Wheatland Tube Co. v. United States , 26 F. Supp. 3d 1372 ( 2014 )

Slip Op. 14-137
UNITED STATES COURT OF INTERNATIONAL TRADE
WHEATLAND TUBE COMPANY,
Plaintiff,
and
Before: Leo M. Gordon, Judge
UNITED STATES STEEL CORPORATION,
Consol. Court No. 12-00298
ALLIED TUBE AND CONDUIT, AND TMK
IPSCO TUBULARS,
Plaintiff-Intervenors,
v.
UNITED STATES,
Defendant.
OPINION AND ORDER
[Section 129 final determination remanded.]
Dated: November 26, 2014
Gilbert B. Kaplan and P. Lee Smith, King & Spalding LLP of Washington, DC for Plaintiff
Wheatland Tube Company.
Robert E. Lighthizer, Jeffrey D. Gerrish, Stephen J. Narkin and Nathaniel B. Bolin,
Skadden Arps Slate Meagher & Flom LLP of Washington, DC for Plaintiff United States
Steel Corporation.
Roger B. Schagrin, and John W. Bohn, Schagrin Associates of Washington, DC
for Plaintiff-Intervenors Allied Tube and Conduit and TMK IPSCO Tubulars.
Douglas G. Edelschick, Trial Attorney, Commercial Litigation Branch, Civil
Division, U.S. Department of Justice, of Washington, DC, for Defendant United States.
With him on the brief were Stuart F. Delery, Assistant Attorney General, Jeanne E.
Davidson, Director, Franklin E. White, Jr., Assistant Director. Of counsel on the brief was
Daniel J. Calhoun, Attorney, Office of Chief Counsel for Trade Enforcement and
Compliance, U.S. Department of Commerce, of Washington, DC.
Consol. Court No. 12-00298 Page 2
Gordon, Judge: This action involves a U.S. Department of Commerce
(“Commerce”) final determination in a proceeding conducted under Section 129 of the
Uruguay Round Agreements Act (“Section 129”) and covering the simultaneously-
imposed antidumping and countervailing duty orders on circular welded carbon quality
steel pipe (“CWP”) from the People’s Republic of China. See New Pneumatic Off-the-
Road Tires; Circular Welded Carbon Quality Steel Pipe; Laminated Woven Sacks; and
Light-Walled Rectangular Pipe and Tube from the People’s Republic of China, 77 Fed.
Reg. 52,683 (Dep’t Commerce Aug. 30, 2012) (Sec. 129 Implementation)
(“Implementation Notice”); Section 129 Proceeding Pursuant to the WTO Appellate
Body's Findings in WTO DS379 Regarding the Antidumping and Countervailing Duty
Investigations of Circular Welded Carbon Quality Steel Pipe from the People's Republic
of China (July 31, 2012) (“Final Determination”). Commerce initiated the Section 129
proceeding at the request of the U.S. Trade Representative partly in response to the
World Trade Organization’s (“WTO”) Dispute Settlement Body ruling that four sets of
simultaneously-imposed antidumping and countervailing duty orders on Chinese imports,
including the orders on CWP, may have resulted in overlapping remedies.
Implementation Notice, 77 Fed. Reg. at 52,683-84; see Appellate Body Report, United
States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from
China, ¶ 611, WT/DS379/AB/R (Mar. 11, 2011) (“WTO AB Report”).
Before the court are the motions for judgment on the agency record of Plaintiff
Wheatland Tube Company (“Wheatland”), Consolidated Plaintiff-Intervenor United States
Consol. Court No. 12-00298 Page 3
Steel Corporation (“U.S. Steel”), and Consolidated Plaintiff-Intervenors Allied Tube and
Conduit (“Allied”) and TMK IPSCO (collectively, “the Domestic Interested Parties”). The
Domestic Interested Parties challenge Commerce’s decision to adjust the antidumping
duty on U.S. CWP imports from China to account for overlapping remedies with the
countervailing duty order. Mem. in Support of Mot. of Consol. Pl.-Intervenor U.S. Steel
Corp. for J. on the Agency R. under R. 56.2 1-2, ECF No. 39 (“US Steel Br.”); see Mem.
in Support of Mot. of Pl. Wheatland Tube Co. for J. on the Agency R. 1-2, ECF No. 41
(joining in and supplementing U.S. Steel’s arguments) (“Wheatland Br.”); R. 56.2 Br. of
Pl.-Intervenors Allied Tube & Conduit & TMK IPSCO Tubulars in Support of their Mot. for
J. on the Agency R. 1-2, ECF No. 43 (same) (“Allied & TMK Br.”); see also Reply Br. in
Support of Pl.’s & Pl.-Intervenors’ Mots. for J. on the Agency R. under R. 56.2 at 1-9,
ECF No. 58 (“Joint Reply”).
The court has jurisdiction pursuant to Section 516A(a)(2)(B)(vii) of the Tariff Act of
1930, as amended, 19 U.S.C. § 1516a(a)(2)(B)(vii) (2012),1 and 28 U.S.C. § 1581(c)
(2012). For the reasons set forth below, the court remands this action to Commerce for
further consideration.
I. Background
Section 129 of the Uruguay Round Agreements Act (“URAA”) sets forth
procedures for managing adverse rulings and recommendations of the WTO’s Dispute
1
Further citations to the Tariff Act of 1930, as amended, are to the relevant provisions of
Title 19 of the U.S. Code, 2012 edition.
Consol. Court No. 12-00298 Page 4
Settlement Body. Under Section 129, the U.S. Trade Representative must consult with
Congress and Commerce to decide whether to implement the rulings and
recommendations that arise from an adverse finding in a Dispute Settlement Panel or
Appellate Body report. If the United States decides to implement the rulings and
recommendations, the U.S. Trade Representative will request that Commerce make a
determination “not inconsistent with” the Panel or Appellate Body report. See 19 U.S.C.
§ 3538(b).
“A Section 129 determination amends, rescinds, or modifies the application of an
agency regulation or practice in a specific antidumping, countervailing duty, or safeguards
proceeding.” U.S. Steel Corp. v. United States, 33 CIT 593, 596, 627 F. Supp. 2d 1374,
1377 (2009). It also “stands apart from the agency determination it would alter or amend.”
