Diamond Sawblades Mfrs. Coal. v. United States , 2013 CIT 130 ( 2013 )

Slip Op 13 - 130
UNITED STATES COURT OF INTERNATIONAL TRADE
:
DIAMOND SAWBLADES :
MANUFACTURERS COALITION, :
:
Plaintiff, :
:
v. : Before: R. Kenton Musgrave, Senior Judge
: Consol. Court No. 06-00248
UNITED STATES, :
: PUBLIC VERSION
Defendant, :
:
and :
:
EHWA DIAMOND INDUSTRIAL CO., LTD., :
SH TRADING, INC., and SHINHAN DIAMOND :
INDUSTRIAL CO. LTD., :
:
Defendant-Intervenors. :
:
OPINION AND ORDER
[Remanding in part investigation of sales at less than fair value of diamond sawblades and parts from
the Republic of Korea.]
Dated: October 11, 2013
Daniel B. Pickard and Maureen E. Thorson, Wiley, Rein & Fielding, LLP, of Washington,
D.C., for plaintiff Diamond Sawblades Manufacturers Coalition.
Eric C. Emerson and Laura R. Ardito, Steptoe and Johnson, LLP, of Washington, D.C., for
consolidated plaintiff Hyosung D&P Co., Ltd.
Delisa M. Sanchez, Trial Attorney, and Melissa M. Devine, Of Counsel Trial Attorney,
Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C.,
for defendant. With them on the brief were Stuart F. Delery, Assistant Attorney General, Jeanne
E. Davidson, Director, and Franklin E. White, Jr., Assistant Director. Of Counsel on the brief was
Hardeep K. Josan, Attorney, Office of the Chief Counsel for Import Administration, U.S.
Department of Commerce, of Washington, D.C.
Consol. Court No. 06-00248 Page 2
Max F. Shutzman, Bruce M. Mitchell, Mark E. Pardo, Ned H. Marshak, and Andrew T. Shutz,
Grunfeld, Desiderio, Lebowitz, Silverman & Kledstadt, LLP, of Washington, D.C., for defendant-
intervenor Ehwa Diamond Industrial Co., Ltd.
Michael P. House and Sabahat Chaudhary, Perkins Coie, LLP, of Washington, D.C., for
defendant-intervenors SH Trading Inc. and Shinhan Diamond Industrial Co. Ltd.
Musgrave, Senior Judge: This opinion addresses the merits of consolidated
challenges to aspects of the investigation into sales of diamond sawblades and parts thereof from the
Republic of Korea at less than “fair” value (“LTFV”). See Diamond Sawblades and Parts Thereof
from the Republic of Korea, 71 Fed. Reg. 29310 (May 22, 2006) (final LTFV determ.) (“Final
Determination”), as ministerially amended by Diamond Sawblades and Parts Thereof from the
Republic of Korea, 75 Fed. Reg. 14126 (Mar. 24, 2010). Familiarity is presumed on the background
of this matter1 as well as the standard of judicial review, 19 U.S.C. §1516a(b)(l)(B)(i) (whether the
1
See, e.g., Diamond Sawblades and Parts Thereof from the People’s Republic of China and
the Republic of Korea, 70 Fed. Reg. 35625 (June 21, 2005) (initiation of investigation into LTFV
sales), PDoc 75; Diamond Sawblades and Parts Thereof from the Republic of Korea, 70 Fed. Reg.
77135 (Dec. 29, 2005) (notice of, inter alia, preliminary LTFV determ.), PDoc 345; Final
Determination, 71 Fed. Reg. 29310; Diamond Sawblades and Parts Thereof from . . . the Republic
of Korea, 74 Fed. Reg. 6570 (Feb. 10, 2009) (notice of court decision not in harmony with final
determination of the antidumping duty (“AD”) investigations); Amended Final Determination, 75
Fed. Reg. 14126; Diamond Sawblades and Parts Thereof from . . . the Republic of Korea, 74 Fed.
Reg. 57145 (Nov. 9, 2009) (AD order); Diamond Sawblades Manufacturers Coalition v. United
States, 35 CIT __, Slip Op. 11-117 (Sep. 22, 2011) (denying motion for temporary restraining order
and preliminary injunction as unripe ); Order of Oct. 13, 2011, ECF No. 56 (granting temporary
restraining order in part and enjoining administrative lifting of suspension of liquidation); Order of
Oct. 24, 2011, ECF No. 58 (granting motion for preliminary injunction against administrative lifting
of suspension of liquidation and denying motion to enjoin revocation of AD duty order); Notice of
Implementation of Determination Under Section 129 of the Uruguay Round Agreements Act and
Revocation of the Antidumping Duty Order on Diamond Sawblades and Parts Thereof [f]rom the
Republic of Korea, 76 Fed. Reg. 66892 (Oct. 28, 2011); Diamond Sawblades Manufacturers
Coalition v. United States, 35 CIT __, Slip Op. 11-137 (Nov. 3, 2011) (publishing reasons for Order
of Oct. 24, 2011); Diamond Sawblades Manufacturers Coalition v. United States, 36 CIT __, Slip
(continued...)
Consol. Court No. 06-00248 Page 3
administrative determination is “unsupported by substantial evidence on the record, or otherwise not
in accordance with law”), which necessarily frames the issues. The reasonableness of agency action
is assessed in light of the record as a whole. E.g., Nippon Steel Corp. v. United States, 458 F.3d
1345, 1350-51 (Fed. Cir. 2006). On that basis, the case will be remanded as follows.
Discussion
Addressed in order, the defendant’s International Trade Administration of the U.S.
Department of Commerce (“Commerce”) contends (I) jurisdiction is lacking over post-section-126-
determination entries but (II) agrees to remand of the determination not to adjust the total indirect
selling expenses (“ISEs”) for respondent Ehwa Diamond Industrial Co., Ltd. (“Ehwa”) to account
for expenses attributable to Ehwa’s “Industrial Division.” The plaintiff, Diamond Sawblades
Manufacturers Coalition (“DSMC”), additionally faults the Final Determination for the following:
(III) non-inclusion of ISEs incurred in the transaction of subject merchandise through Ehwa and its
U.S. affiliates to ultimate purchasers; (IV) non-collapse of various affiliations, namely (A) Ehwa and
Shinhan Diamond Industrial Co., Ltd (“Shinhan”), (B) Shinhan and its Korean affiliates, and (C)
Ehwa and its affiliates in the People’s Republic of China (“PRC”), as well as (D) the impact such
non-collapsing had on the weighted average CONNUMs of subject merchandise sold but not
produced during the period of investigation (“POI”) and the calculation of separate constructed
export price (“CEP”) offsets for Ehwa and Shinhan; (V) the country of origin determination for
finished diamond sawblades; (VI) non-issuance of Section E questionnaires to respondents and
1
(...continued)
Op. 12-46 (Mar. 29, 2012) (denying motion to amend injunction). As used above and herein,
“PDoc” refers to the public administrative record and “CDoc” refers to the confidential
administrative record.
Consol. Court No. 06-00248 Page 4
therefore (VII) non-deducted further manufacturing costs from U.S. Net Price and unadjusted CEP
profit; (VIII) non-application of the major input rule in the adjustment of prices for Ehwa’s and
Shinhan’s purchases from affiliated suppliers; (XI) unadjusted costs of reported purchases from
unaffiliated non-market economy (“NME”) suppliers; (X) and the decision not to base Shinhan’s
financial expense rate on facts otherwise available and/or adverse inferences. The consolidated
plaintiff Hyosung D&P Co., Ltd. (“Hyosung”) and the defendant-intervenors Ehwa and Shinhan,
joined by Shinhan’s U.S. affiliate SH Trading, Inc., move to contest (XI) Commerce’s determination
to employ its traditional zeroing methodology.
I. Jurisdiction
Jurisdiction is here pursuant to 19 U.S.C. §1516a(a)(3) and 28 U.S.C. §1581(c), but
the defendant again contends none exists with respect to Commerce’s determination under section
129 of the Uruguay Round Agreements Act (“URAA”) to revoke the AD order on subject
merchandise, and therefore the court lacks jurisdiction over the entries effected thereby.
To repeat: The defendant is correct that no jurisdiction exists over the section 129
determination, since the DSMC did not challenge it, but that does not translate to automatic
divestment of jurisdiction over the entries covered by the administrative decision to revoke.
Following in the wake of the section 129 determination, Commerce’s decision to revoke the AD
order is independent of that determination, and the entries it would effect necessarily remain subject
to this action. See, e.g., 36 CIT ___, Slip Op. 12-46 (Mar. 29, 2012). In other words, the opportunity
to challenge the section 129 determination is indeed a separate matter, but the decision to revoke the
AD order is “final” only in the sense that the section 129 determination (upon which that revocation
Consol. Court No. 06-00248 Page 5
decision depends) may not be challenged judicially. That does not equate to a powerlessness to
rescind the revocation, should the final outcome of this matter so require, because it is not the
legality of the section 129 determination currently supporting revocation in the first instance that
governs jurisdiction here. The outcome of this action in fact governs the “continued propriety” (for
want of a better phrase) of that revocation,2 and this court continues to adhere to the view that
Commerce cannot act to divest this court of the jurisdiction here retained, nor deprive the court of
the ability to grant relief over any of the entries covered by such jurisdiction, and for which
liquidation continues to be suspended. The status quo of this matter is of an AD order that is based
2
During the hearing on the DSMC’s motion for preliminary injunction the court asked the
DSMC whether the “cleaner” procedural avenue would be to bring a separate challenge to the section
129 determination and then consolidate that action with its LTFV action here. The DSMC argued
that such a procedure was not only unnecessary but inappropriate, as the section 129 determination
was technically correct as it stood, i.e., based on the record before Commerce at the time and before
any final judicial decision on this matter affecting the margin calculus, and therefore it had no lawful
basis to contest that determination. Reflecting on the argument, the court agreed that a merely
technical appeal of that section 129 determination was unnecessary in order for the DSMC to
preserve a right of reinstatement of the AD order, were it to prevail on the issues it raises in its LTFV
appeal here. See, e.g., Globe Metallurgical Inc. v. United States, 31 CIT 1722, 1728, 530 F. Supp.
2d 1343, 1349 (2007) (“Commerce is bound to reinstate the order if the legal basis for revocation
. . . is withdrawn”), quoting that defendant’s reply brief at 4 (this court’s ellipsis). Liquidation of the
entries “subject to” the section 129 determination, i.e., those made after the effective date of
revocation, had been, and could continue to be, enjoined in order to preserve the DSMC’s right to
relief over those entries pending a final decision in this appeal, and therefore “requiring” a challenge
to that section 129 determination, simply, arguendo, in order to “further” preserve the DSMC’s
rights with respect those entries impacted by the section 129 determination, was not only
inappropriate but would have amounted to a waste of resources. The court therefore determined to
continue that suspension of liquidation, even after the time for challenging the section 129
determination under 19 U.S.C. §1516a(a)(2)(A) & (B)(vii) had passed. See Slip Op. 12-46; see also
Slip Op. 11-137. Entries suspended pursuant to litigation are to be liquidated in accordance with the
final judgment in this action, see 19 U.S.C. §1516a(e), or pursuant to administrative review, see infra
n.3, and in accordance with that statute, the DSMC averred that to the extent the final decision in this
matter is of AD margins that are above de minimis and regardless of the absence of zeroing
methodology employed in the section 129 recalculation, relevant suspended entries cannot be
liquidated in a manner contrary to that final judgment. To that extent, they were, and are, correct.
Consol. Court No. 06-00248 Page 6
upon an affirmative final determination of LTFV sales that Commerce has decided to revoke as a
consequence of its implementation of the section 129 determination results. Were this matter
ultimately to sustain an affirmative final determination of LTFV sales even in the absence of zeroing
methodology, rescission of that revocation would not (continue to) be the lawful result. In that
circumstance, if liquidation is permitted to occur between revocation and rescission of revocation,
the DSMC will have been deprived of the full relief to which success in this matter entitles them,
as compelled by the original status quo of this matter before Commerce. Therefore, the current
status quo is not “like” the circumstance of an original negative determination of LTFV sales, where
petitioners’ precatory motions to a court to enjoin liquidation have been routinely denied. Or, if it
is, then the situation is similar to petitioners having no immediate equitable right to enjoinder of
liquidation when seeking to change the status quo of an original negative LTFV investigation and
pursuant to which no AD order has issued, i.e., respondents have no immediate equitable right to
liquidation on the basis of a changed status quo occasioned by revocation of an AD order as the
result of a section 129 determination that occurs in the midst of a judicial challenge to the underlying
affirmative LTFV investigation and pursuant to which an AD order has issued. Administrative
revocation pursuant to a section 129 determination in that circumstance can only be regarded as
interlocutory, i.e., provisional, and dependant upon the outcome of this matter, over which the court
has jurisdiction, and the relief sought herein.3 Cf. Advanced Technology & Materials Co., Ltd. v.
