Jacobi Carbons AB v. United States , 365 F. Supp. 3d 1323 ( 2019 )

Slip Op. 19-27
UNITED STATES COURT OF INTERNATIONAL TRADE
JACOBI CARBONS AB AND JACOBI
CARBONS, INC.,
Plaintiffs,
and
NINGXIA HUAHUI ACTIVATED
CARBON CO., LTD., et al.,
Plaintiff-Intervenors,
Before: Mark A. Barnett, Judge
v. Consol. Court No. 15-00286
UNITED STATES,
Defendant,
and
CALGON CARBON CORP. AND CABOT
NORIT AM., INC.,
Defendant-Intervenors.
OPINION AND ORDER
[The U.S. Department of Commerce’s Second Remand Results are remanded with
respect to the agency’s surrogate country selection and sustained with respect to the
agency’s value-added tax adjustment.]
Dated: March 4, 2019
Daniel L. Porter and Tung A. Nguyen, Curtis, Mallet-Prevost, Colt & Mosle LLP, of
Washington, DC, for Plaintiffs Jacobi Carbons AB and Jacobi Carbons, Inc.
Gregory S. Menegaz, J. Kevin Horgan, and Alexandra H. Salzman, DeKieffer & Horgan,
PLLC, of Washington, DC, for Plaintiff-Intervenors Carbon Activated Tianjin Co., Ltd.,
Jilin Bright Future Chemicals Co., Ltd., Ningxia Mineral and Chemical Ltd., Shanxi DMD
Corp., Shanxi Industry Technology Trading Co., Ltd., Shanxi Sincere Industrial Co.,
Ltd., Tancarb Activated Carbon Co., Ltd., and Tianjin Maijin Industries Co., Ltd.
Consol. Court No. 15-00286 Page 2
Antonia R. Soares, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, DC, for Defendant United States. With her on
the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson,
Director, and Reginald T. Blades, Jr., Assistant Director. Of counsel on the brief was
Emma T. Hunter, Attorney, Office of the Chief Counsel for Trade Enforcement and
Compliance, U.S. Department of Commerce, of Washington, DC.
David A. Hartquist, R. Alan Luberda, John M. Herrmann, Melissa M. Brewer, and
Kathleen M. Cusack, Kelley Drye & Warren LLP, of Washington, DC, for Defendant-
Intervenors Calgon Carbon Corp. and Cabot Norit Americas, Inc.
Barnett, Judge: This matter is before the court following the U.S. Department of
Commerce’s (“Commerce” or “the agency”) second redetermination upon remand in this
case. See Final Results of Redetermination Pursuant to Court Remand (“2nd Remand
Results”), ECF No. 133-1.
Plaintiffs Jacobi Carbons AB and Jacobi Carbons, Inc. (together, “Jacobi”) and
Plaintiff-Intervenors 1 (collectively, with Jacobi, “Plaintiffs”) initiated these consolidated
cases challenging several aspects of Commerce’s final results in the seventh
administrative review (“AR7”) of the antidumping duty order on certain activated carbon
from the People’s Republic of China (“PRC” or “China”). See Certain Activated Carbon
from the People’s Republic of China, 80 Fed. Reg. 61,172 (Dep’t Commerce Oct. 9,
1 Plaintiff-Intervenors include: Ningxia Huahui Activated Carbon Co., Ltd. (“Huahui”);
Carbon Activated Tianjin Co., Ltd., Jilin Bright Future Chemicals Company, Ltd., Ningxia
Mineral and Chemical Limited, Shanxi DMD Corporation, Shanxi Industry Technology
Trading Co., Ltd., Shanxi Sincere Industrial Co., Ltd., Tancarb Activated Co., Ltd., and
Tianjin Maijin Industries Co., Ltd. (collectively, “CATC”); and Ningxia Guanghua
Cherishmet Activated Carbon Co., Ltd., Beijing Pacific Activated Carbon Products Co.,
Ltd., Cherishmet Inc., and Datong Municipal Yunguang Activated Carbon Co., Ltd.,
(collectively, “Cherishmet”). The court consolidated cases filed by Huahui, CATC, and
Cherishmet under lead Court No. 15-00286, filed by Jacobi. See Order (Dec. 16, 2015),
ECF No. 39. Those parties had also intervened in this case. See Order (Oct. 26,
2015), ECF No. 22; Order (Nov. 17, 2015), ECF No. 28; Order (Nov. 20, 2015), ECF
No.33. Accordingly, the court refers to those parties as “Plaintiff-Intervenors.”
Consol. Court No. 15-00286 Page 3
2015) (final results of antidumping duty admin. review; 2013-2014) (“Final Results”),
ECF No. 37-3, and accompanying Issues and Decision Mem., A-570-904 (Oct. 2, 2015)
(“I&D Mem.”), ECF No. 37-4. 2 Plaintiffs challenged Commerce’s (1) selection of
Thailand as the primary surrogate country, (2) selection of Thai surrogate values to
value financial ratios and carbonized material, and (3) reduction of Jacobi’s constructed
export price (“CEP”) by an amount for irrecoverable value added tax (“VAT”). See, e.g.,
Confidential Pls. Jacobi Carbons AB and Jacobi Carbons, Inc.’s Mot. for J. on the
Agency R. and Pls.’ Br. in Supp. of their Mot. for J. on the Agency R. (“Jacobi Rule 56.2
Mem.”), ECF No. 51.
On April 7, 2017, the court remanded Commerce’s surrogate country selection
(specifically, its determinations regarding economic comparability generally and
significant production of comparable merchandise by Thailand in particular); sustained
Commerce’s authority to deduct irrecoverable VAT from CEP while remanding its
calculation methodology as lacking substantial evidence; and deferred resolving
Plaintiffs’ arguments regarding Thai surrogate values pending the results of
Commerce’s remand redetermination. See Jacobi Carbons AB v. United States
(“Jacobi (AR7) I”), 41 CIT ___, 222 F. Supp. 3d 1159 (2017).
2The administrative record filed in connection with the Final Results is divided into a
Public Administrative Record (“PR”), ECF No. 37-1, and a Confidential Administrative
Record (“CR”), ECF No. 37-2. The administrative record associated with the 2nd
Remand Results is contained in a Public Remand Record (“PRR”), ECF No. 134-3, and
a Confidential Remand Record, ECF No. 134-2. Parties submitted public and
confidential joint appendices containing record documents cited in their briefs on the
2nd Remand Results. See Public J.A. to Parties’ Comments on Second Remand
Redetermination (“PRJA”), ECF No. 141; Confidential J.A. to Parties’ Comments on
Second Remand Redetermination (“CRJA”), ECF No. 142.
Consol. Court No. 15-00286 Page 4
On August 10, 2017, Commerce filed its first remand redetermination. See Final
Results of Redetermination Pursuant to Court Remand (“1st Remand Results”), ECF
No. 105–1. Following briefing and oral argument, on April 19, 2018, the court sustained
Commerce’s economic comparability determination but again remanded the agency’s
determination that Thailand is a significant producer of comparable merchandise and
irrecoverable VAT adjustment, as well as its surrogate value selections for financial
ratios and carbonized material. See Jacobi Carbons AB v. United States (“Jacobi (AR7)
II”), 42 CIT ___, 313 F. Supp. 3d 1308 (2018). 3
On October 24, 2018, Commerce filed its second remand redetermination.
Therein, Commerce affirmed its determination that Thailand is a significant producer of
comparable merchandise and its selection of Thai import data as the surrogate value for
carbonized material. 2nd Remand Results at 3-8, 15-20. Commerce selected a
different Thai source to value financial ratios and reconsidered the basis for its VAT
adjustment while continuing to adjust Jacobi’s constructed export price for VAT. See id.
at 9-15, 20-32. Commerce’s redetermination increased Jacobi’s weighted-average
dumping margin from $1.05 per kilogram to $1.76 per kilogram. See id. at 53-54; Final
Results, 80 Fed. Reg. at 61,174. Commerce assigned Jacobi’s rate to the non-
individually-examined respondents eligible for a separate rate. See 2nd Remand
Results 53-54.
Jacobi and CATC filed comments opposing the 2nd Remand Results. See Pls.’
Comments on Commerce’s Second Remand Determination (“Jacobi’s Opp’n Cmts.”),
3 The court’s opinions in Jacobi (AR7) I and Jacobi (AR7) II present background
information on this case, familiarity with which is presumed.
