Jiaxing Brother Fastener Co. v. United States , 11 F. Supp. 3d 1326 ( 2014 )

Slip Op. 14-115
UNITED STATES COURT OF INTERNATIONAL TRADE
JIAXING BROTHER FASTENER CO.,
Plaintiffs,
v. Before: Leo M. Gordon, Judge
UNITED STATES, Court No. 12-00384
Defendant.
OPINION
[Remand results sustained.]
Dated: September 25, 2014
Gregory S. Menegaz, J. Kevin Horgan, and John J. Kenkel for deKieffer & Horgan,
PLLC, of Washington, DC for Plaintiffs Jiaxing Brother Fastener Co., Ltd., aka Jiaxing Brother
Standard Parts Co., Ltd., IFI & Morgan Ltd., and RMB Fasteners Ltd.
Carrie A. Dunsmore, Trial Attorney, Commercial Litigation Branch, Civil Division,
U.S. Department of Justice for Defendant United States. With her on the brief were Stuart F.
Delery, Assistant Attorney General, Jeanne E. Davidson, Director, Patricia M. McCarthy,
Assistant Director. Of counsel on the brief was Daniel J. Calhoun, Senior Attorney, Office of
the Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce of
Washington, DC.
Frederick P. Waite and Kimberly R. Young for Vorys, Sater, Seymour and Pease LLP
of Washington, DC for Defendant-Intervenor Vulcan Threaded Products Inc.
Gordon, Judge: This action involves the second administrative review conducted
by the U.S. Department of Commerce (“Commerce”) of the antidumping duty order
covering steel threaded rod from the People’s Republic of China (“PRC”). See Certain
Steel Threaded Rod from the People’s Republic of China, 77 Fed. Reg. 67,332 (Dep’t of
Commerce Nov. 9, 2012) (final results second admin. review) (“Final Results”); see also
Court No. 12-00384 Page 2
Issues and Decision Memorandum for Final Results of Second Administrative Review of
Certain Steel Threaded Rod from the People’s Republic of China, A-570-932 (Nov. 5,
2012), available at http://enforcement.trade.gov/frn/summary/PRC/2012-27438-1.pdf
(last visited this date) (“Decision Memorandum”). Before the court are the Results of
Redetermination, ECF No. 39 (“Remand Results”), filed by Commerce pursuant to Jiaxing
Brother Fastener Co. v. United States, 38 CIT ___, 961 F. Supp. 2d 1323 (2014)
(“Jiaxing I”). Familiarity with the court’s decision in Jiaxing I is presumed. The court has
jurisdiction pursuant to Section 516A(a)(2)(B)(iii) of the Tariff Act of 1930, as amended,
19 U.S.C. § 1516a(a)(2)(B)(iii) (2012),1 and 28 U.S.C. § 1581(c) (2012).
Plaintiffs Jiaxing Brother Fastener Co., Ltd., aka Jiaxing Brother Standard Parts
Co., Ltd., IFI & Morgan Ltd., and RMB Fasteners Ltd. (collectively, “Plaintiffs”) challenge
Commerce’s continued selection of Thailand as the primary surrogate country. For the
reasons that follow, the court sustains Commerce’s Remand Results.
I. Standard of Review
For administrative reviews of antidumping duty orders, the court sustains
Commerce’s “determinations, findings, or conclusions” unless they are “unsupported by
substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C.
§ 1516a(b)(1)(B)(i). More specifically, when reviewing agency determinations, findings,
or conclusions for substantial evidence, the court assesses whether the agency action is
reasonable given the record as a whole. Nippon Steel Corp. v. United States, 458 F.3d
1Further citations to the Tariff Act of 1930, as amended, are to the relevant provisions of
Title 19 of the U.S. Code, 2012 edition.
Court No. 12-00384 Page 3
1345, 1350-51 (Fed. Cir. 2006). Substantial evidence has been described as “such
relevant evidence as a reasonable mind might accept as adequate to support a
conclusion.” DuPont Teijin Films USA v. United States, 407 F.3d 1211, 1215 (Fed. Cir.
2005) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). Substantial
evidence has also been described as “something less than the weight of the evidence,
and the possibility of drawing two inconsistent conclusions from the evidence does not
prevent an administrative agency’s finding from being supported by substantial evidence.”
Consolo v. Fed. Mar. Comm'n, 383 U.S. 607, 620 (1966). Fundamentally, though,
“substantial evidence” is best understood as a word formula connoting reasonableness
review. 3 Charles H. Koch, Jr., Administrative Law and Practice § 9.24[1] (3d ed. 2014).
