Appleton Papers Inc. v. United States , 929 F. Supp. 2d 1329 ( 2013 )

Slip Op. 13- 87
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Nicholas Tsoucalas, Senior Judge
APPLETON PAPERS INC., :
:
Plaintiff, :
:
v. :
: Consol. Court No.: 12-00116
UNITED STATES, :
:
Defendant, : PUBLIC VERSION
:
and :
:
PAPER RESOURCES LLC, :
:
Defendant-Intervenor. :
:
OPINION
Held: Plaintiff’s motion for judgment on the agency record is
denied because the Department of Commerce’s final scope ruling is
supported by substantial evidence and is otherwise in accordance
with the law.
Dated: July 11, 2013
King & Spalding LLP (Gilbert B. Kaplan, Brian E. McGill, and
Joseph W. Dorn) for Appleton Papers Inc., Plaintiff.
Stuart F. Delery, Principal Deputy Assistant Attorney General;
Jeanne E. Davidson, Director, Reginald T. Blades, Jr., Assistant
Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice (Joshua E. Kurland and Carrie A.
Dunsmore); Office of the Chief Counsel for Import Administration,
United States Department of Commerce, Whitney Rolig, Of Counsel,
for the United States, Defendant.
Greenberg Traurig, LLP (Rosa S. Jeong and Philippe M. Bruno)
for Paper Resources LLC, Defendant-Intervenor.
TSOUCALAS, Senior Judge: This consolidated action comes
Consol. Court No. 12-00116 Page 2
before the court on plaintiff Appvion, Inc.’s1 (“Appvion”) motion
for judgment on the agency record challenging the United States
Department of Commerce’s (“Commerce”) determination in Final Scope
Ruling for Paper Resources, LLC’s Lightweight Thermal Paper
Converted and Packaged in the People’s Republic of China Using
Jumbo Rolls Produced in a Third Country, Case Nos. A-570-920 and C-
570-921 (Mar. 23, 2012), Public Rec. 2/32 (“Final Scope Ruling”).2
See Preliminary Scope Ruling for Paper Resources, LLC’s Lightweight
Thermal Paper Converted and Packaged in the People’s Republic of
China Using Jumbo Rolls Produced in a Third Country, Case Nos. A-
570-920 and C-570-921 (Dec. 21, 2011), CR 2/11 (“Preliminary Scope
Ruling”). Commerce and defendant-intervenor Paper Resources LLC
(“Paper Resources”) oppose Appvion’s motion. For the reasons
stated below, Appvion’s motion is denied.
BACKGROUND
Lightweight thermal paper (“LWTP”) “is a paper coated with
1
By letter dated June 21, 2013, Appleton Papers Inc. notified
the court that it changed its name to Appvion, Inc. on May 13,
2013. See Letter to the Hon. Tina Kimble, Clerk of the Court, re:
Appleton Papers Inc. v. United States (June 21, 2013), ECF No. 55.
2
All citations to the record are from the countervailing duty
inquiry (C-570-921). The record for the antidumping duty inquiry
(A-570-920) contains identical documents. See Def.’s Resp. Pl.’s
Mot. J. Agency R. at 2 n.1. Hereinafter, all documents in the
amended public record will be designated “PR” and all documents in
the confidential record designated “CR” without further
specification except where relevant. Documents listed in parts one
and two of the record will be cited as “1/X” and “2/X,”
respectively, with “X” referring to the document number within that
record.
Consol. Court No. 12-00116 Page 3
thermal active chemicals . . . which react to form an image when
heat is applied.” CR 1/1 at 2. It is “specially intended to be
used in special printers containing thermal print heads.” Id.
“LWTP is typically produced in jumbo rolls that are converted to
narrower width rolls appropriate for its specific end uses.”3 Id.
Production of LWTP occurs in three stages: (1) manufacturing jumbo
rolls (“JRs”) of LWTP; (2) applying thermal coating to the JRs; and
(3) slitting and repackaging the coated JRs, a process called
“conversion.” Id. at 3–4.
LWTP from the People’s Republic of China (“PRC”) is subject to
antidumping duty (“AD”) and countervailing duty (“CVD”) orders.