Consol. Court No. 15-00286 Page 5
ECF No. 138; Consol. Pls. Carbon Activated Tianjin Co., Ltd., Jilin Bright Future
Chemicals Company, Ltd., Ningxia Mineral and Chemical Limited, Shanxi DMD
Corporation, Shanxi Industry Technology Trading Co., Ltd., Shanxi Sincere Industrial
Co., Ltd., Tancarb Activated Carbon Co., Ltd., and Tianjin Maijin Industries Co., Ltd.
Comments in Opp’n to U.S. Department of Commerce’s Second Remand
Redetermination (“CATC’s Opp’n Cmts.”), ECF No. 137. Defendant United States (“the
Government”) and Defendant–Intervenors Calgon Carbon Corp. and Cabot Norit
Americas, Inc. (“Calgon”) filed comments in support of the 2nd Remand Results.
See Def.’s Reply to Pls.’ and Consol. Pls.’ Respective Comments on the Second
Remand Redetermination (“Def.’s Reply Cmts.”), ECF No. 140; Def.–Ints.’ Comments in
Supp. of the Department of Commerce’s Remand Redetermination (“Def–Ints.’ Reply
Cmts.”), ECF No. 139.
For the following reasons, the court remands Commerce’s determination that
Thailand is a significant producer of comparable merchandise and directs Commerce to
reconsider its selection of a primary surrogate country. Because Commerce relied on
its preference to use data from the primary surrogate country as a basis for selecting
the challenged surrogate values, see 2nd Remand Results at 13, 19, the court also
remands Commerce’s surrogate value selections. The court sustains Commerce’s VAT
adjustment.
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction pursuant to § 516A(a)(2)(B)(iii) of the Tariff Act of 1930,
as amended, 19 U.S.C. § 1516a(a)(2)(B)(iii) (2012), 4 and 28 U.S.C. § 1581(c).
4 All further citations to the Tariff Act of 1930, as amended, are to Title 19 of the U.S.
Consol. Court No. 15-00286 Page 6
The court will uphold an agency determination that is supported by substantial
evidence and otherwise in accordance with law. 19 U.S.C. § 1516a(b)(1)(B)(i). The
court's review of Commerce's interpretation and implementation of a statutory scheme
is guided by Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
837 (1984). See Apex Frozen Foods Private Ltd. v. United States, 862 F.3d 1322, 1329
(Fed. Cir. 2017). First, the court must determine “whether Congress has directly spoken
to the precise question at issue.” Id. (quoting Chevron, 467 U.S. at 842). If Congress's
intent is clear, “that is the end of the matter,” and the court “must give effect to the
unambiguously expressed intent of Congress.” Id. (quoting Chevron, 467 U.S. at 842-
43). Only “if the statute is silent or ambiguous,” must the court determine whether the
agency's action “is based on a permissible construction of the statute.” Id. (quoting
Chevron, 467 U.S. at 843). Additionally, “[t]he results of a redetermination pursuant to
court remand are also reviewed for compliance with the court’s remand order.”
SolarWorld Ams., Inc. v. United States, 41 CIT ___, ___, 273 F. Supp. 3d 1314, 1317
(2017) (internal quotation marks and citation omitted).
DISCUSSION
I. Significant Producer of Comparable Merchandise
A. Legal Framework
An antidumping duty is “the amount by which the normal value exceeds the
export price (or the constructed export price) for the merchandise.” 19 U.S.C. § 1673.
Code, and all references to the U.S. Code are to the 2012 edition, unless otherwise
stated.
Consol. Court No. 15-00286 Page 7
When an antidumping duty proceeding involves a nonmarket economy country,
Commerce determines normal value by valuing the factors of production 5 in a surrogate
country, see id. § 1677b(c)(1), and those values are referred to as “surrogate values.”
In selecting surrogate values, Commerce must use “the best available information” that
is, “to the extent possible,” from a market economy country or countries that are
economically comparable to the nonmarket economy country and are “significant
producers of comparable merchandise.” Id. § 1677b(c)(1), (4). Commerce generally
values all factors of production in a single surrogate country. 6
Commerce has adopted a four-step approach to selecting a primary surrogate
country. Pursuant thereto:
(1) the Office of Policy (“OP”) assembles a list of potential surrogate
countries that are at a comparable level of economic development to the
[non-market economy] country; (2) Commerce identifies countries from the
list with producers of comparable merchandise; (3) Commerce determines
whether any of the countries which produce comparable merchandise are
significant producers of that comparable merchandise; and (4) if more
than one country satisfies steps (1)–(3), Commerce will select the country
with the best factors data.
Jiaxing Brother Fastener Co., Ltd. v. United States, 822 F.3d 1289, 1293 (Fed. Cir.
2016) (citation omitted); see also Import Admin., U.S. Dep't of Commerce, Non-Market
Economy Surrogate Country Selection Process, Policy Bulletin 04.1 (2004), available at
5 The factors of production include, but are not limited to: “(A) hours of labor required,
(B) quantities of raw materials employed, (C) amounts of energy and other utilities
consumed, and (D) representative capital cost, including depreciation.” 19 U.S.C.
§ 1677b(c)(3).
6 See 19 C.F.R. § 351.408(c)(2) (excepting labor). But see Antidumping Methodologies
in Proceedings Involving Non-Market Economies: Valuing the Factor of Production:
Labor, 76 Fed. Reg. 36,092 (Dep’t Commerce June 21, 2011) (expressing a preference
to value labor based on industry-specific labor rates from the primary surrogate
country).
Consol. Court No. 15-00286 Page 8
http://enforcement.trade.gov/policy/bull04–1.html (last visited Feb. 27, 2019) (“Policy
Bulletin 04.1”).
Neither the statute nor Commerce’s regulations define “significant
producer.” See 19 U.S.C. § 1677b; 19 C.F.R. § 351.408. However, in its Policy Bulletin
04.1, Commerce described its practice for evaluating significant producing countries:
[t]he extent to which a country is a significant producer should not be
judged against the [subject non-market economy] country’s production
level or the comparative production of the five or six countries [that are
considered potential surrogate countries]. Instead, a judgement [sic]
should be made consistent with the characteristics of world production of,
and trade in, comparable merchandise (subject to the availability of data
on these characteristics). Since these characteristics are specific to the
merchandise in question, the standard for “significant producer” will vary
from case to case. For example, if . . . there are ten large producers and a
variety of small producers, “significant producer” could be interpreted to
mean one of the top ten. If, in the example above, there is also a middle-
size group of producers, then “significant producer” could be interpreted
as one of the top ten or middle group. In another case, there may not be
adequate data available from major producing countries. In such a case,
“significant producer” could mean a country that is a net exporter, even
though the selected surrogate country may not be one of the world's top
producers.
Policy Bulletin 04.1 at 3. Because the term “significant producer” is otherwise undefined
and ambiguous, the court must assess whether Commerce’s interpretation of significant
producer in this case is based on a permissible construction of the statute. Chevron,
467 U.S. at 843; Apex Frozen Foods, 862 F.3d at 1329. To effectuate judicial review,
Commerce must provide “a reasoned analysis or explanation for [its] decision” so the
court may “determine whether a particular decision is arbitrary, capricious, or an abuse
of discretion.” Thai I-Mei Frozen Foods Co., Ltd. v. United States, 616 F.3d 1300, 1304
(Fed. Cir. 2010) (citation omitted).
Consol. Court No. 15-00286 Page 9
B. Commerce’s Interpretation of “Significant Producer” in This Proceeding
The 2nd Remand Results reflect Commerce’s third effort to justify its
determination that Thailand is a significant producer of comparable merchandise. In the
Issues and Decision Memorandum, Commerce identified Thailand as a significant
producer based on its total activated carbon export quantity. I&D Mem. at 7. The court
held that reliance on total exports without evidence that those exports influenced global
trade in activated carbon was not a permissible method of interpreting the term
“significant producer” or, thus, identifying significant producer countries. Jacobi (AR7) I,
222 F. Supp. 3d at 1181 (citing Chevron, 467 U.S. at 843; Fresh Garlic Producers Ass'n
v. United States, 39 CIT ___, ___, 121 F. Supp. 3d 1313, 1338-39 (2015)). 7 Pointing to
evidence that “Thailand’s proportion of 2013 global exports . . . was just 1.4 [percent]
including the PRC[] and 2.6 [percent] excluding the PRC,” the court concluded that
“Commerce has not explained the significance of Thailand’s contribution to global
exports sufficiently well so as to enable the court to conclude that its determination that
Thailand is a ‘significant producer’ is supported by substantial evidence.” Id. at 1181(citations omitted). The court also rejected the Government’s post hoc reliance on
Thailand’s ranking of ninth out of twenty-seven activated carbon exporting countries
7In Fresh Garlic, the court opined that
an interpretation of ‘significant producer’ countries as those whose
domestic production could influence or affect world trade would be a
permissible construction of the statute. This follows from the plain
meaning of the word ‘significant’ as something ‘having or likely to have
influence or effect.’ This definition, however, necessarily requires
comparing potential surrogate countries’ production to world production of
the subject merchandise.
