Guizhou Tyre Co., Ltd. v. United States , 389 F. Supp. 3d 1315 ( 2019 )

Slip Op. 19-
UNITED STATES COURT OF INTERNATIONAL TRADE
GUIZHOU TYRE CO., LTD.; GUIZHOU TYRE
IMPORT & EXPORT CO., LTD.,
Plaintiffs,
and
TIANJIN UNITED TIRE & RUBBER Before: Richard W. Goldberg, Senior Judge
INTERNATIONAL CO., LTD.; WEIHAI Consolidated Court No. 18-00100
ZHONGWEI RUBBER CO., LTD.;
Consolidated Plaintiffs,
v.
UNITED STATES,
Defendant.
OPINION AND ORDER
[Sustaining in part and remanding in part the determinations of the Department of Commerce.]
Dated: May 1, 2019
Matthew P. McCullough, Curtis, Mallet-Prevost, Colt & Mosle LLP, of Washington,
D.C., for plaintiffs.
John Tudor, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, D.C., for defendant. With him on the brief were Joseph
H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Jr.,
Assistant Director. Of counsel on the brief was Orga Cadet, Office of the Chief Counsel for
Trade Enforcement and Compliance, U.S. Department of Commerce, of Washington, D.C.
Mark B. Lehnardt, Baker Hostetler, LLP, of Washington, D.C., for consolidated plaintiff
Tianjin United Tire and Rubber International Co., Ltd.
R. Kevin Williams, Mark R. Ludwikowski, Lara A. Austrins, Clark Hill PLC, of Chicago,
IL, for consolidated plaintiff Weihai Zhongwei Rubber Co., Ltd.
Consol. Ct. No. 18-00100 Page 2
Goldberg, Senior Judge: This action arises from a challenge by plaintiffs Guizhou Tyre
Co., Ltd. and Guizhou Tyre Import and Export Co., Ltd., (collectively “Guizhou”) as well as
consolidated plaintiffs Tianjin United Tire & Rubber International Co., Ltd. (“TUTRIC”) and
Weihai Zhongwei Rubber Co., Ltd. (“Zhongwei”) (collectively “Plaintiffs”) to certain aspects of
the final results published by the Department of Commerce (“the Department” or “Commerce”)
of the 2015 Administrative Review of the countervailing duty order on off-the-road tires (“OTR
tires”) from the People’s Republic of China (“PRC”). Certain New Pneumatic Off-the-Road
Tires from the People’s Republic of China, 83 Fed. Reg. 16,055 (Dep’t Commerce Apr. 13,
2018) (final results) (“Final Results”) and accompanying Issues & Decision Mem. (“I&D
Mem.”), amended by Certain New Pneumatic Off-the-Road Tires from the People’s Republic of
China, 83 Fed. Reg. 32,078 (Dep’t Commerce Jul. 11, 2018) (am. final results) (“Amended Final
Results”). Guizhou filed a motion for judgment on the agency record, Pls’. Mot. for J. on
Agency R., ECF No. 25 (Sept. 21, 2018) (“Pls.’ Br.”), challenging Commerce’s Amended Final
Results with respect to: (1) Commerce’s benchmark calculations to determine the extent of
subsidies received by Guizhou; (2) Commerce’s application of adverse facts available in finding
use and benefit from the Export Buyer’s Credit Program; and (3) Commerce’s decision to
countervail the Processing Trade Program. TUTRIC and Zhongwei have adopted and
incorporated the challenges brought by Guizhou. TUTRIC Mot. for J. on Agency R., ECF No.
28 (Oct. 12, 2018); Zhongwei Mot. for J. on Agency R., ECF No. 29 (Oct. 14, 2018).
For the reasons discussed below, the court remands the Department’s findings with
respect to the adverse inference applied to the Export Buyer’s Credit Program, sustains and
remands in part the Department’s benchmark calculations, and sustains the Department’s
decision to countervail the Processing Trade Program.
Consol. Ct. No. 18-00100 Page 3
BACKGROUND
In November 2016, Commerce initiated a review of the countervailing duty order on
certain OTR tires from the PRC based upon timely requests from interested parties during the
period of review between January 1, 2015 and December 31, 2015. Antidumping and
Countervailing Duty Administrative Reviews, 81 Fed. Reg. 78,778 (Dep’t Commerce Nov. 9,
2016) (initiation). Mandatory respondent Guizhou, as well as the Government of China
(“GOC”), responded to the Department’s initial and supplemental questionnaires. GOC Initial
Questionnaire Resp., ECF No 38, J.A. Tab 11 (May 4, 2017) (“GOC Initial Questionnaire
Resp.”); Guizhou Initial Questionnaire Resp., J.A. Tab 10 (May 4, 2017) (“Guizhou Initial
Questionnaire Resp.”); GOC First Supp. Resp., J.A. Tab 12 (June 26, 2017) (“GOC First Supp.
Resp.”). Commerce also conducted a verification of Guizhou’s questionnaire responses in
December 2017. Verification of the Questionnaire Resps. of Guizhou, J.A. Tab 13 (Feb. 1,
2018) (“Verification Report”).
