Huvis Corp. v. United States

Slip Op. 08-83
UNITED STATES COURT OF INTERNATIONAL TRADE
HUVIS CORPORATION,
Plaintiff, NONCONFIDENTIAL VERSION
v.
BEFORE : GREGORY W. CARMAN , JUDGE
UNITED STATES,
Court No. 06-00380
Defendant,
and
DAK FIBERS, LLC and WELLMAN, INC.,
Defendant-Intervenors.
[Commerce’s Remand Results sustained; Plaintiff’s Motion for Oral Argument denied.]
McDermott Will & Emery LLC (Raymond P. Paretzky and Michael P. House) for
Plaintiff.
Gregory G. Katsas, Assistant Attorney General; Jeanne E. Davidson, Director, Commercial
Litigation Branch, Civil Division, United States Department of Justice (Stephen C. Tosini)
for Defendant.
Mark B. Lehnardt, of Counsel, Office of the Chief Counsel for Import Administration,
United States Department of Commerce, for Defendant.
Kelley Drye Collier Shannon (David C. Smith, Jr. and Paul C. Rosenthal) for Defendant-
Intervenors.
Court No. 06-00380 Page 2
August 5, 2008
OPINION
CARMAN , JUDGE: This case returns to the Court following a remand to the United States
Department of Commerce pursuant to the Court’s order in Huvis Corp. v. United
States, 31 CIT __, 525 F. Supp. 2d 1370 (2007). In that order, the Court remanded the
final results of the fifth administrative review of the antidumping order on polyester
staple fiber (“PSF”) from Korea, covering the 2004-2005 period of review, in which
Commerce applied facts available to fill in missing market price data for certain inputs
purchased by Huvis. See Certain Polyester Staple Fiber from Korea, 71 Fed. Reg. 58,581(Dep’t Commerce Oct. 4, 2006) and the accompanying Issues and Decision
Memorandum (Sept. 28, 2006) (collectively, “Final Results”). The Court held that,
although Commerce’s decision to use facts available was permissible under the
applicable statute—called the “Major Input Rule”—and the facts selected were
supported by substantial evidence on the record, Commerce did not adequately explain
why it used facts available to fill in the missing market price data, when it had not done
so in prior administrative reviews. On remand, Commerce gave a reasoned explanation
for the change in treatment, and the Court therefore sustains the remand results.
Court No. 06-00380 Page 3
BACKGROUND
This case involves Commerce’s application of the Major Input Rule. The Major
Input Rule provides that when a respondent purchases a major input from an affiliated
supplier, as Huvis did here, Commerce will compare the price paid by the respondent
to the affiliated supplier (called the “transfer price”) to (a) the price at which the
supplier sells the input to unaffiliated buyers (“market price”), and (b) the supplier’s
cost of producing the input. See 19 U.S.C. § 1677b(f)(2) and (3) (2000). The Major Input
Rule is used to evaluate whether the sale of a major input between affiliated parties is
made at arm’s-length, and Commerce has interpreted the statute to allow the agency to
select as the value of a major input the highest of transfer price, market price, or cost of
production. 19 C.F.R. § 351.407(b) (2005); see also NTN Bearing Corp. of Am. v. United
States, 368 F.3d 1369, 1376 (Fed. Cir. 2004) (affirming that Commerce’s interpretation is
reasonable).
In the administrative review underlying this case, market price data were not on
the record for two of the major inputs purchased by Huvis and used to manufacture
PSF during the period of review: qualified-grade terepthalic acid (QTA), and purified
terepthalic acid (PTA).1 Commerce therefore used the facts otherwise available on the
1
Huvis explained to Commerce why it was unable to supply market price data:
Huvis’s affiliated supplier was not willing to provide Huvis with market price
information because it considered the data proprietary, and Huvis could not force the
(continued...)
