Carpenter Technology Corp. v. United States , 28 Ct. Int'l Trade 1329 ( 2004 )


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  •                                Slip Op. 04 - 103
    UNITED STATES COURT OF INTERNATIONAL TRADE
    - - - - - - - - - - - - - - - - - - - x
    CARPENTER TECHNOLOGY CORPORATION,            :
    Plaintiff,   :
    v.                     :
    UNITED STATES,                               :   Court No. 02-00448
    Defendant,   :
    -and-
    :
    VIRAJ GROUP,
    :
    Intervenor-Defendant.
    :
    - - - - - - - - - - - - - - - - - - - x
    Memorandum & Order
    [Plaintiff's motion for judgment on
    agency record granted; remanded to
    International Trade Administration.]
    Decided:   August 16, 2004
    Collier Shannon Scott, PLLC (Robin H. Gilbert) for the
    plaintiff.
    Peter D. Keisler, Assistant Attorney General; David M. Cohen,
    Director, and Patricia M. McCarthy, Assistant Director, Commercial
    Litigation Branch, Civil Division, U.S. Department of Justice
    (Elizabeth G. Candler); and Office of Chief Counsel for Import
    Administration, U.S. Department of Commerce (Christine J. Sohar),
    of counsel, for the defendant.
    AQUILINO, Judge:         This is another case contesting a
    determination    of    the   International   Trade   Administration,   U.S.
    Department of Commerce ("ITA") to group (or not to group) together
    Indian enterprises for purposes of enforcement of its Antidumping
    Duty Order: Certain Stainless Steel Wire Rods from India, 58 Fed.
    Court No. 02-00448                                                 Page 2
    Reg. 63,335 (Dec. 1, 1993).       In Stainless Steel Wire Rod From In-
    dia; Final Results of Antidumping Duty Administrative Review, 65
    Fed.Reg. 31,302 (May 17, 2000), for example, the ITA determined not
    to group together (or "collapse") Viraj Alloys, Ltd. ("VAL") and
    Viraj Impoexpo, Ltd. ("VIL") for the period of review ("POR"),
    December 1, 1997 to November 30, 1998.            That determination was
    affirmed on appeal sub nom. Viraj Group, Ltd. v. United States, 
    25 CIT 1017
    , 1031, 
    162 F.Supp.2d 656
    , 670 (2001)[hereinafter referred
    to as "Viraj I"]:
    . . . Commerce determined that VAL produces steel billets
    and that VIL manufactures both stainless steel bright bar
    and stainless steel wire rod. . . . Commerce concluded
    that the production facilities necessary to manufacture
    these diverse products were sufficiently different as to
    require substantial retooling of either facility in order
    to restructure manufacturing priorities. . . . Because
    Viraj failed to meet the first collapsing requirement of
    