In October 2017, Commerce issued its preliminary results from the administrative review
based on the parties’ questionnaire responses. Certain New Pneumatic Off-the-Road Tires From
the People’s Republic of China, 82 Fed. Reg. 46,754 (Dep’t Commerce Oct. 6, 2017) (prelim.
results) (“Preliminary Results”) and accompanying Prelim. Decision Mem., J.A. Tab 1 (Oct. 2,
2017) (“PDM”). In its preliminary findings, the Department determined that: (1) the Export
Buyer’s Credit Program was countervailable based on an adverse inference that Guizhou used
and benefited from the program, PDM at 14–17; (2) the Processing Trade Program was
countervailable because the GOC failed to demonstrate that it had a system or procedure in place
to determine the quantity of natural rubber, synthetic rubber, carbon black, and nylon cord
Guizhou consumed in the production of OTR tires, id. at 35–36; (3) there was “no basis to find
Consol. Ct. No. 18-00100 Page 4
the domestic synthetic rubber market to be distorted,” id. at 25; and (4) benchmarks for synthetic
rubber, natural rubber, carbon black, and nylon cord inputs appropriately included actual ocean
freight and import duty costs, id. at 33–35. As to the Export Buyer’s Program, Commerce
applied adverse facts available (“AFA”) to countervail the program because the GOC allegedly
refused to answer Commerce’s questions regarding the operation of the program. Id. at 14–17.
The Department’s final decision largely echoed its preliminary findings. Commerce
continued to find that the market for synthetic rubber was not distorted during the period of
review. I&D Mem. at 10–12. Commerce also employed both Tier 1 and Tier 2 benchmarks in
relation to certain less-than-adequate remuneration (“LTAR”) findings for synthetic and natural
rubber (Tier 1), carbon black (Tier 2), and nylon cord (Tier 2). Id. at 12–13. These benchmarks
included ocean freight and import duties. Additionally, Commerce applied an adverse inference
to find that Guizhou used and benefited from the Export Buyer’s Credit Program and concluded
that “the record does not support finding non-use of the [Program].” Id. at 14. Finally,
Commerce concluded that Guizhou received a countervailable subsidy from the Processing
Trade Program because “the record [did] not support a finding that the GOC has an effective
system in place to confirm which inputs are consumed in the production of exported products
and in what amounts.” Id. at 17. This finding was based on the GOC’s alleged failure to
“explain or document how it determined the quantity of rubber, nylon cord or carbon black
consumed in the production process of OTR [t]ires.” Id. at 16. In the Amended Final Results,
Commerce assigned Guizhou a countervailable subsidy rate of 31.48%. Amended Final Results,
83 Fed. Reg. at 32,078. Commerce assigned this same rate to the “non-selected companies,” id.,
which included TUTRIC and Zhongwei, id. at 32,079.
Consol. Ct. No. 18-00100 Page 5
Guizhou’s motion for judgment challenges each of Commerce’s findings above. See
generally Pls.’ Br. For the reasons discussed below, the court sustains in part and remands in
part Commerce’s Amended Final Results.
JURISDICTION AND STANDARD OF REVIEW
The court exercises jurisdiction to hear this appeal under 28 U.S.C. § 1581(c). The court
will sustain Commerce’s determination unless the court concludes that the determination is
“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 amounts to “more than a mere
scintilla” of evidence. Universal Camera Corp. v. N.L.R.B., 340 U.S. 474, 477 (1951). It is
“such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”
Id. Moreover, the substantiality of evidence is evaluated “on the record as a whole, including
[any evidence that] fairly detracts from its weight.” Target Corp. v. United States, 609 F.3d
1352, 1358 (Fed. Cir. 2010) (internal quotation marks and citation omitted). In other words,
“substantial evidence” “can be translated roughly to mean ‘is [the determination]
unreasonable?’” Nippon Steel Corp. v. United States, 458 F.3d 1345, 1351 (Fed. Cir. 2006).
DISCUSSION
Plaintiffs raise challenges to the Department’s determinations regarding: (1) the PRC’s
Export Buyer’s Credit Program (the “Export Program”); (2) the Department’s calculation of
benchmarks measuring adequate remuneration for synthetic rubber, carbon black, and nylon
cord; and (3) the PRC’s Processing Trade Program as a countervailable subsidy. The court
sustains Commerce’s decision to countervail the Processing Trade Program. For the remaining
issues raised by Plaintiffs, the court sustains and remands in part, pursuant to the below.
Consol. Ct. No. 18-00100 Page 6
I. China Export Import Bank Buyer’s Credit Program
As in the 2014 Administrative Review,1 it is the Department’s failure to identify a gap in
the record that proves fatal to its application of AFA. Commerce’s finding that “the record does
not support [] non-use,” I&D Mem. at 14, is itself unsupported by substantial evidence because
the only evidence on the record supports non-use. See Guizhou Initial Questionnaire Resp. at 55,
ex. I39. Further, because Commerce failed to explain what information the GOC has failed to
provide and how that information was required for verification of the respondent’s claims and
declarations demonstrating non-use of the Export Program, Commerce’s finding that the GOC
did not provide information necessary to develop a complete understanding of the program was
not supported by substantial evidence.
In its review, Commerce examined whether Plaintiffs potentially benefited from the
PRC’s Export Program, which provides loans to foreign companies to promote the export of
Chinese goods. See Antidumping and Countervailing Duty Administrative Reviews, 81 Fed. Reg.