United States, 37 CIT ___, Slip Op. 13-129 (Oct. 11, 2013).
3
The court has become aware that Shinhan recently filed an unopposed motion to modify
the injunction so as to permit liquidation as to entries covered by the completed first and second
administrative reviews. The motion will be considered in due course.
Consol. Court No. 06-00248 Page 7
II. Voluntary Remand for Recalculation of Ehwa’s Divisional ISEs
The DSMC contest two aspects of Commerce’s treatment during the investigation
of Ehwa’s reported indirect selling expenses (ISEs). These are fixed costs that a seller would incur
regardless of whether a sale is made; they do not vary with the quantity sold or relate to a particular
sale but may reasonably be attributed to such sales through proper cost accounting methodology.4
See 19 C.F.R. §351.412(f)(2). On the first of its ISE claims, the DSMC point out that early in the
investigation Ehwa originally reported that only its Stone & Construction division sells subject
merchandise and based its reported ISEs on the expenses and sales of that division. See Issues and
Decision Memorandum accompanying Final Determination (“I&D Memo”), PDoc 529, at cmt. 19.
Subsequent to the preliminary results, Commerce issued a scope ruling that certain merchandise sold
by Ehwa’s Industrial Division, its only other division, was in-scope. The rationale behind Ehwa’s
divisional reporting having thus disappeared, the DSMC pointed this out in its case brief and
requested that Commerce recalculate and apply Ehwa’s ISEs on a company-wide basis. PDoc 528,
CDoc 231, at 74. Commerce agreed in principle, but declined to make the adjustment at the time
4
Commerce typically allocates ISEs by calculating an ISE ratio derived by dividing the total
ISEs (x) by the total sales value (y). The defendant explains that x and y are linked: if an expense
is included in x, then the sales value is included in y, and vice versa, and the ISE ratio is multiplied
by the price of each sale. See, e.g., Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat
Products from Korea, 67 Fed. Reg. 11976, 11979 (Mar. 18, 2002) (final AD review results) and
accompanying issues and decision memorandum at cmt. 1. Commerce thus includes ISEs in its
calculations by first dividing the value of a company’s ISEs by the total value of the company’s sales,
and then applying the same ratio to all sales. Its general practice has been to calculate separate ISEs
for each separate company and regardless of whether separate companies are affiliated. See, e.g.,
Carbon and Alloy Steel Wire Rod from Trinidad and Tobago, 71 Fed. Reg. 65077, 65079 (Nov. 7,
2006) (prelim. AD review results). Commerce will also accept an intra-company divisional
calculation and corresponding application of ISEs where a respondent can show that only certain
divisions sold subject merchandise and can accurately segregate those divisions’ ISEs from those
of divisions not selling subject merchandise.
Consol. Court No. 06-00248 Page 8
on the belief that the impact would be negligible. It now requests remand in order to reconsider, and
the DSMC concur. Ehwa opposes for various reasons, but Commerce’s request does not appear to
involve a change in or interpretation of policy or frivolousness or bad faith. See SKF USA Inc. v.
United States, 254 F.3d 1022, 1027-30 (Fed. Cir. 2001). The matter will be remanded accordingly.
III. Exclusion of Ehwa’s Inter-Company ISE’s
The second ISE claim concerns sales of some of Ehwa’s subject merchandise being
transacted through one, two, or sometimes three affiliates before ultimately being transacted to
unaffiliated customers. The DSMC argued for inclusion in the dumping calculation of ISEs incurred
at each step of such sale processes. See DSMC Br. at 22-25. Commerce agreed in the Final
Determination that separate ISEs should be calculated for Ehwa and each of its selling affiliates, but
it declined to “stack expenses associated with transferring merchandise from one affiliate to the next
in addition to the expenses that each affiliate experiences when preparing to sell to external
customers.” I&D Memo at cmt. 20. Commerce reasoned that the inter-company expenses and sales
values between Ehwa and its U.S. affiliates are not includable ISEs “because selling expenses are
incurred when selling to external customers, not for transfers between affiliates”, id., and it thus
included only ISEs incurred by the entity selling to the first unaffiliated customer in its calculations.
The DSMC contend this was inappropriate and illogical. They argue that each of
Ehwa’s U.S. selling affiliates was involved in eventual sales of subject merchandise to unaffiliated
customers in the U.S., see PDoc 147, CDoc 46, at A-13-14 and Ex. A-6, and that Commerce should
capture all of Ehwa’s and its affiliates’ ISEs that are attributable to sales of subject merchandise.
According to the DSMC, this would involve separate calculations of ISE ratios for each affiliate and
Consol. Court No. 06-00248 Page 9
having the denominator for each ratio reflect the total sales value for each company, inclusive of
transfer price, not the U.S. sales value net of inter-company sales.
In opposition, the defendant contends Commerce’s practice of not deducting expenses
associated with sales made to affiliated customers should be sustained:
When the ISE ratio is applied to the price of total sales, the resulting ISE that is
deducted from the CEP represents the portion of the sales that Commerce deems to
represent the ISE associated with that sale. If Commerce were to include the affiliate
transfers in the ISEs (x) and total sales value (y) in the ISE ratio for each selling
affiliate, Commerce would be including at least a portion of the affiliate-related
expense in the ISE that is eventually deducted from the CEP[, which] . . . would run
afoul of Commerce’s practice of not deducting expenses related to sales made to
affiliated importers in the United States.
Def’s Resp. at 63. The defendant’s apparent reference point for this contention, in addition to the
I&D Memo’s analysis, is Micron Tech., Inc. v. United States, 243 F.3d 1301, 1313 (Fed. Cir. 2001)
(“Commerce logically must deduct only those expenses incurred solely in CEP transactions, i.e., only
those expenses associated with the sale of subject merchandise to an unaffiliated purchaser in the
United States by a party affiliated with the foreign producer or exporter”).
The court will defer to administrative policy that is reasonably explained, but the
reasons here, on why intra-transfer costs are not ISEs that are borne by the ultimate customer, appear
ipse dixit, and the defendant’s explanation of that practice, if it exists, appears circular. To “incur”
means “[t]o suffer or bring on oneself (a liability or expense).” Black’s Law Dictionary, p. 782 (8th
ed. 2004). The parties’ main difference on this point seems philosophical, but the DSMC’s argument
has a certain accounting logic behind it, in that an ISE “incurred” with respect to the ultimate
customer is no less “incurred” at each stage of transacting the merchandise, in this instance from
Ehwa through each relevant affiliate to the ultimate purchaser, which the defendant apparently
Consol. Court No. 06-00248 Page 10
concedes. See supra. While intra-company transfers do not impact cash flow, there are apparent
associated selling costs that might properly be considered ISEs in accordance with 19 U.S.C.
§1677a(d)(1)(D). Cf. 243 F.3d at 1306 (ISEs include, e.g., rents on sales office space, salespersons’
salaries, and certain inventory carrying costs). By contrast, the court does not discern a double-
counting concern in Commerce’s “stacking” point. Whether that is indeed the case, the matter needs
clarification before proceeding further and will therefore be remanded for that purpose. On remand,
Commerce is not precluded from reconsidering the issue anew, as long as it provides a reasonable
explanation therefor.
IV. Determination Not To Collapse Ehwa, Shinhan, and Affiliates
Commerce may calculate a single AD rate for producers where (1) they are affiliated,
(2) have production facilities for similar or identical products that would not require substantial
retooling of either facility in order to restructure manufacturing priorities, and (3) there is a
“significant potential” for the manipulation of price or production. 19 C.F.R. §351.401(f).5 In the
investigation, Commerce found that Shinhan and Ehwa satisfy the first two criteria: they are
affiliated with each other, and they have production facilities for similar or identical merchandise.
Shinhan is also affiliated with other Korean firms from which it procures inputs. Ehwa is also
affiliated with certain PRC firms from which it too procures inputs. For the Final Determination,
nonetheless, Ehwa was not collapsed with Shinhan, Shinhan was not collapsed with its Korean
affiliates, and Ehwa was not collapsed with its PRC affiliates.
5
Commerce originally selected “significant potential” as the appropriate standard to address
the problem of prospective manipulation. See Antidumping Duties; Countervailing Duties; 62 Fed.
Reg. 27296, 27345-46 (final rule) (May 19, 1997) (“Preamble”).
Consol. Court No. 06-00248 Page 11
The DSMC’s arguments here concern only Commerce’s findings and conclusion on
the significance of the potential for price or production manipulation. See 19 C.F.R. §351.401(f)(1).
That significance depends upon a non-exhaustive list of such factors as (1) the level of common
ownership, (2) the extent to which managerial employees or board members of one firm sit on the
board of directors of an affiliated firm, and (3) whether operations are intertwined, such as through
sharing of sales information, involvement in production and pricing decisions, sharing of facilities
or employees, or significant transactions between affiliated producers. 19 C.F.R. §351.401(f)(2).
The determination is based upon the totality of the circumstances, not upon any single factor. See,
e.g., JTEKT Corp. v. United States, 33 CIT 1797, 1825, 675 F. Supp. 2d 1206, 1233 (2009).
A. Determination Not to Collapse Ehwa and Shinhan
Commerce preliminarily determined to collapse Ehwa and Shinhan on the ground that
“[[ ]] have the ability and the potential to coordinate their actions in order
to direct Ehwa and Shinhan to act in concert with each other, given the management overlap by the
companies’ senior managers, i.e., [[ ]] hold senior management positions
and board of director positions in Ehwa and Shinhan.” Memorandum, re: Petitioner’s Allegation
Regarding the Business Relationship Between Two Respondents (Dec. 20, 2005) (preliminary
collapsing memorandum), PDoc 335, CDoc 123, at 7-8.
For the Final Determination, Commerce reversed course. In concluding that as
between Ehwa and Shinhan there did not exist a significant potential for price and production
manipulation, Commerce specifically found as follows: (1) “there are no individuals jointly
employed by both Shinhan and Ehwa, or serving as members of each company’s board of directors”;
Consol. Court No. 06-00248 Page 12
(2) [[ ]] are in the minority on each company’s board of directors, [[
]]; (3) “there is no evidence that Ehwa and Shinhan have
shared any employee, let alone a senior manager, for the last 18 years since [[ ]]
left in 1987”; (5) “there are no persons that sit on the board of directors of both Ehwa and Shinhan,
or are otherwise shared by both companies”; (6) “even though [[
]], there is no one person or persons
shared by both companies that can effectuate and coordinate the activities of both companies”; (7)
“there are no intertwined operations between Ehwa and Shinhan”; (8) “[d]uring verification, the
Department was unable to identify any business connections between the companies”; (9) “during
verification, [it also] found evidence that Ehwa and Shinan do not cooperate with each other”,
specifically (a) there were no transactions between the companies for 10 years; (b) there were no
shared patents; (c) Ehwa had [[ ]]; (d) Ehwa and Shinan have
competing overseas offices; and (10) although the CEO of Shinhan owns 18 percent of Ewha, “the
Department verified that he [[
]]” Memorandum, re: Collapsing for the Final Determination at 8-10 (May 15, 2006)
(“FCM”), PDoc 536, CDoc 241, at 9-10. Thus, “Ehwa and Shinhan[,] while having substantial
common ownership, do not have the significant potential for price or production manipulation given
the absence of interlocking boards of directors, no shared managers, no intertwined operations, and
evidence of non-cooperation” in the form of [[ ]]. Id. at 10. See I&D Memo at
cmt. 13.