Therefore, when addressing a substantial evidence issue raised by a party, the court
analyzes whether the challenged agency action “was reasonable given the circumstances
presented by the whole record.” Edward D. Re, Bernard J. Babb, and Susan M. Koplin,
8 West's Fed. Forms, National Courts § 13342 (2d ed. 2014).
II. Discussion
In both the Final Results and the Remand Results, Commerce selected Thailand
over the Philippines as the primary surrogate country and used Thai data to value all of
Plaintiffs’ factors of production. Commerce did so in part because it believed a Thai
company called Capital Engineering Network Public Company Limited (“CEN”) could
serve as an adequate proxy for Plaintiffs’ overhead, SG&A, and profit ratios. Plaintiffs
contend that Commerce’s use of CEN arbitrarily conflicts with Steel Wire Garment
Hangers from the People’s Republic of China, 77 Fed. Reg. 66,952 (Dep’t of Commerce
Court No. 12-00384 Page 4
Nov. 8, 2012) (prelim. results third admin. review) (“Wire Hangers”), a preliminary
determination in a proceeding involving merchandise similar to steel threaded rod that
Commerce issued one day prior to the Final Results contested here. Pl.’s Comments on
Remand Determ. 1-2, ECF No. 43 (“Pls.’ Br.”).
In Wire Hangers, Commerce selected the Philippines over Thailand as the primary
surrogate country because of concerns over the available Thai data, and in particular,
problems it identified with a CEN financial statement. Decision Memorandum for
Preliminary Results of Antidumping Duty Administrative Review of Steel Wire Garment
Hangers from the People’s Republic of China, A-570-918, at 14-16 (Nov. 8, 2012),
available at http://enforcement.trade.gov/frn/summary/prc/2012-27337-1.pdf (last visited
this date) (“Wire Hangers Memorandum”). Specifically, based on that financial statement,
Commerce found that CEN’s principal business is investment, not manufacturing like the
respondent. Id. at 14-15. Commerce also noted that only one of CEN’s four subsidiaries
produced wire, and that the record did not indicate whether that one subsidiary “draws
wire from steel rod, [or] produces any downstream products from wire that can be
considered comparable” to wire hangers. Id. at 15. By contrast, the Philippine financial
statements on the Wire Hangers record suggested that those Philippine companies did
manufacture comparable merchandise. Commerce concluded that the Thai financial
statements were “less appropriate” for calculating the respondent’s financial ratios than
the Philippine financial statements, and in turn selected the Philippines as the primary
surrogate country. Id. at 14-16.
Court No. 12-00384 Page 5
Plaintiffs argue that Wire Hangers is “a highly comparable case” to this
administrative review, and that “it is purely arbitrary and capricious for [Commerce] to now
find in this case that [CEN] is comparable to steel wire processing companies like those
that produce steel threaded rods (as opposed to wire hangers).” Pls.’ Br. at 1, 8. Plaintiffs’
reasoning is straightforward. Given that wire hangers and steel threaded rod can both be
produced from steel wire rod, how could Commerce find that CEN’s wire subsidiary
produces merchandise comparable to steel threaded rod but not merchandise
comparable to wire hangers? How could Commerce also suggest that CEN’s business
is too diverse to be an adequate financial surrogate for a wire hanger manufacturer but
not too diverse to be an adequate financial surrogate for a steel threaded rod
manufacturer? Most importantly, how can CEN be an adequate proxy for any
manufacturer if its principal business is investment? See Pls.’ Br. at 2-12.
The court in Jiaxing I agreed that the Final Results appeared to contradict
Commerce’s contemporaneous position in Wire Hangers as well as Commerce’s own
financial surrogate selection criteria. Jiaxing I, 38 CIT at ___, 961 F. Supp. 2d at 1332.
In the Remand Results, Commerce now offers a detailed explanation of why the record
in this review supports a conclusion it could not draw from the record in Wire Hangers:
While the Department expressed concern in Hangers regarding the
comparability of the financial statements for the same Thai company at
issue in this review (albeit for a different year), in that case we were
considering the manufacturing process for steel wire garment hangers, not
steel threaded rod. Unlike in Hangers, the record in this case reflects that
the Thai company, [CEN], produces prestressed concrete wire.
Specifically, CEN’s financial statements indicate that its business involves
“Manufacturing and distributing prestressed concrete wire, prestressed
concrete strand wire and welding wire.” In the original antidumping duty
investigation of steel threaded rod from the PRC, the Department found that
Court No. 12-00384 Page 6
downstream products of wire rod that are drawn from wire rod are
comparable merchandise to steel threaded rod.