121 F. Supp. 3d at 1338–39 (citation omitted), quoted in Jacobi (AR7) I, 222 F. Supp.
3d at 1180.
Consol. Court No. 15-00286 Page 10
absent evidence regarding “the significance of that ranking in terms of its effect on
global trade.” Id. at 1181-82 (noting that “the top five exporters . . . collectively account
for more than 90 [percent] of global exports” and, “[t]hereafter, listed countries
contribute relatively little to global exports”).
In its first remand redetermination, Commerce sought to rely on financial
statements from two Thai manufacturers of activated carbon evidencing some domestic
production of comparable merchandise and Thailand’s net export quantity to conclude
that Thailand is a significant producer of comparable merchandise. 1st Remand
Results at 21-22. The court rejected Commerce’s first basis—domestic production—
because it lacked any analysis as to whether—or why—the amounts were significant,
thereby reading the word “significant” out of the statute. Jacobi (AR7) II, 313 F. Supp.
3d at 1326. The court further faulted Commerce’s attempt to rely on net exports. Id. at
1327-28. While noting that “the court does not hold that the current record does not
support a permissible interpretation of significant producer on the basis of net exports,”
the court could not discern Commerce’s reasons for so finding. Id. at 1328. Rather,
Commerce appeared to assume that net exports per se satisfied the significant
producer criterion, see 1st Remand Results at 21-22, which was contrary to
Commerce’s internal guidance explaining that “‘significant producer’ could mean a
country that is a net exporter,” Policy Bulletin 04.1 at 3 (emphasis added), and
legislative history indicating that “[t]he term ‘significant producer’ includes any country
that is a significant net exporter,” H.R. Rep. No. 100–576, at 590 (1988) (Conf. Rep.),
reprinted in 1988 U.S.C.C.A.N. 1547, 1623 (emphasis added).
Consol. Court No. 15-00286 Page 11
In its second remand redetermination, Commerce explained that it does not
measure the significance of a country’s production according to whether that production
influences or effects world trade (or is likely to do so). 2nd Remand Results at 5-6.
Commerce instead interprets “significant” as meaning “a noticeably or measurably large
amount.” Id. at 6. As a substitute for production, Commerce again relied on Thailand’s
total export quantity and net export quantity, as well as Thailand’s ranking as the ninth
largest global exporter of activated carbon among 24 reporting countries and Thailand’s
ranking as the largest global exporter of activated carbon among the countries
Commerce considers to be at the same level of economic development as China. See
id. at 5-8.
C. Parties’ Contentions
Jacobi contends that Commerce has adopted an impermissible interpretation of
the term “significant” and has failed to point to substantial record evidence that Thailand
is a significant producer of the subject merchandise. Jacobi’s Opp’n Cmts. at 5-10.
Jacobi notes that the court has already rejected Commerce’s reliance on Thailand’s
total export ranking and asserts that Commerce has added nothing new to its analysis.
Id. at 8. Jacobi also contends that Commerce’s reliance on Thailand’s export ranking
among the economically comparable countries is contrary to Commerce’s internal policy
guidance. Id.
CATC likewise contends that Commerce’s redetermination “add[s] essentially
nothing” to the agency’s prior analysis. CATC’s Opp’n Cmts. at 5; see also id. at 5-7.
CATC further contends that Commerce’s interpretation of “significant” is “unreasonably
subjective.” Id. at 7. According to CATC, Commerce’s selection of a primary surrogate
Consol. Court No. 15-00286 Page 12
country in this proceeding reflects a failure to consider the purpose of the analysis,
which is to “find reliable surrogate country data that most accurately represents the
purchasing and production situation of [Jacobi].” Id. at 8-9.
The Government and Calgon contend that Commerce has adopted a permissible
construction of the term “significant” and its findings are supported by substantial
evidence. Def.’s Reply Cmts. at 3-8; Def.-Ints.’ Reply Cmts. at 8-11. They each point to
Juancheng Kangtai Chem. Co., Ltd. v. United States, Slip Op. 17-3, 2017 WL 218910,
at *4 (CIT Jan. 19, 2017), as support for Commerce’s interpretation of “significant” as a
“noticeably or measurably large amount.” See Def.’s Reply Cmts. at 3-4; Def.-Ints.’
Reply Cmts. at 9.
D. Commerce’s Determination is Remanded for Reconsideration
Upon consideration of the agency’s second remand redetermination and the
briefing to the court, Commerce’s finding that Thailand is a significant producer must be
remanded. Commerce has effectively divorced the term “significant” from the term
“production” and applied its definition of “significant” without the context necessary to
ensure that its determination is not arbitrary. Commerce has not supplied the court with
a well-reasoned explanation supporting its consideration of total or net exports as a
substitute for production. Overall, the agency has failed to interpret or apply the
statutory criterion in its entirety and has not supported its determination that Thailand is
a significant producer with substantial evidence.
With respect to total exports, Commerce asserted that the statute “does not
require [the agency] to seek the largest overall global exporter in order to find significant
production; it only requires a reasonable finding that a country’s exports are significant.”
Consol. Court No. 15-00286 Page 13
2nd Remand Results at 6-7 & n.27 (citing 19 U.S.C. § 1677b(c)(4)(B)). For this to be
reasonable, Commerce must explain why exports are a permissible substitute for
domestic production and substantiate the significance of a country’s exports, taking into
account the record before it, including information that fairly detracts from the agency’s
finding. 8 Commerce did not do so. 9
Commerce characterized Thailand’s total export quantity as “noticeably or
measurably large.” 2nd Remand Results at 35; see also id. at 37. Commerce is within
its discretion to adopt that definition of “significant.” See Juancheng Kangtai, 2017 WL
218910, at *4 (holding that Commerce’s corresponding interpretation of the term
“significant” merited Chevron deference). Nevertheless, Commerce must supply the
court with some basis for reviewing the application of its chosen interpretation to the
factual record, so the court can ensure that Commerce’s determination is not arbitrary.
See, e.g., Thai I-Mei Frozen Foods Co., 616 F.3d at 1304. Numbers are not “large” or
8 As noted, the statute’s legislative history and Commerce’s internal guidance speak to
the use of net exports—not total exports—as a potential measure of the significance of
production. H.R. Rep. 100–576, at 590; Policy Bulletin 04.1 at 3. The use of net
exports provides at least some assurance that a country’s exports do not consist
entirely of transshipped imports.
9 Regarding its use of exports as a proxy for domestic production, Commerce cited to its
use of total exports in an unrelated proceeding involving certain oil country tubular
goods (“OCTG”) from the Socialist Republic of Vietnam. See 2nd Remand Results at 7
& n.28 (citing, inter alia, Decision Mem. for the Prelim. Results of Antidumping Duty
Admin. Review, A-552-817 (Oct. 5, 2016) (“OCTG Prelim. Mem.”) at 7, available at
https://enforcement.trade.gov/frn/summary/vietnam/2016-24797-1.pdf (last visited Feb.
27, 2019). In that decision, Commerce identified countries with any exports as
significant producers while likewise failing to explain its use of that metric as a substitute
for the statutory criterion of production. See OCTG Prelim. Mem. at 7. Commerce’s
citation to this decision, therefore, fails to support meaningfully its redetermination in this
proceeding.
Consol. Court No. 15-00286 Page 14
“significant” in a vacuum; in order to consider whether such descriptors reasonably
apply, the numbers must be placed in context.
