Shanghai Eswell Enter. Co. v. United States , 31 Ct. Int'l Trade 1570 ( 2007 )

Slip Op. 07-138
UNITED STATES COURT OF INTERNATIONAL TRADE
SHANGHAI ESWELL ENTER. CO., :
LTD.; JINFU TRADING CO., LTD.; :
and ZHEJIANG NATIVE PRODUCE :
AND ANIMAL BY-PRODUCTS IMPORT :
& EXPORT GROUP CORP., : Before: Richard K. Eaton, Judge
:
Plaintiffs, : Court No. 05-00439
:
v. : Public Version
:
UNITED STATES, :
:
Defendant, :
:
and :
:
THE AMERICAN HONEY PRODUCERS :
ASSOCIATION OF AMERICA AND :
THE SIOUX HONEY ASSOCIATION, :
:
Deft.-Ints. :
:
OPINION AND ORDER
[United States Department of Commerce’s final results are
sustained in part and remanded.]
Dated: September 13, 2007
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt, LLP (Bruce
M. Mitchell, Ned H. Marshak, Adam M. Dambrov, Paul G. Figueroa),
for plaintiffs.
Peter D. Keisler, Assistant Attorney General; Jeanne E. Davidson,
Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice (David S. Silverbrand); Office of
the Chief Counsel for Import Administration, United States
Department of Commerce (Douglas S. Ierley), for defendant.
Kelley Drye Collier Shannon (Michael J. Coursey, Adam H. Gordon
and R. Alan Luberda), for defendant-intervenors.
Court No. 05-00439 Page 2
Eaton, Judge: This matter is before the court on the Rule
56.2 motion for judgment upon the agency record of plaintiffs
Shanghai Eswell Enterprise Co., Ltd. (“Shanghai Eswell”); Jinfu
Trading Co., Ltd. (“Jinfu PRC”); and Zhejiang Native Produce and
Animal By-Products Import & Export Group Corp. (“Zhejiang”)
(collectively, “plaintiffs”). See Pls.’ Br. Supp. R. 56.2 Mot.
J. Agency R. (“Pls.’ Mem.”). Defendant the United States and
defendant-intervenors the American Honey Producers Association
and the Sioux Honey Association oppose the motion. See Def.’s
Mem. Opp’n Pls.’ Mot. J. Agency R. (“Def.’s Opp’n”); Def.-Ints.’
Br. Opp’n Pls.’ Mot. J. Agency R.
By their motion, plaintiffs challenge certain aspects of the
final results of the United States Department of Commerce’s
(“Commerce” or the “Department”) second administrative review of
the antidumping duty order on honey from the People’s Republic of
China (“PRC”) for the period of review beginning on December 1,
2002, and ending on November 30, 2003 (“POR”). See Honey from
the PRC, 70 Fed. Reg. 38,873, 38,874 (Dep’t of Commerce July 6,
2005) (final results) and the accompanying Issues and Decision
Memorandum (June 27, 2005), Pub. Doc. 341 (“Issues & Dec. Mem.”)
(collectively, “Final Results”). Jurisdiction is had pursuant to
28 U.S.C. § 1581(c) (2000) and 19 U.S.C. § 1516a(a)(2)(B)(iii)
(2000). For the reasons set forth below, the court sustains the
Final Results in part and remands this case to Commerce for
Court No. 05-00439 Page 3
further action consistent with this opinion.
STANDARD OF REVIEW
The court reviews the Final Results under the substantial
evidence and in accordance with law standard set forth in 19
U.S.C. § 1516a(b)(1)(B)(i) (“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 . . . .”). “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 U.S. 197, 229 (1938)).
It “requires more than a mere scintilla, but is satisfied by
something less than the weight of the evidence.” Altx, Inc. v.
United States, 370 F.3d 1108, 1116 (Fed. Cir. 2004) (internal
quotation marks & citations omitted). 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.’”
Huaiyin (30), 322 F.3d at 1374 (quoting Atl. Sugar, Ltd. v.
United States, 744 F.2d 1556, 1562 (Fed. Cir. 1984)). The
possibility of drawing two equally justifiable, yet inconsistent
conclusions from the record does not prevent the agency’s
Court No. 05-00439 Page 4
determination from being supported by substantial evidence. See
Consolo v. Fed. Mar. Comm’n, 383 U.S. 607, 620 (1966); see also
Altx, Inc., 370 F.3d at 1116. The court “must affirm
[Commerce’s] determination if it is reasonable and supported by
the record as a whole, even if some evidence detracts from
[Commerce’s] conclusion.” Nippon Steel Corp. v. United States,
458 F.3d 1345, 1352 (Fed. Cir. 2006) (internal quotation marks &
citation omitted).
DISCUSSION
I. Normal Value
In determining whether the subject merchandise is being, or
is likely to be, sold at less than fair value, 19 U.S.C.
§ 1677b(a) requires Commerce to make “a fair comparison . . .
between the export price1 or constructed export price2 and normal
value.” When merchandise that is the subject of an antidumping
1
The “export price” is “the price at which the subject
merchandise is first sold . . . by the producer or exporter of
the subject merchandise outside of the United States to an
unaffiliated purchaser in the United States or to an unaffiliated
purchaser for exportation to the United States,” as adjusted. 19
U.S.C. § 1677a(a).
2
“Constructed export price” is “the price at which the
subject merchandise is first sold . . . in the United
States . . . by or for the account of the producer or exporter of
such merchandise or by a seller affiliated with the producer or
exporter, to a purchaser not affiliated with the producer or
exporter,” as adjusted. 19 U.S.C. § 1677a(b).
Court No. 05-00439 Page 5
investigation is exported from a nonmarket economy (“NME”)3
country, such as the PRC, Commerce, under most circumstances,
determines normal value by valuing the factors of production used
in producing the merchandise using surrogate data, to which it
adds “an amount for general expenses and profit plus the cost of
containers, coverings, and other expenses.” 19 U.S.C.
§ 1677b(c)(1).
The facts surrounding Commerce’s selection of surrogate data
to value raw honey and to derive selling, general and
administrative expenses (“SG&A”); overhead; and profit
(“surrogate financial ratios”) are not new to the court.
