Ta Chen Stainless Steel Pipe, Ltd. v. United States , 23 Ct. Int'l Trade 804 ( 1999 )

Slip Op. 99-117
UNITED STATES COURT OF INTERNATIONAL TRADE
_________________________________
:
TA CHEN STAINLESS STEEL :
PIPE, Ltd., :
:
Plaintiff, :
:
v. : Court No. 97-08-01344
:
THE UNITED STATES, : Public Version
:
Defendant, :
:
and :
:
AVESTA SHEFFIELD, Inc., et. al., :
:
Defendant-Intervenors. :
________________________________ :
[Antidumping determination remanded.]
Dated: October 28, 1999
Ablondi, Foster, Sobin & Davidow, p.c. (Joel Davidow and
Peter Koenig) for plaintiff.
David W. Ogden, Acting Assistant Attorney General, David
M. Cohen, Director, Velta A. Melnbrencis, Assistant Director,
Commercial Litigation Branch, Civil Division, United States
Department of Justice (Mark L. Josephs), Christine Savage,
Office of the General Counsel, United States Department of
Commerce, of counsel, for defendant.
Collier, Shannon, Rill & Scott, PLLC, (David A.
Hartquist, Jeffrey S. Beckington, and Kathleen W. Cannon) for
defendant-intervenors.
COURT NO. 97-08-01344 PAGE 2
OPINION
RESTANI, Judge: This matter is before the court on a
motion for judgment upon the agency record pursuant to USCIT
Rule 56.2. Ta Chen Stainless Steel Pipe, Inc. (“Ta Chen” or
“plaintiff”) challenges certain aspects of an antidumping duty
determination by the Department of Commerce ("Commerce" or
"the Department"). See Certain Welded Stainless Steel Pipe
from Taiwan, 62 Fed. Reg. 37,543 (Dep't Commerce 1997) (final
results of admin. rev.) [hereinafter "Final Results"]. Avesta
Sheffield Inc., Damascus Tube Division, Damascus-Bishop Tube
Co., and United Steelworkers of America (AFL-CIO/CLC) appear
as defendant-intervenors (collectively "Defendant-Intervenors"
or "Domestic Interested Parties") to Ta Chen's motion.
In 1992, Commerce determined that welded stainless steel
pipe ("WSSP") from Taiwan was being sold at less than fair
value, and accordingly issued an antidumping order. Certain
Welded Stainless Steel Pipe from Taiwan, 57 Fed. Reg. 62,300(Dep't Commerce 1992) (amended final determination and
antidumping duty order). In December 1995, Commerce published
its notice of opportunity to request an administrative review
of the dumping order for the third administrative review
period, covering December 1, 1994 through November 30, 1995.
COURT NO. 97-08-01344 PAGE 3
Antidumping or Countervailing Duty Order, Finding, or
Suspended Investigation, 60 Fed. Reg. 62,070, 62,071 (Dep't
Commerce 1995). Ta Chen requested a review and Commerce
initiated an antidumping duty administrative review of WSSP on
February 1, 1996. Initiation of Antidumping and
Countervailing Duty Administrative Reviews, 61 Fed. Reg.
3,670, 3,671 (Dep't Commerce 1996).
Ta Chen received a dumping margin of 6.06 percent, which
was based on partial adverse facts available. Final Results,
62 Fed. Reg. at 37,556. Ta Chen challenges several aspects of
the determination leading to the application of adverse facts.
Jurisdiction and Standard of Review
The court has jurisdiction pursuant to 28 U.S.C. §
1581(c) (1994). In reviewing final determinations in
antidumping duty investigations, the court will hold unlawful
those agency 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).
COURT NO. 97-08-01344 PAGE 4
I. Ta Chen's affiliation with Sun Stainless
Background
Ta Chen is a Taiwanese producer of stainless steel pipe.
In its Final Results, Commerce concluded that, pursuant to 19
U.S.C. § 1677(33) (1994), Ta Chen was affiliated with one of
its US distributors, Sun Stainless, Inc. ("Sun"), on the
grounds of control.1 Final Results, 62 Fed. Reg. at 37,549.
Ta Chen disputes this finding and claims it is not affiliated
with Sun.
In its first questionnaire, Commerce asked Ta Chen to
list all companies affiliated with it, through stock ownership
or otherwise. Initial Questionnaire (Feb. 13, 1996), at A-4,
P.R. Doc. 6, Def.'s App., Tab 1, at 6. The definition of
“affiliated person” in the questionnaire’s glossary of terms
simply restated the statutory definition. Id. at App. I,
Def.’s App., Tab 1, at 10. The questionnaire also stated that
1 The name of Sun Stainless was confidential during
the administrative proceedings, as was the name San Shing (dba
“Sun Stainless”), Sun’s predecessor. Ta Chen placed Sun
Stainless’ name on the public record for these proceedings.
See Pl.'s Br. at 3 n.6. Ta Chen has since placed San Shing’s
name on the public record for the final results of the first
and second administrative review. See Certain Welded
Stainless Steel Pipe from Taiwan, 64 Fed. Reg. 33,243, 33,243
(Dep’t Commerce 1999) (final results of admin. rev.)
In the Final Results, San Shing is referred to as Company
A and Sun is referred to as Company B.
COURT NO. 97-08-01344 PAGE 5
Ta Chen should seek clarification from the Department if it
was uncertain whether a company was an affiliate. Id. at G-6,
Def.’s App., Tab 1, at 5. Commerce also asked Ta Chen to
identify its sales as either export price ("EP") or
constructed export price ("CEP").2 Id. at C-8, Def.’s App.,
Tab 1, at 7. In its response, Ta Chen listed several
affiliates, but did not include Sun. See Response to Initial
Questionnaire (Apr. 30, 1996), at 7-8, C.R. Doc. 1, Def.'s
App., Tab 2, at 4-5. Ta Chen said that none of its affiliates
sold Ta Chen pipe in the United States or Taiwan during the
1994-95 period of review (“POR”), and that none of these
affiliates were involved in any aspect of the production of
pipe. Id. at 8, Def.’s App., Tab 2, at 5. Ta Chen also
stated that its US pipe sales were EP sales, and not CEP
sales, because the price and quantity for US sales was
determined before the pipe was imported into the United
2 Commerce generally calculates the antidumping duty
by comparing an imported product’s price in the United States
to its normal value (“NV”), which represents the price of
comparable merchandise in the exporting country. The dumping
margin is the amount by which NV exceeds the US price. See 19
U.S.C. § 1673 (1994).
The US price is calculated as either EP or CEP. See 19
U.S.C. § 1677a (1994). Usually, EP is used when the foreign
exporter sells directly to an unrelated US purchaser, and CEP
is used when the exporter sells through a related party in the
United States which performs substantial selling functions.
See 19 U.S.C. § 1677a(a)-(b).
COURT NO. 97-08-01344 PAGE 6
States. Id. at 4, Def.’s App., Tab 2, at 2. Ta Chen said
that its wholly-owned US subsidiary, Ta Chen International
("TCI"), performed no function in connection with Ta Chen's US
pipe sales, other than processing paper work. Id. Ta Chen
stated that pipe did not enter a TCI warehouse in the US, but
was shipped directly from Ta Chen in Taiwan to the customer in
the United States. Id.
In its first supplemental questionnaire, Commerce
requested further information on a variety of issues,
including a request that Ta Chen explain its relationship with
Sun. First Supplemental Questionnaire (Oct. 22, 1996), at 7,
C.R. Doc. 6, Def.'s App., Tab 3, at 3. Ta Chen responded that
it had a history of doing business with Sun Stainless, and
with San Shing. Response to First Supplemental Questionnaire
(Nov. 12, 1996), at 34, C.R. Doc. 8, Def.'s App., Tab 4, at 2.
Both companies had been distributors of Ta Chen pipe. Id. Ta
Chen said that in answering Commerce's questions regarding
Sun, it assumed that Commerce was seeking information to
determine whether Ta Chen and Sun were affiliates. Id. at 35-
36, Def.’s App., Tab 4, at 3-4. Prior to describing its
relationship with Sun, Ta Chen included much legal argument in
its response regarding the statutory and regulatory
definitions of "related party" and "control." Id. at 36,
COURT NO. 97-08-01344 PAGE 7
Def.’s App., Tab 4, at 4. Ta Chen focused on the amendments
made to these definitions in the Uruguay Round Agreements Act
("URAA"), Pub. L. 103-465, 108 Stat. 4809 (1994), effective
January 1, 1995, and argued that Commerce should apply the
pre-URAA statutory definition of related parties because the
only sales Ta Chen had made to Sun in the third administrative
review period occurred in August 1994.3 Id. at 40-41, Def.’s
App., Tab 4, at 8-9. Ta Chen does not pursue this argument
before the court.
