U.K. Carbon & Graphite Co. v. United States , 931 F. Supp. 2d 1322 ( 2013 )

Slip Op. 13- ŗŗŚ
UNITED STATES COURT OF INTERNATIONAL TRADE
U.K. CARBON AND GRAPHITE CO., LTD.,
Plaintiff,
. v.
UNITED STATES, Before: Gregory W. Carman, Judge
Defendant, Court No. 12-00242
and
SGL CARBON, LLC and
SUPERIOR GRAPHITE CO.,
Defendant-Intervenors.
OPINION & ORDER
[Commerce’s Circumvention Final Determination is sustained.]
Dated: August 29, 2013
Jeffrey S. Neeley, Michael S. Holton, and Stephen W. Brophy, Barnes, Richardson &
Colburn, of Washington, DC, for Plaintiff.
Melissa M. Devine, Trial Attorney, Commercial Litigation Branch, Civil Division,
United States Department of Justice, of Washington, DC, for Defendant. With her on
the brief were Stuart F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson,
Director, and Reginald T. Blades, Jr., Assistant Director. Of counsel on the brief was
Daniel J. Calhoun, Attorney, Office of the Chief Counsel for Import Administration,
United States Department of Commerce.
Court No. 12-00242 Page 2
Mary T. Staley, David A. Hartquist, Katherine E. Wang and R. Alan Luberda, Kelley
Drye & Warren, LLP, of Washington, DC, for Defendant-Intervenors.
CARMAN , JUDGE: Plaintiff U.K. Carbon and Graphite Company, Ltd. (“Plaintiff”
or “UKCG”) contests the final determination by Defendant United States Department of
Commerce (“Defendant” or “Commerce”) regarding the circumvention1 inquiry related
to the antidumping duty order covering small diameter graphite electrodes from the
People’s Republic of China (“China”). See Small Diameter Graphite Electrodes From the
People’s Republic of China: Affirmative Final Determination of Circumvention of the
Antidumping Duty Order, 77 Fed. Reg. 47,596 (Aug. 9, 2012) (“Final Determination”), Part
2, P.R.2 76, and accompanying Issues and Decision Memorandum for the Final Determination
of the Anticircumvention Inquiry (July 31, 2013) (“I&D Memo”), Part 2, P.R. 73. The Court
denies Plaintiff’s motion for judgment on the agency record and sustains Defendant’s
Final Determination.
BACKGROUND
A. Antidumping Duty Order
The product at issue is small diameter graphite electrodes (“SDGE”). In 2009,
1
“Circumvention” and “anticircumvention” are used interchangeably
throughout the administrative record and this opinion.
2
“P.R.” refers to the public administrative record and “C.R.” refers to the
confidential administrative record. The public and confidential record each appear in
two parts on separate compact discs.
Court No. 12-00242 Page 3
Commerce imposed an antidumping duty order upon imports of SDGE from China.
Antidumping Duty Order: Small Diameter Graphite Electrodes from the People’s Republic of
China, 74 Fed. Reg. 8,775 (Feb. 26, 2009) (“AD Order” or “SDGE Order”). The scope of
the AD Order covers:
all small diameter graphite electrodes of any length, whether
or not finished, of a kind used in furnaces, with a nominal or
actual diameter of 400 millimeters (16 inches) or less, and
whether or not attached to a graphite pin joining system or any
other type of joining system or hardware. The merchandise
covered by this order also includes graphite pin joining
systems for small diameter graphite electrodes, of any length,
whether or not finished, of a kind used in furnaces, and
whether or not the graphite pin joining system is attached to,
sold with, or sold separately from, the small diameter graphite
electrode. Small diameter graphite electrodes and graphite pin
joining systems for small diameter graphite electrodes are most
commonly used in primary melting, ladle metallurgy, and
specialty furnace applications in industries including
foundries, smelters, and steel refining operations. Small
diameter graphite electrodes and graphite pin joining systems
for small diameter graphite electrodes that are subject to this
order are currently classified under the Harmonized Tariff
Schedule of the United States (‘‘HTSUS’’) subheading
8545.11.0000. The HTSUS number is provided for convenience
and customs purposes, but the written description of the scope
is dispositive.
Id. at 8,775.
B. Circumvention Inquiry
On October 12, 2010, domestic producers of SDGE—SGL Carbon LLC and
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Superior Graphite Company, Defendant-Intervenors in the instant case (collectively
referred to as “Defendant-Intervenors” or “Petitioners”)—requested that Commerce
conduct a scope or an anticircumvention inquiry on SDGE produced by UKCG from
Chinese manufactured artificial/synthetic graphite forms. See Petitioners’ Request for
Scope Review or Anticircumvention Inquiry (Oct. 12, 2010) (“Initiation Request”), Part 1, P.R.
1. Petitioners alleged that UKCG was part of “an ongoing scheme to evade payment of
antidumping duties under the SDGE Order” with Chinese producers. Id. at 1-2.
Petitioners alleged that UKCG was first importing unfinished SDGE from China to the
U.K. “for minor completion or assembly” then exporting to the U.S., thereby
circumventing the AD Order duty assessment by improperly claiming the U.K. as the
country of origin on entry papers. Id. at 2.