Commerce’s construction of normal value for raw honey is the
subject of another challenge to Commerce’s second administrative
review of the antidumping duty order on Chinese honey in Wuhan
Bee Healthy Co. v. United States, 31 CIT __, Slip Op. 07-113
(July 20, 2007) (not reported in the Federal Supplement)
3
A “nonmarket economy country” is “any foreign country
that [Commerce] 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). “Because it deems China to be a
nonmarket economy country, Commerce generally considers
information on sales in China and financial information obtained
from Chinese producers to be unreliable for determining, under 19
U.S.C. § 1677b(a), the normal value of the subject merchandise.”
Shanghai Foreign Trade Enters. Co. v. United States, 28 CIT __,
__, 318 F. Supp. 2d 1339, 1341 (2004). Therefore, since the
subject merchandise comes from the PRC, Commerce constructed
normal value by valuing the factors of production using surrogate
data from India. See 19 U.S.C. § 1677b(c)(4).
Court No. 05-00439 Page 6
(“Wuhan I”).
A. Valuation of the Factors of Production
With respect to Commerce’s construction of normal value,
plaintiffs first challenge Commerce’s decision, when valuing raw
honey, to rely exclusively on surrogate data from India taken
from a Web site maintained by EDA Rural Systems Pvt. Ltd., an
Indian organization that provides business development services
to the honey and beekeeping sector (“EDA Data”).4 Pls.’ Mem. 2.
Based on this data, Commerce derived an average price for raw
honey of 74.90 Rupees per kilogram during the POR. See Factors
of Production Valuation Mem. for the Final Results, Pub. Doc. 340
(“Final FOP Mem.”) at 2. In deciding to use EDA Data exclusively
in valuing raw honey, Commerce rejected articles from three
4
In the Final Results, Commerce explained its decision
to value raw honey with EDA Data: “[T]he EDA Data . . .
constitute[s] a[n] . . . appropriate surrogate value source for
this POR. [It is] . . . the best information currently available
because it is publicly available, quality data, specific to the
raw honey beekeeping industry in India, and contemporaneous with
the POR.” Issues & Dec. Mem. at 10. With respect to quality,
Commerce found that “the EDA Data source is highly documented,
including numerous specific price points over a six year period
for multiple types of honey from many suppliers, and includes
detailed information on production, inputs, and beekeepers.” Id.
at 10-11. With respect to specificity, Commerce noted that “the
prices quoted in the EDA Data are specific to the raw honey
beekeeping industry in the state of Bihar in India.” Id. at 11.
With respect to contemporaneity, Commerce found that “the EDA
Data is contemporaneous to this administrative review . . . and
it includes monthly data points over a majority of the POR.” Id.
(footnote omitted).
Court No. 05-00439 Page 7
sources: (1) Hindu Business Line;5 (2) Indiainfoline;6 and (3)
Indian Express.7
Plaintiffs insist that it was unreasonable for Commerce to
rely exclusively on the EDA Data to value raw honey and that
Commerce should have averaged the EDA Data with that found in the
three publications. Pls.’ Mem. 11-16. In Wuhan I, the court
upheld Commerce’s rejection of the articles. First, with respect
to the Hindu Business Line article, the court found:
Commerce was justified in rejecting the Hindu
Business Line article. In a single sentence
the article states a range of prices received
by a single producer, the Girijan Co-
operative Corporation Ltd. The EDA Data, on
the other hand, contains information on
numerous producers and therefore represents a
wider range of prices. In addition, there is
no indication that the sources of the data
contained in the Hindu Business Line article
are publicly available.
Wuhan I, 31 CIT at __, Slip Op. 07-113 at 32 (citations to record
omitted). Next, the court found no error in Commerce’s
conclusion that the Indiainfoline article was unreliable:
Commerce found that unlike the EDA Data, the
sources of which were well-documented and
made available by a business entity, the
Indiainfoline article contained nothing to
5
“Girijan co-op targets Rs 135-cr turnover” (dated Apr.
17, 2003).
6
“Prospects of Bee Keeping in Rubber Plantations of
Kerala” (dated Sept. 2, 2003).
7
“In Jharkhand, it’s all about honey, honey” (dated Feb.
17, 2003).
Court No. 05-00439 Page 8
indicate it was reliable. In particular,
there was “no additional information on the
author’s qualifications or the sources of his
information” other than his status as a
first-year business student.
Id., 31 CIT at __, Slip Op. 07-113 at 32-33. Finally, the court
sustained Commerce’s decision not to rely on the Indian Express
article noting that it was not “as representative as the EDA Data
because it pertained to the experience of only a single
beekeeper.” Id., 31 CIT at __, Slip Op. 07-113 at 33. Because
the facts here are the same as those in Wuhan I, the court
follows its conclusions in that case and finds that Commerce’s
decision not to average the EDA Data with the data found in the
three articles was reasonable.
In addition to the arguments made in Wuhan I concerning the
EDA Data, plaintiffs make additional claims, the principal one
being that Commerce did not adequately consider the decline in
prices in the second half of the POR. Pls.’ Mem. 10. In
particular, plaintiffs cite information they placed on the record
from the World Trade Atlas, which indicated a decline in export
prices during the second half of the POR (July 2003 to November
2003), from one hundred twelve Rupees per kilogram to eighty-four
Rupees per kilogram. Pls.’ Mem. 11 (citing Respondents’ Second
Surrogate Value Submission (Jan 8, 2005), Pub. Doc. 257, Ex. 1).
Plaintiffs argue that Commerce’s failure to consider this and
other record evidence renders its determination unacceptably
Court No. 05-00439 Page 9
flawed.
Defendant maintains that “Commerce did not base its
valuation of honey solely upon the first half of the [POR], prior
to the second half decline in prices, but rather, did take price
decline into consideration.” Def.’s Opp’n 17 (internal quotation
marks, citation & ellipsis omitted). As evidence that Commerce
considered the price decline, defendant points to Attachment 1 to
Commerce’s Final FOP Memorandum. Def.’s Mem. 16.
Plaintiffs respond that “[t]he Government’s characterization
of the Department’s analysis is simply wrong.” Pls.’ Reply 7.