Court No. 06-00380 Page 4
record to fill in a market price for those two major inputs. To do that, Commerce added
together for each major input the cost of production for that input and an amount for
profit. The affiliated supplier’s cost of production data were submitted by Huvis, and
the amount for profit was derived from the affiliated supplier’s submitted financial
statements. Because the facts available market price for QTA and PTA was higher than
each major input’s transfer price, Commerce upwardly adjusted the value of each input
to reflect the calculated market price.
Huvis filed suit challenging Commerce’s decision to use facts available to fill in
the missing market prices for QTA and PTA, arguing that Commerce’s decision to use
facts available was inconsistent with the agency’s treatment of Huvis in prior
administrative reviews. Huvis contended that market price data were not on the record
in prior administrative reviews, and that, in those prior administrative reviews,
Commerce, rather than applying facts available to fill in missing market prices, applied
the Major Input Rule by comparing only transfer price and cost of production.
The Court agreed that Commerce treated Huvis differently than it had in prior
administrative reviews, and concluded that because Commerce did not adequately
explain why it had changed course here, the results of the administrative review were
not in accordance with law. The Court therefore remanded the Final Results so that
1
(...continued)
supplier to provide the data because Huvis did not exercise control over the supplier.
Court No. 06-00380 Page 5
Commerce could explain the reasons for its change in treatment of Huvis. On remand,
Commerce was forthcoming about the reason for the change in methodology.
Commerce stated that during the fifth administrative review, the agency
recognized, for the first time, that there was evidence on the record that
could be used to construct a market price for QTA. Specifically,
Commerce determined that it could construct a market price for QTA by
addition an amount for profit, derived from the financial statements of
Huvis’s affiliated supplier, to the supplier’s reported cost of producing
QTA. Commerce determined that using this methodology would provide
a more complete analysis under the major input rule, and result in a more
accurate calculation of Huvis’s dumping margin. . . . [In addition,]
Commerce determined that the new methodology could and, for
consistency, should be used to calculate a market price for PTA as well.
(Redetermination Pursuant to the Court Remand (“Remand Results”) 8.)
DISCUSSION
The primary issue on remand is whether Commerce adequately explained its
decision to use facts available in applying the Major Input Rule to Huvis, when the
agency had not done so in prior administrative reviews. However, first, the Court will
address Huvis’s secondary argument that Commerce’s use of facts available to fill in the
missing market price is “demonstrably and significantly less accurate” than
Commerce’s prior methodology, which was to compare only transfer price and cost of
production to test the arm’s-length nature of Huvis’s purchases of QTA and PTA.
(Comments of Pl. Huvis Corp. on Def.’s Redetermination Pursuant to Court Remand
Court No. 06-00380 Page 6
13.) As proof that the new methodology is less accurate, Huvis states that “the record
establishes (1) that QTA is the least pure—and thus least expensive and [least]
valuable—of the three types, or grades of TPA [terepthalic acid], (2) that PTA is the
purest and thus most expensive and valuable, and (3) that MTA . . . is in the middle.”
(Id. at 14.) However, Huvis continues, “Commerce’s methodology resulted in a
fictitious ‘market price’ for QTA that is substantially higher than the amount Huvis
actually paid for any TPA input, even PTA, a grade verified as the highest quality and
most valuable of all TPAs.” (Id. at 16.)
In response, Commerce states that it believes “the calculation methodology used
for the derived market prices for QTA and PTA [to be] outside the scope of this remand
as the Court affirmed Commerce’s methodology [in the first opinion].” (Remand
Results 15.) Commerce is correct that—after considering an argument similar to the one
made by Huvis here—the Court held in the first opinion that Commerce’s use of facts
available to fill in the missing market price data was supported by substantial evidence.2
2
Huvis argued that the facts available market prices calculated by Commerce
were “highly adverse.” (Br. of Pl. Huvis Corp. in Supp. of Pl.’s Mot. for J. upon the
Agency R. 33.) Huvis stated that, although “the record establishes that QTA . . . is the
least expensive of the three types, or grades, of TPA ,” the calculated market price of
QTA “was substantially higher than the verified market price for MTA, a purer, more
valuable grade.” (Id. at 33, 35.) Huvis’s challenge rests on the assumption that the
lower level of impurities present in MTA as compared to QTA necessarily result in
MTA having a higher market price than QTA.
