Elkay Manufacturing Co. v. United States ( 2014 )

Slip Op. 14-
UNITED STATES COURT OF INTERNATIONAL TRADE
ELKAY MANUFACTURING
COMPANY,
Plaintiff,
v.
UNITED STATES, Before: Timothy C. Stanceu, Chief Judge
Defendant, Consol. Court No. 13-00176
and
GUANGDONG DONGYUAN
KITCHENWARE INDUSTRIAL
COMPANY, LTD.,
Defendant-intervenor.
OPINION AND ORDER
Dated:'HFHPEHU
[Remanding a determination by the U.S. Department of Commerce in an antidumping duty
investigation for reconsideration of two aspects of the calculation of the normal value of
imported merchandise]
Joseph W. Dorn and P. Lee Smith, King & Spalding LLP, of Washington D.C., for
plaintiff and consolidated defendant-intervenor Elkay Manufacturing Company.
Gregory S. Menegaz, J. Kevin Horgan, and John J. Kenkel, DeKieffer & Horgan, PLLC,
of Washington D.C., for consolidated plaintiff and defendant-intervenor Guangdong Dongyuan
Kitchenware Industrial Company, Ltd.
Patricia M. McCarthy, Assistant Director, and Richard P. Schroeder, Trial Attorney,
Civil Division, Commercial Litigation Branch, U.S. Department of Justice, of Washington D.C.,
for defendant United States. With him on the brief were Stuart F. Delery, Assistant Attorney
General, and Jeanne E. Davidson, Director. Of counsel on the brief was Whitney M. Rolig,
Attorney, Office of the Chief Counsel for Trade Enforcement and Compliance, U.S. Department
of Commerce.
Consol. Court No. 13-00176 Page 2
Stanceu, Chief Judge: In this consolidated action, plaintiffs Elkay Manufacturing
Company (“Elkay”) and Guangdong Dongyuan Kitchenware Industrial Company, Ltd.
(“Dongyuan”) contest a determination (“Final Determination”) that the International Trade
Administration, U.S. Department of Commerce (“Commerce” or the “Department”) issued upon
the affirmative conclusion of an antidumping duty investigation of drawn stainless steel sinks
(“subject merchandise”) from the People’s Republic of China (“China” or the “PRC”). Both
plaintiffs challenge aspects of the Department’s calculation of the normal value of subject
merchandise.1
Dongyuan, a Chinese manufacturer and exporter of stainless steel sinks and one of the
two producer/exporters that Commerce investigated individually, challenges the Department’s
use of import data from Thailand to determine a surrogate value for the cold-rolled stainless steel
coil that Dongyuan used as the primary material in producing subject merchandise.
Compl. ¶ 11-15 (June 12, 2013), ECF No. 9 (Court No. 13-00199) (“Dongyuan Compl.”).
Elkay, a U.S. producer and the petitioner in the investigation, challenges the Department’s
method of accounting for selling, general, and administrative (“SG&A”) expenses in the normal
value determinations for the two individually-investigated producer/exporters.2 Compl. ¶ 11-14
(June 5, 2013), ECF No. 14 (“Elkay Compl.”).
1
Each plaintiff is also a defendant-intervenor in this consolidated action. Order
(June 28, 2013), ECF No. 16 (Ct. No. 13-00199) (granting Elkay’s Mot. for Intervention); Order
(July 9, 2013), ECF No. 21 (granting Dongyuan’s Mot. for Intervention).
2
In its complaint, Guangdong Dongyuan Kitchenware Industrial Company, Ltd.
(“Dongyuan”) also challenged the valuation of Dongyuan’s brokerage and handling expenses by
the U.S. Department of Commerce (“Commerce” or the “Department”). Compl. ¶ 16-17
(June 12, 2013), ECF No. 9 (Ct. No. 13-00199). Because this claim is omitted from Dongyuan’s
Rule 56.2 motion, see Dongyuan’s Rule 56.2 Mot. for J. Upon the Agency R. (Oct. 21, 2013),
ECF No. 27, the court considers it abandoned. See USCIT R. 56.2(c)(1)(B).
Consol. Court No. 13-00176 Page 3
Before the court are Dongyuan’s and Elkay’s motions for judgment on the agency record
pursuant to USCIT Rule 56.2. Elkay’s Mot. for J. on the Agency R. (Oct. 21, 2013), ECF No. 26
(“Elkay Mot.”); Dongyuan’s Rule 56.2 Mot. for J. Upon the Agency R. (Oct. 21, 2013), ECF
No. 27 (“Dongyuan Mot.”). Also before the court is a request by defendant United States for a
partial voluntary remand to allow Commerce to reconsider the use of the Thai import data for
determining a surrogate value for cold-rolled stainless steel coil. Def.’s Resp. to Pl.’s Rule 56.2
Mot. for J. on the Agency R. 1 (Feb. 28, 2014), ECF No. 40 (“Def. Opp’n”). The court grants
the Department’s partial voluntary remand request and in addition directs Commerce to
reconsider its method of accounting for SG&A expenses in the normal value calculations.
I. BACKGROUND
The decision contested in this case concluded an antidumping duty less-than-fair-value
investigation. See Drawn Stainless Steel Sinks From the People’s Republic of China:
Investigation, Final Determination, 78 Fed. Reg. 13,019 (Int’l Trade Admin. Feb. 26, 2013)
(“Final Determination”), as amended, 78 Fed. Reg. 21,592 (Int’l Trade Admin. Apr. 11, 2013).
In response to a petition by Elkay, Commerce initiated the investigation, which examined
imports of subject merchandise made during the period of July 1, 2011 through
December 31, 2011 (“period of investigation” or “POI”). Drawn Stainless Steel Sinks From the
People’s Republic of China: Initiation of Antidumping Duty Investigation, 77 Fed. Reg. 18,207(Int’l Trade Admin. Mar. 27, 2012). On May 14, 2012, Commerce selected for individual
investigation as “mandatory respondents” two Chinese producer/exporters—Dongyuan and a
combined entity Commerce identified as consisting of Zhongshan Superte Kitchenware Co., Ltd.
(“Superte”) and a related invoicing company, Foshan Zhaoshun Trade Co., Ltd. (“Zhaoshun”)
Consol. Court No. 13-00176 Page 4
(collectively identified as “Superte/Zhaoshun”). Final Determination, 78 Fed. Reg.
at 13,019 n.2.
On October 4, 2012, Commerce issued a preliminary determination (“Preliminary
Determination”) that imports of subject merchandise from China are being, or are likely to be,
sold in the United States at less than fair value. Drawn Stainless Steel Sinks From the People’s
Republic of China: Antidumping Duty Investigation, 77 Fed. Reg. 60,673, 60,673 (Int’l Trade
Admin. Oct. 4, 2012) (“Prelim. Determination”). Commerce calculated preliminary
weighted-average dumping margins of 54.25% for Dongyuan, 63.87% for Superte/Zhaoshun,
and a simple average of the two rates, 59.06%, for “separate-rate” respondents, i.e., those
producer/exporters not selected for individual examination that had demonstrated independence
from the government of China. Id. at 60,674.
