Arch Chemicals, Inc. v. United States , 2011 CIT 41 ( 2011 )

Slip Op. 11-41
UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
:
ARCH CHEMICALS, INC. and :
HEBEI JIHENG CHEMICALS, :
CO., LTD., :
:
Plaintiffs, :
:
v. : Before: Richard K. Eaton, Judge
:
UNITED STATES, : Consol. Court No. 08-00040
:
Defendant, :
:
and :
:
CLEARON CORPORATION and :
OCCIDENTAL CHEMICAL :
CORPORATION, :
:
Defendant-Intervenors. :
______________________________:
:
CLEARON CORPORATION and :
OCCIDENTAL CHEMICAL :
CORPORATION, :
:
Plaintiffs, :
:
v. :
:
UNITED STATES, :
:
Defendant, :
:
and :
:
ARCH CHEMICALS, INC. and :
HEBEI JIHENG CHEMICALS, :
CO., LTD., :
:
Defendant-Intervenors. :
______________________________:
Consol. Court No. 08-00040 Page 2
OPINION AND ORDER
[The United States Department of Commerce’s Final Results of
Redetermination pursuant to remand are sustained in part and
remanded.]
Dated: April 15, 2011
Blank Rome LLP (Peggy A. Clarke), for plaintiffs/defendant-
intervenors Arch Chemicals, Inc. and Hebei Jiheng Chemical
Company, Ltd.
Gibson, Dunn, & Crutcher LLP (Daniel J. Plaine, J.
Christopher Wood, and Andrea F. Farr) for plaintiffs/defendant-
intervenors Clearon Corporation and Occidental Chemical
Corporation.
Tony West, Assistant Attorney General; Jeanne E. Davidson,
Director, Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (David D'Alessandris); Office of Chief Counsel for Import
Administration, United States Department of Commerce (Brian
Soiset), of counsel, for defendant United States.
Eaton, Judge: One issue remains in this consolidated action1
following a second remand. See Arch Chemicals, Inc. v. United
States, 33 CIT __, Slip Op. 09-71 (July 13, 2009) (not reported
in the Federal Supplement) (“Arch Chemicals I”); Arch Chemicals,
Inc. v. United States, Consol. Ct. No. 08-00040, Order (Apr. 22,
2010) (granting additional voluntary remand).
Plaintiffs/defendant-intervenors Clearon Corporation and
Occidental Chemical Corporation (“defendant-intervenors”),
1
This action includes court numbers 08-00040 and
08-00043. See Arch Chemicals, Inc. v. United States, Consol.
Court No. 08-00040, Order (May 12, 2008) (consolidating cases).
Consol. Court No. 08-00040 Page 3
domestic producers of chlorinated isocyanurates,2 challenge the
grant of a by-product offset to Hebei Jiheng Chemical Company,
Ltd. (“Jiheng”) for the portion of chlorine gas discharged during
chlorine liquefaction. They ask the court to remand the case
again to the Department of Commerce (the “Department” or
“Commerce”), with instructions to eliminate this portion of the
by-product offset from its calculation of normal value.
Commerce, together with plaintiffs/defendant-intervenors Arch
Chemicals, Inc. and Jiheng (“plaintiffs”), ask the court to
sustain the grant of the offset. Jurisdiction is had pursuant to
28 U.S.C. § 1581(c) (2006) and 19 U.S.C. § 1516a(b)(1)(B)(i).
For the reasons that follow, the Final Results of
Redetermination Pursuant to Court Order Granting Voluntary Remand
(the “Second Remand Results”) are sustained in part and remanded.
BACKGROUND
In Arch Chemicals I, the court sustained in part and
remanded the final results of the first administrative review of
the antidumping duty order on chlorinated isocyanurates from the
People’s Republic of China (“PRC”). See Chlorinated
2
“Chlorinated isocyanurates are derivatives of cyanuric
acid, described as chlorinated s-triazine triones. . . . [They
are] available in powder, granular, and tableted forms.” Arch
Chemicals I, 33 CIT at __, Slip Op. 09-71 at 3 n.1 (citation
omitted).
Consol. Court No. 08-00040 Page 4
Isocyanurates from the PRC, 73 Fed. Reg. 159 (Dep’t of Commerce
Jan. 2, 2008) (final results of antidumping duty administrative
review); Chlorinated Isocyanurates from the PRC, 73 Fed. Reg.