Consol. Court No. 06-00248 Page 13
Despite the foregoing, the DSMC argue that Commerce’s decision was not adequately
explained and that the record demonstrates a strong potential for manipulation of price and/or
production between these parties. In particular, they point to Commerce’s acknowledgment that
[[ ]] sat on the boards of directors of both Ehwa and Shinhan, that [[
]], and that there is
“substantial common ownership.” The DSMC contend there is no evidence on the record to prove
a separation of professional and personal interaction between [[ ]], that
Commerce’s final “belief” that coordination of activities between the two companies could not be
effected through [[
]] is insufficiently explained, and that there is no new evidence between the preliminary
and final determinations to justify the opposite conclusion that collapse was not warranted. E.g.,
DSMC Reply at 2-3, referencing Def’s Resp. at 17 & PDoc 515, CDoc 217, at 22-32. The DSMC
also contend Commerce’s practice as it existed in 2006 supported collapsing companies even in the
absence of intertwined operations so long as there was common control and overlapping boards.
These arguments are insufficient to undermine the substantiality of the evidence of
record in support of Commerce’s determination. Apart from the fact that the cases to which the
DSMC refer6 post-date the investigation at bar, even if Commerce’s practice in 2006 existed as
contended it could not be construed as a per se rule, since Commerce specifically rejected that
6
See DSMC Br. at 9-10, referencing Chlorinated Isocyanurates from the People’s Republic
of China, 74 Fed. Reg. 68575 (Dec. 28, 2009) (final AD new shipper review results); Certain Frozen
Fish Fillets from the Socialist Republic of Vietnam, 74 Fed. Reg. 11349 (Mar. 17, 2009) (final AD
admin. and new shipper reviews)
Consol. Court No. 06-00248 Page 14
approach when it adopted 19 C.F.R. §351.401(f).7 And regarding the absence of new facts between
the preliminary and final determinations, that circumstance does not, without more, render the latter
decision unreasonable on its own, since, by definition, a preliminary determination is without the
force of law. See, e.g., National Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644(2007); NEC Corp. v. United States, 151 F.3d 1361, 1374 (Fed. Cir. 1998); Southwest Center for
Biological Diversity v. U.S. Bureau of Reclamation, 143 F.3d 515 (9th Cir. 1998) (“SCBD”). The
only relevant question for the court is whether substantial record evidence supports the final
conclusion that there was no potential for price or production manipulation based on the totality of
the evidence. Cf. SCBD, 143 F.3d at 523.
On a more precise tack, the DSMC also stress that Commerce failed to address a
report alleging that the president of Ehwa “created a sales subsidiary in the United States under his
wife[’s] name[,] . . . began exporting product to the United States at a 10 percent discounted price,
. . . [and] misappropriated the additional profit of $2.55 million and the U.S. subsidiary’s sales profit,
for a total of $4.37 million”, and that “evidence of a previous criminal scheme involving price
manipulation was clearly relevant to the question of whether there was a significant potential for the
manipulation of price”. They also mention that both Ehwa and Shinhan in their Section A
questionnaires [[
]]. See DSMC 56.2 Br. at 9-13, referencing Petitioners’ letter
7
See Preamble, 62 Fed. Reg. at 27345-46 (any finding of potential for price manipulation
would lead to collapsing in almost all circumstances in which producers are affiliated, which “is
neither the Department’s current nor intended practice”; collapsing “requires a finding of more than
mere affiliation”). Commerce also refused to include examples because collapsing is “very much
fact-specific in nature, requiring a case-by-case analysis”. Id. at 27246.
Consol. Court No. 06-00248 Page 15
to Commerce dated December 6, 2005, re: Collapsing of Shinhan and Ehwa; DSMC Reply at 4; see
also DSMC Collapse Request, PDoc 293, CDoc 106, at 2.
Ehwa contends it provided rebuttal to Commerce to show that Ehwa’s president was
never arrested nor charged with any criminal scheme involving price manipulation but was instead
charged with failing to report to the Korean Ministry of Finance his purchase and ownership of real
estate in the United States, for which penalties were suspended upon the presumption that he had
been unaware of his reporting requirement as a permanent resident of the United States. Ehwa also
contends Commerce verified the evidence it provided to contradict the claim of [[
]]. See Ehwa Resp. at 14-15; CDoc 202 at 5-6, referencing Ex. 4 at 30A-30B thereto. The
defendant adds that Commerce considered the relevancy of the arrest allegation “unclear” to the
collapsing analysis, that Commerce can pick and chose which factors are relevant and make factual
findings as to those factors, and that an explanation is not required in instances “where the agency’s
decisional path is reasonably discernible.” Def’s Resp. at 24, referencing, inter alia, Consolo v.
Federal Maritime Comm’n, 383 U.S. 607, 620 (1966), Wheatland Tube Co. v. United States, 161
F.3d 1365, 1369-70 (Fed. Cir. 1998), and JTEKT, supra, 33 CIT at 1826, 675 F. Supp. 2d at 1234.
The defendant and Ehwa both argue that Commerce examined the issues thoroughly,8 and that in the
final analysis Commerce’s conclusion not to collapse Ehwa and Shinhan was reasonable because a
party cannot be required to provide indisputable proof of a negative, i.e., of a lack of professional
8
See Shinhan Cost Verification Report, CR 193; Ehwa Cost Verification Report, CR 194;
Shinhan Home Market and Export Price Sales Verification Report, CR 198. Shinhan CEP Sales
Verification Report, CR 199; Ehwa CEP Sales Verification Report, CR 201; Ehwa Home Market
and Export Price Sales Verification Report, CR 202.
Consol. Court No. 06-00248 Page 16
and personal interaction between [[ ]]. See Allied Tube, 24 CIT at 1374-75,
127 F. Supp. 2d at 222-23.
The absence of evidence is not evidence of absence,9 of course, cf. id., but Commerce
is duty-bound to consider the available evidence on the level of common ownership and the extent
to which there are shared board members. See, e.g., JTEKT, 33 CIT at 1826-27, 675 F. Supp. 2d at
1234. The court cannot substitute its own judgment on such matters but can only review on the basis
of substantial evidence on the record or for abuse of discretion. At the same time, however, the
agency’s explanation of its decision must be clear enough to enable judicial review, and cannot
“leave vital questions, raised by comments which are of cogent materiality, completely unanswered.”
United States v. Nova Scotia Food Prods., 568 F.2d 240, 252 (2d Cir. 1977).10
The material issue here is the potential for price or production manipulation. From
the fact that Commerce did not discuss the DSMC’s evidence or arguments with respect to the arrest
and [[ ]] allegations of record in the I&D Memo or in the final collapsing memorandum for
Ehwa and Shinhan, it may be inferred that Commerce determined that the DSMC’s evidence was
insignificant, immaterial, or not seriously undermining enough to merit discussion. In that regard,
the DSMC do not persuade that Commerce’s determination on the evidence of record before it was
9
See, e.g., Porter v. Secretary of Health and Human Services, 663 F.3d 1242, 1264 (Fed.
Cir. 2011), parenthetically quoting Gass v. Marriott Hotel Servs., Inc., 558 F.3d 419, 436 (6th Cir.
2009) (Boggs, C.J., dissenting).
10
According to the Statement of Administrative Action accompanying the Uruguay Round
Agreements Act, Pub. L. No. 103-465, H. Doc. 103-316, vol. VI (1994) (“SAA”), at 892, reprinted
in 1994 U.S.C.C.A.N. 4040, 4215, “[e]xisting law does not require that an agency make an explicit
response to every argument made by every party, but instead requires that issues material to the
agency’s determination be discussed so that the path of the agency may reasonably be discerned by
the reviewing court” (internal citations omitted).
Consol. Court No. 06-00248 Page 17
unreasonable. See Altx, Inc. v. United States, 370 F.3d 1108, 1113 (Fed. Cir. 2004) (an agency must
“address significant arguments and evidence which seriously undermines its reasoning and
conclusion” but “need not address every argument and piece of evidence”). More broadly, the
DSMC do not persuade that Commerce’s determination not to collapse Ehwa and Shinhan was
unreasonable at the time. Although Ehwa and Shinhan are not only affiliated but [[
]], Commerce essentially concluded that the other evidence of
record showed the two to be competitive, not cooperative or potentially cooperative. The court
cannot re-weigh the evidence in support thereof and substitute judgment therefor.
B. Determination Not to Collapse Shinhan with its Korean Affiliates
The threshold question in a collapsing inquiry is whether the affiliate is a producer
of the subject merchandise or the foreign like product. See 19 C.F.R. §351.401(f)(1). Commerce
determined not to collapse Shinhan and three of its Korean affiliates, Technoplus Co., Ltd. (“TPC”),
Namdong Tools (“Namdong”), and INCOM, “because TPC, INCOM, and Namdong have not been
demonstrated to be producers of either subject merchandise or the foreign like product”. Shinhan
Collapsing Memo, PDoc 235, CDoc 242, at 5. More precisely, Commerce observed that the
“petitioner notes that TPC [[
]] and that INCOM provided Shinhan, through TPC, [[ ]]”
and it found that a review of the scope language evidenced that “[[ ]]
are neither subject merchandise [n]or the foreign like product”; therefore, Commerce found that
neither TPC nor INCOM were producers as required by the regulation. Shinhan Collapsing Memo,
PDoc 235, CDoc 242, at 4-5. Commerce thus found no record evidence to demonstrate that during
Consol. Court No. 06-00248 Page 18
the POI either Namdong or INCOM have production facilities for producing subject merchandise
or foreign like or similar products that would not require substantial retooling in order to restructure
manufacturing priorities, and it rejected the DSMC’s argument that the likelihood that they possessed
such facilities should be assumed. See id. Commerce further found that TPC’s facility had not been
used before the POI to make subject merchandise or foreign like product, and from the fact that
Shinhan had [[ ]] during the POI Commerce concluded that TPC did not
“make use” of the production facility during the POI. Id.The DSMC contest those determinations, but they do not appear to be unreasonable.
They argue that the fact that TPC [[ ]] in no way demonstrates or
supports finding that TPC did not make use of the facility during the POI, that there is no other
evidence of record to support the assertion, and that the very fact that [[
]] demonstrates that TPC met the second requirement for collapse, i.e.,
that it “has” a facility that would not require substantial retooling in order to produce subject
merchandise or foreign like product. The argument overlooks the standard of judicial review,
however. The collapsing regulation does not delimit the extent to which producers “have” the
necessary facilities to qualify under the regulation. Possession being nine-tenths of the law, the court
is unable to find Commerce’s interpretation of its regulation in this instance unreasonable.
The DSMC also contend Commerce points to no evidence supporting its finding that
Namdong and INCOM were not producers of subject merchandise. That, however, does not
accurately characterize the standard for satisfying the particular collapsing criterion, see Allied Tube,
supra (re: proof of a negative), or the reviewing standard here. The administrative determination is
Consol. Court No. 06-00248 Page 19
based on a lack of evidence on the record that these affiliates produced subject merchandise.
Commerce’s finding with respect to INCOM is based upon the DSMC’s own description of
INCOM’s production. PDoc 235, CDoc 242, at 5. With respect to Namdong, Commerce found no
record to demonstrate that the goods it produces were in fact subject merchandise or foreign like
product, id., and Commerce verified that all the transactions on Namdong’s domestic sales ledger
for fiscal year 2004 were for tolling services for Shinhan. Id. Reasonable minds may differ over the
same set of facts, but it appears Commerce investigated the issue and reasonably construed the
available record in making its finding. The court, once again, cannot substitute judgment on the
matter even were it to agree with the DSMC on the issue. See Consolo, supra, 383 U.S. at 620.
C. Determination Not to Collapse Ehwa with Certain PRC Affiliates
Weihai Xingguang Mechanical Ind. Co., Ltd. (“Weihai”) and Fujian Ehwa Diamond
Industries (“Fujian”) are Ehwa’s [[ ]] PRC affiliates. They provided inputs used in the
production of Ehwa’s subject merchandise in Korea. Weihai and Fujian both produced [[
]], and Ehwa reported [[
]] from both of these affiliates. The operations
of all these entities were intertwined by significant [[ ]] arrangements
between them. See PDoc 528, CDoc 231, at 64-65; Ehwa’s Sec. A QR (Aug. 26, 2005), PDoc 147,
CDoc 46, at A-4, A-7 & Ex. A-4; Ehwa’s Supp. Sec. A QR (Sep. 29, 2005), PDoc 185, CDoc 56,
at SA-6. For the Final Determination, Commerce concluded that the AD statute precludes it from
collapsing producers across country lines, and it therefore determined not to collapse Ehwa with its
PRC affiliates. See I&D Memo at cmt. 15, referencing Stainless Steel Bar from Italy, 67 Fed. Reg.
