Pohang Iron & Steel Co. v. United States

Slip Op. 99-112
UNITED STATES COURT OF INTERNATIONAL TRADE
_______________________________________
:
POHANG IRON AND STEEL CO., LTD., :
POHANG COATED STEEL CO., LTD., AND :
POHANG STEEL INDUSTRIES CO., LTD., :
Plaintiffs, :
:
v. :
: Consol. Court No.
THE UNITED STATES, : 98-04-00906
Defendant, :
:
and : Public Version
:
NATIONAL STEEL CORPORATION; U.S. :
STEEL GROUP - A UNIT OF USX :
CORPORATION; INLAND STEEL INDUSTRIES, :
INC.; BETHLEHEM STEEL CORPORATION; :
AND LTV STEEL CO., INC., :
Defendant-Intervenors. :
_____________________________________ :
:
NATIONAL STEEL CORPORATION, et al., :
Plaintiffs, :
:
v. :
:
THE UNITED STATES, :
Defendant, :
:
and :
:
POHANG IRON AND STEEL CO., LTD., :
et. al., :
Defendant-Intervenors, :
:
and :
:
UNION STEEL MANUFACTURING CO., LTD., :
Defendant-Intervenor. :
_____________________________________ :
[ITA determination remanded.]
Dated: October 20, 1999
CONSOL. CT. NO. 98-04-00906 PAGE 2
Akin, Gump, Straus, Hauer & Feld, L.L.P. (Sukhan Kim,
Spencer S. Griffith, and Samuel C. Straight) attorneys for the
POSCO Group.
David W. Ogden, Acting Assistant Attorney General,
David M. Cohen, Director, Velta A. Melnbrencis, Assistant
Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice (Michele D. Lynch), Bernd G.
Janzen, Office of the Chief Counsel for Import Administration,
Department of Commerce, of counsel, for defendant.
Dewey Ballantine LLP (Michael H. Stein, Bradford L. Ward,
Jennifer Danner Riccardi, Dominic L. Bianchi, and Andrew J.
Conrad) for National Steel Corporation, et al.
Kaye, Scholer, Fierman, Hays & Handler, LLP (Donald B.
Cameron, Julie C. Mendoza, and John P. Healy) for defendant-
intervenor Union Steel Manufacturing Co., Ltd.
OPINION
RESTANI, Judge: This matter is before the court on
Cross-Motions for Judgment Upon the Agency Record, pursuant to
USCIT Rule 56.2, brought by foreign producers Pohang Iron and
Steel Co., Ltd (“POSCO”), Pohang Coated Steel Co., Ltd.
(“POCOS”), and Pohang Steel Industries Co., Ltd. (“PSI”)
(collectively “POSCO Group”), and National Steel Corporation;
U.S. Steel Group, A Unit of USX Corp.; Inland Steel
Industries, Inc.; Bethlehem Steel Corporation; and LTV Steel
Co., Inc. (collectively “Domestic Producers”). Union Steel
Manufacturing Co., Ltd. (“Union”) appears as defendant-
intervenor on Domestic Producer’s motion.1
1 Defendant-intervenor Dongbu Steel Co., Ltd. did not
(continued...)
CONSOL. CT. NO. 98-04-00906 PAGE 3
Under review are the results of Commerce’s third
administrative review of the antidumping order in Certain
Cold-Rolled Carbon Steel Flat Products and Certain Corrosion-
Resistant Carbon Steel Flat Products from Korea, 58 Fed. Reg.
44,159 (Dep’t Commerce 1993) (final less than fair value
determination). Certain Cold-Rolled and Corrosion Resistant
Carbon Steel Flat Products From Korea, 63 Fed. Reg. 13,170(Dep’t Commerce 1998) [hereinafter “Final Results”], and
Amended Final Results, Certain Cold-Rolled Carbon Steel Flat
Products from Korea; Certain Corrosion-Resistant Carbon Steel
Flat Products From Korea, 63 Fed. Reg. 20,572 (Dep’t Commerce
1998) [hereinafter “Amended Final Results”]. The third
administrative review covers the period from August 1, 1995
through July 31, 1996.
In order to compute a dumping margin for purposes of
imposing an antidumping duty, Commerce compares United States
Price to Normal Value (or “NV”). 19 U.S.C. § 1673 (1994). If
Normal Value on average exceeds United States Price, duties
are imposed. Normal Value is preferably based on home market
prices. 19 U.S.C. § 1677b (1994). Where home market prices
are unavailable for use, either third country price or
1
(...continued)
submit a memorandum before the court.
CONSOL. CT. NO. 98-04-00906 PAGE 4
constructed value (“CV”) (based on cost of production) is
used. See 19 U.S.C. § 1677b(a)(1)(C);(a)(4). CV may also be
used where substantial amounts of sales are below the cost of
production. 19 U.S.C. § 1677b(b)(1). This matter involves a
number of cost of production issues as well as issues
involving choice of the basic methodology for calculating U.S.
price and price adjustments.
Jurisdiction and Standard of Review
The court has jurisdiction pursuant to 28 U.S.C. §
1581(c)(1994). In reviewing final determinations in
antidumping duty investigations, the court will hold unlawful
those agency determinations which are unsupported by
substantial evidence on the record, or otherwise not in
accordance with law. 19 U.S.C. § 1516a(b)(1)(B) (1994).
I. Steel Substrate Transfer
Background
In this review, as in prior reviews of the same
determination, Commerce “collapsed” POSCO, POCOS, and PSI into
the “POSCO Group,” treating them as one entity for purposes of
its antidumping analysis. Final Results, 63 Fed. Reg. at
13,185. Consistent with its findings in the second review,
Commerce determined for its cost calculations that hot-rolled
steel substrate transferred from POSCO to POCOS, i.e., within
CONSOL. CT. NO. 98-04-00906 PAGE 5
the POSCO Group, should not be revalued pursuant to 19 U.S.C.
§§ 1677b(f)(2) and (3), the “fair value” and “major input”
provisions of the antidumping statute.2 Commerce instead
valued the substrate at the weighted-average POSCO Group-wide
cost of production. Final Results, 63 Fed. Reg. at 13,185.
In the Final Results, Commerce concluded that:
[B]ecause we are treating these companies as one
entity for our analysis, intra-company transactions
should be disregarded . . . . [T]he decision to
treat affiliated parties as a single entity
necessitates that transactions among the parties
also be valued based on the group as a whole and, as
such, among collapsed entities the fair-value and
major-input provisions are not controlling.
63 Fed. Reg. at 13,185.
Domestic Producers maintain that POSCO and POCOS should
be treated not as part of a collapsed entity but as affiliated
parties under 19 U.S.C. § 1677b(f), which requires application
of the major input rule and the fair value provision to inputs
transferred between “affiliated persons.” Under the
statute, any person who owns “five percent or more of the
outstanding voting stock or shares of any organization . . .
2 The “fair value” and “major input” provisions of the
antidumping statute specify conditions under which
transactions between affiliates can be disregarded for cost
calculation purposes. See 19 U.S.C. §§ 1677b(f)(2)-(3).
Application of these sections of the statute would have
required Commerce to treat each member of the collapsed POSCO
group as an individual entity for the purpose of calculating
substrate costs.
CONSOL. CT. NO. 98-04-00906 PAGE 6
shall be considered to be ‘affiliated.’” 19 U.S.C. §
1677(33)(E) (1994). POSCO owns fifty percent of POCOS. See
POSCO’s Section A Response (Oct. 25, 1996), at 5, C.R. Doc. 3,
Def.’s App., Ex. 1, at 2. Domestic Producers therefore
contend that the statutory requirement for affiliation is
satisfied.
Discussion
The court has determined previously on essentially the
same facts that POSCO and POSCOS may be treated as a single
entity. AK Steel Corp. v. United States, 34 F. Supp.2d 756,
764-65 (Ct. Int’l Trade 1998). The court has also held that
single entity treatment is inconsistent with application of
the fair value and major input provisions. Id. at 766. As
these issues are discussed in detail in AK Steel and the
Domestic Producers have raised no arguments which cast the
holdings of AK Steel on these issues in doubt, the court
adopts the reasoning of AK Steel and sustains the
determination of the Department of Commerce not to apply the
fair value or major input provisions of 19 U.S.C. § 1677(f)(2)
and (3).
CONSOL. CT. NO. 98-04-00906 PAGE 7
II. Startup Costs
Background
Commerce asked the POSCO Group to explain whether it “was
engaged in any start up production operations for the
merchandise under review during the cost calculation period.”