9,091 (Dep’t of Commerce Feb. 19, 2008) (amended final results of
antidumping duty administrative review). Notably, on remand, the
court instructed Commerce to “reexamine each of Jiheng’s claimed
by-product offsets.” Arch Chemicals I, 33 CIT at __, Slip Op.
09-71 at 44.
Commerce filed the Final Results of Redetermination Pursuant
to Court Order (the “First Remand Results”) on December 22, 2009.
In the First Remand Results, the Department concluded that Jiheng
was eligible for by-product offsets for its production of
chlorine, ammonia gas, hydrogen, and recovered sulfuric acid. In
their comments on the First Remand Results, both the plaintiffs
and defendant-intervenors challenged a number of issues. In
response to these comments, the Department asked for a voluntary
remand to reexamine the issues raised by the parties. Commerce
filed the Second Remand Results on June 21, 2010.
In the Second Remand Results, the Department found that: (1)
Jiheng was eligible for by-product offsets for the portions of
hydrogen and chlorine gas that were recycled in the production of
hydrochloric acid; (2) Jiheng’s sulfuric acid by-product
surrogate value should be revalued to reflect properly the purity
level of the sulfuric acid by-product reported by Jiheng; and (3)
Consol. Court No. 08-00040 Page 5
Jiheng should receive a by-product offset for that portion of
chlorine gas discharged during chlorine liquefaction. Second
Remand Results at 1—2. Plaintiffs fully support the Second
Remand Results and defendant-intervenors challenge only the third
determination.
STANDARD OF REVIEW
The court must uphold a final determination by the
Department in an antidumping proceeding unless it 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 does not exist when “Commerce's conclusion
is not based on a reasonable inference drawn from the evidence in
the record.” Rhodia, Inc. v. United States, 28 CIT 1278, 1283,
185 F. Supp. 2d 1343, 1349 (2001).
DISCUSSION
I. By-Product Offsets
The antidumping statute “does not
mention the treatment of by-products,” and
Commerce has not filled the statutory gap
with a regulation. See Guangdong Chems. Imp.
& Exp. Corp. v. United States, 30 CIT 1412,
1422, 460 F. Supp. 2d 1365, 1373 (2006).
Generally, however, the Department’s practice
has been to grant an offset to normal value,
for sales of by-products generated during the
production of subject merchandise, if the
respondent can demonstrate that the by-
Consol. Court No. 08-00040 Page 6
product is either resold or has commercial
value and re-enters the respondent’s
production process. See Ass’n of Am. School
Paper Suppliers v. United States, 32 CIT __,
__, Slip Op. 08-122 at 17 (Nov. 17, 2008)
(not reported in the Federal Supplement).
Thus, the burden rests with the respondents
(here, the plaintiffs) to substantiate by-
product offsets by providing the Department
with sufficient information to support their
claims. See id. at __, Slip Op. 08-122 at
18-23.
Arch Chemicals I, Slip Op. 09-71 at 6 (footnote omitted)
(emphasis added).
II. Jiheng’s By-Product Offset for Impure Chlorine Gas
Discharged During Liquefaction
Defendant-intervenors argue that Commerce’s decision to
grant a by-product offset for impure chlorine gas discharged at
the chlorine liquefaction stage of Jiheng’s manufacturing process
is not supported by substantial evidence because “it is based on
a factually incorrect characterization of the stage of production
at which the by-product is produced.” Comments of Clearon
Corporation and Occidental Chemical Corporation Regarding Final
Results of Second Redetermination Pursuant to Court Remand
(“Def.-Ints.’ Comm.”) 2. Specifically, defendant-intervenors
contend that because liquefaction is not part of the production
of subject merchandise, but rather part of the production of a
separate product, i.e., liquid chlorine, “Commerce should not
have used the value of the by-product resulting from this part of
Consol. Court No. 08-00040 Page 7
the manufacturing process to offset the cost of producing subject
merchandise.” Def.-Ints.’ Comm. 2.
As defendant-intervenors describe the process, “Jiheng uses
purified chlorine gas to produce two distinct main products:
chlorinated isocyanurates (the subject merchandise) and liquid
chlorine sold in bottles.” Def.-Ints.’ Comm. 2. In the course
of producing the two products, Jiheng generates impure chlorine
gas.3 Def.-Ints.’ Comm. 3. According to defendant-intervenors,
“there is a clear separation between Jiheng’s production of
subject merchandise and its production of liquid chlorine.”
Def.-Ints.’ Comm. 4. They insist that, although both processes
use purified chlorine gas as an input, “production of the two
products is entirely separate following the purification of
chlorine gas.” Def.-Ints.’ Comm. 4.