78,778 (Dep’t Commerce Nov. 9, 2016) (initiation). Commerce issued several questionnaires to
the respondents seeking information regarding the Export Program, and both Guizhou and the
GOC responded that none of Guizhou’s customers used the Program. Guizhou Initial
Questionnaire Resp. at 54–55; GOC Initial Questionnaire Resp. at 139–140. Guizhou also
submitted affidavits from its United States customers confirming non-use as exhibits to the initial
1
The Export Program was also challenged in the previous administrative review, where Guizhou
brought substantially similar challenges (based on similar findings) before this court. Certain
New Pneumatic Off-the-Road Tires from the People’s Republic of China, 82 Fed. Reg. 18,285
(Dep’t Commerce Apr. 18, 2017) (final results) and accompanying Issues & Decision Mem.
(Apr. 12, 2017). Echoing the challenge presented here, Guizhou disputed the Department’s
application of AFA in determining use of the Export Program. There, the court ordered that the
Department reconsider its decision to apply AFA as to the Export Program, and further ordered
that the Department take into account Guizhou’s and the GOC’s submitted evidence of non-use.
Guizhou Tyre Co. v. United States, 42 CIT __, 348 F. Supp. 3d 1261 (2018).
Consol. Ct. No. 18-00100 Page 7
questionnaire responses. See Guizhou Initial Questionnaire Resp. at 54, ex. I38; see also id. at
55, ex. I39. In a subsequent questionnaire response concerning the operation of the Export
Program, the GOC responded that the “question [was] not applicable” because “none of the U.S.
customers of the respondents used the Expert Buyer’s Credit from [Export-Import] Bank during
the [period of review].” GOC First Supp. Resp. at 10–11. Nonetheless, Commerce determined
in its preliminary results that the GOC both withheld requested information and significantly
impeded the proceeding such that the Department applied an AFA rate for each respondent based
on Plaintiffs’ alleged benefit from the Export Program. PDM at 15–16 (citing, inter alia, 19
U.S.C. 1677e(a)(2)(A), (C)). In its Final Results, Commerce continued to apply the AFA
because it was “without a complete and verifiable understanding of the program’s operation.”
I&D Mem. at 15.
Commerce may select from facts otherwise available when necessary information is not
available in the record or when a party to a proceeding: (A) withholds information that is
requested; (B) fails to provide such information in the form and manner requested; (C)
significantly impedes a proceeding; or (D) provides information which cannot be verified. 19
U.S.C. § 1677e(a). Once it has identified a basis under § 1677e(a), the Department may then
select from facts available in a matter adverse to the respondent—that is, apply AFA—only if the
gap in the record was caused by a failure of a respondent to cooperate to the best of its ability.
19 U.S.C. § 1677e(b). Therefore, before Commerce can apply AFA, it must first determine
under § 1677e(a) that information is missing from the record and that the gap was caused by a
respondent’s failure to cooperate. Once again, Commerce missed the mark and applied AFA to
the Export Program without first establishing the statutory prerequisites of such a determination.
Consol. Ct. No. 18-00100 Page 8
Here, upon requests from Commerce, Guizhou indicated it did not benefit from the
Program and provided declarations from its U.S. customers stating as much. See Guizhou Initial
Questionnaire Resp., at 54, ex. I38. The GOC also informed Commerce that it “contacted the
responding companies to ask for their customer lists” and the GOC confirmed that “no listed
importers of the respondent companies obtained any Export Buyers Credits from [the Export-
Import Bank],” indicating that the importers did not use the Program. GOC Initial Questionnaire
Resp. at 140. Additionally, in its supplemental questionnaire responses, the GOC further
confirmed that Plaintiffs received no benefit from the program. GOC First Supplemental Resp.
at 11. Despite this, Commerce sought information on the operation of the Export Program—a
program which all record evidence indicated Plaintiffs did not use. Based upon the GOC’s non-
compliance with this final, unrelated request, Commerce applied AFA. Because the findings
underlying Commerce’s application of AFA are unsupported by substantial evidence, the court
cannot sustain the ultimate AFA determination. See also Changzhou Trina Solar Energy Co. v.
United States, Slip Op. 18-167, 2018 WL 6271653, at *3 (CIT Nov. 30, 2018) (“Commerce does
not point to information on the record that allows Commerce to reasonably conclude, even with
appropriate adverse inferences, that [the plaintiff] used [the Export Program].”).
Specifically, Commerce did not explain what additional information was necessary to
assess the GOC’s claim of non-use, and why other information available in the record (and
provided by the parties) was insufficient to fill whatever gap was left by the GOC’s non-
compliance. Changzhou Trina Solar Energy Co. v. United States, 42 CIT __, __, 352 F. Supp.
