United States Court of International Trade

Final Results Regarding Certain Activated Carbon Remanded in Part

In Jacobi Carbons AB Jacobi Carbons, Inc. et al. v. United States et al., Consol. Court No. 15-286, Slip Op. 18-46 (April 19, 2018), the Court remanded in part, Department of Commerce’s final results in the seventh administrative review (“AR7”) of the antidumping duty order on certain activated carbon from the People’s Republic of China (“PRC” or “China”). Because of the growing difference between PRC’s per capita gross national income (GNI) and the Philippines’ per capita GNI, it was clear that the Philippines and China moved in different levels of economic development. Thus, Philippines was not an appropriate surrogate country for purposes of AR7.  The Court sustained Commerce’s determination that Philippines was not listed as a possible surrogate country.

However, the Court remanded Commerce’s decision as to what is a significant producer.  According to the Court, there is “a lack of reasoning as to why the chosen measures and particular amounts of domestic production or net exports represent significant production.” Slip Op. pg. 25.  Commerce did not explain why two Thai firms’ (Cabokarn Co., Ltd. and C. Gigantic Carbon Co., Ltd.)  domestic sales and net exports are “significant” to   designate Thailant as a significant producer.

Moreover, a remand was required for Commerce to further explain its determination that the Cabokarn 2011 statement contains no evidence of countervailable subsidies to  value financial ratios or otherwise provides suitable surrogate financial data.  A remand was also required for aberrational data used for an input where it was beyond the high end range in value for this input, and why historical data from other surrogate countries may not be used, even if they are not currently economically comparable to the PRC. Finally, the Court remanded again the VAT adjustment so Commerce may reconsider the record evidence and apply a methodology consistent with the record evidence and U.S. law.

Final Results in Review on Steel Threaded Rod from the PRC Sustained

In Vulcan Threaded Products Inc. v. United States et. al.  Slip Op. 18-45, Court No. 16-00268 (April 18, 2018) the Court reviewed Commerce’s determinations regarding surrogate values in an antidumping investigation of threaded steel rod from China. During the investigation, Commerce selected import data from Bulgaria as the best available information on the record. Plaintiffs argued that Thai import data was the best available information, and that Commerce’s decision was not supported by substantial evidence on the record. For the following reasons, the Court sustained Commerce’s decisions in full as being supported by substantial evidence.

Plaintiffs argued there was substantial evidence on the record so that no reasonable person could find the Bulgarian import data superior to the Thai import data. Specifically, plaintiffs argued the Bulgarian HTS breakdown of steel rods by diameter affected the reliability of the data, and that the Thai data was more representative of the industry in China. Commerce’s determinations must be supported by substantial evidence, meaning the evidence must be enough so that reasonable mind might accept it as adequate to support a conclusion. The Court said that Commerce “chose to prioritize the quality of wire rod data” and since “the Bulgarian set contained some data for wire rod with diameters of 14mm or larger, while the Thai set contained no information” reasonable minds could conclude that Commerce used the best available data, supported by substantial evidence. Id. at 9. Plaintiffs also argued that since the Bulgarian data included steel rods with a .25% carbon content as opposed to Thailand’s .23% carbon content the data was not as specific. However, the Court said plaintiffs pointed “to nothing in the record that would indicate that the inclusion of steel imports with a carbon content of 0.24 percent would affect the accuracy of Commerce’s calculations,” as such the Court sustained the determination. Id. at 10. The Court also pointed out that each ADD investigation, is an independent investigation by Commerce and because Commerce had selected Thai data before the agency was under no obligation to do so again.

Duty Drawback Adjustment Decision in Corrosion-Resistant Steel Products from India Remanded

In Uttam Galva Steels Ltd. v. United States et. al. Slip Op. 18-44, Court No. 16-00162 (April 18, 2018) the Court heard arguments regarding Commerce’s determinations regarding an antidumping investigation of certain corrosion-resistant steel products from India. The main issue was whether “Commerce erred in its determination of the amount of duty drawback adjustment for Uttam Galva.” For the following reasons the Court holds Commerce’s methodology for calculating the adjustment was not in accordance with the law.

The main issue in the case was “whether Commerce reasonably calculated the duty drawback adjustment” “by reducing the … adjustment to Uttam Galva’s U.S. sales and allocating the duty exemptions and rebates claimed over total cost of production.” Id. at 9. Plaintiffs argued that this practice violated the statutory authority given to Commerce, and was inconsistent with Commerce’s prior practice and thus should have been subject to APA notice and comment. The Court said that the purpose of the drawback adjustment was to properly adjust the export price and normal value of the goods under investigation, so that a fair dumping duty margin could be calculated. By using Commerce’s current methodology, Commerce improperly “reduced the duty drawback adjustment to Uttam Galva’s U.S. sales by allocating duty exemptions claim over total production.” Thus, there is no true link between the duty drawback adjustment and the act of exporting.  As such, the Court held that Commerce’s practice was inconsistent with the statute and not in accordance with the law. In regards, to plaintiff’s argument that the change in test should have been subject to APA notice and comment, the Court said “agencies may deviate from past practice, as long as they provide a reasonable explanation for the change.” Id. at 15.  In this case, the change did not need require any notice and comment as long as Commerce reasonably explained why it changed the test. Since, the test was inconsistent with the law it was an unreasonable explanation. As such, the Court remanded to Commerce to recalculate Uttam Galva’s duty drawback adjustment in accordance with the opinion. 