Consol. Court No. 06-00248 Page 20
3155 (Jan. 23, 2002) (final LTFV determ.), and accompanying issues & decision memorandum at
cmt. 8. See Slater Steels Corp. v. United States, 27 CIT 1786, 297 F. Supp. 2d 1362 (2003).11
The DSMC argue that but for Commerce’s conclusion that it is statutorily precluded
from collapsing across country lines, Ehwa and its PRC affiliates would meet that test, since
Commerce’s regulation asks, among other considerations, whether there is “involvement in
production and pricing decisions, the sharing of facilities or employees, or significant transactions
between the affiliated producers” 19 C.F.R. §351.401(f)(2)(iii). The DSMC point out that the
definition of “affiliated persons” in 19 U.S.C. §1677(33) is not limited to any type of geographical
location and that Commerce’s collapsing regulation only asks whether those affiliates “have
production facilities for similar or identical products that would not require substantial retooling of
11
Commerce’s reasoning in Slater Steels, as restated and sustained by the court at the time,
may be reduced to the following: the definition of “normal value” in 19 U.S.C. §1677b(a)(1)(B) is
the price of “foreign like product” sales in the home market, in a third country, or constructed value,
and the definition of “foreign like product” under 19 U.S.C. §1677(16) is identical or similar
merchandise that is “produced” in the “same country” as the subject merchandise; ergo, Commerce
can only analyze for purposes of collapsing that production that occurs in the same country as the
foreign like product or the subject merchandise -- and notwithstanding any cross-border production
line. See 27 CIT at 1788, 297 F. Supp. 2d at 1364-65. Commerce also gleaned support from the
definition of “country” in 19 U.S.C. §1677(3), which does not permit more than one country from
being aggregated and treated as an “association” for purposes of AD proceedings. See id.; see also
19 U.S.C. 1677(12) (“attribution of merchandise to country of manufacture or production”: “[f]or
purposes of part I of this subtitle, merchandise shall be treated as the product of the country in which
it was manufactured or produced without regard to whether it is imported directly from that country
and without regard to whether it is imported in the same condition as when exported from that
country or in a changed condition by reason of remanufacture or otherwise”). Commerce
emphasized for the Final Determination that its regulation makes “clear” that collapsing is relevant
to “an antidumping proceeding,” which “only involves the subject merchandise of one country”, I&D
Memo at cmt. 15, referencing 19 C.F.R. §351.401(f), and it further stated that when it has used
information from two companies to calculate a single weighted-average margin for those companies,
it has done so only within the confines of “single proceeding, which involved a single country”, id.,referencing Gray Portland Cement and Clinker From Mexico, 66 Fed. Reg. 14889 (Mar. 14, 2001)
(final AD admin. rev. results).
Consol. Court No. 06-00248 Page 21
either facility in order to restructure manufacturing priorities and the Secretary concludes that there
is a significant potential for the manipulation of price or production.” 19 C.F.R. §351.401(f)(1).
They also point out that Congress specifically provided for cross-border analysis in several instances
such as the “special rule for multinational corporations,” which requires, when certain conditions
are met, normal value to be determined by reference to the value at which the foreign like product
is sold from one or more facilities outside the exporting country. 19 U.S.C. §1677b(d).12
It is undisputed that this was a “single proceeding” to determine the viability of an
AD order on subject merchandise from a “single country” and that the merchandise that is the subject
of the investigation consists, at least in relevant part, of Ehwa-exported products of Korea comprised
of inputs manufactured by Weihai and Fujian and transferred to Ehwa. The DSMC are correct in
pointing out that the AD statute does contemplate cross border analysis in certain situations, and that
Slater Steels does not amount to a blanket prohibition against such analysis in every instance, see
12
Ehwa argued before Commerce that section 1677b(d) was “inapposite” to the facts of this
case because that provision pertains to situations where normal value is determined by being based,
in part, on sales in a third country, whereas the Final Determination is based entirely on a normal
value of home market sales. The Final Determination does not rest on such ground, but that may
well be the case, as there are three criteria that must be met before section 1677b(d) is invoked: (1)
subject merchandise exported to the United States is being produced in facilities which are owned
or controlled, directly or indirectly, by a person, firm, or corporation which also owns or controls,
directly or indirectly, other facilities for the production of the foreign like product which are located
in one or more third countries; (2) the market in the country from which the merchandise is exported
to the United States is “not viable” because either (a) the foreign like product is not sold for
consumption in the exporting country; (b) the aggregate quantity (or value) of the foreign like
product sold in the exporting country is insufficient to permit a proper comparison with the sales of
the subject merchandise to the United States; or (c) the particular market situation in the exporting
country does not permit a proper comparison with the export price or constructed export price; and
(3) the normal value of the foreign like product produced in one or more of the facilities outside the
exporting country is higher than the normal value of the foreign like product produced in the
facilities located in the exporting country. See 19 U.S.C. §1677b(d).
Consol. Court No. 06-00248 Page 22
27 CIT at 1788, 297 F. Supp. 2d at 1364 (“[e]xcept for specific enumerated exceptions to the rule,
consolidating . . . data across country lines for [AD] investigations is prohibited”)13 (italics added),
but the fact that cross-border analysis is required in certain instances does not render Commerce’s
broad interpretation of preclusion from “collapsing” “producers” across country lines unreasonable,
and the DSMC’s arguments do not persuade that calculating a single weighted-average margin that
would include Ehwa’s PRC affiliates within the ambit of the order pursuant to Commerce’s
collapsing methodology would be permissible under the AD statute. The DSMC’s concerns
implicate the whole of the production line, including one that cuts across country borders, but a
degree of protection from manipulation of “production” (as Commerce interprets that term) may be
afforded in the forms of the anti-circumvention statute, 19 U.S.C. §1677j, as well as the present AD
order on diamond sawblades and parts thereof from the PRC from that separate proceeding.
13
It has been observed that the most “vital” consideration to preserving the integrity of AD
orders is the determination of the “country of origin” of “production”, not only of subject
merchandise but also of the foreign like product. See E.I. Du Pont de Nemours & Co. v. United
States, 22 CIT 370, 375, 8 F. Supp. 2d 834, 859 (1998). In those determinations, the necessity of
cross-border analysis is readily apparent in other contexts. For example, the anti-circumvention
statute specifically precludes completion or assembly operations -- which are indisputably a part of
“production” -- from attaching a different country of origin to subject merchandise. 19 U.S.C.
§1677j. Congress has also recognized a state of subject merchandise “exportation from an
intermediate country” in which production of foreign like product is also occurring. In that instance,
subject to certain exceptions, normal value is to be determined “in” such intermediate country based
on that foreign like product. 19 U.S.C. §1677b(a)(3). Thus, under such analyses, the foreign like
product that is used for the determination of normal value is not considered “produced” in the “same
country” as that in which the subject merchandise has actually been produced -- as otherwise
“required” by 19 U.S.C. §1677(16). And cf. 19 U.S.C. §1677b(d) (special rule for multinational
corporations). In other words, the analyses required by the “exceptions” to which Slater Steels
alludes can only be achieved without violating the “produced in the same country” mandate of
section 1677(16)(A) via cross-border analyses. But, that, perhaps, is merely to restate the obvious.
Consol. Court No. 06-00248 Page 23
D. Incidental Issues Implicated By Collapsing
In addition to the foregoing, the DSMC contest the effect of the determination not to
collapse Ehwa and Shinhan upon the calculation of separate constructed export price (CEP) offsets
and CONNUMs sold but not produced during the POI that were not weight-averaged. These issues
being derivative, the foregoing obviates their further consideration.
V. Country of Origin for Finished Diamond Sawblades
Commerce typically uses a three-part “substantial transformation” test to determine
a product’s country of origin: (1) whether the processed downstream product falls into a different
class or kind of product when compared to the upstream product, (2) whether the essential
component of the merchandise is substantially transformed in the country of exportation, and (3) the
extent of processing in the exporting country. See I&D Memo at cmt. 3; see, e.g., Advanced
Technologies & Materials Co. v. United States, 35 CIT __, Slip Op. 11-122 (Oct. 12, 2011)
(“Advanced Tech II”), at 8. In this instance, Commerce ultimately determined that the place where
the segments and cores are joined governs the finished diamond sawblades’ country of origin.
The DSMC argue this result is an invitation for circumvention. They contend the first
of the above factors clearly supports finding a lack of substantial transformation, in that cores,
segments and sawblades were all considered the same “class or kind” of merchandise, see Def.’s Br.
at 54, and that Commerce has failed to explain how it could logically make that determination and
also find that joining two of those items into the third constitutes a “substantial transformation.”
The court again cannot agree Commerce’s reasoning was illogical or unsupported by
substantial evidence. As in the investigation of subject merchandise from the PRC, Commerce had
Consol. Court No. 06-00248 Page 24
to make a choice, and it resolved the factual issues by reference to Erasable Programmable Read
Only Memories (EPROMs) From Japan, 51 Fed. Reg. 39680 (Oct. 30, 1986) (final LTFV determ.)
and 3.5" Microdisks and Coated Media Thereof From Japan, 54 Fed. Reg. 6433 (Feb. 10, 1989)
(final LTFV determ.) (“Microdisks”). Commerce found the fact that finished diamond sawblades,
segments and cores are all one “class or kind” not dispositive because substantial transformation can
occur between upstream and downstream products within the same class or kind of merchandise
under investigation. Commerce concluded that the substantial transformation test in such instances
is not controlled by whether there is a “change” in the class or kind of merchandise but by what the
“essential quality” is that is imparted to the imported merchandise through such transformation, as
well as the extent of manufacturing and processing. The DSMC argued that the diamond segments
are what give a finished diamond sawblade its essential character, but Commerce concluded
it appears that neither the cores nor the segments alone constitute the essential
component of the product under investigation. A finished DSB is not functional until
the segments are attached to the core . . . [and i]t is apparent that even the petitioner
recognizes the importance of the attachment process in imparting the essential quality
of the finished product. Therefore, given the priority that both the petitioner and a
respondent have placed on the importance of attaching cores and segments, the
Department finds that the essential quality of the product is not imparted until the
cores and segments are attached to create a finished DSB.
I&D Memo at cmt 3 (italics added).
The DSMC here contend Commerce never explained what qualities or quality it
deemed essential in this instance. If that is technically true, it is not fatal to the agency’s
determination. Commerce could not tell whether segments or cores impart the “essential quality”
of a finished diamond sawblade, but it found that the attachment process governs when that essential
quality -- whatever it is -- comes into being, i.e., when the functional finished product is created.
Consol. Court No. 06-00248 Page 25
The DSMC regard “essential quality” as extant in the diamond segments, not the cores. That may
be true, but Commerce regarded “essential quality” as a function of the “finished” product. The
DSMC contend this “finding” has the potential to “turn[ ] the entire concept of ‘substantial’
transformation on its head”, DSMC Br. at 38 n.9, referencing National Hand Tool Corp. v. United
States, 16 CIT 308 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993) (finding that finishing operations
applied to hand tool forgings did not substantially transform the forgings, as the forgings were in the
basic shape of the finished tool, and thus could not have been processed except into finished tools),
but that is not this case. Although the court can aid resolution of esoteric factual disagreements, it
has not been so tasked in the AD context, see 19 U.S.C. §1516a(b)(l)(B)(i), and cannot weigh in.
In accordance with EPROMs and Microdisks, Commerce also considered the extent
of processing and found that both segment manufacturing and the attachment process required
“substantial capital investment[s] and great technical expertise.” I&D Memo at cmt 3. Commerce
determined that this finding did not alter its conclusion that the country of origin is determined by
the location where segments and cores are attached to create a finished product. The DSMC would
here juxtapose the record of production costs for segments, which it argues typically represent
approximately [[ ]], against the process of joining segments
to the blade, which is typically a much smaller percentage of production cost (as low as [[
]]), see CDoc 157, PDoc 412 at 8 & Exhibit 1; CDoc 231, PDoc 528 at 46, to argue that the
agency has not adequately explained how finding that both segment processing and core-segment-
attachment processing require substantial capital investments and technical expertise supports its
country of origin determination, especially when considered in conjunction with the “same class or
Consol. Court No. 06-00248 Page 26
kind” of merchandise factor of the substantial transformation test, but Commerce appears to have
considered this production cost point, as well as the numbers of workers employed in both processes,
in “continu[ing] to find that the country of origin is determined by the location where segments and
cores are attached to create finished DSB.” I&D Memo at cmt 3. In the final analysis, Commerce
reached a country-of-origin conclusion that accorded with both parties’ arguments on the “priority”
of the attachment process in the making of a finished diamond sawblade. Here again, the court
cannot re-weigh the evidence and substitute judgment on these issues for that of Commerce.
