U.S. Steel Group v. United States ( 2000 )

Slip Op. 00-
UNITED STATES COURT OF INTERNATIONAL TRADE
___________________________________
:
U.S. STEEL GROUP - A UNIT OF USX :
CORPORATION, and BETHLEHEM STEEL :
CORPORATION, :
:
Plaintiffs, :
:
v. : Court No. 97-06-01015
:
THE UNITED STATES, :
: Public Version
Defendant, :
:
and :
:
ALGOMA STEEL, INC., :
:
Defendant-Intervenor. :
__________________________________:
[Commerce Antidumping Review Determination Sustained.]
Dated: August 15, 2000
Skadden, Arps, Slate, Meagher & Flom LLP (Robert E.
Lighthizer, Daniel L. Schneiderman, Stephen Munroe, John J.
Mangan, and Ellen Schneider) for plaintiffs.
David W. Ogden, Assistant Attorney General, David M.
Cohen, Director, (Velta A. Melnbrencis), Assistant Director,
Commercial Litigation Branch, Civil Division, United States
Department of Justice, Thomas H. Fine, Office of the Chief
Counsel for Import Administration, United States Department of
Commerce, of counsel, for defendant.
Hogan & Hartson L.L.P. (Mark S. McConnell, Craig A.
Lewis, Stephen F. Propst and Behnaz L. Kibria) for defendant-
intervenor.
COURT NO. 97-06-01015 PAGE 2
OPINION
RESTANI, Judge: This matter is before the court on
plaintiffs’ USCIT Rule 56.2 motion for judgment on the
administrative record. Plaintiffs, domestic steel companies,
challenge the final determination in Certain Corrosion-
Resistant Carbon Steel Flat Products and Certain Cut-to-Length
Carbon Steel Plate from Canada, 62 Fed. Reg. 18,448 (Dep’t
Commerce 1997) (final results of antidumping duty admin.
review) [hereinafter “Final Results”]. At issue therein was
the second review period of August 1, 1994 through July 31,
1995.
Plaintiffs request application of adverse facts available
pursuant to 19 U.S.C. § 1677e(b) (1994) on the basis that
Algoma Steel, Inc. failed to provide cost information
requested by the United States Department of Commerce
(“Commerce” or “the Department”). Alternatively, plaintiffs
request a remand for a new review because the information
accepted by Commerce was unreasonably distorted.
Jurisdiction and Standard of Review
The court has jurisdiction under 28 U.S.C. § 1581(c)
(1994). In reviewing final determinations in antidumping duty
determinations, the court will hold unlawful those agency
COURT NO. 97-06-01015 PAGE 3
determinations which are unsupported by substantial evidence
on the record, or otherwise not in accordance with law. 19
U.S.C. § 1516a(b)(1)(B)(i) (1994).
Background
During the administrative review, Commerce requested that
Algoma respond to the cost of production ("COP") portion of
section D of Commerce's questionnaire. Antidumping
Questionnaire (Sept. 14, 1995), at 1, P.R. Doc. 9, Pls.’ App.,
Tab 4, at 1. Section D requested Algoma (1) to report COP
figures based on the actual costs incurred by Algoma during
the period of review ("POR") as recorded under its normal
accounting system; and (2) to calculate the reported COP
figures on a weighted-average basis using model-specific
production quantity as the weighting factor. Id. at D-1 to D-
2, Pls.’ App., Tab 4, at 2-3. If Algoma produced the
merchandise under review at more than one facility, it was to
report COP based on the weighted-average of costs incurred at
all facilities. Id. at D-2, Pls.’ App., Tab 4, at 3. Algoma
explained in its responses to Commerce's original and
supplemental questionnaires, that it was not reporting COP
based on the weighted-average costs incurred at each of its
two rolling mills. Algoma’s Response to Section B of
Questionnaire (Nov. 22, 1995), at B-59 to B-60, P.R. Doc. 43,
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Pls.’ App., Tab 5, at 8-9; Algoma’s Response to Sections A, B
and C of Supplemental Questionnaire (Jan. 19, 1996), at 34,
P.R. Doc. 53, Pls.’ App., Tab 7, at 3.
Algoma produced all plate sold during the POR at its
facility in Sault Ste. Marie, where most of the slab was
rolled into plate on the 166" Plate Mill ("plate mill").
Response to Section B, at B-59, Pls.’ App., Tab 5, at 7. For
approximately 20 percent of the total Canadian and U.S. sales
reported, however, slab was rolled into plate on Algoma’s 106"
Wide Strip Mill ("strip mill"). Id. According to Algoma, it
was not in a position to report actual rolling costs for the
subject merchandise at each mill because (1) its cost
accounting system computed one average rolling cost for all
products rolled on the plate mill and one average rolling cost
for all products on the strip mill; (2) less than five percent
of the sales of products rolled on the strip mill during the
POR would be considered plate based upon Commerce's
width/gauge definition for subject merchandise; and (3) Algoma
had no records that would permit direct calculation of costs
incurred at the strip mill that related only to plate defined
by Commerce as subject merchandise. Id., at B-59 to B-60,
Pls.’ App., Tab 5, at 7-8.