Decision Remanded to Reconsider Treatment of Cost of Caps in Circular Welded Carbon-Quality Steel Pipe Case

In Wheatland Tube Company v. United States, Court No. 17-21, Slip Op. 18-49 (April 24, 2018), plaintiff Wheatland Tube Company (“Wheatland”), a domestic producer of circular welded carbon-quality steel pipe (“CWP”), challenged the treatment of the cost of caps by the U.S. Department of Commerce (“Commerce”) in the investigation of CWP from the United Arab Emirates (“UAE”). At verification, Commerce found that respondent, Universal Tube and Plastic Industries, LLC – Jebel Ali Branch, Universal Tube and Pipe Industries, Ltd., and KHK Scaffolding and Framework LLC (collectively, “Universal”), had impermissibly double counted the cost of caps as both a packing expense and part of its cost of manufacturing.  In other proceedings Commerce had already instructed Universal to remove the cost of caps from packing expenses, treating them as a cost of Universal’s manufacturing.  However, in the investigation of CWP from the UAE, because the error was not found until verification, Commerce held that the record does not contain sufficient information to determine whether the caps should be treated as packing or a direct material. The Court disagreed and remanded the determination to reconsider the treatment of Universal’s cost of caps.

United States Court of Appeals for the Federal Circuit

Federal Circuit Upholds Use of “Substantial Transformation” Test in AD, CVD Scope Inquiries

The Commerce Department can use the country of origin test of “substantial transformation” in deciding whether further-manufactured products are included within the scope of an antidumping or countervailing duty order, according to a new decision of the United States Court of Appeals for the Federal Circuit.

In Bell Supply Co. LLC v. United States, Court No. 2017-1492 et al (April 25, 2018), an antidumping order covered Oil Country Tubular Goods from China, whether finished or unfinished (“green” tubes).  The plaintiff purchased “green” tubes made in China, and then sent them to Indonesia where, by processes of heat treatment, threading, coating and other working, they were turned into finished OCTG, which was then imported  into the United States from Indonesia.

Domestic steel producers asked Commerce to rule on whether the Indonesian steel was within the scope of the Chinese antidumping order [there was no outstanding order against Indonesian tubes].  The domestics argued that it should be considered subject merchandise of Chinese origin, and covered by the antidumping duty order. The Commerce Department ruled that the finishing processes performed in Indonesia did not constitute a “substantial transformation”, resulting in a change of name, character or use, and thus did not confer Indonesian origin.

The CIT held that because the antidumping order did not expressly address goods further processed in other countries, Commerce could not use the “substantial transformation” rule to hold the Indonesian goods subject to the order. Instead, to include the Indonesian goods in the order, Commerce would need to initiate an “anticircumvention” inquiry.

There is a critical difference between the two: a finding that the goods were subject to the AD order based on the “lack of substantial transformation” principle would mean that the goods had always been subject to the order.  By contrast, an “anticircumvention” proceeding would require a new investigation and, if affirmative, could only be applied on a prospective basis.

The Court of Appeals for the Federal Circuit vacated and remanded the CIT’s decision, holding that Commerce could apply either the “substantial transformation” test or the anticircumvention proceeding to resolve the question.

The Court held that the question of which country a product was “from” was amorphous and that the “substantial transformation” test could be used to determine whether the imported “finished” tubes were products of China. The Court stated the test as follows:

A substantial transformation occurs where, “as a result of manufacturing or processing steps . . . [,] the[product] loses its identity and is transformed into a new product having a new name, character and use.” Bestfoods v. United States, 165 F.3d 1371, 1373 (Fed. Cir.1999). To determine whether there has been a substantial transformation, Commerce looks to factors such as (1) the class or kind of merchandise; (2) the nature and sophistication of processing in the country of exportation; (3) the product properties, essential component of the merchandise, and intended end-use; (4) the cost of production/value added; and (5) level of investment.

If Commerce determines that the goods do not undergo a “substantial transformation” outside of the subject country, then they will be treated as products of the country subject to the antidumping or countervailing duty order, and covered by such orders ab initio.

If the product does undergo a “substantial transformation” in the foreign country, then Commerce’s only way to include it in the scope of an antidumping order would be a prospectively-focused “anticircumvention” proceeding. With respect to such proceedings, the CAFC held:

Separate from the substantial transformation analysis, § 1677j provides an anti-circumvention provision that prevents importers from avoiding AD or CVD orders by routing their merchandise through a third country. Section 1677j(b) applies to “merchandise imported into the United States [that] is of the same class or kind as any merchandise produced in a foreign country that is the subject of” an AD or CVD order, but is assembled or completed in a third country not subject to the order. To include such merchandise within the scope of an order, Commerce must determine that (1) “the process of assembly or completion in the foreign country . . . is minor or insignificant,” (2) the value added in the country subject to the AD and CVD order is a significant portion of the total value of the merchandise, and (3) “action is appropriate under this paragraph to prevent evasion of such order or finding.” § 1677j(b)(1)(C)–(E).