Based on their characterization of the production process,
defendant-intervenors contend that Commerce should not have
granted Jiheng a by-product offset for the impure chlorine gas
discharged at liquefaction because “[i]t is axiomatic that a
by-product must be an unavoidable outcome of the respondent’s
production of subject merchandise in order to receive a
by-product credit.” Def.-Ints.’ Comm. 6. As further stated by
3
Impure chlorine gas is produced during several stages
of the manufacturing process, but defendant-intervenors only
object to the by-product offset for the impure chlorine gas
discharged at the liquefaction stage.
Consol. Court No. 08-00040 Page 8
defendant-intervenors, “[l]iquefaction relates solely to the
production of liquid chlorine for sale, and neither the purified
chlorine gas used for liquefaction nor the liquid chlorine itself
is ever used in the production of subject merchandise.”
Def.-Ints.’ Comm. 6.
Commerce, meanwhile, asks the court to sustain the Second
Remand Results, asserting that the Department properly granted an
offset for impure chlorine gas discharged during liquefaction
because it was generated during the production of the subject
merchandise. Defendant’s Reply to Clearon Corporation’s Comments
on Second Remand Results (“Def.’s Rep.”) 5. Most significantly,
Commerce takes issue with defendant-intervenors’ characterization
of the production process. According to the Department, chlorine
gas is first generated as a result of electrolysis, which occurs
at an early point in the production process. For Commerce, the
impure chlorine gas that is later discharged during liquefaction
was nothing more or less than the chlorine gas that had been
subject to further processing. According to the Department,
Commerce determined that though the
liquefaction of chlorine gas was not related
to the production of subject merchandise, the
impure chlorine gas discharged at this stage
was created during electrolysis, not during
liquefaction, because liquefaction was merely
a further processing of chlorine gas created
during electrolysis. Because the costs of
the inputs that undergo electrolysis are
captured in the factors of production for
subject merchandise, the costs of producing
Consol. Court No. 08-00040 Page 9
the discharged impure chlorine gas are
attributable to subject merchandise
production.
Def.’s Rep. 4 (citations omitted).
III. Analysis
The remaining question in this case is whether the impure
chlorine gas that resulted in the disputed credit is discharged
during the production of subject merchandise. As this Court has
held, under the Department’s methodology, the key to determining
if a substance is eligible to be treated as a by-product is
“whether the respondent's production process for subject
merchandise actually generated the amount of [by-product] claimed
as a by-product offset.” Mid Continent Nail Corp. v. United
States, 34 CIT __, __, Slip Op. 10-47 at 19 (May 4, 2010) (not
reported in the Federal Supplement) (citation omitted). Here,
the court agrees with defendant-intervenors that this by-product
does not result from the production of subject merchandise. That
is, because the impure chlorine gas, that is the subject of the
disputed credit, was discharged at a production stage that
resulted solely in the production of non-subject merchandise, the
gas is ineligible for the credit Commerce granted.
That this is the case is most clearly illustrated by
referencing the following, greatly simplified, schematic:
Consol. Court No. 08-00040 Page 10
As can be seen, chlorine gas is produced by electrolysis
early in the process (A, B). Thereafter, the chlorine gas is
purified (C), but then the process branches into two parts. One
branch results in subject merchandise (H), and impure chlorine
gas (D) is discharged. No party disputes that plaintiff should
Consol. Court No. 08-00040 Page 11
receive an offset for the impure chlorine gas discharged at (D).
The other branch of Jiheng’s process, however, results in
the production of liquid chlorine (I), which is non-subject
merchandise that Jiheng offers for sale. During the liquefaction
process (F) that results in this liquid chlorine, impure chlorine
gas (G) is also discharged as a by-product. The Department
insists that because the impure chlorine gas generated at (G) is
derived from the chlorine gas (B) that is produced during
purification (C), an offset is warranted. It is apparent,
however, that substantial evidence does not support this result.
Jiheng produces two products,4 not one, from the purified
chlorine gas, and the impure chlorine gas that is the subject of
the credit is derived from the production of the second product,
liquid chlorine.
In reaching this conclusion, the court is mindful that all
parties agree that were plaintiff to manufacture only the volume
of subject merchandise that was the object of this review, it
would have consumed less purified chlorine gas than was actually
used during the dual processes that resulted in the subject
merchandise and in the liquid chlorine. Tr. of Civ. Cause for
Or. Arg. at 8, 21, 29. In other words, the chlorine gas that is
diverted, after purification, from production of subject
merchandise to production of bottled chlorine gas, is in excess
4
Jiheng, in fact, produces more than two products.