Questionnaire (Sept. 19, 1996), at D-9, P.R. Doc. 7, Def.’s
App., Ex. 4, at 7. The Department asked the POSCO Group to
describe any such operation and provide total costs
attributable to the operation, monthly production data, and
all dates relevant to the construction and initiation of
production of such operation. Id.The POSCO Group reported to Commerce that in June 1995,
it had begun construction of a new line in its existing
plant.3 See POSCO Supplemental Section D Response (Mar. 3,
1997), at 31, C.R. Doc. 19, Def.’s App., Ex. 6, at 4. POSCO
had finished installing the necessary production equipment one
year later, in April 1996, and had commenced initial
commercial production at that time. Id. The new line
significantly increased POSCO’s capacity to produce certain
3 POSCO’s plant is located in [ ], Republic of
Korea. The new line is one of [ ] at the [ ] plant
involved in the manufacturing of [ ] products. The [ ]
products into an entirely different product, [ ], a
corrosion-resistant product. POSCO Br. at 35 n.22; see also
POSCO Section D Questionnaire Response (Nov. 18, 1996), at D-
9-10, C.R. Doc. 7, POSCO App., Tab 3, at 2-3.
CONSOL. CT. NO. 98-04-00906 PAGE 8
products.4 See POSCO Case Brief (Oct. 15, 1997), at 30, C.R.
Doc. 57, POSCO App., Tab 11, at 5.
The POSCO Group maintained that “production levels were
limited by technical factors associated with the initial phase
of commercial production,” and that as a result, “POSCO
experienced abnormally high costs5 for output from this line.”
POSCO Section D Questionnaire Response, at D-35, Def.’s App.,
Ex. 5, at 5. POSCO argued that Commerce should “reduce
POSCO’s reported costs by the amount of the requested startup
adjustment for extraordinary costs associated with the startup
phase of a facility.” Final Results, 63 Fed. Reg. at 13,199.
Commerce examined the POSCO Group’s startup adjustment
claim during verification and denied the request determining
that “such an adjustment is unwarranted.” POSCO Preliminary
Analysis Memorandum (Sept. 2, 1997), at 7, P.R. Doc. 116,
Def.’s App., Ex. 3, at 2. Although the POSCO Group objected,
the Department again denied POSCO’s request in the Final
Results, as not meeting the criteria for a startup adjustment
pursuant to 19 U.S.C. § 1677b(f)(1)(C)(ii). Final Results, 63
4 POSCO’s capacity to produce [ ] products was
increased by [ ] percent. POSCO Case Brief (Oct. 15, 1997),
at 30, C.R. Doc. 30, POSCO App., Tab 11, at 5.
5 Pohang incurred total costs of [ ] won to operate
this facility. POSCO Supplemental Section D Response, at 30,
POSCO App., Tab 7, at 3.
CONSOL. CT. NO. 98-04-00906 PAGE 9
Fed. Reg. at 13,200. Specifically, Commerce concluded that
the new line did not constitute a “new production facility” or
“the substantially complete retooling of an existing plant”
for purposes of 19 U.S.C. § 1677b(f)(1)(C)(ii)(I), and that
production levels were not shown to have been limited by
“technical factors,” as required by 19 U.S.C. §
1677b(f)(1)(C)(ii)(II). Final Results, 63 Fed. Reg. at
13,200-01.
The POSCO Group asserts that the Department incorrectly
relied on the fact that the new line did not produce “new
products” simply because POSCO also made the product on other
existing lines. POSCO claims it constructed a “new production
facility,” regardless of whether the new facility produces
products that POSCO produces at other facilities. Finally,
POSCO contends that production was in fact limited due to
technical factors associated with startup operations.6
6 Specifically, the POSCO Group argues that because
the line was new and involved “production of a different range
of products,” increased monitoring and various tests were
required to ensure the products met quality and safety
standards. POSCO Br. at 38. As a result, POSCO alleges, the
new line operated below its production capacity during the
period of review (“POR”).
CONSOL. CT. NO. 98-04-00906 PAGE 10
Discussion
The POSCO Group contends that Commerce’s denial of a
startup adjustment is unsupported by substantial evidence and
not in accordance with law because POSCO allegedly satisfied
the statutory requirements for a startup adjustment. Commerce
is required to make an adjustment for startup operations
where:
(I) a producer is using new production facilities or
producing a new product that requires substantial
additional investment, and
(II) production levels are limited by technical
factors associated with the initial phase of
commercial production.
19 U.S.C. 1677b(f)(1)(C)(ii). After reviewing the POSCO
Group’s database and product brochure, Commerce concluded that
POSCO “manufactured products such as those produced from the
new equipment prior to its installation.” Final Results, 63
Fed. Reg. at 13,200. The Department also found that the
product range of the new line was similar to that of POSCO’s
other lines with respect to certain dimensions. Id. The
court affirms Commerce’s decision because the POSCO Group
failed to satisfy the statutory requirements.
The POSCO Group concedes that the new line was not
involved in the production of a different product. See POSCO
Br. at 36 (“the Department incorrectly relied on the fact that
CONSOL. CT. NO. 98-04-00906 PAGE 11
the new line did not produce ‘new products.’”)(emphasis
added). POSCO contends, however, that in this case Commerce
need not consider whether the product is “new and different,”
but rather should consider whether the production facility is
new. As the statute permits the adjustment for either a new
production facility or a new product, even if the new line
does not produce a new product, POSCO may be entitled to the
adjustment if the new line constitutes a “new production
facility.” Commerce determined that it does not. Final
Results, 63 Fed. Reg. at 13,200.
POSCO challenges Commerce’s interpretation of these
terms. The court therefore considers whether Commerce’s
understanding of the statutory reference to “new product” as
meaning a different product from those otherwise produced by
the respondent and of “new production facility” as excluding a
new production line within an existing plant reflects a
permissible reading of the statute.
The court reviews an agency’s construction of its
statutory mandate according to the two-step test established
by Chevron U.S.A., Inc. v. Natural Resources Defense Council,
467 U.S. 837, 842-43 (1984). The court asks first “whether
Congress has directly spoken to the precise question at
issue.” Chevron, at 842. If the intent of Congress is clear,
CONSOL. CT. NO. 98-04-00906 PAGE 12
the court and agency must defer to Congress. Id. at 843. If
Congress’ intent is ambiguous, the court must determine
whether the “agency’s answer is based on a permissible
construction of the statute.” Id.The statute is silent as to the definitions of “new
product” and “new production facility.” See 19 U.S.C. §
1677b(f)(C)(ii)(I). Although Congress did not elaborate on
the terms “new product” or “new production facilities” in 19
U.S.C. § 1677b(f)(C)(ii)(I), the Statement of Administrative
Action of the Uruguay Round Agreements Act does address the
question. Statement of Administrative Action, accompanying
H.R. 103-5110 at 656 (1994), reprinted in 1994 U.S.C.C.A.N.
3773, 4040 (“SAA”).7 The SAA states:
Mere improvements to existing products or
ongoing improvements to existing facilities will not
qualify for a startup adjustment. Commerce also
will not consider an expansion of the capacity of an
existing production line to be a startup operation
unless the expansion constitutes such a major
undertaking that it requires the construction of a
new facility and results in a depression of
production levels due to technical factors
associated with the initial phase of commercial
production of the expanded facilities.
7 The SAA represents "an authoritative expression by
the Administration concerning its views regarding the
interpretation and application of the Uruguay Round Agreements
... The Administration understands that it is the expectation
of the Congress that future Administrations will observe and
apply the interpretations and commitments set out in this
statement." SAA, at 1, 1994 U.S.C.C.A.N. at 4040.
CONSOL. CT. NO. 98-04-00906 PAGE 13
“New production facilities” includes the
substantially complete retooling of an existing
plant. Substantially complete retooling involves
the replacement of nearly all production machinery
or the equivalent rebuilding of existing machinery.
SAA, at 166, 1994 U.S.C.C.A.N. at 4173. Commerce’s
interpretation of the statute is reasonable and consistent
with Congressional intent as reflected in the SAA. Commerce
is not unreasonable in concluding that in providing for a
startup cost adjustment in certain cases, the statute
contemplated instances of the production of a different
product from those previously produced or the more elaborate
establishment of a new facility than even the addition of an
expensive new line within an existing plant.
According to the statute, if POSCO does not show that the
new line produces a new product, POSCO must show that the new
line constitutes a “new production facility,” and POSCO has
not provided evidence in support of that position. Nothing in
the record suggests that the new line is anything but an
expansion of POSCO’s existing type of production.8 The new
line was established as part of POSCO’s existing factory and
increased POSCO’s overall capacity to produce certain products
already in production, as it performed functions that were the
8 Whether the line is in the same building or a
different one is not determinative.
CONSOL. CT. NO. 98-04-00906 PAGE 14
same or similar to those of other lines at the plant. See
POSCO Section D Questionnaire Response, at D-10, Def.’s App.,
Ex. 5, at 3. Moreover, POSCO points to no evidence that a
“substantial retooling” of the plant took place; the POSCO
Group does not contend that “nearly all” production machinery
was either replaced or rebuilt.