In response, the Government stated that “Huvis identifie[d] no record evidence
(continued...)
Court No. 06-00380 Page 7
See Huvis I, 31 CIT at __, 525 F. Supp. 2d at 1376-77. As a result, the accuracy of
Commerce’s methodology was not remanded to Commerce, and is not properly before
the Court now.
I. Commerce’s Explanation is Sufficient.
With that issue disposed of, the Court turns to Commerce’s explanation for its
change in treatment of Huvis. As in prior administrative reviews, Huvis submitted
transfer price and cost of production data, but not market price data, for its major inputs
QTA and PTA. In prior administrative reviews, Commerce had tested the arm’s-length
2
(...continued)
supporting the notion that MTA’s lower level of impurities means that it must have a
higher market price than QTA.” (Defendant’s Resp. to Pl.’s Mot. for J. upon the Admin.
R., Confid. Version, 16.) The Government claimed that record evidence actually
undermined Huvis’s argument.
Specifically, Huvis reported the {
} This {
} Because {
}
(Id.) The Government offered a few characteristics of the inputs, other than impurity
levels, that affect price: {
} (Id.)
Given the evidence cited by the Government, the Court was not persuaded by
Huvis’s claim that the facts available market prices for QTA and PTA were not
supported by substantial evidence on the record. In affirming Commerce’s authority to
use the facts available market prices, the Court highlighted that the data used to
calculate the market prices were contemporaneous to the period of review, and that the
methodology of adding together the cost of production and a profit margin is analogous
to that used to construct the value of merchandise pursuant to 19 U.S.C. § 1677b(e)
(2000). See Huvis I, 31 CIT at __, 525 F. Supp. 2d at 1376.
Court No. 06-00380 Page 8
nature of the sales from the affiliated supplier to Huvis by comparing the transfer price
to the supplier’s cost of production. During this administrative review, however,
Commerce calculated a proxy market price for each major input using the facts
otherwise available on the record. Commerce then compared the transfer price to both
the cost of production and the calculated market price, and, finding the calculated
market price higher than the other two values, upwardly adjusted the values of both
inputs to reflect the higher market price.
To explain the change in treatment, Commerce said that it “recognized, for the
first time, that there was evidence on the record that could be used to construct a
market price for QTA [and PTA]. Specifically, Commerce determined that it could
construct a market price for QTA [and PTA] by adding an amount for profit, derived
from the financial statements of Huvis’s affiliated supplier, to the supplier’s reported
cost of produc[tion].” (Remand Results 8.) Commerce stated that it “determined that
using this methodology would provide a more complete analysis under the major input
rule, and result in a more accurate calculation of Huvis’s dumping margin.” (Id.)
Commerce’s explanation did not satisfy Huvis, who contends that there are no
new circumstances in the fifth administrative review to justify treating Huvis
differently: the same market price data absent from the record in the fifth administrative
review were also missing in prior administrative reviews, and Commerce did not use
Court No. 06-00380 Page 9
facts available to fill in the values. Huvis essentially argues that because the facts did
not change, neither can Commerce’s methodology.
Huvis’s argument, however, ignores the well-settled principal that an agency like
Commerce is generally free to change its methodology to improve accuracy. SKF USA
Inc. v. United States, 31 CIT __, __, 491 F. Supp. 2d 1354, 1362 (2007) (“[I]t is within
Commerce’s expertise and discretion to update its methodology for both increased
accuracy and ease of use.”); Anshan Iron & Steel Co., Ltd. v. United States, 28 CIT 1728,
1735, 358 F. Supp. 2d 1236, 1242 (2004) (“Commerce is generally at liberty to discard one
methodology in favor of another where necessary to calculate a more accurate dumping
margin . . . .”) (citations omitted); Fujian Mach. & Equip. Imp. & Exp. Corp. v. United
States, 25 CIT 1150, 1170, 178 F. Supp. 2d 1305, 1327 (“As a rule, Commerce is free to
discard one methodology in favor of another, the better to calculate more accurate
dumping margins.”) (citation omitted); cf., Thai Pineapple Canning Indus. Corp. v.