Ta Chen went on to describe a long history with San Shing
and Sun Stainless. It described several connections between
the companies which are listed in the Final Results as
follows:-
! Sun was established by current or former managers and
officers of Ta Chen;
! Sun was staffed by current or former Ta Chen employees;
! Sun distributed only Ta Chen products in the United
States;
3 The Department verified that after August 1994, Ta
Chen had made no sales to Sun, but it had made shipments to
Sun, which were imported during the POR in January 1995.
Verification Report (June 19, 1997), at 4, C.R. Doc. 30,
Def.’s App., Tab 8, at 4; Response to First Supplemental
Questionnaire, at 41, Def.’s App., Tab 4, at 9.
The period of review covers entries, as well as exports
or sales, made during the 12 month period at issue. See 19
C.F.R. § 353.22(b) (1996) & 19 C.F.R. § 351.213(e)(1)(i)
(1999).
COURT NO. 97-08-01344 PAGE 8
! TCI had physical custody of Sun's signature stamp;
! TCI had a dedicated computer connection to Sun's records
for purposes of credit monitoring;
! Ta Chen's president met with Sun's customers and
participated directly in the negotiation of prices of
Sun's resales of WSSP; and
! Sun offered its accounts receivable and inventory as
collateral for a bank loan to TCI.
Final Results, 62 Fed. Reg. at 37,549. Ta Chen did not
provide the Department with information on Sun's US sales in
response to the first supplemental questionnaire.
In its second supplemental questionnaire, Commerce asked
a series of follow-up questions regarding Ta Chen's
relationship with Sun. Commerce wanted to know if Sun bought
subject merchandise from any other companies, if any other
companies had access to Sun's records, and further detail on
Ta Chen's credit monitoring of Sun. Second Supplemental
Questionnaire (Dec. 24, 1996), at 2-3, C.R. Doc. 15, Def.'s
App., Tab 5, at 4-5. In this supplemental questionnaire
Commerce did not ask Ta Chen to supply information on Sun's US
sales, nor did it do so at any later point. Commerce also
said that it had "made no determination in the first, second
or third administrative reviews as to the proper
COURT NO. 97-08-01344 PAGE 9
classification of Ta Chen's U.S. sales." Id. at 3, Def.'s
App., Tab 5, at 5.
When Commerce issued its Preliminary Results in January
1997, three days before Ta Chen responded to the second
supplemental questionnaire, the Department preliminarily
determined that an application of facts available was
warranted for Ta Chen's US sales to Sun because Ta Chen had
misreported this portion of its US sales as EP, instead of CEP
sales. Certain Welded Stainless Steel Pipe from Taiwan, 62
Fed. Reg. 1,435, 1,435 (Dep’t Commerce 1997) [hereinafter
“Preliminary Results”]. Commerce said that the additional
information provided by Ta Chen clearly indicated that Sun and
Ta Chen were affiliates pursuant to 19 U.S.C. § 1677(33)(G),
because Ta Chen was in a position to control Sun, and that
therefore Ta Chen's sales to Sun should have been classified
as CEP sales.
In its response to the second supplemental questionnaire,
Ta Chen answered Commerce's further questions about Sun. In
particular, Ta Chen said that it had no reason to believe that
Sun purchased WSSP from any one other than Ta Chen. Response
to Second Supplemental Questionnaire (Jan. 13, 1997), at 9,
C.R. Doc. 17, Def.'s App., Tab 6, at 2. Ta Chen also stated
that it was not aware of any other company having computer
COURT NO. 97-08-01344 PAGE 10
access to Sun's records, and that Ta Chen did not have such
access to other customers. Id. Ta Chen did not provide
information on Sun's US sales at this point, nor did it do so
at any other time.
Commerce conducted a verification of Ta Chen's US sales
data at TCI's premises in Long Beach, California on June 11
and 12, 1997. Verification Report, at 1, Def.'s App., Tab 8,
at 1. Commerce issued the Final Results on July 14, 1997, and
maintained its preliminary determination that Ta Chen was
affiliated with Sun. Commerce calculated a margin based on
partial adverse facts available, and applied the adverse
inference only to a portion of Ta Chen's sales; i.e. the sales
to Sun and to Anderson Alloys (see infra for discussion of
Anderson). Final Results, 62 Fed. Reg. at 37,553. Ta Chen
contests Commerce's conclusion that it is affiliated with Sun.
Discussion
Section 1677(33) of Title 19 sets out a list of persons
who will be considered affiliated, including "Any person who
controls any other person and such other person . . . . [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 U.S.C. §
1677(33)(G).
COURT NO. 97-08-01344 PAGE 11
The Statement of Administrative Action also states that
"control" exists "if one person is legally or operationally in
a position to exercise restraint or direction over another
person." Statement of Administrative Action, accompanying
H.R. 103-5110 at 168 (1994), reprinted in 1994 U.S.C.C.A.N.
3773, 4174 ("SAA").4 The SAA explains that this definition of
control is a shift from the prior definition.
The traditional focus on control through stock ownership
fails to address adequately modern business arrangements,
which often find one firm “operationally in a position to
exercise restraint or direction” over another even in the
absence of an equity relationship. A company may be in a
position to exercise restraint or direction, for example,
through corporate or family groupings, franchises or
joint venture agreements, debt financing, or close
supplier relationships in which the supplier or buyer
becomes reliant upon the other.
SAA at 168, 1994 U.S.C.C.A.N. at 4174-75.
Commerce's regulations adopted the statutory definition
of "affiliated persons." See 19 C.F.R. § 351.102(b) (1999)
("Affiliated persons" and "affiliated parties" have the same
meaning as in section 771(33) of the Act [19 U.S.C. §
4 The Statement of Administrative Action represents
"an authoritative expression by the Administration concerning
its views regarding the interpretation and application of the
Uruguay Round Agreements . . . . The Administration
understands that it is the expectation of the Congress that
future Administrations will observe and apply the
interpretations and commitments set out in this statement."
SAA at 1, 1994 U.S.C.C.A.N. at 4040.
COURT NO. 97-08-01344 PAGE 12
1677(33)].") In its Notice of Proposed Rulemaking, Commerce
explained that "affiliated persons" is a new term, and
declined to elaborate on the meaning of either "control" or
"affiliated persons." Antidumping Duties; Countervailing
Duties, 61 Fed. Reg. 7,308, 7,310 (Dep't Commerce 1996)
(notice of proposed rulemaking and request for public
comments) (proposed regulations to conform to the URAA). In
its final rules, Commerce said it would not find that control
existed on the basis of “corporate or family groupings;
franchise or joint venture agreements; debt financing; and
close supplier relationships . . . unless the relationship has
the potential to impact decisions concerning the production,
pricing or cost of the subject merchandise.” Antidumping
Duties; Countervailing Duties, 62 Fed. Reg. 27,296, 27,380
(Dep't Commerce 1997) (final rules) [“Final Rules”].5 In the
comments to these rules, however, Commerce specifically
declined to provide further detail on the new affiliation or
5 This rule was codified at 19 C.F.R. § 351.102.
These regulations, implemented to conform to the URAA, became
applicable as of July 1, 1997. See Final Rules, 62 Fed. Reg.
at 27,417. For reviews such as the third administrative
review period for Ta Chen, initiated after January 1, 1995 but
before the rules came into effect, the Department stated that
the final rules would “serve as a restatement of the
Department’s interpretation of the requirements of the Act as
amended by the URAA.” Id.
COURT NO. 97-08-01344 PAGE 13
control standard, stating that it was "more appropriate" for
Commerce to develop its practice regarding affiliation
"through the adjudication of actual cases." Id. at 27,297.
The Department stated that it agreed that it should focus on
“relationships that have the potential to impact decisions
concerning production, pricing or cost,” but that this did not
mean that “proof is required that a relationship in fact has
had such an impact.” Id. at 27,297-98.
A) Ta Chen's connections with Sun Stainless
Ta Chen argues that none of its connections with Sun
placed it in a position to impact Sun's decisions concerning
the pricing of WSSP and, therefore, that Ta Chen and Sun
should not be considered affiliated parties.