Petitioners asserted the SDGE that UKCG imported was “for every relevant
purpose an unfinished graphite electrode subject to the antidumping duty order when
it leaves China,” because “[a]ll of the physical, chemical and performance characteristics
of an electrode have been given to the product in China.” Id. at 14. Petitioners
explained that
[i]t is an electrode in unfinished form at that point, regardless of
whether it is called a rod or an electrode. The rod or unfinished
electrode needs only final finishing (sizing, threading, fitting
ends of electrode with a graphite pin joining system, etc.)
[which] are merely machining operations and do not impart
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the essential performance characteristics of the product.
Id. at 14 (emphasis added).
Commerce acknowledged that there was “substantial record evidence which
may support the initiation of either” a scope inquiry or an anticircumvention inquiry.
Small Diameter Graphite Electrodes From the People’s Republic of China: Initiation of Anti-
Circumvention Inquiry, 76 Fed. Reg. 14,910, 14,912 (Mar. 18, 2011) (“Initiation Notice”).
Commerce decided that an anticircumvention inquiry was the more appropriate avenue
given the “specificity” of the allegation to a single company and “certain record
information as to the timing of the pattern of trade.” Id.UKCG provided timely responses to Commerce’s information requests, and all
parties submitted timely comments regarding surrogate country and surrogate value
selection. Def.’s Mem. in Opp’n to Pl.’s R. 56.2 Mot. for J. upon the Agency Record
(“Def.’s Opp’n”) at 5. Commerce also conducted a verification of UKCG’s questionnaire
responses at two of its U.K. facilities during February 16-17, 2012. Pl. UKCG’s Mem. of
Law in Supp. of Their R. 56.2 Mot. for J. on the Agency Record (“Pl.’s Mot.”) at 6, 38;
Def.’s Opp’n at 5.
C. Preliminary Determination
In June 2012, Commerce subsequently issued a preliminary affirmative
determination of circumvention. See Small Diameter Graphite Electrodes From the People’s
Court No. 12-00242 Page 6
Republic of China: Affirmative Preliminary Determination of Circumvention of the
Antidumping Duty Order and Extension of Final Determination, 77 Fed. Reg. 33,405 (June 6,
2012) (“Preliminary Determination”). In its Preliminary Determination, Commerce first
found that the products exported by UKCG to the U.S. were completed or assembled in
the U.K. from “unfinished” Chinese-origin inputs “subject to” the AD Order, based
upon the scope language and product descriptions from the petition and the report of
the International Trade Commission (“ITC”). Id. at 33,410-11; Small Diameter Graphite
Electrodes from China, Inv. No. 731-TA-1143 (Final), ITC Pub. 4062 (Feb. 2009) (“ITC
Report”). Commerce therefore determined that it was appropriate to use the surrogate
value methodology from antidumping proceedings for non-market economy (“NME”)
countries. Id. at 33,407-08.
Second, Commerce determined to use surrogate values from the Ukraine to
analyze whether the value of the merchandise produced in China constituted a
“significant portion” of the value of the merchandise exported to the United States. Id.
at 33,407-08, 33,415. Third, Commerce determined that the value of UKCG’s processing
in the U.K. was “minor and insignificant.” Id. at 33,417. Commerce therefore
preliminarily determined that UKCG had circumvented the antidumping duty order.
Id.Court No. 12-00242 Page 7
D. Final Determination
A couple months after issuing its Preliminary Determination, Commerce issued its
Final Determination. See 77 Fed. Reg. 47,596. The significant changes in the Final
Determination from the Preliminary Determination are summarized as follows. First,
regarding the product covered by the scope language, Commerce “specifically refuted
UKCG’s allegation that the agency manipulated language from the petition to
supplement its textual analysis,” and after taking into account evidence submitted by
UKCG, Commerce “determined that this evidence ‘d[id] not overcome [the] explicit
inclusion’ of unfinished [SDGE] in the order.” Def.’s Opp’n at 7 (quoting I&D Memo at
6). Second, Commerce added HTSUS 3801.10 to the description of the AD Order’s scope
for “convenience and customs purposes.” Id. at 8.
Third, with respect to surrogate values, Commerce noted the circumvention
provisions of the antidumping statute do not “prescribe a specific method to determine
whether the value of the merchandise produced in China is a significant portion of the
value of the merchandise exported to the United States.” Id. Noting that the
antidumping statute “elsewhere presumes that costs and prices” from a NME are
“inherently unreliable,” Commerce, “consistent with its past practice, found it
reasonable to use surrogate values” from the Ukraine. Id. However, Commerce also
noted that its circumvention analysis showed the Chinese inputs made up a significant
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portion of the value UKCG’s U.S. exports, “regardless of whether it used Ukrainian
surrogate values or UKCG’s purchase price,” and that the choice to use surrogate
values was therefore not essential to the outcome. Id. (citing I&D Memo at 7).
Fourth, Commerce rejected UKCG’s complaints about its value-added
calculation under 19 U.S.C. § 1677j(b)(2)(E) (2006)3 for three reasons: (1) the other
statutory factors in 19 U.S.C. § 1677j(b)(2)(A)-(D), which were not challenged by UKCG,
supported Commerce’s analysis and (b)(2)(E) was therefore not dispositive; (2)
Commerce’s “qualitative finding as to value-added was sufficient;” and (3) Commerce’s
“use of UKCG’s processing costs, rather than UKCG’s actual costs of Chinese-origin
inputs, when calculating quantitative value-added was proper.” Id. at 8-9 (citing I&D
Memo at 8-12).
