Carpenter Technology Corp. v. United States

Slip Op. 04 - 103
UNITED STATES COURT OF INTERNATIONAL TRADE
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CARPENTER TECHNOLOGY CORPORATION, :
Plaintiff, :
v. :
UNITED STATES, : Court No. 02-00448
Defendant, :
-and-
:
VIRAJ GROUP,
:
Intervenor-Defendant.
:
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Memorandum & Order
[Plaintiff's motion for judgment on
agency record granted; remanded to
International Trade Administration.]
Decided: August 16, 2004
Collier Shannon Scott, PLLC (Robin H. Gilbert) for the
plaintiff.
Peter D. Keisler, Assistant Attorney General; David M. Cohen,
Director, and Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, U.S. Department of Justice
(Elizabeth G. Candler); and Office of Chief Counsel for Import
Administration, U.S. Department of Commerce (Christine J. Sohar),
of counsel, for the defendant.
AQUILINO, Judge: This is another case contesting a
determination of the International Trade Administration, U.S.
Department of Commerce ("ITA") to group (or not to group) together
Indian enterprises for purposes of enforcement of its Antidumping
Duty Order: Certain Stainless Steel Wire Rods from India, 58 Fed.
Court No. 02-00448 Page 2
Reg. 63,335 (Dec. 1, 1993). In Stainless Steel Wire Rod From In-
dia; Final Results of Antidumping Duty Administrative Review, 65
Fed.Reg. 31,302 (May 17, 2000), for example, the ITA determined not
to group together (or "collapse") Viraj Alloys, Ltd. ("VAL") and
Viraj Impoexpo, Ltd. ("VIL") for the period of review ("POR"),
December 1, 1997 to November 30, 1998. That determination was
affirmed on appeal sub nom. Viraj Group, Ltd. v. United States, 25
CIT 1017, 1031, 162 F.Supp.2d 656, 670 (2001)[hereinafter referred
to as "Viraj I"]:
. . . Commerce determined that VAL produces steel billets
and that VIL manufactures both stainless steel bright bar
and stainless steel wire rod. . . . Commerce concluded
that the production facilities necessary to manufacture
these diverse products were sufficiently different as to
require substantial retooling of either facility in order
to restructure manufacturing priorities. . . . Because
Viraj failed to meet the first collapsing requirement of
19 C.F.R. § 351.401(f)(1), Commerce stated the issue of
price manipulation was moot. . . . As Plaintiff was
unable to comply with the requirements for collapsing set
forth in . . . § 351.401(f), this Court . . . finds that
Commerce properly chose not to collapse VAL and VIL for
purposes of calculating the value of steel billet.
Citations omitted.
I
The next such period of administrative review was
December 1, 1999 through November 30, 2000 and resulted in the
ITA's Stainless Steel Wire Rod From India; Final Results of Anti-
dumping Duty Administrative Review, 67 Fed.Reg. 37,391 (May 29,
2002), which is at issue in this action based upon the following
analysis:
Court No. 02-00448 Page 3
Collapsing
The Viraj Group is composed of . . . four companies:
Viraj Forgings, Ltd. ("VFL"); . . . VAL[]; . . . VIL[];
and Viraj USA, Inc. . . . , which was incorporated during
the POR on May 22, 2000. The Department has
preliminarily determined that these four companies are
affiliated for the purposes of this administrative
review, and that the three producing companies, VAL, VIL,
and VFL, should be collapsed and considered one entity
pursuant to section 771(33) of the Act and section
351.401(f) of the Department's regulations. See [ITA]
. . . Collapsing Memorandum of the Viraj Group, Limited,
dated December 31, 2001.
The Department has found the four companies
affiliated based on the evidence on the record . . .
that Mr. Chhatwal and Mr. Kochhar are the directors for
all four companies, and they jointly run all four
companies, and their decisions are made for the interest
of the group as a whole. Furthermore, the stock of VAL,
VFL and VIL is mainly held by Mr. Chhatwal, Mr. Kochhar,
and their relatives. Collectively, this group holds more
than 40% of the shares in VIL, VAL, and VFL. Also, VFL
owns 100% of Viraj USA.
We find that the three producing companies (VAL,
VIL, and VFL) should be collapsed because the evidence on
the record indicates that VAL, VFL and VIL each use
production facilities for similar or identical
merchandise that would not require substantial retooling
of any facility in order to restructure manufacturing
priorities. For sales to the home market, VAL makes
billets and then sends them to an unaffiliated
subcontractor for rolling into wire rod. The sub-
contractor returns the black wire rod to VAL who sells it
in the home market as subject merchandise. For sales to
the U.S. market, VIL and VFL purchase the billets from
VAL and send them to the same sub-contractor that VAL
uses for rolling into wire rod. The subcontractor re-
turns the black wire rod which is then annealed at VFL's
facilities, pickled at VIL's facilities, packed and then
exported. Consequently, VAL, VFL and VIL are all con-
sidered "producers" of this wire rod for purposes of this
review. Given that VAL, VIL and VFL all produced wire
rod during the POR, no substantial retooling would be
needed to restructure priorities among the three
companies. Moreover, the companies are under common con-
Court No. 02-00448 Page 4
trol and ownership, they use the same production facili-
ties for producing wire rod, and the operations of the
companies are intertwined. Therefore, the companies are
capable, through their sales and production operations,
of manipulating prices or affecting production deci-
sions.1
Section 771(33) of the Trade Agreements Act of 1979, as amended,
referred to above, 19 U.S.C. §1677(33), defines "affiliated" or
"affiliated persons", among others, to be:
(B) Any officer or director of an organization and
such organization.