1) Ta Chen and Sun's historical ties
The Department found that Sun was established by current
or former managers and officers of Ta Chen, “at Ta Chen’s
behest.” Final Results, 62 Fed. Reg. at 37,549. Frank
McLane,6 a member of Ta Chen’s board of directors,
incorporated Sun Stainless in the fall of 1993. Response to
6 Frank McLane’s name was considered confidential
during the third administrative review period, but was
subsequently placed on the public record in the final results
of the first and second administrative review. See Certain
Welded Stainless Steel Pipe from Taiwan, 64 Fed. Reg. at
33,244.
COURT NO. 97-08-01344 PAGE 14
First Supplemental Questionnaire, at 55, Def.’s App., Tab 4,
at 22. Sun became operational in November 1993, and Mr.
McLane resigned from Ta Chen’s board and sold his Ta Chen
stock before Sun “began dealing with Ta Chen.”7 Id. A former
TCI sales consultant, Ken Mayes,8 was principal in charge of
San Shing at the time San Shing took over TCI’s inventories
and pipe distribution in 1992, and was retained as the
principal in charge of Sun Stainless when Sun bought out San
Shing. Id. at 50-56, Def.’s App., Tab 4, at 18-23. Commerce
concluded that “given the longstanding and intimate business
dealings between [Ken Mayes] and the president of Ta Chen, we
must question the degree of operational autonomy of [San
Shing] and [Sun] while under this individual’s stewardship.”
Final Results, 62 Fed. Reg. at 37,549.
Ta Chen argues that even if it had a historical
affiliation with Sun, the fact that parties were previously
7 The Government states that Mr. McLane did not sell
his Ta Chen stock and resign from the board until after the
incorporation of Sun. Gov’t Br. at 22-23. The exact dates,
however, are unclear from the record. See Response to First
Supplemental Questionnaire, at 55-56, Def.’s App., Tab 4, at
22-23.
8 Ken Mayes’ name was also considered confidential
during the third administrative review period, but was placed
on the public record for the final results of the first and
second administrative review. See Certain Welded Stainless
Steel Pipe from Taiwan, 64 Fed. Reg. at 33,244.
COURT NO. 97-08-01344 PAGE 15
affiliated is irrelevant to the question of whether they are
currently affiliated. See Certain Iron Construction Castings
from Canada, 55 Fed. Reg. 460, 460 (Dep’t Commerce 1990)
(final results of antidumping duty admin. rev.) (fact that
respondent sold its interest in possible related party prior
to initiation of review was one reason, among others, that ITA
declined to make a finding of relatedness). Certainly the
existence of a prior affiliation should not be dispositive in
making a determination regarding current affiliation. Ken
Mayes’ intimate knowledge of TCI and Sun’s operations may have
called into doubt the operational autonomy of San Shing and
Sun, but this factor alone does not constitute substantial
evidence that Ta Chen controlled either San Shing or Sun.
Likewise, the details of Frank McLane’s relationship with Ta
Chen at the time he incorporated Sun are unclear from the
record, and are insufficient to support a finding of
affiliation.
2) Staffing of Sun by current or former Ta Chen employees
Commerce found that Sun was staffed entirely by current
or former employees of Ta Chen. Final Results, 62 Fed. Reg.
at 37,549. Ta Chen disputes this conclusion and says that no
individuals were employed by Ta Chen and Sun at the same time.
Pl.’s Br. at 53.
COURT NO. 97-08-01344 PAGE 16
Regarding allegedly common clerical staff, Ta Chen argues
that it had a surplus of clerical staff when TCI gave up its
US inventory sales business. Ta Chen says that some of these
individuals were hired by Sun. Id. at 54-55. Ta Chen admits
that it did provide Sun with some “routine clerical assistance
and training, use of office equipment, suggestions on working
with customs brokers, training on shipping procedures, and
data entry and bookkeeping type assistance.” Id. at 55. The
staff who provided such assistance allegedly were never
employees of Sun, but rather acted on Ta Chen’s behalf for Ta
Chen’s benefit.
Ta Chen argues in this regard that the movement of
employees is irrelevant to the question of whether companies
are affiliates. See Oil Country Tubular Goods from Argentina,
60 Fed. Reg. 33,539, 33,544 (Dep’t Commerce 1995) (final
determination of sales at LTFV) (finding that a common
employee/consultant is “not the same thing as board membership
and is not enough to establish control”); see also Certain
Fresh Cut Flowers from Mexico, 56 Fed. Reg. 1,794, 1,799
(Dep’t Commerce 1991) (final results of antidumping duty
admin. rev.) (shared address, phone number, and invoice forms
of two foreign importers not sufficient to lead to finding of
relatedness).
COURT NO. 97-08-01344 PAGE 17
The Department also considered that Ken Mayes had been a
common employee of Ta Chen and Sun, and that he had received
compensation from Ta Chen after the end of his employment with
Ta Chen in 1992. Final Results, 62 Fed. Reg. at 37,549. Ta
Chen counters that Ken Mayes was an independent contractor
with Ta Chen, and that he had been at liberty to work for
others even while he was retained by Ta Chen. Pl.’s Br. at
53. Moreover, Ta Chen states that Ken Mayes’ independent
contractor agreement terminated prior to his employment with
San Shing and Sun. Id. Ta Chen says that the payment to Ken
Mayes was not made until Mayes had left Sun, and that this sum
represented a one time payment which Ta Chen owed Ken Mayes
pursuant to their earlier contract. Id. at 54. The
Department has previously stated that the right to a one-time
profit sharing conveys no ownership right or control in a
company. See Porcelain-on-Steel Cookware from Mexico, 62 Fed.
Reg. 25,908, 25,914 (Dep’t Commerce 1997) (final results of
antidumping duty admin. rev.) (Department included
respondent’s profit-sharing expenses in COP analysis as an
expense, but distinguished these expenses from dividends,
because “right to participate in profit-sharing conveyed no
ownership right in [respondent company]”). Accordingly,
COURT NO. 97-08-01344 PAGE 18
Mayes’ right to a payment by Ta Chen by itself does not
suffice to establish a control relationship.
The Government argues that the history of common
personnel supports the conclusion that Ta Chen had the ability
to exercise “operational direction or restraint” over Sun.
Gov’t Br. at 23-24. In light of Oil Country Tubular and
Certain Fresh Cut Flowers, however, it is unlikely that the
existence of common clerical staff could, on its own, suffice
to support the Department’s finding of control. This is
particularly so here because Commerce did not articulate how
Ta Chen could have used the alleged common staff to direct or
restrain Sun.
3) Sun's distribution of only Ta Chen products
Another of the Department’s reasons for concluding that
Ta Chen and Sun were affiliates was the fact that Sun
distributed only Ta Chen products in the United States. Final
Results, 62 Fed. Reg. at 37,549. The Department reasoned that
this was akin to a close supplier relationship, which is a
factor specifically mentioned in both the SAA and the
Department’s regulations as indicative of control. Ta Chen
argued before Commerce, as it does here, that although Sun
bought all of its stainless steel pipe from Ta Chen, Sun was
COURT NO. 97-08-01344 PAGE 19
at liberty to buy from other producers. Final Results, 62
Fed. Reg. at 37,550; Pl.’s Br. at 51.
Ta Chen says there was no exclusivity agreement with Sun.
Further, it argues that even in the presence of such exclusive
agreements, Commerce recognizes that such contracts are
“common commercial arrangements," and that affiliated party
status does not necessarily arise from a customer buying all
of its product from one supplier. See Certain Cold-Rolled and
Corrosion- Resistant Carbon Steel Flat Products from Korea, 62
Fed. Reg. 18,404, 18,441 (Dep’t Commerce 1997) (final results
of antidumping duty admin. revs.) (respondent did not control
the home-market distributor because there was no evidence that
distributor entered into exclusive sales contract other than
voluntarily, or that the contract could not be terminated by
either party). In Open-End Spun Rayon Singles Yarn from
Austria, 62 Fed. Reg. 43,701 (Dep’t Commerce 1997) (notice of
final determination of sales at LTFV), the Department did not
find that the respondent and its sole US customer of subject
merchandise were affiliates. The Department reasoned that
because the respondent’s records showed that its US customer’s
purchases “account for only a small portion of [respondent’s]
total sales revenue,” the respondent was not reliant on this
US customer. 62 Fed. Reg. at 43,708.
COURT NO. 97-08-01344 PAGE 20
Commerce responds that a finding of affiliation can be
based on a close supplier relationship alone. The Government
cites Stainless Steel Wire Rod from Korea, 63 Fed. Reg.
40,404 (Dep’t Commerce 1998) (notice of final determination of
sales at LTFV), where the Department found that the sole
supplier, and the sole buyer, of the major input for the
production of the subject merchandise were affiliated because
the supplier was in a position to control the buyer. 63 Fed.
