Zhejiang Zhaofeng Mech. & Elec. Co. v. United States , 355 F. Supp. 3d 1329 ( 2018 )

Slip Op. 18
UNITED STATES COURT OF INTERNATIONAL TRADE
ZHEJIANG ZHAOFENG MECHANICAL
AND ELECTRONIC CO., LTD.,
Plaintiff,
v.
Before: Jennifer Choe-Groves, Judge
UNITED STATES,
Court No. 18-00004
Defendant,
and
THE TIMKEN COMPANY,
Defendant-Intervenor.
OPINION AND ORDER
[Remanding the U.S. Department of Commerce’s determination that Plaintiff was ineligible for
separate rate status in the 2015–2016 administrative review of tapered roller bearings and parts
thereof from the People’s Republic of China.]
Dated: December 27, 2018
Adams C. Lee, Harris Bricken McVay, LLP, of Seattle, WA, argued for Plaintiff Zhejiang
Zhaofeng Mechanical and Electronic Co., Ltd.
Kelly A. Krystyniak, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, D.C., argued for Defendant United States. With her on
the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and L.
Misha Preheim, Assistant Director. Of counsel was James H. Ahrens II, Attorney, Office of the
Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce, of
Washington, D.C.
William A. Fennell, Stewart and Stewart, of Washington, D.C., argued for Defendant-Intervenor
The Timken Company. With him on the brief was Terence P. Stewart. Geert M. De Prest,
Jennifer M. Smith, Lane S. Hurewitz, Nicholas J. Birch, and Patrick J. McDonough also
appeared.
Court No. 18-00004 Page 2
Choe-Groves, Judge: This action arises out of an administrative review of the
antidumping duty order on tapered roller bearings from the People’s Republic of China
(“China”). See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the
People’s Republic of China, 83 Fed. Reg. 1,238 (Dep’t Commerce Jan. 10, 2018) (final results of
antidumping duty administrative review, and rescission of new shipper review; 2015–2016)
(“Final Results”). Before the court is a Rule 56.2 motion for judgment on the agency record
filed by Plaintiff Zhejiang Zhaofeng Mechanical and Electronic Co., Ltd. (“Plaintiff” or
“Zhaofeng”) contesting the decision of the U.S. Department of Commerce (“Commerce” or
“DOC”) to revoke Plaintiff’s separate rate status. See Pl.’s Rule 56.2 Mot. J. Agency R., June
29, 2018, ECF No. 30 (“Pl.’s Mot.”); see also Mem. P. & A. Supp. Pl. Zhejiang Zhaofeng’s Rule
56.2 Mot. J. Agency R., June 29, 2018, ECF No. 32 (“Pl.’s Mem.”). For the following reasons,
the court concludes that Commerce’s determination is unsupported by substantial evidence and
not in accordance with the law. Plaintiff’s Rule 56.2 motion is granted.
PROCEDURAL HISTORY
Defendant-Intervenor the Timken Company (“Timken”) petitioned Commerce for an
administrative review of the antidumping duty order on tapered roller bearings from China. See
Petitioner’s (Timken’s) Pre-Preliminary Comments, PD 181, bar code 3576832-01 (May 31,
2017); see also Tapered Roller Bearings and Parts Theoreof, Finished or Unfinished, From the
People’s Republic of China, 52 Fed. Reg. 22,667 (Dep’t Commerce June 15, 1987) (antidumping
duty order). Commerce initiated an administrative review covering June 1, 2015 through May
31, 2016 for sales of subject merchandise by Chinese producers and exporters. See Initiation of
Antidumping and Countervailing Duty Administrative Reviews, 81 Fed. Reg. 53,121 (Dep’t
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Commerce Aug. 11, 2016) (initiation notice). Commerce selected Zhaofeng as a replacement
mandatory respondent in the administrative review. See Tapered Roller Bearings and Parts
Thereof, Finished and Unfinished, From the People’s Republic of China, 82 Fed. Reg. 31,301(Dep’t Commerce July 6, 2017) (prelim. results and prelim. rescission of new shipper review;
2015–2016) (“Preliminary Results”).
Prior to its selection as a mandatory respondent, Zhaofeng submitted a timely separate
rate certification to Commerce from a previous administrative review for tapered roller bearings
from China. See Zhaofeng Section A Response, PD 65–67, bar code 3523271-01 (Nov. 17,
2016). Between November 2016 and April 2017, Zhaofeng submitted timely responses to
questionnaires issued by Commerce. See Preliminary Results Decision Memo at 3–4, PD 185,
bar code 3587281-01 (June 29, 2017) (“Prelim. IDM”).
