Taian Ziyang Food Co., Ltd. v. United States

Slip Op. 09-67

UNITED STATES COURT OF INTERNATIONAL TRADE

TAIAN ZIYANG FOOD :

COMPANY, LTD., ET AL.,

:

Plaintiffs,

:

v.

:

UNITED STATES,

: Consol. Court No. 05-00399

Defendant,

:

and

:

FRESH GARLIC PRODUCERS

ASSOCIATION, ET AL., :

Defendant-Intervenors. :

[Granting in part and denying in part Plaintiffs’ Motions for Judgment on the Agency Record, and

remanding action to agency.]

Dated: June 29, 2009

White & Case LLP (Adams C. Lee and Jay C. Campbell), for Plaintiff Taian Ziyang Food

Company, Ltd.

Bryan Cave LLP (Albert Lo and Kelly A. Slater), for Plaintiff Taian Fook Huat Tong Kee

Foodstuffs Co., Ltd.

Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP (Bruce M. Mitchell, Paul G.

Figueroa, Mark E. Pardo, and Richard A. Burns), for Plaintiffs Zhengzhou Harmoni Spice Co., Ltd.,

Jinan Yipin Corporation, Ltd., Linshu Dading Private Agricultural Products Co., Ltd., and Sunny

Import & Export Co., Ltd.

deKieffer & Horgan (John J. Kenkel, Gregory S. Menegaz and J. Kevin Horgan), for

Plaintiff Jinxiang Dong Yun Freezing Storage Co., Ltd.

Court No. 05-00399 Page 2

Tony West, Assistant Attorney General; Jeanne E. Davidson, Director, Patricia M.

McCarthy, Assistant Director, and Reginald T. Blades, Jr., Assistant Director, Commercial

Litigation Branch, Civil Division, U.S. Department of Justice (Mark T. Pittman and Richard P.

Schroeder); Scott D. McBride, Arthur Sidney, Jennifer Johnson, and Evangeline D. Keenan, Office

of the Chief Counsel for Import Administration, U.S. Department of Commerce, Of Counsel; for

Defendant.

Kelley Drye & Warren LLP (Michael J. Coursey, Michael R. Kershow, and Adam H.

Gordon), for Defendant-Intervenors the Fresh Garlic Producers Association, Christopher Ranch,

L.L.C., The Garlic Company, Valley Garlic, and Vessey and Company, Inc.

OPINION

RIDGWAY, Judge:

In this consolidated action,1 the plaintiff Chinese producers and exporters of fresh garlic –

Taian Ziyang Food Company, Ltd. (“Ziyang”), Taian Fook Huat Tong Kee Foodstuffs Co., Ltd.

(“FHTK”), Zhengzhou Harmoni Spice Co., Ltd. (“Harmoni”), Jinan Yipin Corporation, Ltd. (“Jinan

Yipin”), Linshu Dading Private Agricultural Products Co., Ltd. (“Linshu Dading”), Sunny Import

& Export Co., Ltd. (“Sunny”),2 and Jinxiang Dong Yun Freezing Storage Co., Ltd. (“Dong Yun”)

– contest the final results of the U.S. Department of Commerce’s ninth administrative review of the

antidumping duty order covering fresh garlic from the People’s Republic of China (“PRC”). See

Fresh Garlic from the People’s Republic of China: Final Results of Antidumping Duty

1

Ziyang, FHTK, the GDLSK Plaintiffs, Dong Yun, and the Domestic Producers each

initiated actions contesting the Final Results. Their five separate suits were consolidated into the

present action.

2

Plaintiffs Harmoni, Jinan Yipin, Linshu Dading, and Sunny are collectively referred to

herein as the “GDLSK Plaintiffs.”

Court No. 05-00399 Page 3

Administrative Review, 70 Fed. Reg. 34,082 (June 13, 2005) (“Final Results”); Issues and Decision

Memorandum for the Administrative Review of the Antidumping Duty Order on Fresh Garlic from

the People’s Republic of China (June 6, 2005) (Pub. Doc. No. 348) (“Decision Memorandum”);

Notice of Amended Final Results of Antidumping Duty Administrative Review: Garlic from the

People’s Republic of China, 70 Fed. Reg. 56,639 (Sept. 28, 2005) (“Amended Final Results”).3

Pending before the Court are four separate Motions for Judgment on the Agency Record, in which

the Chinese Producers contest various different aspects of the Final Results.4

Ziyang challenges Commerce’s application of “facts available” with “adverse inferences”

in calculating Ziyang’s dumping margin. See generally Memorandum of Points and Authorities in

Support of Plaintiff Taian Ziyang Food Company, Ltd.’s CIT Rule 56.2 Motion for Judgment Upon

3

Because this action was voluntarily remanded to Commerce for recalculation of the labor

wage rate, two administrative records have been filed with the court – the initial administrative

record (comprising the information on which the agency’s Final Results were based), and the

supplemental administrative record (on which the Remand Results were based).