Reg. at 40,410. The buyer, by its own admission, had been
unable to develop an alternate source to supply the input.
“Thus, the business and economic reality is that the
relationship between the parties is significant and, as
demonstrated by evidence on the record, not easily replaced.”
Id.; see also Mitsubishi Heavy Indus., Ltd. v. United States,
54 F. Supp.2d 1183, 1190-91 (Ct. Int’l Trade 1999) (sustaining
Commerce’s determination that “any supplier that depended upon
[buyer] for 50 percent or more of its sales during each year
during a five year period [would] be potentially subject to
the restraint or direction of [the buyer]” was reasonable
interpretation of term “close-supplier”); but cf. Furfuryl
Alcohol from the Republic of South Africa, 62 Fed. Reg.
61,084, 61,086 (Dep’t Commerce 1997) (final results of
antidumping duty admin. rev.) (producer and seller not
COURT NO. 97-08-01344 PAGE 21
affiliated with its home market customers even though producer
was the only manufacturer of subject merchandise in South
Africa; Department stated that producer’s dominant position in
the home market “in and of itself” was not sufficient for a
finding of affiliation between producer and its customers).
Given the inclusion of close-supplier relationships in
the SAA and the Department’s regulations, Commerce’s decision
to consider the fact that Sun purchased WSSP exclusively from
Ta Chen as one factor, among others, as demonstrating Ta
Chen’s ability to control Sun, was reasonable. Moreover, the
determinations Ta Chen cites in support of its position that
exclusive sales agreements and close supplier relationships
are not sufficient to lead to a finding of affiliation did not
involve as many connections between the companies as Commerce
found between Ta Chen and Sun. If the affiliation finding
hinged on this factor alone, however, the court would be
reluctant to uphold the determination as based on substantial
evidence. In this case there was no exclusive sales contract,
and even when there are exclusive sales contracts, Commerce
has found that insufficient for an affiliation finding. See
Certain Cold-Rolled Carbon Steel Flat Products, 62 Fed. Reg.
at 18,441. When the court upheld Commerce’s determination
based on the “greater-than-fifty-percent-sales-dependence-for-
COURT NO. 97-08-01344 PAGE 22
five years” in Mitsubishi, the court noted that the subject
merchandise was a “highly customized product, requiring unique
technical specifications.” Mitsubishi, 54 F. Supp.2d at 1191.
By contrast, there is no suggestion in this case that Sun
would have had difficulty obtaining WSSP from other suppliers.
Nonetheless, this is one factor that may be considered by
Commerce.
4) TCI's custody of Sun's signature stamp
Commerce stated that TCI's physical custody of Sun's
signature stamp constituted prima facie evidence that Ta Chen
either "exercised, or was in a position to exercise, control
over [Sun's] disbursements." Final Results, 62 Fed. Reg. at
37,549. Ta Chen argues against the Department’s conclusion
regarding this stamp, stating that TCI had this stamp in order
to monitor Sun’s cash outflows. Pl.’s Br. at 58. Ta Chen
further states that it sold Sun a large volume of product on
extended payment terms, and that therefore TCI’s accounts
receivable from Sun “came to be one of TCI’s most significant
assets.” Id. Ta Chen says "it was precisely because Ta Chen
did not control Sun that stringent credit monitoring measures
were sought. The monitoring could provide early warning of
cash flow problems which could adversely affect ability to pay
debt." Id. at 58-59.
COURT NO. 97-08-01344 PAGE 23
Commerce considered Ta Chen’s arguments regarding the
reasons why it possessed Sun’s signature stamp and concluded
that Ta Chen had not presented evidence to counter the
presumption that it was in a position to control Sun’s
disbursements. Final Results, 62 Fed. Reg. at 37,549. Ta
Chen says TCI only stamped checks which were pre-approved by
Sun, and that Sun could write its own checks. Pl.’s Br. at
58. There is no discussion, however, of whether Ta Chen had
the right to withhold stamping Sun checks. There is also no
record evidence of a written agreement between Ta Chen and Sun
regarding Ta Chen’s use and possession of Sun’s stamp.
Possession of the signature stamp provided TCI with the means
to control Sun’s outflows, whether TCI exercised that power or
not. The statute focuses on the capacity to control, rather
than on the actual exercise of control. See Ferro Union, Inc.
v. United States, 44 F. Supp.2d 1310, 1324 (Ct. Int'l Trade
1999) (determination of “control” under URAA “not dependent on
actually exercising control, but rather on the capacity to
exercise control") (emphasis in original). The court
therefore concludes that the Department’s reasoning that
possession of the signature stamp provided Ta Chen with the
capacity to control Sun’s disbursements was substantially
supported.
COURT NO. 97-08-01344 PAGE 24
5) Ta Chen's credit monitoring of Sun
The Department also considered as indicative of control
the fact that Ta Chen, through TCI, had a dedicated computer
connection to Sun’s accounts receivable, accounts payable, and
inventory. This access was on a full-time, unlimited basis,
which required no passwords or other security mechanisms
limiting Ta Chen's access to Sun's records. Final Results, 62
Fed. Reg. at 37,549; Verification Report, at 5, Def.’s App.,
Tab 8, at 5.
Ta Chen argues that its credit monitoring of Sun via
TCI’s possession of Sun’s signature stamp was imperfect, and
that therefore Ta Chen needed another way to monitor Sun’s
credit. Pl.’s Br. at 59. Ta Chen submitted a certified
statement from an expert in the US steel industry who asserted
that, in light of Sun's purchasing of a large volume of
product on extended payment terms, the credit monitoring
exercised by Ta Chen was not inappropriate between
unaffiliated parties. Response to Second Supplemental
Questionnaire, at 41-42, C.R. Doc. 17, Pl.’s Prop. App., Tab
C, at 15-16. Ta Chen also notes a comment to UCC § 9-205
(1999) which says that “policing” or “dominion” by the secured
COURT NO. 97-08-01344 PAGE 25
party of its unaffiliated debtor is permissible and expected.9
Ta Chen also alleges that Commerce’s conclusion that Ta Chen’s
computer access to Sun’s records was indicative of control is
“speculative” because Commerce did not cite evidence as to why
unaffiliated parties would never agree to such credit
monitoring.
Ta Chen is misstating the Department’s analysis of this
issue. Commerce conceded that it is common for creditors to
“obtain reports regarding the status of a debtor’s business
activities,” but contended that the “full-time and unlimited
access to [Sun’s] computer system afforded Ta Chen a far more
invasive mechanism for monitoring than would be expected
between unaffiliated parties.” Final Results, 62 Fed. Reg. at
37,549. The court finds that Commerce did not base its
affiliation finding simply on the fact that Ta Chen monitored
Sun’s records, but rather on the means with which Ta Chen
effectuated its monitoring. Ta Chen’s unlimited access to
9 Ta Chen is referring to an official comment to UCC §
9-205 which states that nothing in the section “prevents . . .
‘policing’ or dominion as the secured party and the debtor may
agree upon; business and not legal reasons will determine the
extent to which strict accountability, segregation of
collections, daily reports and the like will be employed.”
Comment 5 to UCC § 9-205.
A finding of affiliation, however, is not inconsistent
with secured status. Whether such monitoring is legally
permissible is irrelevant to the affiliation determination.
COURT NO. 97-08-01344 PAGE 26
Sun’s accounts does seem highly invasive, and Commerce’s
conclusion that this monitoring was more invasive than the
type which would normally exist between unaffiliated parties
was substantially supported.
6) Participation by Ta Chen president in meetings with Sun
customers and negotiation of prices of Sun's resales of
WSSP
The Department also focused on the fact that Robert
Shieh, the president of Ta Chen, met with Sun’s customers and
participated in the negotiation of Sun’s resales of WSSP, to
conclude that Ta Chen and Sun were affiliates. Final Results,
62 Fed. Reg. at 37,549. Commerce found that “Ta Chen’s
statement that ‘it knew the prices which would be accepted by
[Sun]’ raise[d] additional questions about the extent to which
[Sun] was free to act in its own interest.” Id.
Ta Chen explains that when a customer wanted to buy WSSP
at a price acceptable to Sun, Ta Chen would tell the customer
to prepare a purchase order for Sun. Pl.’s Br. at 48. The
customer would then either send its order directly to Sun, or
give it to Ta Chen, who would forward the order to Sun. Id.
