Shandong Huarong MacHinery Co. v. United States ( 2005 )

SLIP OP . 05-54
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE : RICHARD K. EATON , JUDGE
____________________________________
:
SHANDONG HUARONG MACHINERY :
COMPANY , :
:
PLAINTIFF , :
:
V. : CONSOL. COURT NO . 03-00676
: PUBLIC VERSION
UNITED STATES , :
:
DEFENDANT, :
AND :
:
AMES TRUE TEMPER, :
:
DEF.-INTERVENOR. :
____________________________________:
[Commerce’s Final Determination on heavy forged hand tools sustained in part and remanded in
part]
Dated: May 2, 2005
Hume & Associates, PC (Robert T. Hume), for plaintiff Shandong Huarong Machinery
Company.
Peter D. Keisler, Assistant Attorney General, Civil Division, United States Department of
Justice; David M. Cohen, Director, Commercial Litigation Branch, Civil Division, United States
Department of Justice, Jeanne E. Davidson, Deputy Director, Commercial Litigation Branch,
Civil Division, United States Department of Justice (Stephen C. Tosini), for defendant United
States.
Wiley Rein & Fielding LLP (Timothy C. Brightbill, Eileen P. Bradner, and M. William
Schisa), for defendant-intervenor Ames True Temper.
COURT NO . 01-00858 PAGE 2
OPINION AND ORDER
EATON , Judge: This consolidated action is before the court on Rule 56.2 motions for judgment
upon the agency record filed by plaintiffs Shandong Huarong Machinery Company (“Huarong”)
and Ames True Temper (“Ames”).1 By their motions, the parties contest certain aspects of the
United States Department of Commerce’s (“Commerce”) final results of the antidumping duty
administrative review of heavy forged hand tools from the People’s Republic of China (“P.R.C.”)
for the period of review from February 1, 2001, to January 31, 2002 (the “POR”). See Heavy
Forged Hand Tools, Finished or Unfinished, With or Without Handles, From the P.R.C., 68 Fed.
Reg. 53,347 (ITA Sept. 10, 2003) (final results) (“Final Results”).2 The court has jurisdiction
pursuant to 28 U.S.C. § 1581(c) (2000) and 19 U.S.C. § 1516a(a)(2)(B)(iii) (2000). For the
following reasons this matter is sustained in part and remanded in part.
STANDARD OF REVIEW
The court “shall hold unlawful any determination, finding, or conclusion found . . . to be
unsupported by substantial evidence on the record, or otherwise not in accordance with law. . . .”
19 U.S.C. § 1516a(b)(1)(B)(I). “Substantial evidence is ‘such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.’” Huaiyin Foreign Trade Corp. (30) v.
United States, 322 F.3d 1369, 1374 (Fed. Cir. 2003) (quoting Consol. Edison Co. v. NLRB, 305
1
As plaintiff, Ames has filed its own motion for judgment upon the agency record,
challenging certain aspects of Commerce’s final results which differ from those raised by
Huarong. As defendant-intervenor, Ames has also filed a response in opposition to Huarong’s
motion for judgment upon the agency record.
2
This is the eleventh administrative review of the final antidumping duty order in
this case.
COURT NO . 01-00858 PAGE 3
U.S. 197, 229 (1938)). The existence of substantial evidence is determined “by considering the
record as a whole, including evidence that supports as well as evidence that ‘fairly detracts from
the substantiality of the evidence.’” Id. (citing Atl. Sugar, Ltd. v. United States, 744 F.2d 1556,
1562 (Fed. Cir. 1984)). “As long as the agency’ s methodology and procedures are reasonable
means of effectuating the statutory purpose, and there is substantial evidence in the record
supporting the agency’s conclusions, the court will not impose its own views as to the sufficiency
of the agency’s investigation or question the agency’s methodology.” Ceramica Regiomontana,
S.A. v. United States, 10 CIT 399, 404–05, 636 F. Supp. 961, 966 (1986), aff’d 810 F.2d 1137(Fed. Cir. 1987) (citing Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843
(1984); Abbott v. Donovan, 6 CIT 92, 97, 570 F. Supp. 41, 47 (1983)).
DISCUSSION
I. Huarong’s Motion
A. Huarong’s Scrap Offset
In constructing normal value in a nonmarket economy (“NME”)3 context, Commerce
allows for an offset4 for the scrap steel generated during production of the subject merchandise.
3
A “nonmarket economy” country is defined as “any foreign country that the
administering authority determines does not operate on market principles of cost or pricing
structures, so that sales of merchandise in such country do not reflect the fair value of the
merchandise.” 19 U.S.C. § 1677(18)(A). “Any determination that a foreign country is a
nonmarket economy country shall remain in effect until revoked by the administering authority.”
19 U.S.C. § 1677(18)(C)(I).
4
In its calculation of normal value, Commerce reduces, or offsets, a manufacturer’s
costs by the sales value of any scrap that is generated during the production process. Normal
value is “the price at which the subject merchandise is first sold . . . for consumption in the
(continued...)
COURT NO . 01-00858 PAGE 4
In order to obtain this offset, in its two previous reviews5 Huarong reported its scrap sales based
on the difference between the input weight of the steel and the finished weight of the
merchandise. See Mem. Supp. Pl.’s Mot. for J. Agency R. (“Pl.s’ Mem.”) at 16. It did not
correlate the production or sale of scrap to the POR, noting in a later response that “it is
impossible to correlate specific scrap with specific periods of production.” Pl.’s Mem. at 18.