3d 1316, 1327 (2018). In any review, the Department must consider record evidence that “fairly
detracts” from its ultimate determination. See CS Wind Viet. Co. v. United States, 832 F.3d
1367, 1373 (Fed. Cir. 2016). Instead, Commerce concluded that “the record does not support
Consol. Ct. No. 18-00100 Page 9
finding non-use of the [Program] by Guizhou Tyre.” I&D Mem. at 14. In so doing, however,
the Department blatantly ignored the eighty-five U.S. customer declarations that were submitted
as exhibits to Guizhou’s questionnaire responses, each of which stated that the customers “did
not finance [their] purchases through either the use of the . . . export buyer’s credit program or
any other Chinese banks’ export buyer’s credit program.” See Guizhou Initial Questionnaire
Resp. at 55, ex. I39. The Department contends that the “GOC has not provided the requested
information and documentation necessary for Commerce to develop a complete understanding of
this program” and therefore, “absent [this] information, the GOC’s claims that the respondent
companies did not use this program are not verifiable.” I&D Mem. at 14. But more than just
uncorroborated claims, Guizhou stated that it, first, “confirmed non-usage” by “contact[ing] all
of its export customers and confirm[ing] that none of them applied for, used, or benefited from
this program during the POR,” and second, by “contact[ing] all of its unaffiliated export
customers in the United States in 2015 and inquir[ing] whether the companies used the export
buyer’s credit program or otherwise received credit facilities from EXIM.” See Guizhou Initial
Questionnaire Resp. at 55. The corresponding U.S. declarations then affirmed those claims made
by Guizhou. The Department’s contention that non-use is unverifiable is simply not supported
by the administrative record—which, as it stands, “fairly detracts” from Commerce’s
unsubstantiated finding of countervailability and benefits conferred, CS Wind Viet. Co., 832 F.3d
at 1373. Indeed, not only has the Department failed to account for evidence pointing to the
contrary, Commerce has also failed to provide “more than a mere scintilla” of evidence to
support its finding that it was unable to determine that Guizhou did not use the Export Buyer’s
Credit Program. PAM, S.p.A. v. United States, 582 F.3d 1336, 1339 (Fed. Cir. 2009).
Consol. Ct. No. 18-00100 Page 10
Commerce attempts to (unsuccessfully) fall back on its claim that in order to “verify the
accuracy of the respondents’ claimed non-use of the program,” Commerce needs “supporting
information and documentation” from “EX-IM Bank, as the lender” to “fully understand the
operation of the program.” I&D Mem. at 14. There are two glaring problems with this finding.
First, Commerce did not explain why the information that was provided—Guizhou’s and the
GOC’s responses and accompanying declarations—was unverifiable on its own. The
Department had the tools at its disposal to substantiate the accuracy of the declarations—and it
had to try to do so before claiming that the record evidence is unverifiable. Second, it is unclear
how or why the information about the program’s operations are even necessary to verify
Guizhou’s claims of non-use. See Changzhou Trina Solar Energy Co., 352 F. Supp. 3d at 1326–
27 (“Commerce, however, did not explain why the GOC’s failure to explain this program was
necessary to assess claims of non-use and why other information accessible to respondents was
insufficient to fill whatever gap was left by the GOC’s refusal to provide internal bank
records.”). Commerce did not identify what information about the Export Program’s operations
would have the tendency to prove (or disprove) Guizhou’s allegation of non-use.2 Through the
fog and mist, what is clear to the court is that Commerce’s determination—that information
about the program’s operations is “missing” from the record and is integral to Commerce’s
countervailability findings—is unsupported by substantial evidence on the record and therefore,
not in accordance with the law under 19 U.S.C. § 1677e(a).
And finally, we are left with Commerce’s misunderstanding of basic AFA principles.
Once again, as in Changzhou, Guizhou I, and Clearon, the court is puzzled by Commerce’s
2
Perhaps, as the court previously opined, Commerce is “curious as to the inner workings of
many Chinese programs.” Clearon Corp. v. United States, 43 CIT __, __, 359 F. Supp. 3d 1344,
1360 (2019). But once again, “mere curiosity is not enough.” Id.
Consol. Ct. No. 18-00100 Page 11
immediate jump to AFA without first explaining how information it claims to be missing or
unverifiable regarding the Program’s operations leads to an adverse inference that the
respondents used the program. For any use of facts otherwise available with an adverse
inference, “Commerce must still explain what information is missing and what adverse
inferences reasonably lead[] to its conclusion.” Nippon Steel Corp. v. United States, 337 F.3d
1373, 1382 (Fed. Cir. 2003). The Department’s anemic reasoning to support its decision flunks
this standard under § 1677e(b) and it will not be sustained by the court.
As it stands, Commerce’s decision to find the Export Program countervailing as a benefit
conferred on Guizhou was based on an improper application of §§ 1677e(a) and (b). Commerce
cannot readily identify any material information missing from the record, and Guizhou and the
GOC provided responses to the Department’s questionnaires constituting evidence of non-use of
the Export Program. Commerce must explain why the evidence as currently provided by the
respondents was insufficient and could not have been verified by Commerce as it stands.
II. Calculation of LTAR Benchmarks
Plaintiffs raise several challenges to the Department’s calculation of benchmarks
measuring whether adequate remuneration was paid for synthetic rubber, natural rubber, carbon
black, and nylon cord. First, Guizhou argues that the Department failed to use the proper
benchmark to determine the extent of the subsidy received by Guizhou with regard to synthetic
rubber. Specifically, Guizhou urges the court to compel Commerce to further provide an
explanation for its change in position from its 2014 Administrative Review on market distortion
for synthetic rubber. Second, Guizhou argues that Commerce’s failure to adjust the input
benchmarks to reflect market conditions—including domestic production of the inputs—was not
supported by substantial evidence.
Consol. Ct. No. 18-00100 Page 12
A. Legal Framework
A countervailable subsidy exists where: (1) a financial contribution is provided, (2) a
benefit is thus conferred, and (3) the subsidy is specific. See 19 U.S.C. § 1677(5). When a
financial contribution is provided through goods or services, the statute defines a benefit as
arising where goods or services “are provided for less than adequate remuneration.” 19 U.S.C.
§ 1677(5)(E)(iv). The adequacy of remuneration “shall be determined in relation to prevailing
market conditions for the good or service being provided” in the country that is subject to
review. 19 U.S.C. § 1677(5)(E). Usual market conditions comprise of “price, quality,
availability, marketability, transportation, and other conditions of purchase or sale.” 19 U.S.C.