Ta Chen says Sun was free to accept, reject, or modify these
orders. Id. Ta Chen submitted the testimony of a US steel
industry expert to support its argument that such behavior by
Ta Chen was standard industry practice. Response to Second
COURT NO. 97-08-01344 PAGE 27
Supplemental Questionnaire, at 44, C.R. Doc. 17, Pl.’s Prop.
App., Tab C, at 18. This expert stated that mill officials
visit their unaffiliated distributors' customers and forward
the orders, so as not to undermine their distributors by
taking the order directly from the distributor’s customers.
Id.
Ta Chen may be correct in arguing that Mr. Shieh’s visits
to Sun’s customers is standard industry practice. Such visits
do, however, raise a well-founded suspicion that Ta Chen had a
great deal of access to Sun’s pricing information. For
instance, how could Ta Chen assure a seller that a particular
price was acceptable to Sun, unless Ta Chen had intimate
knowledge of Sun’s pricing and cost decisions? Moreover,
simply because certain behavior is standard industry practice
does not mean it negates a finding of control. See Final
Rules, 62 Fed. Reg. at 27,298 (declining to adopt suggestion
that Department should not consider “normal commercial
relationships” as evidence of control; relationships described
in SAA as giving rise to control “can be characterized as
‘normal’ in the sense that they are commercial relationships
commonly entered into by firms. Nevertheless . . . the SAA
indicates that they can give rise to control”). Mr. Shieh’s
ability to set the prices for Sun’s resales directly
COURT NO. 97-08-01344 PAGE 28
implicates Ta Chen’s ability to affect Sun’s pricing
decisions, in accordance with Commerce’s regulatory definition
of affiliated parties. See 19 C.F.R. § 351.102. The court
therefore concludes that this factor was a strong indicator of
Ta Chen’s ability to control Sun.
7) Debt financing
Commerce’s decision that Sun and Ta Chen were affiliated
also depended on the debt financing arrangement agreed to by
Sun. See Final Results, 62 Fed. Reg. at 37,549. Commerce
found that whether Sun “offered” its accounts receivable and
inventory as collateral for a bank loan to TCI, or whether TCI
requested that it do so, was not germane to its analysis.
“Either way . . . [Sun] ‘placed its continued ability to
operate in the hands of a putatively unaffiliated party.’”
Id. (quoting Preliminary Results, 62 Fed. Reg. at 1,436.)
In response to Commerce’s first supplemental
questionnaire, Ta Chen explained that in June of 1993, it
sought to maintain a line of credit with its bank for an
amount comparable to the amount of TCI’s accounts receivable
from San Shing.10 Response to First Supplemental
10 TCI’s accounts receivable from San Shing were [ ]
million and it sought a line of credit with its bank of [ ]
million. Response to First Supplemental Questionnaire, at 57,
(continued...)
COURT NO. 97-08-01344 PAGE 29
Questionnaire, at 57, Def.’s App., Tab 4, at 24. Ta Chen says
that TCI consented to a UCC lien in all of its accounts
receivable, “a significant portion of which was owed by San
Shing.” Id. In this response, Ta Chen suggested that in
order to obtain a more favorable interest rate, San Shing, and
subsequently Sun Stainless, provided the bank with the UCC
lien on its inventory and accounts receivable directly. Id.
Ta Chen states that later TCI asked Sun to grant the lien
directly, as a way to “simplify a still otherwise ordinary
commercial arrangement.”11 Pl.’s Br. at 63. Ta Chen says that
the security lien was limited to the unpaid amount which Sun
owed Ta Chen for product sold, and that this limitation was
stated in side letter agreements. Id. The Final Results
state that the agreement between Ta Chen/TCI and Sun was not
in writing. Ta Chen claims that the side letter agreements
10
(...continued)
Def.’s App., Tab 4, at 24.
11 Ta Chen cites Commerce’s determination in Polyvinyl
Alcohol from Taiwan, 62 Fed. Reg. 54,823 (Dep’t Commerce 1997)
(notice of termination of new shipper review), as an example
of a customer granting a security interest in its accounts
payable to a supplier, without this constituting debt
financing that leads to a finding of affiliation. The court
has trouble seeing how Ta Chen draws this conclusion from this
determination. Commerce stated that the debt financing at
issue in Polyvinyl did not establish a control relationship,
but the particulars of the debt financing are not explained in
the determination. See Polyvinyl, 62 Fed. Reg. at 54,824.
COURT NO. 97-08-01344 PAGE 30
did exist, and stated at oral argument that these were
available to the Department at verification, but that the
verifiers chose not to look at them. In its response to the
supplemental questionnaire, however, Ta Chen specifically
stated that it had been unable to find any written statement
memorializing the terms of the agreement, but that “the amount
of the TCI take down on its line of credit was to be, and
always was, less than the amount owed to TCI by [San Shing or
Sun].” Response to First Supplemental Questionnaire, at 57-
58, Def.’s App., Tab 4, at 24-25. The court is thus uncertain
whether a written agreement did exist, but finds it
unnecessary to resolve the issue. The particulars of the debt
financing suffice to support Commerce’s conclusion that it was
indicative of a control relationship.
Similar to its arguments regarding Robert Shieh’s
negotiations with Sun’s customers, Ta Chen states that there
was nothing unusual about this debt financing arrangement.12
Ta Chen also argues that the Department normally bases its
understanding of the relationship between parties on how the
12 Ta Chen again provided Commerce with the opinion of
a US steel industry expert who found that Ta Chen’s method of
securing payment from Sun was “a perfectly normal arrangement
between unaffiliated parties.” Pl.’s Br. at 65-66; see also
Response to Second Supplemental Questionnaire, at 41-42, Pl.’s
Prop. App., Tab C, at 15-16.
COURT NO. 97-08-01344 PAGE 31
parties themselves treat their relationship in their financial
statements. See Melamine Institutional Dinnerware Products
from Taiwan, 62 Fed. Reg. 1,726, 1,731 (Dep’t Commerce 1997)
(notice of final determination of sales at LTFV) (where
Department classified amounts as long-term loans “consistent
with the treatment in the respondent’s financial statement”).
Because TCI’s audited financial statements do not include a
loan from Sun in its list of loan guarantees received from
third parties, and because the auditors did not list Sun as an
affiliated party in TCI’s audited financial statements, Ta
Chen argues that the Department should have deferred to this
characterization of their relationship. Pl.’s Br. at 66; see
also Response to First Supplemental Questionnaire, at 69,
Pl.’s Prop. App., Tab A, at 37.
Ta Chen overlooks the fact that the original debt
financing agreement was entered into with Sun’s predecessor,
San Shing, and then apparently continued with Sun. This gives
rise to the question of why a new entity, Sun, would agree to
take on such a risk with a putatively unaffiliated company.
Ta Chen also minimizes aspects of the debt financing agreement
which concerned Commerce. Commerce explicitly disagreed with
Ta Chen’s argument that Sun’s pledging of it accounts
receivable and inventory to TCI “was essentially akin to TCI
COURT NO. 97-08-01344 PAGE 32
securing a lien upon [Sun] and, in turn assigning its rights
to the bank.” Final Results, 62 Fed. Reg. at 37,550.
Commerce explained:
the actual transaction involved a significant qualitative
difference. In the latter case, TCI’s security interest
would be limited to the amount [Sun] owed against
purchases of inventory. In the former case, [Sun]
unilaterally, and without consideration, assigned its
entire inventory and accounts receivable directly to
TCI’s bank to facilitate a loan for TCI. That [Sun]
would accept this risk without any consideration -
without even a written agreement memorializing the terms
and duration of the agreement – does not comport with the
commercial realities of dealings between unaffiliated
companies.
Id. Ta Chen argues that the consideration for Sun to enter
into the agreement was the extended payment terms Ta Chen gave
Sun on a large volume of product. From the record, however,
it appears that Sun had already obtained the favorable credit
terms prior to agreeing to this loan agreement. Indeed, Ta
Chen stated that a significant portion of its accounts
receivable, prior to seeking the loan, were owed to it by San
Shing as a consequence of Ta Chen’s large volume of sales to
San Shing and the extended credit terms for payments.
Response to First Supplemental Questionnaire, at 56-57, Def.’s
App., Tab 4 at 23-24. The court therefore finds supported
Commerce’s conclusion that Sun agreed to offer its inventory
COURT NO. 97-08-01344 PAGE 33
and accounts receivable as collateral for TCI’s loan without
adequate consideration.
8) Factors considered as a whole
The court finds that Commerce's determination that Ta
Chen controlled Sun is supported by substantial evidence.