Commerce conducted on-site verification of Zhaofeng’s submissions in May 2017,
including information on separate rates and sales. See DOC Zhaofeng Verification Report, PD
187, bar code 3588002-01 (June 29, 2017). Commerce noted that Zhaofeng’s responses
contained no significant omissions, errors, or other issues of concern. See id. After verification,
Commerce became aware of irregularities in Zhaofeng’s submissions when Timken submitted
comments identifying discrepancies in a certain verification exhibit. See Petitioner’s (Timken’s)
Pre-Preliminary Comments at 1–3, PD 181, bar code 3576832-01 (May 31, 2017).
Commerce published its Preliminary Results on July 6, 2017. See Preliminary Results,
82 Fed. Reg. at 31,301. Commerce concluded that Zhaofeng failed to provide a complete and
accurate U.S. sales database despite having possessed the records necessary, and it determined
that the application of partial AFA was appropriate and warranted. See Prelim. IDM at 14–15.
Court No. 18-00004 Page 4
Separately, Commerce found no evidence of Chinese government ownership of Zhaofeng and
that it was otherwise entitled to a separate rate in the review. See id. at 10.
Zhaofeng submitted an administrative case brief pursuant to Commerce’s Preliminary
Results. See Zhaofeng DOC Case Brief, PD 194, bar code 3604752-01 (Aug. 7, 2017). In its
administrative brief, Zhaofeng noted that the sales listing worksheet provided in the verification
exhibit in question incorrectly identified certain model numbers, but stated that the worksheet
was not part of its official financial record. See id. at 3–4. Zhaofeng argued that the
irregularities in its submissions were the result of clerical error, and even so, it did not misreport
sales of subject merchandise during the period of review because the verification exhibit
involved unreported sales of non-subject merchandise. See id. at 2–4. In response to Zhaofeng’s
assertion that the examination of the invoice would resolve the matter, Commerce requested the
entry package pertaining to the disputed sales from U.S. Customs and Border Protection (“CBP”)
and received the requested documents, including the associated invoice. See DOC Memo to
File: Entry Documents - CBP, PD 202, bar code 3617066-01 (Sept. 7, 2017). Upon reviewing
the CBP entry documents, Commerce found further discrepancies in Zhaofeng’s submissions.
See Final Results Issues & Decisions Memorandum at 7, PD 219, bar code 3657729-01 (Jan. 2,
2018) (“Final IDM”).
Commerce issued its Final Results on January 10, 2018. See Final Results, 83 Fed. Reg.
at 1,238. In light of the extent and nature of the discrepancies between Zhaofeng’s verification
materials, U.S. sales listings, and CBP entry documents, Commerce determined that Zhaofeng’s
submissions were “unreliable in its entirety” and that it could not rely on Zhaofeng’s separate
rate certification. See id. at 1,239; Final IDM at 6–10. Commerce found that Zhaofeng had
Court No. 18-00004 Page 5
failed to rebut the presumption that it is subject to government control and concluded that
Zhaofeng should be assessed at the single, China-wide entity rate of 92.84 percent. See Final
Results, 83 Fed. Reg. at 1,239; Final IDM at 10.
Zhaofeng brought this action on January 25, 2018. See Summons, Jan. 25, 2018, ECF
No. 1; Complaint, Jan. 25, 2018, ECF No. 2. Zhaofeng filed a Rule 56.2 motion for judgment on
the agency record, contesting Commerce’s rejection of Zhaofeng’s separate rate status. See Pl.’s
Mot. Defendant filed a response to Zhaofeng’s Rule 56.2 motion. See Def.’s Resp. Opp’n Pl.’s
Rule 56.2 Mot. J. Agency R., Sept. 14, 2018, ECF No. 35 (“Def.’s Resp.”). Defendant-
Intervenor Timken submitted a response in opposition to Plaintiff’s Rule 56.2 motion. See Def.-
Intervenor Timken’s Opp’n Rule 56.2 Mot. J. Agency R., Sept. 17, 2018, ECF No. 40. Zhaofeng
submitted a reply brief. See Pl. Zhejiang Zhaofeng’s Reply Resp. United States & Timken
Zhejiang Zhaofeng’s Rule 56.2 Mot. J. Agency R., Oct. 19, 2018, ECF No. 43 (“Pl.’s Reply”).
The court held oral argument on December 4, 2018. See Oral Argument, Dec. 4, 2018, ECF No.
54.
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction pursuant to Section 516A(a)(2)(B)(i) of the Tariff Act of 1930,
as amended, 19 U.S.C. § 1516a(a)(2)(B)(i) (2012), and 28 U.S.C. § 1581(c). 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 the law. 19 U.S.C.