Plaintiffs maintain that Attachment 1 to the Final FOP Memorandum
contained prices taken from the EDA Data for the first half of
the POR only, i.e., from December 2002 to June 2003, “which
steadily increased from 62 Rs/kg in December 2002 - January 2003,
to 73 Rs/kg in March - April 2003, to 87 Rs/kg in May - June
2003.” Pls.’ Reply 7-8. To determine the value of honey for the
second half of the POR, however, Commerce used data solely from
the month of October, and then adjusted it for inflation.
Plaintiffs assert that Commerce took a price for honey from
October 2002, “which the Department inflated to reflect a change
in India’s [wholesale price index, or “WPI”], without taking into
consideration the evidence that honey prices in India had
declined during the second half of 2003.” Pls.’ Reply 8.
An examination of the record leads the court to find that
Court No. 05-00439 Page 10
Commerce did not adequately explain how it took into
consideration evidence of a decline in prices during the second
half of the POR. There appears to be no dispute that a decline
in the price of raw honey took place during that period. See
Pls.’ Mem. 10; Def.’s Opp’n 16. In the Final FOP Memorandum,
however, Commerce indicated that it calculated a surrogate value
for raw honey by taking a “weighted average of the price for each
month from December 2002 through June 2003 based on the
percentage of each type of honey produced and sold.” Final FOP
Mem. at 2. For the second half of the POR, it took the value
reported in only one month, i.e., October 2002 (60 Rupees per
kilogram) and adjusted it upward to take account of inflation.
The result was a price of 61.93 Rupees per kilogram. Final FOP
Mem., Attach. I.
Commerce has not explained how inflating the price of raw
honey takes into consideration the record evidence showing raw
honey prices declined in the second half of the POR. “An agency
must explain its rationale . . . such that a court may follow and
review its line of analysis, its reasonable assumptions, and
other relevant considerations. Explanation is necessary . . .
for this court to perform its statutory review function.” Int’l
Imaging Materials, Inc. v. United States Int’l Trade Comm’n, 30
CIT __, Slip Op. 06-11 at 13 (Jan. 23, 2006) (not published in
the Federal Supplement) (internal alteration, quotation marks &
Court No. 05-00439 Page 11
citations omitted); see also Tourus Records, Inc. v. DEA, 259
F.3d 731, 737 (D.D.C. Cir. 2001) (“A fundamental requirement of
administrative law is that an agency set forth its reasons for
decision.”) (internal quotation marks omitted). On remand,
Commerce shall either (1) address the evidence cited by
plaintiffs and explain whether and how the observed decline in
prices during the second half of the POR is reflected in its
calculation of the value of raw honey; or (2) recalculate the
value to reflect a reasonable interpretation of the record
evidence concerning the decline.
B. Surrogate Financial Ratios: Choice of Data Source
Next, plaintiffs claim that by declining to use the
financial statement of Apis (India) Natural Products (“Apis”)
Commerce rendered the Final Results unsupported by substantial
evidence and not in accordance with law. Pls.’ Mem. 16-17. This
issue was also addressed in Wuhan I, where the court sustained,
as reasonable, Commerce’s decision to rely on Mahabaleshwar Honey
Producers Cooperative Society, Ltd.’s (“MHPC”) financial
statement instead of Apis’s financials:
The court finds that Commerce was justified
in determining that the 2003-2004 MHPC
financial statement was the best available
information to value factory overhead, SG&A
expenses and profit. It is apparent from the
Final Results that Commerce examined both the
MHPC and Apis financial statements and
compared their quality, specificity and
Court No. 05-00439 Page 12
contemporaneity. It then concluded based on
this examination that “the Apis financial
statement . . . is not a reliable source for
calculating the surrogate financial ratios
because it is neither complete, nor
sufficiently detailed to provide a reliable
source for surrogate values.” As Commerce
observed, “the Apis statement does not
include any auditor notes, nor does it appear
to include complete schedules or details on
Apis’ operations.” The MHPC’s statement, on
the other hand, “include[s] a complete annual
report, an auditors report, and complete
profit and loss and business statements that
segregate MHPC’s honey and fruit canning
businesses.” Unlike Apis’s statement, MHPC’s
statement details its honey operations with
both narrative text and schedules indicating,
for example, the number of kilograms of honey
produced by particular MHPC members and the
price per kilogram. The court thus finds
that Commerce’s determination that the MHPC
financial statement was the best available
information to value financial ratios was
reasonable.
Wuhan I, 31 CIT at __, Slip Op. 07-113 at 47-48 (citations
omitted). To the extent plaintiffs’ arguments are identical to
those found in Wuhan I, the court follows its holding in that
case that the MHPC financial statement constitutes the best
available information. See 19 U.S.C. § 1677b(c)(1) (surrogate
values “shall be based on the best available information . . . in
a market economy country or countries considered to be
appropriate by the administering authority”); see also Nation
Ford Chem. Co. v. United States, 166 F.3d 1373, 1377 (Fed. Cir.
1999).
In addition to those arguments, plaintiffs also claim that
Court No. 05-00439 Page 13
Commerce ignored evidence that: (1) the MHPC financial statement
was “distorted by non-market forces” because “MHPC is a
cooperative which does not operate as a true market entity”; and
(2) the MHPC financial statement is distorted by the production
of non-subject merchandise. Pls.’ Mem. 24-25. With respect to
the latter argument, plaintiffs claim that “MHPC’s fruit canning
division . . . affect[ed] the cooperative’s financial
performance, skewing the factory overhead and SG&A ratios.”
Pls.’ Mem. 25.
Neither of these arguments persuades the court that remand
is necessary. First, the Final Results demonstrate that Commerce
took into consideration MHPC’s status as a cooperative when
making its determination that its financial statement was more
reliable than Apis’s financial statement. In particular,
Commerce stated:
[W]ith respect to respondents’ assertion that
MHPC does not operate as a true market entity
because it is a cooperative, we disagree.
Other than to note that loans to its members
are not always repaid on time, which is not
unusual in that many companies have
provisions for bad loans, respondents have
not cited evidence that supports their claim
that MHPC’s results are distorted by non-
market forces.