See AD Orders: LWTP From Germany and the PRC, 73 Fed. Reg. 70,959(Nov. 24, 2008); LWTP from the PRC: Notice of Amended Final
Affirmative CVD Determination and Notice of CVD Order, 73 Fed. Reg.
70,958 (Nov. 24, 2008) (“CVD Order,” and collectively, the
“Orders”). The Orders contain identical scope language, covering:
certain [LWTP], . . . irrespective of dimensions; with or
without a base coat on one or both sides; with thermal
active coating(s) on one or both sides that is a mixture
of the dye and the developer that react and form an image
when heat is applied; with or without a top coat; and
without an adhesive backing.
CVD Order, 73 Fed. Reg. at 70,958 (internal footnotes omitted). An
explanatory footnote to the scope definition states that “[b]oth
jumbo and converted rolls (as well as LWTP in any other form,
3
LWTP’s end uses include “ATM receipts, credit card receipts,
gas pump receipts, retail store receipts, etc.” CR 1/1 at 2.
Consol. Court No. 12-00116 Page 4
presentation, or dimension) are covered by the scope of these
orders.” Id. at 70,958 n.1.
Paper Resources imports LWTP that is manufactured in JR form
and coated in [[ ]] then is converted in the PRC by Shanghai
Hanhong Paper Company (“Hanhong”). See PR 2/1 at 1. In February
2011, Paper Resources requested that Commerce determine that LWTP
manufactured in this fashion is outside the scope of the Orders
because its country of origin is not the PRC. CR 1/1 at 1, 4–10.
Commerce initiated a scope inquiry in April 2011. See PR 1/9 at 1.
In the Preliminary Scope Ruling, Commerce found that Paper
Resources’s LWTP was outside the scope of the Orders because its
country of origin was not the PRC. CR 2/11 at 11–12. Using its
substantial transformation analysis, Commerce concluded that the
conversion process was insufficient to change the country of origin
of [[ ]] JRs because (1) JRs and converted rolls were of the
same class or kind of merchandise; (2) conversion operations
required only “minimal” capital investment and expertise; and (3)
conversion did not alter the JRs’ end use, mechanical properties,
or essential characteristic. See id. at 6–12. Commerce also
declined to include an anti-circumvention inquiry in its country of
origin analysis. Id. at 13–15.
Commerce upheld the results of its preliminary determination
in the Final Scope Ruling. See PR 2/32 at 3–4. Additionally,
Commerce declined Appvion’s request to impose a mandatory country
Consol. Court No. 12-00116 Page 5
of origin certification program on Hanhong and Paper Resources
because it did not first make an affirmative determination that
either party circumvented the Orders. Id. at 6.
Appvion challenges Commerce’s scope determination and the
decision not to impose a mandatory country of origin certification
program. See Pl.’s Br. Supp. Mot. J. Agency R. at 2–4 (“Pl.’s
Br.”). The court held oral argument on June 27, 2013. Oral
Argument, Appleton Papers Inc. v. United States, Consol. Ct. No.
12-00116 (Ct. Int’l Trade June 27, 2013) (“Oral Arg.”).
JURISDICTION
The Court has jurisdiction over this matter pursuant to
section 516A(a)(2)(B)(vi) of the Tariff Act of 1930 (the “Act”),4
as amended, 19 U.S.C. § 1516a(a)(2)(B)(vi) (2006), and 28 U.S.C. §
1581(c).
STANDARD OF REVIEW
This Court must uphold Commerce’s scope determination 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 is ‘such relevant evidence
as a reasonable mind might accept as adequate to support a
conclusion.’” Huaiyin Foreign Trade Corp. (30) v. United States,
322 F.3d 1369, 1374 (Fed. Cir. 2003) (quoting Consol. Edison Co. v.
4
All further references to the Act will be to the relevant
provisions of Title 19 of the United States Code, 2006 edition, and
all applicable supplements thereto.
Consol. Court No. 12-00116 Page 6
NLRB, 305 U.S. 197, 229 (1938)). This Court grants “significant
deference to Commerce’s interpretation of its own orders,”
Allegheny Bradford Corp. v. United States, 28 CIT 830, 842, 342 F.