It appeared to Algoma that it had two options to
COURT NO. 97-06-01015 PAGE 5
calculate rolling costs for the plate rolled at the strip
mill: either (1) assign the average cost of the strip mill to
the small fraction (less than five percent) of products
produced there that constituted subject merchandise; or (2)
assign the average rolling cost of the plate mill to all
plate. Response to Sections A, B, and C, at 34, Pls.’ App.,
Tab 7, at 3. It appears that the first option would not have
been an appropriate choice, because less than five percent of
the products rolled on the strip mill during the POR consisted
of subject merchandise. Thus, an attempt to allocate costs of
the strip mill to the small fraction of the subject
merchandise produced on that mill would have been a relatively
speculative exercise because virtually all of the cost of the
mill relates to non-subject merchandise sheet products. See
id. The second option appeared to be a good substitute
because it was a conservative cost approach because, during
the POR, the cost of producing plate on the strip mill was
substantially less than the cost of producing plate on the
plate mill. Id.1
1Higher costs are usually adverse to the respondent.
Substantial below cost sales may result in use of cost-based
constructed value instead of actual price and a high
constructed value will result in a larger antidumping duty
margin. See 19 U.S.C. § 1677b(b) (1994) and infra, note 3.
COURT NO. 97-06-01015 PAGE 6
Algoma chose the second option. It reported estimated
weighted-average rolling costs based upon the actual rolling
costs incurred at the plate mill. To allocate these costs to
specific products, Algoma developed a "productivity matrix"
(or production factors) based upon the length of time it took
to produce a product of a specific width and thickness on each
mill. Response to Section B, at B-57, Pls.’ App., Tab 5, at 5.
For each product (i.e., "CONNUM"), Algoma weight-averaged the
productivity factor for the plate mill with the productivity
factor for the strip mill to derive a composite productivity
factor. Id. at B-58, Pls.’ App., Tab 5, at 6. Algoma then
applied these composite productivity factors to the average
cost of production on the plate mill to derive product
specific costs for all CONNUMs. Id. at B-56 to B-59, Pls.’
App., Tab 5, at 4-7.
At verification, Commerce examined the issue of the two
mills in great detail, including Algoma's analysis of plate
mill versus strip mill rolling costs. Verification of
Algoma’s Cost Response (Aug. 12, 1996), at 10-13, P.R. Doc.
112, Def.’s App., Ex. 1, at 10-13. At verification, Algoma
explained that, although it did not track width and gauge for
costing purposes in the normal course of business, it did have
sensors that can track the length of time that a slab product
COURT NO. 97-06-01015 PAGE 7
spends on the mill and that slabs were time stamped for both
the plate mill and the strip mill. Id. at 11, Def.’s App.,
Ex. 1, at 11. After the slabs were time stamped, the data was
entered into a mill performance data base, from which Algoma
selected the weight and time data for slabs produced during
the POR and those rolled to plate gauges and sorted the slabs
by CONNUMs. Id. Commerce verifiers examined a summary of the
mill performance data base for both mills, which showed the
percentages of the plate mill production and of the strip mill
production that were captured by the data base. The verifiers
were able to tie the volume and value amounts to process cost
sheets for both mills. Id. at 11-12, Def.’s App., Ex. 1, at
11-12.
Based upon Algoma's responses and the results of the
verification, Commerce accepted Algoma's reported costs,
stating in pertinent part:
Algoma's cost reporting methodology is reasonable,
considering (1) we verified its cost accounting
system, (2) Algoma's verified inability to determine
specific rolling costs based upon the gauge of the
material being manufactured at either facility, (3)
the conser- vative methodology adopted by Algoma and
verified by the Department, and (4) respondent's
compliance with Department instructions on cost
reporting methodology in this review.
Final Results, 62 Fed. Reg. at 18,451.
COURT NO. 97-06-01015 PAGE 8
Discussion
Commerce’s decision not to apply facts available to
Algoma for the first administrative review period based on
this exact reporting methodology was sustained in Bethlehem
Steel Corp. v. United States, No. 96-05-01313, 2000 WL
726931, at *2-5 (Ct. Int’l Trade June 2, 2000). The reasoning
of that decision on this point is adopted here. Whatever
one’s view of Commerce’s decision to accept Algoma’s
methodology, Commerce did accept it here and accepted it
previously. Further, there is no allegation that Algoma
deceived Commerce or somehow tricked Commerce into accepting a
faulty methodology. Thus, Algoma cannot be penalized under 19
U.S.C. § 1677e(b) by the use of adverse facts available for
failing to comply to the best of its ability. Algoma gave
Commerce exactly what was requested after Commerce’s final
decision on what it would accept.
The next issue is whether remand for a new review is
required because the methodology was distortive. First, the
fact that Commerce accepted a different methodology
(essentially an expanded productivity matrix) in a subsequent
review is irrelevant. Many methodologies may be acceptable.
The only real basis for objecting to this methodology hinges
COURT NO. 97-06-01015 PAGE 9
on its effect on the difference in merchandise (“DIFMER”)2
adjustment.