The POSCO Group’s argument depends solely on the fact
that it expended substantial effort and investment in creating
the new line.9 See POSCO Br. at 35-37. That POSCO incurred
what it calls “considerable costs” in establishing the new
line is unremarkable without a showing that the sizeable
investment was geared toward the production of a new product
or a new production facility.
In light of the legislative history, the court finds
Commerce’s construction of 19 U.S.C. § 1677b(f)(1)(C)(ii)(I)
reasonable. The POSCO Group has not satisfied the
requirements of the statute as reasonably interpreted by
9 POSCO’s investment in the new line equaled [ ]
percent of total value from its property, plant, and
equipment. POSCO Rebuttal Brief (Oct. 22, 1997), at 11, C.R.
Doc. 47, Def.’s App., Ex. 8, at 2.
CONSOL. CT. NO. 98-04-00906 PAGE 15
Commerce.10 Accordingly, Commerce’s decision on this issue is
affirmed.
III. Constructed Export Price
Background
In the Preliminary Results, for the purposes of
calculating U.S. price, Commerce classified all POSCO Group
U.S. sales during the POR as export price (“EP”) sales (i.e.
sales for export to the United States made to a party not
affiliated with the producer or exporter).11 See Certain Cold-
Rolled and Corrosion-Resistant Carbon Steel Flat Products from
Korea, 62 Fed. Reg. 47,422, 47,425 (Dep’t Commerce 1997)
(preliminary results of antidumping duty admin. rev.)
10 To qualify for a startup adjustment, a respondent
must satisfy the requirements in subsections
1677b(f)(1)(C)(ii)(I) and (II) of the antidumping statute.
See 19 U.S.C. § 1677b(f)(1)(C)(ii). Because the POSCO Group
failed to qualify according to the requirements of subsection
(I), the court need not determine whether Commerce properly
concluded that production levels were not limited by technical
factors, pursuant to 19 U.S.C. § 1677b(f)(1)(C)(ii)(II).
11 The statute defines export price as:
the price at which the subject merchandise is first
sold (or agreed to be sold) before the date of
importation by the producer or exporter of the
subject merchandise outside of the United States to
an unaffiliated purchaser in the United States or to
an unaffiliated purchaser for exportation to the
United States.
19 U.S.C. § 1677a(a) (1994).
CONSOL. CT. NO. 98-04-00906 PAGE 16
[hereinafter “Preliminary Results”]. After examining the
functions of POCOS’ and POSCO’s U.S. sales affiliates,
however, Commerce determined that most of these sales should
be reclassified as constructed export price (“CEP”) sales
(i.e. sales for export to the United States made to an
affiliate of the producer or exporter).12 See Final Results,
63 Fed. Reg. at 13,172, 13,182-83.
In its response to Commerce’s questionnaire, the POSCO
Group provided an overview of its U.S. sales processes for
POCOS and POSCO. See POSCO Questionnaire Response (Oct. 25,
1996), at 23-24, C.R. Doc. 3, Def.’s App., Ex. 1, at 4-5.
With respect to POCOS, the POSCO Group explained that all of
POCOS’ sales to the United States during the POR were made
through ABC,13 an affiliate of DEF.14 See id. at 23, Def.’s
App., Ex. 1, at 4. Acting as a trading company, ABC sells
12 The statute defines constructed export price as:
the price at which the subject merchandise is first sold
(or agreed to be sold) in the United States before or
after the date of importation by or for the account of
the producer or exporter of such merchandise or by a
seller affiliated with the producer or exporter, to a
purchaser not affiliated with the producer or exporter.
19 U.S.C. § 1677a(b).
13 “ABC” refers to [ ]. Commerce’s public documents
refer to it as “AKO.”
14 “DEF” refers to [ ].
CONSOL. CT. NO. 98-04-00906 PAGE 17
POCOS products to GHI,15 a trading company affiliated with ABC.
See id. Although GHI resells the product to the U.S.
customer, it does not take possession of the goods, hold any
inventory, or have independent sales authority. See id. GHI
takes title and acts as importer of record, but merchandise is
shipped directly from the mill in Korea to the customer. See
id. at 24, Def.’s App., Ex. 1, at 5. Typically, the U.S.
customer contacts GHI with its purchase order, which GHI then
forwards to POCOS. See POSCO Section A Questionnaire Response
(Oct. 25, 1996), at 48, C.R. Doc. 4, POSCO App., Tab 1, at 16.
Although POCOS provides GHI with quarterly base price lists,
customers provide GHI with a price quotation, which GHI then
forwards to POCOS for confirmation. See id. GHI collects
payment from the customers, and pays for U.S. brokerage and
handling costs for POCOS’ U.S. sales. See POSCO Supplemental
Section C Response (Mar. 3, 1997), at 25, C.R. Doc. 25, POSCO
App., Tab 6, at 6. Although POCOS is responsible for
procuring the duty drawback, POSCO Section C Questionnaire
Response (Nov. 18, 1996), at 51, C.R. Doc. 9, POSCO App., Tab
2, at 5, GHI arranges and pays for marine insurance,16 POSCO
15 “GHI” refers to [ ]. Commerce’s public documents
refer to it as “BUS.”
16 GHI also [ ]. POSCO Supplemental Section C
(continued...)
CONSOL. CT. NO. 98-04-00906 PAGE 18
Section A Questionnaire Response, at 39, POSCO App., Tab 1, at
13.
POSCO made all sales during the POR either through a
wholly-owned trading company, POSTRADE, or directly to POSAM,
another wholly-owned trading company.17 See POSCO Section A
Questionnaire Response, at 20-21, POSCO App., Tab 1, at 3-4.
POSAM takes title to POSCO’s products and acts as importer of
record. See id. POSAM does not take possession of the goods,
as products are shipped directly from POSCO to the U.S.
customer, and maintains no inventory of POSCO’s products. See
id. at 21, POSCO App., Tab 1, at 4. U.S. customers send
inquiries to POSAM, which then prepares an order confirmation
sheet and submits it to POSCO for approval. See POSCO Home
Market Verification Report (June 27, 1997), at 8, C.R. Doc.
37, POSCO App., Tab 8, at 8. If the customer does not provide
a price in its initial inquiry, POSAM may suggest a price
based on quarterly price lists provided to POSAM by POSCO.
See id. In the case of a new U.S. customer, terms of sale may
16
(...continued)
Questionnaire Response, at 25, POSCO App., Tab 6, at 6.
17 From the third quarter of 1995 through the end of
the POR, POSCO sold directly to POSAM, before which products
had first been sold to POSTRADE and then to POSAM. See POSCO
Section A Questionnaire Response, at 20-21, POSCO App., Tab 1,
at 3-4.
CONSOL. CT. NO. 98-04-00906 PAGE 19
be negotiated directly with POSCO. See id. at 5-6, POSCO
App., Tab 8, at 5-6. POSAM is not authorized to negotiate
terms of sale with the customers nor change the terms of sale
established by POSCO with the customers. See id.; POSCO
Supplemental Section A Response (Feb. 18, 1997), at 19, C.R.
Doc. 22, POSCO App., Tab 5, at 4. Once the order is confirmed
by POSCO, POSAM is responsible for collecting payments from
customers. See POSCO Section A Questionnaire Response, at 37,
POSCO App., Tab 1, at 11. POSCO is responsible for securing
the duty drawback, POSCO Section C Questionnaire Response, at
51, POSCO App., Tab 2, at 5, although POSAM arranges and pays
for Customs clearance and brokerage and handling,18 POSCO
Section A Questionnaire Response, at 36-37, POSCO App., Tab 1,
at 10-11.
Discussion
In this administrative review, Commerce utilized its
three-part test, developed in response to this court’s
decision in PQ Corp. v. United States, 11 CIT 53, 58-65, 652
F. Supp. 724, 729-35 (1987), to determine whether sales made
by POSCO through its U.S. affiliates should be classified as
EP sales or CEP sales. Application of the test requires that
18 POSAM is also responsible for handling [ ]. POSCO
Section A Questionnaire Response, at 38, POSCO App., Tab 1, at
12.
CONSOL. CT. NO. 98-04-00906 PAGE 20
the following criteria be established in order for such sales
to receive EP classification:
(1) whether the merchandise was shipped directly
from the manufacturer . . . to the unaffiliated U.S.
customer;
(2) whether this was the customary commercial
channel between the parties involved; and
(3) whether the functions of the U.S. sales
affiliates . . . were limited to those of processors
of sales-related documentation and communications
links with unrelated U.S. buyers.