Consol. Court No. 08-00040 Page 12
of the amount required to make subject merchandise. While the
amount of purified chlorine gas used in the production of the
liquid chlorine is apparently not quantified on the record, the
fact remains that more purified chlorine gas is consumed in the
production of both subject and non-subject merchandise than would
be needed to produce subject merchandise alone. Thus, the impure
chlorine gas that results from production of liquid chlorine is
also in excess of what would have been discharged had Jiheng only
produced the subject merchandise. Thus, the impure chlorine gas
that resulted was not a by-product discharged during the
production of subject merchandise. Rather, it was a by-product
of the production of liquid chlorine.
Commerce’s arguments to the contrary are not persuasive.
The Department’s primary argument is that, because the cost of
the inputs used to make the chlorine gas from which all of the
impure chlorine gas was later discharged were all incurred prior
to liquefaction, the cost of making the impure chlorine gas was
accounted for prior to liquefaction—and thus should provide an
offset to the subject merchandise. This argument, however, is
undermined by its treatment of the impure chlorine gas discharged
at the purification stage (J). The gas discharged at that point
is not the subject of an offset to the subject merchandise alone,
but is allocated between subject and non-subject merchandise.
See Def.-Ints.’ Comm. 6 (“Because purification is common to the
Consol. Court No. 08-00040 Page 13
production of both subject merchandise and liquefied chlorine,
Commerce correctly allocated only a portion of this by-product to
subject merchandise.”).5 Thus, it is difficult to see why the
allocation made at (J) would not have been continued by excluding
the impure chlorine gas discharged from the manufacture of the
non-subject merchandise from the by-product offset.
In addition, because Jiheng’s process consumes more purified
chlorine gas than would be needed to produce the subject
merchandise alone, the Department’s argument that the costs
associated with the eventual discharge of the impure chlorine gas
were incurred early in the process lose their force. As noted,
it is undisputed that the sole reason for the liquefaction
process is to produce the liquid chlorine. That being the case,
it is apparent that the discharge of the impure chlorine gas, for
which the disputed offset was granted, was unrelated to the
5
Commerce and plaintiffs argue that defendant-
intervenors failed to exhaust their administrative remedies
regarding an argument raised about the allocation at (G) because
defendant-intervenors only raised this argument about
inconsistent allocation methodologies in their comments on the
draft of the Second Remand Results, but not in any of the earlier
administrative proceedings. However, the cases cited in support
of their failure to exhaust claim, Corus Staal BV v. United
States, 502 F.3d 1370 (Fed. Cir. 2007) and Bridgestone Americas,
Inc. v. United States, 34 CIT __, 710 F. Supp. 2d 1359 (2010),
involved situations where the parties invoked arguments in court
they simply never raised at the administrative level, as opposed
to defendant-intervenors only raising them to the agency in a
later remand, but not an earlier one. The court is satisfied
that defendant-intervenors properly exhausted their
administrative remedies by raising this issue first at the agency
level.
Consol. Court No. 08-00040 Page 14
production of subject merchandise. Thus, it appears that those
costs were incurred to produce two products, only one of which is
subject merchandise. Therefore, it is immaterial that the costs
to produce all of the chlorine gas were incurred at a point in
Jiheng’s process before it branched into the production of two
products. What matters is that the by-product was not generated
in the production of subject merchandise.
The court finds Commerce’s grant of a by-product offset for
impure chlorine gas discharged as a result of liquefaction of
purified chlorine gas is not supported by substantial evidence.
Commerce is directed on remand to eliminate that portion of the
chlorine gas by-product offset relating to impure gas discharged
during liquefaction (G) and recalculate the antidumping margin
for Jiheng on that basis.
CONCLUSION
The Department’s two uncontested determinations, regarding
the eligibility for by-product offsets for the portions of
hydrogen and chlorine gas that were recycled in the production of
hydrochloric acid and the revaluation of Jiheng’s sulfuric acid
by-product surrogate value, are sustained. For the reasons
stated, Commerce’s Second Remand Results are remanded as to the
by-product offset relating to impure chlorine gas discharged
during liquefaction. Remand results are due on or before July
Consol. Court No. 08-00040 Page 15
15, 2011. Comments to the remand results are due on or before
August 15, 2011. Replies to such comments are due on or before
August 29, 2011.
/s/ Richard K. Eaton
Richard K. Eaton
Dated: April 15, 2011
New York, New York