Commerce’s Policy Bulletin recognizes the contextual nature of the significant
producer determination: it prompts the agency to issue a decision “consistent with the
characteristics of world production of, and trade in, comparable merchandise.” See
Policy Bulletin 04.1 at 3. The examples that follow direct Commerce to examine
significance from the perspective of relative contributions to global production. See id.(noting, “[f]or example, [that] if there are just three producers of comparable
merchandise in the world, then arguably any commercially meaningful production is
significant”). The same holds true for export data. Here, however, Commerce has
relied on rankings while avoiding any requisite contextual analysis.
Commerce noted that Thailand, with 7.8 million kilograms (“kg”) of activated
carbon exports, ranks ninth on a list of twenty-four global activated carbon exporters (or
eighth excluding China). 2nd Remand Results at 6 & n.23 (citation omitted). According
to Commerce, Thailand’s “export quantity is large compared to other exporters” on the
list. See id. at 6, 35. While Thailand’s export quantity is larger than the countries
ranked tenth to twenty-fourth, as the court previously explained in relation to this same
evidence,
[a]lthough Policy Bulletin 04.1 contemplates that in the event there are
“ten large producers and a variety of small producers, ‘significant
producer’ could be interpreted to mean one of the top ten,” Policy Bulletin
04.1 at 3, Commerce has not established that that is the situation here. In
fact, there appears to be no clear delineation between the top ten and
remaining exporters; rather, the top five exporters (China, India, United
States, the Philippines, and Indonesia) collectively account for more than
90 [percent] of global exports. . . . Thereafter, listed countries contribute
relatively little to global exports.
Consol. Court No. 15-00286 Page 15
Jacobi (AR7) I, 222 F. Supp. 3d at 1181 (emphasis added) (internal citation omitted).
Without more, Commerce’s identification of Thailand as a significant producer based on
this ranking among exporters is arbitrary and lacks substantial evidence.
Commerce also relied on Thailand’s ranking as the largest exporter among the
countries that it considered to be at the same level of economic development as China.
See 2nd Remand Results at 6. Separately, however, Commerce acknowledged its
policy of not determining significance relative to the comparative production of the
potential surrogate countries. See id. at 36 (citing Policy Bulletin 04.1). Commerce’s
policy acknowledges that a country’s level of economic development is irrelevant to
whether that country’s production (or exports) of a given product may be considered
“significant.” Commerce is not irrevocably committed to this policy; however, its
diametrically opposite approach in this case, absent any explanation, cannot be
sustained. Accordingly, Thailand’s ranking among this group of countries is not
substantial evidence that Thailand is a significant producer of comparable merchandise.
With respect to net exports, Commerce asserted that “[a] country’s status as a
net exporter supports a finding of significant production because, as noted above, we
interpret ‘significant’ to mean a noticeably or measurably large amount.” Id. at 7.
Precisely why Commerce considers this to be the case here is unclear. While
Commerce has defined “significant” as “noticeably or measurably large,” Commerce has
not explained why having net exports signifies significant production. Commerce further
asserted that “when a country is a net exporter, the assumption is that it produces more
than it imports and consumes,” id.; however, the extent to which this is relevant to
finding significant production depends, in part, on the amount of domestic consumption.
Consol. Court No. 15-00286 Page 16
Here, Commerce has failed to identify record evidence of Thailand’s domestic
consumption, if there is any. The pertinent question then, is whether significant
production may reasonably be inferred from Thailand’s net export quantity for the
relevant period, which was 1,172,897 kg. See id. at 7 & n.31 (citation omitted).
To that end, Commerce asserted that record evidence enabled a comparison of
the net exports of Thailand, the Philippines, and Indonesia. Id. at 7. Commerce noted
that Thailand, the Philippines, and Indonesia had net export quantities of 1,172,897 kg,
60,662,341 kg, and 11,112,825 kg, respectively. Id. at 7-8. But without actually
analyzing the information, Commerce simply asserted that Policy Bulletin 04.1 provides
that being “a net exporter satisfies the statutory requirement,” and declared all three
countries to be significant producers without addressing the disparities between their
net export quantities. Id. at 8 (emphasis added). In fact, the Policy Bulletin states that
although “‘significant producer’ could mean a country that is a net exporter,” Commerce
should avoid “fixed standards” in favor of case-specific assessments dependent upon
the available data, indicating that an analysis of this data is required. Policy Bulletin
04.1 at 3 (emphasis added). 10 The court has previously rejected Commerce’s
10 In the absence of domestic consumption data, as noted above, the only evidence of
Thailand’s production volume is its net export quantity. For that reason, the legislative
history’s recognition that evidence of significant net exports may provide evidence of
significant production is reasonable. H.R. Rep. 100–576, at 590. Relying on net
exports without any information about domestic consumption is equivalent to treating
those net exports as representative of total production. In Jacobi (AR7) II, the court
faulted Commerce for relying on evidence of production without evaluating its
significance because that approach “reads the word ‘significant’ out of the statute,” in
contravention of established principles of statutory interpretation. 313 F. Supp. 3d at
1326. Commerce simply repeats the same mistake here.
Consol. Court No. 15-00286 Page 17
conclusory reliance on net exports per se and is compelled to do so again here. Jacobi
(AR7) II, 313 F. Supp. 3d at 1327-28. 11
Commerce has now had three opportunities to justify its selection of Thailand as
the primary surrogate country and each time has failed to provide substantial evidence
supporting its determination that Thailand is a significant producer of comparable
merchandise. In the 2nd Remand Results, Commerce circled back to some of the
same reasoning the court previously rejected without addressing any of the concerns
identified by the court. Moreover, Commerce’s errant reasoning repeatedly ignores its
own statements of practice. While Commerce is not bound by those statements of
practice, it must explain its departures and has seemed unable. Therefore, the court
finds that the record does not support the selection of Thailand as a significant
producer. On remand, Commerce must identify a surrogate country, whether from its
list of countries at the same level of economic development as the PRC or another
country at a comparable level of economic development not on the list, which meets the
statutory criteria and is supported by substantial evidence. Because Commerce
justified its selection of surrogate values for carbonized material and financial ratios
substantially on the basis that they are from the primary surrogate country, see 2nd
Remand Results at 13, 19, Commerce must revisit these surrogate values on remand.
11 Commerce also concluded that the evidence upon which it relied to conclude that
Thailand is a significant producer “suggests that Thailand bears an influence on the
global trade in activated carbon.” 2nd Remand Results at 8. However, Commerce did
not elaborate on why this is so, and its reasoning is not apparent. “Commerce must
explain the basis for its decisions; while its explanations do not have to be perfect, the
path of Commerce's decision must be reasonably discernable to a reviewing court.”
NMB Singapore Ltd. v. United States, 557 F.3d 1316, 1319-20 (Fed. Cir. 2009)
(citations omitted).
Consol. Court No. 15-00286 Page 18
II. Value-Added Tax
A. The Application of Section 1677a(c)(2)(B) to Nonmarket Economies
When calculating export price and constructed export price, Commerce may
deduct “the amount, if included in such price, of any export tax, duty, or other charge
imposed by the exporting country on the exportation of the subject merchandise to the
United States, other than an export tax, duty, or other charge described in section
1677(6)(C) of this title.” 12 19 U.S.C. § 1677a(c)(2)(B). Such price adjustments must be
“reasonably attributable to the subject merchandise.” 19 C.F.R. § 351.401(c).
Prior to 2012, Commerce did not apply 19 U.S.C. § 1677a(c)(2)(B) in
proceedings involving imports from nonmarket economy (“NME”) countries. Commerce
reasoned that “pervasive government intervention in NMEs precluded proper valuation
of taxes paid by NME respondents to NME governments.” Methodological Change for
Implementation of Section 772(c)(2)(B) of the Tariff Act of 1930, as Amended, In Certain
Non–Market Economy Antidumping Proceedings, 77 Fed. Reg. 36,481, 36,482 (Dep't
Commerce June 19, 2012) (“Methodological Change”) (citing Pure Magnesium and
Alloy Magnesium From the Russian Federation, 60 Fed. Reg. 16,440 (Dep’t Commerce
Mar. 30, 1995) (notice of final determination of sales at less than fair value) (“Pure
Magnesium from Russia”)). Commerce had taken the position that nonmarket economy
countries are
governed by a presumption of widespread intervention and influence in
the economic activities of enterprises[ and a]n export tax charged for one
purpose may be offset by government transfers provided for another
purpose. . . . To make a deduction for export taxes imposed by a NME
12Section 1677(6)(C) concerns “export taxes, duties, or other charges levied on the
export of merchandise to the United States specifically intended to offset the
countervailable subsidy received” and is not relevant here.