Commerce was aware that accepting some high costs (as
indicated, normally adverse to the respondent) might cause
DIFMER adjustments more favorable to respondents, but it
reasonably concluded that COP allocation issues were
paramount.3 Final Results, 62 Fed. Reg. at 18,451. The
2 It is well recognized that, in calculating margins, it
is not always possible to compare the product sold in the
United States to an identical product sold in the home market.
If there is no identical product in the home market, the
statute directs the Department to base its margin calculation
on the next most similar product. 19 U.S.C.A. § 1677(16)
(West Supp. 1999). The statute recognizes, however, that an
adjustment to price is necessary to account for the fact that
the price of the home market product and the price of the U.S.
market product will reflect the different costs associated
with their different physical characteristics. 19 U.S.C.
§ 1677b(a)(6)(C)(ii), referring to 19 U.S.C.A. § 1677(16)(B)
or (C). The DIFMER adjustment is used to eliminate this cost
difference and to permit a fair comparison of the two prices.
3 In this case the DIFMER issue relates only to rolling
costs and not to all costs, so that the DIFMER distortion
would have to be quite significant to affect the outcome. On
the other hand, the COP calculation is central to any
antidumping review. Higher cost numbers tend to lead to
higher normal values, and thus higher antidumping margins.
Sales at prices below cost in the home market are subject to
being eliminated from the calculation of normal value. See 19
U.S.C. § 1677b(b)(1). Higher costs thus tend to remove low
priced sales, increasing normal value and increasing
antidumping margins. Further, where there are no sales above
cost for a given home market product, U.S. sales will be
compared to constructed value, not home market prices. See
id. & see 19 U.S.C. § 1677b(a)(4). And constructed value
(continued...)
COURT NO. 97-06-01015 PAGE 10
parties disagree as to the number of sales comparisons
affected by a possible DIFMER distortion and the magnitude of
the potential distortion. The court concludes, however, that
no possible factual scenario in this record could render
Commerce’s choice unreasonable or not supported by the record.
First, while Commerce attempts to use the most directly
related costs of production as reported by respondents, see 19
U.S.C. § 1677b(f)(1)(A), sometimes allocations are required.
As recognized in Bethlehem whenever Commerce:
relies on a respondent’s other, existing data to
ascertain the cost of production, a petitioner may argue
that they distort the DIFMER. But the law does not
require reliance on actual costs, and the record
indicates that the [Department] made a reasonably
accurate assessment of the costs in this case, thereby
minimizing any arguable distortion.
Bethlehem, 2000 WL 726931, at *5.4
3(...continued)
itself is largely composed of a respondent’s costs, so higher
costs again will tend to increase dumping margins. See 19
U.S.C. § 1677b(e).
4 Section 1677b(f)(1)(A) reflects Commerce’s long
established preference for using a respondent’s most directly
related reported costs. See 19 U.S.C. § 1677b(f)(1)(A).
Commerce, however, is not required to use costs reflected in
respondent’s records which are distortive. See Thai Pineapple
Public Co. v. United States, 187 F.3d 1362, 1366 (Fed. Cir.
1999), cert. denied, 120 S.Ct. 1830 (2000) (stating that
agency may accept records kept according to generally accepted
accounting principles or reject records which would distort
company’s true costs).
COURT NO. 97-06-01015 PAGE 11
Second, Commerce’s view that in this case the DIFMER
issue likely could affect an extremely small portion of the
sales comparison is supported.5 Commerce reasonably decided
not to require a different cost allocation methodology based
on the possibility of a DIFMER distortion for a few sales.
The court finds the remainder of plaintiffs’ arguments are
without merit.
5 In this case, [] of Algoma’s [] sales of subject
merchandise in the United States were matched to non-identical
products sold in the home market. Final Analysis Memorandum
(Apr. 3, 1997), at 1, C.R. Doc. 82, Pls.’ App., Tab 16, at 1.
In all of these [] non-identical matches, the U.S. product was
classified within a CONNUM that was produced only on the plate
mill. See Comparison of U.S. Products Matched to Non-
Identical Home Market Sales, Def. Int.’s App., Ex. 4.
Furthermore, [] of these U.S. transactions were matched to
home market products within CONNUMs that were produced only on
the plate mill. Id. (Plaintiffs contend that the [] sales
implicate strip mill costs based on petitioners’ method of
allocation of costs, but Commerce is not barred from testing
the hypothetical potential for DIFMER distortion based on full
CONNUM information.) For DIFMER on the [] transactions,
therefore, Commerce could conclude strip mill costs are
irrelevant. Thus, Commerce also could conclude that if Algoma
were to use a methodology that allocated strip mill costs to
the product categories that were produced on that mill, no
costs would be allocated to the CONNUMs involved in these []
transactions, because the strip mill did not produce any
products that are classified in those CONNUMs. See Final
Analysis Memorandum, at 1-2, Pls.’ App., Tab 16, at 1-2.
COURT NO. 97-06-01015 PAGE 12
Accordingly, Commerce’s determination is sustained.
_______________________
Jane A. Restani
Judge
Dated: New York, N.Y.
This 15th day of August, 2000.