Issues & Dec. Mem. at 19. An examination of the record
demonstrates that, other than certain unpaid loans, plaintiffs
can rely on no record evidence to support their claim. Rather,
they rely on generalized statements. See Pls.’ Mem. 24-25 n.15
Court No. 05-00439 Page 14
(“Companies generally loan money to vendors for business
purposes; they do not make personal loans to members. MHPC’s
unpaid loans to its members affect MHPC financial statements,
which in turn skew the ratios calculated by the Department. This
is direct evidence that the cooperative nature of MHPC distorts
its financial results.”). Without supporting with record
evidence their claim that unpaid, personal loans made by MHPC to
its members actually affected MHPC’s financial statement,
plaintiffs’ generalized statement does not undermine Commerce’s
finding that MHPC’s status as a cooperative did not render its
financial statement unreliable.
Plaintiffs’ second claim also fails to demonstrate that
Commerce ignored evidence that the MHPC financial statement was
distorted by its fruit canning division. Plaintiffs insist that
“[t]here is not a clear division of costs between MHPC’s honey
and fruit canning operations in some of the schedules used by the
Department,” and that some expenses included in the Department’s
calculations, such as bank interest, travel expenses and building
depreciation, “include[d] expenses for both the honey and the
fruit canning divisions.” Pls.’ Mem. 25. Having considered
plaintiffs’ arguments at the administrative level, Commerce found
that MHPC’s financial statement sufficiently separated data
regarding its fruit canning and honey production divisions such
that Commerce could use the data on honey production to derive
Court No. 05-00439 Page 15
surrogate financial ratios. Specifically, Commerce found that
(1) “MHPC’s financial statements are narrowly tailored to subject
merchandise”; (2) “the total asset value of non-subject
operations accounts for only 16.71 percent of MHPC’s total asset
value”; and (3) “the Department has calculated a profit only from
the honey processing division.” Issues & Dec. Mem. at 18-19.
Thus, while acknowledging that MHPC produced non-subject
merchandise in addition to the subject honey, Commerce found that
MHPC’s financial statement sufficiently distinguished the costs
associated with the honey and fruit canning divisions such that
Commerce could derive surrogate financial ratios based solely on
honey data. Indeed, a review of the MHPC financial statement
reveals that it contains separate tables pertaining to each
division, e.g., the “Fruit canning profit and loss statement” and
the “Fruit canning business statement.” Final FOP Mem., Attach.
II (MHPC financial statement) at 16 & 17. In addition, the “Main
Journal Business Statement” specifically pertains to honey sale
and collection. See Final FOR Mem., Attach. II ( MHPC financial
statement) at 15 (listing, inter alia, line items for “Honey
Sale,” “honey collection,” “Honey boxes Sale,” “Honey machine
Sale,” “honey collection (extracted)”). As with its claim with
respect to MHPC’s status as a cooperative, plaintiffs have made
observations but have not demonstrated that Commerce was unable
to use the entries on MHPC’s financial statement so as to create
Court No. 05-00439 Page 16
an accurate picture of its honey business.
This Court has held that “[w]here there exist[] on the
record ‘alternative sources of data that would be equally or more
reliable . . . it is within Commerce’s discretion to use either
set of data.’” Wuhan Bee Healthy Co. v. United States, 29 CIT
__, __, 374 F. Supp. 2d 1299, 1304 (2005) (quoting Geum Poong
Corp. v. United States, 26 CIT 322, 326, 193 F. Supp. 2d 1363,
1369 (2002)). Contrary to plaintiffs’ arguments, Commerce did
not fail to consider either MHPC’s status as a cooperative or its
production of non-subject merchandise. In addition, plaintiffs
have failed to point to record evidence that the MHPC did not
“operate as a true market entity.” Issues & Dec. Mem. at 19.
Plaintiffs have thus failed to make the case that the Apis
financial statement is more reliable than the MHPC financial
statement. In light of the foregoing, plaintiffs have failed to
establish that (1) the MHPC financial statement was unreliable,
either because the organization was a cooperative or because MHPC
produced non-subject merchandise, or that (2) the Apis financial
statement was more reliable than the MHPC financial statement.
Therefore, having considered Apis’s financials, MHPC’s financials
and Commerce’s finding that MHPC’s financials were more reliable
than Apis’s, which was sustained in Wuhan I, the court sustains
Commerce’s choice to rely on the MHPC financial statement.
Court No. 05-00439 Page 17
C. Surrogate Financial Ratios: Calculation of Ratios
Next, plaintiffs challenge (1) Commerce’s failure to deduct
honey sales commissions from its calculation of SG&A; and (2)
Commerce’s failure to treat MHPC’s expenses for jars, corks and
honey machine purchases as direct raw materials.
(1) Honey Sales Commissions
In a market economy proceeding, Commerce is required to make
a “circumstances-of-sale” adjustment to (A) either export price
or constructed export price; and (B) normal value to account for
differences in direct selling expenses incurred in the U.S. and
foreign markets. See 19 U.S.C. §§ 1677a(d)(1)(A) (providing for
the reduction in the price used to establish constructed export
price by the amount of any commissions for selling the subject
merchandise in the United States), 1677b(a)(6)(C)(iii) (providing
for adjustment to normal value for differences in circumstances
of sale). Under Commerce’s regulations, “direct selling
expenses” include “commissions . . . that result from, and bear a
direct relationship to, the particular sale in question.” 19
C.F.R. § 351.410(c) (2005). The purpose of the adjustment is to
ensure that export price and normal value are being compared on
an “equivalent basis” when Commerce makes its dumping
determination. See Antidumping Manual, Ch. 8 at 16.
In an NME proceeding, on the other hand, “Commerce maintains
Court No. 05-00439 Page 18
an established practice of not making circumstances-of-sale
adjustments in NME cases.” Shandong Huarong Mach. Co. v. United
States, 30 CIT __, __, 435 F. Supp. 2d 1261, 1293 (2006).
Instead, Commerce “includes all standard selling expenses,” which
Commerce has determined encompass sales commissions, in the SG&A
calculation. Issues & Dec. Mem. at 22; see also Tapered Roller
Bearings and Parts Thereof, Finished and Unfinished, From the
PRC, 63 Fed. Reg. 63,842, 63,852-53 (Dep’t of Commerce Nov. 17,
1998) (final results) (“[Commissions are] standard selling costs
and, as such, are properly categorized under SG&A.”). In the
Final Results, Commerce explained its practice of treating sales
commissions differently in market economy and NME proceedings:
[I]t is not possible to deconstruct surrogate
financial ratios at the level of detail that
would be necessary to make [circumstances-of-
sale] adjustments, because it is not known
whether there is an exact correlation between
the NME producer’s and the surrogate
producer’s expenses. Therefore, “the
Department normally bases normal value . . .
on factor values from a surrogate country on
the premise that the actual experience in the
NME cannot meaningfully be considered.”