Moreover, because confidential information is included in both administrative records, there

are two versions of each – a public version and a confidential version. The public versions of the

records consist of copies of all documents in the record of this action, with confidential information

redacted. The confidential versions consist of complete, unredacted copies of only those documents

that include confidential information.

Documents in the public version of the initial and supplemental administrative records are

numbered sequentially, and are cited herein as “Pub. Doc. No. ____.” Documents in the confidential

version of the initial and supplemental records are also numbered sequentially, but differently from

the public version. Documents in the confidential version of the initial and supplemental

administrative records are cited as “Conf. Doc. No. ____.”

4

Plaintiffs as a group are referred to herein as “the Chinese Producers.” All garlic producers

from the PRC involved in the underlying administrative review, including those producers not

participating in the present action, are referred to as “respondents.”

Court No. 05-00399 Page 4

the Agency Record (“Ziyang Brief”); Reply Brief of Plaintiff Taian Ziyang Food Company, Ltd.,

(“Ziyang Reply Brief”); Supplemental Brief of Plaintiff Taian Ziyang Food Company, Ltd. (“Ziyang

Supplemental Brief”).5

FHTK similarly disputes Commerce’s application of adverse facts available, as well as

Commerce’s valuation of garlic seed as a factor of production. See generally Brief of Taian Fook

Huat Tong Kee Foodstuffs in Support of Rule 56.2 Motion for Judgment on the Agency Record

(“FHTK Brief”); Reply Brief of Plaintiff Taian Fook Huat Tong Kee Foodstuffs Co., Ltd. (“FHTK

Reply Brief”).

The GDLSK Plaintiffs contest Commerce’s valuation of garlic seed, the inclusion of water

as a factor of production, the calculation of the labor rate, the valuation of garlic seed from a

producer’s own crops as a factor of production, the valuation of several post-harvesting factors of

production (i.e., cardboard cartons, plastic jars, and ocean freight), and the valuation of cold storage.

5

As a matter of practice:

Commerce uses the shorthand term “adverse facts available” to refer to two separate

procedures. Specifically, the Department uses “facts otherwise available” under 19

U.S.C. § 1677e(a) when needed information is unavailable on the record or otherwise

deficient according to § 1677e(a). See 19 U.S.C. § 1677e(a). When selecting from

among the facts otherwise available, Commerce uses inferences adverse to a party

that fails to cooperate by not acting to the best of its ability in responding to the

Department’s requests for information. See id. § 1677e(b).

Jinan Yipin Corporation, Ltd. v. United States, 31 CIT ____, ____ n.7, 526 F. Supp. 2d 1347, 1353

n.7 (2007).

The application of facts otherwise available and the application of adverse inferences are

discussed below, in section III.A. See section III.A, infra. Their combined application is generally

referred to herein as “adverse facts available.”

Court No. 05-00399 Page 5

See generally Brief in Support of Plaintiffs’ Rule 56.2 Motion for Judgment Upon the Agency

Record (“GDLSK Brief”); Reply Brief in Support of GDLSK Plaintiffs’ Rule 56.2 Motion for

Judgment Upon the Agency Record (“GDLSK Reply Brief”); Supplemental Brief in Support of

GDLSK Plaintiffs’ Rule 56.2 Motion for Judgment Upon the Agency Record (“GDLSK

Supplemental Brief”); Response to Defendant’s Supplemental Brief (“GDLSK Supplemental

Response Brief”).

Dong Yun challenges Commerce’s inclusion of water and land as factors of production, the

calculation of the labor rate and the selection of the financial ratios. See generally Memorandum

in Support of Plaintiff Dong Yun’s Rule 56.2 Motion for Judgment Upon the Agency Record

(“Dong Yun Brief”); Plaintiff’s Reply Brief to Defendant’s Memorandum in Response to Plaintiff’s

Rule 56.2 Motion for Judgment Upon the Agency Record (“Dong Yun Reply Brief”); Letter

Memorandum from Counsel for Dong Yun to Clerk of the Court (May 16, 2008) (“Dong Yun

Supplemental Brief”); Jinxiang Dong Yun Freezing Storage Co. Ltd., Response to Defendant’s

Supplemental Brief of May 16, 2008 (“Dong Yun Supplemental Response Brief”).