(C) Partners.
(D) Employer and employee.
(E) Any person directly or indirectly owning,
controlling, or holding with power to vote, 5 percent or
more of the outstanding voting stock or shares of any
organization and such organization.
(F) Two or more persons directly or indirectly
controlling, controlled by, or under common control with,
any person.
(G) Any person who controls any other person and
such other person.
For purposes of this paragraph, a person shall be
considered to control another person if the person is
legally or operationally in a position to exercise
restraint or direction over the other person.
The ITA regulation cited, 19 C.F.R. §351.401(f) (2002), provides:
1
Stainless Steel Wire Rod From India; Preliminary Results of
Antidumping Duty Administrative Review, 67 Fed.Reg. 865, 866-67
(Jan. 8, 2002). The ITA's subsequent Final Results, which the
plaintiff contests herein, adopted this analysis, as well as that
set forth in the agency's Issues and Decision Memorandum ("Dec-
Memo") dated May 21, 2002, a copy of which is at tab 4 in
Plaintiff's Appendix. See 67 Fed.Reg. at 37,392.
Court No. 02-00448 Page 5
Treatment of affiliated producers in antidumping
proceedings--
(1) In general. In an antidumping proceeding under
this part, the Secretary will treat two or more
affiliated producers as a single entity where those
producers have production facilities for similar or
identical products that would not require substantial
retooling of either facility in order to restructure
manufacturing priorities and the Secretary concludes that
there is a significant potential for the manipulation of
price or production.
(2) Significant potential for manipulation. In
identifying a significant potential for the manipulation
of price or production, the factors the Secretary may
consider include:
(i) The level of common ownership;
(ii) The extent to which managerial
employees or board members of one firm sit on
the board of directors of an affiliated firm;
and
(iii) Whether operations are intertwined,
such as through the sharing of sales
information, involvement in production and
pricing decisions, the sharing of facilities
or employees, or significant transactions
between the affiliated producers.
A
Following publication of the above-quoted analysis in the
agency's Preliminary Results, the domestic petitioners, including
Carpenter Technology Corporation, objected to the collapsing of VAL
into VFL and VIL. Among other things, they asserted that, "without
the use of independent unaffiliated sub-contractors, VAL, VFL and
VIL are unable to produce subject merchandise." DecMemo, pp. 2-3.
The agency responded, in part, as follows:
Court No. 02-00448 Page 6
Petitioners['] argument that the Department mis-
interpreted the meaning of section 351.401(f)(1) . . . is
incorrect. Petitioners state that the focus of [that]
section . . . is on production facilities and not product
lines. This distinction is not relevant in this case, as
all three Indian companies use the production facilities
of the same unrelated company to manufacture wire rod
through a sub-contracting arrangement. It is irrelevant
that only VAL has steel making capabilities. VIL and VFL
do not need steel making capabilities in order to produce
subject merchandise, as all three companies are currently
producing wire rod, through the sub-contracting process.
Thus, it is unnecessary for any substantial re-tooling to
take place for this process to continue.
Id. at 4.
This response precipitated the filing of Carpenter's com-
plaint herein and its motion for judgment upon the agency record
pursuant to USCIT Rule 56.2, which is governed by the standard of
judicial review that the ITA's determination not be "unsupported by
substantial evidence on the record, or otherwise not in accordance
with law". 19 U.S.C. §1516a(b)(1)(B)(i).
The court's jurisdiction is based upon 28 U.S.C. §§
1581(c), 2631(c).
B
The court in Viraj I, supra, pointed out that "Commerce
may collapse companies only when the regulatory requirements are
satisfied". 25 CIT at 1030, 162 F.Supp.2d at 669. Here, the
plaintiff parses 19 C.F.R. §351.401(f)(1), supra, into three con-
tingent conditions, namely:
(1) each of the producers has production facilities
for similar or identical products;
Court No. 02-00448 Page 7
(2) those production facilities would not have to
be substantially retooled for any of the companies to
restructure manufacturing priorities; and
(3) if the above conditions exist, the Secretary
must also find that there is a significant potential for
the manipulation of price or production between the
companies.
Plaintiff's Reply Brief, p. 2. The defendant does not disagree.
See Defendant's Memorandum, p. 10. It considers the third to be
the "central question" of the regulation, but counsel seemingly
overlook the standard the ITA has set -- significant, not just some
or any, potential manipulation of price or production viz.:
. . . The fact that the affiliated companies use tollers
does not preclude the possibility of price manipulation
-- the central question of the collapsing regulation.2
And:
. . . Commerce properly collapsed the Viraj Group's
affiliated companies because it determined that "[e]ach
is able to produce subject merchandise without changing
production facilities or product lines." . . . Based
upon this determination, price manipulation is possible.