Supp. 2d 1172, 1183 (2004), “[h]owever, Commerce cannot ‘interpret’
an antidumping order so as to change the scope of that order, nor
can Commerce interpret an order in a manner contrary to its terms.”
Duferco Steel, Inc. v. United States, 296 F.3d 1087, 1095 (Fed.
Cir. 2002) (citing Eckstrom Indus., Inc. v. United States, 254 F.3d
1068, 1072 (Fed. Cir. 2001)).
“Courts look for a reasoned analysis or explanation for an
agency’s decision as a way to determine whether a particular
decision is arbitrary, capricious, or an abuse of discretion.”
Wheatland Tube Co. v. United States, 161 F.3d 1365, 1369 (Fed. Cir.
1998). “An abuse of discretion occurs where the decision is based
on an erroneous interpretation of the law, on factual findings that
are not supported by substantial evidence, or represent an
unreasonable judgment in weighing relevant factors.” WelCom
Prods., Inc. v. United States, 36 CIT __, __, 865 F. Supp. 2d 1340,
1344 (2012) (citing Star Fruits S.N.C. v. United States, 393 F.3d
1277, 1281 (Fed. Cir. 2005)). “[A]n agency action is arbitrary
when the agency offers insufficient reasons for treating similar
situations differently.” SKF USA Inc. v. United States, 263 F.3d
1369, 1382 (Fed. Cir. 2001).
Consol. Court No. 12-00116 Page 7
DISCUSSION
Appvion does not argue that the conversion process in the PRC
substantially transformed the [[ ]] JRs. Oral Arg. at 14:05;
see CR 2/8 at 6 (“Paper Resources is correct that [Appvion] does
not contend that the converting operations are sufficient to
transform [JRs].”). Instead, Appvion argues that Paper Resources’s
LWTP is subject merchandise because the Orders cover all LWTP
converted in the PRC. Pl.’s Br. at 12–15. Accordingly, Appvion
insists it was inappropriate for Commerce to conduct a substantial
transformation analysis. Id. at 20. Appvion also argues that
Commerce abused its discretion by declining to consider evidence of
circumvention in its scope ruling. See id. at 22–26. Finally,
Appvion contends that Commerce’s failure to impose a mandatory
country of origin certification program was arbitrary, capricious,
and an abuse of discretion. See id. at 27–30.
I. Commerce’s Interpretation of the Scope Language
Appvion argues that the Orders cover all LWTP converted in the
PRC, regardless of the origin of the underlying JRs. Id. at 13.
According to Appvion, Commerce abused its discretion by using the
substantial transformation test to “preclude[] relief for a portion
of subject merchandise,” namely, LWTP converted in the PRC using
JRs from a third country. Id. at 20. However, Appvion fails to
demonstrate that Commerce altered the scope of the Orders or
misapplied the substantial transformation test.
Consol. Court No. 12-00116 Page 8
“‘Commerce cannot interpret an antidumping order so as to
change the scope of that order, nor can Commerce interpret an order
in a manner contrary to its terms.’” King Supply Co. v. United
States, 674 F.3d 1343, 1348 (Fed. Cir. 2012) (quoting Walgreen Co.
v. United States, 620 F.3d 1350, 1354 (Fed. Cir. 2010)). “While
the petition, factual findings, legal conclusions, and preliminary
orders can aid in the analysis, they cannot substitute for the
language of the order itself, which remains the ‘cornerstone’ in
any scope determination.” Walgreen, 620 F.3d at 1357 (citing
Duferco Steel, 296 F.3d at 1097). Therefore, it is the “explicit
terms” of an order that “must control [Commerce’s] subsequent
decisions in scope rulings.” Gleason Indus. Prods., Inc. v. United
States, 31 CIT 393, 398 (2007) (not reported in the Federal
Supplement) (citing Duferco Steel, 296 F.3d at 1096–97).