Consol. Court No. 15-00286 Page 19
government would unreasonably isolate one part of the web of
transactions between government and producer.
Id. (citation omitted). Commerce’s declination to apply section 1677a(c)(2)(B) in NME
proceedings accorded with its former practice of declining to countervail subsidies paid
by a NME government to a NME producer. See id. Commerce reasoned that
“[a]ttempts to isolate individual government interventions in this setting—whether they
be transfers from the government or from exporters to the government—make no
sense.” Id. (citation omitted).
As the countries that Commerce considered to be nonmarket economies
evolved, so did Commerce’s practices. In 2002, Commerce revoked Russia’s status as
a NME country. See Silicon Metal From the Russian Federation, 68 Fed. Reg. 6,885,
6,887 (Dep’t Commerce Feb. 11, 2003) (notice of final determination of sales at less
than fair value) (citation omitted). In 2007, Commerce determined that China (and
Vietnam), while still regarded as NME countries, had nevertheless become sufficiently
dissimilar from the centrally-planned economies of the Soviet-era such that Commerce
could determine whether those governments bestowed countervailable subsidies on
certain companies or industries. See Methodological Change, 77 Fed. Reg. at 36,482;
Issues and Decision Mem. for the Final Determination in the Countervailing Duty
Investigation of Coated Free Sheet Paper from the People’s Republic of China, C-570-
907 (Oct. 17, 2007) at Cmt. 1, available at https://enforcement.trade.govfrn/summary
/prc/E7-21046-1.pdf (last visited Feb. 27, 2019). 13 In accordance with its determination
13Commerce’s initial application of the countervailing duty laws to NME countries was
challenged in court and held unlawful. See GPX Int’l Tire Corp. v. United States, 666
F.3d 732, 745 (Fed. Cir. 2011), reh’g granted, 678 F.3d 1308 (Fed. Cir. 2012).
Consol. Court No. 15-00286 Page 20
that countervailable subsidies from China and Vietnam could be measured, Commerce
reconsidered whether taxes, duties and other charges paid by NME producers to those
NME governments could likewise be identified and measured. See Methodological
Change, 77 Fed. Reg. at 36,482.
In 2012, Commerce concluded that it could now identify and measure certain
taxes paid by Chinese producers to the Chinese government and announced that,
henceforth, it would consider whether the PRC “has imposed an export tax, duty, or
other charge upon export of the subject merchandise during the period of investigation
or the period of review,” including, for example, “an export tax or VAT that is not fully
refunded upon exportation.” Id. at 36,482 (internal quotation marks omitted). Thus,
when the PRC does so, and “the respondent was not exempted, [Commerce] will
reduce the respondent's export price and constructed export price accordingly, by the
amount of the tax, duty or charge paid, but not rebated.” Id. at 36,483. When “the
export tax, VAT, duty, or other charge” is “a fixed percentage of the price,” Commerce
announced that it would “adjust the export price or constructed export price downward
by the same percentage.” Id. “[B]ecause these are taxes affirmatively imposed by the
Chinese . . . government[],” Commerce “presume[s] that they are also collected.” Id.
B. Commerce’s Application of the Statute to Chinese VAT
Pursuant to the Methodological Change, for the Final Results, Commerce
reduced Jacobi’s constructed export price by an amount it described as “irrecoverable
However, Congress subsequently amended the statute to confirm that Commerce was
authorized to apply the countervailing duty laws to nonmarket economy countries. See
Application of Countervailing Duty Provisions to NonMarket Economy Countries, Pub. L.
No. 112–99, 126 Stat. 265 (2012); 19 U.S.C. §§ 1671(f), 1677f–1(f).
Consol. Court No. 15-00286 Page 21
VAT.” I&D Mem. at 16-18. According to Commerce, irrecoverable VAT constituted an
“export tax, duty, or other charge” because it represented the amount of VAT Jacobi
paid on inputs and raw materials used in the production of activated carbon (“input
VAT”) that became nonrefundable when those inputs and raw materials were consumed
in the production of exported subject merchandise. Id. at 16-17. 14 Commerce
calculated irrecoverable VAT by multiplying the free on board (“FOB”) value of the
subject merchandise by the difference between the standard VAT rate (here, 17
percent) and the applicable VAT rebate rate (here, zero). Id. at 17. When Jacobi’s
entered values were less than an “estimated customs value,” Commerce applied the
resulting 17 percent irrecoverable VAT rate to the estimated customs value as a proxy
for the FOB China port value. Id. at 18.
In Jacobi (AR7) I, the court found that section 1677a(c)(2)(B) was ambiguous.
222 F. Supp. 3d at 1186–87; see also infra, p. 28 (discussing the court’s finding).
Because the statute is ambiguous, pursuant to Chevron prong two, Commerce could
reasonably determine that an input VAT that becomes nonrefundable when the finished
product is exported constitutes, at the very least, an “other charge” that is “imposed by
the exporting country on the exportation of the subject merchandise” because it remains
recoverable (as a credit or offset against output VAT) until the product is exported.
14Commerce explained that
[i]n a typical VAT system, companies do not incur VAT expense for
exports; they receive on export a full rebate of the VAT they pay on
purchases of inputs used in the production of exports, and, in the case of
domestic sales, the company can credit the [input VAT] against the VAT
they collect from customers [“output VAT”].
I&D Mem. at 16. In the PRC, however, “some portion of the input VAT that a company
pays on purchases of inputs used in the production of exports is not refunded.” Id.
Consol. Court No. 15-00286 Page 22
Jacobi (AR7) I, 222 F. Supp. 3d at 1186–87. The court further found that Commerce’s
determination that certain of Jacobi’s entered values were unreliable was supported by
substantial evidence and thus affirmed its use of estimated customs values. Id. at
1190–92. The court, however, remanded Commerce’s VAT calculation because the
agency’s application of the irrecoverable VAT rate to the price of the finished good
potentially overstated an adjustment intended to account for unrefunded input VAT. Id.
at 1192-94.
In its first remand redetermination, Commerce continued to characterize its
adjustment as accounting for irrecoverable VAT (i.e., unrefunded input VAT). See 1st
Remand Results at 25-27. As the basis for its adjustment, however, Commerce pointed
to the 17 percent output VAT rate applicable to Jacobi’s foreign and domestic sales and
found that it was, thus, included in Jacobi’s U.S. price. Id. at 27.
The court again remanded the adjustment, this time because Commerce’s
revised explanation introduced an inconsistency between the calculation methodology
(based on output VAT) and the theory underlying the adjustment (unrefunded input
VAT). Jacobi (AR7) II, 313 F. Supp. 3d at 1341-44. Pointing to the record on remand,
the court further instructed:
[t]o the extent that Commerce continues to justify the adjustment as
accounting for irrecoverable VAT defined as unrefunded input VAT,
Commerce must address record evidence demonstrating that Jacobi, in
fact, recovers the input VAT it incurs by the offset it takes before remitting
the output VAT it collects. . . .
On the other hand, if Commerce asserts that the adjustment is based on
an export tax due to Jacobi’s collection of output VAT, Commerce must (a)
address the record evidence regarding Jacobi's offset for input VAT paid
on inputs taken against the output VAT collected, and (b) explain why the
VAT adjustment is properly made on the basis of an estimated customs
value instead of the FOB value on which the PRC assesses it.
Consol. Court No. 15-00286 Page 23
Id. at 1342-43 (internal citations omitted).
In a subsequent order, the court instructed Commerce to include in its
redetermination consideration of Aristocraft of Am., LLC v. United States, 42 CIT ___,
331 F. Supp. 3d 1372 (2018), in which that court posed several questions for
Commerce to address on remand regarding the evidentiary basis for the adjustment, id.
at 1379. See Order (Aug. 22, 2018), ECF No. 132. Commerce’s explanation for the
adjustment for Chinese VAT discussed in Aristocraft differed significantly from the
explanation offered in the 1st Remand Results.