    19 C.F.R. § 351.401
    (f)(1), Commerce stated the issue of
    price manipulation was moot.     . . . As Plaintiff was
    unable to comply with the requirements for collapsing set
    forth in . . . § 351.401(f), this Court . . . finds that
    Commerce properly chose not to collapse VAL and VIL for
    purposes of calculating the value of steel billet.
    Citations omitted.
    I
    The   next   such   period   of   administrative   review   was
    December 1, 1999 through November 30, 2000 and resulted in the
    ITA's Stainless Steel Wire Rod From India; Final Results of Anti-
    dumping Duty Administrative Review, 67 Fed.Reg. 37,391 (May 29,
    2002), which is at issue in this action based upon the following
    analysis:
    Court No. 02-00448                                          Page 3
    Collapsing
    The Viraj Group is composed of . . . four companies:
    Viraj Forgings, Ltd. ("VFL"); . . . VAL[]; . . . VIL[];
    and Viraj USA, Inc. . . . , which was incorporated during
    the POR on May 22, 2000.            The Department has
    preliminarily determined that these four companies are
    affiliated for the purposes of this administrative
    review, and that the three producing companies, VAL, VIL,
    and VFL, should be collapsed and considered one entity
    pursuant to section 771(33) of the Act and section
    351.401(f) of the Department's regulations. See [ITA]
    . . . Collapsing Memorandum of the Viraj Group, Limited,
    dated December 31, 2001.
    The Department has found the four companies
    affiliated based on the evidence on the record . . .
    that Mr. Chhatwal and Mr. Kochhar are the directors for
    all four companies, and they jointly run all four
    companies, and their decisions are made for the interest
    of the group as a whole. Furthermore, the stock of VAL,
    VFL and VIL is mainly held by Mr. Chhatwal, Mr. Kochhar,
    and their relatives. Collectively, this group holds more
    than 40% of the shares in VIL, VAL, and VFL. Also, VFL
    owns 100% of Viraj USA.
    We find that the three producing companies (VAL,
    VIL, and VFL) should be collapsed because the evidence on
    the record indicates that VAL, VFL and VIL each use
    production   facilities    for   similar   or   identical
    merchandise that would not require substantial retooling
    of any facility in order to restructure manufacturing
    priorities.   For sales to the home market, VAL makes
    billets and then sends them to an unaffiliated
    subcontractor for rolling into wire rod.        The sub-
    contractor returns the black wire rod to VAL who sells it
    in the home market as subject merchandise. For sales to
    the U.S. market, VIL and VFL purchase the billets from
    VAL and send them to the same sub-contractor that VAL
    uses for rolling into wire rod. The subcontractor re-
    turns the black wire rod which is then annealed at VFL's
    facilities, pickled at VIL's facilities, packed and then
    exported. Consequently, VAL, VFL and VIL are all con-
    sidered "producers" of this wire rod for purposes of this
    review. Given that VAL, VIL and VFL all produced wire
    rod during the POR, no substantial retooling would be
    needed to restructure priorities among the three
    companies. Moreover, the companies are under common con-
    Court No. 02-00448                                          Page 4
    trol and ownership, they use the same production facili-
    ties for producing wire rod, and the operations of the
    companies are intertwined. Therefore, the companies are
    capable, through their sales and production operations,
    of manipulating prices or affecting production deci-
    sions.1
    Section 771(33) of the Trade Agreements Act of 1979, as amended,
    referred to above, 
    19 U.S.C. §1677
    (33), defines "affiliated" or
    "affiliated persons", among others, to be:
    (B) Any officer or director of an organization and
    such organization.
    (C)   Partners.
    (D)   Employer and employee.
    (E) Any person directly or indirectly owning,
    controlling, or holding with power to vote, 5 percent or
    more of the outstanding voting stock or shares of any
    organization and such organization.
    (F) Two or more persons directly or indirectly
    controlling, controlled by, or under common control with,
    any person.
    (G) Any person who controls any other person and
    such other person.
    For purposes of this paragraph, a person shall be
    considered to control another person if the person is
    legally or operationally in a position to exercise
    restraint or direction over the other person.
    The ITA regulation cited, 
    19 C.F.R. §351.401
    (f) (2002), provides:
    1
    Stainless Steel Wire Rod From India; Preliminary Results of
    Antidumping Duty Administrative Review, 67 Fed.Reg. 865, 866-67
    (Jan. 8, 2002). The ITA's subsequent Final Results, which the
    plaintiff contests herein, adopted this analysis, as well as that
    set forth in the agency's Issues and Decision Memorandum ("Dec-
    Memo") dated May 21, 2002, a copy of which is at tab 4 in
    Plaintiff's Appendix. See 67 Fed.Reg. at 37,392.
    Court No. 02-00448                                            Page 5
    Treatment of affiliated producers in antidumping
    proceedings--
    (1) In general. In an antidumping proceeding under
    this part, the Secretary will treat two or more
    affiliated producers as a single entity where those
    producers have production facilities for similar or
    identical products that would not require substantial
    retooling of 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.
    (2) Significant potential for manipulation.      In
    identifying a significant potential for the manipulation
    of price or production, the factors the Secretary may
    consider include:
    (i)     The level of common ownership;
    (ii) The extent to which managerial
    employees or board members of one firm sit on
    the board of directors of an affiliated firm;
    and
    (iii) Whether operations are intertwined,
    such   as  through   the   sharing  of   sales
    information, involvement in production and
    pricing decisions, the sharing of facilities
    or employees, or significant transactions
    between the affiliated producers.
    A
    Following publication of the above-quoted analysis in the
    agency's Preliminary Results, the domestic petitioners, including
    Carpenter Technology Corporation, objected to the collapsing of VAL
    into VFL and VIL.    Among other things, they asserted that, "without
    the use of independent unaffiliated sub-contractors, VAL, VFL and
    VIL are unable to produce subject merchandise."    DecMemo, pp. 2-3.
    The agency responded, in part, as follows:
    Court No. 02-00448                                            Page 6
    Petitioners['] argument that the Department mis-
    interpreted the meaning of section 351.401(f)(1) . . . is
    incorrect. Petitioners state that the focus of [that]
    section . . . is on production facilities and not product
    lines. This distinction is not relevant in this case, as
    all three Indian companies use the production facilities
    of the same unrelated company to manufacture wire rod
    through a sub-contracting arrangement. It is irrelevant
    that only VAL has steel making capabilities. VIL and VFL
    do not need steel making capabilities in order to produce
    subject merchandise, as all three companies are currently
    producing wire rod, through the sub-contracting process.
    Thus, it is unnecessary for any substantial re-tooling to
    take place for this process to continue.
    Id. at 4.
    This response precipitated the filing of Carpenter's com-
    plaint herein and its motion for judgment upon the agency record
    pursuant to USCIT Rule 56.2, which is governed by the standard of
    judicial review that the ITA's determination not be "unsupported by
    substantial evidence on the record, or otherwise not in accordance
    with law".    19 U.S.C. §1516a(b)(1)(B)(i).
    The court's jurisdiction is based upon 
    28 U.S.C. §§ 1581
    (c), 2631(c).
    B
    The court in Viraj I, supra, pointed out that "Commerce
    may collapse companies only when the regulatory requirements are
    satisfied".    25 CIT at 1030, 
    162 F.Supp.2d at 669
    .       Here, the
    plaintiff parses 
    19 C.F.R. §351.401
    (f)(1), supra, into three con-
    tingent conditions, namely:
    (1) each of the producers has production facilities
    for similar or identical products;
    Court No. 02-00448                                            Page 7
    (2) those production facilities would not have to
    be substantially retooled for any of the companies to
    restructure manufacturing priorities; and
    (3) if the above conditions exist, the Secretary
    must also find that there is a significant potential for
    the manipulation of price or production between the
    companies.
    Plaintiff's Reply Brief, p. 2.     The defendant does not disagree.
    See Defendant's Memorandum, p. 10.     It considers the third to be
    the "central question" of the regulation, but counsel seemingly
    overlook the standard the ITA has set -- significant, not just some
    or any, potential manipulation of price or production viz.:
    . . . The fact that the affiliated companies use tollers
    does not preclude the possibility of price manipulation
    -- the central question of the collapsing regulation.2
    And:
    . . . Commerce properly collapsed the Viraj Group's
    affiliated companies because it determined that "[e]ach
    is able to produce subject merchandise without changing
    production facilities or product lines." . . . Based
    upon this determination, price manipulation is possible.
    Id. at 14 (citations omitted).    The fact that the Viraj firms are
    "capable, through their sales and production operations, of manipu-
    lating prices or affecting production decisions"3 applies with
    equal logic, of course, to any and all business enterprises.
    2
    Defendant's Memorandum, p. 12. This seemingly-quaint term,
    toller, is found in subsection (h) of 
    19 C.F.R. §351.401
    :
    Treatment of subcontractors ("tolling" operations).
    The Secretary will not consider a toller or subcontractor
    to be a manufacturer or producer where the toller or
    subcontractor does not acquire ownership, and does not
    control the relevant sale, of the subject merchandise or
    foreign like product.
    3
    67 Fed.Reg. at 867.
    Court No. 02-00448                                              Page 8
    The ITA's Preliminary Results, quoted hereinabove, cite
    its Collapsing Memorandum dated December 31, 2001, wherein agency
    staff find (at page 5) that VIL, VFL and VAL
    have a significant potential, through their sales and
    production operations, of manipulating prices or affect-
    ing production decisions, given that the companies are
    intertwined and share directors, facilities and informa-
    tion.
    In re Stainless Steel Bar from India, 67 Fed.Reg. 45,956 (July 11,
    2002), amended, 67 Fed.Reg. 53,336 (Aug. 15, 2002), however, the
    nature and affiliation of these same three Viraj firms
    highlight[] the degree of confusion pertaining to the
    interpretation of the collapsing regulation, and the
    incongruity manifested in applying the regulation to the
    facts at hand.
    Slater Steels Corp. v. United States, 28 CIT       ,      , 
    316 F.Supp. 2d 1368
    , 1372 (2004).      Indeed, in this case before the court, the
    Collapsing Memorandum presents a seeming mix-up of the factors of
    