§ 1516a(b)(1)(B)(i).
Court No. 18-00004 Page 6
ANALYSIS
The single issue before the court is whether Commerce’s determination that Zhaofeng
was not eligible for a separate rate and subsequent assignment of the China-wide entity rate to
Zhaofeng was supported by substantial evidence and in accordance with the law. Plaintiff
contests Commerce’s denial of its separate rate status as opposed to applying adverse facts
available (“AFA”) for Commerce’s perceived deficiencies in Zhaofeng’s sales information. See
Pl.’s Mem. 12–14.
Pursuant to the Tariff Act, Commerce has the authority to determine if a country is a
nonmarket economy. See 19 U.S.C. § 1677(18); see also Sigma Corp. v. United States, 117 F.3d
1401, 1404–06 (Fed. Cir. 1997). In proceedings involving a nonmarket economy, such as China,
there is a rebuttable presumption that all companies within the country are subject to government
control and should be assigned a single, country-wide antidumping duty rate. See Sigma Corp,
117 F.3d at 1405. An exporter will receive the country-wide rate by default unless it
affirmatively demonstrates that it enjoys both de jure and de facto independence from the
government and receives a separate rate status. See id. The burden of rebutting the presumption
of government control rests with the exporter. See id. at 1406. The de jure criteria are: (1) an
absence of restrictive stipulations associated with an individual exporter’s business and export
licenses; (2) any legislative enactments decentralizing control of companies; and (3) any other
formal measures by the government decentralizing control of companies. See Ad Hoc Shrimp
Trade Action Comm. v. United States, 37 CIT __, __, 925 F. Supp. 2d 1315, 1320 n. 21 (2013);
see also Sparklers From the People’s Republic of China, 56 Fed. Reg. 20,588, 20,589 (Dep’t
Commerce May 6, 1991) (final determination of sales at less than fair value). The de facto
Court No. 18-00004 Page 7
criteria are: (1) whether the export prices are set by or are subject to the approval of a
government authority; (2) whether the respondent has authority to negotiate and sign contracts
and other agreements; (3) whether the respondent has autonomy from the government in making
decisions regarding the selection of management; and (4) whether the respondent retains the
proceeds of its export sales and makes independent decisions regarding disposition of profits or
financing of losses. See Ad Hoc Shrimp Trade Comm., 925 F. Supp. 2d at 1320 n. 21; see also
Silicon Carbide from the People’s Republic of China, 59 Fed. Reg. 22,585, 22,587 (Dep’t
Commerce May 2, 1994) (notice of final determination of sales at less than fair value).
Commerce may not disregard a respondent’s separate rate information as “tainted” just
because there were deficiencies in the respondent’s sales or factors of production data. See
Shenzen Xinboda Indus. Co., Ltd. v. United States, 40 CIT __, __, 180 F. Supp. 3d 1305, 1316
(2016) (citing Foshan Shunde Yongjian Housewares & Hardware Co. v. United States, 35 CIT
1398, 1418 (2011)); see also Fresh Garlic Producers Ass’n v. United States, 39 CIT __, __, 121
F. Supp. 3d 1313, 1328 (2015) (“Commerce cannot ignore a party’s separate rate information
solely because it selects total AFA due to defects related to sales data.”).
Defendant United States contends that Commerce’s decision to deny Zhaofeng separate
rate status is in accordance with the law because the U.S. Court of Appeals for the Federal
Circuit “affirmed Commerce’s finding that an exporter’s misrepresentations could impeach the
entire credibility of its submissions, including its separate rate certification, even where the
misrepresentations themselves did not directly relate to de facto control” in Ad Hoc Shrimp
Trade Action Committee v. United States, 802 F.3d 1339 (Fed. Cir. 2015). Def.’s Resp. 16.
Defendant relies on the language in Ad Hoc Shrimp that the “misrepresentations may reasonably
Court No. 18-00004 Page 8
be inferred to pervade the data in the record beyond that which Commerce has positively
confirmed as misrepresented.” Def.’s Resp. 17 (quoting Ad Hoc Shrimp, 802 F.3d at 1347, and
adding emphasis). The court disagrees with Defendant’s overbroad interpretation of the Ad Hoc
Shrimp case. The U.S. Court of Appeals for the Federal Circuit upheld Commerce’s denial of
separate rate status in Ad Hoc Shrimp because the respondent’s deficiencies and inconsistencies
specifically related to whether the company at issue had affiliates in nonmarket economy
countries, which related to the ownership and control of the company at issue. See Ad Hoc
Shrimp, 802 F.3d at 1358. The company’s corporate structure in Ad Hoc Shrimp directly
implicated the de facto criteria for separate rate status. The language on which Defendant relies
for the proposition that the “misrepresentations may reasonably be inferred to pervade the data in
the record” appears in the section regarding Commerce’s AFA determination and cannot be
imported into the separate rate analysis. See id. at 1357. In the instant case, Zhaofeng’s
misrepresentations relate only to the reporting of sales data. See Final IDM at 6. Because
Zhaofeng’s misrepresentations do not speak directly to Zhaofeng’s corporate structure or to the
de facto control of the company, the misrepresentations cannot and should not be inferred to
pervade the separate rate analysis. The court concludes that Defendant’s attempts to analogize
this case with Ad Hoc Shrimp are unpersuasive.
