CP Kelco US, Inc. v. United States

Slip Op. 18-
UNITED STATES COURT OF INTERNATIONAL TRADE
CP KELCO US, INC.,
Plaintiff,
Before: Richard W. Goldberg, Senior Judge
v. Consol. Court No. 13-00288
UNITED STATES,
Defendant,
and
NEIMENGGU FUFENG
BIOTECHNOLOGIES CO., LTD. and
SHANDONG FUFENG FERMENTATION,
CO., LTD.,
Defendant-Intervenors.
OPINION
[Remanding the Department of Commerce’s remand redetermination.]
Dated: $SULO
Matthew L. Kanna, Arent Fox LLP, of Washington, D.C., for plaintiff.
Alexander O. Canizares, Trial Attorney, Commercial Litigation Branch, Civil Division,
U.S. Department of Justice, of Washington, D.C., for defendant. With him on the brief were
Chad A. Readler, Principal Deputy Assistant Attorney General, Jeanne E. Davidson, Director,
and Patricia M. McCarthy, Assistant Director. Of counsel on the brief was Brandon J. Custard,
Office of the Chief Counsel for Trade Enforcement and Compliance, U.S. Department of
Commerce, of Washington, D.C.
Andrew T. Schutz, Ned H. Marshak, Dharmendra Choudhary, and Brandon Petelin,
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, of Washington, D.C., for defendant-
intervenors.
Goldberg, Senior Judge: This matter returns to the court following a third remand of the
final determination of the U.S. Department of Commerce (“Commerce” or “the Department”) in
its antidumping investigation of xanthan gum from the People’s Republic of China. Xanthan
Consol. Court No. 13-00288 Page 2
Gum from the People’s Republic of China, 78 Fed. Reg. 33,351 (Dep’t Commerce June 4, 2013)
(final determ.) (“Final Determination”) and accompanying Issues & Decision Mem. (“I&D
Mem.”); Xanthan Gum from the People’s Republic of China, 78 Fed. Reg. 43,143 (Dep’t
Commerce July 19, 2013) (am. final determ.). The three prior opinions of this court more
thoroughly set forth the facts underlying this appeal. CP Kelco US, Inc. v. United States, Slip
Op. 15-27, 2015 WL 1544714 (CIT Mar. 31, 2015) (“CP Kelco I”); CP Kelco US, Inc. v. United
States, Slip Op. 16-36, 2016 WL 1403657 (CIT Apr. 8, 2016) (“CP Kelco II”); CP Kelco US,
Inc. v. United States, 41 CIT __, 211 F. Supp. 3d 1338 (2017) (“CP Kelco III”). The court
presumes familiarity with those opinions and repeats only the facts critical to the disposition of
this case. For reasons discussed below, the court again remands to Commerce.
BACKGROUND
In its Final Determination, Commerce concluded that the Thai Ajinomoto financial
statements constituted a better source for calculating surrogate financial ratios than the Thai
Fermentation financial statements. I&D Mem. cmt. 2. Commerce first disregarded the Thai
Fermentation statements on the basis that the record did not contain a full English translation,
without making a finding that the untranslated portions were “vital” to Commerce’s calculations.
Id. Commerce then selected the only remaining statements, those of Thai Ajinomoto, despite the
fact that the Thai Ajinomoto statements “show evidence of the receipt of countervailable
subsidies.” Id. Defendant-Intervenors Neimenggu Fufeng Biotechnologies, Co., Ltd. and
Shandong Fufeng Fermentation Co., Ltd. (collectively, “Fufeng”) challenged this determination,
arguing that Commerce failed to properly justify its disregard of the Thai Fermentation
statements. Def.-Intervenor Rule 56.2 Mot. for J. on the Agency R. 13–22, ECF No. 28 (Mar. 7,
Consol. Court No. 13-00288 Page 3
2014). The court agreed, remanding for Commerce to provide a more robust explanation for its
choice of financial statements. CP Kelco I, 2015 WL 1544714, at *7.
Commerce then submitted its Final Results of Redetermination Pursuant to Court
Remand, ECF No. 83 (July 28, 2015) (“First Remand Results”). Commerce again chose the
Thai Ajinomoto statements over the Thai Fermentation statements, justifying its selection by
explaining the issues presented by the incompleteness of financial statements generally. Id. at
10–12. However, the court again remanded the issue, finding that Commerce still gave short
shrift to the issues presented by the countervailable subsidies reflected in the Thai Ajinomoto
statements. CP Kelco II, 2016 WL 1403657, at *5.