§ 1677(5)(E).
Commerce employs a hierarchical framework to measure the adequacy of remuneration.
See 19 C.F.R. § 351.511. In a Tier 1 benchmark, Commerce typically compares the price the
government sold the goods or service to the respondent with a market-determined price in the
country in question. 19 C.F.R. § 351.511(a)(2)(i). By contrast, a Tier 2 benchmark, employed
when market prices are not accessible, allows Commerce to “compar[e] the government price to
a world market price where it is reasonable to conclude that such price would be available to
purchasers in the country in question.” 19 C.F.R. § 351.511(a)(2)(ii). If a world market price
cannot be used, then Commerce will “measure the adequacy of remuneration by assessing
whether the government price is consistent with market principles.” 19 C.F.R.
§ 351.511(a)(2)(iii). This is a Tier 3 benchmark. See Zhaoqing New Zhongya Aluminum Co. v.
United States, 37 CIT __, __, 929 F. Supp. 2d 1324, 1327 (2013) (concluding that Commerce’s
decision to use Tier 2 “world market” pricing only after determining that Tier 1 pricing is
Consol. Ct. No. 18-00100 Page 13
“unusable” is part of a “reasonable benchmark” calculation and “is well grounded in the
applicable regulations.”).
To measure the adequacy of remuneration for carbon black and nylon cord, Commerce
used a Tier 2 benchmark, PDM 24–25; for natural and synthetic rubber, Commerce used Tier 1
benchmarks. PDM at 25–26.
B. Market Distortion for Synthetic Rubber
Commerce found that the synthetic rubber market in the PRC was not distorted during the
period of review. Therefore, Commerce used Tier 1 benchmarks for imports to measure the
adequacy of remuneration for this input. Plaintiffs challenge Commerce’s distortion findings,
arguing that the Department failed to distinguish its findings of lack of distortion in this review
from its finding in a prior administrative review where the synthetic rubber market was distorted.
Where available, Commerce “prefers to compare prices to actual transactions in the
country in question.” Maverick Tube Corp. v. United States, 857 F.3d 1353, 1358 (Fed. Cir.
2017) (citing 19 C.F.R. § 351.511(a)(2)(i)). But if the market in that country is distorted by
government involvement—such that the “government provider constitutes a majority or . . . a
substantial portion of the market,” Countervailing Duties, 63 Fed. Reg. 65,348, 65,377 (Dep’t
Commerce Nov. 25, 1998) (final rule)—the prices “may no longer be concluded the result of a
‘competitive’ market-pricing mechanism.” Borusan Mannesmann Boru Sanayi ve Ticaret A.S. v.
United States, 39 CIT __, __, 61 F. Supp. 3d 1306, 1327 (2015), aff’d sub nom. Maverick Tube
Corp., 857 F.3d 1353. At that point, the Department will then “consider the prices paid in that
country as not an appropriate basis of comparison . . . and will instead look to world market
prices.” Maverick Tube Corp., 857 F.3d at 1358.
Consol. Ct. No. 18-00100 Page 14
Commerce found that the market in the PRC for synthetic rubber was not distorted by
government presence in the market. PDM at 25 (sustained in IDM at 6, 10–12). Plaintiffs
dispute this finding as inconsistent with Commerce’s distortion findings from the 2014
Administrative Review, where the Department found that the market was distorted by
government presence “on a nearly identical set of facts,” Pls.’ Br. at 9. See Certain New
Pneumatic Off-the-Road Tires From the People’s Republic of China, 82 Fed. Reg. 18,285 (Dep’t
Commerce Apr. 18, 2017) (final results) and accompanying Issues and Decision Mem. at 13.
The market distortion findings for synthetic rubber in the 2014 and 2015 Administrative Reviews
are distinguished by a few percentage points: a 2.03% decrease from 2014 to 2015 in the
percentage of GOC production; 3.65% decrease from 2014 to 2015 in the GOC production
percent of consumption; 10.50% increase from 2014 to 2015 in the import percent of production;
and a 6.04% increase from 2014 to 2015 in the import percent of consumption, Pls.’ Br. at 9–10.
Although Commerce attempts to justify its finding in the 2015 review as based on a
“significant[]” change “between 2014 and 2015,” IDM at 11–12, the small percentage shifts
listed above suggest otherwise. Additionally, as Plaintiffs assert, Commerce’s explanation does
little to provide support for its finding that synthetic rubber was not distorted. For example, the
Final Results explain that the “significant[]” change between the two administrative reviews are
reflected by the GOC’s “decreased [] volume of [] synthetic rubber production by 8.7%” and the
33.36% increase in the volume of imports overall. Id. at 12. But that provides little analysis as
to how these changes affected the Department’s distortion calculation. And Commerce’s
analysis of market distortion from the agency record provides no further insight into
Commerce’s finding, as it simply charts the input data that was provided by GOC’s initial
Consol. Ct. No. 18-00100 Page 15
questionnaire responses. See Market Distortion Mem. from Jun Jack Zhao to Tom Gilgun, J.A.
Tab 3 (Oct. 2, 2017).