Issues & Dec. Mem. at 22 (quoting Tapered Roller Bearings and
Parts Thereof, Finished or Unfinished, From the Republic of
Romania, 61 Fed. Reg. 51,427, 51,429 (Dep’t of Commerce Oct. 2,
1996) (final results)). Accordingly, in the Final Results,
Commerce found that honey sales commissions should be included in
the calculation of the surrogate SG&A ratio as standard selling
Court No. 05-00439 Page 19
expenses. Id.
Plaintiffs insist that Commerce’s practice of not deducting
commissions from SG&A in the NME context results in an inaccurate
dumping margin because commissions were deducted from the U.S.
price.8 Pl.’s Mem. 28-29. They take the position that market
economy cases and NME cases should be treated similarly with
respect to the deduction of commissions:
Insofar as the Department’s calculation of
normal value [in the NME context] is intended
to achieve the same, reasonable, “apples to
apples,” no-double counting results,
[Commerce] is required to apply the same
basic rules in NME cases as it does when
adjusting [export price/constructed export
price] and [constructed value] for
commissions in market economy proceedings.
Pls.’ Mem. 28-29 (citing Hebei Metals & Minerals Imp. & Exp.
Corp. v. United States, 28 CIT __, Slip Op. 04-88 (July 19, 2004)
(not reported in the Federal Supplement)). Plaintiffs insist
that “in this case it is possible to make the adjustment because
there is one adjustment at issue. Moreover, . . . there is an
exact correlation between the NME producer and the surrogate
producer expense, namely the commission on honey sales expense.”
8
The “U.S. price” can be either the export price or the
constructed export price. “When an arm’s-length transaction
takes place between a foreign producer and an independent
importer, U.S. price is calculated using the statutory Export
Price (EP) provision; [constructed export price] is used when the
foreign producer and the importer are affiliated.” Mittal Steel
Point Lisas Ltd. v. United States, 491 F. Supp. 2d 1222, 1226
(2007).
Court No. 05-00439 Page 20
Pls.’ Mem. 30. In other words, plaintiffs contend that because
plaintiffs Shanghai Eswell and Zhejiang incurred selling
commission expenses in the sale of honey, there is an “exact
correlation” between these expenses and those incurred by the
surrogate MHPC. See Respondents’ Comments on the Application of
Surrogate Ratios (Dec. 3, 2004), Pub. Doc. 223, at 2; Shanghai
Eswell’s Sec. C Questionnaire Resp. (Mar. 25, 2004), Conf. Doc.
17, at 24-26 & Ex. 1 (indicating commission expenses); Zhejiang
Sec. C Questionnaire Resp. (Mar. 25, 2004), Conf. Doc. 11, at 24
& Ex. 1 (same); Final FOP Mem., Attach. II (MHPC financial
statement) at 15 (indicating “honey sale commission” under
“Purchase” column).
The court finds remand appropriate here so that Commerce may
explain in more detail its decision not to deduct commissions
from the SG&A ratio. In Shandong Huarong Machinery Co., Commerce
refrained from making a circumstances-of-sale adjustment to
account for commissions that an NME producer paid, citing its
practice not to do so in the NME context. There, the Court found
Commerce’s explanation insufficient and remanded the matter to
Commerce:
[I]t is apparent that Commerce’s past
practice to refrain from making
circumstances-of-sale adjustments in NME
situations is based on its conclusion that,
in most such cases, there is not enough
information on the record to make a
determination based on substantial evidence.
While this may be true in most cases, the
Court No. 05-00439 Page 21
court observes that Commerce does not cite
any evidentiary basis for its determination
in this case, other than its past practice.
For that reason, the court remands this issue
to Commerce to allow the agency to further
explain its determination that the record
here was devoid of substantial evidence to
permit a circumstances-of-sale adjustment.
Shandong Huarong Mach. Co., 30 CIT at __, 435 F. Supp. 2d at
1293. As in Shandong Huarong Machinery Co., Commerce did not
cite any evidentiary basis in the Final Results for its
determination not to deduct sales commissions. Rather, the
Department relied on its past practice based on the general
notion that in NME cases the record does not contain sufficient
information to determine whether there is “an exact correlation
between the NME producer’s and the surrogate producer’s
expenses.” Issues & Dec. Mem. at 22. Plaintiffs insist that
there is sufficient evidence of an exact correlation, namely the
record evidence showing that Shanghai Eswell, Zhejiang and MHPC
incurred selling commission expenses, and that Commerce deducted
selling commissions from Shanghai Eswell’s and Zhejiang’s U.S.
price calculations. Because the Department did not discuss this
evidence, its determination is wanting. See Int’l Imaging
Materials, Inc., 30 CIT at __, Slip Op. 06-11 at 13. The court
therefore remands this matter to allow Commerce to further
explain its determination that the record evidence was
insufficient to permit a circumstances-of-sale adjustment, or to
make a circumstances-of-sale adjustment.
Court No. 05-00439 Page 22
(2) Jars, Corks and Honey Machine Purchases
Plaintiffs next take issue with Commerce’s failure to
include MHPC’s expenses for jars, corks and honey machines in its
financial ratio calculation as direct expenses used for producing
finished honey. In the Final Results, Commerce supported its
decision not to include jars, corks and honey machines by
pointing to that portion of the MHPC financial statement where
those items “appear separately in both the ‘Sales’ and ‘Purchase’
columns, independent of the ‘Honey Collection’ and ‘Honey Sale’
line items . . . .” Issues & Dec. Mem. at 23. For Commerce,
these entries supported the conclusion that expenses for jars,
corks or honey machines were independent from honey production
and thus were not part of MHPC’s finished product. Therefore,
Commerce concluded that it “[would] not adjust the surrogate
revenue and will not adjust the [materials, labor and energy]
denominator to include the expenses for ‘jars and corks’ or honey
machines.” Issues & Dec. Mem. at 23.