Commerce granted the offset in both reviews. In the eleventh administrative review at issue
here, Huarong again reported that the “amount of scrap is calculated by taking the difference
between [the] sheared piece used for forging and the finished weight of the item.” Pl.’s Mem. at
14 (internal citation omitted). Several months later, Commerce issued a supplemental
questionnaire, in which it asked Huarong to determine “[w]hat percentage of steel scrap is sold
and what percentage is used to produce hand tools and other non-subject merchandise[.]” Pl.’s
Mem. at 15 (citation omitted in original). In its response, Huarong stated that it
4
(...continued)
exporting country, in the usual commercial quantities and in the ordinary course of trade and, to
the extent practicable, at the same level of trade as the export price or constructed export price.
. . .” 19 U.S.C. § 1677b(a)(1)(B)(I). When the subject merchandise is exported from a
nonmarket economy country, however, normal value is generally determined by valuing the
factors of producing the merchandise in a surrogate country or countries. 19 U.S.C. §
1677b(c)(1).
To the extent possible, Commerce is directed to select as surrogates market economy
countries that (1) are at a level of economic development comparable to that of the NME country;
and (2) are significant producers of comparable merchandise. 19 U.S.C. § 1677b(c)(4).
Commerce is also directed to use “the best available information regarding the values of such
factors in a market economy country or countries considered to be appropriate by the
administering authority.” 19 U.S.C. § 1677b(c)(1).
5
See Heavy Forged Hand Tools From the P.R.C., 66 Fed. Reg. 48,026 (ITA Sept.
17, 2001) (final results); Heavy Forged Hand Tools From the P.R.C., 67 Fed. Reg. 57,789 (ITA
Sept. 12, 2002) (final results).
COURT NO . 01-00858 PAGE 5
sold 100% of the scrap steel generated from the production of the
subject merchandise. No scrap generated from the production of
the subject merchandise was used internally . . . or to produce hand
tools or other non-subject merchandise. The amount of scrap
reported in the FOP [factors of production] chart is based on the
difference between the input weight and the weight of the finished
product.
Pl.’s Mem. at 15 (internal citation omitted).
Thereafter, Commerce issued a second supplemental questionnaire in which, for the first
time, it asked Huarong to “report a revised per-unit scrap offset which equals the total quantity of
scrap from the production of subject bars sold during the POR.” Pl.’s Mem. at 16 (internal
citation omitted). In other words, Commerce wanted to know how much scrap attributable to the
subject merchandise was actually sold during the POR. Commerce gave Huarong one week to
respond, which fell over the Chinese New Year holiday. Huarong asked Commerce for a one-
week extension of the deadline to February 7, 2003, but was instead given an extension of time
until February 4, 2003. The amount of time that Huarong had to respond, including the
extension of time, was thirteen days. Id. at 13. Huarong did not respond until February 13, but
Commerce nevertheless accepted the untimely submission, which did not correlate sales to
production. Based “on the merits of the record evidence,” Commerce ultimately denied
Huarong’s request for a scrap offset. Issues and Decision Memorandum for the Final Results,
Pl.’s Ex. 2 (“Issues and Decision Mem.”) at 27.
Huarong argues that it “does not separate scrap according to subject and non-subject
merchandise. The scrap from all of Huarong’s production [is] collected and sold together. In
addition, scrap sales are not made on a regular basis. So it is impossible to correlate specific
COURT NO . 01-00858 PAGE 6
scrap with specific periods of production.” Pl.’s Mem. at 17–18. Thus, Huarong’s primary
contention is that it “cannot provide records it does not have.” Id. at 19. Huarong nevertheless
maintains that it was not given a sufficient amount of time in which to respond to Commerce’s
second supplemental questionnaire. Thus, Huarong asks the court to either instruct Commerce to
use its scrap figure as reported, or to “remand the case to Commerce and order that Commerce
reopen the record.” Id. at 22.
In its Issues and Decision Memorandum, Commerce explained that its “normal practice
with respect to granting an offset for scrap is to provide the offset only with regard to the quantity
of scrap actually sold during the POR, rather than the entire production amount.” Issues and
Decision Mem. at 28. Commerce further claims that “this case is not about Huarong’s record
keeping of the amount of scrap sold per piece of subject merchandise. Rather, the issue here is
Huarong’s failure to provide the relative amounts of subject and non-subject merchandise, over
which Commerce could allocate the scrap sold.” Def.’s Resp. in Opp’n to Pls.’ Mots. J. Agency
R. (“Def.’s Resp.”) at 13. That is to say, Commerce contends that Huarong must provide the
percentage of the scrap resulting solely from production of the subject merchandise. This
percentage would then be used to calculate the value of scrap actually sold during the POR.
Commerce has broad discretion to discard one methodology in favor of another in order
to calculate more accurate dumping margins. See Fujian Mach. and Equip. Imp. & Exp. Corp. v.
United States, 25 CIT 1150, 1169, 178 F. Supp. 2d 1305, 1327 (2001). This discretion, however,
is subject to two limitations. First, “Commerce may not make minor but disruptive changes in
COURT NO . 01-00858 PAGE 7
methodology where a respondent demonstrates its specific reliance on the old methodology used
in multiple preceding reviews”; second, “in every instance where an agency changes its tack, it
must provide a reasoned explanation for doing so.” Id; see also Cinsa, S.A. de C.V. v. United
States, 21 CIT 341, 349, 966 F. Supp. 1230, 1238 (1997). Here, Huarong does not dispute that
Commerce was reasonable in changing its methodology in order to calculate dumping margins
more accurately, nor does Huarong provide any evidence that it specifically relied on
Commerce’s old methodology. Huarong states only that it “set its prices after calculating, inter
alia, the offset that it would receive from its sales of scrap.” Pl.’s Mem. at 21. Moreover,
Commerce has provided a reasonable explanation for changing its methodology. See Def.’s
Resp. at 12 (explaining that Commerce’s “normal practice with respect to granting an offset for
scrap is to provide the offset only with regard to the quantity of scrap actually sold during the
POR, rather than the entire production amount.”). Because Huarong does not dispute the
reasonableness of the change in methodology, and makes no argument that it relied on the old
methodology, the court finds Commerce’s change in methodology to be in accordance with law.