Fifth, relating to the cash deposit requirements, Commerce explained that it is
“appropriate and consistent with past practice to assign UKCG’s exports of SDGE to the
United States the rate applicable to the relevant [Chinese]-producer of the subject input”
since 19 U.S.C. § 1677j(b)(1)(E) requires Commerce to prevent evasion of antidumping
duties “irrespective of the exporter” of the subject merchandise being entered into the
U.S. Id. at 9 (citing I&D Memo at 14-15).
3
All references to the United States Code refer to the 2006 edition, unless
otherwise stated.
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STANDARD OF REVIEW
The Court has jurisdiction pursuant to 28 U.S.C. § 1581(c). The Court sustains
circumvention determinations, findings or conclusions by Commerce unless they are
“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 “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. Nat’l Labor Relations Bd., 340 U.S. 474, 477 (1951)
(internal quotation omitted). 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).
DISCUSSION
Commerce has two types of inquiries available when examining allegations that a
particular product should be covered by an existing antidumping order: scope inquiry or
circumvention inquiry. Petitioners requested an examination of UKCG’s product
through both of these avenues, in the alternative. See Def.’s Opp’n at 4; accord Initiation
Request. In a scope inquiry, Commerce analyzes “whether a particular product is
included within the scope of an order” pursuant to regulatory criteria set forth in 19
C.F.R. § 351.225(k). In a circumvention inquiry, Commerce analyzes whether a product
Court No. 12-00242 Page 10
outside an order’s literal scope should nevertheless be included within the scope to
prevent circumvention of antidumping and countervailing duty orders pursuant to
statutory criteria set forth in 19 U.S.C. § 1677j4 and regulatory criteria in 19 C.F.R.
§ 351.225(g)-(j).
Based on these particular facts, Commerce decided that the issues raised by the
parties are “better addressed in the context of an anticircumvention proceeding” rather
than a scope inquiry. Initiation Notice, 76 Red. Reg. at 14,912. Commerce explained that
“due to the specificity of Petitioners’ request as it pertains to a particular company (i.e.,
UKCG) and certain record information as to the timing of the pattern of trade. . .,
[Commerce] has determined that a decision to initiate an anti-circumvention inquiry is
the most appropriate course of action to address Petitioners’ concerns at present.” Id.An anticircumvention inquiry is similar to the more frequently invoked scope
inquiry because they are both subsets of a scope ruling. The criteria for circumvention
and scope inquiries differ, however:
[A]nticircumvention inquiries are not like traditional scope
inquiries conducted pursuant to 19 C.F.R. § 351.225(k).
Instead, anticircumvention determinations are a special subset
4
There are four types of circumvention inquires: (a) merchandise
completed/assembled in the United States; (b) merchandise completed/assembled in a
third country; (c) minor alterations of merchandise; and (d) later-developed
merchandise. See 19 U.S.C. § 1677j(a)-(d). This instant action triggers subsection (b),
merchandise completed in a third country.
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of scope rulings as recognized by 19 C.F.R. § 351.225[(g)-(j)],
and they are the only types of scope rulings governed by a
specific statutory scheme. See generally 19 U.S.C. § 1677(j). . . .
[Therefore,] subsection (k) factors do not apply to
circumvention scope inquiries.
Def.’s Opp’n at 27-28. The Court may only review the underlying proceeding that
Commerce chose to conduct, which is the anticircumvention inquiry in this case, and
therefore any discussion relating to the scope factors pursuant to 19 C.F.R. § 351.225(k) is
extraneous and will be disregarded for this review.
A. Statutory Framework for Circumvention Inquiries
Circumvention cases are governed by 19 U.S.C. § 1677j. See Pl.’s Mot. at 27;
Def.’s Opp’n at 14. When merchandise is completed or assembled in a third country
other than the country named in the antidumping order, as is the case here, the relevant
provision is 19 U.S.C. § 1677j(b), which provides, in pertinent part:
(b) Merchandise completed or assembled in other
foreign countries
(1) In general
If—
(A) merchandise imported into the United States
is of the same class or kind as any merchandise produced
in a foreign country that is the subject of—
(i) an antidumping duty order issued under
section 1673e of this title,. . .
(B) before importation into the United States,
such imported merchandise is completed or assembled in
another foreign country from merchandise which—
(i) is subject to such order or finding, or
Court No. 12-00242 Page 12
(ii) is produced in the foreign country with
respect to which such order or finding applies,
(C) the process of assembly or completion in the
foreign country referred to in subparagraph (B) is minor or
insignificant,
(D) the value of the merchandise produced in the
foreign country to which the antidumping duty order
applies is a significant portion of the total value of the
merchandise exported to the United States, and
(E) the administering authority determines that
action is appropriate under this paragraph to prevent
evasion of such order or finding,
the administering authority, after taking into account any
advice provided by the Commission under subsection (e) of
this section, may include such imported merchandise within
the scope of such order or finding at any time such order or
finding is in effect.
(2) Determination of whether process is minor or
insignificant
In determining whether the process of assembly or
completion is minor or insignificant under paragraph (1)(C),
the administering authority shall take into account—
(A) the level of investment in the foreign country,
(B) the level of research and development in the
foreign country,
(C) the nature of the production process in the
foreign country,
(D) the extent of production facilities in the
foreign country, and
(E) whether the value of the processing
performed in the foreign country represents a small
proportion of the value of the merchandise imported into
the United States.
