United States v. Eurodif S.A. (07-1059); USEC, Inc. v. Eurodif S.A. (07-1078)

Oral argument: Nov. 4, 2008

Appealed from: United States Court of Appeals for the Federal Circuit (Sep. 9, 2005)

ANTIDUMPING, CHEVRON DEFERENCE, URANIUM, SALE OF MERCHANDISE, SALE OF SERVICES

The antidumping statute requires the Department of Commerce (“Commerce”) to impose a duty on “foreign merchandise . . . sold in the United States at less than its fair value.” Nuclear utilities in the United States contracted with the French company Eurodif S.A. (“Eurodif”) for low enriched uranium (“LEU”). The utilities supplied Eurodif with feed uranium and paid Eurodif to produce LEU from the feed uranium. Commerce taxed the LEU under the antidumping statute, because it understood such agreements to be contracts for the sales of merchandise. The Court of International Trade (“CIT”) reversed and held that the agreements were contracts for the sales of services. The U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) upheld the CIT’s reversal. In these consolidated cases, the U.S. Supreme Court takes up the question of whether the Federal Circuit was required to defer to Commerce’s interpretation of the antidumping statute. This is the first antidumping case the Supreme Court will hear.

·   [Question(s) presented]

·   [Issue(s)]

·   [Facts]

·   [Discussion]

·   [Analysis]

Question(s) presented

United States v. Eurodif S.A., et al. (No.07-1059)

Section 1673 of Title 19 of the United States Code provides that, when “a class or kind of foreign merchandise is being, or is likely to be, sold in the United States at less than its fair value,” to the detriment of a domestic industry, the Department of Commerce (“Commerce”) shall impose antidumping duties on entries of the foreign merchandise. The question presented is:

Whether the court of appeals erred in rejecting Commerce’s conclusion that foreign merchandise is “sold in the United States” within the meaning of 19 U.S.C. 1673 when a purchaser in the United States obtains foreign merchandise by providing monetary payments and raw materials to a foreign entity that performs a major manufacturing process in which substantial value is added to the raw materials, thereby creating a new and different article of merchandise that is delivered to the U.S. purchaser.

USEC, Inc., et al. v. Eurodif S.A., et al. (07-1078)

The antidumping law allows for duties to be imposed on “foreign merchandise . . . sold in the United States at less than its fair value.” The Commerce Department construed that phrase as including transactions in which a U.S. customer furnishes cash and fungible raw material to a foreign producer and receives a substantially transformed finished product. The question presented in this case is whether the Federal Circuit erred in failing to accord Chevron deference to that construction, when a contrary one will prevent the Commerce Department from applying the antidumping law to imports causing or threatening material injury to a domestic industry.

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Issue(s)

Did the Federal Circuit err by not deferring to Commerce’s determination that merchandise manufactured by a foreign producer for a U.S. customer from raw materials provided by that U.S. customer constitutes a “sale of merchandise” and can, therefore, be taxed under the antidumping statute? 

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Facts

Under federal law, the U.S. Department of Commerce (“Commerce”) may impose an antidumping duty on “foreign merchandise . . . sold in the United States at less than its fair value.” 19 U.S.C. § 1673. This case arises from the U.S. Supreme Court’s consolidation of two petitions for certiorari, United States v. Eurodif S.A. (No. 07-1059) and USEC Inc. v. Eurodif S.A. (No. 07-1078), involving 19 U.S.C. § 1673. See United States v. Eurodif S.A., et al, 128 S. Ct. 2054, 2055 (2008); see also USEC Inc. v. Eurodif S.A., et al., 128 S. Ct . 2056, 2056 (2008).