With respect to the amount of time that Commerce gave Huarong to respond to its
supplemental questionnaire, Commerce generally grants a party ten days in which to respond to
such an inquiry. See Imp. Admin. Antidumping Manual, Ch. 4 at 18 (available at
http://www.ia.ita.doc.gov/ (last visited Apr. 20, 2005)). Commerce makes no standard provision
for an increase in the time allotted when a supplemental questionnaire is issued pursuant to a
change in Commerce’s methodology. Thus, rather than simply requiring Huarong to provide
additional routine information, here the change in methodology required it to provide the relative
COURT NO . 01-00858 PAGE 8
amounts of subject and non-subject merchandise from which scrap was generated, a figure
Huarong does not normally record. Although Huarong notes that it would “not [be] easy” for it
to apply Commerce’s new methodology, it does acknowledge that, with a sufficient amount of
time, it could supply the data necessary to satisfy Commerce’s new scrap offset methodology.
See Pl.’s Mem. at 23. This Court has repeatedly held that a party must be given a reasonable
opportunity to respond to Commerce’s requests. See, e.g., United States v. Stanley Works, 17
CIT 1378, 1382, 849 F. Supp. 46, 50 (1993) (dismissing action for failure to “provide [the
defendant] with a reasonable opportunity to be heard” where Commerce allowed only “a
truncated response period”); United States v. Chow, 17 CIT 1372, 1376, 841 F. Supp. 1286,
1289–90 (1993) (holding that court must provide litigant with “fair opportunity to be heard”).
Thus, on remand, the court directs Commerce to reopen the record in order to afford Huarong a
reasonable opportunity to respond to its second supplemental questionnaire.
B. The “Sigma” Cap
In investigating imports from NME countries, Commerce is directed, under certain
circumstances, to value the factors of production based on surrogate data from an appropriate
market economy country or countries. See 19 U.S.C. § 1677b(c)(1). In Sigma Corp. v. United
States, 117 F. 3d 1401 (Fed. Cir. 1997), the court found that, when calculating constructed value
where the cost of an imported input is presumed to be the same as its domestic counterpart, a
rational manufacturer will minimize its material and freight costs by “purchasing imported
[product] if the cost of transportation from the port to the foundry [is] less than the cost of
transportation from the domestic . . . mill to the foundry.” Id. at 1408. Put another way, where
COURT NO . 01-00858 PAGE 9
the cost of the imported and domestic product are presumed to be the same, the manufacturer is
further presumed to acquire the product from the nearest source in order to minimize freight
costs. Thus, according to Huarong, when Commerce uses surrogate import figures, it must cap
the inland freight expenses associated with transporting a factor of production to the subject
merchandise producer in China at the distance that producer is from the nearest port. Pl.’s Mem.
at 25.
Here, Commerce, seeking to comply with Sigma, used the distances that Huarong’s steel
suppliers were from Huarong to calculate a weighted average distance. Since the resulting
weighted average was greater than the distance from Huarong to the nearest port, Commerce
applied a cap equal to that distance6 for the inland freight cost. Huarong argues that rather than
capping the weighted average distance, “Commerce should have capped the individual steel
supplier distances . . . . Using this approach, the weighted average steel inland freight distance
would have been . . . less than 58 percent of the distance Commerce used.” Pl.’s Mem. at 26
(citation omitted). Thus, Huarong maintains that “[w]hat is true for an overall calculation
should be true for sub-calculations . . . .” Id. at 28.
Commerce challenges Huarong’s argument that the Sigma “cap” should be applied to
sub-calculations, stating that “the Sigma court simply determined that adding a constructive
freight factor to the surrogate market’s import price that exceeded freight from the nearest port
was impermissible. The choice of methodology to address this concern remained with
6
The distance in question is 300 kilometers.
COURT NO . 01-00858 PAGE 10
[Commerce] . . . .” Def.’s Resp. at 17.
Commerce is correct that the court in Sigma did not direct the use of a specific
methodology. Recognizing the difficulty, in a non-market economy case, of selecting a
methodology that produces reasonably accurate estimates of the true value of the factors of
production, as the statute directs, the Sigma court stated: “[W]e do not dictate the particular
methodology that Commerce must use to determine the freight component in this case, but leave
that decision to the discretion of Commerce.” Sigma, 117 F. 3d at 1408. Nonetheless,
Commerce must satisfy the overriding statutory injunction to “determine [antidumping duty]
margins as accurately as possible.” Lasko Metal Prods., Inc. v. United States, 43 F.3d 1442,
1443 (Fed. Cir. 1994). In complying with this injunction Commerce is obliged to adequately
explain how its chosen methodology achieves the required result. See NTN Bearing Corp. of
America v. United States, 14 CIT 623, 634, 747 F. Supp. 726, 736 (1990) (affirming agency’s
choice of methodology where the agency provided “clear, reasonable explanations for the
methodology to be implemented.”); see also RHP Bearings Ltd. v. United States, 28 CIT __, __,
slip op. 03-10 at 2 (Jan. 28, 2003) (not reported in the Federal Supplement) (ordering Commerce
in prior remand “to explain its methodology . . . and explain why the methodology comported
with statutory requirements.”). This is true generally, and particularly where the Federal Circuit
has provided guidance. Here, Commerce has failed to supply an adequate explanation as to why
its methodology satisfies the reasoning found in Lasko and Sigma. On remand, Commerce must
explain why, in calculating its weighted average, it should include any distance greater than the
distance from the nearest port or, failing that, adjust its methodology appropriately.