Even if each of the individual connections between Ta Chen and
Sun, standing alone, may not be sufficient to establish
control, Commerce's conclusion that the numerous connections
between Ta Chen and Sun were indicative of control was
reasonable. Commerce did not rely on any one factor in
concluding that Ta Chen and Sun were affiliated parties,
rather, it determined that the combination of factors was
sufficient proof of affiliation.
Ta Chen argues that Sun paid competitive and negotiated
prices for Ta Chen pipe, and that Sun was a profitable company
which was sold for a profit. Ta Chen argues that if it were
really affiliated with Sun, it would not have sold WSSP to Sun
at a lower price and that no one would have been interested in
purchasing a company affiliated with another. Pl.’s Br. at
47. Commerce responded to this at oral argument by stating
that Ta Chen could have been establishing Sun’s future market.
Although this response is not completely satisfactory, the
possibility of drawing inconsistent conclusions from the
COURT NO. 97-08-01344 PAGE 34
evidence does not render it unsupported by substantial
evidence. See Consolo v. Federal Maritime Comm’n, 383 U.S.
607, 620 (1966) (“possibility of drawing two inconsistent
conclusions from the evidence does not prevent an
administrative agency’s finding from being supported by
substantial evidence”) (citations omitted).
Substantial evidence is "more than a mere scintilla. It
means such relevant evidence as a reasonable mind might accept
as adequate to support a conclusion." Universal Camera Corp.
v. NLRB, 340 U.S. 474, 477 (1951) (citation omitted). Even if
the court, deciding the issue anew, concluded that Ta Chen
and Sun were not affiliates, Commerce's determination would
not be overturned "merely because the plaintiff 'is able to
produce evidence . . . in support of its own contentions,’"
rather, the plaintiff's evidence "must be enough to convince
the Court that a reasonable mind would not have found
[Commerce’s] evidence sufficient to support its conclusion."
Torrington Co. v. United States, 14 CIT 507, 513-14, 745 F.
Supp. 718, 723 (1990) (quoting Hercules, Inc. v. United
States, 11 CIT 710, 755, 673 F. Supp. 454, 490 (1987)).
Ta Chen’s evidence is not sufficiently convincing for the
court to conclude that a reasonable mind would not find
Commerce’s evidence sufficient to support the affiliation
COURT NO. 97-08-01344 PAGE 35
finding. Given the numerous financial connections and
opportunities for control between Ta Chen and Sun, and Ta
Chen’s access to Sun’s pricing information, as well as its
participation in the negotiation of Sun’s sales of WSSP, the
court concludes that Commerce's determination that Ta Chen
controlled Sun was supported by substantial evidence.
Therefore, Commerce’s determination that Ta Chen and Sun were
affiliated parties is sustained.
B) Failure to provide adequate notice
The court does not find, however, that Commerce's
decision to apply facts available was made in accordance with
law. Based on its affiliation finding, Commerce concluded
that Ta Chen's sales to Sun should be classified as CEP sales,
and applied an adverse facts available margin to these sales
because Ta Chen did not provide information on Sun's US sales.
The Department, however, never specifically requested this
information. When Ta Chen learned that the Department would
classify its sales as CEP, the time for Ta Chen to place
unsolicited information on the record had passed.
Commerce argues that the questions in its original
questionnaire informed Ta Chen that, in general, it needed to
provide US sales information for its affiliated resellers.
Gov't Br. at 33-34. This argument minimizes the fact that
COURT NO. 97-08-01344 PAGE 36
Commerce specifically told Ta Chen in the second supplemental
questionnaire that it had not yet decided how to classify Ta
Chen's US sales. See Second Supplemental Questionnaire, at 3,
Def.'s App., Tab 5, at 5. Commerce must have been aware when
it issued this second supplemental questionnaire on December
24, 1996 that there was a possibility that it would treat Ta
Chen and Sun as affiliates, given that it made such a
determination in the Preliminary Results, issued two weeks
later on January 10, 1997. Commerce could therefore foresee
that in order to properly calculate Ta Chen's sales as CEP
sales, it would need information on Sun's US sales. But
Commerce did not ask for this information specifically. In
fact, it appears to have tried to avoid giving Ta Chen a
belated chance to amend.
Commerce has a statutory obligation to provide
respondents with a chance to remedy deficient submissions.
See 19 U.S.C. § 1677m(d) (1994). The statute provides in
relevant part:
If the administering authority or the Commission
determines that a response to a request for information
under this subtitle does not comply with the request, the
administering authority . . . shall promptly inform the
person submitting the response of the nature of the
deficiency and shall, to the extent practicable, provide
that person with an opportunity to remedy or explain the
deficiency in light of the time limits established for
COURT NO. 97-08-01344 PAGE 37
the completion of investigations or reviews under this
subtitle.
Commerce did not provide Ta Chen with such a remedial
opportunity to place information of Sun's US sales on the
record in this review. Commerce implies that Ta Chen could
have provided the information on Sun's US sales after the
issuance of the preliminary results. Gov't Br. at 40. The
time for Ta Chen to provide unsolicited information, however,
had already passed. See 19 C.F.R. § 353.31(a)(ii) (1996)
(submission of factual information to be submitted not later
than "the earlier of the date of publication of notice of
preliminary results of review or 180 days after the date of
publication of notice of initiation of the review").13 The
initiation of the review in this case was published on
February 1, 1996, which would have required Ta Chen to submit
all factual information by August 1, 1996, six months before
Ta Chen was informed that the Department would consider its
sales to Sun as CEP sales.
13 The current version of this regulation provides that
submission of factual information is due no later than "[for]
the final results of an administrative review, 140 days after
the last day of the anniversary month, except that factual
information requested by the verifying officials from a person
normally will be due no later than seven days after the date
on which the verification of that person is completed." 19
C.F.R. § 351.301(b)(2) (1999).
COURT NO. 97-08-01344 PAGE 38
The failure by Commerce to provide respondents with
sufficient notice can render the decision "unsupported by
substantial evidence and otherwise contrary to law." Usinor
Sacilor v. United States, 19 CIT 711, 745, 893 F. Supp. 1112,
1141-42 (1995) (Department failed to notify plaintiff that it
lacked necessary information to assess likely effects of
subsidy program in countervailing duty case; plaintiffs not
aware of deficiency until issuance of final results), aff’d in
part and rev’d in part, 1999 WL 641231 (Fed. Cir. Aug. 24,
1999). In Usinor, the court found that broad questions
initially asked of plaintiff did not "discharge [Commerce]
from its obligation to put parties on notice as to the
deficiencies in their responses." Id. The court will not
endorse "an investigation where [Commerce] sent out a general
questionnaire and a brief deficiency letter, then effectively
retreated into its bureaucratic shell, poised to penalize
[respondent] for deficiencies not specified in the letter that
[Commerce] would only disclose after it was too late, i.e.,
after the preliminary determination." Bowe-Passat v. United
States, 17 CIT 335, 343 (1993).
Although Ta Chen, unlike the respondent in Bowe-Passat,
did not try to provide the missing information after the
preliminary results, Commerce has behaved in the same way as
COURT NO. 97-08-01344 PAGE 39
it did in Bowe-Passat by failing to notify the respondent of
the deficiency when it had an opportunity to do so, prior to
issuing the preliminary results. Commerce's preliminary
determination that Ta Chen and Sun were affiliated, and its
decision to apply an adverse margin because Ta Chen failed to
provide information on Sun's US sales, does not constitute
notice pursuant to 19 U.S.C. § 1677m(d). Although it is not
completely clear that the Department would have rejected the
information had Ta Chen tried to submit it after the
preliminary results, Commerce’s less than open approach to Ta
Chen indicates rejection was likely. At oral argument, the
government argued that Ta Chen was required to ask the
Department to ask Ta Chen to provide Sun’s US sales
information. But it is Commerce, not the respondent, which
bears the burden of asking questions. See NSK Ltd. v. United
States, 19 CIT 1319, 1328, 910 F. Supp. 663, 671 (1995)
("[r]espondents should not be required to guess the parameters
of Commerce's interpretation of a phrase in the statute.")
Commerce grounds its argument on the truism that the
respondent has the burden of creating an accurate record. See
Chinsung Indus. Co. v. United States, 13 CIT 103, 106, 705 F.
Supp. 598, 601 (1989) (burden of creating an adequate record
rests with respondents). This truism, however, cannot obviate
COURT NO. 97-08-01344 PAGE 40
Commerce’s obligation to let the respondent know what
information it really wants. See Queen's Flowers de Colombia
v. United States, 981 F. Supp. 617, 628 (Ct. Int'l Trade 1997)
("alleged response deficiency cannot support application of
[best information available] where the information sought was
apparently never requested.") (citation omitted).