Commerce published its Final Determination on February 26, 2013 and issued an
accompanying Issues and Decision Memorandum (“Decision Memorandum”).3 See Final
Determination, 78 Fed. Reg. at 13,019; Issues & Decision Mem. for the Final Determination in
the Antidumping Duty Investigation of Drawn Stainless Steel Sinks from the People’s Republic of
China, A-570-983 (Feb. 19, 2013) (Admin.R.Doc. No. 417) (“Decision Mem.”), available at
http://enforcement.trade.gov/frn/summary/PRC/2013-04379-1.pdf (last visited Dec. 16, 2014).
In the Final Determination, Commerce determined that imports of subject merchandise from
China are being, or are likely to be, sold in the United States at less than fair value. Final
3
Commerce published an amended final determination of the less-than-fair-value
investigation and the antidumping duty order, correcting an issue concerning the
exporter/producer combinations of one separate-rate exporter, without making any changes to the
antidumping margins. Drawn Stainless Steel Sinks from the People’s Republic of China:
Amended Final Determination of Sales at Less Than Fair Value and Antidumping Duty Order,
78 Fed. Reg. 21,592, 21,593 (Int’l Trade Admin. Apr. 11, 2013).
Consol. Court No. 13-00176 Page 5
Determination, 78 Fed. Reg. at 13,019. Making certain changes to the analysis it used for the
Preliminary Determination, Commerce assigned weighted-average dumping margins of 27.14%
to Dongyuan, 39.87% to Superte/Zhaoshun, and a simple average of the two rates, 33.51%, to
the separate-rate respondents. Final Determination, 78 Fed. Reg. at 13,020, 13,023.
Elkay initiated an action challenging the Final Determination by filing a summons on
May 6, 2013 and a complaint on June 5, 2013. Summons, ECF No. 1; Elkay Compl. ¶ 1.
Dongyuan initiated a separate action challenging the Final Determination by filing a summons
on May 13, 2013 and a complaint on June 12, 2013. Summons, ECF No. 1 (Ct. No. 13-00199);
Dongyuan Compl. ¶ 1. The court consolidated these cases on August 30, 2013.4 Order, ECF
No. 25.
Elkay and Dongyuan filed their motions for judgment on the agency record and
accompanying briefs on October 21, 2013. Elkays Mot.; Rule 56.2 Br. of Elkay Mfg. Co. in
Supp. of its Mot. for J. on the Agency R., ECF No. 29 (“Elkay Br.”); Dongyuan Mot.; Consol.
Pl. Guangdong Dongyuan Kitchenware Mem. in Supp. of Mot. for J. on the Agency R., ECF
No. 31 (“Dongyuan Br.”). On February 28, 2014, defendant filed a consolidated response in
opposition to both motions, Def. Opp’n 1, and Dongyuan filed a response opposing
Elkay’s 56.2 motion, Def.-Intervenor Guangdong Dongyuan Kitchenware Resp. Br. in Opp’n to
Pl.’s Rule 56.2 Mem., ECF No. 39 (“Dongyuan Opp’n.”). Elkay and Dongyuan each filed
replies on April 4, 2014. Consol. Pl. Guangdong Dongyuan Kitchenware Reply Br. in Supp. of
4
The court consolidated Guangdong Dongyuan Kitchenware Industrial Co., Ltd. v.
United States, Ct. No. 13-00199, under Elkay Mfg. Co. v. United States, Ct. No. 13-00176.
Order of Consolidation and Scheduling 3 (Aug. 30, 2013), ECF No. 25. Although defendant
requested consolidation with an additional case, Artisan Mfg. Corp. v. United States, Court
No. 13-00169, the court declined to consolidate that case because of the dissimilarity between
the issues raised therein and those raised in the other two cases. Id. at 2-3.
Consol. Court No. 13-00176 Page 6
Mot. for J. on the Agency R., ECF No. 44 (“Dongyuan Reply”); Reply Br. of Elkay Mfg. Co. in
Supp. of its Mot. for J. on the Agency R., ECF No. 45 (“Elkay Reply”).
II. DISCUSSION
The court exercises jurisdiction under section 201 of the Customs Courts Act of 1980,
28 U.S.C. § 1581(c), pursuant to which the court reviews actions commenced under
section 516A of the Tariff Act of 1930, as amended (the “Tariff Act”), 19 U.S.C. § 1516a,
including an action contesting a final determination that Commerce issues to conclude an
antidumping investigation.5 In reviewing a final determination, the court “shall hold unlawful
any determination, finding, or conclusion found . . . to be 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 evidence that “a reasonable mind might accept as adequate to support a
conclusion.” Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938).
Section 773(c)(1) of the Tariff Act, 19 U.S.C. § 1677b(c)(1), provides for the calculation
of the normal value of subject merchandise from a nonmarket economy (“NME”) country “on
the basis of the value of the factors of production utilized in producing the merchandise,” plus
certain additions.6 The statute directs that “the valuation of the factors of production shall be
based on the best available information regarding the values of such factors in a market economy
country or countries considered to be appropriate by the administering authority.” Id.
5
Unless otherwise specified, all statutory citations herein are to the 2012 edition of the
United States Code and all citations to regulations herein are to the 2013 edition of the Code of
Federal Regulations.
6
A “nonmarket economy country” (“NME”) is defined in 19 U.S.C. § 1677(18)(A) as
“any foreign country that the administering authority determines does not operate on market
principles of cost or pricing structures, so that sales of merchandise in such country do not reflect
the fair value of the merchandise.”
Consol. Court No. 13-00176 Page 7
A. The Court Grants Defendant’s Request for a Voluntary Remand so that Commerce May
Reconsider the Use of Thai Import Data to Value Cold-Rolled Stainless Steel Coil
During the antidumping investigation, Commerce identified Colombia, Indonesia, Peru,
the Philippines, South Africa, Thailand, and Ukraine as countries comparable to the PRC in
terms of economic development and found that all of these countries, excluding the Philippines,
were significant producers of merchandise comparable to the merchandise under consideration.
Decision Mem. for Prelim. Determination for the Antidumping Duty Investigation of Drawn
Stainless Steel Sinks from the People’s Republic of China 6 (Sept. 27, 2012) (Admin.R.Doc.
No. 337) (“Prelim. Decision Mem.”), available at
http://enforcement.trade.gov/frn/summary/PRC/2012-24549-1.pdf (last visited Dec. 16, 2014).
Noting that cold-rolled stainless steel coil is the chief raw material used to produce the subject
merchandise, Commerce chose Thailand as the primary surrogate country for the Preliminary
Determination, finding that “Thailand provides the most specific information to value each
respondent’s most significant input (i.e., stainless steel).” Id. at 7. Comparing Thai import data
published in the Global Trade Atlas (“GTA”) to available GTA import data from the Philippines
and Indonesia, which Superte/Zhaoshun proposed for use but which Commerce considered less
specific to the input to be valued, Commerce chose Thai import data. Id. at 7, 16-17. Commerce
excluded from the GTA Thai import database the imports from various countries that Commerce
found to maintain broadly available subsidies. Id. at 17. Commerce also excluded imports from
countries on which Thailand imposes antidumping duties. Id. In the Final Determination,
Commerce continued to select Thailand as the primary surrogate country with which to value the
Consol. Court No. 13-00176 Page 8
cold-rolled stainless steel coil inputs and continued to make the exclusions from the import
database.7 See Decision Mem. 8-10.
In contesting the Department’s valuation of the stainless steel coil factor of production
(“FOP”), Dongyuan seeks an order directing Commerce “to forego reliance on any Thai import
statistics for cold-rolled steel inputs consumed by Dongyuan Kitchenware.” Dongyuan Br. 35.