Further, the Department was concerned, in part, in Hangers that the Thai
company produced non-comparable merchandise as well as comparable
merchandise. After review the record in this case, the Department found
that the Philippine companies, like the Thai company, all produce non-
comparable merchandise, as well as comparable merchandise.
Specifically, APO Industries, Inc. produces nails, but also produces piano
hinges; Benedicto Steel Corporation produces prestressed concrete wire
and nails, but also produces tin plate, metal screen, pots and other non-
comparable merchandise; and Sterling Steel Incorporated produces nails,
but also produces other non-comparable hardware goods such as iron
pipes and wire netting.
....
. . . With respect to the concern expressed in Hangers that CEN is a holding
company, the Department examined the record of this case and
acknowledged that CEN’s statements are consolidated statements, and
that the wire subsidiary produces comparable merchandise. However,
while the RMB/IFI Group claims that the Philippine companies primarily
produce comparable merchandise and only produce a few non-comparable
products, and therefore are in no way similar to CEN, the RMB/IFI Group
provided no record evidence (such as information within the companies’
financial statements listing revenue by specific products) to demonstrate the
percentage of comparable versus non-comparable merchandise produced
or sold by these Philippine companies as compared to CEN. Therefore,
record evidence does not demonstrate that the Philippine companies are
more representative of respondents’ production experience than the Thai
company. An examination of the actual financial ratios themselves further
confirms that the financial ratios from the CEN statements are not dissimilar
to the ratios from the Philippine companies as the RMB/IFI Group suggests.
With respect to the concern expressed in Hangers that CEN did not draw
steel wire rod, the Department’s analysis in that case was focused on the
manufacturing process for steel wire garment hangers, not steel threaded
rod. The analysis criteria in Hangers cannot be indiscriminately applied to
this case without consideration to differences in inputs and production
processes. The scope of steel threaded rod covers products not only drawn
from wire rod but also round bar. Unlike Hangers, for the producers of steel
threaded rod, the main inputs consumed in the production process can
either be wire rod or round bar depending on the gauge of steel threaded
rod produced. Moreover, in Hangers, the discussion of consumption of wire
Court No. 12-00384 Page 7
rod is an element of the Department’s analysis of any differences in the level
of integration between the respondents and the potential surrogate
companies. Such analysis is necessarily specific to that record. Hence, the
RMB/IFI Group’s argument solely relying on consumption of wire rod in
determining comparability is not appropriate for steel threaded rod.
More to the point, the case history of steel threaded rod proceedings
addresses this concern. In the original antidumping duty investigation of
steel threaded rod from the PRC, while the Department initially rejected the
financial statements of an Indian company Rajratan Global Wire Ltd.
(“Rajratan”) based on the belief that Rajratan did not produce downstream
products of wire rod, the Court remanded that decision to the Department.
On remand, the Department found that Rajratan did produce comparable
products to steel threaded rod based on the evidence that Rajratan
produced prestressed concrete wire and tyre bead wire. As a result, the
Department included the financial statements of Rajratan in the calculation
of financial ratios, which the Court sustained. In this administrative review
of the same order, CEN’s financial statements indicate its business involves
“Manufacturing and distributing prestressed concrete wire, prestressed
concrete strand wire and welding wire.” Because the Department, with the
Court’s approval, previously determined in an earlier segment of this
proceeding that prestressed concrete wire is comparable merchandise to
steel threaded rod, it is appropriate to use CEN’s financial statements and
Thai data in general in this administrative review.
Remand Results at 6-7, 14-16 (footnotes omitted).
In short, as Commerce explains, the record and circumstances of this
administrative review are not so similar to Wire Hangers as to require the same result.
The CEN data at issue in this review is not the same as the CEN data in Wire Hangers.
Remand Results at 6. The Wire Hangers review focused on a CEN financial statement
from 2011 whereas this record features a CEN annual report from 2010. Defendant-
Intervenor clarifies that the 2010 annual report on this record includes CEN’s 2010
financial statement as well as extra details about the operations of CEN’s subsidiaries.
Def.-Intervenor’s Resp. Br. 3-6 & n.1, ECF No. 44. Commerce also explains that steel
threaded rod and wire hangers do not have identical manufacturing processes or inputs.
Court No. 12-00384 Page 8
As a consequence, although the Wire Hangers record did not support a finding that CEN’s
wire subsidiary produced merchandise comparable to wire hangers, Wire Hangers
Memorandum at 14-15, Commerce here can and does show that CEN’s wire subsidiary
produces prestressed concrete wire, a product that Commerce previously found to be
comparable to steel threaded rod. Remand Results at 6, 15-16. Further, unlike the
Philippine financial data on the record in Wire Hangers, the Philippine financial statements
here carry one of the same critical shortcomings as the CEN data. Each Philippine
company on this record produces non-comparable merchandise to some degree, just like
CEN. Id. at 6-7, 14-15. Commerce reasonably explains why these differences merit a
different surrogate country choice in this review than the choice it made in Wire Hangers.