Advanced Tech. & Materials Co. v. United States, 37 CIT ___, ___, Slip Op. 13-42 at 4
(Mar. 28, 2013) (citing Statement of Administrative Action accompanying the Uruguay
Rounds Agreements Act, H.R. Doc. No. 103-316, Vol. 1 at 1025, 1027 (1994), reprinted
in 1994 U.S.C.C.A.N. 4040, 4312-14), aff’d 541 Fed. App’x 1002 (Fed. Cir. 2013). Section
129 proceedings are similar to other trade proceedings in that Commerce must “provide
interested parties with an opportunity to submit written comments and, in appropriate
cases, may hold a hearing, with respect to the determination.” 19 U.S.C. § 3538(d).
There are a few noteworthy differences. Commerce must consult with Congress and the
U.S. Trade Representative before implementing a final determination. Id. § 3538(b)(3).
Furthermore, the United States, through Commerce, must implement an adverse ruling
Consol. Court No. 12-00298 Page 5
within a “reasonable period of time” under WTO rules. See Agreement Under Article
21.3(b) of the DSU, United States – Definitive Anti-Dumping and Countervailing Duties
on Certain Products from China, ¶ 1, WT/DS379/11 (July 8, 2011).
A. Section 129 Implementation
Historically, Commerce did not apply countervailing duties to imports from non-
market economy countries. See generally Georgetown Steel Corp. v. United States, 801
F.2d 1308, 1313-16 (Fed. Cir. 1986) (explaining that government payments in Soviet-
style non-market economies are not countervailable because they are not “bount[ies]” or
“grant[s]” under the statute). This changed in 2007 when Commerce announced that it
would apply countervailing duties to subject merchandise from China. See Countervailing
Duty Investigation of Coated Free Sheet Paper from the People’s Republic of China—
Whether the Analytical Elements of the Georgetown Steel Opinion Are Applicable to
China’s Present-Day Economy, 4-5 (Dep’t of Commerce Mar. 29, 2007), available at
http://enforcement.trade.gov/download/prc-cfsp/CFS%20China.Georgetown%20applica
bility.pdf. Commerce explained that recent changes in China made it “possible to
determine whether the Government [of China] has bestowed a benefit upon a Chinese
producer (i.e., the subsidy can be identified and measured) and whether any such benefit
is specific.” Id. at 10. Commerce, however, still classified China as a non-market
economy in trade proceedings.
On July 22, 2008, Commerce published antidumping and countervailing duty
orders on CWP from China. See Circular Welded Carbon Quality Steel Pipe from the
Consol. Court No. 12-00298 Page 6
People's Republic of China, 73 Fed. Reg. 42,547 (Dep't of Commerce July 22, 2008)
(antidumping duty order); Circular Welded Carbon Quality Steel Pipe from the People's
Republic of China, 73 Fed. Reg. 42,545 (Dep't of Commerce July 22, 2008) (amended
final countervailing duty determination and order). Commerce refused to consider
whether the simultaneous imposition of antidumping and countervailing duty orders may
have resulted in overlapping, or double counting, of remedies. See Issues and Decision
Memorandum for the Final Determination of Sales at Less than Fair Value of Circular
Welded Carbon Quality Steel Pipe from the People’s Republic of China, A-570-910, at
21-22 (Dep’t of Commerce, June 5, 2008), available at
http://enforcement.trade.gov/frn/summary/prc/E8-12608-1.pdf (last visited this date).
Commerce reasoned that there was no “demonstration . . . that the AD [antidumping] duty
that would be imposed would constitute a double remedy for practices already addressed
by the CVD [countervailing duty] investigation.” Id. at 22. Commerce also explained that
it lacked the authority to account for double remedies because “Congress provided no AD
adjustment for CVDs imposed to offset subsidies that are not export subsidies.” Id.; see
Issues and Decision Memorandum for the Final Determination in the Countervailing Duty
Investigation of Circular Welded Carbon Quality Steel Pipe from the People’s Republic of
China, C-570-911, at 101 (Dep’t of Commerce, May 29, 2008), available at
http://enforcement.trade.gov/frn/summary/prc/E8-12606-1.pdf (last visited this date).
China promptly challenged the CWP and three other sets of simultaneously
imposed antidumping and countervailing duty orders before the WTO’s Dispute
Consol. Court No. 12-00298 Page 7
Settlement Body. The WTO Appellate Body ultimately found that the United States had
acted inconsistently with its international obligations in several respects, including the
potential imposition of overlapping remedies:
When investigating authorities calculate a dumping margin in an anti-
dumping investigation involving a product from an NME [non-market
economy], they compare the export price to a normal value that is calculated
based on surrogate costs or prices from a third country. Because prices
and costs in the NME are considered unreliable, prices, or, more commonly,
costs of production, in a market economy are used as the basis for
calculating normal value. In the dumping margin calculation, investigating
authorities compare the product's constructed normal value (not reflecting
the amount of any subsidy received by the producer) with the product's
actual export price (which, when subsidies have been received by the
producer, is presumably lower than it would otherwise have been). The
resulting dumping margin is thus based on an asymmetric comparison and
is generally higher than would otherwise be the case.
....
. . . [Commerce] made no attempt to establish whether or to what degree it
would offset the same subsidies twice by imposing anti-dumping duties
calculated under its NME methodology, concurrently with countervailing
duties. . . . [Commerce] dismissed China’s claim of double remedies on the
ground that inter alia it had no statutory authority to make adjustments in
the context of countervailing duty investigations. Therefore, [Commerce]
did not initiate any examination of whether double remedies would arise in
the four investigations at issue and refused outright to afford any
consideration to the issue or to the submissions pertaining to the issue that
were presented to it.
....
. . . Consequently, we find that, in the circumstances of the four sets of anti-
dumping and countervailing duty investigations at issue, by virtue of
[Commerce’s] imposition of anti-dumping duties calculated on the basis of
an NME methodology, concurrently with the imposition of countervailing
duties on the same products, without having assessed whether double
remedies arose from such concurrent duties, the United States acted
inconsistently with its obligations under Article 19.3 of the SCM agreements.