On December 7, 2000, USEC Inc. and its subsidiary, United States Enrichment Corporation (collectively, “USEC”), the sole producer of low enriched uranium (“LEU”) in the United States, petitioned Commerce to initiate an antidumping investigation into imports of LEU from France, Germany, the Netherlands, and the United Kingdom. See USEC Inc., et al., v. U.S., 27 C.I.T. 489, 490 (Ct. Int’l Trade 2003); see also Brief for Petitioners USEC Inc., et al. (“USEC”) at 3. LEU is produced from feed uranium. See USEC Inc., 27 C.I.T. at 491. Production of LEU is the fourth step in the five-step process to produce nuclear fuel rods, which produce electricity in nuclear reactors. See id. at 491. Nuclear utilities obtain LEU using either a contract for “enriched uranium product” (“EUP”) or a contract for “separative work units” (“SWU”). Id. at 492. In an EUP contract, nuclear utilities purchase LEU directly from a uranium enricher. See id. at 492. LEU purchased under an EUP contract is subject to antidumping duties. See id. at 492; see also 19 U.S.C. § 1673. Under an SWU contract, however, nuclear utilities purchase feed uranium from a third party and then pay an enricher to produce LEU from the feed uranium. See USEC at 492–93. The utility retains title to the feed uranium while it is in the enricher’s possession. See id. at 493.

Commerce found that LEU obtained pursuant to SWU contracts between U.S. purchasers and foreign enrichers is “foreign merchandise . . . sold in the United States” pursuant to 19 U.S.C. § 1673. See id. at 494. Eurodif S.A., a French uranium enrichment company, and AREVA NC S.A. and AREVA NC Inc., French and American companies, respectively, that “sell enrichment services on Eurodif’s behalf” (collectively, “Eurodif”), appealed Commerce’s decision to the United States Court of International Trade (“CIT”). Brief for Respondents Eurodif S.A., et al. (“Eurodif”) at 1; see also USEC Inc., 27 C.I.T. at 489, 513. CIT has exclusive jurisdiction over suits against “the United States, its officers, or its agencies arising out of any law pertaining to international trade.” See CIT Jurisdiction of the Court. The Ad Hoc Utilities Group (“AHUG”), “sixteen American utilities that represent the majority of commercial nuclear power generation in the United States,” intervened in the suit, siding with Eurodif.Brief for Respondent Ad Hoc Utilities Group (“AHUG”)at 1. CIT reversed Commerce’s finding, holding that SWU contracts involve subcontracting services, not a sale of merchandise, and therefore, antidumping duties do not apply. See USEC Inc., et al. v. United States, 27 C.I.T. 1419, 1425–27 (Ct. Int’l Trade 2003). Subsequently, CIT granted the parties an interlocutory appeal to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”), which has exclusive jurisdiction over appeals from CIT. See USEC Inc., et al., v. United States, 27 C.I.T. 1925, 1929 (Ct. Int’l Trade 2003). An interlocutory appeal is an appeal granted in the midst of an ongoing trial to decide “a controlling question of law . . . with respect to which there is a substantial ground for difference of opinion.” 28 U.S.C. 1292(d). The Federal Circuit affirmed CIT’s decision that SWU contracts involve a provision of services, not a sale of merchandise. See Eurodif S.A., et al. v. United States, 411 F.3d 1355, 1364 (Fed. Cir. 2005); see also Eurodif S.A., et al. v. United States, 423 F.3d 1275, 1278 (Fed. Cir. 2005).

Subsequently, the United States and USEC appealed Commerce’s decision to rewrite the scope of its antidumping duty order to exclude all LEU obtained in future SWU contracts, but the Federal Circuit dismissed the appeal for lack of ripeness. See Eurodif S.A., et al. v. United States, et al.,506 F.3d 1051, 1053–54 (Fed. Cir. 2007). A claim is not ripe until ‘“an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties.”’ Id. at 1054, citing Abbott Labs. v. Gardner, 387 U.S. 136, 148–49 (1967). On April 21, 2008, the U.S. Supreme Court granted the United States’ and USEC’s petitions for certiorari to decide whether LEU, manufactured by a foreign entity on behalf of a U.S. purchaser out of raw materials provided by that U.S. purchaser, is “foreign merchandise . . . sold in the United States at less than its fair value,” and whether the Federal Circuit erred by failing to accord Commerce deference in its affirmative determination. 19 U.S.C. § 1673.