Final Results, 63 Fed. Reg. at 13,182. As Commerce noted,
Domestic Producers do not contest that POSCO satisfied the
first two criteria. See id. “Consequently, the third
criterion, pertaining to the level of affiliate involvement in
making sales or providing customer support, is the determining
factor in this instance.” Id.
Although Commerce had initially determined that the POSCO
Groups satisfied all three criteria and that its sales
therefore warranted EP classification, see Preliminary
Results, 62 Fed. Reg. at 47,425-26, the agency concluded in
its final determination that the sales made by POSCO and POCOS
through their respective affiliates, POSAM and GHI, warranted
CEP classification because the third criterion was not
satisfied, see Final Results, 63 Fed. Reg. at 13,183. The
POSCO Group argues that this classification is not supported
CONSOL. CT. NO. 98-04-00906 PAGE 21
by substantial evidence because the facts in this case are the
same as in the second administrative review, in which Commerce
classified its sales as EP transactions. In addition, it
argues, the factors identified by Commerce and Domestic
Producers have previously been upheld by this court to support
an EP classification, and therefore, cannot substantiate a CEP
classification in this case. Commerce and Domestic Producers
argue that the CEP classification must be upheld because of
the significant involvement of the U.S. affiliates in POSCO’s
and POCOS’ U.S. sales during the period of review,
particularly the level of the affiliates’ participation in
contacting customers and setting prices for the U.S. market.
Domestic Producers also emphasize that despite this court’s
upholding of an EP classification in previous cases that
included many of the same factors, Commerce has the authority
to reweigh those factors in each case so as to arrive at a
different conclusion during a different period of review.
The POSCO Group is certainly correct that this court has
previously upheld EP (formerly known as “purchase price,” or
PP) classification for the U.S. sales of foreign producers who
followed practices similar to those maintained by POSCO,
POCOS, and their U.S. affiliates in this record.
Specifically, this court has found EP (or PP) classification
CONSOL. CT. NO. 98-04-00906 PAGE 22
to be supported by substantial evidence when the U.S.
affiliate has performed the following functions, all of which
have also been performed by POSAM and/or GHI in this case:
• taking title from the foreign producer, see AK Steel
Corp., 34 F. Supp.2d at 759-60, 762; Zenith Elecs. Corp.
v. United States, 18 CIT 870, 874-75 (1994); Outokumpu
Copper Rolled Prods. AB v. United States, 17 CIT 848,
857, 829 F. Supp. 1371, 1379 (1993);
• functioning as the importer of record, see AK Steel, 34
F. Supp.2d at 759-60, 762; Independent Radionic Workers
of Am. v. United States, 19 CIT 375, 375-76 (1995);
Zenith, 18 CIT at 874-75; E.I. DuPont de Nemours & Co.,
Inc. v. United States, 17 CIT 1266, 1281, 841 F. Supp.
1237, 1249 (1993); Outokumpu, 17 CIT at 857, 829 F. Supp.
at 1379;
• arranging and paying for insurance, see AK Steel, 34 F.
Supp.2d at 759, 762;
• paying for inland freight to the U.S. customer, see AK
Steel, 34 F. Supp.2d at 759-60, 762; Independent Radionic
Workers, 19 CIT at 375-76;
• invoicing the U.S. customer directly, see AK Steel, 34 F.
Supp.2d at 759-60, 762; Independent Radionic Workers, 19
CONSOL. CT. NO. 98-04-00906 PAGE 23
CIT at 375-76; Zenith, 18 CIT at 874-75; E.I. DuPont, 17
CIT at 1281, 841 F. Supp. at 1249;
• serving as a point of contact for the U.S. customer, see
AK Steel, 34 F. Supp.2d at 759-60, 762; E.I. DuPont, 17
CIT at 1281, 841 F. Supp. at 1249; Outokumpu, 17 CIT at
858, 829 F. Supp. at 1379; and
• collecting payment directly from the U.S. customer, see
AK Steel, 34 F. Supp.2d at 759-60, 762; Independent
Radionic Workers, 19 CIT at 375-76; Zenith, 18 CIT at
874-75; E.I. DuPont, 17 CIT at 1281, 841 F. Supp. at
1249.19
Contrary to POSCO’s contentions, however, the
aforementioned cases do not stand for the proposition that
Commerce may only classify a foreign producer’s sales to its
U.S. affiliate as CEP sales when factors other than those
identified above are present.
In arguing that the holdings of these previous cases
mandate a rejection of Commerce’s CEP classification in this
case, the POSCO Group misunderstands the substantial evidence
standard of review employed by this court when reviewing
Commerce’s determinations. As the Supreme Court has stated,
19 Also, [ ]. See Outokumpu, 17 CIT at 857, 829 F.
Supp. at 1379.
CONSOL. CT. NO. 98-04-00906 PAGE 24
substantial evidence “is 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. Federal Maritime Comm’n,
383 U.S. 607, 620 (1966). See also Trent Tube Div., Crucible
Materials Corp. v. Avesta Sandvik Tube AB, 975 F.2d 807, 814
(Fed. Cir. 1992) (CIT’s finding of substantial evidence to
support ITC’s determination did not prevent ITC from
permissibly reaching contrary determination upon remand). Cf.
Timken Co. v. United States, 12 CIT 955, 962, 699 F. Supp.
300, 306 (1988), aff’d 894 F.2d 385 (Fed. Cir. 1990) (“It is
not within the court’s domain either to weigh the adequate
quality or quantity of the evidence for sufficiency or to
reject a finding on grounds of a differing interpretation of
the record.”) (citation omitted). That the court previously
has found the described factors insufficient to warrant a CEP
classification, therefore, does not prevent Commerce from
concluding in another case, supported by substantial evidence,
that a different interaction of the same factors warrants a
CEP classification.
More telling than the factors upheld by this court in
previous cases as indicative of an EP classification is
CONSOL. CT. NO. 98-04-00906 PAGE 25
Commerce’s classification of POSCO’s sales to their U.S.
affiliates in the prior administrative review, upheld by this
court in AK Steel, 34 F. Supp.2d at 762. Whereas Commerce
classified those sales as EP transactions during the second
administrative review and, in fact, during the first
administrative review as well, Commerce altered those
conclusions in labeling the sales as CEP transactions during
this third administrative review.20 This court has recognized
that “Commerce has the flexibility to change its position[,]
providing that it explains the basis for its change and
providing that the explanation is in accordance with law and
supported by substantial evidence.” Cultivos Miramonte S.A.
v. United States, 980 F. Supp. 1268, 1274 (Ct. Int’l Trade
1997). Commerce offers three bases to justify its change in
classification during the third administrative review: (1)
“U.S. affiliates . . . played a central role in the sales
activities after the merchandise arrived in the United
States”; (2) “U.S. customers seldom had contact with POSCO or
POCOS”; and (3) U.S. affiliates were significantly involved in
the setting of prices for U.S. customers. Final Results, 63
Fed. Reg. at 13,183.
20 Commerce’s attempt to reconsider its final EP
decision in the second review was rebuffed by the court. AK
Steel, 34 F. Supp.2d at 762.
CONSOL. CT. NO. 98-04-00906 PAGE 26
With regard to the first observation, Commerce has failed
to provide a reasoned explanation as to the “central role”
played by the U.S. affiliates in this case. See Allentown
Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359, 374-77 (1998)
(“process by which [agency] reaches [its] result must be
logical and rational”). In the Final Results Commerce noted
the existence of factors similar to those found in German
Plate.21 In German Plate a CEP classification was upheld by
this court in U.S. Steel Group - A Unit of USX Corp. v. United
States, 15 F. Supp.2d 892, 902-03 (Ct. Int’l Trade 1998).22
Based on the mere existence of similar factors, Commerce
summarily concludes that POSAM and GHI play such a significant
role that their sales do not qualify for EP classification.
Commerce does not explain exactly how these “similar” factors
in the context of this factual scenario establish a “central
role” played by the U.S. affiliates. Furthermore, Commerce
points to no changed circumstances since the prior
administrative review or any other reason that would warrant
the new CEP classification. Cf. Cultivos Miramonte, 980 F.
21 Certain Cut-to-Length Carbon Steel Plate from
Germany, 62 Fed. Reg. 18,390 (Dep’t Commerce 1997) (final
results of antidumping duty admin. rev.).
22 The court also distinguished the facts of U.S. Steel
from those present in POSCO’s second administrative review.
See AK Steel, 34 F. Supp.2d at 762.
CONSOL. CT. NO. 98-04-00906 PAGE 27
Supp. at 1275 (concluding that Commerce’s different
determination upon the same set of facts may be justified if
prior determination had been based on error).