Plaintiffs argue that the exclusion of expenses for jars,
corks and honey machines from Commerce’s financial calculation is
not supported by record evidence. They contend that, because the
MHPC financial statement shows that MHPC purchased different size
jars and corks, “the only reasonable explanation is that MHPC
sells its honey in jars [with] corks.” Pls.’ Mem. 32. Because
honey is “sold retail in different size jars, these jars and
Court No. 05-00439 Page 23
corks costs should be treated as direct raw materials.” Pls.’
Mem. 32. In addition, plaintiffs note that “[h]oney machines
process the honey for sale and are a vital part of the direct
materials.” GDLSK 2nd Refiling of Admin. Case Br. (May 10,
2005), Conf. Doc. 108, at 33.
Plaintiffs further contend that Commerce erred by failing to
deduct an amount for jars and corks from the net revenue. “Given
that the starting figure to calculate profit encompasses the sale
of retail honey in jars,” plaintiffs argue, “the only way for the
Department to calculate an accurate profit is by deducting all
costs from the revenue, including the costs for jars and corks.”
Pls.’ Mem. 33 (emphasis in original).
Defendant argues that Commerce’s determination that
“expenses for jars, corks, and honey machines were not direct
expenses is supported by substantial evidence . . . .” Def.’s
Opp’n 33. Defendant contends, as Commerce did in the Final
Results, that because jars, corks and honey machines are listed
separately from expenses associated with honey production in the
MHPC financial statement these items were being bought and sold
but could not be tied to the production of finished honey. Thus,
defendant argues that “without supporting evidence that the items
were associated with or incorporated into the sale of subject
merchandise, Commerce determined that it would not adjust the
surrogate revenue or the denominator of the financial ratio
Court No. 05-00439 Page 24
calculation to include expenses for jars and corks.” Def.’s
Opp’n 34.
The court remands for further explanation Commerce’s finding
that jars, corks and honey machines were not direct materials in
the production of finished honey. In the Final Results, Commerce
insists that it must “treat the financial statement line items as
they have been reported in the MHPC financial statement—
independent of sales and packaging.”9 Issues & Dec. Mem. at 23.
The court has reviewed the chart on page 15 of the MHPC financial
statement, which contains the line items referenced by Commerce.
First, the court observes, as noted supra, that the chart
specifically pertains to honey sale and collection. See Final
FOP Mem., Attach. II (MHPC financial statement) at 15. Next, the
court notes that the chart contains line items for 250 gram, 500
gram and 1 kilogram jars; 53 millimeter and 38 millimeter corks;
and honey machines in both the “Sale” column and the “Purchase”
column.10 The line item for 100 gram jars appears only in the
9
Contrary to Commerce’s statement, the chart does not
contain a line item for “packaging,” but only “packing.”
“Packaging” means “to present (as a product) in such a way as to
heighten its appeal to the public,” while “packing” means
“material (as a covering or stuffing) used to protect packed
goods (as for shipping).” Merriam-Webster Online Dictionary,
available at http://www.merriam-webster.com/. Thus, while the
line items for jars and corks may understandably be set apart
from “packing,” they may appropriately be considered “packaging,”
i.e., the presentation of the finished product to the public.
10
The MHPC financial statement indicates prices next to
(continued...)
Court No. 05-00439 Page 25
“Sale” column. The chart is therefore ambiguous. While it is
possible that MHPC buys and sells jars and corks that are either
empty or filled with something other than honey, there is no
evidence in the MHPC financial statement tending to support such
a conclusion. Without further explanation the court cannot
accept as adequate Commerce’s reliance solely on the line items
for jars and corks being separate from other line items, to
support its conclusion that they are not direct materials
associated with finished honey.
With respect to the purchase of honey machines, defendant’s
assertion that “honey machines are a productive asset, not a
direct expense, for which Commerce would calculate depreciation,”
Def.’s Mem. 34, is raised for the first time in its papers before
this court and cannot take the place of Commerce’s own reasoning
on this issue in the Final Results. See Burlington Truck Lines,
10
(...continued)
the line items for jars, corks and honey machines:
Sale Rs. Purchase Rs.
honey machines 3,960.00 honey machines 3,960.00
100 gm. jars stock 25,296.00 None
250 gm. jars stock 122,121.00 250 gm. jars 120,159.00
500 gm. jars stock 132,436.00 500 gm. jars 139,625.00
1 kg. jars stock 95,004.00 1 kg. jars 89,270.00
53 mm. corks stock 110,548.75 53 mm. corks 68,064.00
38 mm. corks stock 8,433.60 38 mm. corks 14,078.00
Court No. 05-00439 Page 26
Inc. v. United States, 371 U.S. 156, 168-69 (1962) (“The courts
may not accept appellate counsel’s post hoc rationalizations for
agency action . . . . For the courts to substitute their or
counsel’s discretion for that of the [agency] is incompatible
with the orderly functioning of the process of judicial review.”)
(internal quotation & citation omitted). Therefore, on remand,
Commerce shall explain, with specific reference to the questions
raised in this opinion, its decision not to include expenses for
jars, corks and honey machines in its financial ratio calculation
as direct expenses used for producing finished honey.
II. Commerce’s Decision to Use Export Price for Jinfu PRC’s U.S.
Sales
In the Final Results, Commerce found that Jinfu PRC and
Jinfu Trading (U.S.A.) Co., Ltd. (“Jinfu USA”) were not
“affiliated,” within the meaning of 19 U.S.C. § 1677(33)(F),11
11
In pertinent part, the statute provides:
The following persons shall be considered
“affiliated” or “affiliated persons”: . . .
(F) Two or more persons directly or
indirectly controlling, controlled
by, or under common control with,
any person. . . .
For purposes of this paragraph, a person
shall be considered to control another person
if the person is legally or operationally in
a position to exercise restraint or direction
over the other person.
(continued...)