    19 C.F.R. §351.401
    (f)(1) with those set forth in subsection (f)(2).
    And this    kind   of   "totality-of-the-circumstances"   approach   has
    caused the court in Slater Steels to order and to re-order the ITA
    to explain why it did not analyze the "prongs" of subsection (f)(1)
    separately from the issue of manipulation per (f)(2).       See 28 CIT
    at       , 
    316 F.Supp.2d at 1372-74
    .      Cf. Slater Steels Corp. v.
    United States, 27 CIT        , 
    279 F.Supp.2d 1370
     (2003).
    (1)
    The court in Viraj I deemed potential manipulation a
    "moot"4 matter in the light of the agency conclusion that the VAL
    4
    25 CIT at 1031, 
    162 F.Supp.2d at 670
    .
    Court No. 02-00448                                           Page 9
    and VIL production facilities were sufficiently different as to
    require substantial retooling of either facility in order to re-
    structure manufacturing priorities.     Apparently, that difference
    remains the case now.
    The record reflects that in Viraj I VAL produced stain-
    less steel billets that were transferred to a subcontractor for
    rolling into wire rod and then sold to VIL for processing into the
    subject merchandise.      During the instant POR, VAL continued to
    produce billets and then send them to a subcontractor for rolling
    into such merchandise -- for sale in the home market.   On its part,
    VIL received billets from VAL which it sent to that same subcon-
    tractor for rolling.
    As for VFL, it did not produce or export subject mer-
    chandise during the Viraj I POR, but this time, like VIL, it pur-
    chased VAL billets that it also transferred to the subcontractor of
    choice for processing5.    Both VIL and VFL exported the rolled wire
    rod to the United States via Viraj USA, Inc.
    The ITA's Collapsing Memorandum explains that the fore-
    going reveals but two changes from the previous review in Viraj I,
    namely, VAL did not produce subject merchandise, and VFL neither
    produced nor exported at that time.    If this is all that actually
    5
    As recited above, VIL pickled both its wire rod and,
    pursuant to contract, that of VFL, while the latter annealed both
    its product and, pursuant to contract, that of VIL.
    Court No. 02-00448                                                     Page 10
    changed, the court cannot conclude that Viraj I should not be fol-
    lowed herein.    In the absence of evidence to the contrary, the
    court assumes the subcontracts for rolling to have been arm's-
    length and lawfully-binding that made any price or production
    manipulation by and between VAL and VIL and/or VFL during the
    period of    review    less   likely   than    if   those   three   affiliated
    enterprises were involved in the manufacture and sale of the
    subject merchandise exclusively with their own facilities.                Cf. 19
    C.F.R. 351.401(h), supra n. 2.
    II
    In the absence of any agency showing herein that dispels
    this logic based upon substantial evidence on the record, plain-
    tiff's motion for judgment thereon must be granted to the extent of
    remand to the ITA for calculation and imposition of individual
    antidumping-duty      margins   upon   Viraj   Impoexpo,     Ltd.   and   Viraj
    Forgings, Ltd. in the manner of the approach taken by the agency,
    and affirmed by the court, in Viraj Group, Ltd. v. United States,
    
    25 CIT 1017
    , 
    162 F.Supp.2d 656
     (2001).
    The defendant shall have until October 18, 2004 to carry
    out this remand, whereupon the plaintiff may have until November 1,
    2004 to serve and file any comments on the results thereof.
    So ordered.
    Decided:    New York, New York
    August 16, 2004
    Thomas J. Aquilino, Jr.
    Judge
    

Document Info

Docket Number: Court 02-00448

Citation Numbers: 2004 CIT 103, 28 Ct. Int'l Trade 1329

Judges: Aquilino

Filed Date: 8/16/2004

Precedential Status: Precedential

Modified Date: 8/6/2023