United States v. Eurodif

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Authorship: Amy Howe

Contents

[edit] Briefs and Documents

Docket: 07-1059, 07-1078

Issue: Whether contracts for uranium enrichment services are subject to federal anti-dumping laws.


Merit briefs


Amicus briefs

Briefs: Transcript

Decision: REVERSED AND REMANDED in an opinion by Justice Souter

[edit] Pre-Argument Articles

[edit] Grant write-up

[edit] Argument Preview

Tomorrow in Nos. 07-1078 and 07-1059, USEC v. Eurodif and United States v. Eurodif, the Supreme Court will consider whether the Federal Circuit should have accorded Chevron deference to the Commerce Department’s construction of 19 U.S.C. § 1673. That statute allows the Commerce Department to impose duties on imports of foreign merchandise when that merchandise is “being, or is likely to be, sold in the United States at less than its fair value” – a practice known in the international trade world as “dumping” – and the dumping causes or threatens to cause material injury to a U.S. industry.

The agency deference question is, even more than in most cases, inextricably intertwined with the complicated facts of the case. The product at issue in the Eurodif is low enriched uranium (LEU), which is used in fuel rods at nuclear power plants to produce electricity. To produce LEU, uranium ore must pass through a multi-step process that, among other things, increases the level of fissionable uranium – a step known as “enrichment.”

Both USEC and Eurodif enrich uranium – USEC at its plant in Kentucky and Eurodif in France. Uranium enrichers usually enter into one of two types of contracts with their customers. The first option is an EUP (“enriched uranium product”) contract, pursuant to which the customer pays the enricher a cash price for a specified amount of LEU. The second option, and the one at issue in this case, is a SWU (“separative work units,” pronounced “swoo”) contract, pursuant to which the customer provides the enricher with unenriched uranium; the customer receives LEU and pays the enricher for the work required to transform the unenriched uranium into LEU.

Nearly eight years ago, USEC filed a petition with the Commerce Department and the International Trade Commission, asking it to investigate sales of LEU by Eurodif in the United States. The Commerce Department agreed with USEC that LEU was being sold in the U.S. at less than fair value; after the ITC found that the LEU imports were causing injury to the domestic uranium enrichment industry, Commerce imposed dumping duties.

The critical issue in the lower courts, and which underlies the question presented in this case, is whether LEU imports made pursuant to the SWU contracts (i.e., those in which the customer provides unenriched uranium and cash and receives LEU in return) should be regarded as a sale of merchandise, which is subject to the antidumping laws, or a sale of services, which is not. In its initial proceeding, Commerce reasoned that SWU contracts should be treated the same as an EUP contract because they involve “a major manufacturing process,” rather than a mere sale of services; a contrary ruling, Commerce posited, would create a loophole in the antidumping laws that foreign producers and their U.S. customers could exploit by framing their transactions so that the U.S. customers were purchasing services, rather than goods. On a subsequent remand from the Court of International Trade (the procedural history is too complicated to detail here completely), Commerce reiterated that imports of LEU pursuant to SWU contracts are sales of goods for purposes of the antidumping laws because they involve a transfer of ownership in the LEU (because there is no guarantee that the LEU received by a customer is created from the same unenriched uranium which the customer supplied).

The CIT reversed. It rejected Commerce’s conclusion that the LEU sales pursuant to a SWU contract involved a transfer of ownership, reasoning instead that “the contracts delineate a transaction in which a utility provides raw material to an enricher, pays for the service of processing the material, and obtains the finished product after the manufacturing service has been performed.” The Federal Circuit affirmed, and the U.S. and USEC filed petitions for certiorari, which the Court granted.

In their briefs on the merits, both the U.S. and USEC argue that Commerce’s interpretation of the dumping statute must be upheld because Congress has not “unambiguously forbid[den] it.” They emphasize that the relevant issue is whether goods are being sold in the U.S. at less than fair value: here, Commerce could reasonably conclude that an enricher such as Eurodif “sells” LEU pursuant to SWU contracts because the enricher takes unenriched uranium from its fungible inventory and substantially transforms it, resulting in a new product. Such a construction, they explain, also serves the purpose of the antidumping laws – viz., to protect domestic producers from lower-priced imports. The contract structure that the parties use to effectuate their transactions is irrelevant; indeed, Commerce’s interpretation, which looks beyond the structure of the contract, avoids an “undesirable loophole” in the antidumping laws.