Raising various objections to the suitability and reliability of the Thai import data, Dongyuan
argues that Commerce should have valued the input using GTA import data for the Philippines
and for Indonesia, which both investigated respondents placed on the record. Id. at 2-5, 14-34.
In response to Dongyuan’s challenge, defendant requests a voluntary remand so that
Commerce may consider whether the Thai import data used in the Final Determination were
aberrational. Def. Opp’n 7, 15-16. To address that question, defendant would compare the Thai
GTA import data with GTA import data from other potential surrogate countries, namely
Colombia, Indonesia, Peru, South Africa, Ukraine, and the Philippines. Id. at 15-16. Defendant
explains that Commerce did not place on the record information pertaining to potential surrogate
countries other than Indonesia, the Philippines, and Thailand and that a remand would allow
Commerce to “place the missing GTA data on the record.” Id. at 16. Defendant elaborates that
7
For the Final Determination, Commerce continued to value the cold-rolled stainless
steel coil inputs using the Thai import data but expanded the number of Harmonized Tariff
Schedule (“HTS”) subcategories from which to average the import statistics. In the Preliminary
Determination, Commerce valued the stainless steel inputs by averaging the Thai GTA import
statistics from three HTS 11-digit subcategories. For the Final Determination, Commerce
averaged import statistics from an additional three HTS 11-digit subcategories. Issues &
Decision Mem. for the Final Determination in the Antidumping Duty Investigation of Drawn
Stainless Steel Sinks from the People’s Republic of China 8-10, A-570-983 (Feb. 19, 2013)
(Admin.R.Doc. No. 417) (“Decision Mem.”), available at
http://enforcement.trade.gov/frn/summary/PRC/2013-04379-1.pdf (last visited Dec. 16, 2014).
Consol. Court No. 13-00176 Page 9
“[g]ranting a remand will enable the parties to make arguments concerning the omitted
evidence[] and will enable Commerce to address those arguments in the first instance.” Id.Dongyuan opposes defendant’s voluntary remand request, arguing that Commerce did
not compile the list of surrogate countries based on average unit values (“AUVs”) of imports in
the surrogate countries and that there is no record basis on which to conclude that the other
potential surrogate countries have “usable data.”8 Dongyuan’s Reply 6-9. Dongyuan submits
that the court should not permit Commerce to undergo the “burdensome and unreasonable task,”
id. at 9, of recreating a record of world import prices of all surrogate countries listed on the
surrogate country list or permit Commerce to “cherry-pick off-the-record data that it has
concluded would bolster its Final Determination,” id. According to Dongyuan, allowing
Commerce to reopen the record and examine import data from other surrogate countries would
allow Commerce to “defend petitioners’ proposed high import AUVs after the close of the
factual record and after that factual record is briefed by supplementing the record
post-investigation.” Id. at 10. Dongyuan requests that the court instead rule that the existing
“administrative record cannot support a finding that fairly traded Thai import statistics are
non-aberrant,” id. at 22, and instruct Commerce “to disregard Thai import AUVs in selecting the
‘best available information’ for the surrogate value for Dongyuan Kitchenware’s cold-rolled
steel,” id.The court will grant the Department’s voluntary remand request so that Commerce may
reconsider its use of the Thai import data to value the steel coil input and reopen the record to
admit additional data. The court rejects Dongyuan’s position that the court, instead of granting
8
Although Elkay is a defendant-intervenor in Dongyuan’s challenge, Elkay did not file
an opposition to Dongyuan’s Rule 56.2 Motion and did not take a position in its briefings to the
court on defendant’s request for a voluntary remand.
Consol. Court No. 13-00176 Page 10
the voluntary remand request, should issue a remand order that prohibits Commerce from using
the Thai data to value the steel coil input.9
Granting defendant’s request for a voluntary remand is appropriate because the
Department’s concerns regarding the previous decision to use the Thai import data are
substantial and legitimate. See SKF USA Inc. v. United States, 254 F.3d 1022, 1028-29 (Fed.
Cir. 2001). Because the decision to reopen the record in a remand proceeding ordinarily is a
matter for an agency to decide, and because Commerce has advanced a legitimate reason to
reopen the record in this case, the court rejects Dongyuan’s argument that the court should not
permit Commerce to admit additional import data to the record. The voluntary remand that
defendant requests will permit Commerce to reconsider its previous valuation of the steel coil
FOP on the basis of more complete information. In their comments on the remand
redetermination, the parties to this litigation will have the opportunity to comment on any new
evidence submitted to the record and on the decision Commerce reaches upon reconsideration.
9
Dongyuan also argues that the use of Thai surrogate data is inconsistent with the
Department’s policies and practices concerning the threshold at which a nonmarket economy
respondent’s market economy purchases of a particular factor of production may be considered
representative of that factor. Consol. Pl. Guangdong Dongyuan Kitchenware Mem. in Supp. of
Mot. for J. on the Agency R. 31-34 (Oct. 21, 2013), ECF No. 31 (“Dongyuan Br.”). Defendant
argues that the court should reject Donguyan’s argument concerning market economy purchases
on the ground that “Dongyuan relies on a regulation that was not in effect during the relevant
timeframe and, to the extent that Dongyuan’s challenge is based upon the prior policy that was
then in effect, Dongyuan failed to exhaust its administrative remedies.” Def.’s Resp. to Pl.’s
Rule 56.2 Mot. for J. on the Agency R. 7 (Feb. 28, 2014), ECF No. 40 (“Def. Opp’n”). Because
the court is granting a voluntary remand, the decision to which Dongyuan directs the market
economy purchase argument—that is the Department’s decision to use Thai surrogate data—will
be reconsidered on remand. Therefore, the court finds it unnecessary to consider at this time
Dongyuan’s market economy purchase argument and defendant’s corresponding responses.
Consol. Court No. 13-00176 Page 11
B. The Court Orders a Remand on the Department’s Treatment of SG&A Labor Expenses
Section 773(c)(1) of the Tariff Act, 19 U.S.C. § 1677b(c)(1), provides generally that the
normal value of subject merchandise produced in a non-market economy country shall be
determined “on the basis of the value of the factors of production utilized in producing the
merchandise and to which shall be added an amount for general expenses and profit plus the cost
of containers, coverings, and other expenses.” Id. (emphasis added). The statute further
provides that “the factors of production utilized in producing merchandise include, but are not
limited to . . . hours of labor required . . . .” Id. § 1677b(c)(3)(A) (emphasis added). In this way,
the statute provides for the separate valuation of the hours of labor required in producing the
subject merchandise and of additional expenses (i.e., “general” and “other” expenses) in the
NME normal value calculation. In identifying the “hours of labor required” as a factor of
production, the statute does not distinguish between labor expended to produce subject
merchandise (i.e., “production” labor) and labor expended in performing non-production
activities (i.e., “non-production” labor), such as labor associated with the performance of selling,
general, and administrative (“SG&A”) functions.
Although Commerce has discretion in determining the best method for constructing
normal value (whether or not in the non-market economy context), it must exercise its discretion
consistently with the purpose of the antidumping statute, that is, to “determine margins ‘as
accurately as possible.’” Lasko Metal Products, Inc. v. United States, 43 F.3d 1442, 1446
(Fed. Cir. 1994) (citing Rhone Poulenc, Inc. v. United States, 899 F.2d 1185, 1191 (Fed.