Consol. Court No. 12-00298 Page 8
WTO AB Report ¶¶ 542, 604, 606 (emphasis in original) (footnotes omitted); see id. ¶ 611.
The WTO Appellate Body noted that while “double remedies would likely result from the
concurrent application of antidumping duties calculated on the basis of an NME
methodology and countervailing duties,” double remedies would not “necessarily result in
every instance of such concurrent application of duties.” Id. ¶ 599 (footnotes omitted,
emphasis in original).
The U.S. Trade Representative then announced the United States’ intention to
comply with the WTO’s rulings and recommendations, and requested that Commerce
make a determination “not inconsistent with” the WTO AB Report. See Implementation
Notice, 77 Fed. Reg. at 52,684 (citing 19 U.S.C. § 3538(b)(2)); Communication from
China and the United States concerning Article 21.3(c) of the DSU, United States –
Definitive Anti-Dumping and Countervailing Duties on Certain Products from China,
WT/DS/379/10 (May 13, 2011). Commerce initiated the underlying Section 129
proceeding on August 16, 2011. Section 129 Determination of the Countervailing Duty
Investigation of Circular Welded Carbon Quality Steel Pipe from the People's Republic of
China: “Double Remedies” Analysis Pursuant to the WTO Appellate Body Findings WTO
DS379, 6 (May 31, 2012), PD 1202 (“Preliminary Determination”).
Although the U.S. Trade Representative and the Government of China originally
agreed that the reasonable period of time for Commerce to implement the WTO AB
2
“PD” refers to a document contained in the public administrative record.
Consol. Court No. 12-00298 Page 9
Report would expire on February 25, 2012, several intervening events delayed resolution
of the double remedies issue. Id. at 4. On December 19, 2011, the U.S. Court of Appeals
for the Federal Circuit (“Federal Circuit”) invalidated Commerce’s imposition of
countervailing duties in the non-market economy context. GPX Int’l Tire Corp. v. United
States, 666 F.3d 732, 737-45 (Fed. Cir. 2011), vacated as abrogated by statute by
678 F.3d 1308 (2012), after remand, 37 CIT ___, 942 F. Supp. 2d 1343 (2013). In
response Congress enacted legislation authorizing Commerce to impose countervailing
duties in the nonmarket economy context, but directed Commerce to estimate and apply
an offset to antidumping duties in the event of double counting. GPX, 678 F.3d at 1311;
see Application of Countervailing Duty Provisions to Nonmarket Economy Countries, Pub.
L. No. 112-99, 126 Stat. 265, 19 U.S.C. §§ 1671, 1677f-1 (2012).
Commerce continued the underlying Section 129 proceeding on March 28, 2012,
when it sent questionnaires to the Government of China. Preliminary Determination at 6-
7. Commerce ultimately issued the Final Determination on July 31, 2012, and after
consulting with Congress and the U.S. Trade Representative, published the
Implementation Notice on August 30, 2012. Commerce calculated and applied a double
counting offset of 63.07% of the value of those countervailable subsidies that affected
CWP producers’ variable costs. This action followed.
B. Commerce’s Double Remedy Determination
Given the numerous adverse WTO rulings and recommendations, and their
potential impact on four sets of outstanding antidumping and countervailing duty orders,
Consol. Court No. 12-00298 Page 10
Commerce issued multiple preliminary and final determinations during the Section 129
proceeding. Implementation Notice, 77 Fed. Reg. at 52,683-84 (listing preliminary and
final determinations). This action involves only the concurrent orders on CWP from
China. Pl.’s Compl. ¶ 2, ECF No. 10.
As noted above, during the proceeding Commerce issued questionnaires to the
Government of China that requested information on whether the CWP antidumping and
countervailing duty orders double counted trade remedies. Commerce issued similar
questionnaires for the three other sets of simultaneously imposed antidumping and
countervailing duty orders. The Government of China provided similar responses to each
double remedy questionnaire, but provided little information specific to the CWP industry.
Preliminary Determination at 7-8.
For its analytical framework, Commerce considered 19 U.S.C. § 1677f-1(f)(1) as
“a matter of initial impression.” Id. at 7. Under section 1677f-1(f)(1):
If the administering authority determines, with respect to a class or kind of
merchandise from a nonmarket economy country for which an antidumping
duty is determined using normal value pursuant to section 1677b(c) of this
title, that –
(A) pursuant to section 1671(a)(1) of this title, a countervailable
subsidy (other than an export subsidy referred to in section
1677a(c)(1)(C) of this title) has been provided with respect to the
class or kind of merchandise,
(B) such countervailable subsidy has been demonstrated to have
reduced the average price of imports of the class or kind of
merchandise during the relevant period, and
(C) the administering authority can reasonably estimate the extent to
which the countervailable subsidy referred to in subparagraph (B), in
Consol. Court No. 12-00298 Page 11
combination with the use of normal value determined pursuant to
section 1677b(c) of this title, has increased the weighted average
dumping margin for the class or kind of merchandise,
the administering authority shall, except as provided in paragraph (2),
reduce the antidumping duty by the amount of the increase in the weighted
average dumping margin estimated by the administering authority under
subparagraph (C).
19 U.S.C. § 1677f-1(f)(1).
Commerce preliminarily concluded that the CWP countervailable subsidies
reduced the price of CWP imports by approximately 63.07%:
Because of the high degree of similarity in industry conditions across a
highly disparate group of manufactured products in these section 129
proceedings, the Department will take the information provided by the
[Government of China, or “GOC,”] as representative of those in China's
manufacturing sector, as a whole, during the POI [period of investigation].
In light of the compressed schedule of these section 129 proceedings after
passage of [19 U.S.C. § 1677f-1(f)(1)], there was insufficient time for the
Department to make further inquiries of the GOC to seek additional support
for and/or explanation of certain GOC statements. For example, although
the GOC described a long-run pricing principle, there is no description on
the record regarding short-run pricing dynamics, nor documentation about
how specific production cost accounting categories are impacted by
subsidies and which of these cost impacts, if any, factor into pricing in the
short-run.