(3) Factors to consider
In determining whether to include merchandise
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assembled or completed in a foreign country in. . . an
antidumping duty order. . . , the administering authority shall
take into account such factors as—
(A) the pattern of trade, including sourcing
patterns,
(B) whether the manufacturer or exporter of the
merchandise described in paragraph (1)(B) is affiliated with
the person who uses the merchandise described in
paragraph (1)(B) to assemble or complete in the foreign
country the merchandise that is subsequently imported into
the United States, and
(C) whether imports into the foreign country of
the merchandise described in paragraph (1)(B) have
increased after the initiation of the investigation which
resulted in the issuance of such order or finding.
19 U.S.C. § 1677j(b). Commerce considers whether the criteria listed under 19 U.S.C.
§ 1677j(b)(1) are satisfied by considering the factors listed in 19 U.S.C. § 1677j(b)(2) and
(3). However, none of the factors listed under 19 U.S.C. § 1677j(b)(2) or (3) is
controlling.5 Commerce’s authority to apply subsection (b) requires that “there must be
some processing taking place in the third-country,” in this case the U.K., for Commerce
“to determine whether the merchandise is subject to the order.” Globe Metallurgical Inc.
v. U.S., 34 CIT __, 722 F. Supp. 2d 1372, 1379 (2010). Therefore, a breakdown and
understanding of UKCG’s SDGE production process is essential to Commerce’s analysis
and to the Court’s review.
5
The only regulatory instruction for 19 U.S.C. § 1677j(b) inquiries is that no
“single factor” will “be controlling.” 19 C.F.R. § 351.225(h).
Court No. 12-00242 Page 14
B. Production of SDGE
Defendant-Intervenors provided the following description of the production
process for SDGE, which was taken from the Chinese respondents’ Section D
questionnaire responses in the antidumping duty investigation:
Stage 1: Calcining:6 In this production process, petroleum
coke becomes calcined petroleum coke by heating the
petroleum coke at extreme temperatures over [a period of
time].7
Stage 2: Crushing: In this stage, calcined petroleum coke
or imported needle coke are crushed in a series of roller mills
into fine grains for about half an hour.
Stage 3: Screening: The crushed and ground calcined
petroleum coke or imported needle coke are divided into
different sizes of grains or powders with the use of a
vibrating sift over approximately a half an hour of
processing.
Stage 4: Burdening: The screened coke grains or powders
are mixed and prepared in accordance with a recipe, which
takes approximately a half hour.
6
To calcine, in general, is “to heat (as inorganic materials) to a high temperature
but without fusing in order to effect useful physical and chemical changes.” Webster’s
Third New International Dictionary 315 (1981). In the case at hand, according to a
producer of SDGE in China, calcining is when “petroleum coke burns in a spinning kiln
heated by burning volatile elements to 1,380 degree Celsius. During the burning, the
petroleum coke becomes calcined petroleum coke and the high temperature tail gas, a
by-product from burning volatile elements, is used to generate steam which will be
used in the subsequent coal tar pitch preparing stage.” Initiation Request, Exhibit DA-2,
at 240, Part 1, P.R. 1.
7
Some amounts of time for the various stages are protected as business
proprietary information so general amounts of time have been given in brackets in these
instances.
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Stage 5: Preparing Coal Tar Pitch: Raw coal tar pitch is
melted for [a number of] hours to remove the moisture and
certain residues.
Stage 6: Kneading: The coke stock from the burdening
stage and the prepared coal tar pitch are blended and mixed
together for [a period of time] to create a mixture that is used
in the next stage, forming.
Stage 7: Forming: The paste from the kneading stage is
cooled and then put through an extrusion press to shape the
cylindrical column form of the electrode. This process takes
[a period of time].
Stage 8: Baking: The cylindrical column form is moved
into a baking oven where they [sic] will remain for [a period
of time].
Stage 9: Impregnation: The baked electrode will be pre-
heated and then placed into an impregnation tank that is
filled with melted pitch. The pitch will be impregnated into
the electrode to fill the pores and increase the strength of the
electrode. This process takes [a period of time].
Stage 10: Re-Baking: The impregnated electrode will be
put into a baking oven and heated to coke the pitch in the
impregnated electrode, by passing the electrode from a
tunnel kiln, inverse-flame calciners, and open calciners for
[a period of time].
Stage 11: Graphitization: In this stage, the electrode
undergoes graphitization, where the carbon electrode is
transformed into a graphitized electrode. It takes [a period of
time] to complete graphitization.
Stage 12: Machining: After the graphitized electrode is
cooled, it will go through two additional minor processes:
shaping of the surface and ends of the electrode to exact size
and dimensions; and, tooling and fitting of the ends of the
electrode with a threaded graphite connecting pin (a hole is
bore [sic] into the ends of the electrode, which is then
threaded). In addition, threads are added to the connecting
pin. In total, this process takes about [a period of] minutes to
complete an electrode.
Stage 13: Packaging: In this process, the electrode is
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placed in a wooden crate with foam end caps placed over the
ends of the electrode to protect the threading.
When summed together, the production process takes [a
substantial number of] days.