Cir. 1990)); Shakeproof Assembly Components, Div. of Ill. Tool Works, Inc. v. United States,
268 F.3d 1376, 1382 (Fed. Cir. 2001) (“Shakeproof”) ( “In determining the valuation of the
factors of production, the critical question is whether the methodology used by Commerce is
Consol. Court No. 13-00176 Page 12
based on the best available information and establishes antidumping margins as accurately as
possible.”). This principle applies even though the process of constructing normal value “is
difficult and necessarily imprecise.” Shakeproof, 268 F.3d at 1381 (citing Nation Ford Chem.
Co. v. United States, 166 F.3d 1373, 1377 (Fed. Cir. 1999)).
Elkay’s challenge concerns the method Commerce used to account for certain
non-production labor—specifically, the labor that the two investigated respondents expended in
performing SG&A functions—in calculating the normal value of the subject merchandise of
those respondents. Elkay claims that Commerce failed to include in the normal value calculation
the total cost of the “hours of labor required,” as required by 19 U.S.C. § 1677b(c)(3)(A), or to
capture satisfactorily “general expenses,” as required by 19 U.S.C. § 1677b(c)(1). Elkay Br. 10.
Stated simply, Elkay’s claim is that Commerce impermissibly understated normal value for the
two investigated respondents by failing to capture adequately the labor component of the SG&A
expenses of those respondents. Id. at 12. Elkay alleges, specifically, that the hours of labor
reported by the two investigated respondents, a factor of production to which Commerce applied
a surrogate value based on data pertaining to Thailand, included only hours of production labor
and, therefore, did not include any hours of labor expended in performing SG&A functions. Id.
at 8-9. According to Elkay’s argument, Commerce failed to capture the SG&A labor costs when
valuing the hours of labor reported by the investigated respondents as a factor of production and
also excluded the SG&A labor costs when it performed its SG&A expense calculation. Id. at 9.
The Department’s regulations provide that “[f]or manufacturing overhead, general
expenses, and profit, the Secretary normally will use non-proprietary information gathered from
producers of identical or comparable merchandise in the surrogate country.” 19 C.F.R.
§ 351.408(c)(4). Commerce usually calculates separate values for factory overhead, SG&A
Consol. Court No. 13-00176 Page 13
expenses, and profit by calculating and applying financial ratios derived from financial
statements of one or more producers of comparable merchandise in the primary surrogate
country. See Dorbest Ltd. v. United States, 604 F.3d 1363, 1368 (Fed. Cir. 2010) (“In addition to
these methods of valuing the direct inputs to production, Commerce also values selling, general,
and administrative expenses (“SG & A”), factory overhead, and profit . . . using financial ratios
derived from publicly-available financial statements of producers of comparable merchandise in
the surrogate country.”) (citing 19 C.F.R. § 351.408(c)(4)). According to the Department’s
Antidumping Manual, the Department’s practice is to calculate a ratio for “general expenses”
and to apply this ratio to the sum of the amount calculated for a respondent’s “total of materials,
labor, energy, and factory overhead.”10 Import Admin. Antidumping Manual, Chapter 10:
Non-Market Economies 18 (2009 ed.), available at
http://enforcement.trade.gov/admanual/2009/Chapter%2010%20NME.pdf (last visited
Dec. 16, 2014).
In the Preliminary Determination of this investigation, Commerce determined surrogate
ratios for SG&A expenses, combined with interest expenses, for each of three companies in the
chosen surrogate country, Thailand, using data on those expenses reported in the financial
10
“Factory overhead” is described in the Department’s Antidumping Manual as follows:
The most important component of factory overhead is depreciation. It can also
include supervisory and indirect labor, maintenance, and energy that is not
significant enough to be valued separately. Normally, factory overhead is
expressed as a percentage of materials, labor, and energy of the surrogate
producer, and is applied to the materials, labor, and energy costs of the exporter.
Import Admin. Antidumping Manual, Chapter 10: Non-Market Economies 18 (2009 ed.)
(footnote omitted), available at
http://enforcement.trade.gov/admanual/2009/Chapter%2010%20NME.pdf (last visited
Dec. 16, 2014).
Consol. Court No. 13-00176 Page 14
statements of the three companies. Factor Valuation Mem. for Prelim. Determination 7-8,
Attach. 5 (Sept. 27, 2012) (Admin.R.Doc. No. 342-343) (“Prelim. Factor Valuation Mem.”).
The numerators of these SG&A/interest expense ratios calculated for the Preliminary
Determination contained the SG&A and interest expenses listed in the surrogate financial
statements. Id. The denominators of these ratios contained expenses listed in the surrogate
financial statements for raw material, labor, energy, manufacturing overhead, and the cost of
purchased goods and inventory. Id. From the three separate ratios, Commerce calculated an
average ratio for use in determining surrogate SG&A/interest expenses for the two investigated
respondents, Superte/Zhaoshun and Dongyuan. Id.In the Final Determination, Commerce used the same three financial statements to
calculate the three SG&A/interest expense ratios but applied a different method. This method
resulted in an average SG&A/interest ratio that was substantially lower than the average ratio
calculated in the Preliminary Determination. Decision Mem. 15. The financial statements of all
three Thai companies reported production labor costs separately from certain other labor costs,
which were itemized and categorized among the sales or administrative expenses in the surrogate
financial statements. See Pet’r’s Submission of Surrogate Values Ex. 10 (Aug. 13, 2012)
(Admin.R.Doc. No. 262) (“Elkay’s Surrogate Values Submission”) (including financial
statements from Stainless Steel Home Equipment Manufacturing Co., Ltd. and Diamond Brand
Co., Ltd.); Dongyuan’s Rebuttal Surrogate Values for the Prelim. Results Exs. 4-6
(Aug. 20, 2012) (Admin.R.Doc. No. 296) (including financial statements from Advance
Stainless Steel Co., Ltd.). The record indicates that Commerce excluded a number of the labor
costs identified in the financial statements as sales or administrative expenses (and described by
Commerce as “SG&A labor costs”) from the numerators of the three SG&A/interest expense
Consol. Court No. 13-00176 Page 15
ratios and included these costs in the denominators of those ratios.11 See Factor Valuations for
the Final Determination, Attach. 1 (final surrogate value worksheets) (Feb. 19, 2013)
(Admin.R.Doc. No. 422) (“Final Factor Valuations Mem.”). As defendant explains in its brief,
reclassifying the line items in the surrogate financial statements that Commerce determined to
correspond to SG&A labor “reduces the surrogate SG&A ratio by decreasing the total SG&A
expenses in the numerator and increasing the labor expense in the denominator.”12 Def. Opp’n 9.
Reclassifying these SG&A labor costs reduced the 12.82% average SG&A/interest expense ratio
of the Preliminary Determination to a 6.36% average ratio in the Final Determination, a
reduction of more than half. Compare Prelim. Factor Valuation Mem. 8 with Final Factor
Valuations Mem. 2.
