsistent zeroing usage – because existing precedent did not so require – it was obvious that such a sound justification existed.  While the CIT in Almond Bros. originally ruled on jurisdiction, it was clear that the plaintiffs could not state a claim for relief even if jurisdiction existed.  The Federal Circuit can and does dismiss trade cases on grounds other than those employed by the CIT.  Ad Hoc Shrimp Trade Action Comm. v. United States (Fed Cir 2010).  This approach would have prevented uncertain and costly litigation in Union Steel and Almond Bros.  Both decisions properly respect agency discretion, yet the outcomes should have been reached years earlier.

The Federal Circuit having generated years of unnecessary uncertainty is particularly unsettling given its recent ruling, Mid Continent Nail Corp. v. United States (Fed. Cir. July 18, 2013).  There, Commerce found that nails imported from China as part of tool kits were outside the scope of the antidumping order, despite their being included had they been imported separately.  After two CIT remands, Commerce found the nails dutiable.  The Federal Circuit again remanded for Commerce to reconsider whether the tool kit nails were covered by the antidumping duty order.  If this case years later turns out to have been capable of resolution early on – as were Almond Bros. and Union Steel – the Federal Circuit will have failed to provide clarity and predictability to petitioners and importers.  Indeed, Nails chastises Commerce for falling short in this regard: “Commerce’s problems are largely self-inflicted, because in the past Commerce has given low priority to an approach that should receive the highest priority from any administrative agency—providing coherent and consistent guidance to regulated parties.”