Appvion cannot demonstrate that Commerce unlawfully altered
the scope of the Orders. AD and CVD orders cover a particular
class or kind of merchandise from a particular country. See 19
U.S.C. §§ 1671, 1673; Ugine & ALZ Belg., N.V. v. United States, 31
CIT 1536, 1550, 517 F. Supp. 2d 1333, 1345 (2007) (“Commerce’s [AD]
and CVD orders must specify both the class or kind of merchandise
and the particular country from which the merchandise
originates.”), aff’d after remand, 551 F.3d 1339 (Fed. Cir. 2009).
The Orders state that “[b]oth jumbo and converted rolls . . . are
covered by the scope of these orders.” CVD Order, 73 Fed. Reg. at
Consol. Court No. 12-00116 Page 9
70,958 n.1. Accordingly, the Orders cover JRs and converted rolls
of Chinese origin. Ugine, 31 CIT at 1550, 517 F. Supp. 2d at 1345.
The scope definition simply does not address whether LWTP converted
in the PRC using JRs from a third country is subject merchandise.
Because it did not alter the plain meaning of the Orders,
Commerce’s decision to conduct a country of origin analysis was
reasonable.5 See id. at 1551, 517 F. Supp. 2d at 1345 (“[I]f
merchandise does not meet one of the parameters — either class or
kind, or country of origin — it is outside the scope of the [AD] or
CVD order.”).
Appvion also argues that Commerce abused its discretion by
using the substantial transformation analysis to exclude otherwise
subject LWTP from the scope of the Orders. Pl.’s Br. at 20.
According to Appvion, application of the substantial transformation
test, and specifically the change in class or kind factor, is
improper in cases where the scope covers upstream and downstream
5
Appvion also argues that Commerce’s interpretation of the
scope language does not reflect the intent of the petition, as it
intended the Orders to cover all LWTP converted in the PRC when
drafting the proposed scope language. See Pl.’s Br. at 15.
However, Appvion does not identify any evidence in the record
supporting this assertion. See Pl.’s Br. at 15; PR 2/32 at 4
(“[T]here was no specific discussion during the investigation of
LWTP, in either the AD or CVD segments, as to whether JRs produced
in a third-country and converted in the PRC would be subject to the
[Orders].”); cf. Minebea Co. v. United States, 16 CIT 20, 22–24,
782 F. Supp. 117, 120–121 (1992) (Tsoucalas, J.) (finding that the
an order covered certain products not explicitly mentioned in the
scope definition where petition and numerous post-petition
submissions evidenced petitioner’s intent to include those products
within the scope), aff’d, 984 F.2d 1178 (Fed. Cir. 1993).
Consol. Court No. 12-00116 Page 10
forms of a product and manufacturing occurs across multiple
countries. Id. In such cases, Appvion contends, the downstream
processing “inherently cannot be sufficient to move the merchandise
from one class or kind to another,” and always indicates that a
substantial transformation did not occur. Id.Appvion admitted before Commerce and the court that conversion
was not a substantial transformation. See CR 2/8 at 6; Oral Arg.
at 14:05. To the extent that Appvion is challenging the propriety
of Commerce’s use of the substantial transformation analysis,
however, this argument is unconvincing. This Court has upheld
Commerce’s use of the substantial transformation analysis as a
means of determining the country of origin of merchandise produced
in multiple countries. See E.I. DuPont de Nemours & Co. v. United
States, 22 CIT 370, 373–76, 8 F. Supp. 2d 854, 858–59 (1998)
(applying Chevron deference to the substantial transformation
test). The substantial transformation test “provides a yardstick
for determining whether the processes performed on merchandise in
a country are of such significance as to require that the resulting
merchandise be considered the product of the country in which the
transformation occurred.” Id. at 373–74, 8 F. Supp. 2d at 858.
This is precisely the analysis that Commerce undertook below with
regards to the conversion process. See CR 2/11 at 6–12; PR 2/32 at
3–4. As the JRs from [[ ]] were not substantially transformed
in the PRC, they were not of Chinese origin. See DuPont, 22 CIT at
Consol. Court No. 12-00116 Page 11
373–74, 8 F. Supp. 2d at 858. Accordingly, Paper Resources’s LWTP
was never subject merchandise. See Ugine, 31 CIT at 1551, 517 F.