Court No. 05-00439 Page 27
prior to October 25, 2003.12 Issues & Dec. Mem. at 45.13 As a
result, Commerce “treated any sales made between Jinfu PRC and
Jinfu USA prior to October 25, 2003, on an [export price] basis,
while all sales made after this date have been treated as
[constructed export price] sales.” Id. Plaintiff Jinfu PRC
disputes Commerce’s finding that Jinfu PRC and Jinfu USA were not
affiliated prior to October 25, 2003. Again, the facts pertinent
to this issue are familiar to the court. Commerce’s finding of
no affiliation with respect to Jinfu PRC is presently the subject
11
(...continued)
19 U.S.C. § 1677(33)(F).
12
Jinfu USA is the successor company to Yousheng Trading
(U.S.A.) Co., Ltd. (“Yousheng USA”), an import company to which
Jinfu PRC sold its honey during the POR. See Second Supplemental
Questionnaire Resp. of Jinfu PRC, Conf. Doc. 71, Ex. 4(16)
(indicating that on November 8, 2002, Yousheng USA filed an
amendment to its articles of incorporation with the State of
Washington to change its name to Jinfu Trading (U.S.A.) Co.,
Ltd.).
13
Commerce’s affiliation finding is the subject of Jinfu
Trading Co. v. United States, Court No. 04-00597, which is
pending before the court. For purposes of confidentiality, the
court will employ the same shorthand references it used in Jinfu
Trading Co. v. United States, 30 CIT __, Slip Op. 06-137 (Sept.
7, 2006) (not reported in the Federal Supplement) (“Jinfu I”) and
Jinfu Trading Co. v. United States, 31 CIT __, Slip Op. 07-95
(June 13, 2007) (not reported in the Federal Supplement) (“Jinfu
II”). Specifically, Jinfu USA’s sole employee [[ ]]
is referred to as “Mr. A”; [[ ]], the chairman and
CEO of Jinfu PRC as “CEO B”; [[ ]], the
unaffiliated U.S. buyer as “Customer C”; and [[
]], the original owner of what was then Yousheng USA as “Mr. D.”
The attorney retained in October 2002 to aid in the attempted
transfer of ownership of Yousheng USA to CEO B is referred to as
“Attorney E.”
Court No. 05-00439 Page 28
of Jinfu Trading Co. v. United States, Court No. 04-00597,
familiarity with which is presumed.14 In that case, Jinfu PRC
challenges Commerce’s rescission of its new shipper review based
on the conclusion that Jinfu PRC was not affiliated with either
Jinfu USA or its predecessor Yousheng Trading (U.S.A.) Co., Ltd.
(“Yousheng USA”), within the meaning of 19 U.S.C. § 1677(33)(F)
or (G). See Honey from the PRC, 69 Fed. Reg. 64,029 (Dep’t of
Commerce Nov. 3, 2004). In Jinfu Trading Co. v. United States,
30 CIT __, Slip Op. 06-137 (Sept. 7, 2006) (not reported in the
Federal Supplement) (“Jinfu I”) and Jinfu Trading Co. v. United
States, 31 CIT __, Slip Op. 07-95 (June 13, 2007) (not reported
in the Federal Supplement) (“Jinfu II”), the court remanded
Commerce’s decision to rescind Jinfu PRC’s new shipper review.
See Jinfu I, 30 CIT at __, Slip Op. 06-137 at 32; Jinfu II, 31
CIT at __, Slip Op. 07-95 at 24. To the extent the issues
presented in this review are identical to those addressed in
Jinfu I and Jinfu II, the court follows its previous reasoning
and directs the same result.
14
Plaintiffs contend that the affiliation finding they
challenge here, i.e., Commerce’s finding that Jinfu PRC was not
affiliated with either Yousheng USA or Jinfu USA, is the same
finding that formed the basis of Commerce’s decision to rescind
the new shipper review. See Pls.’ Mem. 33 n.19 (“The
Department’s affiliation determination . . . subject to this
Civil Action is a sequel to its Final Determination . . . to
rescind Jinfu’s New Shipper Review . . . for the period December
1, 2002 through May 31, 2003. This rescission determination was
based on the same ‘no affiliation’ subsidiary determination which
is the subject of the instant Civil Action.”).
Court No. 05-00439 Page 29
A. Affiliation: Ownership Interest
Here, as in Jinfu I, plaintiffs argue that Commerce was
unreasonable in finding that Jinfu PRC and Jinfu USA were not
affiliated because Jinfu PRC owned Jinfu USA starting in October
2002, i.e., a year prior to the execution of the October 25, 2003
ownership transfer agreement between Jinfu PRC’s CEO and Jinfu
USA’s owner. Pls.’ Mem. 36 (“[E]ffective October 25, 2002, [CEO
B] acted as if he owned and controlled Jinfu USA.”). Having
reviewed the evidence and arguments presented here, the court
finds, as it did in Jinfu I, that Commerce’s conclusion that
ownership did not transfer to CEO B prior to October 25, 2003,
the date of the ownership transfer agreement between CEO B and
Mr. D, is supported by record evidence:
By [the ownership transfer agreement’s]
terms, the document provides that: “THIS
CERTIFICATE TRANSFER IS EFFECTIVE UPON
EXECUTION BY THE UNDERSIGNED.” It is clear,
therefore, that the Certificate of Transfer
of Shares was not to gain legal effect unless
and until the parties signed it.
Jinfu I, 30 CIT at __, Slip Op. 06-137 at 23. The earliest
possible effective date of the ownership transfer agreement would
be October 25, 2003.15 As a result, the court finds, as it did
in Jinfu I, that it “cannot find as unsupported by substantial
15
The document is dated October 25, 2003, but it was
apparently signed in December of 2003. See Issues & Dec. Mem. at
39 (“Although the purchase of Jinfu USA by [CEO B] occurred some
time in December 2003, the parties involved backdated the CTS for
that transaction to October 25, 2003.”).
Court No. 05-00439 Page 30
evidence Commerce’s determination that CEO B did not have sole
ownership of either Yousheng USA or Jinfu USA” prior to October
25, 2003. Jinfu I, 30 CIT at __, Slip Op. 06-137 at 25.