In its second remand redetermination in this action, Commerce changed the
basis for its adjustment from irrecoverable VAT (i.e. unrefunded input VAT) to the 17
percent output VAT imposed on foreign and domestic activated carbon sales. 2nd
Remand Results at 22, 25-26. Commerce supported its revised explanation by way of
reference to a more recent iteration of Chinese VAT law the agency had placed on the
record of the second remand proceeding. Id. at 21 & n.98 (citing Notice of the Ministry
of Finance and the State Administration of Taxation on the Policies of Value-added Tax
and Consumption Tax Applicable to Exported Goods and Services (“2012 VAT Notice”),
PRR 9, PRJA Tab 6). Commerce’s revised explanation recognizes that Chinese VAT
law treats products differently depending on their eligibility for an export VAT refund.
See id. at 22-26.
Pursuant to that law, companies that produce exported goods that are ineligible
for an export VAT rebate do not incur a reduction in the input VAT amount credited
against the output VAT. Id. at 25-26. Export sales of such goods are treated as
domestic sales and are, thus, subject to the collection of output VAT. Id. at 25 & n.106
Consol. Court No. 15-00286 Page 24
(citing 2012 VAT Notice, Art. 7.2(1)). In contrast, companies that produce exported
goods that are eligible for a VAT rebate incur “a reduction in or offset to the input VAT
that can be credited against output VAT” when the company calculates its net VAT
payable amount. Id. at 23-24; see also 2012 VAT Notice, Art. 5.1(1). Export sales of
such products are not subject to output VAT; instead, these companies incur a
reduction in the input VAT amount they may credit against the output VAT collected
solely on domestic sales. See 2nd Remand Results at 25. That reduction in the input
VAT credit represents “irrecoverable VAT.” See id. at 23-24.
In accordance with the foregoing description of Chinese VAT law, Commerce
explained that activated carbon is one of the products that is ineligible for an export
rebate. Consequently, Commerce found that producers of activated carbon do not incur
a reduction in the amount of input VAT creditable against output VAT. Id. at 26 & n.112
(citation omitted). Instead, export sales of activated carbon are treated in the same
manner as domestic sales and are subject to the collection of output VAT. Id. at 25-26
& n.114 (citation omitted). Commerce concluded that it previously erred in adjusting
Jacobi’s constructed export price by an amount purportedly representing irrecoverable
VAT. Id. Commerce nevertheless retained the downward adjustment to Jacobi’s U.S.
price to account for the 17 percent output VAT, which the agency concluded
represented an “export tax, duty, or other charge imposed by the exporting country on
the exportation of the subject merchandise to the United States” pursuant to section
1677a(c)(2)(B). Id. at 26. Commerce explained that deducting the output VAT from
export price ensured the calculation of a tax-neutral dumping margin because normal
Consol. Court No. 15-00286 Page 25
value in a nonmarket economy proceeding is based on the factors of production, which
are VAT-exclusive. Id. at 25 & n.108.
Commerce further noted that certain questions raised by the Aristocraft court
concerning the calculation of irrecoverable VAT were now irrelevant to Commerce’s
adjustment in this case. Id. at 26-28. Additionally, in response to this court’s instruction
that any assessment based on output VAT should include consideration of record
evidence regarding Jacobi’s ability to offset the output VAT with input VAT, see Jacobi
(AR7) II, 313 F. Supp. 3d at 1343, the agency explained that “Commerce’s adjustment
is not intended to account for the total amount of net VAT creditable,” 2nd Remand
Results at 30. Rather, pursuant to the Methodological Change, “when the ‘export tax,
VAT, duty, or other charge [is] a fixed percentage,’ Commerce ‘will adjust the export
price or constructed export price downward by the same percentage.’” Id. (citing
Methodological Change, 77 Fed. Reg. at 36,483).
Commerce calculated the VAT adjustment pursuant to the following formula set
forth in Chinese law:
output VAT = FOB * exchange rate / (1 + legal VAT rate) * legal VAT rate.
Id. at 31 & n.132 (citing Jacobi’s Suppl. Sec. C Resp. (Oct. 21, 2014) (“Jacobi’s Suppl.
§ CQR”), Ex. SC-56, CR 124, 133, PR 157-58, PRJA Tab 5; 2012 VAT Notice).
Commerce reconsidered its prior reliance on estimated customs values to calculate the
adjustment and instead used Jacobi’s entered values because those “are the FOB
China port values used in the Chinese tax authorities’ output VAT calculations.” Id. at
31 & n.133 (citing Jacobi’s Suppl. § CQR at 30); see also id. at 32. Commerce thus
Consol. Court No. 15-00286 Page 26
adjusted Jacobi’s U.S. price downwards by the output VAT amount calculated using the
above formula and Jacobi’s entered values. Id. at 32.
Commerce further explained that because Jacobi’s sales of subject merchandise
are subject to output VAT, Jacobi’s U.S. price “necessarily include[s]” that amount. Id.
at 30. In response to Jacobi’s argument that Commerce had not shown its sales price
to include output VAT because the invoice on the record of the remand proceeding does
not reflect the collection of output VAT, see id. at 50, 51 & n.191 (citation omitted),
Commerce pointed to Jacobi’s questionnaire response explaining that its sales to
foreign and domestic buyers are subject to 17 percent output VAT, id. at 51 & n.192
(citing Jacobi’s Suppl. § CQR at 30, Ex. SC-56), and Jacobi’s calculation of its net VAT
payable that includes amounts representing the collection of output VAT for each POR
month, id. at 51 & n.193 (citing Jacobi’s Suppl. § CQR, Ex. SC-58, CRJA Tab 12); see
also id. at 52. 15
C. Commerce’s Authority to Deduct Output VAT from U.S. Price
Jacobi contends that “Commerce’s revised reasoning still fails to satisfy the
statutory requirement for an adjustment” pursuant to section 1677a(c)(2)(B). Jacobi’s
Opp’n Cmts. at 23. Jacobi does not, however, develop any particular argument that
output VAT does not fulfill the statutory criteria of an “export tax, duty, or other charge
imposed by the exporting country on the exportation of the subject merchandise to the
United States.” Nevertheless, the court recognizes that since it issued Jacobi AR7 I,
two opinions from the court have called into question Commerce’s legal authority to
15The court recognizes that Jacobi reported that its sales to the United States “are
subject to” the collection of output VAT, but did not explicitly state that its sales prices
include output VAT. See Jacobi’s Suppl. § CQR at 30 (emphasis added).
Consol. Court No. 15-00286 Page 27
adjust export price or constructed export price to account for VAT (whether
irrecoverable or not) pursuant to 19 U.S.C. § 1677a(c)(2)(B). See Qingdao Qihang Tyre
Co., Ltd. v. United States, 42 CIT ___, ___, 308 F. Supp. 3d 1329, 1338-47 (2018);
China Mfrs. Alliance, LLC v. United States, Slip Op. 19-7, 2019 WL 221237, at *4-8 (CIT
Jan. 16, 2019). The court does not find those opinions persuasive and declines to
follow them.
In Qingdao and China Manufacturers, the court, upon reviewing the statute in its
current form and as enacted prior to the adoption of the Uruguay Round Agreements
Act (“URAA”), 16 concluded, pursuant to Chevron prong one, that section 1677a(c)(2)(B)
is unambiguous and does not permit Commerce to adjust export price or constructed
export price for VAT imposed on export sales indirectly through an input VAT that
becomes irrecoverable or, by extension, directly through an output VAT. Qingdao, 308
F. Supp. 3d at 1338-42, 1346; China Mfrs., 2019 WL 221237, at *4-8. The court
characterized VAT as a domestic tax that is distinct from an export tax imposed on the
exportation of finished goods. See Qingdao, 308 F. Supp. 3d at 1339, 1341, 1345;
China Mfrs., 2019 WL 221237, at *6. The court reasoned that an “export tax, duty, or
other charge” is “limited to one that is ‘imposed by the exporting country on the
exportation of the subject merchandise to the United States,’” Qingdao, 308 F. Supp. 3d
at 1343 (quoting 19 U.S.C. § 1677a(c)(2)(B)) and is, thus, “by definition” not included “in
the home-market price,” id.; see also China Mfrs., 2019 WL 221237, at *4.
16On December 8, 1994, Congress enacted the URAA, including section 1677a in its
current form. See Uruguay Round Agreements Act, Pub. L. No. 103–465, § 223, 108
Stat. 4809, 4876 (1994).