Although Commerce reasonably explained its different choices here than in Wire
Hangers, Plaintiffs’ other arguments challenging the adequacy of the available Thai
surrogate data do test the reasonableness of selecting Thailand as the primary surrogate
country.2 As Plaintiffs explain, Commerce has a stated preference is to use multiple
financial statements to calculate surrogate financial ratios. Here, the record contains only
one Thai source, the 2010 CEN annual report, as opposed to three usable Philippine
sources. Plaintiffs also show that CEN’s income derives from its ownership of numerous
other companies, not manufacturing, and that only one of CEN’s four subsidiaries
produces comparable merchandise. Pls.’ Br. at 2-7. To this extent, the CEN data on this
2
Among its other objections to the adequacy of CEN as a financial surrogate, Plaintiffs
assert that CEN’s wire-producing subsidiary is operating at a loss. Pls.’ Br. at 7-8. As
Defendant correctly explains, however, this argument is not properly before the court
because Plaintiffs failed to raise it at any point during proceedings at Commerce. See
Mittal Steel Point Lisas Ltd. v. United States, 548 F.3d 1375, 1383-84 (Fed. Cir. 2008).
Court No. 12-00384 Page 9
record does appear to present some of the same problems undercutting CEN’s “suitability
for calculating financial ratios” that Commerce expressed in Wire Hangers. Wire Hangers
Memorandum at 14-16. Moreover, as Plaintiffs argue, financial ratios have in some
instances proved determinative in the selection of a surrogate country. See id. at 10-12
(citing Certain Steel Nails from the People’s Republic of China, 78 Fed. Reg. 16,651(Dep’t of Commerce Mar. 18, 2013) (final results third admin. review)). Plaintiffs also
repeat the same persuasive arguments that led the court in Jiaxing I to observe that the
Philippine hydrochloric acid (“HC1”) data “simultaneously appear to undermine the
reasonableness of relying on Thai import statistics and offer an apparently better means
of valuing Plaintiffs’ [HC1] input.” Jiaxing I, 38 CIT at ___, 961 F. Supp. 2d at 1334.
In remanding the Final Results, the court in Jiaxing I questioned how Commerce
could reasonably select Thailand despite problems with the Thai financial and HC1 data
and despite the apparent superiority of alternative Philippine data on the record. Id. at
___, 961 F. Supp. 2d at 1334-45. In response, Commerce now explains why it believes
other advantages in the Thai surrogate data outweigh these shortcomings:
When multiple different factors regarding data quality are present in
evaluating SVs from various countries, the Department must weigh the
balance of the evidence. Given that steel threaded rod is a type of steel
fastener drawn from steel wire rod or steel round bar, in this case, these
steel inputs are the most important FOPs to consider in the proper valuation
of steel threaded rod. In fact, nearly all of the manufacturing costs were
derived from the main steel inputs, and consist of a large majority of the NV.
In circumstances where the importance of one input dominates all other
inputs, the Department will take into consideration the significant impact that
the primary input has on NV, when considering the overall data quality of
one surrogate country versus another. As noted in the Final Results, Thai
import data for steel wire rod provide for specific grades of steel based on
carbon content that can be matched to the grade of steel wire rod consumed
by the RMB/IFI Group, whereas Philippine import data provide broad
Court No. 12-00384 Page 10
categories that are not as specific to the steel wire rod consumed by the
RMB/IFI Group. Moreover, in this review, the Department can value all
FOPs with the available Thai data set whereas the Philippine data set are
missing packing materials including polyethylene bag, plastic cap, carton,
paper tube and staples. Therefore, it is reasonable for the Department to
find that the totality of facts in this review lead to a different conclusion in
selecting Thailand as the primary surrogate country as compared to the
decision the Department made in Hangers. In this review, the superior
quality of Thai data for the main input, steel wire rod, outweighs any other
strengths contained in the Philippine data (i.e., more financial statements,
or the alleged superiority of the data for HC1, which the Department
disputes).