COURT NO . 01-00858 PAGE 11
C. Commerce’s Use of Forging Quality Steel Billet
To value the steel Huarong used to produce the subject merchandise, Commerce used two
Indian surrogate import categories. The first included “forging quality” steel billet and the
second included “other,” or ordinary, steel billet. Huarong argues that “the record evidence
shows only that Huarong used ‘ordinary steel billet to produce the subject merchandise.’” Pl.’s
Mem. at 29 (internal citation omitted). Huarong states:
All record evidence indicates that the steel input used in production
of subject merchandise was ordinary steel billet. The record also
shows that Huarong used the steel for purposes other than forging,
such as [for] use in a rolling mill. In response to Commerce’s
questionnaire, Huarong stated that [it] used “ordinary steel billet to
produce the subject merchandise.”
Pl.’s Mem. at 32 (internal citation omitted). The “record evidence” Huarong refers to consists of
its unverified responses to Commerce’s questionnaires in this review, as well as its verified
responses to its last review, for 2000-2001. In that review,
[t]he steel supplier stated that the steel supplied to Huarong is . . .
semi-finished and can be used for other purposes (e.g., used by a
rolling mill to reshape into a round, square, or flat shape), and []
the steel has a rough surface and uneven grain. This same supplier
provided steel to Huarong during this POR and the fact [that] the
billet can be used for “other purposes” means non-forging
purposes.
Id. at 31 (internal quotation omitted) (emphasis in original).
Commerce maintains that the record for the previous review is insufficient for it to
conclude that Huarong did not use forging quality steel billet. Commerce explains: “‘[F]orging
quality steel billet’ provided the appropriate surrogate value in this case because Huarong did not
submit any information for inclusion in the record concerning the quality of the steel billet used
COURT NO . 01-00858 PAGE 12
to manufacture forged hand tools.” Def.’s Resp. at 18 (internal citations omitted). Commerce
further notes that Huarong’s unverified responses in this review do not suffice to establish the
quality of the steel billet used to produce the forged hand tools. Id. at 19 (“Huarong provided no
information concerning the quality of the steel billet used during this period of review and, thus,
failed to meet its ‘burden of creating an adequate record.’”) (internal citation omitted).
The court finds Commerce’s argument persuasive. At the outset, Huarong’s reliance on
Commerce’s determination in the 2000-2001 administrative review is misplaced for two reasons.
First, that determination found only that Huarong used steel billet rather than bars; it did not
address the quality of the billet. See Heavy Forged Hand Tools, Finished or Unfinished, With or
Without Handles, From the P.R.C., 64 Fed. Reg. 43,659, 43,669 (ITA Aug. 11, 1999) (prelim.
results). The statement of Huarong’s supplier in the previous review indicating that the steel
could be used for other purposes simply does not establish its quality. Second, as Commerce
points out, “each administrative review is a separate segment of proceedings with its own unique
facts. Indeed, if the facts remained the same from period to period, there would be no need for
administrative reviews.” Def.’s Resp. at 14.
The court also finds that Huarong’s unverified responses in this review do not provide
sufficient evidence as to the quality of billet used to produce the subject merchandise. In
determining the facts for a particular review, Commerce is entitled to use the best available
information. Here, save for its unverified questionnaire responses, Huarong submitted no
evidence concerning the quality of the steel billet used during the POR. It is well established that
COURT NO . 01-00858 PAGE 13
“the burden of creating an adequate record lies with respondents and not with Commerce.”
Tianjin Mach. Imp. & Exp. Corp. v. United States, 16 CIT 931, 936, 806 F. Supp. 1008, 1015
(1992). Thus, Commerce was entitled to rely on the best available information—and the
reasonable inference that, absent probative evidence to the contrary, Huarong would use forging
quality steel to make forged hand tools. See Hebei Metals & Minerals Imp. & Exp. Corp. v.
United States, 28 CIT __, __, slip op. 04-88 at 28 (July 19, 2004) (citing Yantai Oriental Juice
Co. v. United States, 26 CIT 605, 607 (2003) (not reported in the Federal Supplement)
(“Commerce’s general mandate . . . to calculate normal value as accurately as possible on the
basis of the best available information . . . . allows Commerce to draw reasonable inferences
from the record . . . .”). Commerce’s finding is therefore affirmed.
D. Commerce’s Use of the Brokerage and Handling Surrogate
Next, Huarong argues that Commerce erroneously used the 1997 Indian surrogate value
figure for brokerage and handling found in Stainless Steel Wire Rod From India, 63 Fed. Reg.
48,184 (ITA Sept. 9, 1998) (final results) (“Stainless Steel Wire Rod”), even though another
more contemporaneous figure was available. See Certain Hot-Rolled Carbon Steel Flat Products
From India, 66 Fed. Reg. 50,406 (ITA Oct. 3, 2001) (final determination) (“Hot-Rolled Steel Flat
Products”). Huarong bolsters its argument by pointing out that Commerce used the Hot-Rolled
Steel Flat Products value in another determination, Certain Ball Bearings and Parts Thereof From
the P.R.C., 68 Fed. Reg. 10,685 (ITA Mar. 6, 2003) (final determination) (“Ball Bearings”),
which was decided contemporaneously with this hand tools review. Pl.’s Mem. at 33. Thus,
Huarong maintains that Commerce should have applied the Hot-Rolled Steel Flat Products value
COURT NO . 01-00858 PAGE 14
to this determination as well.