The court presented Commerce with three paths it could take in order to render a
potentially reasoned and supported decision. Commerce could “compare the Thai Ajinomoto
and Thai Fermentation financial statements side by side in an evenhanded manner, evaluating the
relative strengths and weaknesses of each.” Id.. As an alternative, in accordance with past
practice, Commerce could “find that the Thai Fermentation statements are missing ‘vital
information,’” should the record support such a finding. Id. at *5 n.5. Finally, the court stated
that “[a]nother prospective alternative would be for Commerce to put its resources towards
explaining a change in its practice, from rejecting statements when they are missing vital
information (and, outside of this practice, occasionally one-off rejecting statements that are
incomplete) to invariably rejecting any incomplete statements.” Id.
Commerce, as it did in its Final Determination and in its First Remand Results, again
found that the Thai Ajinomoto statements are the better surrogate financial ratio source. Final
Results of Redetermination Pursuant to Ct. Order 8, ECF No. 109 (Aug. 22, 2016) (“Second
Remand Results”). Commerce based its determination on what it described as a new practice of
Consol. Court No. 13-00288 Page 4
“rejecting from use financial statements that are incomplete . . . unless there are no other
financial statements left on the record.” Id. at 7.
The court again remanded, explaining that “the practice Commerce advance[d] [was] not
reasonable and that it result[ed] in an unsupported determination.” CP Kelco III, 41 CIT at __,
211 F. Supp. 3d at 1340. The court gave Commerce the option of doing a faithful comparison of
the two statements or of making a “fact-sensitive finding” that the untranslated information in the
Thai Fermentation statements was “vital,” such that Commerce could not discern the reliability
of those statements. Id., 41 CIT at __, 211 F. Supp. 3d at 1345.
Commerce opted for the second alternative, explaining that “Thai Fermentation’s
financial statements are missing complete translations for two paragraphs of the property plant
and equipment (i.e., fixed asset) footnote” which are central to calculating depreciation expense.
Final Results of Third Redetermination Pursuant to Ct. Order 7, ECF No. 157 (Sept. 18, 2017)
(“Third Remand Results”). Commerce further explained that:
in the instant proceeding, depreciation expense comprises . . . a majority of the
overhead costs for Thai Fermentation. [And] by virtue of comprising all or most
of a company’s overhead costs, depreciation expense is an integral component of
the denominator of the selling, general and administrative (SG&A) expense and
profit ratios. Thus, depreciation can significantly impact the surrogate financial
ratios . . . .
Third Remand Results at 8 (footnotes omitted). Commerce further provided that “the narrative
portions of a company’s footnotes can provide vital information regarding asset impairments,
changes in useful lives of fixed assets, revaluations of fixed assets and the capitalization of
production costs, among other things that are not shown on the numeric fixed asset schedule.”
Id. at 10. To illustrate the kind of “vital” information that could be lurking within the two
untranslated paragraphs of a footnote in the Thai Fermentation financial statements, Commerce
cited to prior proceedings in which the Department adjusted reported depreciation figures. Id. at
Consol. Court No. 13-00288 Page 5
9 (citing Certain Steel Concrete Reinforcing Bars from Turkey, 71 Fed. Reg. 65,082 (Dep’t
Commerce Nov. 7, 2006) and accompanying Issues & Decision Mem. cmt. 4; Certain Preserved
Mushrooms from India, 66 Fed. Reg. 42,507 (Dep’t Commerce Aug. 13, 2001) (final results) and
accompanying Issues & Decision Mem. cmt. 7; Certain Cut-To-Length Carbon-Quality Steel
Plate Products from Korea, 64 Fed. Reg. 73,196, 73,205 (Dep’t Commerce Dec. 29, 1999) (final
determ.)).
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction pursuant to 28 U.S.C. § 1581(c). The court must sustain
Commerce’s remand redetermination if it is supported by substantial record evidence, is
otherwise in accordance with law, and is consistent with the court’s remand order. See Ad Hoc
Shrimp Trade Action Comm. v. United States, 38 CIT __, __, 992 F. Supp. 2d 1285, 1290 (2014);
see also 19 U.S.C. § 1516a(b)(1)(B)(i). “The ‘substantial evidence’ standard of review can be
roughly translated to mean ‘is the determination unreasonable?’” Thai Plastic Bags Indus. Co. v.