VI. Section E Questionnaire Exemptions
Commerce sends out “Section E questionnaires” to request information pertaining
to respondents’ value added in the United States via further manufacturing or assembly of subject
merchandise prior to delivery to unaffiliated United States customers. See Antidumping Manual, Ch.
4, §III.A.5. (Dep’t Comm. 2009); see, e.g., Kawasaki Steel Corp. v. United States, 24 CIT 684, 686,
110 F. Supp. 2d 1029, 1031-32 (2000). A respondent may obtain an exemption from Section E
questioning if it persuades Commerce that its United States sales of further manufactured subject
merchandise constitute a small percentage (typically less than 5 percent) of its overall United States
sales. See, e.g., Certain Cold-Rolled Carbon Steel Flat Products From Belgium, 67 Fed. Reg. 62130(Oct. 3, 2002) (final LTFV determ.) and accompanying issues and decision memorandum (Sep. 23,
2002) at cmt. 1. Ehwa and Shinhan reported further manufacturing operations in the United States
and requested Section E exemption after claiming such sales constituted a small percentage of total
sales. DSMC’s opposition to such exemption was unavailing, and Commerce issued no Section E
questionnaires to them.
Consol. Court No. 06-00248 Page 27
A. Exhaustion
The DSMC’s objections before Commerce are in the form of several filed
submissions. CDoc 50, PDoc 157 (Sep 7, 2005); PDoc 164, CDoc 53 (Sep. 9, 2005); PDoc 213,
CDoc 71. These argue that Section E questionnaires were necessary prior to the case briefing stage
of the investigation, but Commerce either rejected or ignored the DSMC’s objections. The DSMC
then raised claims in its administrative case brief arising from the non-issuance of Section E
questionnaires, namely the impact this had on adjustments to United States net price and CEP profit
to reflect further manufacturing costs. See, e.g., PDoc 528, CDoc 231, at 35 (“under the statute,
Commerce must require respondents to place all necessary information on the record in order to
calculate ‘Total Expenses’ including further manufacturing expenses”) (DSMC’s emphasis).
Commerce and the defendant-intervenors here argue that the DSMC failed to exhaust
their administrative remedies over the issue of Section E questionnaires issuance. See United States
v. L.A. Tucker Truck Lines, 344 U.S. 33, 37 (1952). The DSMC respond that they did indeed pursue
those claims, albeit in the context of claims that arose as a necessary consequence of Section E
questionnaire non-issuance, and that the issue thus remained “live” in their administrative brief.
The court will require the exhaustion “where appropriate,” 28 U.S.C. §2637(d), which
is generally regarded as a “strict” requirement. See, e.g., Corus Staal BV v. United States, 502 F.3d
1370, 1379 (Fed. Cir. 2007). In light of the current status quo, the court can agree with the
defendant to the extent that the DSMC would have better served its cause had it more directly and
forcefully described their objection in their administrative case brief, but this is not an instance where
a party did not even attempt to raise its argument before the agency. Cf. L.A. Tucker Truck Lines,
344 U.S. at 35 (“Appellee did not offer . . . any excuse for its failure to raise the objection upon at
Consol. Court No. 06-00248 Page 28
least one of its many opportunities during the administrative proceeding”); Corus Staal, 502 F.3d
at 1378 (“Corus acknowledges that it failed to raise any issue relating to the duty absorption issue
in the [administrative] case brief”); Budd Co., Wheel & Brake Div. v. United States, 15 CIT 446, 453
(1991) (“[r]elying on the futility exception as a defense, Plaintiff nonetheless conceded at oral
argument that Commerce never refused to hear its contentions”). Commerce’s immoveable stance
on the DSMC’s repeated objections to the Section E questionnaire exemptions is apparent from the
record, and exhaustion does not require Sisyphean repetition or exactitude in wording in order that
an objection be noted and preserved. Cf., e.g., L.A. Tucker Truck Lines, 344 U.S. at 35; Corus Staal,
502 F.3d at 1379; Budd Co., 15 CIT at 453.
An argument satisfies the exhaustion requirement “if it alerts the agency to the
argument with reasonable clarity and avails the agency with an opportunity to address it.” Luoyang
Bearing Corp. v. United States, 28 CIT 733, 761, 347 F. Supp. 2d 1326, 1352 (2004), citing, inter
alia, Hormel v. Helvering, 312 U.S. 552 (1941). Here, the DSMC did not “abandon” their objection
in their administrative brief, it is implicit in their argument that all U.S. further manufacturing cost
information must be placed on the record in order to accurately adjust U.S. net price and CEP profit.
See infra, section VII. Therein couched, their brief presented “all arguments that continue[d] in the
submitter’s view to be relevant to the Secretary’s final determination or final results” and “includ[ed]
any arguments presented before the date of publication of the preliminary determination or
preliminary results”. See 19 C.F.R. §351.309(c)(2). Since the record adequately reflects the
DSMC’s attempt to rectify Commerce’s stance on Section E questionnaires issuance, the underlying
record is adequate for judicial review.
Consol. Court No. 06-00248 Page 29
B. Merits
Commerce indicated during the original investigation that “if we issue an [AD] order
in this case, we expect to examine these issues during the first administrative review conducted in
this proceeding if sales are made under these same conditions.” E.g., PDoc 199, CDoc 64, at 2. The
DSMC interpret this as follows:
When the exemptions were granted, the Department merely postponed examination
of this issue to the first administrative review. Ehwa Exemption, PR 199, CR 64, at
2; Shinhan Exemption, PR 200, at 2. In so doing, the Department seems to have
acknowledged the appropriateness of examining the respondents’ further
manufactured sales, but for unarticulated reasons, chose not to conduct the
examination at that time. Although the DSMC repeatedly objected to the
exemptions, there was, arguably, no real harm to the DSMC at that time, in light of
what w[ere] likely to be substantial dumping margins. Now, however, the status quo
has changed. The margins at issue are now de minimis, and failure to raise them
above de minimis in this appeal will result in liquidation of relevant entries without
duties, . . . a prospect that would cause irreparable harm to the domestic diamond
sawblades industry. Therefore, to the extent that the Department’s failure to conduct
a full and appropriate original investigation is now contributing to serious prejudice
to one of the parties, including the potential revocation of the [AD] order, the DSMC
respectfully submits that equity counsels in favor of remanding this decision for
reconsideration.
DSMC 56.2 Br. at 19-20 (citations omitted in part, italics in original).
In their reply brief, the DSMC argue that an agency decision may be deemed
“unreasonable” if the decision has “entirely failed to consider an important aspect of the problem”.
See Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co.,463 U.S. 29, 43 (1983).
They argue the lack of Section E questionnaires from respondents was unreasonable because
Commerce relied only on Ehwa’s and Shinhan’s representations that further manufactured sales
comprised only a small volume of U.S. sales. See PDoc 199, CDoc 64, at 1-2; PDoc 200 at 2. The
Consol. Court No. 06-00248 Page 30
DSMC argue that when sales value is taken into account, the record shows otherwise.14 DSMC 56.2
Br. at 18, referencing PDoc 213, CDoc 71, at 2.
“Full” and “appropriate” (see above) are not synonymous, and the court interprets
Commerce’s statement not as an admission of error in not issuing Section E questionnaires but rather
in light of the strict time constraints imposed on the investigation. See, e.g., 19 C.F.R., Part 351,
Annex III (2005). The administrative expedient of disregarding U.S.-affiliate sales amounting to less
than five percent is arguably authorized by statute, cf. 19 U.S.C. §1677a(e) (requiring at least “a
sufficient quantity of sales to provide a reasonable basis for comparison”), and was at least based
upon the respondents’ representations at the time, but with time Commerce’s unexplained reaction
to the DSMC’s objection has taken on new life. At this point, front and center perhaps, the effect
of the Section E questionnaire exemptions, and the consequent ipso facto absence of further
manufacturing cost information (see infra, section VII), may very well be case determinative in light
of the administrative decision to revoke the AD order as a result of the section 129 determination
requiring recalculation of the margins without zeroing methodology. See supra, section I; see also
36 CIT ___, Slip Op. 12-46 (Mar. 29, 2012). Ehwa argues that is beside the point, since it raised the
zeroing methodology issue in its administrative case brief, and the DSMC were on notice
from the outset that the Department ultimately would conclude that Ehwa was
entitled to a de minimis margin in this investigation, [and therefore] the ‘harm’ to
Petitioner arising from the Department’s other subsidiary conclusions in 2006 (e.g.,
failure to require that Ehwa complete a Section E response) was no different from the
14
One of the respondents reported a percentage derived by dividing the total value of
segment exports by the total of U.S. sales of Korea-origin products plus Korean origin segments. The
DSMC argued that this figure understates, and that a significantly higher percentage appears if based
on the total sales value of U.S. manufactured finished products divided by the total U.S. sales of
Korea-origin products plus the sales value of U.S. manufactured finished products.
Consol. Court No. 06-00248 Page 31
harm today. This being the case, there has been no change in the status quo and no
reason for this Court to consider equitable claims.
Ehwa Resp. at 22-23.
The I&D Memo, however, ultimately dismissed the zeroing argument as “premature,”
since the URAA section 123 determination to which Ehwa alludes (see infra section XI) had yet to
reach finality, and thus the argument above is a stretch as to notice of what “would” be the status quo
at this point. If the status quo had truly remained unchanged, the court might come to a different
conclusion, but it has now been altered, Commerce is now less constrained by statutory time limits,
and Commerce did express expectation that the issue of Section E questionnaire issuance would be
revisited in the future. Shinhan contends there is no need, because the exemptions were granted
through calculation of the relevant percentage based solely on volume figures and in accordance with
Commerce’s longstanding practice,15 but even if that is so, the Final Determination does not address
the DSMC’s argument that Commerce’s prior Section E practice should not be construed as
applicable on a record of allegedly “substantial” further-manufacturing-added value to the
merchandise, which the DSCM contends is the case here, see CDoc 64, PDoc 199 at 1-2; PDoc 200
at 2, as well as the DSMC’s allegation of an understated percentage of Ehwa’s further manufactured
sales that were based on [[
]], see id., as well as the DSMC’s argument on the fact that
15
See Shinhan’s Resp. at 25. Cf. Pure Magnesium from the Russian Federation, 66 Fed.
Reg. 49347 (Sep. 27, 2001) (final LTFV determ.) and accompanying issues and decision
memorandum (Sep. 14, 2001) at cmt 10; Hot Rolled Flat Rolled Carbon Quality Steel Products
from Japan, 64 Fed. Reg. 8291, 8295 (Feb. 19, 1999) (prelim. LTFV determ.); Coated Groundwood
Paper from Finland, 56 Fed. Reg. 56363, 56365, 56371 (Nov. 4, 1991) (final LTFV determ.);
Sweaters Wholly or in Chief Weight of Man-Made Fiber From Taiwan, 55 Fed. Reg. 34585, 34588,
34597 (Aug. 23, 1990) (final LTFV determ.).
Consol. Court No. 06-00248 Page 32
the respondents argued before the U.S. International Trade Commission that their U.S. further
manufacturing were of such significance that they should be considered part of the domestic
industry, see generally PDoc 260, CDoc 88. Commerce’s full consideration of these objections is
necessary in order to reach a final and just decision on this matter, and the determination not to issue
Section E questionnaires will therefore be remanded to address the DSMC’s concerns.
In addition, because Commerce has requested remand in order to consider aspects of
Ehwa’s ISEs that apparently entails additional fact finding, and because soliciting and analyzing
responses to a request for Section E information would not appear to add onerous hardship to the
parties’ burdens, and also since “the basic purpose of the statute [is] determining . . . margins as
accurately as possible,” see Rhone Poulenc, Inc. v. United States, 899 F.2d 1185 (Fed. Cir. 1990),
Commerce is not precluded from soliciting Section E responses upon remand. For the analysis,
Commerce is also requested to explain its alleged policy of exempting Section E questionnaire
responses based on a respondent’s claim of sales volume, when Section E questionnaires are
purportedly for the purpose of eliciting information about further manufacturing or assembly value
added in the United States.