Supp. 2d at 1345.
Ultimately, Appvion’s argument boils down to its claim that
the Final Scope Ruling denies relief from dumped LWTP from the PRC.
Pl.’s Br. at 15. Appvion insists that Commerce’s determination
forces the filing of numerous petitions against any and all
countries from which Hanhong sources its JRs. See id. at 15.
According to Appvion, this result is unreasonable because relief
may be denied if fair trade practices mask dumping or total import
volume does not surpass negligibility thresholds. Id. at 15–17.
As Commerce did not articulate a “statutorily consistent mechanism”
by which Appvion can obtain relief, Appvion insists that Commerce’s
decision is erroneous. Id. at 15.
Appvion simply fails to articulate a legal basis by which to
determine that Paper Resources’s LWTP is within the scope of the
Orders. Commerce was not required to include the LTWP within the
scope of the Orders simply because it was converted by Hanhong.
See DuPont, 22 CIT at 375, 8 F. Supp. 2d at 859 (“[A]ntidumping
orders apply to merchandise from particular countries, not
individual producers . . . .”). Rather, the dispositive issue was
the country of origin. See Ugine, 31 CIT at 1551, 517 F. Supp. 2d
at 1345. And, as stated above, the country of origin of Paper
Resources’s LWTP was [[ ]], not the PRC.
Consol. Court No. 12-00116 Page 12
II. Circumvention
Appvion also argues that Commerce abused its discretion by
failing to consider evidence that Hanhong and Paper Resources were
circumventing the Orders. See Pl.’s Br. at 22–26. According to
Appvion, Hanhong’s “shift to third-country suppliers represents a
change in the commercial practices (e.g., pattern of trade)
indicating circumvention of existing relief.” Id. at 23. Appvion
insists that Commerce also should have considered the following
evidence: Hanhong and Paper Resources waited three years to request
a scope ruling from Commerce; Paper Resources [[
]]; Hanhong
and Paper Resources [[
]]; and Hanhong [[
]]. See Pl.’s Br. at 23–26.
Generally, Commerce addresses circumvention issues under 19
U.S.C. § 1677j, which grants it the power to include merchandise
within the scope of an order where that merchandise is of the same
class or kind as the covered merchandise and a large portion of the
merchandise’s value is derived from production in a covered
country, but minor downstream processing or assembly occurs in the
U.S. or a third country. See 19 U.S.C. § 1677j. Additionally,
Commerce has discretion to consider evidence of circumvention as
part of a country of origin analysis. See Issues and Decision
Memorandum for the Less-Than-Fair-Value Investigation of Certain
Consol. Court No. 12-00116 Page 13
Artist Canvas from the PRC at 7, Case No. A-570-899 (Mar. 22, 2006)
(recognizing that Commerce “may consider” the potential for
circumvention of an order in its country of origin analysis).
Commerce’s discretion is not unlimited, however, as it may not use
circumvention evidence to expand the scope of an order. E. Jordan
Iron Works, Inc. v. United States, 32 CIT 419, 422, 556 F. Supp. 2d
1355, 1358 (2008).
Here, Commerce declined to consider evidence of circumvention
for several reasons. See CR 2/11 at 13–15. First, Commerce
explained that the Orders did not cover [[ ]], the country in
which the JRs are produced, and therefore there was no concern that
relief under the Orders would be “eviscerated by moving minor
processing outside the country covered by the order.” Id. at 14.
Second, Commerce noted that the case did not lend itself to a
section 1677j analysis because downstream processing occurred in
the covered country rather than in the U.S. or a third country.
Id. at 14–15. Commerce also noted that this Court previously
upheld scope determinations conducted without considering evidence
of circumvention. Id. at 15.
Commerce’s decision was adequately explained and consistent
with the law. This Court has held that “a ‘scope ruling is not the
proper mechanism for addressing circumvention concerns.’” See
Laminated Woven Sacks Comm. v. United States, 34 CIT __, __, 716 F.