Both Plaintiffs and the court are left, then, to take Commerce at its word regarding its
distortion findings. But Commerce is required to “examine the relevant data and articulate a
satisfactory explanation for its action including a ‘rational connection between the facts found
and the choice made.”’ Motor Vehicle Mfrs. Ass'n of the U.S. v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168
(1962)). Commerce’s barebones explanation does no such thing and leaves the parties with an
arbitrary decision, particularly in light of the fact that similar input data points from the 2014
Administrative Review compelled a contrary finding. Dongbu Steel Co. v. United States, 635
F.3d 1363, 1371 (Fed. Cir. 2011) (“We have indicated that an agency action is arbitrary when the
agency offers insufficient reasons for treating similar situations differently.”).
In its briefing, the Government explains the “gap” between its distortion conclusion and
the data presented, noting that “[b]ecause substantial government involvement in the market
likely would have suppressed the share of imports of synthetic rubber as a portion of
consumption in China, the high level of imports is reasonably indicative of limited government
involvement in the market, and therefore of a market that is not distorted.” Def.’s Br. at 12–13.
The Government’s “post hoc rationalizations”—as articulated in its brief—cannot be used to
support the underlying determination.3 Burlington Truck Lines, 371 U.S. at 168; see also Sec. &
Exch. Comm’n v. Chenery Corp., 318 U.S. 80, 87 (1943) (“The grounds upon which an
3
The court relies only on the administrative record to determine whether the Department’s
findings are supported by substantial evidence; however, this is precisely the type of analysis
that—if supported by substantial evidence on the administrative record—may have cogently
justified the Department’s distortion findings.
Consol. Ct. No. 18-00100 Page 16
administrative order must be judged are those upon which the record discloses that its action was
based.”). “The court restricts its review to matters found in the Final Determination”—that is,
the grounds invoked at the agency level in the preliminary memorandum and the Issues and
Decisions memorandum—and “does not consider such post hoc rationales for an agency’s
decision,” Altx, Inc. v. United States, 25 CIT 1100, 1103 n.5, 167 F. Supp. 2d 1353, 1359 n.5
(2001).
Therefore, on remand, the court orders Commerce to reconsider its findings and upon
reconsideration specifically explain how the market for synthetic rubber in the PRC changed
between 2014 and 2015 and what aspects of those changes caused Commerce to find that the
market was not distorted in 2015.
C. Market Condition Adjustments
Commerce used Tier 1 benchmarks to measure the adequacy of remuneration for natural
and synthetic rubber, and Tier 2 benchmarks for carbon black and nylon cord. Plaintiffs dispute
the Department’s calculations because, they claim, Commerce did not adjust the benchmarks to
reflect prevailing market conditions in the PRC—specifically, the extent to which the market is
served by domestic inputs. Here, the Department has made an AFA finding that the domestic
suppliers of the four inputs purchased were government “authorities,” and were inappropriate
comparatives for benchmark calculations. Based on this underlying finding, the Department’s
resultant benchmark findings are reasonable and supported by substantial evidence.
Where goods are provided for less than adequate remuneration, a benefit is treated as
“conferred upon the recipient” and it is up to Commerce to calculate the benefit received. TMK
IPSCO v. United States, 40 CIT __, ___, 179 F. Supp. 3d 1328, 1344 (2016). Section
1677(5)(E)(iv) provides that, once a good or service is deemed a “benefit,” the adequacy of
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remuneration “shall be determined in relation to prevailing market conditions for [that] good or
service.” 19 U.S.C. § 1677(5)(E)(iv). A “prevailing market condition” may include “price,
quality, availability, marketability, transportation, and other conditions of purchase or sale,” id.,
and the adequacy of the remuneration must be “adjust[ed] . . . to reflect the price that a firm
actually paid or would pay if it imported the product,” 19 C.F.R. § 351.511(a)(iv). And as
iterated above, “Commerce’s regulations provide that the agency shall measure the adequacy of
remuneration by comparing the government price to a multi-tiered series of benchmark prices.”
Nucor Corp. v. United States, 42 CIT __, __, 286 F. Supp. 3d 1364, 1371 (2018).
Guizhou is correct that delivery adjustments “are not without limit.” Pls.’ Br. at 13.
Commerce is required to make adjustments to its LTAR benchmarks in line with the statute and
the regulations; however, in terms of implementation, “Commerce has broad discretion to
determine how to adjust the world market benchmark price to reflect delivery charges . . . so long
as such adjustments are reasonable.” TMK IPSCO v. United States, 41 CIT __, __, 222 F. Supp.
3d 1306, 1320 (2017). Here, because the Department’s calculation was contingent on an AFA
finding, the court reviews Commerce’s application of the Tier 1 and Tier 2 benchmarks for the
Department’s conformance with 19 U.S.C. § 1677e. The court upholds the finding that the
input’s producers are “authorities” within the meaning of section 771(5)(B) of the Act because
Commerce’s application of AFA was reasonable.
Guizhou asserts that Commerce should have adjusted the benchmarks for ocean freight
and import duties to account for China’s domestic supply of the inputs. Pls’ Br. at 15.
Prevailing market conditions, Guizhou continues, should account for the fact that some of the
input imports “are but a small fraction of deliveries in the Chinese market.” Id. However,
integral to its LTAR determinations, the Department explained that because it found that the
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GOC “did not act to the best of its ability to comply with [its] request for information regarding
ownership and control of the producers that supplied inputs to respondents,” it concluded that the
domestic suppliers of the inputs purchased were “authorities,” pursuant to the definition provided
by 19 U.S.C. § 1677(5)(B). I&D Mem. at 11. Ultimately, then, the Department’s decision to
omit evidence of the PRC’s domestic supply of the inputs was contingent on its AFA finding that
the supplying producers were authorities. To this integral finding, Guizhou provides no
substantive response.