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Discussion

Is low enriched uranium (“LEU”) manufactured by a foreign entity on behalf of a U.S. purchaser out of raw materials provided by that U.S. purchaser “foreign merchandise . . . sold in the United States at less than its fair value” and thus, subject to antidumping duties under 19 U.S.C. § 1673? The Supreme Court’s decision in this case will affect foreign and domestic manufacturers and service providers in a multitude of industries.

Petitioners United States and USEC Inc., et al. (collectively, “USEC”) contend that the U.S. Department of Commerce (“Commerce”) correctly found that LEU obtained in separative work units (“SWU”) contracts between U.S. purchasers and foreign enrichers is “foreign merchandise . . . sold in the United States at less than its fair value.” See Brief for Petitioner United States at 26–32; see also Brief for Petitioners USEC Inc., et al. (“USEC”) at 27–28. Conversely, respondents Eurodif S.A., et al. (collectively, “Eurodif”), and the Ad Hoc Utilities Group (“AHUG”) argue that the United States Court of International Trade’s (“CIT”) and the U.S. Court of Appeals for the Federal Circuit’s (“Federal Circuit”) reversal of Commerce’s decision was correct, because SWU contracts involve a provision of services, not a sale of merchandise and thus, do not fall within the antidumping provision. See Brief for Respondents Eurodif S.A., et al. (“Eurodif”) 21–26; see also Brief for Respondent The Ad Hoc Utilities Group (“AHUG”)at 23.

The United States and USEC argue that if the antidumping provision does not apply to merchandise obtained in SWU contracts, SWU contracts create a loophole that undermines the statute’s “basic purpose” of protecting domestic manufacturers from “unfair competition.” Brief for United States at 32; Brief for USEC at 53–55. See Brief for United States at 26–32; see also Brief for USEC at 27–28. The United States and amicus Committee to Support U.S. Trade Laws (“CSUSTL”) warn that if SWU contracts are not subject to antidumping provisions, industries ranging from steel to semiconductors would circumvent antidumping duties by obtaining merchandise through SWU contracts. See Brief for United States at 34–36; see also Brief of Amicus Curiae Committee to Support U.S. Trade Laws in Support of Petitioners (“CSUSTL”) at 20–22. This would place domestic manufacturers at a disadvantage and leave them no recourse to foreign manufacturers selling merchandise obtained in SWU contracts for less than its fair value. See Brief for United States at 36–37; see also Brief of CSUSTL at 20–22. USEC predicts that Russia, in particular, would flood the U.S. market with LEU, thereby harming the domestic uranium enrichment industry. See Brief for USEC at 58.

Eurodif and AHUG counter that reversal of CIT and the Federal Circuit would not create a loophole because antidumping duties could be “imposed upon the first downstream sale” of merchandise obtained through SWU contracts. Brief for Eurodif at 20; see also Brief for AHUG at 49–52. The impact of this decision on domestic manufacturers is limited primarily to the uranium enrichment industry, because LEU, unlike other merchandise, is consumed in a nuclear reactor and never sold to consumers. See Brief for Eurodif at 20; see also Brief for AHUG at 49–52. The impact on the domestic uranium enrichment industry may be short-lived, because the President may restrict, and Congress is considering restricting, LEU imports. See Brief for Eurodif at 20. Amicus Alcoa, Inc. (“Alcoa”) adds that “anticompetitive activities outside the scope of the antidumping law remain subject to other trade and competition laws.” Brief of Amicus Curiae Alcoa, Inc. in Support of Respondents at 34. Furthermore, amicus Techsnabexport (“Tenex”), a Russian uranium enricher and exporter, denies that Russia would flood the U.S. market with LEU, citing the 1992 Highly Enriched Uranium Agreement (“HEU Agreement”) between the United States and Russia, high global demand for LEU, and favorable long-term contracts between Russian exporters and customers. See Brief of Amicus Curiae Techsnabexport in Support of Respondents at 1, 12–14, 17.