Respondents counter that Commerce’s interpretation is only entitled to Chevron deference if the statute is ambiguous. Here, they argue, it is not: it “unambiguously requires a transfer of ownership and does not reach the sale of uranium enrichment services.” And in this case, Eurodif never takes or transfers title to the unenriched uranium or LEU. Moreover, even if the statute were ambiguous, Commerce’s application of it fails step two of Chevron because it is unreasonable here, when “[t]he agency’s characterization of Eurodif’s contracts has no basis in the record.” Finally, even if Commerce’s interpretation did create an “undesirable loophole” by treating SWU contracts differently from EUP contracts, the effects of that loophole could be remedied by imposing antidumping duties on the first downstream sale of merchandise or by the executive branch.

[edit] Oral Argument Recap

Arguing for petitioner United States of America, Deputy Solicitor General Malcolm Stewart spent most of his first turn at the podium parrying questions about exactly what Commerce’s test was and how it should be applied in a wide variety of cases. In response to a hypothetical posed by (of course) Justice Breyer, Stewart posited that when a U.S. customer provided grain to an overseas company for milling, the finished produce would be subject to the antidumping laws. Justice Breyer also expressed concern that importers would not have expected transactions such as the uranium enrichment contracts at issue to be subject to the antidumping laws given Commerce’s prior regulations and decisions.

Continuing a line of questions about how to apply Commerce’s test, the Chief Justice pressed Stewart on the question whether the test hinged on the fungibility of the raw materials or the substantial transformation of those raw materials. It is important to make this clear, the Chief Justice explained, “so that business people can know when they are going to be subject to this regime.” Stewart responded that substantial transformation was the ultimate touchstone in the test, but he also emphasized that the case was made “much easier by virtue of the fact that the enricher dealt with fungible goods and also had substantial discretion to decide” how to produce the contracted-for quantity of uranium. Addressing another hypothetical – this time from the Chief Justice and involving a diamond carved out of a big rock – Stewart acknowledged that there is a “gray area” regarding whether a change constitutes a substantial transformation, but he emphasized that in this case all of the parties have agreed that there was a substantial transformation.

Finally, Justice Stevens returned to the text of the statute, asking whether the statute’s requirement that the merchandise at issue be “sold” in the U.S. is ambiguous. Stewart maintained that, at least “at the margins,” it is, and he contended that Congress intended any ambiguity to be resolved by the agency rather than the courts.

Representing petitioner USEC, H. Bartow Farr acknowledged that the uranium transactions at issue “can be thought about reasonably enough in different ways.” But the question before the Court, he emphasized, was whether Commerce’s interpretation of the statute was reasonable.

Justice Breyer again reiterated his concern that Commerce’s interpretation represented a change in policy on which importers may have relied. Farr sought to allay those concerns, noting that in this case in particular utilities and enrichers had conceded that “they did not set up their transactions in this way in order to comply with prior decisions of the Commission.” And referring to a line of questions regarding the Federal Circuit’s decision in the Florida Power and Light case, in which that court held – at the government’s urging – that the same transactions involved a service rather than the sale of goods, Farr distinguished the FPL case as not presenting a Chevron deference question.

As it did during Stewart’s time at the podium, the Court sought to flesh out the contours of Commerce’s test. And like the United States, Farr responded that when you have both fungible raw material and a substantial transformation of that material, the antidumping laws apply. He left open the possibility that with a substantial transformation but no fungible raw material, Commerce might nevertheless retain the discretion to treat it as a sale of goods.