In its preliminary determination, Commerce explained its use of facts otherwise available
to infer that “all of Guizhou Tyre’s supplying producers are ‘authorities.’” PDM at 24. For
example, in calculating an appropriate benchmark for all four inputs, the Department noted that
“the GOC did not act to the best of its ability to comply with the Department’s request for
information with regard to ownership and control of the producers that supplied the input to
respondent.” Id. Therefore, the Department concluded, “none of the respondent’s domestic
purchases of the input is appropriate for benchmarking.” Id. This makes sense: Commerce is
tasked with measuring the adequacy of remuneration by comparing the government price to a
hierarchy of benchmarked prices. During the administrative review (and then again in this
litigation), Guizhou offers the Department a “supply ratio” “solution” to the benchmark
adjustment, which would apportion the adjustments to the share of the market attributed to
imports. Pls.’ Br. at 15. But because that ratio would include Guizhou’s domestic purchases—
which were found to be an inappropriate comparative for benchmarking—their inclusion would
distort the benchmark analysis. This same analysis was echoed in the Department’s Final
Results: in light of the AFA finding that the domestic producers of the inputs are authorities,
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Commerce only used import prices (for synthetic rubber, for example), to calculate a Tier 1
benchmark, and not its domestic prices. I&D Mem. at 13.
The court does not generally presume the reasonableness of the AFA determination.
However, Guizhou does not adequately address Commerce’s conclusion that the supplying
producers were “authorities” in its briefing, dismissing this AFA finding as “say[ing] nothing
about the benchmark calculation.” Pls.’ Reply Br. In Support of Mot. for J. 9, ECF No. 37 (Jan.
18, 2019). Nor did Plaintiffs actually dispute the application of AFA to the LTAR calculations
in its case briefs to the Department during the administrative review. Commerce may use AFA
if the gap in the record was caused by the failure of the respondent to cooperate to the best of its
ability. JSW Steel Ltd. v. United States, 42 CIT __, ___, 315 F. Supp. 3d 1379, 1382 (2018)
(citing 19 U.S.C. § 1677e(a)(2)(A)–(D)). However, there is no indication—either in the record
or briefed by the parties—that the Department’s AFA finding was not properly applied. Indeed,
Guizhou had the opportunity to dispute the AFA finding and chose not to do so. See Fuwei
Films (Shandong) Co. v. United States, 35 CIT 1229, 1230–31, 791 F. Supp. 2d 1381, 1384–85
(2011) (failure to challenge issue before Commerce leaves court without a record to review on
the issue). Based on the underlying premise that domestic purchases of the inputs are
inappropriate for benchmarking, the Department’s finding was supported by substantial
evidence.
III. Processing Trade Program
Commerce investigated import duty and VAT exemptions on imports of raw materials
from the Processing Trade Program and concluded that the program provided countervailable
subsidies. Plaintiffs dispute these findings as unsupported by substantial evidence and contrary
Consol. Ct. No. 18-00100 Page 20
to law. The court upholds the Department’s determination as to the Processing Trade Program as
supported by substantial evidence drawn from the record.
The regulatory scheme under 19 C.F.R. § 351.519(a)(1)(i) requires respondents to
demonstrate that the foreign government has a reasonable system or procedure in place to
confirm which inputs are consumed in the production process and in what amounts. Under the
regulation, “a benefit exists to the extent that the exemption extends to inputs that are not
consumed in the production of the exported product.” 19 C.F.R. § 351.519(a)(1)(ii). In
analyzing whether a program for exemption of import charges upon export results in a
countervailable benefit, Commerce is to consider whether the government in question “maintains
controls adequate to ensure that any remission or exemption of import duties does not extend to
duties on inputs not consumed in production for export.” GGB Bearing Tech. (Suzhou) Co. v.
United States, 41 CIT __, __, 279 F. Supp. 3d 1233, 1241–42 (2017). Commerce will find
import duty exemptions to be countervailable unless the government has a specifically delineated
procedure “to confirm which inputs are consumed in the production of the exported products and
in what amounts, and the system or procedure is reasonable, effective for the purposes intended,
and is based on generally accepted commercial practices in the country of export.” 19 C.F.R. §
351.519(a)(4)(i). Alternatively, even where the government does not have in place a system or
procedure to confirm input consumption, Commerce may find these schemes to not be
countervailable if the “government in question has carried out an examination of actual inputs
involved to confirm which inputs are consumed in the production of the exported product, and in
what amounts.” 19 C.F.R. § 351.519(a)(4)(ii). Here, Commerce found that the GOC did not
sufficiently address Commerce’s questions about the Processing Trade Program, and thus
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applied an adverse inference when it found the exemptions provided under the Program to be
countervailable. PDM at 35–36; I&D Mem. at 16–17.
Plaintiffs now dispute the Department’s finding that the exemptions provided under the
program were countervailable. This issue was also raised in the 2014 Administrative Review
and was previously discussed in detail by the court. Guizhou Tyre Co., 348 F. Supp. 3d at 1268.