The United States and USEC also contend that failing to apply antidumping duties to LEU imports would threaten national security and undermine the United State’s anti-nuclear proliferation policy under the HEU Agreement. See Brief for United States at 37–38; see also Brief for USEC at 58. Under the HEU Agreement, the Russian Federation agreed to dismantle nuclear weapons and produce LEU by downblending highly enriched uranium (“HEU”) from those weapons, and in exchange, the United States agreed to purchase Russian LEU. See Brief for United States at 37–38. In addition, the United States agreed to exempt LEU produced by downblending HEU from antidumping duties. See Brief for United States at 38. Upholding the CIT’s and Federal Circuit’s decision would undermine the United States’ anti-nuclear proliferation policy by creating a disincentive for Russian enrichers to undertake the more expensive process of producing LEU by downblending highly enriched uranium from dismantled nuclear weapons. See Brief for United States at 38.

Arguing on Eurodif’s behalf, amicus Tenex rejoins that the Highly Enriched Uranium Agreement and favorable long-term contracts provide incentives to continue producing LEU by downblending uranium from dismantled nuclear weapons. See Brief for Techsnabexport at 12–14. Furthermore, Eurodif and AHUG assert that reversing CIT’s and the Federal Circuit’s decisions could lead to foreign nations adopting similarly broad antidumping provisions against U.S. manufacturing and service industries in retaliation. See Brief for Eurodif at 54, 57; see also Brief for AHUG at 54; see also Brief of Amicus Curiae Professor Raj Bhala in Support of Respondents at 28–29. Finally, Eurodif and amici Alcoa and National Atomic Company “Kazatomprom,” the Republic of Kazakhstan’s state-owned nuclear company, applaud CIT’s and the Federal Circuit’s decision for liberalizing trade and increasing competition in the LEU market and warn that a reversal could exacerbate the United States’ energy crisis by causing higher nuclear fuel prices. See Brief for Eurodif at 58; see also Brief of Alcoa at 2–3; Brief of Amicus Curiae National Atomic Company “Kazatomprom” in Support of Respondents at 12–15, 17.

The Supreme Court’s decision in this case could impact not merely the uranium enrichment industry, but also foreign and domestic manufacturers and service providers in a multitude of industries, national security, and the United States’ non-proliferation and trade policies. This is a case of first impression because the Supreme Court has never before heard an antidumping case. See, e.g., Brief of Alcoa at 2.

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Analysis

 

The antidumping statute requires the Department of Commerce (“Commerce”) to impose a duty on “foreign merchandise . . . sold in the United States at less than its fair value.” 19 U.S.C. § 1673(1). In these consolidated cases, the parties disagree over whether the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) was required to defer to Commerce’s determination that low enriched uranium (“LEU”) provided to U.S. customers through separative work unit (“SWU”) contracts is a “sale” of merchandise and, therefore, subject to antidumping duties under the statute. See Brief for Petitioners USEC Inc., et al. (“USEC”) at 27, 38; Brief for Petitioner United States at 22; Brief for Respondents Eurodif S.A., et al. (“Eurodif”) at 21–22;Brief for Respondent The Ad Hoc Utilities Group (“AHUG”) at 23. 

In Chevron U.S.A. Inc. v. Natural Resources Defense Council, the U.S. Supreme Court established a two-part test for determining when courts must defer to an agency’s interpretation of a statute. See Brief for United States at 23; 467 U.S. 837, 842–43. The agency must satisfy both parts of the Chevron test for its interpretation to warrant deference. See Brief for United States at 23. Firstly, the statute must be “silent or ambiguous with respect to the specific issue.” Id. And, secondly, if the statute is “silent or ambiguous,” the agency must act “reasonably in filling the statutory gap.” Id. 

 Is the Antidumping Statute Ambiguous?