The rationale Commerce provided in the Decision Memorandum for the decision to
change the SG&A/interest expense ratio calculation relied in part on the surrogate labor rate with
which Commerce valued the labor hours reported by the two investigated respondents. Decision
Mem. 15. For the Preliminary Determination, Commerce valued the two respondents’ reported
11
The adjustment at issue in this action also reduced the manufacturing overhead ratios
by increasing labor expense in the denominators. Factor Valuations for the Final
Determination, Attach. 1 (Feb. 19, 2013) (Admin.R.Doc. No. 422) (“Final Factor Valuations
Mem.”) (showing method used for determining overhead ratio). The average factory overhead
and profit ratios Commerce calculated from the financial statements of the Thai companies are
not challenged in this case. Commerce calculated the factory overhead ratios by dividing
manufacturing overhead expenses, including, inter alia, supplies, repairs/maintenance, and
depreciation, by a sum of materials, labor, and energy. Id. Commerce calculated the profit ratios
by dividing the before tax profit by a total of materials, labor, energy, SG&A expense, overhead,
and the cost of purchased goods and inventory. Id.12
As defendant also explains in its brief, “Commerce calculates the SG&A ratio by
dividing total SG&A expenses (designated as ‘SGA’) by the total cost of material, labor, energy,
manufacturing overhead, and finished or traded goods.” Def. Opp’n 9 n.7 (citation omitted).
Continuing its discussion of the calculation of normal value for a NME respondent, defendant
explains that “the surrogate SG&A ratio is multiplied by the respondent’s total cost of
manufacturing, overhead, and finished and traded goods . . . .” Id. at 9.
Consol. Court No. 13-00176 Page 16
labor hours using a surrogate labor rate derived from 2005 data from Chapter 6A of the
International Labor Organization (“ILO”) Yearbook of Labor Statistics. Prelim. Factor
Valuation Mem. 5-6. The record indicates that the ILO labor rate Commerce applied in the
Preliminary Determination was 141.2162 Thai Bhat (“THB”) per hour. Id. at Attach. 4.
Following the Preliminary Determination, Dongyuan submitted for admission to the
record certain data on the labor cost of “[m]anufacture of other fabricated metal products not
enumerated elsewhere” contained in the “Industrial Census 2007” published by Thailand’s
National Statistics Office (“NSO”). Dongyuan’s Final Surrogate Value Submission—Part I,
Ex. SV-1 (Nov. 26, 2012) (Admin.R.Doc. No. 373) (“Dongyuan’s Final Surrogate Value
Submission”). For the Final Determination, Commerce applied the NSO labor rate as a surrogate
labor rate to value the examined respondents’ reported labor hours. Decision Mem. 11.
Commerce concluded that the NSO data were superior to the ILO data, finding “that the 2007
NSO data for labor cost of ‘manufacturing of other fabricated metal products’ (ISIC Rev.3
Code: 2899) is the best information available on the record to calculate the labor cost of the two
respondents in the final determination.” Id. (citation omitted in original). Commerce explained
that “[t]his is because the 2007 NSO data are the most product-specific and contemporaneous[]
and provide a broader market average among all the data parties placed on the record.” Id.According to the Decision Memorandum, the hourly rate obtained from the NSO data was
54.61 THB per hour. Id. at 12. It appears from the record that the rate as adjusted for inflation
and applied was 63.1158 THB per hour. See Final Factor Valuations Mem. 3 (“The SV
[surrogate value] for labor is 63.12 THB/hr.”) & Attach. 1 (showing an applied rate of 63.1158;
see also Dongyuan’s Final Surrogate Value Submission, Ex. SV-1. The surrogate labor rate
Consol. Court No. 13-00176 Page 17
applied in the Final Determination, therefore, was less than half of the 141.2162 THB/hour rate
applied in the Preliminary Determination.13
According to the Decision Memorandum, Dongyuan argued during the investigation that
“[t]he Department should treat selling, general and administrative (‘SG&A’) labor line items
(sales, administrative and managerial staff and directors’ salaries) in the surrogate financial
statements as manufacturing labor, not SG&A labor, in its financial ratio calculations because
the underlying ILO Chapter 6A data and the NSO Industrial Census data include these
expenses.” Decision Mem. 14. In the Final Determination, Commerce agreed with Dongyuan’s
proposed change, stating that “[a]fter examining the record, we agree with Dongyuan that the
NSO data include total labor costs (i.e., manufacturing and SG&A) . . . .” Id. at 15.
Commerce explained that it intended to account for SG&A labor by applying to the hours
of labor reported by each examined respondent a surrogate labor rate that included both
manufacturing and SG&A labor costs. Id. Commerce also stated that “[u]sing a surrogate
financial ratio that includes SG&A labor costs in addition to the NSO-based surrogate labor rate
would double-count those costs in normal value because both include an amount for SG&A
labor.” Id. Commerce concluded its discussion by stating that “to avoid double-counting SG&A
labor, we have determined to exclude labor costs from the SG&A surrogate financial ratios for
the final determination.” Id.13
During the administrative proceeding, Dongyuan alleged that Commerce had erred in
converting the monthly Thai labor rate in the ILO Chapter 6A data into an hourly rate by
incorrectly presuming a lower number of hours worked during the month. Decision Mem. 10-11.
In the Decision Memorandum, Commerce did not address this issue because it had selected the
NSO data rather than the ILO Chapter 6A data. Id. at 14. Although any recalculation of the
hourly rate from the monthly rate might lower the ILO Chapter 6A rate, the resulting rate still
would likely be substantially higher than the NSO rate.
Consol. Court No. 13-00176 Page 18
Elkay argues that Commerce should be required to calculate the SG&A/interest expense
ratios as Commerce did in the Preliminary Determination—by placing in the numerator of the
SG&A/interest expense ratios all SG&A expenses reported in the surrogate companies’ financial
statements, including SG&A labor costs. Elkay Br. 12. Elkay submits that although “the NSO
labor rate was an average based on compensation for all types of labor, including both
production and non-production labor,” id. at 8-9, the “labor rate was only applied to production
labor hours,” id. at 9, and not to the non-production labor expended in performing SG&A
functions. Elkay asserts that because Commerce “applied the revised surrogate labor rate to a
labor FOP that includes only production hours, Commerce failed to capture any SG&A labor
costs in the calculation of normal value.” Id. at 6.
There can be no dispute that Commerce intentionally used an average ratio for SG&A
and interest expenses that captured less than the full amount of the SG&A expenses as reported
in the surrogate financial statements. It also appears from the record that the labor hours
reported as a factor of production by both investigated respondents included only hours of
production labor. 14 But it does not necessarily follow, as Elkay argues, that “Commerce failed
14
According to defendant, neither Dongyuan’s nor Superte/Zhaoshun’s reported labor
hours included labor for SG&A functions because both parties reported labor that was “directly
related to the production of subject merchandise.” Def. Opp’n 3. The Decision Memorandum,
however, does not mention that Superte/Zhaoshun reported only production labor hours. In the
Decision Memorandum, Commerce acknowledged only as to Dongyuan that it applied the NSO
labor rate to a quantity of labor hours that did not include SG&A labor. Decision Mem. 15
(“Dongyuan’s labor FOPs do not include SG&A labor hours . . . .”). The Department’s
questionnaire asked respondents to “[r]eport the indirect labor hours required to produce a unit of
the merchandise under consideration,” adding that “[i]ndirect labor includes all workers not
previously reported who are indirectly involved in the production of the merchandise under
consideration.” Dongyuan’s Section D Questionnaire Resp. D-10 to D-11 (July 3, 2012)
(Admin.R.Doc. No. 215); Superte/Zhaoshun’s Sections C & D Questionnaires Resp. D-12
(July 30, 2012) (Admin.R.Doc. Nos. 244-45). The questionnaire did not specifically request that
respondents report non-production labor, including labor associated with SG&A functions.