Commerce has an obligation to make the questions affected
by affiliation issues clear, in light of its own recognition
that affiliation is a complex concept and its decision to
develop its practice in this area on a case by case basis.14
See Final Rules, 62 Fed. Reg. at 27,297. Commerce must
therefore assure itself that it has asked questions sufficient
to provide it with enough information to make both the
affiliation determination itself and the resulting
determinations. In this case Ta Chen had a good basis to
argue that it did not control Sun and it made that argument to
14 Commerce stated in the Final Results that by the
time of this review, Ta Chen must have had an understanding of
affiliation. Final Results, 62 Fed. Reg. at 37,552. Although
the URAA went into effect in January 1995, Commerce did not
issue its final regulations to comport with the new statute
until 1997, and the third administrative review of Ta Chen
began in 1996. The court therefore cannot conclude that a
respondent in Ta Chen’s situation could be expected to have a
thorough understanding of how Commerce would apply the new
affiliation standard, where Commerce itself said that it would
develop its affiliation practice, “through the adjudication of
actual cases.” Final Rules, 62 Fed. Reg. at 27,297.
COURT NO. 97-08-01344 PAGE 41
Commerce. If a respondent reasonably believes it is not
affiliated with its reseller, and therefore that it has EP
rather than CEP sales, then it has a reason not to submit
information on the subject reseller’s US sales until Commerce
tells the respondent that it wants the information on the
particular reseller or until Commerce’s questions are clear
enough that the respondent knows what it should submit.15 In
this situation where a new statute was not fully explained and
Commerce suspected that it would make a finding of affiliation
between the importer and the US reseller, it should have
placed the respondent on notice, specifically requested
information on that reseller's US sales, and requested any
other information necessary to the CEP calculation. If
Commerce wishes to place the full burden of error of an
affiliation assessment on the respondent, at a minimum it must
make that clear, otherwise this is simply another instance of
15 Contrast this fact situation with that of respondent
in Pohang Iron and Steel Co. v. United States, No. 98-04-
00906, 1999 WL 970743, at *15 (Ct. Int’l Trade Oct. 20, 1999)
(Commerce twice asked for specific information necessary to
calculate CEP and respondent specifically declined to provide
data on basis EP applied).
COURT NO. 97-08-01344 PAGE 42
error which respondents must have an opportunity to correct
under 19 U.S.C. § 1677m(d).16
Commerce may not use Ta Chen’s failure to submit Sun’s US
sales information as justification for an application of
adverse facts available. On remand, Commerce must provide Ta
Chen an opportunity to supply the information on Sun's US
sales.
II. Purported sales to Company C
Background
In the Final Results, Commerce concluded that Ta Chen
failed to report commissions to one of its US customers,
Anderson Alloys,17 on sales purportedly made to one of its US
16 Even if Commerce’s procedures and questions are
clear, this may be insufficient to prevent Commerce from
having to provide a respondent with the opportunity to remedy
a deficient submission when it discovers the omission early
enough for remediation to occur. Defendant made clear that it
was not arguing that the statute allows an exception to the
opportunity for correction provision based on inexcusable
neglect or wilful hiding of information. This may be a defect
in the statute which Commerce is seeking to offset. In any
case, as the requisite clarity was not present here, the court
does not address this issue.
17 Subsequent to the issuance of the Final Results, Ta
Chen placed the name, Anderson Alloys, on the public record.
See Pl.'s Br. at 3 n. 6. In the Final Results, Anderson is
referred to as "one of Ta Chen's US customers."
COURT NO. 97-08-01344 PAGE 43
Customers, Company C.18 Final Results, 62 Fed. Reg. at 37,544.
Commerce concluded that Ta Chen misreported an unknown number
of sales to this customer and decided to apply adverse facts
available to all of Ta Chen's sales made to Anderson. Id.
Commerce stated that Ta Chen had not acted to the best of its
ability, and that Ta Chen's reported data did not permit
Commerce to segregate the misreported sales for purposes of
calculating the final margin. Id.
Commerce's initial questionnaire requested that Ta Chen
report the unit cost of commissions paid to affiliated and
unaffiliated selling agents, and to describe the terms under
which commissions were paid and how commission rates were
determined.19 Initial Questionnaire, at C-20, Def.'s App., Tab
1, at 8. Ta Chen responded that during the POR, it paid
commissions to only one unaffiliated party.20 Response to
Initial Questionnaire, at 48-49, Def.'s App., Tab 2, at 6-7.
18 [ ].
19 In order to calculate NV, the statute allows
Commerce to account for certain differences in the
circumstances of sales in the United States and foreign
markets. See 19 U.S.C. § 1677b(a)(6)(C)(iii) (1994).
Pursuant to its regulations, Commerce makes circumstances of
sale adjustments for direct selling expenses, including
commissions. See 19 C.F.R. § 351.410(b) & (c) (1999).
20 [ ]
COURT NO. 97-08-01344 PAGE 44
Commerce's conclusion that Ta Chen misreported
commissions stems from questions which Commerce officials
asked Robert Shieh, president of Ta Chen and TCI, during
verification at TCI in June 1997. In connection with
questions regarding TCI’s sales process, verification
officials asked Mr. Shieh to "discuss his involvement in sales
of . . . merchandise and the pricing methodology of TCI."
Verification Report, at 5, Def.'s App., Tab 8, at 5. Mr.
Shieh described his visits to various distributors during the
POR, including one visit to one of Anderson Alloy's customers,
Company C. The report goes on to state that:
Mr. Shieh also clarified that prices between Anderson
Alloys and [Company C] were negotiated by Anderson
Alloys. In addition, he stated that there are times when
Ta Chen has sold direct to [Company C]. During such
instances, Ta Chen negotiated the price with [Company C].
Ta Chen would then pay Anderson Alloys a commission.
Id. There was no further discussion or elaboration of these
sales at any point during verification.
In an internal memorandum, the case analyst stated that
"newly-disclosed facts" were made at verification, pertaining
to sales Ta Chen reported as being made to Anderson. "Ta Chen
revealed for the first time that certain of these sales had,
in fact, been made to yet another customer, [Company C], an
entity which has never before been referenced in this
COURT NO. 97-08-01344 PAGE 45
administrative review." Analysis Memorandum for Final Results
of 1994-1995 Ta Chen Review (July 1, 1997), at 2, C.R. Doc.
32, Def.'s App., Tab 9, at 2. This memorandum also
characterized Mr. Shieh's comments as a statement that
Anderson Alloys was a commissionaire on sales to Company C
during the POR. Id. The memorandum further stated:
[Ta Chen] deliberately misreported an unknown portion of
its sales to Anderson . . . . Furthermore, Ta Chen
stated affirmatively for the record that it paid
commissions to one only U.S. commissionaire . . . .
Prior to verification Ta Chen never indicated that it
paid commissions to Anderson or to any other party, and
Ta Chen's U.S. data do not reflect commission amounts on
any of the sales Ta Chen identified as being to Anderson.
Thus, Ta Chen failed not only to name Anderson as a
commissionaire, but also failed to report the commissions
it did pay to Anderson.
Id. at 3, Def.’s App., Tab 9, at 3 (emphasis in original).
After issuance of the Final Results, in which Commerce
applied adverse facts available to Ta Chen's sales to
Anderson, Ta Chen requested a correction of the Department's
treatment of these sales, claiming that the conclusion that Ta
Chen sold subject merchandise to Company C during the POR was
a ministerial error. Ministerial Error Submission (July 24,
1997), at 4, C.R. Doc. 34, Pl.s' Prop. App., Tab P, at 4.21
21 The July 24, 1997 submission was a re-submission of
Ta Chen's July 17, 1997 submission alleging a ministerial
error. Commerce determined that the July 17 submission
(continued...)
COURT NO. 97-08-01344 PAGE 46
Commerce did not, however, alter its conclusion that Ta Chen
had misreported its sales to Anderson Alloys and failed to
list Anderson as a commissionaire.
Discussion
Ta Chen argues that the conclusion that it misreported
sales to Anderson Alloys, and failed to list Anderson as a
commissionaire during the POR, is not supported by substantial
evidence. Ta Chen insists that Mr. Shieh's comments regarding
sales to Company C referred to sales made outside of the POR,
and that Mr. Shieh was responding to questions regarding Ta
Chen's sales history, not just sales during the POR. The
Domestic Interested Parties counter that the verification was
carried out to verify Ta Chen's sales information during the
POR, so Commerce could legitimately interpret Mr. Shieh's
statements as referring to sales which occurred during the
POR.