Def.-Intervenors’ Resp. Br. (“Def.-Ints.’ Opp’n”) at 4-6 (citations omitted). These
thirteen stages of production take place over a substantial number of days, and the first
eleven stages are done in China. Id. at 13. The record shows that only the finishing is
done by UKCG in the U.K., and Commerce determined at verification that finishing
“takes approximately five minutes per electrode.” Verification of Responses of U.K. Carbon
& Graphite Co. Ltd. in the Anti-Circumvention Inquiry of Small Diameter Graphite Electrodes
From the People’s Republic of China at 15 (May 30, 2012) (“Verification”), Part 2, P.R. 53; Part
4, C.R. 46.
C. Analysis
1. Parties’ Issues
Commerce claims that only subsections 19 U.S.C. § 1677j(b)(1)(B) and (C) of the
circumvention statute are at issue in this case, requiring only determinations of whether
the imports of SDGE are completed abroad from Chinese subject merchandise and, if so,
whether the process of assembly or completion in the U.K. is minor or insignificant.
Def.’s Opp’n at 15. But Plaintiff lists eight issues in its motion, including “plain
language” issues relevant to a scope inquiry, and concerns about use of surrogate value
Court No. 12-00242 Page 17
for UKCG’s production inputs. Pl.’s Mot. at 1-2. Upon review of all parties’ briefs, the
Court boils down the arguments to four main issues:
1. Whether Commerce’s finding that the artificial graphite
rods used as inputs in UKCG’s production are subject to the
scope of the AD Order is supported by substantial evidence
on the record or otherwise in accordance with law.
2. Whether Commerce’s finding that UKCG’s process of
completion performed in the U.K. is minor or insignificant
pursuant to the factors listed under 19 U.S.C. § 1677j(b)(2) is
supported by substantial evidence on the record or
otherwise in accordance with law.
3. Whether Commerce’s use of surrogate values from the
Ukraine to value Chinese origin inputs of artificial graphite
rods used by UKCG to produce its finished SDGE is
supported by substantial evidence on the record or
otherwise in accordance with law.
4. Whether Commerce’s requirement that UKCG pay a
China-wide rate cash deposit is supported by substantial
evidence on the record or otherwise in accordance with law.
See Pl.’s Mot. at 1-2; Def.’s Opp’n at 2-3; Def.-Ints.’ Opp’n at 2-3. The Court will address
these four issues within the statutory scheme by reviewing the record for substantial
evidence to support each statutory criterion.8
8
Defendant’s contention that only subsections (B) and (C) are at issue in this case
is incorrect. Plaintiff expounds throughout its briefs that its rods should have been
excluded “ab initio” from the scope of the order, which triggers subsection (A), and
voices various concerns about Commerce’s valuation conclusions, which trigger
subsection (D). Pl.’s Mot. at 9, 12. Therefore, the Court reviews each of the statutory
criteria under subsection (b).
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2. General Criteria
a. Same Class or Kind
The first statutory consideration is whether the merchandise imported to the U.S.
is of the “same class or kind” as merchandise subject to the AD Order. 19 U.S.C. §
1677j(b)(1)(A). Plaintiff contends that its product—artificial graphite rod—differs from
merchandise subject to the AD Order—small diameter graphite electrodes. Pl.’s Mot. at
4-5. Plaintiff makes much ado about the term “unfinished” and advances that
Commerce misapplied the “plain meaning” principle. Id. at 9-10, 15-22. Finally, Plaintiff
relies on the fact that artificial graphite falls under HTSUS 3801.10, which was originally
not included as part of the scope description but was subsequently added in the Final
Determination.9 Plaintiff asserts that the merchandise subject to the AD Order includes
9
Commerce stated that it was
adding this HTS subheading [3801.10] to the scope language of
the SDGE Order to aid U.S. Customs and Border Protection
(“CBP”) by clarifying that products categorized under the
HTSUS 3801.10 category, as imported, which otherwise fit the
narrative description of unfinished products covered by the
SDGE Order should be considered merchandise subject to the
order.
77 Fed. Reg. at 47,598; see also Def.-Ints.’ Opp’n at 18 (“Petitioners’ request to include
HTSUS 3801 within the scope language makes clear that they always intended to
include both unfinished and finished small diameter graphite electrodes within the
scope of the antidumping duty order.”). Plaintiff does not challenge Commerce’s
authority to alter the scope to add another HTSUS category but asseverates that
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graphite electrodes under HTSUS 8545.11 and ergo contends that “items under HTS 3801
were classified and known as something other than an electrode.” Id. at 5. Plaintiff
offered as support for its contention a U.S. classification ruling (“CBP ruling”) and a
European Union classification ruling (“U.K. ruling” or “BOI ruling”) stating that “rods”
were artificial graphite rather than electrodes. Id.
Defendant-Intervenors advise that Plaintiff’s product, artificial graphite rod, is of
the same class or kind of merchandise subject to the AD Order. They explain that
artificial graphite rod is “an electrode in unfinished form. . . , regardless of whether it is called a
rod or an electrode.” Def.-Ints.’ Opp’n at 3 (citing Initiation Request at 14) (emphasis
added). Defendant-Intervenors counter Plaintiff’s objection to the term“unfinished” as
ambiguous and instead offer that the term is “quite common in antidumping lexicon and
has been included in the scope language of dozens of antidumping cases,” citing
numerous examples. Id. at 15. Defendant-Intervenors support Commerce’s definition of
unfinished SDGE as those which have “gone through all the steps of production,
including graphitization, except for machining or ‘finishing.’” Id. at 16.