Therefore, in order to further understand short-run pricing dynamics, the
Department considered Credit Lyonnais Securities Asia (CLSA)-Markit’s
monthly China PMI report on Manufacturing (the Report). The Report notes
that during the POI, manufacturers in China changed output prices in
response to increases in input costs over the previous month, and that only
part of the cost increases were passed on to customers in the form of higher
selling prices. Moreover, the types of input cost increases that purchasing
managers reported during the POI were related to changes in variable
costs, such as direct labor, raw materials, and other inventoried production
inputs.
Consol. Court No. 12-00298 Page 12
Given the variable cost-(short-run) price link noted in the Report, the
Department considered evidence from the record of the original AD and
CVD investigations and found that for the CWP industry, purchases of hot-
rolled steel were booked in the direct raw materials inventory at the cost of
acquisition. Since direct raw materials constitute a variable cost of
production, the record in this proceeding—which includes the Report and
evidence from the original investigations—indicates a subsidy-(variable)
cost-price link in the case of input price subsidies. The Department,
however, has found no other evidence on the record of the investigations
with respect to other subsidies and the cost categories that they may
impact. Therefore, for the purposes of this 129 proceeding, estimation of
the extent that domestic subsidies to producers in China resulted in lower
export prices, i.e. the extent of subsidy pass-through, will be limited to
subsidies that are likely to have impacted variable cost, and the extent of
cost pass-through will be used as a proxy for the extent of subsidy pass-
through.
In order to estimate the extent to which changes in such variable costs were
reflected in prices during the POI, as described in the Report, the
Department calculated the average ratio of (a) rolling, monthly, year-on-
year changes in production input costs to (b) rolling, monthly year-on-year
changes in ex-factory prices, for the POI, using data for the manufacturing
sector in China available through Bloomberg’s electronic terminal. As a
proxy for the change in input production costs, the Department used
changes in an aggregate production input price index. And as proxy for
changes in ex-factory prices, the Department used changes in an aggregate
producer price index for the manufacturing sector in China. . . .
We recognize that the extent of input price inflation pass-through is an
inexact proxy for the extent of subsidy pass-through, not only because input
price inflation and subsidies push cost in opposite directions, but because
the impact of input price inflation may be more uniform and systematic in
nature. As indicated above, the Department’s administration of the new
statutory provision may evolve with the benefit of time and experience. The
Department therefore intends in future inquiries, where appropriate and
where time permits, to reassess this analytical approach, if merited.
...
The above-described approach leads us to conclude that approximately
63.07 percent of the value of the subsidies that have impacted variable
costs, as identified above, were “passed through” to export prices for the
Consol. Court No. 12-00298 Page 13
CWP industry during the POI. Based upon this finding, we are able to
identify the portion of each CVD rate determined in the proceeding
estimated to have increased cash deposit rates in the companion AD
proceeding.
Preliminary Determination at 8-10 (emphasis in original) (footnotes omitted).
Commerce essentially used generalized Chinese domestic price data to conclude
that certain countervailable subsidies reduced the average price of U.S. CWP imports.
Relying on similarities in industry conditions affecting each of the four kinds of products
under review, Commerce first decided to treat China’s entire manufacturing sector as a
proxy for the CWP industry. Commerce then found that variable input cost increases
across Chinese manufacturing, which included “labor, raw materials, and other
inventoried production inputs,” correlated with proportionally smaller domestic output
price increases. Commerce also found that CWP producers booked inputs at the price
of acquisition, whether they were affected by the relevant subsidies or not. Given these
identified relationships, Commerce inferred that certain subsidies reducing Chinese CWP
producers’ input costs would correspondingly reduce Chinese domestic CWP prices (in
the same way increased input prices caused ex-factory price increases across Chinese
manufacturing). See Preliminary Determination at 9-10. Commerce thus treated Chinese
domestic price behavior as a proxy for U.S. CWP import price behavior, effectively
presuming that changes in Chinese domestic prices correspond with identical changes in
CWP import prices. See id. Notably, Commerce did not supplement the record with or
analyze any actual U.S. CWP import price data in reaching its preliminary conclusions.
Consol. Court No. 12-00298 Page 14
U.S. Steel, Wheatland, Allied, and TMK IPSCO, along with other domestic
interested parties to the Section 129 proceeding, objected to several aspects of
Commerce’s determination. Among other things, they argued that the statute placed the
burden on the Government of China to “demonstrate” the subsidy’s effect on the average
price of imports of the class or kind of merchandise, and that the Government of China
failed to do that here. In response, Commerce agreed that under normal circumstances,
“the burden is on a respondent to demonstrate its entitlement to a particular adjustment,”
but explained that “[t]he unique nature of these particular section 129 proceedings . . .
placed certain limitations on [Commerce’s] ability to solicit and receive information from
parties with respect to any alleged overlap of AD and CVD remedies.”
Final Determination at 14. “Despite those constraints,” according to Commerce, “the
[Government of China] and respondent parties did provide information necessary to
[Commerce’s] determinations to make adjustments under [19 U.S.C. § 1677f-1(f)] as part
of these proceedings.” Id. Nevertheless, Commerce conceded that it did “supplement
the record with publicly available information . . . to aid in its economic analysis.” Id.