United States, 37 CIT __, __, 904 F. Supp. 2d 1326, 1329 (2013) (citing Nippon Steel Corp. v.
United States, 458 F.3d 1345, 1351 (Fed. Cir. 2006).
DISCUSSION
Unlike the prior proceedings cited by Commerce, here the Department has not identified
a particular depreciation methodology, class of fixed assets, or statement by the auditor in the
Thai Fermentation statements that is questionable or unreliable. 1 The 28-page Thai
Fermentation financial statements provided to Commerce have full English translations with the
1
See, e.g., Certain Cut-To-Length Carbon-Quality Steel Plate Products from Korea, 64
Fed. Reg. at 73,206 (making adjustments to the reported depreciation expense because
respondent had recently “departed from its historical useful life policy by aggressively extending
asset lives, which resulted in a dramatic reduction in depreciation expenses.”).
Consol. Court No. 13-00288 Page 6
exception of two paragraphs in a footnote concerning fixed assets. App. to Fufeng’s Rule 56.2
Mot. for J., ECF No. 35 at 80–102 (Mar. 13, 2014). There is no allegation that this minor
oversight was intentional. Potentially mitigating the deficiency, there are full translations of
notes explaining the methodology for depreciating fixed assets. Id. at 86–89 (Notes to Financial
Statements 2.3, 2.5, and 3.6). Ultimately, while Commerce demonstrates that the Thai
Fermentation statements might be more reliable with a complete translation of footnote 12,
Commerce has not made the case that the statements are unreliable, warranting their wholesale
rejection. By contrast, the Thai Ajinomoto financial statements selected by Commerce are in
fact, as opposed to hypothetically, unreliable, due to evidence of countervailable subsidies. See
I&D Mem. cmt. 2.
Commerce’s general discussion about depreciation does not comply with the court’s
instruction to make “a fact-sensitive finding that the Thai Fermentation statements are missing
‘vital’ information.” See CP Kelco III, 41 CIT at __, 211 F. Supp. 3d at 1345. Of course, the
court understands that it is difficult for Commerce to explain the significance of information it
does not have. Therefore, on a record containing reliable alternative data, Commerce might
reasonably reject financial statements because those statements are missing narrative information
concerning depreciation. But Commerce must use the “best available information” on this
record. 19 U.S.C. § 1677b(c)(1).
To be sure, “[t]he Court’s role . . . is not to evaluate whether the information Commerce
used was the best available, but rather whether a reasonable mind could conclude that Commerce
chose the best available information.” Catfish Farmers of Am. v. United States, 33 CIT 1258,
1273, 641 F. Supp. 2d 1362, 1377 (2009) (citation and internal quotation marks omitted).
Commerce has the discretion to choose from among reasonable alternative determinations and
Consol. Court No. 13-00288 Page 7
the court will not supplant the Department’s discretion with its own. However, the court does
not find that the record supports more than one reasonable result. As long as the Thai
Fermentation statements remain untranslated, any deficiency in those statements is too
speculative and insignificant, when compared to that of the Thai Ajinomoto statements. At
bottom, the record does not contain substantial evidence supporting Commerce’s decision to
discard the Thai Fermentation statements from this particular record. 2
Moreover, “the methodology used by Commerce” to select financial statements is not
reasonably calculated to “establish[] the antidumping margins as accurately as possible.” See
Shakeproof Assembly Components, Div. of Ill. Tool Works, Inc. v. United States, 268 F.3d 1376,
1382 (Fed. Cir. 2001). Commerce admits that it has a “general practice [] to disregard financial
statements that show that a company has received countervailable subsidies” when the record
contains “other sufficiently reliable and representative data.” I&D Mem. cmt. 2. Therefore,
Commerce could have disregarded the Thai Ajinomoto financial statements because of the
countervailable subsidies, leaving the Thai Fermentation statements as the only “sufficiently
reliable” statements on the record. 3 Instead, the Department invoked the identical practice for
2
Fufeng insists that Commerce’s position is also inconsistent with its general practice to
not “go behind the numbers” of financial statements prior to using those statements for surrogate
values. Fufeng Comments on Third Redetermination 14, ECF No. 159 (citing Multilayered
Wood Flooring from China, 76 Fed. Reg. 64,318 (Dep’t Commerce Oct. 18, 2011) (final
determ.)). However, Commerce is not seeking to go “behind,” i.e. outside, the Thai
Fermentation financial statements. Rather, consistent with practice, Commerce seeks
information within the statements it insists may call into question the reliability of other
information in those same statements. Cf. Tapered Roller Bearings and Parts Thereof, Finished
and Unfinished, from China, 76 Fed. Reg. 3,086 (Dep’t Commerce Jan. 19, 2011) (final results)
and accompanying Issues & Decision Mem. cmt. 16 (“[T]he Department will only seek
information from within the surrogate financial statements in determining the appropriateness of
including an item in the financial ratio calculation, and will not go ‘behind’ the statement.”).