The respondents, Eurodif and AHUG, contend that the Federal Circuit did not need to defer to Commerce’s interpretation that SWU contracts are sales of merchandise, because the statute unambiguously bars that interpretation. See Brief for Eurodif at 21–22; Brief for AHUG at 23. They argue that the statute must be understood according to its ordinary meaning, because the statute does not indicate otherwise. See Brief for Eurodif at 22; Brief for AHUG at 26. By its ordinary meaning, a sale of merchandise entails a transfer of ownership in a tangible good. See Brief for AHUG at 26. The respondents argue that there is no transfer of ownership in SWU contracts, however, because the contracting parties stipulate that the utility retains title to the uranium it supplies to the foreign enricher. See Brief for Eurodif at 36. Because the enricher never owns the uranium, it cannot transfer ownership of it back to the utilities. See id. at 35–37.    

The petitioners, USEC and the United States, argue that the statute does not unambiguously bar Commerce’s interpretation that SWU contracts are sales of merchandise. See Brief for USEC at 27; Brief for United States at 22–23. They claim that the statute must be understood in light of its purpose. See Brief for USEC at 28–29; Brief for United States at 32. The petitioners cite numerous congressional reports to prove that Congress enacted the antidumping statute to protect domestic industries from harm by imported goods sold for less than their fair value. See Brief for USEC at 31–33; Brief for United States at 32. Taking that into account, Congress likely intended for Commerce to have the “discretion to apply the statute to injurious import transactions that have the usual characteristics of a sale even if they do not involve a ‘transfer of ownership’ in the strictest sense.” Brief for USEC at 32. Therefore, the petitioners argue that LEU obtained through SWU contracts can be taxed under the antidumping statute even if there is no transfer of ownership, provided that Commerce also satisfies the second part of the Chevron test and proves that SWU contracts can be reasonably viewed as having the usual characteristics of a sale. See id.

USEC and the United States also argue that the antidumping statute is ambiguous even if it undeniably applies only to merchandise that undergoes a transfer of ownership, because the statute does not specify whether SWU contracts involve a transfer of ownership. See Brief for USEC at 33–34, 37; Brief for United States at 44–45. USEC and the United States claim that the title retention provision in SWU contracts does not prove there is no transfer of ownership, because the substance, and not the form, of contracts determine their meaning. See Brief for USEC at 34; Brief for United States at 45–48. Therefore, Commerce must determine whether the behavior of the contracting parties amounts to a transfer of ownership (a sale). See Brief for USEC at 34; Brief for United States at 45–48. Commerce’s determination will warrant deference so long as it also passes the second part of the Chevron test and is reasonable. See Brief for USEC at 34.

Is Commerce’s Interpretation of the Antidumping Statute Reasonable?  

Petitioners USEC and the United States argue that Commerce reasonably determined that SWU contracts amount to sales of merchandise and not to services. See Brief for USEC at 38; Brief for United States at 44–45. In reaching this conclusion, they emphasize two aspects of SWU transactions. See Brief for USEC at 38; Brief for United States at 45. First, the foreign enricher substantially transforms the feed uranium into a new product (LEU). See Brief for USEC at 38. Second, because feed uranium is fungible, the enricher often does not process the exact uranium provided by the contracting utility, but instead processes and returns to the utility other uranium from its total inventory. See Brief for USEC at 38; Brief for United States at 45. Therefore, USEC argues that the LEU delivered to the utility is not merely “the ‘return’ of the customer’s raw material in modified form.” Brief for USEC at 45. Instead, USEC argues, the enricher produces a new product and then transfers its ownership to the utility. See id. SWU transactions therefore differ from the sale of services; in an example from USEC, a dry cleaning service returns the same items of clothing to its customers in only slightly modified form. See id.

Respondent Eurodif counters that it is unreasonable for Commerce to find that SWU contracts are sales of merchandise, because the substance of the contracts prove that they are, instead, sales of services. See Brief for Eurodif at 50–51. The foreign enricher, for instance, does not charge the utilities for the uranium itself, but for its enrichment services. See id. at 37. Eurodif explains that the enricher charges based on the amount of energy that will have to be expended to produce LEU from the feed uranium that the utilities provide. See id.  