The Domestic Interested Parties also challenged Commerce’s double remedy
methodology. Among the factual submissions supporting their comments, the Domestic
Interested Parties included U.S. import price data and explanation and argumentation
about the economics of subsidy pass-through. Final Determination at 11-15, 17-24, 27-
31; see also Wheatland Tube Company New Factual Information Relating to the
Department’s Preliminary Double Remedy Analysis, Exs. 1, 10-11 (Dep’t of Commerce
Consol. Court No. 12-00298 Page 15
June 11, 2012), PD 129 (“Wheatland Factual Submission”). In the Final Determination
Commerce acknowledged that Chinese “export prices/U.S. import prices of subject
merchandise may be the more appropriate price measure,” but nevertheless declined to
analyze those measures, instead continuing to rely on Chinese domestic price data to
determine the offset to the CWP antidumping duty:
The Department agrees with Allied Tube/TMK IPSCO that PRC export
prices/U.S. import prices of subject merchandise may be the more
appropriate price measure. That said, the Department has not switched to
PRC export/U.S. import data for purposes of the [ratio change test, or
“RCT”] in these proceedings for the following reason. The RCT should, to
the extent possible, (1) match price and cost to the subject merchandise
and (2) pair cost and price series from the same universe, or group, at the
firm, industry or sector level. Only in this manner can the Department
ensure that the cost series and price series are actually associated with one
another. To accomplish this, the Department relied on manufacturing sector
data from the same source, with similar coverage: manufacturing sector
variable costs and manufacturing sector prices. Switching to PRC
export/U.S. import data as suggested by Allied Tube/TMK IPSCO would
nullify this matching and, in fact, reduce the validity of the measurement
given the possibly opposite trends in domestic and export prices identified
by Allied Tube/TMK IPSCO. In order to ensure a true “apples-to-apples”
cost and price comparison, the Department elected to match the price and
cost series rather than rely upon a sub-group or subset of the overall
manufacturing sector for prices when the cost series is measured using the
entire group. Furthermore, data constraints precluded the Department from
disaggregating U.S. import data to ensure a one-to-one mapping.
Final Determination at 14-15, 25 (footnotes omitted).
Before the court, Domestic Interested Parties raise several arguments: (1) that the
statute places a clear and unambiguous burden on the Government of China to establish
the requisites of the double remedy offset, which the Government of China failed to meet;
(2) that Commerce’s methodology in applying a double remedy offset violates the clear
Consol. Court No. 12-00298 Page 16
and unambiguous statutory requirements of 19 U.S.C. § 1677f-1(f); (3) that in any event,
Commerce’s finding that the record “demonstrates” that the CVD order on CWP reduced
the average U.S. import prices of CWP is unsupported by substantial evidence
(unreasonable); and (4) that Commerce’s estimation of the double remedy offset is
unreasonable. See U.S. Steel Br. at 4-6; Wheatland Br. at 1-2; Allied & TMK Br. at 1-2.
II. Standard of Review
The court sustains Commerce‘s “determinations, findings, or conclusions” 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). More specifically, when reviewing
agency determinations, findings, or conclusions for substantial evidence, the court
assesses whether the agency action is reasonable given the record as a whole. Nippon
Steel Corp. v. United States, 458 F.3d 1345, 1350-51 (Fed. Cir. 2006). Substantial
evidence has been described as “such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.” DuPont Teijin Films USA v. United States,
407 F.3d 1211, 1215 (Fed. Cir. 2005) (quoting Consol. Edison Co. v. NLRB,
305 U.S. 197, 229 (1938)). Substantial evidence has also been described as “something
less than the weight of the evidence, and the possibility of drawing two inconsistent
conclusions from the evidence does not prevent an administrative agency's finding from
being supported by substantial evidence.” Consolo v. Fed. Mar. Comm'n, 383 U.S. 607,
620 (1966). Fundamentally, though, “substantial evidence” is best understood as a word
formula connoting reasonableness review. 3 Charles H. Koch, Jr., Administrative Law
Consol. Court No. 12-00298 Page 17
and Practice § 9.24[1] (3d ed. 2014). Therefore, when addressing a substantial evidence
issue raised by a party, the court analyzes whether the challenged agency action “was
reasonable given the circumstances presented by the whole record.” Edward D. Re,
Bernard J. Babb, and Susan M. Koplin, 8 West's Fed. Forms, National Courts § 13342
(2d ed. 2014). In reviewing Commerce’s finding, conclusion, or determination for
substantial evidence (reasonableness), it is axiomatic that the court must first understand
Commerce’s explanation underlying the agency action. See Motor Vehicle Mfrs. Ass’n v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (“State Farm”).
Additionally, the two-step framework provided in Chevron, U.S.A., Inc. v. Natural
Res. Def. Council, Inc., 467 U.S. 837, 842-45 (1984), governs judicial review of
Commerce's interpretation of the antidumping and countervailing duty statutes. See
United States v. Eurodif S.A., 555 U.S. 305, 316 (2009) (Commerce's “interpretation
governs in the absence of unambiguous statutory language to the contrary or
unreasonable resolution of language that is ambiguous.”). The court first considers
whether Congressional intent on the issue is clear. Dupont, 407 F.3d at 1215. “The
plainness or ambiguity of statutory language is determined by reference to the language
itself, the specific context in which that language is used, and the broader context of the
statute as a whole.” Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997); see
Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 666 (2007) (“[T]he
meaning—or ambiguity—of certain words or phrases may only become evident when
placed in context.” (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,
Consol. Court No. 12-00298 Page 18
132-33 (2000))); see, e.g., Dorbest v. United States, 604 F.3d 1363, 1371-75 (Fed. Cir.
2010); AK Steel Corp. v. United States, 226 F.3d 1361, 1366-74 (Fed. Cir. 2000);
Delverde v. United States, 202 F.3d 1360, 1363-70 (Fed. Cir. 2000). When a “court
determines Congress has not directly addressed the precise question at issue, . . . the
question for the court is whether the agency’s answer is based on a permissible
construction of the statute.” Chevron, 467 U.S. at 843. Under Chevron’s second prong,
the court must defer to Commerce’s reasonable construction of the statute. See, e.g.,
United States v. Eurodif S.A., 555 U.S. 305, 887-90 (2009); Union Steel v. United States,
713 F.3d 1101, 1106-10 (Fed. Cir. 2013).
III. Discussion
The court begins by addressing two threshold legal issues raised by Domestic
Interested Parties that implicate the Chevron framework: (1) whether the statute places a
burden on a respondent, such as the Government of China, to demonstrate that double
remedies have occurred; and (2) whether Commerce’s use of indirect evidence to first
find, and then offset, double remedies in the CWP orders was consistent with the statute’s
requirement that the record demonstrate that a countervailable subsidy has “reduced the
average price of imports of the class or kind of merchandise.” 19 U.S.C. § 1677f-
1(f)(1)(B).