Based on the discussions above, having examined the quality of financial
statements and the quality of HC1 import data from the Philippines, in view
of the totality of the facts, the Department continues to find that Thailand
offers better surrogate data to value the RMB/IFI Group’s FOPs overall. In
determining the appropriate SVs, the Department strongly favors selecting
all SVs from a single country, pursuant to 19 CFR 351.408(c)(2). The
Department will only introduce data from a secondary surrogate country into
the calculation if there were no primary SV, or if the primary SV was
unreliable based on record evidence. As the Department continues to find
Thailand to be the appropriate primary surrogate country, the Department
finds that Thai financial statements and HC1 import statistics constitute the
best available information because they meet the Department’s criteria in
selecting SVs and are from the primary surrogate country, with no evidence
demonstrating that they are aberrant or otherwise unreliable.
....
As explained above, in Hangers, the Department’s decision in selecting the
Philippines was not based on financial statements alone. While the
Department generally finds that financial ratios are critical and sometimes
decisive in the selection of primary surrogate country, this is not always the
case. As discussed above, the Department considers several criteria and
makes a primary surrogate country determination based on the totality of
circumstances. Here, the Court explicitly asked the Department to consider
whether Thailand’s apparently more specific steel input data outweighs the
apparent comparative strengths of the Philippine HC1 and financial data.
Based on the analysis above, the superior quality of Thai data for the main
input, steel wire rod, outweighs any other strengths contained in the
Philippine data, with the result that the overall accuracy of the calculation is
best enhanced by reliance on a more specific steel surrogate value than on
the financial statements or the Philippine HC1 surrogate value. To do
Court No. 12-00384 Page 11
otherwise as suggested by the RMB/IFI group would ignore the totality of
the evidence in this case and lead to a less accurate result. . . . In re-
weighing the totality of the evidence in this case, the Department once again
arrives at the conclusion that Thailand best serves as the primary surrogate
country.
Remand Results at 11-12, 16-17 (emphasis added, footnotes omitted).
Commerce has a regulatory preference is to “value all factors [of production] in a
single surrogate country,” 19 C.F.R. § 351.408(c)(2) (2014), as well as a policy “to only
resort to a secondary surrogate country if data from the primary surrogate country are
unavailable or unreliable.” Issues and Decision Memorandum for the Final Results of the
Second Administrative Review of Sodium Hexametaphosphate from the People’s
Republic of China, A-570-908, at 4 & n.15 (Sept. 19, 2012), available at
http://enforcement.trade.gov/frn/summary/prc/2012-23832-1.pdf (last visited this date).
The administrative record contained available, but imperfect, surrogate data for all major
inputs sourced from both Thailand and the Philippines, including Thai and Philippine steel
import data. When comparing the carbon content of steel contained in the Thai and
Philippine import data to the carbon content of the steel wire rod input Plaintiffs actually
used, however, Commerce found that the Thai data turned out to be more specific to
Plaintiffs’ steel inputs than the Philippine data. And as Commerce detailed in a business
proprietary memorandum it produced during the remand proceedings and summarized in
the Remand Results, the steel input accounts for almost all of Plaintiffs’ manufacturing
costs and most of Plaintiffs’ normal value. Remand Results at 11 (citing Contribution of
FOPs to the Calculation of Normal Value at 1 (Dep’t of Commerce Mar. 28, 2014)). Due
to the steel input’s outsized impact on Plaintiffs’ normal value, Commerce reasonably
Court No. 12-00384 Page 12
prioritized that input in making its surrogate country selection. The Thai steel data’s
superior quality therefore supports Commerce’s choice of Thailand as the primary
surrogate country and Commerce’s use of Thai data to calculate Plaintiffs’ normal value.
Commerce’s rationale for why it would tolerate relative weaknesses in the Thai
financial and HC1 data makes sense. Neither input influences Plaintiffs’ normal value
nearly as much as the steel input, meaning a reasonable mind could conclude as
Commerce did that “the overall accuracy of the calculation is best enhanced by reliance
on a more specific steel surrogate value than on the financial statements or the Philippine
HC1 surrogate value.” Remand Results at 16; see generally Lifestyle Enter., Inc. v.
United States, 751 F.3d 1371, 1378 (Fed. Cir. 2014) (“Because Commerce reasonably
chose one of two imperfect data sets, the Trade Court erred in substituting its own
judgment for Commerce’s.”). A reasonable mind could likewise conclude that
Commerce’s regulatory preference to value all inputs from a single surrogate country
favors using Thai data to value all of Plaintiffs’ inputs despite some apparent relative
superiority of the Philippine financial and HC1 data.
The court sustains Commerce’s reasonable selection of Thailand as the primary
surrogate country and use of Thai data to calculate Plaintiffs’ normal value. Judgment
will be entered accordingly.
/s/ Leo M. Gordon
Judge Leo M. Gordon
Dated: September 25, 2014
New York, New York