Id. at 14 (citations omitted). The fact that the Viraj firms are
"capable, through their sales and production operations, of manipu-
lating prices or affecting production decisions"3 applies with
equal logic, of course, to any and all business enterprises.
2
Defendant's Memorandum, p. 12. This seemingly-quaint term,
toller, is found in subsection (h) of 19 C.F.R. §351.401:
Treatment of subcontractors ("tolling" operations).
The Secretary will not consider a toller or subcontractor
to be a manufacturer or producer where the toller or
subcontractor does not acquire ownership, and does not
control the relevant sale, of the subject merchandise or
foreign like product.
3
67 Fed.Reg. at 867.
Court No. 02-00448 Page 8
The ITA's Preliminary Results, quoted hereinabove, cite
its Collapsing Memorandum dated December 31, 2001, wherein agency
staff find (at page 5) that VIL, VFL and VAL
have a significant potential, through their sales and
production operations, of manipulating prices or affect-
ing production decisions, given that the companies are
intertwined and share directors, facilities and informa-
tion.
In re Stainless Steel Bar from India, 67 Fed.Reg. 45,956 (July 11,
2002), amended, 67 Fed.Reg. 53,336 (Aug. 15, 2002), however, the
nature and affiliation of these same three Viraj firms
highlight[] the degree of confusion pertaining to the
interpretation of the collapsing regulation, and the
incongruity manifested in applying the regulation to the
facts at hand.
Slater Steels Corp. v. United States, 28 CIT , , 316 F.Supp.
2d 1368, 1372 (2004). Indeed, in this case before the court, the
Collapsing Memorandum presents a seeming mix-up of the factors of
19 C.F.R. §351.401(f)(1) with those set forth in subsection (f)(2).
And this kind of "totality-of-the-circumstances" approach has
caused the court in Slater Steels to order and to re-order the ITA
to explain why it did not analyze the "prongs" of subsection (f)(1)
separately from the issue of manipulation per (f)(2). See 28 CIT
at , 316 F.Supp.2d at 1372-74. Cf. Slater Steels Corp. v.
United States, 27 CIT , 279 F.Supp.2d 1370 (2003).
(1)
The court in Viraj I deemed potential manipulation a
"moot"4 matter in the light of the agency conclusion that the VAL
4
25 CIT at 1031, 162 F.Supp.2d at 670.
Court No. 02-00448 Page 9
and VIL production facilities were sufficiently different as to
require substantial retooling of either facility in order to re-
structure manufacturing priorities. Apparently, that difference
remains the case now.
The record reflects that in Viraj I VAL produced stain-
less steel billets that were transferred to a subcontractor for
rolling into wire rod and then sold to VIL for processing into the
subject merchandise. During the instant POR, VAL continued to
produce billets and then send them to a subcontractor for rolling
into such merchandise -- for sale in the home market. On its part,
VIL received billets from VAL which it sent to that same subcon-
tractor for rolling.
As for VFL, it did not produce or export subject mer-
chandise during the Viraj I POR, but this time, like VIL, it pur-
chased VAL billets that it also transferred to the subcontractor of
choice for processing5. Both VIL and VFL exported the rolled wire
rod to the United States via Viraj USA, Inc.
The ITA's Collapsing Memorandum explains that the fore-
going reveals but two changes from the previous review in Viraj I,
namely, VAL did not produce subject merchandise, and VFL neither
produced nor exported at that time. If this is all that actually
5
As recited above, VIL pickled both its wire rod and,
pursuant to contract, that of VFL, while the latter annealed both
its product and, pursuant to contract, that of VIL.
Court No. 02-00448 Page 10
changed, the court cannot conclude that Viraj I should not be fol-
lowed herein. In the absence of evidence to the contrary, the
court assumes the subcontracts for rolling to have been arm's-
length and lawfully-binding that made any price or production
manipulation by and between VAL and VIL and/or VFL during the
period of review less likely than if those three affiliated
enterprises were involved in the manufacture and sale of the
subject merchandise exclusively with their own facilities. Cf. 19
C.F.R. 351.401(h), supra n. 2.
II
In the absence of any agency showing herein that dispels
this logic based upon substantial evidence on the record, plain-
tiff's motion for judgment thereon must be granted to the extent of
remand to the ITA for calculation and imposition of individual
antidumping-duty margins upon Viraj Impoexpo, Ltd. and Viraj
Forgings, Ltd. in the manner of the approach taken by the agency,
and affirmed by the court, in Viraj Group, Ltd. v. United States,
25 CIT 1017, 162 F.Supp.2d 656 (2001).
The defendant shall have until October 18, 2004 to carry
out this remand, whereupon the plaintiff may have until November 1,
2004 to serve and file any comments on the results thereof.
So ordered.
Decided: New York, New York
August 16, 2004
Thomas J. Aquilino, Jr.
Judge