A. Burden to Demonstrate
Domestic Interested Parties advance a lengthy Chevron step one argument that
the statute places a burden on an interested party, such as the government of China, to
Consol. Court No. 12-00298 Page 19
“demonstrate” the requisite condition for a double counting offset (the countervailable
subsidy’s effect on the average price of imports). Wheatland Br. at 3-10; U.S. Steel Br.
at 25-26; see Allied & TMK Br. at 1-2. The court though is not persuaded that the statute’s
vague present perfect passive clause—“has been demonstrated”—establishes Domestic
Interested Parties’ hoped for clear statutory burden. The present perfect tense in the
passive voice describes something that has happened in the past, but may leave unclear,
as in this case, the identity of the actor, i.e., by whom the thing was done. Paul J. Hopper,
A Short Course in Grammar 190-94 (1999); Henry Weihoffen, Legal Writing Style 111 (2d
ed. 1980). It also places emphasis on the object of the verb—here, the existence of the
condition for a double counting offset—rather than the subject. See Hopper, supra, at
192-94. Congress could have mandated that a party claiming an offset “shall” or “must”
demonstrate that the countervailable subsidy reduces the average price of imports of the
class or kind of merchandise, but Congress instead chose the following conditional
construct: “If [Commerce] determines . . . that . . . [a] countervailable subsidy has been
demonstrated to have reduced the average price of imports of the class or kind of
merchandise during the relevant period[,] . . . [Commerce] shall . . . reduce the
antidumping duty by the amount of the increase in the weighted average dumping margin
estimated by [Commerce] under subparagraph (C).” 19 U.S.C. § 1677f-1(f)(1)(B)
(emphasis added). That formulation—with the actor unknown—is vague enough to allow
Commerce some discretion to allocate evidentiary burdens for establishing the statutory
criteria for a double remedy offset.
Consol. Court No. 12-00298 Page 20
In the proceeding below Domestic Interested Parties also cited Commerce’s
AD/CVD regulation, 19 C.F.R. § 351.401(b)(1), which generally imposes on an interested
party “in possession of the relevant information . . . the burden of establishing . . . the
amount and nature of a particular adjustment.” Id. Domestic Interested Parties
contended that respondents (which include the government of China) failed to carry their
burden to establish the requisite reduction in CWP import prices caused by the
countervailed subsidies. Final Determination at 13-14. Commerce acknowledged the
argument and the regulation, but explained that the “unique nature of these particular
section 129 proceedings” made it difficult to solicit and receive information from the
interested parties. Id. at 14. Commerce further explained:
[U]ncertainty accompanying the GPX litigation at the Federal Circuit as well
as questions regarding the Department’s authority under domestic law to
come into compliance with the [WTO]’s findings and recommendations
compressed an already short time frame available to the Department to
complete this proceeding. Because section 777A(f) of the Act was enacted
only in March 2012, the Department had little time or flexibility to develop
and hone its practice in applying the new law for the first time in these
proceedings. To the extent that such constraints may have limited the
Department’s ability to make follow-up requests for information from the
GOC or other interested parties, the Department was nevertheless able to
supplement the record with publicly available information such as the CLSA
Report and HSBC Report to aid in its economic analysis
Id. (footnotes omitted).
Consol. Court No. 12-00298 Page 21
Before the court, Domestic Interested Parties again cite the regulation, and repeat
their argument that the Government of China failed to meet their evidentiary burden.3 The
court does not agree. Commerce reasonably explained the unique circumstances of its
Section 129 proceeding that made solicitation and receipt of information from interested
parties suboptimal, causing Commerce to supplement the record on its own.
During the proceeding Commerce issued questionnaires to the Government of
China and the Government of China supplied answers and information about its
manufacturing sector generally but did not supply information specific to the CWP
industry. Commerce supplemented the administrative record on its own with the entire
administrative records from the underlying CWP investigations as well as other
information from publicly available economic sources. Commerce then analyzed that
collective information and shaped it into a “determination.” Contrary to the arguments of
the Domestic Interested Parties, the statute’s plain language simply does not isolate
Commerce’s double counting analysis to information or arguments supplied from any
particular source or party. Additionally, Commerce is generally empowered to augment
the administrative record on its own, see generally 19 C.F.R. § 351.301(c)(4), and it did
3
Domestic Interested Parties do not raise or challenge Commerce’s interpretation of its
regulation, which is “of controlling weight unless it is plainly erroneous or inconsistent with
the regulation.” Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945);
Gonzales v. Oregon, 546 U.S. 243 (2006); Christensen v. Harris County, 529 U.S. 576,
588 (2000); Auer v. Robbins, 519 U.S. 452, 461 (1997); American Signature, Inc. v.
United States, 598 F.3d 816, 827 (Fed. Cir. 2010). Domestic Interested Parties have not
argued that Commerce’s interpretation of 19 C.F.R. § 351.401(b)(1) is plainly erroneous
or inconsistent with the regulation.
Consol. Court No. 12-00298 Page 22
so here. The court, therefore, does not agree with the Domestic Interested Parties that
Commerce improperly looked beyond the Government of China’s arguments and
submissions to determine whether double counting “has been demonstrated” on an
administrative record that Commerce helped develop.
B. “Has Been Demonstrated” Indirectly
Domestic Interested Parties also argue that the “clear and unambiguous
requirements of” 19 U.S.C. § 1677f-1(f)(1)(B) compelled Commerce to use only CWP firm
or industry-level data in the agency’s analytical framework. U.S. Steel Br. 4-20;
Wheatland Br. at 4-10; Allied & TMK Br. at 3-6. Specifically, Domestic Interested Parties
fault Commerce for using manufacturing sector-wide data showing a correlation between
Chinese domestic input price increases and Chinese domestic ex-factory price increases
to conclude that certain countervailable subsidies reduced the average price of U.S. CWP
imports.