In rejecting the Hot-Rolled Steel Flat Products figure, Commerce has stated that it
“prefers to select values that are: 1) for products as similar as possible to the input being valued,
2) contemporaneous with, or closest in time to the POR, and 3) representative of a range of prices
in effect during the POR.” Issues and Decision Mem. for Potassium Permanganate From the
P.R.C., 66 Fed. Reg. 46,775 (ITA Sept. 7, 2001) (final results) (“Potassium Permanganate”) at
Comment 16. In providing the reasons for its choice of surrogate value in this case, however,
Commerce indicated that it relied on only one of these stated reasons and one previously unstated
reason. First, Commerce found “that stainless steel wire rod is a product more similar to bars
and wedges due to the fact that both products are small in diameter.” Issues and Dec. Mem. at
13. Second, Commerce noted that the merchandise in Stainless Steel Wire Rod was
containerized (as were the bars and wedges produced by Huarong), while the merchandise in
Hot-Rolled Steel Flat Products was not. Id.Thus, Huarong maintains that Commerce has not satisfied its own criteria, set forth in
Potassium Permanganate, “since only one of the three criteria support Commerce’s position and
that one – the similarity of products – becomes irrelevant.” Pl.’s Mem. at 35. Huarong states:
First, Commerce used the Hot Rolled Steel Flat Products surrogate
value for Ball Bearings, and the Ball Bearings period of
investigation (July 1, 2001 to December 31, 2001) was
contemporaneous with Huarong’s hand tools review. Second, a
comparison of Hot Rolled Steel Flat Products and Stainless Steel
Wire Rod . . . is secondary since ball bearings are packed in cartons
and containerized just like Huarong’s bars. Commerce should
have rejected the Stainless Steel Wire Rod . . . surrogate value for
COURT NO . 01-00858 PAGE 15
Ball Bearings on the size and container grounds, or applied it [to]
Huarong. Third, . . . Commerce has a duty to determine margins as
accurately as possible, and to use the best available information in
doing so. The rationale for using the best available information is
to obtain the most accurate dumping margin possible. If containers
are the issue, the similarity of the “input” is irrelevant.
Id. (internal citations omitted).
Commerce maintains that it acted reasonably in deciding that the type of merchandise,
and the manner in which it is shipped, yields a more accurate brokerage and handling surrogate
value than contemporaneity of the shipping to the POR alone. Commerce states, “Huarong urges
the Court to . . . conclude that contemporaneous brokerage and handling expenses for a product
that is shipped in a different manner than the subject merchandise must be more accurate than
non-contemporaneous brokerage and handling costs for merchandise that is shipped and handled
in the same manner as heavy forged hand tools.” Def.’s Resp. at 20. As Commerce explained in
its Issues and Decision Memorandum:
[W]e find that stainless steel wire rod is a product more similar to
bars and wedges due to the fact that both products are small in
diameter. Hot-rolled steel flat products, on the other hand, have
little in common with bars and wedges, other than that they are
both made of steel. . . . While stainless steel wire rod is also coiled
[for shipping purposes], the wire rod coils are smaller than the
large coils used in hot-rolled flat products and are packed in a
manner more similar to bars and wedges. Specifically, the subject
merchandise in Hot-Rolled Steel Flat Products from India was not
containerized cargo. The subject merchandise in Stainless Steel
Wire Rod from India was containerized cargo. Huarong’s bars and
wedges are shipped in containers. For these reasons, we find that
the brokerage and handling surrogate value from Stainless Steel
Wire Rod from India is the best available information.
Issues and Decision Mem. at 13. With respect to Huarong’s argument that Commerce apply the
COURT NO . 01-00858 PAGE 16
Hot-Rolled Steel Flat Products value to this determination, as it did in Ball Bearings, Commerce
states:
Commerce’s analysis in the Ball Bearings determination is
consistent with this case. In Ball Bearings, Commerce did not
compare the two datasets that are upon the record of this case and
conclude that contemporaneousness outweighed the means of
transport. Rather, Commerce compared the Carbon Steel Flat
Products rate with a rate determined in a different investigation.
Further, the Ball Bearings decision does not establish whether
either of the surrogate values considered by Commerce involved
brokerage and handling of containerized merchandise. Indeed, the
most that can be inferred from Ball Bearings is that Commerce
preferred the more contemporaneous brokerage and handling factor
in a case where containerization was not at issue.
Def.’s Resp. at 22–23.
Nothing in Potassium Permanganate requires Commerce to choose surrogate values that
meet all three of the criteria set forth. Rather, the criteria indicate a preference for the best, most
accurate information available. In this respect, Commerce has broad discretion in selecting the
most appropriate surrogate values. See China Nat. Mach Imp & Exp. Corp. v. United States, 27
CIT __, __, 264 F. Supp. 2d 1229, 1238 n.14 (2003) (“‘Commerce does not need to prove that its
methodology was the only way, or even the best way to calculate surrogate values for’ subject
merchandise. Such choices will be upheld as long as they are reasonable.”) (internal quotation
omitted). Based on the foregoing, the court finds reasonable Commerce’s determination that the
type of merchandise being shipped, and the method by which it is shipped, provide a more
accurate surrogate value than a more contemporaneous value for a dissimilar product that is not
containerized.
COURT NO . 01-00858 PAGE 17
E. Commerce’s Subsidy Suspicion Policy
Finally, Huarong maintains that Commerce did not act in accordance with its subsidy
suspicion policy. Huarong explains:
Commerce should have excluded any prices which may be
subsidized, consistent with the legislative history to the 1988
amendments to the antidumping statute and its practice in other
PRC antidumping cases. As such, it must exclude not only data
from the three (3) countries noted in its preliminary surrogate
values memo [Korea, Thailand, and Indonesia], but nearly every
other country, because . . . most countries have generally available
subsidies. Since the WTO has determined that the U.S. Foreign
Sales Corporation (“FSC”) tax scheme is a WTO-illegal subsidy
and the United States has agreed to implement the WTO’s ruling,
the United States must be deemed to have export subsidies, too.
