SCOTUSwiki Preview: USEC v. Eurodif and US v. Eurodif

Amy Howe previews today’s oral arguments in Nos. 07-1078 and 07-1059, USEC v. Eurodif and United States v. Eurodif. [Note: As an associate at Steptoe & Johnson from 1998-2000, Amy represented USEC in several proceedings but was not involved in the federal court proceedings in this case.]

This morning 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.