Commerce may change the standards it applies to a given
set of facts, but it must explain any departure from
established standards. See Graphic Communications Int’l
Union, Local 554 v. Salem-Gravure Div. of World Color Press,
Inc., 843 F.2d 1490, 1493 (D.C. Cir. 1988) (“Agency decisions
that depart from established precedent without a reasoned
explanation will be vacated as arbitrary and capricious.”).
If Commerce’s conclusion rests on factors, either legal or
factual, that were not applicable to the prior reviews, those
factors must be identified in a reasoned explanation rather
than with the mere “conclusory statements” provided in the
Final Results. See Graphic Communications, 843 F.2d at 1494.
Commerce next relies on the lack of direct contact
between U.S. customers and the foreign manufacturers to
establish that POSAM and GHI, rather than POSCO and POCOS, are
the actual sellers in the U.S. market, thereby justifying the
CEP classification. Commerce notes, in particular, the
relevance of POSAM’s and GHI’s signing of the sales contracts
as a relevant factor in its determination. See Final Results,
63 Fed. Reg. at 13,183. Again, however, Commerce fails to
CONSOL. CT. NO. 98-04-00906 PAGE 28
provide an explanation for the change in classification from
the second administrative review to the third review,
including whether the signing of sales contracts by POSAM and
GHI was a factor not present or overlooked during the second
review. That the U.S. affiliates in this case served as the
outlets through which U.S. sales were made for POSCO and
POCOS, and were the initial and predominant source of contact
for U.S. customers, was well-established in the second
administrative review. See AK Steel, 34 F. Supp.2d at 759-60;
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat
Products from Korea, 62 Fed. Reg. 18,404, 18,432-33 (Dep’t
Commerce 1997) (final results of antidumping duty admin. rev.)
[hereinafter “Second Review”]. If Commerce relied on
additional facts in the present record, not existent or
considered during the second review, which warrant a
reweighing of the evidence so that the foreign manufacturers’
sales may be reclassified as CEP transactions, it must state
such additional facts and provide a rational connection
between those facts and its conclusions. Cf. Motor Vehicle
Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 43 (1983) (Under the more deferential
arbitrary and capricious standard, “the agency must examine
the relevant data and articulate a satisfactory explanation
CONSOL. CT. NO. 98-04-00906 PAGE 29
for its action including a ‘rational connection between the
facts found and the choice made.’”) (quoting Burlington Truck
Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). In
the absence of any explanation, however, Commerce’s CEP
classification cannot be justified by a mere restatement of a
factor not erroneously considered, such as lack of customer
contact, that had existed in the prior review, during which
the U.S. sales were classified as EP transactions.
Finally, Commerce relies most heavily on the involvement
of the U.S. affiliates in setting prices for the U.S.
customers of POSCO and POCOS. Contrary to the two other
justifications proffered by Commerce for its CEP
classification in this review, Commerce did explain in the
Final Results that the more active role played by POSAM and
GHI in setting U.S. prices, when compared to that in the
second review, warranted CEP classification. In particular,
Commerce and Domestic Producers rely on three pieces of
evidence to support Commerce’s explanation:23 (1) POSCO’s and
23 Domestic Producers also point to an additional
factor, not previously considered by the court’s case law on
this issue, in support of their argument that POSAM and GHI
are more than “processors of sales-related documentation and
communications links with unrelated U.S. buyers”: they claim
that POSAM and GHI finance the sales of POSCO’s and POCOS’
products to their U.S. customers. See Domestic Producers Br.
at 9-10, 13. An examination of the record, including the
(continued...)
CONSOL. CT. NO. 98-04-00906 PAGE 30
POCOS’ inability to provide “tangible evidence of price
rejection by POSCO or POCOS”; (2) handwritten entries in
POSAM’s cost spreadsheets; and (3) the substantial SG&A
expenses incurred by the U.S. affiliates in their U.S. sales
of POSCO’s and POCOS’ products. Final Results, 63 Fed. Reg.
at 13,183. Despite superficially satisfying the requirement
of a reasoned explanation, however, Commerce’s factual base
for its decision, that POSAM and GHI were intimately involved
in the negotiation of U.S. prices, is unsupported by
substantial evidence.
“When [an agency] purports to be engaged in simple fact-
finding, unconstrained by substantive presumptions or
evidentiary rules of exclusion, it is not free to prescribe
what inferences from the evidence it will accept and reject,
but must draw all those inferences that the evidence fairly
23
(...continued)
specific portions cited by Domestic Producers, however,
reveals that their claim is not substantiated; Domestic
Producers’ own unclear citations refer to documents unrelated
to the possible financing of purchases by U.S. customers.
Even if such evidence existed, however, this court could not
rule on whether that factor alone would render Commerce’s
determination supported by substantial evidence because
Commerce itself did not identify that factor as relevant to
its determination in the Final Results. See SEC v. Chenery
Corp., 318 U.S. 80, 95 (1943) (“administrative order cannot be
upheld unless the grounds upon which the agency acted in
exercising its powers were those upon which its action can be
sustained.”).
CONSOL. CT. NO. 98-04-00906 PAGE 31
demands.” Allentown Mack, 522 U.S. at 378 (rejecting NLRB’s
systematic under- valuation of certain type of evidence)
(emphasis added). The inference drawn from the evidence cited
by Commerce and Domestic Producers in this case must therefore
be reasonable and consistent with the evidence available in
the entire record. First, with regard to the lack of evidence
establishing price rejection by POSCO and POCOS, Commerce
justifies its inference by claiming that “[n]either POCOS nor
POSCO has offered an explanation for the uncanny ability of
U.S. customers, given the absence of published price lists, to
suggest prices that appear always to be accepted by [POSCO and
POCOS].” Gov’t Br. at 33. In doing so, however, Commerce
inadequately considered that POSCO did indeed offer such an
explanation during the California verification: “the company
did not indicate that it possessed . . . information [about
price rejection], and indicated that rejections would be
unusual, given the small number of U.S. customers, the minimal
numbers of sales to those customers, and the customers’
knowledge about POCOS’ pricing.” POSCO U.S. Sales
Verification Report (Sept. 6, 1997), at 3, C.R. Doc. 51, POSCO
App., Tab 10, at 3.
Second, Commerce notes that the “markup value” cell in
POSAM’s cost spreadsheets was entered by hand rather than
CONSOL. CT. NO. 98-04-00906 PAGE 32
based on a formula, from which it concludes, “a possible
interpretation would be that the affiliate does in fact have
some input into the magnitude of the markup it earns on the
sales.” Final Results, 63 Fed. Reg. at 13,183 (emphasis
added). While this may well be a “possible interpretation” of
the handwritten entries, substantial evidence requires that
Commerce’s inference of input by U.S. affiliates into the U.S.
price be based on some likelihood, not a mere “possible
interpretation” that is not otherwise corroborated by record
evidence.
Finally, Commerce and Domestic Producers emphasize the
significant portion of SG&A expenses of the U.S. affiliates
spent with respect to U.S. sales.24 This factor was raised by
Domestic Producers during the second administrative review as
well, and Commerce concluded then that despite such
significant SG&A expenses by the U.S. affiliates, the sales
warranted EP classification. See Second Review, 62 Fed. Reg.
24 POSCO contests Commerce’s reliance on SG&A expenses
because they claim that Commerce never properly requested the
U.S. affiliates’ SG&A information. POSCO Br. at 17. Commerce
indicated in the Final Results that POSCO had been requested
to provide such information on more than one occasion. 63
Fed. Reg. at 13,183. The court does not decide whether
Commerce properly used facts available in light of the alleged
failure to respond to Commerce’s requests because, as
discussed above, even assuming the correctness of Commerce’s
position, the agency’s determination is not supported by
substantial evidence.
CONSOL. CT. NO. 98-04-00906 PAGE 33
at 18,432-33. Having concluded that EP classification was
warranted despite the SG&A expenses, Commerce may not now
simply identify those expenses as the basis for an inference
that the U.S. affiliates play a significant role in setting
U.S. prices without further explanation. As noted above,
Commerce’s decision to change classification from EP to CEP
must be based on some new configuration of facts or, if based
on the same facts, Commerce must provide an explanation for
its change in approach. See Cultivos Miramonte, 980 F. Supp.
at 1274-76.
There is nothing in this record, including Commerce’s
final determination which indicates the functions undertaken
by POSAM and GHI are of “sufficient substance” to warrant CEP
classification under existing standards. AK Steel, 34 F.
Supp.2d at 762. Commerce has indicated that its prior
approach to CEP and EP decisionmaking was a poor policy
choice. It implies that a new set of standards is applicable,
yet it cites the old standards. The application of any new
standard must be transparent. Exactly what factors are now
discounted, and why, must be explained. As the court has
stated previously, some clear standards are needed. Otherwise
agency decisionmaking may descend into arbitrariness. See
Cultivos Miramonte, 980 F. Supp. at 1274 n.7 (agency change of
CONSOL. CT. NO. 98-04-00906 PAGE 34
practice arbitrary if “factual findings and underlying reason
for change are not supported by substantial evidence”).