Plaintiffs raise largely the same claims today. First, Guizhou argues that it submitted detailed
records as to unit consumption of raw materials, receipt of raw materials under the program, re-
export of goods produced from those raw materials, and any entry of such materials into the
domestic market. Pls.’ Br. at 34. According to Guizhou, the Department ignored these
submissions during its review when it countervailed duty exemptions on the premise that the
Program failed to satisfy the requirements under 19 C.F.R. § 351.519(a)(4)(i). Second, Guizhou
argues in the alternative that the submitted records can also demonstrate that the GOC has
“carried out an examination of actual inputs involved to confirm which inputs are consumed in
the production of the exported product, and in what amounts,” pursuant to section
351.519(a)(4)(ii). Id. at 37.
As before, when prompted to explain how the GOC determined the quantity of the
materials consumed in the production process, the GOC first referred Commerce to the Customs
Measure, attached as Exhibit E.7 to its questionnaire response. GOC Initial Questionnaire Resp.
at 97. As to Guizhou specifically, the GOC referred Commerce to “Guizhou Tire’s response for
a more comprehensive response and for sample documentation supporting its explanation.” Id.
at 98. But again, as before, these generic responses concerning consumed materials in the
production falls short of demonstrating how the GOC determines the quantity of the inputs
consumed in the production process: rubber, nylon cord, and carbon black. And that is precisely
Consol. Ct. No. 18-00100 Page 22
what Commerce focused on in its Final Results: that the GOC failed to “specifically explain or
document how it determined the quantity of rubber, nylon cord or carbon black consumed in the
production process.” I&D Mem. at 16. Moreover, it was not unreasonable for Commerce to find
that even Guizhou’s questionnaire responses failed to indicate that the GOC has the requisite
system or procedure in place. Guizhou stated first that at the time of the application, it “was not
legally obligated to report the unit consumption to the Customs for the record.” Guizhou Initial
Questionnaire Resp. at 22. Guizhou’s continued response outlined the general process of unit
consumption verification (“[t]o verify the authenticity and accuracy of unit consumption,
Customs . . . examine[d] the supporting documents and conduct an on-site inspection,” id.), but
certainly, the Department maintains discretion “and ‘authority to determine the extent of
investigation and information it needs.’” Polyethylene Retail Carrier Bag Comm. v. United
States, 29 CIT 1418, 1433, 2005 WL 3555812, at *12 (2005) (citing PPG Indus., Inc. v. United
States, 978 F.2d 1232, 1238 (Fed. Cir. 1992)).
The same goes for the Department’s decision to discount verification evidence submitted
by Guizhou. Guizhou claims that the verification reports allowed Commerce officials to trace
the reported value of the inputs through the company accounts and verify that the GOC detected
certain inputs were sold into the local market by Guizhou and Guizhou paid the duties for these
inputs. Verification Report at 11, Ex. VE-11a. But again, while Commerce is required to “fairly
request” data from interested parties, it possesses the discretion to determine whether the
respondent has fully complied with an information request, Helmerich & Payne, Inc. v. United
States, 22 CIT 928, 931, 24 F. Supp. 2d 304, 308 (1998), and has “considerable discretion in
deciding whether a party has sufficiently replied to an information request.”
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Mannesmannrohren-Werke AG v. United States, 23 CIT 826, 849, 77 F. Supp. 2d 1302, 1321
(1999).
All in all, Commerce’s review of the record evidence was reasonable and its decision to
countervail the Processing Trade Program is supported by substantial evidence that the court will
not now disturb.
CONCLUSION
The court sustains the Department’s decision to countervail the Processing Trade
Program. The court also sustains the Department’s Tier 1 benchmark calculations to measure the
adequacy of remuneration for natural and synthetic rubber, and Tier 2 benchmarks for carbon
black and nylon card, despite Guizhou’s argument that the benchmarks did not reflect prevailing
market conditions in China. However, the Department’s decision to apply AFA regarding
China’s Export-Import Bank Buyer’s Credit Program was unreasonable because Commerce
reached unsupported findings as to missing material information and verifiability. Additionally,
the Department is ordered on remand to reconsider and explain fully how it came to its distortion
findings for the synthetic rubber market—specifically, as it diverges from its opposite findings in
the 2014 Administrative Review.
For the foregoing reasons, after careful review of all papers, it is hereby
ORDERED that the Department’s decision to apply AFA as to the PRC’s Export
Buyer’s Credit Program based on an alleged lack of cooperation was unlawful because
Commerce demonstrated no gap in the record, the respondents submitted evidence of non-use of
the Program, and the Department’s findings of unverifiability of necessary information was
unsupported by record evidence; it is further
ORDERED that Commerce, on remand, reconsider its adverse inference that the PRC’s
Export Buyer’s Credit Program was used by Guizhou’s customers and reach a new determination
on this issue based on findings supported by substantial record evidence; it is further
ORDERED that the Department reconsider its findings and upon reconsideration,
explain how the market for synthetic rubber in China changed between 2014 and 2015 and what
Consol. Ct. No. 18-00100 Page 24
aspects of those changes caused Commerce to find that the market was not distorted in 2015; it is
further
ORDERED that all other challenged determinations of Commerce are sustained; and it is
further;
ORDERED that Commerce shall have ninety (90) days from the date of this Opinion and
Order in which to file its redetermination, which shall comply with all directives in this Opinion
and Order; that the Plaintiff shall have thirty (30) days from the filing of the redetermination in
which to file comments thereon; and that the Defendant shall have thirty (30) days from the
filing of Plaintiff’s comments to file comments.
/s/ Richard W. Goldberg
Richard W. Goldberg
Senior Judge
Dated: May 1, 2019
New York, New York