Consol. Court No. 13-00176 Page 19
to capture any SG&A labor costs in the calculation of normal value.” Elkay Br. 6. Elkay’s
characterization assumes that Commerce omitted SG&A labor costs entirely from the normal
value determination considered as a whole. Because the surrogate labor rate Commerce applied
to the quantities of labor hours reported by the two investigated respondents bears some
relationship to non-production labor costs, Elkay has not demonstrated that the calculation
Commerce used to value the examined respondent’s labor hours failed to capture any SG&A
labor costs. Nevertheless, as discussed below, the court cannot sustain the principal conclusion
underlying the Department’s decision.
1. The Principal Conclusion Underlying the Department’s Decision to Adjust the SG&A/Interest
Expense Ratios is Not Supported by Substantial Record Evidence
In recounting the Department’s reasons for making the adjustments, the Decision
Memorandum states a finding that the NSO data include “total labor costs (i.e., manufacturing
and SG&A) . . . .”15 Decision Mem. 15. From this finding, Commerce reached the conclusion
that “[u]sing a surrogate financial ratio that includes SG&A labor costs in addition to the
NSO-based surrogate labor rate would double-count those costs in normal value because both
include an amount for SG&A labor.” Id. Referring implicitly to the specific adjustment that it
made to the surrogate financial ratios, Commerce further concluded that this adjustment was
necessary in order “to avoid double-counting SG&A labor.” Id. As the court discusses below,
the record lacks substantial evidence to support the Department’s conclusion that
“double-counting” of SG&A labor expenses required the specific downward adjustments to the
15
The full statement of this finding in the Decision Memorandum is: “After examining
the record, we agree with Dongyuan that the NSO data include total labor costs (i.e.,
manufacturing and SG&A), including wages, earnings, overtime, bonuses, special payments,
cost of living allowances and commissions, as well as, fringe benefits such as, beverages,
lodgings, rent, medical care, transportation, recreational and entertainment services, etc.”
Decision Mem. 15.
Consol. Court No. 13-00176 Page 20
SG&A/interest expense ratios that Commerce found necessary when calculating the normal
value for the merchandise of Dongyuan and Superte/Zhaoshun.16 The court, therefore, must hold
invalid the principal conclusion underlying the decision to make the adjustments to the
SG&A/interest expense ratios.
Record evidence indicates that the NSO labor rate is derived from data on
“remuneration” paid to “[p]ersons engaged” in the “manufacture of other fabricated metal
16
The basis for the substantial reduction in the ratios (which was by more than half, as
explained above) is apparent from an examination of the categories of SG&A costs that
Commerce regarded as labor costs and excluded from the numerators, and included in the
denominators, of the three SG&A/interest expense ratios. See Final Factor Valuations Mem.
Attach. 1.
The financial statement of Stainless Steel Home Equipment Manufacturing Co., Ltd.
(“Stainless Steel”), one of the three surrogate companies, lists “Salaries and bonuses” under the
category of “Cost of Administration” and “Wages of producing” under the category of “cost of
production.” See Pet’r’s Submission of Surrogate Values Ex. 10 (Aug. 13, 2012) (Admin.R.Doc.
No. 262) (“Elkay’s Surrogate Values Submission”). In the Final Determination, Commerce
regarded both of these cost line items as labor costs, not SG&A expenses, for the purpose of
calculating the SG&A/interest expense ratio. Final Factor Valuations Mem., Attach. 1. In
addition to “Salaries and bonuses,” the “Cost of Administration” category reported line items for
“Welfare,” “Social Security,” and “Compensation Fund.” Elkay’s Surrogate Values Submission
Ex. 10. In the Final Determination, Commerce also regarded these three cost line items as labor
costs. Final Factor Valuations Mem., Attach. 1.
The financial statement of Diamond Brand Co., Ltd., another one of the three surrogate
companies, includes line items for salary both under a category labeled “Selling and
administrative expenses” and under a category of “Administrative Expenses” as well as a line
item for “Labor cost” under the “Cost of production” category. Elkay’s Surrogate Values
Submission Ex. 10. Commerce treated all of these costs as labor costs for the purpose of
calculating the SG&A/interest expense ratio. Final Factor Valuations Mem., Attach. 1.
The financial statement of Advance Stainless Steel Co., Ltd., the third of the three
surrogate companies, lists expenses for “Labor cost, Overtime, and Welfare” under the category
of “Production Expenses” but also lists “Salary, Bonus, and Overtime” and “Social security and
providend fund” under the category of “Selling and Administrative Expenses.” Dongyuan’s
Rebuttal Surrogate Values for the Prelim. Results Exs. 4-6 (Aug. 20, 2012) (Admin.R.Doc.
No. 296). Here also, Commerce treated all of these line items costs as labor cost rather than
SG&A expense. Final Factor Valuations Mem., Attach. 1.
Consol. Court No. 13-00176 Page 21
products.” Dongyuan’s Final Surrogate Value Submission, Ex. SV-2 (containing the NSO’s
description of its methodology and definitions). The NSO defined “[p]ersons engaged” to
include: (1) “[u]npaid workers” who are “owners or business partners who managed or
participated in the management of the establishment;” (2) “[o]peratives” that “were directly
engaged in the production or other related activities of the establishment and received pay;” and
(3) “other employees” referring to “all employees other than operatives,” including
“administrative, technical and clerical personnel such as salaried managers and directors,
laboratory and research workers, clerks, typists, book-keepers, administrative supervisors,
salesman and the like.” Id. The NSO’s definitions specify that excluded from the “persons
engaged” are: (1) “managers or directors paid solely for their attendance at meeting[s] of the
board of director[s];” (2) [p]ersons from other establishment[s] working at this establishment;
(3) “[h]ome workers;” (4) “[p]ersons who were on leave for military services or one who had
obtained long leave or were on strike”; and (5) “[p]ersons who were employed to work
occasionally such as laborer[s] and sale agents who do not receive regular pay.” Id.The NSO information supports a finding that the NSO rate was derived from an average
remuneration paid for “persons engaged” in various production-related and non-production-
related activities. It also supports a finding that the NSO rate is a much broader average than one
representing only wages and salaries. The NSO definition of “[r]emuneration” includes:
(1) “[w]ages/salaries;” (2) “[o]vertime, bonus, special payment, cost of living allowance and
commission;” (3) “fringe benefits;” and (4) “[e]mployer’s contribution to social security”
(including as examples, payments to a “social security fund, workmen’s compensation fund[,]
and health insurance, etc.”). Id. Based on the record evidence, Commerce could conclude that
Consol. Court No. 13-00176 Page 22
the NSO labor rate is higher than it would have been had it been derived solely from data on
wages and salaries.
Less clear is that the NSO labor rate is higher than it would have been had it been derived
solely from data on production workers. It may be reasonable to infer that some non-production
employees, e.g., high-level salaried managerial employees, receive higher remuneration than
persons engaged in production. The record data, however, do not support an actual finding that
the NSO labor rate was higher—or by what percentage it was higher—than it would have been
had it been derived solely from Thai data on production labor rather than from a combination of
Thai data on production labor and various types of non-production labor. Apparently, missing
from the record are the raw data from which the NSO rate was derived, which possibly could
support such conclusions.