IV. Movement Expenses in CEP Profit Calculation
Background
For purposes of CEP based U.S. price, consistent with 19
U.S.C. § 1677a(f)(2)(B), Commerce calculated the total U.S.
expenses component of the applicable percentage to be applied
to profit for each respondent as the sum of U.S. commissions,
U.S. direct expenses, and U.S. indirect expenses. Dongbu
Analysis Memorandum (Mar. 16, 1998), at 9-10, C.R. Doc. 82,
Domestic Producers’ App., Tab 12, at 2-3. Commerce included
respondents’ total movement expenses25 in calculating the total
expense amount for the denominator of the applicable
percentage even though movement expenses are not included in
the numerator containing U.S. expenses. Id. at 9, Domestic
Producers App., Tab 12, at 2.
25 The statute provides, in relevant part, that total
expenses are those:
incurred by or on behalf of the foreign producer and
foreign exporter of the subject merchandise and by
or on behalf of the United States seller affiliated
with the producer or exporter with respect to the
production and sale of such merchandise.
19 U.S.C. § 1677a(f)(2)(C).
CONSOL. CT. NO. 98-04-00906 PAGE 35
Domestic Producers argue that Commerce’s inclusion of
movement expenses in the denominator reflects an impermissible
construction of the statute, as held in U.S. Steel Group, 15
F. Supp.2d at 897-898. Total expenses, Domestic Producers
contend, are limited to those expenses pertaining to the
production and sale of the subject merchandise and do not
encompass movement expenses.26
Discussion
A. As a preliminary matter, Commerce argues that Domestic
Producers are precluded from raising this issue for failure to
exhaust their administrative remedies. Essentially the court
looks at administrative efficiency and fairness in deciding
whether an issue may be raised for the first time on appeal
from an antidumping duty determination. See Alhambra Foundry
Co. v. United States, 12 CIT 343, 347, 685 F. Supp. 1252, 1256
(1988) (stating exception to exhaustion doctrine “when
requiring exhaustion would be futile or an insistence on a
useless formality.”); Budd Co., Wheel & Brake Div. v. United
States, 15 CIT 446, 452 n.2, 773 F. Supp. 1549, 1555 n.2
26 In more than three court cases, Commerce has not
provided a reasoned explanation for its approach.
Respondent’s post hoc rationale cannot substitute for
explanations by the agency. In any case, the court concludes
no reasoned approach can trump the statute.
CONSOL. CT. NO. 98-04-00906 PAGE 36
(1991) (listing cases where court has not required exhaustion
of administrative remedies).
Domestic Producers raise two points on the fairness side
of the scale. The first is that a court decision intervened
indicating Commerce’s computation method was incorrect. See
U.S. Steel Group, 15 F. Supp.2d at 897-98. The second is that
this was an unimportant issue at the administrative stage, as
the preliminary results indicated that Dongbu’s and the POSCO
Group’s U.S. Sales, as well as a portion of Union’s U.S.
sales, would be treated as EP sales. Preliminary Results, 62
Fed. Reg. at 47,425. After the final results were issued
Domestic Producers had no opportunity to raise the issue.
The court generally takes a strict view of the need to
exhaust remedies by raising all arguments. Intervening case
law may bolster a claim that exhaustion should be waived, see
Rhone Poulenc, S.A. v. United States, 7 CIT 133, 135, 583 F.
Supp. 607, 610 (1984), but generally more is needed. The
court expects attorneys to raise the viable arguments
available to them in advance of court rulings.
In Rhone Poulenc, on which Domestic Producers rely, the
additional factor was that argument there would have been
futile because the legal issue was settled at the agency after
a full airing. See Rhone Poulenc, 7 CIT at 135-36, 583 F.
CONSOL. CT. NO. 98-04-00906 PAGE 37
Supp. at 610-11. In this case, it is not clear that further
argument to the agency would not have provided, at least, a
more clearly explained determination for review. Thus, the
court is not completely swayed by the intervention of U.S.
Steel.
The court is persuaded, however, by the additional factor
of the lack of fair opportunity to raise the issue before the
agency. It would be foolish to encourage parties to make
arguments because they might somehow become important under a
possible future scenario. In the interest of administrative
efficiency, parties should be encouraged to address only the
issues that are currently relevant and to drop arguments that
likely will have no significant effect on the administrative
proceedings. Accordingly, Domestic Producers were not
required to raise this argument when EP, not CEP, sales were
at issue.
B. The court has fully explained in U.S. Steel and again in
Thai Pineapple Canning Indus. Corp. v. United States, 1999 WL
288772, *7-8 (Ct. Int’l Trade May 5, 1999) why Commerce’s CEP
profit methodology is at odds with the statute. The reader is
referred to those cases for a full discussion. Suffice it to
say that whether the language of the statute is clear when
parts are read in isolation is irrelevant because when all
CONSOL. CT. NO. 98-04-00906 PAGE 38
parts are read together the statute is clear. In constructing
the percentage for allocation of total profit to U.S. price
sales, Commerce must use the same categories of expenses in
the numerator and the denominator because this is what 19
U.S.C. § 1677a(f), as interpreted by the SAA, requires. In
contrast, Commerce requires proportionality in a ratio that it
has created for administrative convenience and is not
constructing the ratio required by the statute enacted by
Congress. Movement expenses appear to be excluded from the
denominator by the statutory language describing the
denominator, and from the numerator by the statutory language
describing it. More importantly, because movement expenses
are excluded from the numerator of the ratio they are to be
excluded from the denominator so that a genuine ratio for
purposes of allocation of total profit may be established.
What factors Commerce considers in determining actual profit,
which is allocated by the ratio, is not determinative of the
construction of the ratio.
V. Interest and Other Indirect Selling Expenses
Background
Commerce asked the POSCO Group, with respect to U.S.
sales, to provide transaction-specific data on indirect
selling expenses incurred both in the home market and the
CONSOL. CT. NO. 98-04-00906 PAGE 39
United States, and to report inventory carrying costs incurred
both in the home market and the Unites States. See
Questionnaire, at C-37-39, Def.’s App., Ex. 4, at 2-4. With
respect to each of these variables, the POSCO Group responded
that the reporting requirements were “not applicable because
all of POSCO’s and POCOS’ sales are export price sales.” See
POSCO Questionnaire Response (Nov. 19, 1996), at C-59-61, P.R.
Doc. 53, Def.’s App., Ex. 2, at 2-4.
In a supplemental questionnaire, Commerce again
instructed the POSCO Group to provide information regarding
U.S. indirect selling expenses and inventory carrying costs,
specifically indicating that these data might be required for
Commerce’s calculations in the Final Results. Supplemental
Questionnaire (Jan. 17, 1997), at 37, P.R. Doc. 65, Def.’s
App., Ex. 15, at 2. Again, the POSCO Group declined to
provide the requested information.
Thus, when Commerce determined in the Final Results that
the POSCO Group’s U.S. sales should be reclassified as CEP
transactions, the record did not include the data required to
adjust CEP, pursuant to 19 U.S.C. § 1677a(d)(1). See Final
Results, 63 Fed. Reg. at 13,183. Commerce did not make an
interest adjustment in the Final Results.
CONSOL. CT. NO. 98-04-00906 PAGE 40
Domestic Producers filed a ministerial error allegation,
pursuant to 19 C.F.R. § 353.28 (1997), arguing that Commerce
inadvertently omitted from its final calculations certain
interest selling expenses incurred by the POSCO Group’s U.S.
affiliates27 in the United States. Ministerial Error
Allegation (Mar. 31, 1998), at 2, C.R. Doc. 90, POSCO App.,
Tab 16, at 2.
The POSCO Group defended Commerce’s original decision,
arguing that the Department correctly excluded interest
expenses from its calculation of U.S. indirect selling
expenses and that any interest expense incurred by its U.S.
affiliates was captured by the imputed credit expense as
reported. POSCO Response to Ministerial Error Letter (Apr. 3,
1998), at 2, P.R. Doc. 212, Def.’s App., Ex. 17, at 2. The
POSCO Group also argued that Commerce’s “standard practice is
not to include interest expenses in the calculation of U.S.
indirect selling expenses in order to avoid the double-
counting of expenses.” Id.Commerce analyzed the parties’ ministerial error
allegations and concluded that the agency had indeed committed
the error alleged by Domestic Producers. Ministerial Error
27 Domestic Producers name [ ] and POSAM as
affiliates. Ministerial Error Allegation (Mar. 31, 1998), at
3, C.R. Doc. 90, POSCO App., Tab 16, at 3.
