Graphite Tariff Challenge Tests the Assumptions Behind Cost-Plus Deals
Graphite producers challenging the USITC can test whether the negotiated cost estimates in their supply deals assumed an achievable scale of production. The argument depends on connecting any import-driven concession to the industry's establishment.
Primary lensTrade remedies
Sub-topicInjury determination
Evidence base6 records used
Use caseTrade-remedy exposure
The cost-plus contracts at the center of the battery graphite tariff dispute price production at commercial scale. Their promise of cost recovery depends on estimates for output after a supplier qualifies. That makes the assumed scale, and the cost attached to it, a useful place to test the U.S. International Trade Commission's reasoning. USITC Publication 5719, majority views, page 31 and footnote 168
U.S. producers are trying to reverse the negative determination that prevented antidumping and countervailing duty orders on active anode material from China. The USITC lists their Court of International Trade challenge as pending as of October 21. The American Active Anode Material Producers' September 11 brief alleges that purchasers used Chinese prices to push down individual cost items during negotiations.
For counsel to a U.S. active anode material producer, the contract argument calls for a comparison of the original cost estimate, the negotiated estimate and the production each assumes.
The majority accepted costs estimated at scale
The Commission found that the U.S. active anode material industry was not established, but that Chinese imports had not materially retarded its establishment. It applied the material-retardation inquiry while producers were still working toward qualification. A lack of qualified commercial production did not exclude the industry from that inquiry. USITC Publication 5719, majority views, pages 10-13
The majority credited purchase agreements designed to cover domestic producers' estimated costs at commercial scale plus a profit. Those agreements were conditioned on supplier qualification. The majority was assessing future production economics. It did not treat the agreements as reimbursement for every startup expense. USITC Publication 5719, majority views, pages 31-33
That distinction narrows the challenge. Showing that trial shipments failed to cover startup costs would repeat an argument the majority considered unpersuasive. It explained that small test volumes and high startup expenses made those financial ratios poor guides to commercial production. USITC Publication 5719, majority views, pages 28-29
Commissioner Jason Kearns identified a different weakness. His dissent questioned how definite a cost-plus promise could be when costs depended on scale and scale remained uncertain. Redactions prevent an outside reader from checking whether a particular contract understated its producer's costs. USITC Publication 5719, Kearns dissent, page 50, footnote 12
Chinese price references did not persuade the majority
The majority already acknowledged that Chinese prices sometimes appeared in negotiations. It found insufficient evidence that those references materially affected prices negotiated on a cost-plus basis. The presence of a Chinese quote alone does not answer the majority's finding about its effect on the negotiated price. USITC Publication 5719, majority views, pages 32-33
A hypothetical negotiation might end with a smaller labor allowance, a higher assumed production volume or a lower margin after an import benchmark was invoked. Each is a question to investigate in the record, not an allegation established by the public report. Counsel would then need to explain why the change impaired the producer's ability to establish commercial operations.
A lower estimate may reflect a credible efficiency improvement. A reduced margin may still support financing. Conversely, a price above Chinese import prices does not resolve whether the accepted assumptions were achievable. The comparison needs to identify what changed, why it changed and what the change did to the project.
Put the negotiation beside the production model
For the active anode material dispute, this evidence comparison separates the cost estimate from the conditions needed to achieve it. Prepared as of October 21, 2026, it draws on the majority's contract analysis and Kearns' scale objection. These are proposed lines of inquiry, not findings about individual agreements. USITC Publication 5719, pages 31-34 and page 50, footnote 12
Question in dispute
Records to compare
What the comparison could establish
Which costs were accepted
The original cost submission, purchaser comments and final pricing schedule
Whether a reduction followed a documented operating improvement or pressure tied to an import benchmark
What scale supported the estimate
Cost-model volume, committed purchase volume and the qualification schedule
Whether expected unit costs depended on production that the agreement and schedule could support
What return remained
Successive margin proposals, the executed agreement and contemporaneous financing analysis
Whether a negotiated concession changed the project's ability to obtain capital
What caused delay
Dated price proposals, technical test results and decisions on qualification or financing
Whether price negotiations explain a specific delay after accounting for technical requirements
These records need to describe the same negotiation. Combining one customer's price email with another customer's qualification delay would leave the causal link unresolved.
The purchaser's explanation belongs beside each disputed revision. A revised estimate supported by an engineering improvement would tell a different story from one justified only by a cheaper import offer.
Qualification costs need a credible timeline
Qualification complicates any comparison between an agreed future price and current expenses. The Commission described a rigorous process tied to battery performance and safety. It credited evidence of purchasers supplying technical assistance and found that domestic producers were progressing through normal startup conditions. USITC Publication 5719, majority views, pages 19-21 and 45
Counsel should therefore distinguish the cost of reaching qualification from the cost assumed after qualification. A gap between them becomes relevant to this challenge when evidence connects it to subject imports and the industry's establishment. Neither a costly ramp nor a purchaser's access to cheaper imports establishes that import competition delayed testing.
For example, a contemporaneous financing decision could explain that a particular negotiated assumption prevented funding for the next qualification stage. A failed technical test or independently documented construction delay could weaken that explanation. The same need to test a commercial explanation against actual operating conditions arose in Traverse's analysis of the Canadian mushroom injury record. Here, the relevant condition is the path to commercial scale.
The court reviews the agency record
Judicial review asks whether the challenged determination is supported by substantial evidence on the record and accords with law. The statutory record includes information presented to or obtained by the agency during the proceeding. Counsel should therefore identify the existing exhibit, the finding it allegedly contradicts and the significance of that contradiction. 19 U.S.C. 1516a(b), standard and record of review
The majority criticized the late submission of negotiation documents, although it considered them. Kearns disagreed with the weight assigned to those materials and defended their relevance. The public report also redacts much of their substance, limiting what an outside reader can conclude about individual negotiations. USITC Publication 5719, majority footnote 162 and dissent footnote 20
An agency request for voluntary remand remains subject to the court's discretion. In Evolutions Flooring, the court considered the justification, finality concerns and scope of Commerce's request. That ruling describes the procedural test. It does not decide the graphite dispute. CIT Slip Opinion 25-33, pages 27-29
Additional material must be distinguished from evidence already admitted. If the court orders a remand, its instructions and the Commission's procedures will determine whether additional evidence may be submitted. A revised finding on achievable production scale or the effect of Chinese prices on negotiated costs could change this contract analysis.
Daily Trade Brief
Get the next one in your inbox.
New U.S. trade actions and the analysis that changes an import, customs, or counsel file, on weekday mornings after you confirm your address.
From reading to review
Run the numbers on your lane.
The duty calculator runs the current stack for any HTS code and origin. A free account opens full tool output, AD/CVD detail, Chapter 98 processing, and available exports.