 

Moreover, respondent AHUG argues that uranium’s fungible nature does not prove that SWU contracts are sales of merchandise. See Brief for AHUG at 9. Instead of dry cleaning, AHUG compares SWU contracts to bank services. See id. Just like a bank never owns the money deposited by its customers even though the customers receive different bills upon retrieving their money, so too, AHUG argues that the foreign enricher never owns the uranium. See id. Because the enricher never owns the uranium, AHUG maintains, it cannot “sell” it to the utilities. See Brief for AHUG at 9, 40–41.

 

Commerce’s Prior Tolling Regulation

The respondents, Eurodif and AHUG, argue that Commerce’s interpretation of the antidumping statute deserves less deference because it is inconsistent with Commerce’s prior tolling regulation. See Brief for Eurodif at 33;Brief for AHUG at 33. They emphasize that Commerce only recently withdrew the regulation in order to avoid its interference with this case. See Brief for Eurodif at 33;Brief for AHUG at 33. The tolling regulation provided that where a subcontractor performs manufacturing services for a contractor, the contractor’s prices and costs—and not the subcontractor’s—are used to determine whether the good is sold for less than its fair value. See Brief for AHUG at 4–5. To support their argument, respondents cite Commerce’s explanation that it does “not consider the ‘sale’ between the subcontractor and . . . contractor to be a sale of subject merchandise at all,” because the price paid to the subcontractor represents only the value of the services and not the entire merchandise. Brief for Eurodif at 33; see Brief for AHUG at 32.Respondents claim that this regulation is therefore inconsistent with Commerce’s interpretation that SWU contracts are sales of merchandise because the utilities only pay the enricher for its manufacturing services and not the uranium. See Brief for Eurodif at 37.  

The United States counters with two arguments. First, the United States contends that the tolling regulation is not inconsistent with Commerce’s interpretation in this case. See Brief for the United States at 40. The United States claims that the regulation only addressed how to calculate antidumping duties when a foreign contractor hires a subcontractor to produce a good that the contractor then sells in the United States. See id. at 41–43. Only the contractor’s costs are relevant in such a case. See id. Here, however, the subcontractor delivers the merchandise directly to a U.S. entity. See id. In this case, the United States contends, the subcontractor’s costs are significant and the contract constitutes a sale of merchandise. See id.Second, the United States argues that courts must defer to an agency’s interpretation, even if it is inconsistent with prior determinations, because an agency is entitled to reconsider its views over time. See id. at 43. 

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Conclusion

The U.S. Supreme Court in this case will decide whether the Department of Commerce’s interpretation of the antidumping statute warrants deference. Commerce held that low enriched uranium (“LEU”) obtained through separative work unit (“SWU”) contracts are sales of merchandise—not sales of services—for purposes of the statute and, therefore, is subject to antidumping duties. The petitioners, USEC Inc. et al. (“USEC”) and the United States, argue that a Supreme Court decision that does not uphold Commerce’s determination will detrimentally impact domestic industries and threaten national security. The respondents, Eurodif S.A., et al. (“Eurodif”) and the Ad Hoc Utilities Group (“AHUG”), counter that a decision that does not uphold Commerce’s determination will not harm domestic industries or national security, while upholding its determination will exacerbate the United States’ energy crisis. In either case, the Court’s decision will likely impact national policy and many industries, manufacturers, and service providers.

Authors

Prepared by: Lauren Jones and Sarah Soloveichik

Edited by: Courtney Zanocco

Additional Sources

· High Court to Hear Uranium Case, The Washington Post

· United States Department of Commerce

· International Economic Law and Policy Blog post on the Eurodif cases:

· Testimony of Assistant Secretary of Commerce for Import Administration Before the Senate Committee on Energy and Resources on the Agreement Suspending the Antidumping Investigation on Uranium from the Russian Federation and related issues

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