Although the court understands Domestic Interested Parties’ Chevron step one
argument that the statute, in effect, requires direct evidence of a reduction of the average
price of CWP imports, the court does not agree that the statute speaks with such clarity
or precision. Congress did not specifically require the existence of direct evidence that
the CVD order reduced the average price of imports of the merchandise, but instead, as
explained above, used a somewhat vague present perfect passive conditional construct:
if Commerce determines “such countervailable subsidy has been demonstrated to have
reduced the average price of imports of the class or kind of merchandise.” 19 U.S.C.
Consol. Court No. 12-00298 Page 23
§ 1677f-1(f)(1)(B). In practice, the simplest and likely best way to “demonstrate” the
requisite reduction in import prices is through direct import price data at the firm or industry
level (the class or kind of merchandise). But this is not the same as saying that the statute
mandates the use of direct import price data. In the court’s view the statute does not
prohibit Commerce from attempting to “demonstrate[]” that the countervailed subsidies
caused a reduction in average U.S. CWP import prices through indirect evidence of
broad-based manufacturing data in China. With that said, however, choosing that
circuitous route may be difficult to justify as reasonable (supported by substantial
evidence).
And that is really the central issue in this case. Does substantial evidence support
Commerce’s finding that the administrative record “demonstrate[s]” that the subsidies
countervailed by the CWP order reduced the average price of CWP imports? More
specifically, was it reasonable for Commerce to ultimately “presume” the requisite
statutory criterion was satisfied when the Domestic Interested Parties’ argument and
evidence appears to show the contrary? It is to this question that the court now turns.
C. Reasonableness of Commerce’s Finding
Commerce found that the administrative record “demonstrated” a reduction in
average import prices without any analysis, and a clearly stated avoidance, of direct
import price data. Domestic Interested Parties take dead aim at Commerce’s finding,
arguing that “Commerce’s analysis demonstrates, at most, that changes in the cost of
inputs used in the production of all goods manufactured in China resulted in changes in
Consol. Court No. 12-00298 Page 24
the overall average of the prices of all goods sold in China.” U.S. Steel Br. at 5. According
to Domestic Interested Parties, Commerce’s analysis of the record does not explain
whether: (1) the subsidies affected prices for the class or kind of merchandise, CWP; (2)
the subsidies affected the price of imports of any kind, let alone the price of U.S. CWP
imports; and (3) the subsidies’ effect was a price reduction. See U.S. Steel Br. at 4-6;
Wheatland Br. at 1-2; Allied & TMK Br. at 1-2.
As Domestic Interested Parties argue, Commerce’s focus on broad Chinese
domestic manufacturing data encompassing millions of products does not directly
implicate the statute’s specific requirement that a “subsidy . . . reduced the average price
of imports of the class or kind of merchandise.” 19 U.S.C. § 1677f-1(f)(1)(B); see Joint
Reply at 2; U.S. Steel Br. at 21-22; Allied & TMK Br. at 4-8. Commerce made a series of
inferences when concluding that the indirect evidence “demonstrated” a reduction in
import prices, among them a presumption that any reduction in Chinese domestic prices
resulting from a countervailable subsidy would be accompanied by a “corresponding
reduction” in “export prices . . . to some degree.” Final Determination at 16.
Instead of confronting Domestic Interested Parties’ challenge head on, Commerce
and its counsel offer apologia about a lack of time and industry level data. See, e.g., id.
at 22 (reiterating its preliminary position that “there was insufficient time for the
Department to make further inquiries of the GOC or conduct a de novo investigation of
individual firms, including with respect to industry- or firm-specific price and cost data,
which may have provided a basis to further refine the pass-through estimate”);
Consol. Court No. 12-00298 Page 25
Def.’s Combined Resp. to Pl.’s and Pl.-Intervenors’ Mots. for J. on the Agency R. 6, 10-
11, 14-15, 17. In fairness, Commerce found itself in difficult circumstances. Commerce
had to harmonize four sets of antidumping and countervailing duty determinations with
numerous adverse WTO rulings that communicated an expectation of a “likely” double
counting remedy for respondents. Commerce had a short timeframe prior to
implementation. Finally, Commerce was operating under a brand new statutory
framework that limited Commerce’s discretion to apply a double remedy offset. Alongside
the important motivation to bring the U.S. into compliance with the WTO rulings,
Commerce also had to heed the Congressional command to “demonstrate” that the
countervailable subsidies reduced the average price of U.S. CWP imports.
Commerce chose to make this demonstration indirectly through a presumption that
U.S. import prices and Chinese domestic output prices respond similarly to changes in
Chinese domestic input prices. Had the Domestic Interested Parties remained silent
during the proceeding, the court may have been able to accept as reasonable
Commerce’s decision to use increases in broad price indexes in place of more specific
CWP figures because of the discernable (though tenuous) path Commerce provided to
justify its approach. Unfortunately for Commerce, the Domestic Interested Parties
litigated the issue vigorously, and the Final Determination gives insufficient attention to
the arguments and evidence challenging Commerce’s presumption.
Domestic Interested Parties argued below that prices in the Chinese domestic
market and the U.S. import market respond differently to changes in input prices.
Consol. Court No. 12-00298 Page 26
Final Determination at 13, 15, 21-24. Domestic Interested Parties supported this claim
with evidence detailing aggregate U.S. import price data for all imports from China, which
according to Allied and TMK IPSCO, show that “Chinese input prices are not correlated
at all with changes in the prices of U.S. imports sourced from China,” unlike the Chinese
output prices Commerce relied upon. Allied & TMK Br. at 6 (emphasis added). Allied
and TMK IPSCO illustrated before Commerce that U.S. import prices and Chinese input
prices appear to have moved in opposite directions over much of the relevant time period.
Id. at 6-7. Domestic Interested Parties further supported their claim with an affidavit from
an economist explaining that Chinese producers are less likely to pass on price decreases
than increases to U.S. customers, particularly decreases that competing US producers
would not experience, such as Chinese countervailable subsidies. Wheatland Factual
Submission, Ex. 1 at 4-8. Finally, Domestic Interested Parties placed CWP import price
data on the record. Wheatland Factual Submission, Ex. 11. Although Domestic
Interested Parties did not provide a detailed analysis of CWP import price data
themselves, they maintain that Commerce acted unreasonably in failing to address and
analyze this data directly. See U.S. Steel Br. at 20-25; Wheatland Br. at 4-10; Allied &
TMK Br. at 3-10.