Commerce’s alteration to include HTSUS 3801 is an admission of a “knowing and
intentional” omission from the original scope, and thus products classified under
HTSUS 3801 should be considered ab initio excluded from the scope. Pl.’s Mot. at 12, 26.
This argument is neither persuasive nor supported by the record.
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The Court finds that Commerce’s affirmative determination regarding class or
kind is supported by the record. For clarification’s sake, while the parties use various
terminology throughout their briefs and on the record—Petitioners characterize the
inputs as “unfinished SDGE” while Plaintiff characterizes the inputs as “artificial
graphite rods”—they are actually one and the same. See, e.g., Final Determination, 77 Fed.
Reg. at 47,597 n.2 (“For ease of reference, these materials are referred to as ‘unfinished
SDGE components’ or ‘artificial graphite rods’ throughout this notice.”) Next, regarding
the meaning of the term“unfinished,” Plaintiff admits that “there is no evidence on the
record that ‘unfinished’ has any meaning whatsoever in the trade.” Pl.’s Mot. at 16.
Commerce considered carefully the scope language “whether or not finished,” and
determined that “unfinished SDGE” meant “an SDGE product that has completed the
graphitization stage and needs only finishing to be used as a finished SDGE in a
furnace.” Def.’s Opp’n at 19 (citing I&D Memo at 5).
Plaintiff admits that it has never argued that “the HTS categories are
controlling,” but asserts that Petitioners “treatment of such categories is relevant in
determining what the Petition meant by the vague term ‘unfinished.’” Pl.’s Mot. at 20.
The Court declines to adopt Plaintiff’s position. It is well-settled that “a reference to an
HTSUS number is not dispositive about the scope” of an antidumping order. Novosteel
SA v. United States, 284 F.3d 1261, 1270 (Fed. Cir. 2002) (internal citations omitted); see
Court No. 12-00242 Page 21
also Preliminary Determination, 77 Fed. Reg. at 33,411.) Consequently, Plaintiff’s HTSUS
arguments are vitiated by settled case law regarding scope determinations. Despite
Plaintiff’s quibbling over the meaning of “unfinished,” the Court cannot say that
Commerce’s consideration and decision to use Petitioners’ definition of “unfinished” is
unreasonable, arbitrary or capricious.
The Court also finds that Plaintiff’s argument regarding Commerce’s lack of
consideration of the classification rulings is not supported by the record. Pl.’s Mot. at 24
(contending that it is “flatly false” that Commerce “ever addressed, considered, or took
into account” the U.K. and U.S. classification rulings). Commerce stressed that it
considered the classification rulings, both foreign and domestic, and then explained
throughout the record why it did not rely on these rulings. See, e.g., Initiation Notice, 76
Fed. Reg. at 14,917 (“neither the BOI nor the [CBP] ruling are legally binding for the
purposes of antidumping proceedings in the United States”); Preliminary Determination,
77 Fed. Reg. at 33,410 (“U.S. and E.U. customs rulings are not controlling” in
anticircumvention proceedings, “as the two determinations are made for different
reasons and under different laws”); I&D Memo at 6 (“Contrary to UKCG’s assertion,
[Commerce] has indeed considered this information and taken the various rulings and
actions into account in the instant determination.”) Commerce has provided ample
reasoned explanations for its decision to not rely on the classification rulings.
Court No. 12-00242 Page 22
Accordingly, the Court finds that Commerce’s determination that Plaintiff’s
artificial graphite rods are “of the same class or kind” as the subject merchandise of the
AD Order, satisfying 19 U.S.C. § 1677j(b)(1)(A), is supported by substantial evidence on
the record and otherwise in accordance with law.
b. Completed in a Third Country
The second statutory consideration is whether imported merchandise is
completed or assembled in a third county from merchandise which is either subject to
the order or is produced in the country to which the order applies. 19 U.S.C.
§ 1677j(b)(1)(B). Commerce “made an affirmative determination as to both” of the
statutory criteria—(i) being subject to an order10 or (ii) being produced in the foreign
country with respect to which such order of finding applies—even though only one
needs to be satisfied. Def.’s Opp’n at 17; see also 19 U.S. C. § 1677j(b)(1)(B); Final
Determination, 77 Fed. Reg. at 47,598.
Plaintiff asserts that subsection (ii) was not considered in the underlying
administrative proceeding. Pl.’s Reply Br. in Supp. of Its Mot. for J. on the Agency
Record (“Pl.’s Reply”) at 5 (“Commerce is not compelled to utilize both (i) and (ii) but
10
Even though “Commerce rarely conducts a scope analysis [under] subsection
(b)(1)(B)(i) in anticircumvention proceedings,” in this case, Commerce “concluded also
that the China-sourced artificial graphite rods are ‘subject to’, i.e., ‘specifically covered’
under the scope of, the SDGE Order.” Def.’s Opp’n at 18 (citing I&D Memo at 3-7).
Court No. 12-00242 Page 23
instead may utilize either provision. . . . [it] did so here by analyzing (i). . . . [n]ever once
did it analyze or mention (ii).”)