VII. Adjustments to U.S. Net Price and CEP Profit
The decision not to solicit Section E questionnaire responses from Ehwa and Shinhan
impacts the deduction of “further manufacturing costs” from Commerce’s constructed export price
(“CEP”) and CEP profit calculations for them. See I&D Memo at cmt. 5 (i.e., on the basis that Ehwa
and Shinhan were “excused . . . from reporting their further manufactured sales”). Commerce took
the position that “implicit” in the additional statutory adjustments to CEP provided in 19 U.S.C.
Consol. Court No. 06-00248 Page 33
§1677a(d)(2) is that the “further manufacturing costs to be deducted actually [have been] incurred
with respect to the particular transaction providing the basis for the CEP starting price.” Id. As
above indicated, the fact that Section E questionnaire responses were not solicited is used as cover
for the fact that further manufacturing cost information that may “actually” have been incurred is not
on the record. The DSMC contend that section 1677a(d)(2) is unambiguous in directing Commerce
to reduce “the price used to establish” CEP by “the cost of any further manufacture or assembly
(including additional material and labor)” (italics added). Micron, supra,“agree[s] that the word
‘any’ necessarily includes ‘all’. . .”, 243 F.3d at 1308, but the issue of Section E questionnaire non-
issuance, implicating this issue, is being remanded, above, and the court will defer to Commerce’s
reasonable interpretation of statute and regulation. Cf. 243 F.3d at 1308 (“. . . the real question here
is ‘all of what’”?) with Antidumping Manual, Ch. 7, §III.C.3.a (“[a]s a rule of thumb, if the expense
is incurred in the United States by the affiliated importer or the exporter, it should be deducted”).
VIII. Non-Application of the Major Input Rule
The DSMC also contend Commerce erred in not fully addressing its arguments or
validly explaining its determination not to apply the “major input rule,” 19 U.S.C. §1677b(f)(3), to
Ehwa’s and Shinhan’s purchases from affiliated suppliers. The “rule” is that if the production of
subject merchandise involves transaction of a “major” input from one affiliate to another and
Commerce has “reasonable grounds to believe or suspect” that the amount reported as the value of
the input is below the cost of production, Commerce may calculate the value of the input on the basis
of the information available regarding its cost of production, if such cost exceeds the market value
of the input (as determined under subsection 1677b(f)(2)). 19 U.S.C. §1677b(f)(3). Commerce
Consol. Court No. 06-00248 Page 34
interprets the statute as permitting valuation of an affiliate party’s major16 input based on the highest
of: (1) the actual transfer price for the input; (2) the market value of the input; or (3) the cost of
producing the input. 19 C.F.R. §351.407(b). Towards that end, Commerce will consider both the
percentage of an individual input purchased from affiliated parties and the percentage each individual
input represents in relation to the product’s total cost of manufacturing, among other factors in that
determination. See I&D Memo at cmt. 10; see, e.g., Stainless Steel Plate in Coils from Belgium, 70
Fed. Reg. 72789 (Dec. 7, 2005) (final AD admin. review results) at cmt 1.
During the investigation, the DSMC argued to Commerce that the record shows that
Ehwa owns [[ ]] of Weihai, its PRC subsidiary, that the inputs in question are major, i.e., that
the [[ ]] purchased from Weihai were significant in quantity, accounting for [[
]] sold in the home market during the POI,
and significant in total cost, accounting for [[ ]] percent thereof when calculated on the basis of
the DSMC’s estimate of the actual value of the [[ ]] rather than on the [[
]] Ehwa used for the calculation, and that Commerce has acknowledged that prices from an
NME producer are inherently tainted because they are not based on market-determined factors. See
DSMC’s Case Br., PDoc 528, CDoc 231, at 25-29; Major Input Allegation re Ehwa (Dec. 12, 2005),
PDoc 295, CDoc 103, at 5-6; see also Ehwa’s Second Supp. Section A QR at Ex. 3 (Nov. 21, 2005),
PDoc 257, CDoc 87; Ehwa’s Section D QR at D-5, D-6 (Nov. 21, 2005), PDoc 256, CDoc 90;
Rebuttal Br., PDoc 515, CDoc 217, at 10; Import Admin. Policy Bull. No. 94.1 (Mar. 25, 1994); I&D
16
Designed to evaluate whether the sale of a major input was made at arm’s-length, the
determination of whether an input is “major” is necessarily made on a case by case basis. See Huvis
Corp. v. United States, 32 CIT 845, 845 (2008); Torrington Co. v. United States, 25 CIT 395, 407-
08, 146 F. Supp. 2d. 845, 865 (2001); see also SAA at 838, 1994 U.S.C.A.N. at 4174-75.
Consol. Court No. 06-00248 Page 35
Memo at cmt. 12 (“the Act generally assumes that prices for goods produced in NMEs cannot be
relied upon for purposes of a price-based analysis”). Similarly, the DSMC pointed out that Shinhan
sources [[ ]] from TPC, [[ ]] in the form of [[
]] from TPC and Namdong, [[ ]] through TPC, and [[
]] from Qingdao Shinhan. See Major Input Allegation
re Shinhan (Dec. 12, 2005), PDoc 292, CDoc 105, at 2. The DSMC thus urged Commerce to value
such inputs using the same surrogate value factors of production analysis Commerce uses in
determining normal value in non-market economy investigations. See 19 U.S.C. §1677b(c).
Commerce agreed with the DSMC in part, and adjusted the respondents’ purchases
from affiliated suppliers to the higher of the reported transfer price or market value. In passing,
Commerce noted that 19 U.S.C. §1677b(f)(2) requires adjusting input cost to account for below
market price transfer prices between affiliates, so for some of the inputs it used the respondent’s cost
of producing the input as a market surrogate. But, it also “determine[d] that inputs purchased by
Ehwa and Shinhan from affiliates are not significant in relation to the total costs incurred to produce
subject merchandise and accordingly, are not major inputs”. I&D Memo at cmt. 10.
The DSMC argue Commerce’s reasoning is conclusory and does not address their
substantive arguments. Responding, the defendant proffers percentages of the respondents’ total cost
of manufacturing accounting for the affiliated inputs. It contends that Ehwa’s purchase of the input
[[ ]] accounted for only [[ ]] of the total cost of
manufacturing for all subject merchandise and that Ehwa’s purchase of the input [[
]] only accounted for [[ ]] of the total cost of manufacturing for all subject merchandise
Consol. Court No. 06-00248 Page 36
Def.’s Br. at 43, referencing Ehwa’s Supp. Sec. D (Jan. 17, 2006), CDoc 138 at 3-4. Regarding
Shinhan, the defendant points out as fact that Shinhan sourced from Technoplus [[ ]] percent of
its [[ ]], [[ ]] percent of its [[ ]], [[ ]] percent of its [[ ]], and
[[ ]] percent of its [[ ]], which made up only [[ ]] percent, [[ ]] percent, [[ ]]
percent, and [[ ]] percent, respectively, of the cost of manufacturing. Id, referencing Shinhan’s
Section D Supp. QR, CDoc 132 at App. S-57. It also points out that the tolling services provided by
Technoplus and [[ ]] accounted for [[ ]] percent and [[ ]] percent, respectively, of all
the tolling services purchased and [[ ]] percent and [[ ]] percent, respectively, of the total cost
of manufacturing. Id., referencing id. It further points out that the carbon and steel frames purchased
from [[ ]] accounted for [[ ]] percent of Shinhan’s total carbon and steel frame purchases,
but represented only [[ ]] percent and [[ ]] percent, respectively, of the total cost of
manufacturing. Id., referencing id.
The DSMC reply that such reasoning is post hoc17 and that to the extent the
calculations are based on unadjusted or non-market prices they therefore conflict with Commerce’s
expressed opinions on such matters. See supra & I&D Memo at cmt. 10 (“the transfer prices
between the respondents and their affiliates could be unreasonably low due to their affiliation”) &
cmt. 12 (“the Act generally assumes that prices for goods produced in NMEs cannot be relied upon
for purposes of a price-based analysis”). Further, they contend the calculations do not address their
substantive point with respect to Ehwa that when the cost of the [[ ]] is adjusted to
17
See, e.g., Burlington Truck Lines, Inc. v. United States, 371 U. S. 156, 168-69 (1962)
(“courts may not accept . . . post hoc rationalizations for agency action”); NEC Home Electronics,
Ltd., 54 F.3d at 743 (the court is “powerless to affirm an administrative action on a ground not relied
upon by the agency”) (citation omitted).
Consol. Court No. 06-00248 Page 37
reflect the actual value of the [[ ]] (as based on the [[ ]] of another [[ ]]
manufacturer) rather than “unrealistically low” (according to the DSMC) transfer prices, the [[
]] represent [[ ]] percent of Ehwa’s total cost of manufacturing.
See PDoc 295, CDoc 103, at 6. At this point, the court consider the DSMC’s arguments unrebutted.
Commerce also concluded that the inputs and services received from Shinhan’s
affiliates do not constitute a significant percentage of Shinhan’s total cost of manufacturing. See
Def.’s Br. at 43-44. This was apparently based upon Commerce’s examination of Shinhan’s
purchase of these inputs at verification, at which it verified that Shinhan had purchased them at
above the suppliers’ costs of production even after adjusting for G&A expenses. See Shinhan Cost
Verification Report, CDoc 193, at 28-29; Shinhan’s Supp. Sec. D QR (Jan. 11, 2006), CDoc 132,
at App. S-57. The DSMC contend that in order to reach this conclusion, Commerce again had to
have used the transfer prices that were supplied by Shinhan in its supplemental Section D
questionnaire response. See Def.’s Br. at 44. The DSMC contend that although Shinhan claimed
that the transfer prices reflected market prices, it provided no documentation to support that claim.
See CDoc 105, PDoc 292 at 2. They reiterate that Commerce recognized that transfer prices between
Shinhan and its affiliates are not a valid basis for comparison, and they also argue that even based
upon Commerce’s calculated percentages at least some of Shinhan’s purchases from affiliates should
have been considered “major” inputs, e.g., the tolling services provided by TPC accounted for [[ ]]
percent of Shinhan’s total cost of manufacturing, see Def.’s Br. at 44, and that Commerce in the past
has conferred major inputs status to material goods that constitute as little as two percent of the total
cost of production of a finished good. See Large Newspaper Printing Presses and Components
Consol. Court No. 06-00248 Page 38
Thereof, Whether Assembled or Unassembled, from Japan, 61 Fed. Reg. 38139, 38162 (July 23,
1996) (final LTFV determ.).
The defendant characterizes the DSMC’s points as an invitation to re-weigh the
evidence, and that Commerce in fact considered the inputs’ per-affiliate percentages and cost ratios
based on market prices for the inputs and each company’s total cost of production (“COP”). The
DSMC’s points, however, present not a “choice of two fairly conflicting views” but substantial
contradiction of Commerce’s declaration and its precedent, and their points therefore detract from
the reasonableness of the Final Determination as it stands. The issue as a whole requires fuller proof
on the record by way of fuller explanation or reconsideration. If on remand Commerce continues
to find 19 U.S.C. §1677b(f)(2) applicable, it shall further state why the respondents’ cost of
producing the input is a “reasonable surrogate” for the market price of the disregarded transaction(s)
for which it found no comparative unaffiliated sales to use as a market price for comparison to the
transfer price. Cf Antidumping Manual, Ch. 9, §II.D.1. (“[i]f a transaction is disregarded . . . and no
other transactions are available for consideration, the determination of the amount shall be based on
the information available as to what the amount would have been if the transaction had occurred
between persons who are not affiliated”).
IX. Non-Adjustment of Costs of Purchases From
Unaffiliated Non-Market Economy Suppliers
The DSMC also take issue with the fact that Commerce refused to adjust respondents’
reported costs for inputs purchased from unaffiliated NME suppliers. See I&D Memo at cmt. 12.