United States, 273 F.3d 1077, 1085 (Fed. Cir. 2001) (“[W]hile various methodologies are
permitted by statute, it is possible for the application of a particular methodology to be
unreasonable in a given case where a more accurate methodology is available and has
been used in similar cases.”).
Huvis naturally disagrees with Commerce’s assertion that the new methodology
improves accuracy, but—in the face of the evidence cited by Commerce, see footnote 2,
Court No. 06-00380 Page 10
supra—its protestations will not carry the day. Commerce’s regulations instruct that
when applying the Major Input Rule, Commerce will compare all three values of
transfer price, cost of production, and market price. 19 C.F.R. § 351.407(b). Commerce
also made clear in the initial antidumping duty investigation on PSF from Korea that it
would use its facts available authority to fill in missing values, so long as there was
reasonable, non-adverse data on the record to do so. Issues & Decision Mem. for the
Final Det. in the Antidumping Duty Investigation of Certain PSF from the Republic of
Korea (Dep’t Commerce Mar. 22, 2000), Comment 6, available at
http://ia.ita.doc.gov/frn/summary/korea-south/00-7926-1.txt (last visited Aug. 4, 2008).
It appears from Commerce’s explanation in the Remand Results that the agency did not
realize that there was such information on the record until this administrative review.
But now that Commerce has realized that it is possible to calculate a proxy market price
using the facts available on the record, the Court will not force Commerce to ignore that
capability and use a less-preferable methodology. Accordingly, the Court holds that
Commerce has adequately justified its decision to apply facts available to Huvis.
The situation might be different if Huvis could establish that it had detrimentally
relied on Commerce’s prior practice of using transfer price and cost of production data
alone. This is because “Commerce may not make minor disruptive changes in
methodology where a respondent demonstrates its specific reliance on the old
Court No. 06-00380 Page 11
methodology used in multiple preceding reviews.” Fujian Mach. & Equip., 25 CIT at
1169, 178 F. Supp. 2d at 1327. For example, in Shikoku Chems. Corp. v. United States,
16 CIT 382, 795 F. Supp. 417 (1992), the court remanded Commerce’s decision to use a
new methodology that arguably slightly increased accuracy where Commerce had
applied the previous methodology in multiple prior proceedings, and where the
respondent had altered its business model in reliance on the previous methodology.
Shikoku, 16 CIT at 386-89, 795 F. Supp. at 420-22. However, for the Shikoku rule to
apply, the party claiming the benefit of it must show detrimental reliance on the
previous methodology. NSK Ltd. v. United States, 21 CIT 617, 639, 969 F. Supp. 34, 56
(1997). Huvis’s downfall is that it cannot show such detrimental reliance. The reason
that Huvis did not report market price data to Commerce was that Huvis was
powerless to force its affiliated supplier to provide such data, or at least Huvis
represented as much to Commerce. Therefore, the absence of market price data from
the record was not the result of Huvis’s reliance on Commerce’s prior practice; rather, it
was due to its affiliated supplier’s intransigence. As a result, Huvis cannot rely on the
Shikoku rule to prevent Commerce from changing course.
Court No. 06-00380 Page 12
CONCLUSION
In the Remand Results, Commerce adequately explained its decision to change
course and use its facts available authority to fill in the record with market price data.
As a result, the Court sustains the Remand Results as being supported by substantial
evidence and otherwise in accordance with law. In addition, the Court denies Huvis’s
motion for oral argument. The Court will issue judgment separately.
__/s/_Gregory_W._Carman__
Gregory W. Carman
Dated: August 5, 2008
New York, New York