A review of the record does not support Plaintiff’s assertion. In the I&D Memo,
Commerce stated:
the fact that UKCG’s artificial graphite rod/unfinished SDGE
component inputs—the sole input utilized by UKCG in the
production of finished SDGE subject to this inquiry—are
produced in [China] has never been contested on the record of
this proceeding nor is this fact disputed for this final
determination. . . . in this case, there is no dispute that the input
in question is produced in the country subject to the AD order.
I&D Memo at 7. Commerce’s conclusion is supported on the record. It is sufficient that
Commerce reached a conclusion pursuant to subsection (ii), that UKCG’s inputs were
produced in China, a country to which the AD Order applied. Commerce, however,
went further and analyzed the scope language of the AD Order, the petition and the ITC
Report to determine if Plaintiff’s inputs were subject to order pursuant to subsection (i).
I&D Memo at 6-7. Commerce found that the plain language of the scope order includes
UKCG’s inputs where it indicates “small diameter graphite electrodes, whether or not
finished.” AD Order, 74 Fed. Reg. at 8,775; ITC Report at I-9; I&D Memo at 5.
Thus, the Court finds that both of Commerce’s determinations—that Plaintiff’s
artificial graphite rods are produced from input materials covered under the scope of the
AD Order and that Plaintiff’s exports are finished from inputs produced in
Court No. 12-00242 Page 24
China—satisfy 19 U.S.C. § 1677j(b)(1)(B), are supported by substantial evidence on the
record, and are otherwise in accordance with law.
c. Minor or Insignificant Completion
The third statutory consideration is whether the process of “assembly or
completion” in the foreign country, in this case the U.K., is “minor or insignificant.” 19
U.S.C. § 1677j(b)(1)(C). The statute provides five factors to consider when conducting a
“minor or insignificant” analysis:
(A) the level of investment in the foreign country,
(B) the level of research and development in the foreign
country,
(C) the nature of the production process in the foreign
country,
(D) the extent of production facilities in the foreign country,
and
(E) whether the value of the processing performed in the
foreign country represents a small proportion of the value
of the merchandise imported into the United States.
19 U.S.C. § 1677j(b)(2). None of the five factors is dispositive. Uruguay Round
Agreements Act, Statement of Administrative Action, H.R. Rep. No. 103-316, at 893
(1994), reprinted in 1994 U.S.C.C.A.N. 4040, 4216 (“SAA”). Commerce is to evaluate the
factors “depending on the particular circumvention scenario” on a case-by-case basis. Id.
In its underlying determination, Commerce compared in each country the level
of investment, “both in initial capital and equipment,” the production facilities, the
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processes performed, and the number of production employees in each country (China
and the U.K.). Preliminary Determination, 77 Fed. Reg. at 33,412. Commerce found that
research and development (“R&D”) is not a significant factor in this case, because
Plaintiff did not provide “any substantial evidence of R&D programs or expenditures.”
Id.
Regarding the value-added factor, Commerce found that “aside from the cost of
labor and energy, UKCG did not consume or impart any additional direct material
inputs to produce the finished SDGE” and found that “the value of the energy and labor
consumed by UKCG in the production of the finished SDGE” is insignificant. Id. at
33,313. Commerce weighed all the factors and found that “the nature of the production
process and extent of the production facilities in the U.K. are minor in comparison to
those utilized in [China] for the production of the unfinished [SDGE] components
sourced from [China],” explaining that Chinese producers “have invested extensively in
the SDGE industry, which includes significant investment in both manufacturing
facilities and production equipment worth millions of dollars, the bulk of which goes to
the heavy industrial processes required for the production of SDGE. . . . which occur[s]
prior to the final machining stage.” Id.
In the instant action Plaintiff only challenges subsection (E), the value-added
factor. Pl.’s Mot. at 32-38; Pl.’s Reply at 20. The Court notes that the five factors are to be
Court No. 12-00242 Page 26
separately taken into consideration, as appropriate, and their totality weighed.
Commerce “performed a qualitative and quantitative value-added analysis” pursuant to
19 U.S.C. § 1677j(b) and “found that they both supported the conclusion that the value of
the processing performed in the U.K. represents a ‘small proportion’ of the value of the
merchandise imported into the United States.” Def.’s Opp’n at 33 (citing I&D Memo at
10, Preliminary Determination, 77 Fed. Reg. at 33,413); see also SAA at 894.
Examining the breakdown of the production process for SDGE placed on the
record by Defendant-Intervenors, all but five minutes of the production process that
takes a substantial number of days is done in China. Verification at 15. Given the
information on the record—breakdown of the production process, facility and employee
number comparison, and relative gross value amounts—the Court cannot say that
Commerce’s conclusion that UKCG’s finishing touches are minor or insignificant is
unreasonable, arbitrary or capricious.
Upon review of the SDGE manufacturing process, the detailed information
presented by Petitioners, and Commerce’s weighing of all the factors with the
information placed on the record, the Court finds that Commerce’s determination that
the manufacturing completed in the U.K.—five minutes of finishing—is minor or
insignificant, satisfying 19 U.S.C. § 1677j(b)(1)(C) and § 1677j(b)(2), is supported by
substantial evidence on the record and otherwise in accordance with law.
Court No. 12-00242 Page 27
d. Value of Merchandise
The fourth statutory consideration is whether the value of the merchandise
produced in the foreign country to which the antidumping duty order applies—here,
China—is a significant portion of the total value of the merchandise exported to the U.S.