The court has considered the record evidence, summarized above, on the derivation of the
NSO labor rate and on the derivation, and the magnitude, of the downward adjustments
Commerce made to the three SG&A/interest expense ratios (and, accordingly, to the average
SG&A/interest expense ratio applied in determining the normal value of the two investigated
respondents). On this administrative record, the Department’s reliance on the extent of any
“double-counting,” Decision Mem. 15, was too much a matter of speculation. The record lacks
substantial evidence to support the Department’s conclusion that the rate Commerce applied to
the hours of production labor reported by the investigated respondents overstated the value of
those labor hours to such an extent as to justify the specific, compensatory adjustments that
Commerce made to the SG&A/interest expense ratios.
Consol. Court No. 13-00176 Page 23
2. The Department’s Reliance on the Labor Methodologies Notice Does Not Justify the
Downward Adjustments to the SG&A/Interest Expense Ratios
In both the Preliminary Determination and in the Decision Memorandum, Commerce
based its treatment of SG&A labor expenses in part on a notice (“Labor Methodologies”)
Commerce published in 2011 announcing a new methodology for valuing labor in non-market
economy (NME) proceedings.17 See Antidumping Methodologies in Proceedings Involving
Non-Market Economies: Valuing the Factor of Production: Labor, 76 Fed. Reg. 36,092 (Int’l
Trade Admin. June 21, 2011) (“Labor Methodologies”). The Department’s reasoning, and its
conclusion, changed considerably from the Preliminary to the Final Determination.18
17
Commerce issued the Labor Methodologies notice to replace an interim methodology it
had adopted following the decision of the U.S. Court of Appeals for the Federal Circuit in
Dorbest Ltd. v. United States, 604 F.3d 1363 (Fed. Cir. 2010), which had invalidated the portion
of the Department’s regulation in 19 C.F.R. § 351.408(c)(3) according to which Commerce
determined a labor rate using regression-based wages derived from a number of countries.
Antidumping Methodologies in Proceedings Involving Non-Market Economies: Valuing the
Factor of Production: Labor, 76 Fed. Reg. 36,092, 36,092 (Int’l Trade Admin. June 21, 2011)
(“Labor Methodologies”). In the Labor Methodologies notice, Commerce states that the method
announced therein would apply to nonmarket economy antidumping proceedings initiated after
the June 21, 2011 publication of the notice. Id. at 36,093. Commerce initiated the investigation
at issue in this action on March 27, 2012. Drawn Stainless Steel Sinks From the People’s
Republic of China: Initiation of Antidumping Duty Investigation, 77 Fed. Reg. 18,207, 18,207
(Int’l Trade Admin. Mar. 27, 2012).
18
In relying on the Labor Methodologies notice in the Preliminary Determination,
Commerce explained that it had excluded from the calculation of surrogate financial ratios those
“items incorporated in the labor wage rate data in Chapter 6A of the ILO data” including
“bonuses and other forms of compensation included in the ILO’s calculation of wages . . . .”
Decision Mem. for Prelim. Determination for the Antidumping Duty Investigation of Drawn
Stainless Steel Sinks from the People’s Republic of China 18 (Sept. 27, 2012) (Admin.R.Doc.
No. 337) (“Prelim. Decision Mem.”), available at
http://enforcement.trade.gov/frn/summary/PRC/2012-24549-1.pdf (last visited Dec. 16, 2014).
The record evidence, however, does not indicate that Commerce made adjustments to the
preliminary SG&A/interest expense ratios to treat the labor-related SG&A expenses listed in the
surrogate financial statements as labor expenses, as Commerce did in the Final Determination.
Compare Factor Valuation Mem. for Prelim. Determination, Attach. 5 (Sept. 27, 2012)
(Admin.R.Doc. No. 342-343) (providing the preliminary surrogate financial ratios calculation
(continued . . .)
Consol. Court No. 13-00176 Page 24
The Labor Methodologies notice announces that “the Department will value the NME
respondent’s labor input using industry-specific labor costs prevailing in the primary surrogate
country, as reported in Chapter 6A of the ILO Yearbook of Labor Statistics.”19 Id. at 36,094.
The notice creates “the rebuttable presumption that Chapter 6A data better accounts for all direct
and indirect labor costs.” Id. at 36,093. The notice further explains that Commerce would
discontinue its current use of the data in ILO Chapter 5B: “Unlike Chapter 6A data that reflects
all costs related to labor including wages, benefits, housing, training, etc., Chapter 5B data
reflects only direct compensation and bonuses.” Id.The Decision Memorandum cited the Labor Methodologies notice in support of the
position that “[i]n deriving surrogate financial ratios, ‘it is the Department’s longstanding
practice to avoid double-counting costs where the requisite data are available to do so.’”
Decision Mem. 15 (citation omitted) (emphasis added to original in quoted source). Commerce
noted that “in Labor Methodologies, we said that ‘the Department will adjust the surrogate
financial ratios when the available record information—in the form of itemized indirect labor
(continued . . .)
worksheets for the three surrogate companies), with Final Factor Valuations Mem., Attach. 1
(providing the final surrogate financial ratios calculation worksheets for the three surrogate
companies).
19
Some language in the notice indicates that Commerce intended to use the ILO
Chapter 6A data except in transitional cases; other language suggests that the Department did not
intend to limit itself to the ILO Chapter 6A data. Compare Labor Methodologies, 76 Fed. Reg.
at 36,092 (referring to these data as the “primary” source in the summary of the Announcement),
with id. at 36,093 (“the Department will base labor cost on ILO Chapter 6A data applicable to the
primary surrogate country.”) (emphasis added).
Consol. Court No. 13-00176 Page 25
costs—demonstrates that labor costs are overstated.’” 20 Id. (citing Labor Methodologies,
76 Fed. Reg. at 36,093-94).
For two reasons, the Labor Methodologies notice is not an adequate justification for the
decision challenged in this case. First, Commerce departed from the methodology announced in
the notice by rejecting the ILO Chapter 6A data in the Final Determination in favor of the NSO
data, Decision Mem. 13-14, resulting in a rate that was lower by more than half than one derived
from ILO Chapter 6A.21 Compare Prelim. Factor Valuation Mem., Attach. 4 (applying a
surrogate rate of 141.2162 THB/hr), with Final Factor Valuations Mem. 3 (applying a surrogate
rate of 63.12 THB/hr). Second, the Labor Methodologies notice explains that “[i]f there is
evidence submitted on the record by interested parties demonstrating that the NME respondent’s
cost of labor is overstated, the Department will make the appropriate adjustments to the surrogate
20
The Labor Methodologies notice contains the following language:
[T]he Department will determine whether the facts and information available on
the record warrant and permit an adjustment to the surrogate financial statements
on a case-by-case basis. If there is evidence submitted on the record by interested
parties demonstrating that the NME respondent’s cost of labor is overstated, the
Department will make the appropriate adjustments to the surrogate financial
statements subject to the available information on the record. Specifically, when
the surrogate financial statements include disaggregated overhead and selling,
general and administrative expense items that are already included in the ILO’s
definition of Chapter 6A data, the Department will remove these identifiable costs
items.
Labor Methodologies, 76 Fed. Reg. at 36,094.