Consol. Court No. 15-00286 Page 28
Previously, when considering Commerce’s irrecoverable VAT theory for the
adjustment, this court held that “the catchall phrase ‘other charge’ captures any financial
obligation provided it is ‘imposed by the exporting country on the exportation of the
subject merchandise,’ regardless of whether the imposing country explicitly labels the
charge as one pertaining to exports.” Jacobi (AR 7) I, 222 F. Supp. 3d at 1186-87
(emphasis added). In other words, the court considered “other charge” inherently
ambiguous and Commerce reasonably interpreted the phrase to encompass
irrecoverable VAT.
Upon Commerce’s further consideration of the record and recognition that, with
regard to activated carbon, China simply imposes an output VAT on domestic and
export sales, the issue is now whether Commerce may apply the statute, 19 U.S.C.
§ 1677a(c)(2)(B), to a VAT that is equally applicable to domestic and export sales. This
court determines that section 1677a(c)(2)(B)’s reference to “export tax[es], dut[ies], or
other charge[s] imposed by the exporting country on the exportation of the subject
merchandise” is ambiguous as to whether the statute applies to such assessments
imposed solely upon export sales or assessments imposed upon sales at the time of
export, regardless of whether the assessment is also applied to domestic sales. But cf.
Qingdao, 308 F. Supp. 3d at 1343; China Mfrs., 2019 WL 221237, at *4.
The notion that the imposition of a tax, duty or other charge that is generally
applicable to both domestic and export sales does not alone preclude it from providing
the basis for an adjustment pursuant to section 1677a(c)(2)(B) finds support in the U.S.
Supreme Court’s Export Clause jurisprudence. The Export Clause provides: “No Tax or
Duty shall be laid on Articles exported from any State.” U.S. Const., Art. 1, § 9, cl. 5. In
Consol. Court No. 15-00286 Page 29
United States v. International Business Machines Corp. (“IBM”), the Court held that the
Export Clause bars the imposition of a generally applicable federal tax on goods in
export transit, even if the tax is nondiscriminatory and equally applicable to non-export
transactions. 517 U.S. 843, 845, 863 (1996); see also United States v. U.S. Shoe
Corp., 523 U.S. 360, 363, 370 (1998) (holding that a harbor maintenance tax collected
from exporters, importers, and domestic shippers and imposed at the time of loading for
exports and unloading for other shipments violated the Export Clause as applied to
exports). While the context in which those cases arose is arguably distinct,
notwithstanding any such distinctions, IBM and U.S. Shoe support the proposition that a
statutory reference to an export tax, duty, or other charge imposed upon exportation
may include such a tax, duty or other charge also imposed on domestic sales.
The court now turns to consideration of whether Commerce’s interpretation of
section 1677a(c)(2)(B) was reasonable when applied to China’s output VAT in this case.
Here, Commerce interpreted section 1677a(c)(2)(B) to permit a reduction to EP/CEP in
order to achieve a tax neutral comparison between EP/CEP and normal value, see 2nd
Remand Results at 25 & n.108, and such an interpretation, as discussed more fully
below, was reasonable.
As an initial matter, it is important to bear in mind that here, normal value is not
based on home-market (i.e., domestic) sales prices, but is based on the respondent’s
factors of production and corresponding surrogate values, which are determined on a
Consol. Court No. 15-00286 Page 30
tax-exclusive basis. 17 In such a case, the principle that dumping margin calculations
should be tax-neutral supports Commerce’s adjustment. 18
The Federal Circuit recognized more than two decades ago:
Buried in the language of statute and case law, and obscured by the fog of
litigation, is a simple policy issue: whether Congress, in the Tariff Act of
1930 (the Act), precluded Commerce from determining dumping margins
in a tax-neutral fashion.
Federal Mogul Corp. v. United States, 63 F.3d 1572, 1577 (Fed. Cir. 1995). The
question, then, is whether Congress, when it did not substantively alter section 1677a in
the URAA, 19 intended to prohibit Commerce from using that provision to achieve tax
neutrality in nonmarket economy cases? This court can find no such intention.
17 In a proceeding involving a market economy country, a comparable tax-neutral
comparison would be achieved by reducing the normal value for “taxes imposed directly
upon the foreign like product . . . which have been rebated, or which have not been
collected, on the subject merchandise, but only to the extent that such taxes are added
to or included in the price of the foreign like product.” 19 U.S.C. § 1677b(a)(6)(B)(iii).
18 Indeed, the Qingdao court recognized that Congress intended for Commerce to
deduct export taxes from U.S. price in order to “achieve a tax-neutral comparison [with]
normal value” in a market economy proceeding precisely because an export tax is not
included in the home-market or comparison market price used to calculate normal
value. 308 F. Supp. 3d at 1342-43. So too here, output VAT is not included in the
surrogate values used to calculate normal value and, thus, notwithstanding the facts
that output VAT is assessed on domestic sales of activated carbon and this is a
nonmarket economy proceeding, the same principle of tax neutrality supports
Commerce’s deduction of output VAT from U.S. price.
19 The Statement of Administrative Action accompanying the URAA explained that
although Congress gave new labels to “purchase price” and “exporter’s sale price,” now
“export price” and “constructed export price,” respectively, the adjustments to those
prices pursuant to section 1677a were unchanged. See Qingdao, 308 F. Supp. 3d at
1339-40 (citing Uruguay Round Agreements Act, Statement of Administrative Action ,
H.R. Doc. No. 103–316, vol. 1, at 822–23 (1994), reprinted in 1994 U.S.C.C.A.N. 4040,
4163) (“SAA”). Congress likewise renamed “foreign market value” to “normal value.”
SAA at 820, 1994 U.S.C.C.A.N. at 4161. The SAA is the authoritative interpretation of
the statute. 19 U.S.C. § 3512(d); RHP Bearings Ltd. v. United States, 288 F.3d 1334,
1345 n.7 (Fed. Cir. 2002).
Consol. Court No. 15-00286 Page 31
First, the pre-URAA version of the statute clearly permitted Commerce to make
tax-neutral dumping calculations. Whether it was through adjustments to foreign market
value or purchase price/exporter’s sales price, Federal Mogul confirms that “one thing is
clear[:] . . . in administering the Act, [Commerce] over the years has pursued a policy of
attempting to make the tax adjustment called for by the Act tax-neutral.” 63 F.3d at
1580 (further holding that nothing in the pre-URAA version of section 1677a precluded
Commerce from achieving tax-neutrality in its administration of the provision requiring
an upward adjustment to U.S. price to account for taxes included in the home market
sales price and rebated or exempted in the context of exports sales). 20 Commerce’s
policy accords with the principle that differences in sales prices due to differential tax
treatment between the home market and export market “does not constitute unfair
pricing behavior” but, rather, “is a difference created by forces outside the control of the
competitor, and does not involve the idea behind the antidumping act,” which is to
prevent unfair competition from dumping. Id. at 1575 (citation omitted).
Second, the suggestion that Congress, by providing for adjustments to normal
value or EP/CEP, is legislating adjustments to increase or decrease the margin of
dumping is unsupported. But cf., e.g., Qingdao, 308 F. Supp. 3d at 1341, 1343
(discussing congressional intent to impact the dumping margin through certain
adjustments). To the contrary, Congress, when it enacted the URAA, intended to
ensure that Commerce could continue to make the adjustments to normal value and
20At least as early as 1991, Commerce adjusted export price to enable a tax-neutral
comparison to foreign market value. See U.S. Dep’t Commerce, Int’l Trade Admin.,
Import Admin., Antidumping Manual Chapter 7, pp. 8-10 (1991). As noted, the URAA
did not affect any substantive change to these adjustments. See supra, note 19.
Consol. Court No. 15-00286 Page 32
EP/CEP necessary in order to place both prices, to the extent possible, on the same
basis, permitting a “fair, ‘apples-to-apples’ comparison.” Maverick Tube Corp. v. United
States, 861 F.3d 1269, 1274 (Fed. Cir. 2017) (quoting Torrington Co. v. United States,
68 F.3d 1347, 1352 (Fed. Cir. 1995)); see also SAA at 827, 1994 U.S.C.C.A.N. at 4166
(noting that a new statutory provision regarding deductions from normal value to
account for indirect taxes represents a change from the pre-URAA statute that
accounted for indirect taxes through an upward adjustment to export price, which
change “is intended to ensure that dumping margins will be tax-neutral”). Typically,
these adjustments lead to ex-factory prices, packed in the same manner, and on the
same tax basis. See SAA at 827.