Commerce will “normally” use the costs as recorded in the respondent’s books and records in
calculating COP if: (1) those records are kept in accordance with the respondent’s home country’s
Consol. Court No. 06-00248 Page 39
generally accepted accounting principles, and (2) those recorded costs reasonably reflect the costs
associated with the production and sale of the subject merchandise. 19 U.S.C. §1677b(f)(1). See
Magnesium Metal from the Russian Federation, 70 Fed. Reg. 9041, 9043 (Feb. 24, 2005) (final
LTFV determ.). For an NME producer, 19 U.S.C. §1677b(c) requires a factors-of-production based
methodology. Consequently, Commerce will not use a price-based method for such producers unless
the record evidence demonstrates that a market-oriented industry exists. See 19 C.F.R. §351.408.
For the Final Determination, Commerce stated that it had
reviewed the relative percentages that these inputs represent of the respondent’s COP
and compared the NME prices to either market based prices or the cost of producing
the input. We have determined that the use of such prices does not result in an
unreasonable reflection of the cost associated with the production and sale of the
merchandise. Thus, while we may consider this issue in future cases, for the final
determination in this case we have not restated the prices recorded by respondents for
inputs purchased from NME suppliers.
I&D Memo at cmt. 12.
Defending this conclusion, the government points to the example of Ehwa’s
purchases of [[ ]] from [[ ]], which constituted only [[ ]] percent (by volume) and
[[ ]] percent (by value) of Ewha’s total purchases of cores during the period of investigation and
only [[ ]] of Ehwa’s total costs. Def’s Resp. at 46, referencing Ehwa Supp. Sec. D QR,
PDoc 159, CDoc 133 (Jan. 11, 2006), at SD-3; Ehwa Second Supp. Sec. A QR, PDoc 257, CDoc
87 (Nov. 21, 2005), at 9. It argues that when considering the record evidence, Commerce reasonably
determined that Ehwa’s inputs from unaffiliated NME suppliers were not major and did not result
in an unreasonable reflection of Ehwa’s COP for subject merchandise. Id., referencing Consolo,
supra, 383 U.S. at 620.
Consol. Court No. 06-00248 Page 40
The DSMC contend that Commerce’s calculation results from using the NME values
of the sourced inputs, and they remind that elsewhere Commerce has recognized the inherent
distortions in NME transfer prices, that the record shows that prices from NME suppliers in this
investigation were significantly below market prices insofar as Commerce verified that both the
market price and self-production costs for the inputs purchased from such NME suppliers
[[ ]], PDoc 515, CDoc 217, at 10,
and that the conclusion that the “amount” of inputs sourced from unaffiliated NME suppliers was
“negligible” is itself undercut by the referenced fact that Ehwa purchased [[ ]] by value
of its [[ ]] from one unaffiliated NME supplier.
Commerce did not determine that the “amount” was negligible but “that any
distortion they may create as percentage of the respondents’ total COP is negligible.” I&D Memo
at cmt. 12. Nonetheless, the DSMC’s allegation directly contradicts Commerce’s simple declaration
of comparison of the NME prices of the inputs to market-based prices or the COP of the input. Since
the prices of inputs sourced from all of Ehwa’s NME suppliers are indeed relevant, and since the
determination is that the NME prices themselves do not unreasonably reflect the cost associated with
the production and sale of the subject merchandise, a fuller explanation of, and/or redetermination
on, those comparisons upon remand would assist the court’s and parties’ understanding. See supra.
X. Use of Facts Otherwise Available or Adverse Inferences
The DSMC also contest Commerce’s calculation of Shinhan’s financial expense rate.
Shinhan provided as part of its Section A questionnaire responses the audited unconsolidated
financial statements for itself and each of its affiliated companies. See Shinhan’s Section A QR,
Consol. Court No. 06-00248 Page 41
CDoc 47 at Exs. A-11 to A-16. Commerce instructed Shinhan via the the Section D questionnaire
to calculate its financial expense based on the consolidated audited fiscal year financial statements
of the highest consolidation level available. See I&D Memo at cmt. 44. At verification, Commerce
“discovered that Shinhan had not provided the financial statements of its parent company TPC and
had not reported its financial expense rate as instructed, and Commerce requested Shinhan to submit
TPC’s consolidated financial statements. See Shinhan’s Verification, PDoc 312 (Apr. 4, 2006).
Shinhan complied. Although Commerce’s verification report provides the caveat “[t]his report does
not draw conclusions as to whether the reported information was successfully verified, and further
does not make findings or conclusions regarding how the facts obtained at verification will
ultimately be treated,” Shinhan Cost Verification Report, CDoc 193 at 1 (emphasis in original),
Commerce recalculated Shinhan’s expense ratio based on the newly submitted information, and the
I&D Memo holds as sufficient that “[d]uring the verification, the Department analyzed TPC’s
consolidated financial statements and compared them to TPC's unconsolidated financial statements”.
The DSMC contended the situation compelled the use of facts otherwise available
or adverse inferences under 19 U.S.C. §1677e, arguing in their administrative rebuttal brief that
Shinhan’s late filing had deprived them of any meaningful opportunity to analyze and comment upon
the financial statements. Cf. PDoc 255, CDoc 89 (Nov. 22, 2005). After noting that the argument
was improperly raised by way of rebuttal, Commerce rejected it on the merits by reasoning that it
had the authority to request and accept Shinhan’s information for TPC pursuant to 19 C.F.R.
§351.301(b)(1). “While we agree with the petitioner that Shinhan should have provided these
financial statements when initially asked, we do not believe Shinhan intentionally failed to do so in
Consol. Court No. 06-00248 Page 42
an effort to impede the investigation. Accordingly, we do not deem it appropriate to resort to facts
available with regard to calculating the interest expense rate for Shinhan.” I&D Memo at cmt. 44.
There are two distinct parts of 19 U.S.C. §1677e that respectively address two distinct
circumstances of administrative receipt of less than the full and complete facts needed to make a
determination. Nippon Steel Corp. v. United States, 337 F.3d 1373, 1381 (Fed. Cir. 2003). In either
circumstance, “Commerce first must determine that it is proper to use facts otherwise available
before it may apply an adverse inference.” Zhejiang DunAn Hetian Metal Co., Ltd. v. United States,
652 F.3d 1333, 1346 (Fed. Cir. 2011) (citation omitted). To do so, Commerce must follow the
statutory outline governing the propriety of that determination. The first part, of section 1677e,
subsection (a) (“In general”), provides that if --
(1) necessary information is not available on the record, or
(2) an interested party or any other person--
(A) withholds information that has been requested by the administering
authority or the Commission under this subtitle,
(B) fails to provide such information by the deadlines for submission of the
information or in the form and manner requested, subject to subsections
(c)(1) and (e) of section 1677m of this title,
(C) significantly impedes a proceeding under this subtitle, or
(D) provides such information but the information cannot be verified as
provided in section 1677m(i) of this title,
the administering authority and the Commission shall, subject to section 1677m(d)
of this title, use the facts otherwise available in reaching the applicable determination
under this subtitle.
19 U.S.C. §1677e(a) (italics added).
Commerce’s regulation interpreting the above provisions provided (during the
investigatory proceeding) in relevant part as follows:
Consol. Court No. 06-00248 Page 43
(a) Introduction. The Secretary may make determinations on the basis of the facts
available whenever necessary information is not available on the record, an interested
party or any other person withholds or fails to provide information requested in a
timely manner and in the form required or significantly impedes a proceeding, or the
Secretary is unable to verify submitted information.
19 C.F.R. §351.308 (2005--2006) (italics added).
The DSMC emphasize that the Court of Appeals for the Federal Circuit stated “[t]he
mere failure of a respondent to furnish requested information -- for any reason -- requires Commerce
to resort to other sources of information to complete the factual record on which it makes its
determination”. Nippon, 337 F.3d at 1381 (italics added). The DSMC contend that whether
Commerce believed that Shinhan had not significantly impeded the investigation, or that the
necessary information was (eventually) on the record, Shinhan failed to provide information by the
deadlines for submission of its Section D questionnaire response in the form and manner requested
by Commerce. DSMC Reply at 19, referencing 19 U.S.C. §1677e(a)(2)(A)&B).
The argument, in effect, is that whenever, at a particular point in time, there is less-
than-perfect compliance with an administrative request for information, resort to facts otherwise
available is required in that circumstance. See Nippon. 19 C.F.R. §351.308 also appears to support
the proposition. But, the relevant and operative point in time for determining whether “necessary
information is not available on the record” is at that point in time when Commerce must “use the
facts otherwise available in reaching the applicable determination”, 19 U.S.C. §1677e(a) (italics
added), not “whenever” the necessary information is not available on the record.
Be that as it may, 19 C.F.R. §351.301, the regulation governing time limits for
submission of factual information, provided in relevant part as follows during the investigation:
Consol. Court No. 06-00248 Page 44
(b) Time limits in general. Except as provided in paragraphs (c) and (d) of this
section and §351.302, a submission of factual information is due no later than:
(1) For a final determination in . . . an antidumping investigation, seven days before
the date on which the verification of any person is scheduled to commence, except
that factual information requested by the verifying officials from a person normally
will be due no later than seven days after the date on which the verification of that
person is completed[.]
***
(c) Time limits for certain submissions--
***
(2) Questionnaire responses and other submissions on request.
(i) Notwithstanding paragraph (b) of this section, the Secretary may request any
person to submit factual information at any time during a proceeding.
(ii) In the Secretary’s written request to an interested party for a response to a
questionnaire or for other factual information, the Secretary will specify the
following: the time limit for the response; the information to be provided; the form
and manner in which the interested party must submit the information; and that
failure to submit requested information in the requested form and manner by the date
specified may result in use of the facts available under [19 U.S.C. 1677e] and [19
C.F.R.] §351.308.
19 C.F.R. §351.301(b)&(c) (2005--2006) (italics added in part).
And, as noted, Commerce, relied on the latter part of subsection (b)(1), above, to find
that necessary information was not missing from the record; thus, the information concerning TPC
was simultaneously “discovered” missing and “requested” by Commerce at verification. Such an
interpretation obviates, or obfuscates, the fact that the information had been requested from Shinhan
at an earlier point in time, and had been due in accordance with the first clause of section 351.308(a)
as well as subsection 351.301(c)(2)(ii), governing written requests.
A failure to provide timely, mannerly or formally factual submissions is “subject to”
the “deficient submissions” provision of 19 U.S.C. §1677m(d). This provision curtails the ability
to reject information that is necessary for the administrative record and has otherwise been properly
submitted, subject to the following conditions. When Commerce makes any of the enumerated
Consol. Court No. 06-00248 Page 45
“final” determinations in section 1677m(e) (including the determination at bar), Commerce “shall
not decline to consider information that is submitted by an interested party and is necessary to the
determination but does not meet all the applicable requirements established” by Commerce if (1) the
information is submitted by the deadline established for its submission, (2) the information can be
verified, (3) the information is not so incomplete that it cannot serve as a reliable basis for reaching
the applicable determination, (4) the interested party has demonstrated that it acted to the best of its
ability in providing the information and meeting the requirements established by Commerce with
respect to the information, and (5) the information can be used without undue difficulties. 19 U.S.C.
§1677m(e). In addition, 19 U.S.C. §1677m(d) requires that from the time Commerce determines
that a response to a request for information does not “comply” with its prior request, it must
“promptly” inform the person submitting the information of the nature of the deficiency and provide
an opportunity to remedy or explain the deficiency “in light of the time limits established for the
completion” of the administrative proceeding. The statute provides Congress’ expectation of how
the unexpected discovery of information missing from the record is to be addressed, whether at
verification or otherwise. And, Commerce is to be accorded “substantial” deference in the
reasonable interpretation of the AD statute and its own regulations. See, e.g., Torrington Co. v.
United States, 156 F.3d 1361, 1363 (Fed. Cir.1998).
However, administrative discretion, over the “required” use of facts otherwise
available in the face of less-than-perfect compliance with a request for information, is not
unrestricted. Commerce cannot, of course, engage in partisanship, cf., e.g., 19 C.F.R. §351.301(c)(2)
(2005) (Commerce “may” request any person to submit factual information at any time during a
proceeding and “will” specify in its written request for a written response to a questionnaire or for
Consol. Court No. 06-00248 Page 46
other factual information that failure to submit requested information in the requested form and
manner by the date specified “may” result in use of the facts available), nor can it deprive a party of
meaningful opportunity to analyze and comment upon any significant new factual development, cf
id. with 19 C.F.R. §351.301(c)(1) (2005) (providing ten days after submission of factual information
for a non-submitter to rebut) and with China Kingdom Import & Export Co., Ltd. v. United States,
31 CIT 1329, 1350, 507 F. Supp. 2d 1337, 1357 (2007) (noting that defendant’s argument that
verifying and using substitute information “would be unfair to the petitioners and other interested
parties in the proceeding by depriving them of an opportunity to meaningfully comment”). The
“discovery” of any necessary factual material that had been missing from the record to that point
necessarily triggers a section 1677e(a)(1) analysis, in order that the record should reflect why the
information was missing, and regardless of whether the information is subsequently deemed
acceptable for the record and proper for consideration.