When Caitlin Halligan came to the podium to argue on behalf of respondents Eurodif et al., the Justices focused on what the Chief Justice described as the “substance versus formality question.” The Chief Justice asked “why should it make a difference whether the domestic company supplies” fungible raw materials to a foreign company” or instead “simply . . . gives them money and says, buy them yourselves?” Halligan maintained that the substance of the transaction “squares with the contracts”: at the end of the day, the enricher gets money and the utilities get enriched uranium. Justice Scalia was extremely skeptical, repeatedly contending that, as the transactions unfold, there has been a “change of ownership” of the uranium and thus a sale. Halligan also emphasized that the antidumping statute is limited to the sale of merchandise; the fact that the countervailing duty statute (which seeks to place duties on imports that are sold in the U.S. at low prices as a result of subsidies from foreign governments) applies to both sales of merchandise and services indicates, in her view, that the antidumping statute was not in fact intended to have the broad reach attributed to it by Commerce and USEC. She also emphasized that, contrary to the government’s arguments that the failure to uphold

Commerce’s interpretation of the statute will create a loophole that importers can easily exploit by changing the structure of their transactions, the antidumping law “is not a boundless license to protect domestic industry from any competition.”

The Court also returned to the question of the fungibility of the uranium feed and the effect of this fungibility on whether there is a transfer of ownership. Halligan emphasized that, according to the contract, the utility retains title to a discrete amount of unenriched uranium.

Because the bench was not particularly active, it is difficult to predict the outcome of the case with any certainty. However, given the Court’s focus during the petitioners’ arguments on how the test would apply more broadly, compared with their skepticism that a contrary interpretation would elevate formality over substance, it seems like that the U.S. and USEC will prevail.

[edit] Opinion Analysis

For eight years, the antidumping proceedings against Eurodif, a French uranium enricher, revolved largely around a single question: whether SWU contracts – whereby a domestic buyer provides Eurodif with cash and unenriched uranium in exchange for receiving a specified quantity of low enriched uranium – are sales of goods subject to the antidumping laws or, alternatively, sales of services that are exempt from the antidumping laws. On Monday, January 26, 2009, the Court disposed of this question with just over six pages of analysis: because, in the Court’s view, the Department of Commerce had reasonably determined that the SWU contracts were sales of goods, it reversed the Federal Circuit’s decision to the contrary. In so doing, the Court likely did not break any significant new ground in either administrative law generally or antidumping law specifically; however, as the Court hints in the closing paragraphs of its opinion, a decision in Eurodif’s favor might have had significant effects on Commerce’s ability to enforce antidumping laws.

In a unanimous opinion by Justice Souter, the Court began its analysis by reminding its readers of the precise question presented by the case: “The issue is not whether, for purposes of 19 U.S.C. § 1673, the better view is that a SWU contract is one for the sale of services, not goods.” Instead, the Court explained, “[t]he statute gives this determination to the Department of Commerce in the first instance . . . and when the Department exercises this authority in the course of adjudication, its interpretation governs in the absence of unambiguous statutory language to the contrary or unreasonable resolution of language that is ambiguous.”

Turning to the merits of the question before it, the Court took “two threshold propositions . . . as given”: (1) Commerce’s determination that Section 1673 was not limited to cash-only sales was a reasonable one; and (2) even if the parties to a SWU contract do actually regard the contract as one for services, rather than sales, substance should prevail over form in statutes involving regulatory and tax issues. The Court acknowledged that some transactions – such as a customer taking a dirty shirt to a laundry – clearly involved sales of services, but it reasoned that “the line blurs when the facts get more complicated, and SWU contracts exemplify a class of transactions that the Federal Circuit recognized does ‘not fall neatly either into the category of contracts for services or the category of contracts for the sale of goods.’” In such a scenario, the Court continued, it looks “to an authoritative agency for a decision about the statute’s scope.”

Unlike the laundry scenario, in which the customer simply receives the same shirt (albeit a cleaner version) that he dropped off, two characteristics of the SWU contracts “reasonably capture[] a common understanding of the sale of a good”: (1) the utility provides fungible unenriched uranium feed and cash to the enricher; and (2) the uranium feed is substantially transformed by the enricher. Thus, the Court explained, Commerce “reasonably placed [SWU contracts] within the ambit of the sale of goods.” This conclusion is bolstered, the Court continued, by the practical consequences of a holding that SWU contracts are instead sales of services: “any EUP contract could be structured as a SWU contract simply by splitting the transaction in two, one contract to buy unenriched uranium and another to enrich it.” This possibility, standing alone, likely would have been enough to convince the Court to reverse, but the Court was also clearly moved by the broader consequences that might flow from allowing the decision below to stand: virtually all contracts for the sales of good could be restructured into separate contracts for the commodity and the services, with the result that “antidumping duties would primarily chastise the uncreative.”

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