Third, as discussed above, there is no indication that before 2012, Commerce (or
Congress) considered section 1677a to be inapplicable in NME cases. See
Methodological Change, 77 Fed. Reg. at 36,482; Pure Magnesium from Russia, 60 Fed.
Reg. at 16,448 (noting that, in NME cases, “pecuniary aspects of internal transactions
are considered meaningless and thus ignored”). Rather, Commerce considered itself
unable to apply the provision in NME cases because “pervasive government
intervention . . . precluded proper valuation of taxes paid by NME respondents to NME
governments.” Methodological Change, 77 Fed. Reg. at 36,482. Thus, while it may be
the case that, all other things being equal, a dumping margin calculated before
Commerce’s policy shift would be lower than a margin calculated inclusive of an
adjustment pursuant to section 1677a(c)(2)(B), there is nothing to indicate that the latter
is not in accordance with law. Instead, the latter margin calculation simply includes an
additional data point that Commerce was unable to include in the former.
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Finally, returning to the “policy issue” identified in Federal Mogul, adjusting
EP/CEP for VAT imposed on export sales allows Commerce to calculate a tax-neutral
dumping margin when normal value is calculated exclusive of VAT. In this case, as
discussed in more detail below, the constructed export price reported by Jacobi includes
17 percent output VAT imposed by the Chinese government, whereas the normal value,
to which it is to be compared, is determined using surrogate values that are tax-
exclusive. See 2nd Remand Results at 25 & n.108. To interpret section 1677a(c)(2)(B)
as unambiguously barring Commerce from adjusting EP/CEP for these taxes when
comparing those prices to a tax-exclusive normal value would be to require that it
understate the margin of dumping. The court finds no support for such a requirement in
the language of the statute. Thus, Commerce’s conclusion that China’s output VAT is
an “export tax, duty, or other charge imposed by the exporting country on the
exportation of the subject merchandise” is a permissible interpretation of section
1677a(c)(2)(B), 2nd Remand Results at 26, and the court now turns to Jacobi’s
arguments that the adjustment is unsupported by substantial evidence.
D. Commerce’s Adjustment is Supported by Substantial Evidence
Jacobi contends there is not substantial evidence to support Commerce’s
determination that Jacobi’s U.S. price includes 17 percent output VAT. See Jacobi’s
Opp’n Cmts. at 24-25, 27. According to Jacobi, the existence of a “legal requirement” to
collect output VAT on its U.S. sales is not evidence that it includes an amount for output
VAT in its sales prices to the United States. Id. at 26. Jacobi points to its sales
documentation submitted on the record and notes the lack of any reference to output
VAT. See id. at 24 (citing Jacobi’s Sec. A Questionnaire Resp. (July 24, 2014)
Consol. Court No. 15-00286 Page 34
(“Jacobi’s § AQR”), Ex. A-16, CR 21, CRJA Tab 11). Jacobi further contends that
Commerce has failed to address the court’s “question regarding Jacobi’s ability to offset
paid input VAT against the output VAT due.” Id. at 23. Jacobi also contends that
Aristocraft remains relevant and Commerce erred in failing to address the opinion. See
id. at 26. 21
The Government contends that Jacobi’s reporting that its U.S. sales were subject
to the collection of 17 percent output VAT represents substantial evidence that output
VAT was included in its U.S. prices. Def.’s Reply Cmts. at 22. The Government further
contends that Commerce properly discounted the relevance of Jacobi’s ability to offset
input VAT from output VAT and its calculation of a net VAT payable amount because
Commerce’s adjustment to Jacobi’s constructed export prices is not intended to account
for the VAT amount Jacobi paid to the Chinese government, but rather, the amount of
VAT included in U.S. price. Id. at 22-23.
Calgon contends that because “the cost of output VAT falls on the buyer of the
good, not on the [seller],” it “is necessarily included in Jacobi’s price.” Def.-Ints.’ Reply
Cmts. at 22 (quoting 2nd Remand Results at 23). Calgon further contends that
Commerce adequately addressed the court’s questions regarding the relationship
between input VAT and output VAT and the relevance of the Aristocraft opinion. Id. at
22-23.
The court sustains Commerce’s VAT adjustment. The absence of a line item for
output VAT on Jacobi’s sales documents is not dispositive and the record supports
Commerce’s determination that Jacobi’s export prices include output VAT. See
21 CATC did not comment on this issue.
Consol. Court No. 15-00286 Page 35
Matsushita Elec. Indus. Co. v. United States, 750 F.2d 927, 933 (Fed. Cir. 1984) (the
possibility of drawing two inconsistent conclusions from the evidence does not preclude
the agency’s finding from being supported by substantial evidence) (citing Consolo v.
Fed. Mar. Comm’n, 383 U.S. 607, 619–20 (1966)).
Here, Jacobi concedes that its U.S. sales were subject to the collection of 17
percent output VAT pursuant to the 2012 VAT Notice. See Jacobi’s Opp’n Cmts. at 26;
Jacobi’s Suppl. § CQR at 30; 2012 VAT Notice, Art. 7.2(1). Jacobi suggests, however,
that it calculates the net VAT payable amount as if it collected output VAT on U.S.
sales, but that it does not actually collect output VAT on those sales. See Jacobi’s
Opp’n Cmts. at 26. In making this claim, Jacobi points to no affirmative evidence
demonstrating that the FOB China port value reflected in its sales documents is output
VAT-exclusive. See Jacobi’s § AQR, Ex. A-16 at ECF p. 13. The record reasonably
supports Commerce’s conclusion that Jacobi’s U.S. prices included output VAT—
regardless of whether Jacobi itemized that charge in its sales documents.
Additionally, contrary to Jacobi’s arguments, see Jacobi’s Opp’n Cmts. at 25,
Commerce did not impermissibly base its adjustment on the contemporaneous Chinese
law while ignoring evidence of Jacobi’s net VAT payment. The statute directs
Commerce to make adjustments based on certain amounts included in U.S. price, not
amounts remitted to the subject nonmarket economy government. 22 See 19 U.S.C.
§ 1677a(c)(2)(B). Jacobi also faults Commerce for never requesting a U.S. sales-
22The court also notes that Jacobi’s argument that it “only pays the Chinese
government the ‘net’ VAT amount,” Jacobi’s Opp’n Cmts. at 25, is inaccurate. While the
net VAT payment may represent Jacobi’s direct VAT payment to the Chinese
government, Jacobi is simply reducing the output VAT it collected by the input VAT it
has already paid to the Chinese government, albeit indirectly via its purchases of inputs.
Consol. Court No. 15-00286 Page 36
specific VAT reconciliation. See Jacobi’s Opp’n Cmts. at 25. However, as noted, the
reconciliation document it submitted appears to include output VAT collected in
connection with Jacobi’s U.S. sales. See Jacobi’s Suppl. § CQR, Ex. SC-58. The lack
of a U.S. sales-specific reconciliation does not undermine Commerce’s determination.
In sum, Commerce’s redetermination on this issue complies with the court’s
remand instructions set forth in Jacobi (AR7) II and the agency’s deduction of output
VAT from Jacobi’s constructed export price is lawful and supported by substantial
evidence.
CONCLUSION AND ORDER
In accordance with the foregoing, it is hereby
ORDERED that Commerce’s 2nd Remand Results are remanded for Commerce
to reconsider its surrogate country selection as well as the surrogate values for
carbonized material and financial ratios, as set forth in Discussion Section I above; it is
further
ORDERED that Commerce’s 2nd Remand Results are sustained with respect to
the agency’s VAT adjustment, as set forth in Discussion Section II above; it is further
ORDERED that, in the event Commerce amends the antidumping margin
assigned to Jacobi on remand, Commerce reconsider the separate rate assigned to
non-mandatory respondents; it is further
ORDERED that Commerce shall file its third remand results on or before June
3, 2019; it is further
ORDERED that the deadlines provided in USCIT Rule 56.2(h) shall govern
thereafter; and it is further
Consol. Court No. 15-00286 Page 37
ORDERED that any opposition or supportive comments must not exceed 6,000
words.
/s/ Mark A. Barnett
Mark A. Barnett, Judge
Dated: March 4, 2019
New York, New York