19 U.S.C. § 1677j(b)(1)(D). The statute is silent, however, about the definition of “value”
in the context of a NME in the circumvention provisions. See 19 U.S.C. § 1677j; Def.’s
Opp’n at 38. It is well- established that where a statute is silent, an agency may fill in the
gap and courts must defer to that interpretation as long as it is “based upon a
permissible construction of the statute.” Chevron, U.S.A., Inc. v. Natural Res. Def. Council,
Inc., 467 U.S. 837, 843 (1984).
Commerce, faced with the need to evaluate value in a NME, chose to apply the
surrogate value methodology used in other antidumping proceedings to arrive at an
accurate valuation of UKCG’s inputs, explaining that “the same concerns about the
reliability of NME prices that underlie its normal valuation calculation also underlie its
analysis of circumvention of an order imposed upon NME-origin merchandise.” Def.’s
Opp’n at 39 (citing I&D Memo at 8). Determining that “the actual prices that UKCG paid
for its Chinese-sourced artificial graphite rods are ‘inherently unreliable’”as products of
a NME, Commerce chose to use surrogate values from the Ukraine. Def.’s Opp’n at 37
(citing I&D Memo at 8). Commerce used Ukrainian surrogate values for artificial
Court No. 12-00242 Page 28
graphite rods in calculating “the value of the merchandise produced in [China] to which
the [SDGE Order] applies.” Id. In doing so, Commerce rejected Plaintiff’s contention that
the proper method for a value-added analysis was to examine the difference between the
input price and the U.S. sales price. Id. at 35-36.
The Court defers to Commerce’s decision to use a surrogate value methodology
in determining the value of inputs from a NME country in an anticircumvention inquiry,
because it is a reasonable construction of the statute. Upon review, the Court finds that
Commerce’s determination that the value of the merchandise produced in China was a
significant portion of the total value of the merchandise exported to the U.S., satisfying
19 U.S.C. § 1677j(b)(1)(D), is supported by substantial evidence on the record and
otherwise in accordance with law.
e. Other Factors
The circumvention statute also lists other factors to consider in determining
whether to include merchandise assembled or completed in a foreign country in an
antidumping duty order. 19 U.S.C. § 1677j(b)(3). These factors include pattern of trade,
company affiliations, and import increases. Id. These (b)(3) factors are not at issue in this
case, because UKCG does not challenge Commerce’s consideration of them. See Def.’s
Opp’n at 16 n.5; see generally Pl.’s Mot.
Court No. 12-00242 Page 29
3. Other Issues
a. Deposit Rate
Plaintiff challenges Commerce’s decision to apply the China-wide cash-deposit
rate to its exports to the U.S., claiming this decision is simultaneously punitive and
erroneous, and requests relief in the form of a separate rate. See Pl.’s Mot. at 38-40.
Because it is “not under the control of any governmental entity of China,” Plaintiff urges
that if a rate is to be applied at all, it is “entitled to the current separate rate.” Id. at 38.
Further, Plaintiff argues that it “has done everything in its power to provide information
to [Commerce] to avoid being placed in the punitive China-wide category.” Id. at 39.
Plaintiff explains that it already attempted to obtain a separate rate but its “application
became moot when [Commerce] determined that UKCG did not have reviewable entries
for that review.” Id. Commerce points out that Plaintiff may “request an administrative
review of its exports” so that Commerce may “determine the final dumping liability
through the standard administrative process.” Def.’s Opp’n at 48 (quoting I&D Memo at
15).
In the meantime, in accordance with its past practice in circumvention cases,
Commerce found it “appropriate to instruct [CBP] to collect a cash deposit at the
[China]-wide rate, consistent with [Commerce’s] standard practice to assign the [China]-
wide rate to non-reviewed exporters.” I&D Memo at 15. Commerce also notes that it has
Court No. 12-00242 Page 30
“made no final determination of dumping with respect to UKCG.” Def.’s Opp’n at 48
(citing I&D Memo at 15, Final Determination, 77 Fed. Reg. at 47,600).
The Court finds that Commerce’s determination to apply a China-wide rate as a
cash deposit to UKCG is supported by substantial evidence on the record and otherwise
in accordance with law. To the extent that UKCG seeks a remedy regarding the cash
deposit rate that it has not yet sought through normal administrative channels, the Court
declines to grant relief due to the failure to exhaust administrative remedies. See 28
U.S.C. § 2637(d).
b. Remaining Issues
The Court has considered the remaining arguments and found them to be either
subsumed into the analysis above or without merit.
CONCLUSION
As a result of the considerations detailed above, the Court holds that Commerce
based its circumvention determination on substantial evidence on the administrative
record and acted in accordance with law. Consequently, it is hereby
ORDERED that Small Diameter Graphite Electrodes From the People’s Republic of
China: Affirmative Final Determination of Circumvention of the Antidumping Duty Order, 77
Fed. Reg. 47,596 (Aug. 9, 2012) is sustained; and it is further
Court No. 12-00242 Page 31
ORDERED that Plaintiff’s motion for judgment on the agency record is denied;
and it is further
ORDERED that the stay entered by the Court on Plaintiff’s motion for oral
argument (ECF No. 51) is hereby lifted; and it is further
ORDERED that Plaintiff’s motion for oral argument (ECF No. 50) is hereby denied.
Judgment to enter accordingly.
/s/ Gregory W. Carman
Gregory W. Carman, Judge
Dated: August 29, 2013
New York, New York