As such, any U.S. data must also be excluded from surrogate value
calculations.
Pl.’s Mem. at 37.
The legislative history to which Huarong refers pertains to 19 U.S.C. § 1677b(c)(4),7
which instructs Commerce on the use of prices or costs of factors of production in market
7
This statute states:
The administering authority, in valuing factors of production under
paragraph (1) [i.e., with respect to surrogate values], shall utilize, to the
extent possible, the prices or costs of factors of production in one or more
market economy countries that are—
(A) at a level of economic development comparable to that
of the nonmarket economy country, and
(B) significant producers of comparable merchandise.
19 U.S.C. § 1677b(c)(4).
COURT NO . 01-00858 PAGE 18
economy countries, or surrogates, to value factors of production in NME countries. The
legislative history for the statute states:
In valuing such factors, Commerce shall avoid using any prices
which it has reason to believe or suspect may be dumped or
subsidized prices. However, the conferees do not intend for
Commerce to conduct a formal investigation to ensure that such
prices are not dumped or subsidized, but rather intend that
Commerce base its decision on information generally available to
it at that time.
Omnibus Trade and Competitiveness Act of 1988, H.R. Conf. Rep. No. 100-576, at
590–91(1988), reprinted in 1988 U.S.C.C.A.N. 1623–23. Commerce relied on this legislative
history to construct its NME subsidization methodology. See Fuyao Glass Indus. Group Co. v.
United States, 29 CIT __, __, slip op. 05-6 at 5 n.3 (Jan. 25, 2005). Commerce argues that, while
it is clear that Congress intended that Commerce should disregard prices distorted by subsidies,
the legislative history also indicates that Congress did not intend that Commerce should conduct
a formal investigation regarding subsidization. Id. Commerce states:
[W]ith respect to United States export prices, Commerce
“decline[d] to take into account adjustments which are
insignificant in relation to the price or value of the merchandise.”
An “insignificant adjustment” is “any individual adjustment having
an ad valorem effect of less than 0.33 percent, or any group of
adjustments having an ad valorem effect of less than 1.0 percent.”
19 C.F.R. § 351.413. [This section] gives [Commerce] the
flexibility to determine, on a case-by-case basis, whether it should
disregard a particular insignificant adjustment.” Commerce
explained in the Decision Memorandum that it would not exclude
United States export prices because exclusion would result in an
insignificant adjustment. Specifically, Commerce determined that
the ad valorem percentage effect in this case was only 0.07 percent.
Therefore, Commerce’s decision not to exclude United States
export prices because exclusion would result in an insignificant ad
valorem difference in normal value is supported by substantial
evidence and otherwise in accordance with law.
COURT NO . 01-00858 PAGE 19
Def.’s Resp. at 26 (internal citations omitted).
Here, the information generally available to Commerce indicates that the level of
subsidies in the United States, 0.07%, would result in an “insignificant adjustment,” which
Commerce may disregard. See 19 U.S.C. § 1677f-1(a)(2) (Commerce may “decline to take into
account adjustments which are insignificant in relation to the price or value of the merchandise”
when determining normal value). It is worth noting that this Court has found that, while the
legislative history cited by Commerce in constructing its NME methodology provides for the
avoidance of prices the agency has reason to believe or suspect may be subsidized, Commerce’s
actual methodology requires it to avoid prices it has reason to believe or suspect are subsidized.
Fuyao Glass, 29 CIT at __, slip op. 05-6 at 6–7. When the magnitude of the subsidy and the
application of this standard are combined with the caveat that, in making its determination,
Commerce is not required to conduct an investigation, it would appear that Commerce need not
avoid the prices of which Huarong complains. This result, however, would seem to be at odds
with the result in Fuyao, where Commerce chose not to disregard subsidies that were de minimis.
In that case, Commerce stated, “What is relevant to [Commerce’s] determination of whether it
has a reason to believe or suspect that prices may be subsidized, is the existence of a subsidy
program. A subsidy is, in itself, a market distortion.” Final Results of Redetermination Pursuant
to Court Remand, Fuyao Glass Indus. Group Co. v. United States, 27 CIT __, slip op. 03-169
(Dec. 18, 2003) (not reported in the Federal Supplement) at 37–38. Thus, the court finds that, on
remand, Commerce must more fully explain its decision to disregard the effect of subsidies from
the United States and other countries.
COURT NO . 01-00858 PAGE 20
II. Ames’ Motion
A. Valuation of Steel Used to Produce Pallets
As plaintiff, Ames has filed its own motion for judgment upon the agency record,
challenging certain aspects of Commerce’s final results. As a domestic producer, Ames raises
issues that differ from those raised by Huarong. Ames first challenges Commerce’s decision to
use Indian imports of steel scrap as the surrogate value for the steel Huarong used to produce
steel pallets. See Ames’ Mem. Supp. Mot. J. Agency R. (“Ames’ Mem.”) at 7. Huarong uses the
pallets to ship the subject merchandise. Ames contends that an invoice Huarong supplied to
Commerce to support its claim that it used scrap steel does not provide enough information to
sustain Commerce’s finding.8 Ames argues that “the purchase invoice states that the material
purchase is, in fact, . . . not scrap iron or steel.” Id. at 7. In addition, Ames claims that the price
paid for the steel does not support the conclusion that it was scrap.9
8
Based on the invoice, Commerce selected as the surrogate an Indian producer of
steel that was classified as “scrap” by the Customs Service upon importation to the United States.
Ames notes, however, that the invoice itself “makes no mention whatsoever concerning the grade
of steel purchased. Nor does the invoice make a single reference to the word scrap.” Ames’
Mem. at 7 (emphasis in original).