Here, Commerce stated that it “do[es] not believe Shinhan intentionally failed to
[disclose] in an effort to impede the investigation,” thus providing explanation, albeit cursory, that
might in some context satisfy section 1677e(a)(2)(C). But Commerce does not provide further
context or commentary to satisfy section 1677e(a)(2)(B), and the record is reviewably vague as to
what called Commerce’s attention to Shinhan’s non-provision of TPC’s consolidated financial
statements. Cf. PDoc 312 at 3 (“[a]t verification, we discovered that SDC’s parent, TPC[,] prepared
consolidated financial statements for the year end 2004”). It is undisputed that Commerce
“instructed Shinhan to calculate its financial expense based on the consolidated fiscal year financial
statements of the highest consolidation level available,” and that “Shinhan did not provide the
financial statements of its parent company (TPC), which were the highest level of consolidated
Consol. Court No. 06-00248 Page 47
financial statements.” Def.’s Br. at 47. Was it the case that TPC had not yet prepared consolidated
financial statements by the time Shinhan submitted its responses to Commerce’s questionnaire
requests? If TPC had, then even if Commerce’s Section D request to Shinhan could reasonably be
construed as expressing patent ambiguity regarding the information requested, the DSMC here are
no less correct that Commerce’s acceptance and incorporation of TPC’s consolidated financial
statements into the Final Determination without addressing each relevant section 1677e(a) factor
would appear to be an abuse of discretion and therefore not in accordance with law: the burden
would have been on Shinhan to seek clarification prior to responding in that circumstance. But if,
as a result of its “discovery” of the missing information at verification, Commerce concluded that
its prior Section D request had presented some reasonably latent or inconspicuous ambiguity that was
revealed only in light of Shinhan’s prior response(s) to the question(s) posed (i.e., Shinhan’s
interpretation of the questions asked could be construed as reasonable and therefore excusable), and
that the failure to produce TPC’s consolidated financial statement was unintentional and inadvertent,
then the request therefor at verification would fall squarely within 19 U.S.C. §1677m(d), and the
ultimate conclusion Commerce reached might not be unreasonable. As the court cannot discern
which is the circumstance at bar, it requests guidance via reconsideration on remand.
In addition, the DSMC vociferously argue that the circumstance called for application
of adverse inferences and that Commerce must address the statutory standard for its application --
whether the respondent failed to cooperate by not acting to the best of its ability regardless of motive
or intent; see Nippon Steel Corp., 337 F.3d at 1383 -- including examination in accordance with
agency practice of the extent to which the respondent may benefit from its own lack of cooperation.
See Gourmet Equipment (Taiwan) Corp. v. United States, 24 CIT 572, 577 (2000) (“Commerce is
Consol. Court No. 06-00248 Page 48
to consider the extent to which a party may benefit from its own lack of cooperation”), citing SAA
at 870, 1994 U.S.C.C.A.N. at 4199. Since Commerce must first determine whether resort to facts
available is appropriate, further discussion of that contention is here deferred, although Commerce
may choose to address it on remand.
XI. Use of Zeroing
The defendant-intervenors’ Rule 56.2 motions for judgment focus again on
Commerce’s use of zeroing to argue it was unreasonable for Commerce not to have determined that
the investigation was “pending” for purposes of the applicability of Commerce’s change of policy
on zeroing in investigations announced in Antidumping Proceedings: Calculation of the
Weighted-Average Dumping Margin During an Antidumping Investigation; Final Modification, 71
Fed. Reg. 77722 (Dec. 27, 2006), with effect from January 16, 2007. According to them, because
Commerce had not yet issued its AD order when the URAA section 123 proceeding that underpins
that announced “final modification” was concluded, the investigation of diamond sawblades from
Korea was allegedly “pending” and therefore covered by that section 123 determination.
This court has previously rejected similar challenges on two occasions in the appeals
of the diamond sawblades from the PRC investigation. See Advanced Technology & Materials Co.
v. United States, 35 CIT ___, Slip Op. 11-105 (Aug. 18, 2011) (“Advanced Tech I”) at 13-16. In that
case, the Court recognized that Commerce’s “policy change with respect to ‘zeroing[ ]’ . . . became
effective after the final determination . . . but before issuance of an [AD] order.” Advanced Tech I
at 2 (footnote omitted). The court considered that
the question that Commerce needed to resolve here did not require a survey of the
various alternative ways that an investigation might be termed “pending”; the task,
rather, was to interpret the meaning of that term as it was used in the Section 123
Consol. Court No. 06-00248 Page 49
Determination. More precisely, to determine which investigations the Department
was describing [in that Determination] when it referred to “all investigations pending
before the Department.”
Id. at 15 (italics added). The court concluded that Commerce had properly determined that the
diamond sawblades investigation was not one of those “pending” before the agency (and to which
the section 123 determination specifically alluded), and therefore Commerce had properly
determined that the diamond sawblades investigation “did not qualify for the policy change.” See
id. at 25; see also Advanced Tech II, supra, at 2 n.1 (“[T]he court . . . need not address ATM’s first
contention because argument thereon was addressed in Slip Op. 11-105. To the extent any arguments
remain, past precedent of this Court has shown them to be without merit.”).
There are no material factual or legal distinctions between this case and past
precedent. The court will therefore dismiss the defendant-intervenors’s challenge to Commerce’s
use of zeroing methodology in the Final Determination.
The defendant-intervenors argue that Advanced Tech I is inapplicable because it was
decided under the arbitrary and capricious standard of review accompanying actions challenging
changed circumstances reviews brought under 28 U.S.C. §1581(i), whereas this case is brought
pursuant to 28 U.S.C. §1581(c) to challenge a less than fair value determination. See Shinhan Br.
at 17 n.1; Ehwa Br. at 10-11. That is not a valid distinction. Advanced Tech II concerned an LTFV
challenge instituted pursuant to section 1581(c), and the opinion relied exclusively upon the
reasoning contained in Advanced Tech I as determinative. The respondents’ claim in Advanced Tech
I was that the diamond sawblades investigation did not “properly receive” the benefit of that section
123 determination. The court found jurisdiction over such a claim in section 1581(i). That does not
mean, however, that the court entertained jurisdiction over the section 123 determination itself. If
Consol. Court No. 06-00248 Page 50
a party believed Commerce should have included a particular LTFV investigation within the section
123 determination as one of those “pending” before Commerce, the party had the opportunity to
challenge that in a separate proceeding, but attempting to characterize such a claim as “subject to”
section 1581(c) jurisdiction, in the context of a LTFV challenge, would be subject to dismissal.
The defendant-intervenors argue that according to 19 C.F.R. §351.211(a) and
§351.102(b)(30), an “investigation” is “pending” beyond the issuance of a final LTFV determination
up until the issuance of an AD order. See Shinhan Br. at 20-23; Hyosung Br. at 8-11. However, as
before, the legal definitions of the term “pending” that defendant-intervenors would advance here
are “ultimately immaterial” to the issue of whether the investigation of diamond sawblades from
Korea was “pending” before Commerce. Insofar as what may properly be considered within the
context of this matter is concerned (i.e., the section 1581(i) jurisdictional issue), Commerce “would
have no legal authority to apply the section 123 determination in a manner that ignores the express
legal directive set forth therein” in any event.18 See Advanced Tech I at 24.
Further, it was not inconsistent with its regulations for Commerce to interpret the
section 123 determination’s meaning of “pending” as meaning those proceedings that were in the
midst of (and subject to) further proceedings before it prior to the final LTFV determination
18
And, in any event, neither of those regulations defined “pending,” either in 2006 or
currently. In 2006, section 351.102 defined (and section 351.102(b)(30) currently defines) the term
“investigation” as “that segment of a proceeding that begins on the date of publication of notice of
initiation of investigation and ends on the date of publication of the earliest of: (i) Notice of
termination of investigation, (ii) Notice of rescission of investigation, (iii) Notice of a negative
determination that has the effect of terminating the proceeding, or (iv) An order.” The “order”
referenced in section 351.102 is also referenced in section 351.211(a), and likewise then as now:
“The Secretary issues an order when both the Secretary and the Commission . . . have made final
affirmative determinations. The issuance of an order ends the investigative phase of a proceeding.”
Consol. Court No. 06-00248 Page 51
issuance. The defendant-intervenors apparently expand the meaning of the pendency of the LTFV
investigation before Commerce into the pendency of the investigation as a whole, including the
injury investigation before the ITC, but the regulations differentiate between investigation
proceedings before Commerce that lead up to the “final affirmative determination,” 19 C.F.R.
§351.211(a), and the overall investigation proceedings before both Commerce and the ITC that
ultimately lead to an AD order. See id.The publication of an AD order is a purely ministerial act. Royal Business Machines,
Inc. v. United States, 1 CIT 80, 86, 507 F. Supp. 1007, 1012 (1980). Irrespective of that, once
Commerce issues its final LTFV determination, no issues are “pending” before Commerce, and
nothing in the statute or regulations suggests that Commerce could continue its proceedings, accept
more submissions, or change its decision after it issued its final determination in its investigation.
Rather, the statute and regulations contemplate that, if Commerce issues an affirmative less than fair
value determination, and the ITC issues an affirmative injury determination, an order should issue.
Indeed, the parties’ own behavior confirms the finality of these individual steps. The DSMC
appealed the Final Determination to this court in 2006, long before Commerce issued the AD order.
But the statute contemplates this, confirming that the Final Determination was indeed “final” and
not “pending” at the time that Commerce issued its section 123 determination. See 19 U.S.C. §§
1516a(a)(2)(B)(i), 1673d. Equally obvious is that if the determination was still “pending,” then it
was not “final,” and the court would have had no jurisdiction to entertain a challenge to it.
Sub silencio, the court has also considered the defendant-intervenors remaining
arguments, in particular those concerning inconsistency in abandonment of zeroing in investigations
Consol. Court No. 06-00248 Page 52
but not in administrative reviews, but finds they do not merit further discussion. See, e.g., Union
Steel v. United States, 36 CIT ___, 823 F. Supp. 2d 1346, aff'd, 713 F.3d 1101 (Fed. Cir. 2013).
Conclusion
For the above reasons, Diamond Sawblades and Parts Thereof from the Republic of
Korea, 71 Fed. Reg. 29310 (May 22, 2006), as amended by Diamond Sawblades and Parts Thereof
from the Republic of Korea, 75 Fed. Reg. 14126 (Mar. 24, 2010), is hereby remanded to the
International Trade Administration, U.S. Department of Commerce for further proceedings not
inconsistent with this opinion.
The parties shall provide comment, or indication of none, on the sufficiency of the
information indicated to be redacted from the confidential version of this opinion (indicated above
by double bracketing) to the Clerk of the Court within seven (7) days, including any indication of
information that should be but is not presently indicated as subject to redaction.
The results of remand shall be due Monday, February 3, 2014, comments thereon by
Monday, March 3, 2014, rebuttal by Friday, March 28, 2014.
So ordered.
/s/ R. Kenton Musgrave
R. Kenton Musgrave, Senior Judge
Dated: October 11, 2013
New York, New York
Errata
Diamond Sawblades Manufacturers Coalition v. United States, Consol. Ct. No. 06-00248, Slip Op.
13-130, dated Oct. 11, 2013:
Page 3, line 7, correct “section-126” to “section-129”.
Page 27, lines 6 and 19, and page 33, line 14, change “its” to “their”.
Page 27, line 19, change “it” to “they”.
Page 34, footnote 16, correct “U.S.C.A.N.” to “U.S.C.C.A.N.”.
Page 35, line 15, add “[,]” after “and”.
Page 37, line 4, add “s” after “consider”.
Page 41, line 4, add closed-quotation mark after “discovered”.
Page 41, line 6, change “Shinhan’s Verification, PDoc 312” to “Shinhan Cost
Verification Report, CDoc 193”.
Page 46, line 18, change “PDoc 312” to “CDoc 193”.