B. Affiliation: Control
Next, plaintiffs claim that Jinfu PRC controlled Jinfu USA’s
pricing decisions. This Court has held that Commerce is required
to find affiliation where the party alleging affiliation has
demonstrated that “[t]wo or more entities . . . share various
control relationships whereby one entity is legally or
operationally in a position to exercise restraint or direction
over the other and that such relationship provides one entity the
significant potential for the manipulation of price or production
of the other.” Hontex Enters., Inc. v. United States, 29 CIT __,
__, 387 F. Supp. 2d 1353, 1358 (2005) (internal quotation marks &
citations omitted); see also 19 U.S.C. § 1677(33) (“[A] person
shall be considered to control another person if the person is
legally or operationally in a position to exercise restraint or
direction over the other person.”); 19 C.F.R. § 351.102(b)
(finding of control requires that “the relationship has the
potential to impact decisions concerning the production, pricing,
or cost of the subject merchandise or foreign like product”).
In Jinfu I, the court agreed with plaintiffs’ claim that the
record evidence indicated that Jinfu PRC controlled Jinfu USA’s
Court No. 05-00439 Page 31
pricing decisions and found that “Commerce unreasonably concluded
that [Jinfu PRC and Jinfu USA] were not affiliated.” Jinfu I, 30
CIT at __, Slip Op. 06-137 at 28. The court examined the
verification report, which plaintiffs cite here as evidence to
support its argument that CEO B had operational control of Jinfu
USA, as well as correspondence between CEO B and Mr. A and found:
[I]n the [verification] report, Mr. A
explains that for transactions where he
resells honey originally purchased from Jinfu
PRC, he takes the following steps:
(1) negotiate material terms of
sale with U.S. customer; (2) enter
a non-binding sales contract with
the U.S. customer; (3) purchase
merchandise from Jinfu in the PRC;
(4) inform [CEO B] by telephone of
finalized . . . material terms of
sale and fax him a copy of the
sales contract; (5) receive bill of
lading, which includes on-board
date of the merchandise; (6)
receive shipping notification of
estimated arrival date; (7) prepare
sales invoices for estimated
arrival date; and (8) issue invoice
to the U.S. customer once the
merchandise has cleared FDA.
For the sale in question, Mr. A stated that:
Subsequent to his negotiations with
[Customer C], . . . [Mr. A] faxed a
letter to [CEO B] relaying the
result of his negotiations . . .
and U.S. honey market research.
. . . In a reply fax, [CEO B]
agreed that the sale with [Customer
C] was a good opportunity for Jinfu
USA and that the negotiated price
was reasonable. As such, . . .
[Mr. A] entered into a sales
Court No. 05-00439 Page 32
contract with [Customer C] . . . .
As a result, the fax sent by Mr. A to CEO B
on November 13, 2002, read as follows:
Firstly, I would like to report you
that the current market price of
honey in the United States is
between [[ ]] and [[ ]]
per pound. Because of the sharp
reduction of the export of honey
from other countries, the domestic
sales and price of honey in the
United States is very promising.
I contacted a US local client who
was willing to order a container of
honey at the ex-warehouse price of
[[ ]] USD per ton on the
condition that it can pass the
examination of US customs and FDA.
Since the annual purchasing amount
of this client is relatively
significant, if a good relationship
can be established with this
client, it will be of great help to
our company’s sales to the US.
Please let me know you[r] opinion
and advise me further.
CEO B sent a reply fax on the same day
stating that:
We received you[r] letter and felt
happy that there are clients are
[sic] interested in the honey
product of our company. You did a
good job on the report of the US
market. We finished a
container . . . on November 5.
In order to open the US market and
better understand the marketing
information, I agree with you. We
accept the client’s quotation of [[
]] USD per ton as ex-
warehouse price on the condition
that it passes the examination of
Court No. 05-00439 Page 33
the US customs and FDA. Please
make the preparation and keep in
touch with the client for purpose
of long term cooperation. I hereby
authorize you to sign contract with
the client.
Id. at __, Slip Op. 06-137 at 28-30 (footnote omitted). Thus,
the court concluded that the record evidence tended to support
the conclusion that CEO B had operational control of Jinfu USA
and exercised that control with respect to pricing decisions at
the time of the claimed new shipper sale (November 2, 2002). The
court thus remanded the matter to Commerce. Id. at __, Slip Op.
06-137 at 28, 32; see TIJID, Inc. v. United States, 29 CIT __,
__, 366 F. Supp. 2d 1286, 1293 (2005).
On remand, Commerce continued to find that Jinfu PRC was not
affiliated with Jinfu USA or its predecessor Yousheng USA, at the
relevant time, largely because it found the faxes exchanged
between Mr. A and CEO B to be incredible. Jinfu II, 31 CIT at
__, Slip Op. 07-95 at 21. In addition, Commerce maintained that
“even if considered credible or reliable, [the faxes] merely
indicate that Mr. A found a customer willing to pay X price per
[metric ton] for the honey and that CEO B agreed to this price.”
Id., Slip Op. 07-95 at 21. The Jinfu II Court found Commerce’s
analysis wanting:
Commerce has not articulated a rational
connection between its conclusion that CEO B
did not control Jinfu USA’s pricing decisions
and its statement that the faxes, if valid,
would not evidence control. Of particular
Court No. 05-00439 Page 34
concern is Commerce’s failure to expressly
state why CEO B’s approval of the sales price
and authorization to execute the contract do
not evidence control.
Id. at __, Slip Op. 07-95 at 22. The Court remanded the matter
to Commerce a second time and directed Commerce to explain “why
the contents of the faxes exchanged between Mr. A and CEO B, if
credible and reliable, do not support a conclusion that CEO B
controlled Jinfu USA,” and to “reopen the record to allow
plaintiff to put on the record new evidence regarding the
credibility and reliability of the faxes . . . .” Id. at __,
Slip Op. 07-95 at 24.
As in its prior decisions, the court remands this matter to
Commerce. On remand, Commerce is directed to either find that
Jinfu PRC and Jinfu USA were affiliated prior to October 25,
2003, or to provide other record evidence to support its
conclusion that the companies were not affiliated.
CONCLUSION
For the foregoing reasons, the court sustains the Final
Results in part and remands for further action consistent with
this opinion. Remand results are due on December 13, 2007.
Comments to the remand results are due on January 14, 2008.
Court No. 05-00439 Page 35
Replies to such comments are due on January 25, 2008.
/s/ Richard K. Eaton
Richard K. Eaton
Dated: September 13, 2007
New York, New York