9
Ames maintains that the unit price Huarong paid for the steel in question was
“significantly higher than the market price for scrap steel during the period of review, and is in
fact much closer to the price range for finished flat-rolled steel products . . . .” Ames’ Mem. at
7–8.
Ames further argues that
while Commerce’s conclusion is one possible inference, it can
equally be inferred from this evidence that: (1) the supplier is
supplying spring steel stock from its inventory; (2) Huarong
contracted the supplier to cut spring steel to its specifications; or
(3) Huarong is sourcing its steel from this supplier in order to
(continued...)
COURT NO . 01-00858 PAGE 21
Commerce maintains that the invoice submitted by Huarong shows that Huarong
purchased the steel used to the make the pallets from an auto-parts company that manufactures
steel flat springs, “thus indicating that the steel used to make the pallets was a by-product of steel
flat spring manufacture.” Issues and Decision Mem. at 14. As a result, Commerce rejects Ames’
argument that it “should infer that Huarong purchased higher priced product from its auto-parts
manufacturing company supplier, as opposed to lower priced scrap steel.” Def.’s Resp. at 28. In
addition, Commerce notes that it “found Huarong’s assertion that it used scrap steel to be
credible, based upon Huarong’s own statement . . . .” Id. In other words, Commerce believes
that it has sufficient evidence from which to draw the inference that the steel Huarong purchased
from the auto-parts company was scrap. Thus, Commerce argues that its inference, not Ames’,
controls. Finally, Commerce found the prices provided in Ames’ brief to be unreliable,
explaining that “this Court recently noted a wide geographic variance in scrap prices and rejected
similar United States scrap prices as unrepresentative.” Def.’s Resp. at 29 (citing Anshan Iron &
Steel Co. v. United States, 28 CIT __, __, slip op. 03-83 at 23–24 (Mar. 15, 2003)).
In valuing factors of production, Commerce’s may draw reasonable inferences from the
record. Hebei, 28 CIT at __, slip op. 04-88 at 28. The court’s role is to determine, based on the
evidence available, whether Commerce’s inference therefrom was reasonable. Bratsk Aluminum
9
(...continued)
lower its . . . costs by utilizing the supplier’s purchasing power for
spring steel stock.
Ames’ Mem. at 8.
COURT NO . 01-00858 PAGE 22
Smelter v. United States, 28 CIT __, __, slip op. 04-75 at 13 (June 22, 2004) (not reported in the
Federal Supplement). Although Commerce’s inference here is not the only possible one, the
court nevertheless finds that Commerce’s inference is reasonable, as it is supported by the
information contained in Huarong’s invoice concerning the supplier and Huarong’s statements on
the record.
B. Labor Costs for Steel Pallet Production
Ames next argues that Commerce’s valuation of the steel used to produce the pallets
failed to take into account the labor costs associated with fabricating the pallets. Ames maintains
that
pallets do not magically spring into being out of steel strips – other
costs are involved. It is clear that a surrogate value for pallets that
accounts for all inputs used in their production is more accurate,
and thus more likely to lead to an accurate dumping margin, than a
value that only accounts for the cost of one input.
Ames’ Mem. at 10.
Commerce maintains that these labor costs are accounted for under brokerage and
handling, and that “Ames identifies no record information supporting its claim that the cost of
pallet assembly is not incorporated in the brokerage and handling expense utilized by Commerce
in this segment of proceedings.” Def.’s Resp. at 30. Commerce explains:
Based upon this record, Commerce “found nothing to indicate
whether the miscellaneous handling expenses [i.e., the labor costs
associated with manufacturing the pallets] cited by the petitioner
are or are not covered by this surrogate value [submitted by
petitioner]. In the absence of clear evidence, [Commerce] must
rely upon its judgment regarding how such expenses are normally
COURT NO . 01-00858 PAGE 23
paid.”
Def.’s Resp. at 31 (quoting Issues and Decision Mem. at 21). In its Issues and Decision
Memorandum, Commerce states that, in its experience, “the freight forwarder typically pays all
of the miscellaneous expenses necessary to export a product, and then bills its customer
(typically, the exporter) for these costs. Absent evidence to the contrary, it is reasonable to
assume that the brokerage and handling surrogate value captures these costs.” Issues and
Decision Mem. at 22.
Although the court agrees that Commerce need not undergo an item-by-item analysis in
calculating factors of production, see Nation Ford Chem. Co. v. United States, 166 F.3d 1373,
1377 (Fed. Cir. 1999), Commerce’s calculations must nevertheless be supported by substantial
evidence. Huaiyin, 322 F.3d at 1374. While Commerce may make reasonable inferences, it may
only do so when the evidence indicates its conclusion. See Burlington Truck Lines v. United
States, 371 U.S. 156, 167 (1962) (“There are no findings and no analysis here to justify the
choice made, no indication of the basis on which [the agency] exercised its expert discretion.”).
Thus, it is not sufficient for Commerce to simply rely on the absence of evidence to reach its
decision; rather, Commerce must provide findings and analysis justifying its determination.
Because Commerce relies solely on its judgment in determining that the labor used to produce
pallets is part of the miscellaneous expenses necessary to export a product, the court finds that
Commerce must supply more information and a more complete explanation to support its
decision to include these costs under brokerage and handling.
COURT NO . 01-00858 PAGE 24
C. Costs Associated with Agency Sales
Ames argues that Commerce should have deducted certain costs associated with agency
sales10 from Huarong’s United States price. In its brief at the administrative level in this case,
Ames argued that because Commerce’s surrogate value for brokerage and handling did not
account for these costs, “a further adjustment was required to accurately capture all brokerage
and handling expenses associated with these sales.” Ames’ Mem. at 11.