CONSOL. CT. NO. 98-04-00906 PAGE 41
Analysis Memorandum (Apr. 15, 1998), at 5, P.R. Doc. 216,
Def.’s App., Ex. 18, at 4. Commerce issued an Amended Final
Determination using facts available information for the
interest adjustment. See Amended Final Results, 63 Fed. Reg.
at 20,573.
Commerce stated, in response to POSCO’s separate
ministerial error allegation as to the indirect selling
expense calculation, that it had not intended to exclude
“commissions” or “bank charges” from its calculations of
indirect selling expenses for U.S. sales of POCOS merchandise,
and that it had meant to include the relevant rental operating
expenses in question in its calculation of indirect selling
expenses for U.S. sales.28 Ministerial Error Analysis
Memorandum, at 3-4, Def.’s App., Ex. 18, at 2-3. Thus, it
denied POSCO’s ministerial error claim.
Discussion
POSCO does not seriously challenge the use of facts
available under 19 U.S.C. § 1677e (1994), if an interest
adjustment is warranted. POSCO is correct in not emphasizing
this issue, as it had sufficient opportunity to provide this
28 Commerce’s Amended Final Results mirror the analysis
set forth in its April 15, 1998 memorandum. Compare Amended
Final Results, 63 Fed. Reg. at 20,573, and Ministerial Error
Analysis Memorandum, at 4-5, Def.’s App., Ex. 18, at 3-4.
CONSOL. CT. NO. 98-04-00906 PAGE 42
data. It was, at least, twice requested by Commerce. Even
though it relates to CEP, which POSCO objects to, POSCO took
the risk in not providing the data knowing that in this case
Commerce might elect to use an approach to U.S. sales
requiring it.
POSCO does challenge both the timing and the substance of
the adjustment. Commerce has provided the court very little
to go on. It is difficult to tell whether this is a mere
ministerial error, which can be made after the final results,
because Commerce does not explain the substance of its
approach. Nor does Commerce explain why the amount it chose
is a proper facts available amount. Is this an adverse
selection pursuant to 19 U.S.C. § 1677e(b)? If the Department
did make an adverse inference, what is the basis for its
selection?
If CEP is used on remand, Commerce should explain its
interest methodology and whether it was a standard methodology
which was merely overlooked. Further, Commerce must explain
in more detail its rejection of POSCO’s ministerial error
claim. A contrast of the different treatment of the two
claims might be enlightening.
CONSOL. CT. NO. 98-04-00906 PAGE 43
VI. Warehousing Expenses
Background
In order to make proper price adjustments, Commerce asked
respondent Union to report transaction-specific data
concerning U.S. post-sale warehousing expenses and to provide
narrative descriptions of its U.S. warehousing practices
during the POR. Union Questionnaire (Sept. 19, 1996), at C-
34, P.R. Doc. 11, Def.’s App., Ex. 19, at 2. Following
Union’s response, Commerce sought more specific information
pertaining to U.S. sales for which the terms indicated that
Union would pay demurrage and handling, but for which none had
been reported. Union Supplemental Questionnaire (Jan. 10,
1997), at 19, C.R. Doc. 17, Def.’s App., Ex. 21, at 3.
Commerce accepted Union’s response, which explained that no
warehousing expenses had been incurred for the sales in
question. Final Results, 63 Fed. Reg. at 13,187. Union
stated that it had received free warehousing according to the
terms of a storage agreement.29 Union Verification Memorandum
(June 30, 1997), at 16, P.R. Doc. 38, Def.’s App., Ex. 23, at
6. The sales marked “warehoused and delivered” (“W&D”) but
29 Union provided Commerce with documentation
supporting its alleged agreement with [ ]. Specifically,
the agreement allowed [ ]. Union Verification
Memorandum (June 30, 1997), at Ex. 29, P.R. Doc. 38, Def.’s
App., Ex. 23, at 10.
CONSOL. CT. NO. 98-04-00906 PAGE 44
without expenses recorded, were instances in which the
customer picked up the merchandise immediately upon arrival.
Union Response (Feb. 21, 1997), at 55, P.R. Doc. 23, Def.’s
App., Ex. 22, at 2.
During verification, upon examination of five of Union’s
transactions (observations 83, 203, 484, 735, and 736),
Commerce determined that Union had incurred no warehousing
expenses. See Union Verification Memorandum, at 11-12, 16,
Def.’s App., Ex. 23, at 4-6. Commerce concluded that there
were no deficiencies or contradictions in Union’s explanations
concerning its reporting of U.S. warehousing expenses. Final
Results, 63 Fed. Reg. at 13,187. Domestic Producers allege
that Union did not report warehousing expenses for numerous
U.S. sales and that these are expenses “incident to bringing
the subject merchandise from the original place of shipment in
the exporting country to the place of delivery in the United
States,” pursuant to 19 U.S.C. § 1677a(c)(2)(A). Domestic
Producers therefore contend that Commerce failed to properly
verify the information upon which it relied and that the
agency’s conclusions are not supported by substantial
evidence.
CONSOL. CT. NO. 98-04-00906 PAGE 45
Discussion
As noted, at verification, Commerce elected to examine a
sample of the sales for which no warehousing expenses were
reported. Domestic Producers’ independent examination of the
sales verified by Commerce reportedly revealed “gaps” (time
windows between shipping to the warehouse and shipping to the
customer) in a majority of the observations, although a
minority contained gaps of more than five days.30 Domestic
Producers report what they deem to be suspicious correlations
between the terms of sale associated with certain sales and
the gaps for those sales. Domestic Producers claim these
discrepancies indicate periods for which Union must have
incurred unreported warehousing expenses. Moreover, Domestic
Producers claim that, of the five sales Commerce examined
closely, three show evidence of warehousing expenses.
Domestic Producers argue that Commerce failed to satisfy the
requirements of 19 U.S.C. § 1677m(i)(3) (1994), pursuant to
which the agency shall “verify all information relied upon in
making . . . a final determination in a review,” and that the
agency’s decision regarding warehousing expenses is
30 The record shows gaps in [ ] of the [ ]
observations, [ ] of which involve gaps ranging from [ ].
See Domestic Producers’ Br. at 29-30 (citing Union’s U.S.
Sales Database).
CONSOL. CT. NO. 98-04-00906 PAGE 46
unsupported by substantial evidence in the record. The court
remands to the agency on this issue.
Commerce enjoys “wide latitude” in its verification
procedures. See American Alloys, Inc. v. United States, 30
F.3d 1469, 1475 (Fed. Cir. 1994); Carlisle Tire & Rubber Co.
v. United States, 9 CIT 520, 532, 622 F. Supp. 1071, 1082
(1985) (“It is within the discretion of Commerce to determine
how to verify” and “due deference will be given to the
expertise of the agency.”) (citation omitted). Verification
“is not intended to be an exhaustive examination of the
respondent’s business.” Monsanto Co. v. United States, 12 CIT
937, 944, 698 F. Supp. 275, 281 (1988). Thus, Commerce has
the discretion to choose a spot-check sampling procedure
rather than a comprehensive examination of each sale.
Domestic Producers also complain that the agency did not
look past the supporting documents it deemed credible. For
instance, the agency presumed that the document,31 which Union
presented to account for periods during which merchandise was
warehoused without a warehousing expense, was in fact a
binding contract covering the period of review. Domestic
Producers note that in Al Tech Specialty Steel Corp. v. United
31 This document sets forth the storage and handling
policies of [ ], dated May 31, 1994. Union Verification
Memorandum, at Ex. 29, Def.’s App., Ex. 23, at 10.
CONSOL. CT. NO. 98-04-00906 PAGE 47
States, this court determined that “an absence of
contradictory evidence, in and of itself, does not meet the
verification requirements of 19 U.S.C. § 1677m(i).” 1998 WL
661461, *4 (Ct. Int’l Trade Sept. 24, 1998). To meet the
requirement, Al Tech held that Commerce must establish record
evidence supporting or authenticating the “factual statement
upon which Commerce relies in making a final determination in
an administrative review.” Id.The contract accepted by the agency to support the verbal
statement is the sort of support or authentication referred to
in Al Tech. The court defers to the agency’s sensibility as
to the depth of the inquiry needed. In the absence of
evidence in the record suggesting the need to examine further
the supporting evidence itself, the agency may accept the
credibility of the document at face value.32 See PPG Indus.,
Inc. v. United States, 15 CIT 615, 620, 781 F. Supp. 781, 787
(1991) (“[W]hen Commerce finds the information submitted by a
respondent ‘to be complete and its explanations sound, it may
need no further information.’”) (quotation omitted).
32 To conclude otherwise would leave every verification
effort vulnerable to successive subsequent attacks, no matter
how credible the evidence and no matter how burdensome on the
agency further inquiry would be.