3
Indeed, the Department has previously found incomplete data to be sufficiently reliable.
See, e.g., Ass’n of Am. Sch. Paper Suppliers v. Unites States, 35 CIT __, __, 791 F. Supp. 2d
1292, 1299 (2011).
Consol. Court No. 13-00288 Page 8
incomplete statements. This leaves the court with the distinct impression that Commerce has
created an arsenal of “practices” that allow it to the craft the record to fit a pre-determined
outcome. The court will not sanction this.
Unlike proceedings where entire sections, pages, or auditors’ reports are actually missing
from financial statements, 4 any mystery surrounding the Thai Fermentation statements is
essentially of the Department’s own making. Here, Commerce is—and has always been—in
possession of the “missing” information, a mere ten lines of text in a 28-page document.
Moreover, Commerce has had many opportunities to solicit a translation of the paragraphs or to
translate the paragraphs itself, as it has done before. See, e.g., Diamond Sawblades and Parts
Thereof from China, 81 Fed. Reg. 38,673 (Dep’t Commerce June 14, 2016) (final results) and
accompanying Issues & Decision Mem. cmt 14. Instead, Commerce has inexplicably dedicated
significant resources to avoid this common sense course of action, with disingenuous reference
to deadlines and closed records. 5
In light of the embarrassingly lengthy history of this case, the court will not provide the
Department any further room to maneuver. Unfortunately, the court has no reasonable
expectation that Commerce would provide an even-handed analysis of the available data on the
record if given the opportunity, again, to exercise its discretion. Therefore, on remand, the
4
See, e.g., Mid Continent Steel & Wire, Inc. v. United States, 41 CIT __, __, 203 F. Supp.
3d 1295, 1313 (2017) (finding that substantial evidence supported Commerce’s decision to
summarily discard financial statements that left untranslated the audit report, several financial
statements, and all but one footnote).
5
The court suspects that the parties know the content of the untranslated text, so
Commerce’s unwillingness to place a translation on the record speaks volumes. If the translated
text in fact rendered Thai Fermentation’s reported depreciation figures unreliable, the
Department likely would have exercised its broad discretion to re-open and supplement the
record.
Consol. Court No. 13-00288 Page 9
Department is free to either translate the two paragraphs or leave them as is. Regardless,
Commerce must use the Thai Fermentation statements to calculate surrogate financial ratios.
CONCLUSION AND ORDER
For the reasons discussed above, the court again remands Commerce’s selection of the
Thai Ajinomoto financial statements over the Thai Fermentation financial statements.
Upon consideration of all papers and proceedings herein, it is hereby:
ORDERED that the Third Remand Results are remanded to Commerce for
redetermination in accordance with this Opinion and Order; it is further
ORDERED that Commerce must issue a redetermination in accordance with this
Opinion and Order that is in all respects supported by substantial evidence, in accordance with
law, and supported by adequate reasoning; it is further
ORDERED that Commerce shall recalculate Fufeng’s weighted-average dumping
margins using surrogate financial ratios derived from the Thai Fermentation financial statements;
it is further
ORDERED that Commerce shall have ninety (90) days from the date of this Opinion and
Order in which to file its remand redetermination, which shall comply with all directives in this
Opinion and Order; that the Plaintiff and Defendant-Intervenor shall have thirty (30) days from
the filing of the Remand Redetermination in which to file comments thereon; and that the
Defendant shall have thirty (30) days from the filing of Plaintiff and Defendant-Intervenor’s
comments to file comments.
/s/ Richard W. Goldberg
Richard W. Goldberg
Senior Judge
Dated: $SULO
New York, New York