21
The ILO Chapter 6A rate of 141.2162 Thai Bhat (THB) per hour corresponds to the
total manufacturing sector for 2005, inflated to the period of investigation, and not the more
specific category of labor to which the NSO data used in the Final Determination corresponds.
Decision Mem. 11-12. Information on the record, however, indicates that the NSO data
corresponding to the total manufacturing sector for 2006, inflated to the POI, was 56.60 THB per
hour, demonstrating an even more drastic contrast when comparing the two rates for the broader
manufacturing sector. Dongyuan’s Final Surrogate Value Submission, Ex. SV-10
(Nov. 26, 2012) (Admin.R.Doc. No. 375-77).
Consol. Court No. 13-00176 Page 26
financial statements subject to the available information on the record.” Labor Methodologies,
76 Fed. Reg. at 36,094. As the court discussed previously, the record in this case does not
contain substantial evidence to support the Department’s conclusion that when calculating the
SG&A/interest expense ratios Commerce made appropriate adjustments to the surrogate
financial statements to compensate for an overstated labor cost.
3. The Court Rejects Defendant’s and Dongyuan’s Arguments in Support of the Department’s
Decision on SG&A Labor Expenses
Before the court, defendant and Dongyuan make several arguments in favor of the
Department’s decision to adjust the SG&A/interest expense ratios. The court rejects these
arguments for the reasons discussed below.
Defendant states that “[u]nfortunately, the respondents did not report SG&A labor hours”
and that “[b]ased on the limitations of the data on the record, Commerce was faced with two
imperfect methodologies for calculating labor.” Def. Opp’n 6. Defendant argues that “[i]n such
circumstances, Commerce has broad discretion to choose between the competing
methodologies,” id. at 7, and that the court must defer to the Department’s reasonable choice for
labor and SG&A expense calculations, so long as that choice is accompanied by a reasoned
explanation, id. at 15. See also Dongyuan Opp’n 9 (“Even if there is another way to capture this
cost, the Court must uphold this methodology if the Court finds it to be reasonable . . . .”).
Regarding the choice Commerce made, defendant explains that “[a]lthough double counting was
not a certainty under the record in this case, Commerce’s actions recognized the possibility of
double-counting,” Def. Opp’n 14, and that “[a]s a result, Commerce reasonably excluded ‘labor
costs from the SG&A surrogate financial ratios for the final determination,’” id. (quoting
Decision Mem. 15).
Consol. Court No. 13-00176 Page 27
Defendant’s argument is unconvincing because it is based on a mischaracterization of the
principal conclusion as stated in the Decision Memorandum: Commerce concluded that
double-counting would occur absent the adjustments it made to the ratios, and this was the basis
upon which Commerce determined that those adjustments were appropriate to avoid the
double-counting it found to exist. See Decision Mem. 15 (“Using a surrogate financial ratio that
includes SG&A labor costs in addition to the NSO-based surrogate labor rate would
double-count those costs in normal value because both include an amount for SG&A labor.”
(emphasis added)). And even were the Department’s decision presumed to rest upon a “reasoned
explanation,” Def. Opp’n 15, that explanation cannot overcome the Department’s basing its
decision on a conclusion that, for the reasons discussed, is not supported by substantial record
evidence.
Further to its argument that Commerce made a reasonable choice given two imperfect
alternatives, defendant argues that “Elkay has not established that its preferred methodology—
retaining the SG&A labor costs in the SG&A financial ratio calculation . . . while using NSO
data that indisputably includes SG&A labor—would have provided a more accurate surrogate
value for labor.” Def. Opp’n 14 (citation omitted). Defendant argues further that Elkay “wholly
ignores the facial risk of double-counting that would be created by its proposed approach.” Id.
Defendant’s argument fails because the court must evaluate the Department’s decision
according to the applicable standard of review and cannot sustained a decision not grounded in
substantial record evidence. The argument is also misguided in positing that Commerce had
only the two choices defendant describes. Commerce had other choices, including choices that
did not involve use of the NSO data or choices not involving the particular adjustments it made
to the SG&A/interest expense ratios.
Consol. Court No. 13-00176 Page 28
In support of the Final Determination, Dongyuan argues that the Department’s
methodology captured SG&A labor expenses because the NSO rate “applied to the production
labor is artificially higher than the labor rate would be because it includes more labor expenses
than production labor would normally cover.” Dongyuan Opp’n 8-9. As the court discussed
previously, the record shows that the NSO rate was derived from an average remuneration paid
for “persons engaged” in various production-related and non-production-related activities and
that it is a broader representation of labor cost than one limited to wages and salaries. But even
if the NSO rate were presumed to be higher than it would be if it had not included
non-production labor (a presumption for which the record lacks substantial evidence), the record
would not support the Department’s conclusion that the adjustments the Department made to the
SG&A/interest expense ratios were appropriate adjustments for the double-counting of SG&A
labor that the Department found would occur absent those adjustments.
4. On Remand, Commerce Must Reconsider its Decision to Adjust the SG&A/Interest Expense
Ratios
On remand, Commerce must reconsider its decision to adjust the SG&A/interest expense
ratios and the particular way in which it accomplished those adjustments. Additionally, because
Commerce grounded its decision in part on its choice of a surrogate labor cost, it may consider
on remand alternative data sources with which to value the labor hours reported by the two
investigated respondents.
III. CONCLUSION AND ORDER
For the reasons discussed in the foregoing, the court remands the final determination
(“Final Determination”) of the International Trade Administration, U.S. Department of
Commerce (“Commerce” or the “Department”) in Drawn Stainless Steel Sinks From the
People’s Republic of China: Investigation, Final Determination, 78 Fed. Reg. 13,019 (Int’l
Consol. Court No. 13-00176 Page 29
Trade Admin. Feb. 26, 2013) (“Final Determination”), as amended, 78 Fed. Reg. 21,592 (Int’l
Trade Admin. Apr. 11, 2013). Therefore, upon consideration of all papers and proceedings in
this case, and upon due deliberation, it is hereby
ORDERED that the Final Determination be, and hereby is, set aside as unlawful and
remanded for reconsideration and redetermination in accordance with this Opinion and Order; it
is further
ORDERED that Commerce shall issue, within ninety (90) days of the date of this
Opinion and Order, a new determination upon remand (“Remand Redetermination”) that
conforms to this Opinion and Order and reconsiders the use of surrogate information from
Thailand to value cold-rolled stainless steel coil when determining the normal value of
Dongyuan’s subject merchandise; it is further
ORDERED that if Commerce places additional surrogate value data on the record on
remand, Commerce must provide parties to this litigation the opportunity to submit comments
concerning those data and the Department’s decision addressing the valuation of cold-rolled
stainless steel coil; it is further
ORDERED that in the Remand Redetermination, Commerce shall reconsider its method
of accounting for selling, general, and administrative (“SG&A”) labor costs in its calculation of
normal value and, as necessary, revise the antidumping duty margins for both the investigated
and separate rate respondents; it is further
ORDERED that Elkay Manufacturing Company and Guangdong Dongyuan
Kitchenware Industrial Co., Ltd. each may file comments on the Remand Redetermination
within thirty (30) days from the date on which the Remand Redetermination is filed with the
court; and it is further
ORDERED that defendant may file a response within fifteen (15) days from the date on
which the last of any such comments is filed with the court.
/s/Timothy C. Stanceu
Timothy C. Stanceu
Chief Judge
Dated:'HFHPEHU
New York, New York