The separate rate analysis is separate and distinct from the selection of an AFA rate.
Shenzen Xinboda, 40 CIT at __, 180 F. Supp. 3d at 1315; see also Nat’l Nail Corp. v. United
States, 42 CIT __, __, 279 F. Supp. 3d 1372, 1379 (2018) (stating that Commerce cannot assign
the China-wide rate based on the finding that a company’s responses regarding factors of
production and sales data were unreliable when there is nothing on the record to suggest that the
Court No. 18-00004 Page 9
company was untruthful when answering questions relating to government control). 1 Section
1677e provides that if necessary information is not available on the record or if a respondent fails
to provide such information by the deadline for submission of the information or in the form and
manner requested, then the agency shall use the facts otherwise available in reaching its
determination. 19 U.S.C. § 1677e(a)(1), (a)(2)(B). Commerce has the authority to determine if a
country is a non-market economy pursuant to a completely different statutory provision. See id.
§ 1677(18). Commerce’s practice of determining separate rate eligibility is derived from section
1677. Commerce developed its practice of determining separate rate eligibility based on de facto
and de jure independence criteria. See Sigma Corp, 117 F.3d at 1405. Because the AFA
analysis and separate rate analysis are distinct statutory evaluations, the two analyses cannot be
conflated. The court concludes that Commerce’s decision to deny Zhaofeng separate rate status
is not in accordance with the law.
Defendant contends that Commerce’s decision to deny Zhaofeng’s separate rate status
was supported by substantial evidence because of multiple instances of misreporting and
misconduct by Zhaofeng stemming from Zhaofeng’s March 2016 quantity and value
reconciliation and its U.S. sales listing. See Def’s Resp. 13. Commerce did not adequately
explain how this misconduct related to its separate rate analysis in the underlying administrative
review. Commerce stated that Zhaofeng cannot meet the de facto criteria because “under
1
Defendant argues that Shenzen Xinboda and National Nail Corporation are distinguishable
because the two cases do not comport with Ad Hoc Shrimp. See Def.’s Resp. 18–19 & n. 3. As
discussed above, the court disagrees with Defendant’s reading of Ad Hoc Shrimp and reiterates
that the proposition that “misrepresentations may reasonably be inferred to pervade the data in
the record” appears in the section regarding Commerce’s AFA determination and cannot be
imported into the separate rate analysis. See Ad Hoc Shrimp, 802 F.3d at 1357.
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Commerce’s de facto separate rates analysis, all of the de facto criteria can be, in some way or
another, supported (or refuted) by data recorded in the company’s accounting system.” Final
IDM at 9. Commerce explained that Zhaofeng’s accounting system also affected the de jure
criteria. See id. at 9–10. This is an overly broad conclusion. Because it is not clear which of the
de facto and de jure criteria are affected by Zhaofeng’s misreporting in its March 2016 quantity
and value reconciliation report, the court concludes that Commerce’s decision to deny Zhaofeng
separate rate status is not supported by substantial evidence.
CONCLUSION
For the aforementioned reasons, the court concludes that Commerce’s decision to deny
Zhaofeng separate rate status is not in accordance with the law and not supported by substantial
evidence. The court remands the Final Results for redetermination on the issue of Zhaofeng’s
separate rate consistent with this opinion. Accordingly, it is hereby
ORDERED that Plaintiff’s Rule 56.2 Motion for Judgment on the Agency Record is
granted; and it is further
ORDERED that Commerce shall file its remand redetermination on or before March 28,
2019; and it is further
ORDERED that Commerce shall file the administrative record on remand on or before
April 11, 2019; and it is further
ORDERED that the Parties shall file any comments on the remand redetermination on or
before May 13, 2019; and it is further
ORDERED that the Parties shall file replies to the comments on or before June 12, 2019;
and it is further
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ORDERED that the joint appendix shall be filed on or before June 26, 2019.
/s/ Jennifer Choe-Groves
Jennifer Choe-Groves, Judge
Dated: December 27, 2018
New York, New York