Commerce begins its argument by explaining how it treats selling expenses in NME
cases:
The antidumping statute permits Commerce to make certain
adjustments to the [U.S.] price of subject merchandise to account
for differences in the circumstances-of-sale between the United
States market and the foreign market. Permitted adjustments
include adjustment for the difference in direct selling expenses
incurred in the United States and foreign market. Direct expenses
are expenses “that result from, and bear a direct relationship to, the
particular sale in question.”
However, in nonmarket economy cases, the normal value statute
does not address direct selling expenses. As a result, Commerce
cannot determine the difference in the commissions of United
States and home market sales. . . . Indeed, the purpose of having a
separate nonmarket economy statute is that home market prices in
nonmarket economies are inherently unreliable and, thus, the
statute does not support the lopsided adjustment proposed by
Ames.
Def.’s Resp. at 33–34 (internal citations omitted). Ames apparently takes no issue with
Commerce’s practice; rather, it disputes the characterization of these particular charges as
commissions. For its part, Commerce maintains that “Ames merely argue[s] that the agent in
10
The costs associated with agency sales are commonly known as “agency fees.”
COURT NO . 01-00858 PAGE 25
this case facilitated the United States sales of subject merchandise and earned a percentage of
each individual sale as compensation. Commerce’s determination that these transactions are
commissions is clearly reasonable.” Id. at 34. Having decided to treat these transactions as
commissions, Commerce states that it “does not make circumstance-of-sale[] adjustments in
NME cases for differences in commissions.” Issues and Decision Mem. at 21.
Ames agrees that Commerce need not make adjustments for direct selling expenses.
Rather, “[t]he crux of Ames’ argument is that the ‘agency fees’ paid by Huarong were actually
additional brokerage and handling expenses, not ‘commissions.’ Brokerage and handling
expenses are a type of movement expense that Commerce does deduct from U.S. price in NME
cases.” Ames’ Mem. at 11 (emphasis omitted). In other words, Ames argues that Commerce
should treat the expenses as brokerage and handling expenses, for which Commerce must make
an adjustment. If the expenses are instead treated as commissions, as Commerce found, then no
adjustment is warranted.
The court agrees with Commerce that, where an agent earns a percentage of each United
States sale, such “agency sales” are reasonably classified as “commissions.” Ames has presented
nothing to suggest otherwise and so it is reasonable for Commerce to conclude that they are just
what they appear to be and that no adjustment need be made.
D. Huarong’s Handling Expenses
COURT NO . 01-00858 PAGE 26
Ames argues that Commerce failed to account for certain of Huarong’s handling expenses
by erroneously “assum[ing] that brokerage and handling surrogate value[s] capture[] these costs.”
Ames’ Mem. at 13 (quoting Issues and Decision Mem. at 22). Ames states:
The port charge surrogate calculated by Commerce is incomplete.
. . . [It] covers only the movement of the container from the
container yard to the ship. Huarong’s mode of transportation for
its inland freight is by truck. Therefore, Commerce failed to
account for the movement of the merchandise from the truck to the
container yard.
Id (internal citations omitted). Ames also contends that
For certain U.S. sales, Huarong claimed that it did not incur
brokerage and handling expenses even though the terms of delivery
were “free on board” (FOB). FOB is a standardized international
commercial term (INCOTERM) that means that the seller is
responsible for the costs of transportation and handling the
merchandise until the “goods pass the ship’s rail.” For FOB sales,
the responsibility for brokerage, wharfage, stevedorage, and the
lashing and containerization of pallets is borne by the seller – in
this case, Huarong. Huarong’s claim that it did not incur these
expenses on its FOB sales is inconsistent with the plain meaning of
the term and, in the absence of any supporting documentation, is
simply not credible.
Id. at 14–15.
With respect to the movement of Huarong’s merchandise from the truck to the container
yard, Commerce again relies on the determination in Steel Wire Rod for its position that the
brokerage and handling surrogate captured expenses related to containerization. Commerce “also
noted the absence of record evidence that Huarong incurred any demurrage and storage charges.”
Def.’s Resp. at 36. In other words, if Huarong did not incur separate expenses for demurrage and
storage, Commerce argues, it would be reasonable to assume that such expenses were already
included in the value for brokerage and handling. Commerce explains that it
COURT NO . 01-00858 PAGE 27
examined source documents from the Steel Wire Rod
determination in an effort to determine whether these expenses fell
outside the scope of the Indian exporter’s reported brokerage and
handling expense. However, as with the [labor costs associated
with the] assembly of pallets, the source documentation did not
break down brokerage and handling expenses to resolve this factor
at the level of the miscellaneous expenses listed by Ames.
Commerce thus concluded, based upon its experience in
administering the antidumping law, that “the freight forwarder
typically pays all of the miscellaneous expenses necessary to export
a product, and then bills its customer (typically, the exporter) for
these costs.”
Def.’s Resp. at 35–36 (internal citations omitted). Commerce also points out that Ames itself
submitted the surrogate value at issue.
As it did for the labor costs associated with steel pallet production, Commerce again
relies on the absence of evidence contrary to its decision to support its determination.
Commerce’s calculations must be supported by findings and analysis. See Burlington Truck
Lines, 371 U.S. at 167. Therefore, it is not sufficient for to Commerce rely on its “experience” in
determining that certain expenses were included under brokerage and handling, absent any
evidence tending to show that this was actually the case. Should Commerce continue to find
that the movement expenses at issue here are accounted for under brokerage and handling, it
must provide additional information and explanation to support this decision.
CONCLUSION
For the foregoing reasons, the court remands this action to the Department of Commerce
for further action in accordance with this opinion.
Remand results are due on August 1, 2005; comments are due on August 31, 2005; and
COURT NO . 01-00858 PAGE 28
replies to such comments are due on September 12, 2005.
/s/ Richard K. Eaton
Richard K. Eaton
Dated: May 2, 2005
New York, New York