The court agrees with Ta Chen that Commerce's conclusion
is not supported by substantial evidence. As stated in the
21
(...continued)
contained new factual information, and therefore returned the
document pursuant to 19 C.F.R. § 353.38(i) (1997). Commerce
Letter Ruling (July 22, 1997), at 1, P.R. Doc. 103, Def.'s
App., Tab 11, at 1. Ta Chen was permitted to resubmit its
allegation of ministerial error without referencing the new
information. Id.COURT NO. 97-08-01344 PAGE 47
discussion section of Ta Chen's sales to Sun, substantial
evidence is "more than a mere scintilla. It means such
relevant evidence as a reasonable mind might accept as
adequate to support a conclusion." Universal Camera Corp.,
340 U.S. at 477. The court does not substitute its own
judgment for that of Commerce, but the court will not defer to
a decision which is based on "inadequate analysis or
reasoning." USX Corp. v. United States, 11 CIT 82, 88, 655 F.
Supp. 487, 492 (1987) (rejecting analysis of ITC where ITC did
not fully analyze the issue). "[T]he absence of information
necessary for a thorough analysis may render a determination
unsupported by substantial evidence." Id. at 95, 655 F. Supp.
at 498 (citation omitted).
Commerce's analysis that Ta Chen misreported its sales to
Anderson is inadequate. There is no indication from the
verification report that Commerce had any concerns regarding
Ta Chen sales to Company C with commissions to Anderson. The
Final Results do not elaborate any reason why the discussion
at verification could justifiably lead to the conclusion that
Mr. Shieh was referring to POR sales of subject merchandise.
See Final Results, 62 Fed. Reg. at 37,544.
Mr. Shieh's statement during verification was made in
response to questions regarding the history of Ta Chen's sales
COURT NO. 97-08-01344 PAGE 48
process. The introductory paragraph to this section of the
verification report states that Ta Chen was to be "prepared to
discuss the history of Ta Chen's efforts at selling pipe in
the United States." Verification Report, at 4, Def.’s App.,
Tab 8, at 4. Mr. Shieh stated that "there are times when Ta
Chen has sold direct to [Company C]. During such instances,
Ta Chen negotiated the price with [Company C]. Ta Chen would
then pay Anderson Alloys a commission." Id. at 5, Def.’s
App., Tab 8, at 5 (emphasis added). This sole statement is
not sufficient evidence for a conclusion that Ta Chen
misreported its commissions when it was made in the context of
Ta Chen's history of its sales in the United States, and where
the verification report itself does not indicate that Mr.
Shieh's statement was in any way problematic.
Ta Chen also emphasizes that it was provided with no
opportunity to clarify Mr. Shieh's statement regarding sales
to Company C. Commerce argues that verification is not the
time to submit new information. See Tatung Co. v. United
States, 18 CIT 1137, 1142 n.3 (1994) (court accepted as
reasonable "Commerce's position that allowing respondents who
failed verification to re-submit new data, and requiring
Commerce to re-verify this information would impose an undue
burden on Commerce."); see also Chinsung, 13 CIT at 106, 705
COURT NO. 97-08-01344 PAGE 49
F. Supp. at 601-02 (stating that respondent bears the burden
of creating an adequate record). Ta Chen, unlike the
respondent in Tatung, did not fail verification. Indeed the
verification report reflects that the Department did not find
discrepancies in TCI’s information. By comparison, the
Department found "numerous errors and omissions" in the
respondent's data during verification in Tatung. Tatung, 18
CIT at 1138.
As stated in the discussion of Ta Chen's affiliation with
Sun, Commerce has an obligation to "put parties on notice as
to the deficiencies in their responses." Usinor Sacilor, 19
CIT at 745, 893 F. Supp. at 1142. In Usinor, Commerce failed
to give the plaintiffs notice that information was absent
between the issuance of its preliminary and final results.
The court held that this rendered Commerce's determination
unsupported by substantial evidence and otherwise contrary to
law. Id. at 745, 893 F. Supp. at 1141. In this case,
Commerce's determination in the Final Results that Ta Chen had
misreported sales to Anderson was a total surprise to Ta Chen.
By failing to provide Ta Chen with an opportunity to comment
on this allegation, Commerce based its conclusion on
insufficient evidence and reasoning which the court will not
uphold.
COURT NO. 97-08-01344 PAGE 50
Given this record, the court concludes that the finding
that Ta Chen misreported its sales to Anderson is not
supported by substantial evidence. On remand, Commerce must
either provide Ta Chen an opportunity to submit evidence on
the purported sales to Company C, in order for the Department
to make a determination as to whether these sales were made
during the POR, or Commerce must disregard the issue of
misreported sales and undisclosed commissions to Anderson.
III. Application of adverse facts
Ta Chen contests the Department's application of adverse
facts available, pursuant to 19 U.S.C. § 1677e (1994).
Commerce applied adverse facts available to Ta Chen's
misreported sales, i.e., its sales to Sun and Anderson. Final
Results, 62 Fed. Reg. at 37,553. It did not base Ta Chen's
margin on total adverse facts available, as requested by the
Domestic Interested Parties. Id. Rather, Commerce applied
partial adverse facts.
The Department concluded that an adverse inference was
warranted because "Ta Chen failed to provide the Department
with a complete and reliable listing of its U.S. sales," and
that this amounted to a failure on Ta Chen's part to cooperate
to the best of its ability. Preliminary Results, 62 Fed. Reg.
at 1,436. Commerce stated further in the Final Results that,
COURT NO. 97-08-01344 PAGE 51
with regard to sales to Anderson, Ta Chen misreported these
sales and failed to act to the best of its ability in this
regard. Final Results, 62 Fed. Reg. at 37,544.
The court need not resolve the issue of whether the
application of adverse facts available was warranted, in light
of the fact that it is remanding this case to provide Ta Chen
an opportunity to provide the Department with information on
Sun's US sales and on Ta Chen's sales to Anderson Alloys.22
Commerce will therefore have to recalculate the dumping margin
in light of this information and, depending on Ta Chen's
cooperation on remand, may or may not find that an application
of adverse facts available is warranted.
IV. Corroboration of the dumping margin
Commerce applied a 31.90 percent margin as partial
adverse facts available to Ta Chen's sales to Sun and to
Anderson. This margin was the highest rate from the initial
22 The court also does not address Ta Chen’s argument
that the Department may not consider the respondent’s level of
cooperation in selecting substitute information when it
applies partial adverse facts available. Pl.’s Br. at 41.
The court does note that it has upheld the application of
adverse facts to only a portion of a respondent’s data. See
Toyota Motor Sales, U.S.A., Inc. v. United States, 15 F.
Supp.2d 872, 882 (Ct. Int’l Trade 1998); Ferro Union, 1999 WL
825584, at *7 (Ct. Int’l Trade Oct. 6, 1999) (application of
partial adverse facts available furthered goal of accuracy
while maintaining adversity).
COURT NO. 97-08-01344 PAGE 52
LTFV investigation. Preliminary Results, 62 Fed. Reg. at
1,436; see also Certain Welded Stainless Steel Pipe from
Taiwan, 57 Fed. Reg. at 62,301. This resulted in a weighted-
average margin of 6.06 percent. Final Results, 62 Fed. Reg.
at 37,556.
Ta Chen argues that Commerce failed to corroborate the
margin in accordance with 19 U.S.C. § 1677e(c). In light of
the court’s instructions to Commerce on remand, however, the
court need not determine whether the application of this
margin was warranted, nor whether it was properly
corroborated. The court also does not address Ta Chen’s
arguments that the margin was based on aberrant sales.
Commerce will calculate a margin for Ta Chen based on its
findings pursuant to this remand.
Conclusion
The court affirms Commerce's finding that Ta Chen and Sun
Stainless are affiliated parties, as based on substantial
evidence. Commerce erred, however, in applying facts
available. On remand, Commerce will ask Ta Chen to provide
information on Sun's US sales. The court also finds that
Commerce’s decision that Ta Chen misreported its sales to
Anderson Alloys was not based on substantial evidence. On
remand, Commerce will provide Ta Chen with an opportunity to
COURT NO. 97-08-01344 PAGE 53
explain whether the alleged sales to Company C occurred
outside of, or during, the POR, or will disregard this issue.
Remand results are due within 60 days. Objections are
due 20 days thereafter, responses 11 days thereafter.
____________________________
Jane A. Restani
JUDGE
Dated: New York, New York
This 28th day of October, 1999