CONSOL. CT. NO. 98-04-00906 PAGE 48
If the court deems Commerce’s verification procedures to
be manifestly inadequate, the proper result would be remand to
the agency, not substitution of a verification plan devised by
an interested party. As this court has already made clear,
Domestic Producers are not independent investigators
with power to re-verify Commerce’s verification . .
. . They may not usurp Commerce's role as
fact-finder and substitute their analysis of [the]
data for the result reached by Commerce in the
Verification Report. Moreover, the court will not
supersede Commerce's conclusions so long as it
“applies a reasonable standard to verify materials
submitted and the verification is supported by such
relevant evidence as a reasonable mind might
accept.”
AK Steel, 34 F. Supp.2d at 772-73 (citation omitted).
Accordingly, having found the verification methodology
acceptable, the court turns to a review of Commerce’s
warehousing expense decision based on an examination of the
three selected observations contested by Domestic Producers.
Observation 203
This transaction involved a substantial delay between the
entry date and shipment date33 caused by the customer’s initial
refusal to purchase the product. Union explained to Commerce
33 The record shows a gap of [ ] for observation 203.
Union Verification Memorandum, at 16, Def.’s App., Ex. 23, at
6; see also Union’s U.S. Sales Listing for Observations 83,
203, 484, 651 (Aug. 8, 1997), at 1, Union’s App., Tab 8, at 1.
CONSOL. CT. NO. 98-04-00906 PAGE 49
that the customer agreed to store the merchandise pending
negotiations, and that Union ultimately paid the customer
compensation in settlement of their dispute.34 Union
Verification Memorandum, at 16, Def.’s App., Ex. 23, at 6.
Domestic Producers contend that Union failed to provide
evidence of the compensation payment, and that the “free
storage” agreement between Union and its customer does not
account for the three weeks between the sale’s entry and
delivery to the customer. Commerce examined the contract and
found no evidence that Union failed to report warehousing
expenses. Final Results, 63 Fed. Reg. at 13,187. Defendant
explains that Commerce found that Union was fully responsive
to the Department’s concerns, and that Union offered a
reasonable explanation for the delay between entry date and
shipment date. Gov’t Br. at 57.
Domestic Producers claim that Union incurred warehousing
expenses during the period that its customer stored the
merchandise. This ignores the fact that the consumer was
storing the merchandise for itself, however, and not for
Union. Thus, there is no reason Union would have incurred
storage charges during the period of the dispute. The court
34 Union produced the contract it had with the
customer, [ ]. Union Verification Memorandum, at Ex. 29,
Def.’s App., Ex. 23, at 11-12.
CONSOL. CT. NO. 98-04-00906 PAGE 50
finds that Commerce’s determination was reasonable and
supported by substantial evidence.
Observation 484
Domestic Producers assert that the undisclosed location
of the subject merchandise in observation 484 during a short
gap35 between the reported entry date and shipment date proves
that warehousing expenses were incurred. At verification,
Union explained to Commerce that the coils at issue were
picked up by the customer the same day they were shipped to
the warehouse. Union Verification Memorandum, at 11, Def.’s
App., Ex. 23, at 4. Domestic Producers complain that Union
failed to demonstrate that the customer actually picked up the
product on the same day it was delivered. They also point to
the labeling of the transaction as “Warehoused & Delivered,”
and refer to a document which they claim identifies the
warehouser.36 See Union Verification Exhibit 25 (undated), at
34-35, C.R. Doc. 38, Domestic Producers’ App., Tab 6, at 34-
35. The document shows that merchandise was delivered from an
entity otherwise absent from the record to a warehouse. It is
35 The gap for observation 484 was a period of [ ].
Union’s U.S. Sales Listing for Observations 83, 203, 484, 651,
at 1, Union’s App., Tab 8, at 1.
36 The document refers to delivery from [ ] to [ ]
on [ ]. Union Verification Exhibit 25 (undated), at 34-35,
C.R. Doc. 38, Domestic Producers’ App., Tab 6, at 34-35.
CONSOL. CT. NO. 98-04-00906 PAGE 51
not discernable, however, whether the merchandise delivered
was part of observation 484, or even that it could be tied to
Union at all. Union defended, with reference to different
documentation, that the coils in question
were delivered to the warehouse prior to the date indicated on
the document mentioning the mystery company.37 Union
Verification Memorandum, at 11 and Ex. 25, Def.’s App., Ex.
23, at 4 and 9.
Judicial review of an agency determination is limited.
Timken Co., 12 CIT at 962, 699 F. Supp. at 306. The court may
not reject an agency’s factual finding on the basis of simply
a differing interpretation of the record. Id.; see also
Consolo, 383 U.S. at 619-20. When conflicting inferences are
drawn from the record evidence, “the decision as to the
credibility of the evidence . . . is well within the province
of Commerce and this court will not disturb it.” Usinor
Sacilor v. United States, 19 CIT 711, 725, 893 F. Supp. 1112,
1127 (1995), (citing Timken, 12 CIT at 962, 699 F. Supp. at
306).
After reviewing the record evidence, Commerce determined
that Union’s explanation was valid. The document cited by
37 Union reported that the merchandise in question was
delivered to [ ] on [ ]. Union Verification Memorandum,
at Ex. 25, Def.’s App., Ex. 23, at 9.
CONSOL. CT. NO. 98-04-00906 PAGE 52
Domestic Producers does not undermine the substantial evidence
that warehousing expenses were not incurred. The court
therefore upholds Commerce’s decision regarding observation
484.
Observation 83
The record shows that this transaction involved a
significant gap between date of entry and date of shipment to
the customer.38 Union’s U.S. Sales Listing for Observations
83, 203, 484, 651, at 1, Union’s App., Tab 8, at 1. Union
explained that no warehousing costs were incurred for a time,39
as per the agreement with its warehouser, and that expenses
for the remaining period were paid by the U.S. customer.
Union Verification Memorandum, at 16, Def.’s App., Ex. 23, at
6. Domestic Producers complain that no evidence links the
document submitted by Union to observation 83, or proves that
the U.S. customer in fact paid for the remaining warehousing
costs.
As indicated, Commerce may make credibility
determinations when examining record evidence. Usinor
Sacilor, 19 CIT at 725, 893 F. Supp. at 1127. Commerce
38 The delay was for a period of [ ]. Union’s U.S.
Sales Listing for Observations 83, 203, 484, 651, at 1,
Union’s App., Tab 8, at 1.
39 [ ]
CONSOL. CT. NO. 98-04-00906 PAGE 53
appropriately deemed that Union’s document supported the truth
and the accuracy of Union’s explanation.
Substantial evidence is “such relevant evidence as a
reasonable mind might accept as adequate to support a
conclusion,” and “more than a mere scintilla.” Consolidated
Edison Co. v. NLRB, 305 U.S. 197, 229 (1938). Union’s
document meets this threshold. The court therefore finds the
document, if applicable, to be substantial evidence.
It is not clear, however, whether the observation 83 sale
met the conditions for free warehousing as stated in Union’s
document.40 Even if Commerce relied on Union’s representation
that the warehousing was indeed free of charge, it is also
unclear whether Commerce had substantial evidence accounting
for free warehousing beyond the period described in Union’s
document.
As discussed above, Commerce was within its discretion in
electing to examine only a sample of the set of observations,
rather than all of them. Commerce’s conclusions as to four of
the five examined sales are accepted by the court. Domestic
Producers did not challenge two of Commerce’s conclusions.
40 The record does not show that the transaction
involved [ ] as stated in the [ ] storage and handling
policy. Union Verification Memorandum, at Ex. 29, Def.’s
App., Ex. 23, at 10.
CONSOL. CT. NO. 98-04-00906 PAGE 54
Two more, observations 203 and 484, have withstood scrutiny by
this court. The court therefore remands to Commerce to
clarify whether the record contains substantial evidence for
its decision as to observation 83. If Commerce is unable to
support its decision on this record, the agency must conclude
that observation 83 is not verifiable, and is instructed to
re-assess its overall decision on warehousing expenses
accordingly.
VII. Conclusion
This matter is remanded for reconsideration of the
selection of CEP rather than EP for POSCO’s U.S. sales. If
relevant to its remand determination, Commerce shall also
reconsider its treatment of indirect selling expenses and
shall recalculate profit. Commerce’s determinations relative
to POSCO’s normal value are upheld. Commerce’s determination
as to Union’s warehousing expenses is remanded.
CONSOL. CT. NO. 98-04-00906 PAGE 55
Remand results are due within 45 days of the date of this
opinion. Objections are due 15 days thereafter, responses 11
days thereafter.
_________________________
Jane A. Restani
Judge
DATED: New York, New York
This 20th day of October, 1999.