Recall from the discussion above that Commerce chose to use generalized
Chinese domestic price data to conclude that certain subsidies reduced the average price
of U.S. CWP imports. Commerce relied on submissions from the Government of China
showing similarities in industry conditions affecting CWP and the other products under
Consol. Court No. 12-00298 Page 27
review to conclude that China’s entire manufacturing sector could serve as a proxy for
the CWP industry. Commerce then found that variable input cost increases across all
Chinese manufacturing correlated with proportionally smaller domestic output price
increases. Commerce inferred from that relationship that countervailable subsidies
reducing Chinese CWP producers’ input costs would, presumably, reduce Chinese
domestic CWP prices to the same extent. Commerce explains that this presumption is
similar to its historical practice in market economy cases where Commerce “generally
refrain[s] from speculating about the effect of a subsidy” and does not make any
adjustments for potential double remedies. Final Determination at 15-16. In that setting
when calculating dumping margins on the same merchandise, Commerce treats
countervailable domestic subsidies as if they had an identical effect on domestic output
prices (normal value) and export prices. See id.; 19 U.S.C. § 1677(5)(C). Commerce
notes that this familiar and administrable means of accounting for the price effects of
subsidies is consistent with the WTO’s conclusion that double remedies were “likely” in
part because Commerce’s non-market economy framework captures all reductions in
export price caused by countervailable subsidies, but not similar reductions in domestic
output prices. See WTO AB Report ¶ 542.
This is all well and good, but the court does not believe that Commerce has
sufficiently addressed why its “presumption” outweighs record evidence appearing to
show that domestic output prices and export prices are not correlated, see, e.g.,
Wheatland Factual Submission, Exs. 1, 10-11; TMK IPSCO Submission of Evidence re
Consol. Court No. 12-00298 Page 28
“Double Remedies” Att. 1 (Dep’t of Commerce June 11, 2012); see Allied & TMK Br. at 6
(summarizing data). Commerce has left too much unexplained. Commerce does not
analyze or comment upon Domestic Interested Parties’ economist’s opinion. Commerce
also does not analyze U.S. import data specific to CWP. Rather, Commerce avoids
Domestic Interested Parties’ U.S. import price data by explaining that it believes the
Chinese domestic ex-factory price data is a superior data source for estimating subsidy
pass-through:
Only [by using Chinese domestic input and output price indexes] in this
manner can the Department ensure that the cost series and price series are
actually associated with one another. To accomplish this, the Department
relied on manufacturing sector data from the same source, with similar
coverage: manufacturing sector variable costs and manufacturing sector
prices. Switching to PRC export/U.S. import data as suggested by Allied
Tube/TMK IPSCO would nullify this matching and, in fact, reduce the validity
of the measurement given the possibly opposite trends in domestic and
export prices identified by Allied Tube/TMK IPSCO. In order to ensure a
true “apples-to-apples” cost and price comparison, the Department elected
to match the price and cost series rather than rely upon a sub-group or
subset of the overall manufacturing sector for prices when the cost series is
measured using the entire group. Furthermore, data constraints precluded
the Department from disaggregating U.S. import data to ensure a one-to-
one mapping.
Final Determination at 25. Commerce acknowledges that Domestic Interested Parties’
record data may demonstrate “possibly opposite trends in domestic and export prices”
over the relevant period. Id. (emphasis added). Yet, when Commerce chose to use
Chinese output prices as a proxy for U.S. import prices to “demonstrate” the requisite
reduction, Commerce presumes that the countervailable subsidies caused corresponding
reductions in Chinese output prices and U.S. import prices “to some degree.” Id. at 16.
Consol. Court No. 12-00298 Page 29
The court is missing something. The court does not understand how Commerce may
reasonably presume that Chinese domestic prices behave similarly to U.S. import prices
when record data also appears to exhibit “possibly opposite trends.”
Perhaps the answer lies in how one may reasonably interpret the differing data
sets on the record. Although Commerce achieves a match between the price and cost
series at the broader manufacturing level, Commerce does not really explain in detail why
this particular association disqualifies consideration of the more specific industry/product
CWP pricing data on the record. The implication is that there may be no way to
demonstrate the behavior of the CWP pricing data in response to the countervailable
subsidies. The court, however, wonders whether Commerce’s decision to focus on
manufacturing level data and “presume” that broad-based Chinese domestic ex-factory
prices covering millions of products can reasonably serve as a proxy for the average price
of U.S. CWP imports when the statute requires a “demonstration” of a reduction in prices
at the industry/product level, and more specific CWP pricing data appears available on
the record. The court must therefore remand the Final Determination to Commerce for
further explanation. See State Farm 463 U.S. at 43 (agency must articulate “a rational
connection between the facts found and the choice made”); see also Diamond Sawblades
Mfrs. Coal. v. United States, 612 F.3d 1348, 1355-56, 1363 (Fed. Cir. 2010) (noting
Consol. Court No. 12-00298 Page 30
distinction between remanding for further explanation pursuant to State Farm and
remanding because decision is unsupported by substantial evidence).4
IV. Conclusion
Accordingly, it is hereby
ORDERED that Commerce’s assessment of double remedies is remanded for
further consideration in accordance with this Opinion; it is further
ORDERED that Commerce shall file its remand results on or before Wednesday,
February 25, 2015; it is further
ORDERED that, if applicable, the parties shall file a proposed scheduling order
with page limits for comments on the remand results no later than seven days after
Commerce files its remand results with the court.
/s/ Leo M. Gordon
Judge Leo M. Gordon
Dated: November 26, 2014
New York, New York
4
The court does not yet reach Domestic Interested Parties’ challenge to Commerce’s
estimation of the double remedy offset as unreasonable. See U.S. Steel Br. at 4-6;
Wheatland Br. at 1-2; Allied & TMK Br. at 1-2.