Supp. 2d 1316, 1328 (2010) (Tsoucalas, J.) (quoting E. Jordan Iron
Consol. Court No. 12-00116 Page 14
Works, 32 CIT at 422, 556 F. Supp. 2d at 1358). Moreover, because
conversion did not substantially transform the [[ ]] JRs, CR
2/11 at 6–12 (unchanged in PR 2/32), Commerce risked expanding the
scope of the Orders by considering evidence of potential
circumvention. See E. Jordan Iron Works, 32 CIT at 422, 556 F.
Supp. 2d at 1358. Accordingly, Appvion cannot demonstrate that
Commerce abused its discretion.
III. Country of Origin Certification
Finally, Appvion argues that Commerce’s failure to impose a
mandatory country of origin certification program was arbitrary,
capricious, and an abuse of discretion. See Pl.’s Br. at 27.
Appvion insists that Commerce ignored evidence in the record
evidencing a “high likelihood of past and current circumvention.”
Id. Appvion also argues that Commerce failed to explain why it
treated the instant case differently than other cases in which it
imposed country of origin and end-use certification programs
without an affirmative finding of circumvention. Id. at 28–30.
Commerce has a certain amount of discretion to act in order to
“prevent[] the intentional evasion or circumvention” of the Act.
See Tung Mung Dev. Co. v. United States, 26 CIT 969, 979, 219 F.
Supp. 2d 1333, 1343 (2002), aff’d, 354 F.3d 1371 (Fed. Cir. 2004).
To that end, Commerce may impose measures such as mandatory
certification programs where it believes they will be effective in
preventing future circumvention of its orders. See, e.g., Issues
Consol. Court No. 12-00116 Page 15
and Decision Memorandum for the Final Determination of the
Anticircumvention Inquiry of Certain Tissue Paper Products from the
PRC at 9–12, Case No. A-570-894 (Sept. 19, 2008) (imposing country
of origin certification requirements to address circumvention).
Appvion fails to demonstrate that Commerce abused its
discretion or acted in an arbitrary and capricious manner. First,
this Court has held that “certification is not part of an ordinary
scope analysis.” Laminated Woven Sacks, 34 CIT at __, 716 F. Supp.
2d at 1328. Second, Commerce adequately explained its decision.
In the Preliminary Scope Ruling, Commerce explained that Appvion’s
country of origin concerns could be “appropriately dealt with by
[Customs and Border Protection].” CR 2/11 at 6. In the Final
Scope Ruling, Commerce did not impose a country of origin
certification program because it did not make an affirmative
finding of circumvention. See PR 2/32 at 6. As Commerce
explained, there was “no precedent of [Commerce] establishing a
certification program to preempt unfounded circumvention.”6 Id.Commerce also noted that end-use certification cases are not
6
Appvion argues that Commerce’s decision was inconsistent
with Crystalline Silicon Photovoltaic Cells, Whether or Not
Assembled Into Modules, From the PRC: Preliminary Determination of
Sales at Less Than Fair Value, Postponement of Final Determination
and Affirmative Preliminary Determination of Critical
Circumstances, 77 Fed. Reg. 31,309 (May 25, 2012) (“Silicon
Cells”), in which it imposed country of origin certification
without an affirmative finding of circumvention. Pl.’s Br. at 28.
To the extent that Silicon Cells altered Commerce’s policy, it is
not relevant here because it was issued after the Final Scope
Ruling. Silicon Cells, 77 Fed. Reg. at 31,309.
Consol. Court No. 12-00116 Page 16
relevant because they involve different concerns — “avoid[ing]
liquidation of components intended to be used for subject
merchandise.” Id. Because Commerce provided a “reasoned analysis”
of its decision, the court finds that Commerce neither abused its
discretion nor acted in an arbitrary and capricious manner. See
Wheatland Tube, 161 F.3d at 1369.
CONCLUSION
For the foregoing reasons, the court finds that the Final
Scope Ruling is supported by substantial evidence on the record and
is otherwise in accord with the law.
/s/ Nicholas Tsoucalas
Nicholas Tsoucalas
Senior Judge
Dated: July 11, 2013
New York, New York