Defendant-Intervenors the Fresh Garlic Producers Association, Christopher Ranch, L.L.C.,

The Garlic Company, Valley Garlic, and Vessey and Company, Inc. (collectively, the “Domestic

Producers”) oppose the Chinese Producers’ motions and urge that the Final Results be sustained in

their entirety. See generally Defendant-Intervenors’ Brief in Response to Plaintiffs’ Motions for

Judgment on the Administrative Record (“Domestic Producers Response Brief”); Defendant-

Intervenors’ Rebuttal to Plaintiffs’ Supplemental Briefs (“Domestic Producers Rebuttal Brief”).

The Government, in turn, maintains that the Final Results should be sustained in all respects,

Court No. 05-00399 Page 6

save two. See Defendant’s Memorandum in Opposition to Plaintiffs’ Rule 56.2 Motions for

Judgment Upon the Agency Record (“Def. Response Brief”); Defendant’s Surreply to Dong Yun’s

Reply to the Response to Its Rule 56.2 Motion for Judgment Upon the Agency Record (“Def.

Surreply Brief”); Defendant’s Supplemental Brief (“Def. Supplemental Brief”); Defendant’s

Rebuttal to Plaintiffs’ Supplemental Briefs (“Def. Rebuttal Brief”). First, the Government requests

that the issue of valuing garlic seed from a producer’s own crop be remanded, so that Commerce

may address the arguments of Harmoni and Jinan Yipin. See Def. Response Brief at 69-71. In

addition, the Government requests a remand to permit Commerce to apply a new labor rate to Dong

Yun. See Def. Response Brief at 2, 112-13.

Jurisdiction lies under 28 U.S.C. § 1581(c) (2000).6 As detailed more fully below, the

Motion for Judgment on the Agency Record filed by Ziyang must be denied, while the Motions for

Judgment on the Agency Record filed by FHTK, the GDLSK Plaintiffs and Dong Yun are granted

in part and denied in part.

I. Standard of Review

A final determination by Commerce in an antidumping case must be upheld, except to the

extent that it is found to be “unsupported by substantial evidence on the record, or otherwise not in

accordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i); see also Elkem Metals Co. v. United States,

468 F.3d 795, 800 (Fed. Cir. 2006). Substantial evidence is “more than a mere scintilla”; rather, it

is “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”

6

All citations to federal statutes are to the 2000 edition of the United States Code. Similarly,

all citations to federal regulations are to the 2002 edition of the Code of Federal Regulations.

Court No. 05-00399 Page 7

Universal Camera Corp. v. Nat’l Labor Relations Bd., 340 U.S. 474, 477 (1951) (quoting Consol.

Edison Co. v. Nat’l Labor Relations Bd., 305 U.S. 197, 229 (1938)); see also Mittal Steel Point

Lisas Ltd. v. United States, 548 F.3d 1375, 1380 (Fed. Cir. 2008) (same). Moreover, any evaluation

of the substantiality of evidence “must take into account whatever in the record fairly detracts from

its weight,” including “contradictory evidence or evidence from which conflicting inferences could

be drawn.” Suramerica de Aleaciones Laminadas, C.A. v. United States, 44 F.3d 978, 985 (Fed. Cir.

1994) (quoting Universal Camera, 340 U.S. at 487-88); see also Mittal Steel, 548 F.3d at 1380-81

(same).

On the other hand, the mere fact that it may be possible to draw two inconsistent conclusions

from evidence in the record does not prevent Commerce’s determination from being supported by

substantial evidence. See Am. Silicon Techs. v. United States, 261 F.3d 1371, 1376 (Fed. Cir.

2001); see also Consolo v. Federal Maritime Commission, 383 U.S. 607, 620 (1966). Finally, while

Commerce must explain the bases for its decisions, “its explanations do not have to be perfect.”

NMB Singapore Ltd. v. United States, 557 F.3d 1316, 1319 (Fed. Cir. 2009). However, “the path

of Commerce’s decision must be reasonably discernable,” to support judicial review. Id.

II. Background

The underlying antidumping order here at issue, covering imports of fresh garlic from the

PRC, dates back to 1994. See Antidumping Duty Order: Fresh Garlic From the People’s Republic

of China, 59 Fed. Reg. 59,209 (Nov. 16, 1994) (“Antidumping Order”). The administrative review

which is the subject of this action – the ninth such review – began in November 2003, when

Commerce gave notice of the opportunity to request a review of the Antidumping Order for the

Court No. 05-00399 Page 8

period November 1, 2002 through October 31, 2003 (known as the “period of review” or “POR”).

See generally Antidumping or Countervailing Duty Order, Finding, or Suspended Investigation;

Opportunity To Request Administrative Review, 68 Fed. Reg. 62,279 (Nov. 3, 2003). Commerce

initiated the administrative review the following month. See generally Initiation of Antidumping

and Countervailing Duty Administrative Reviews, 68 Fed. Reg. 74,550 (Dec. 24, 2003).

Commerce subsequently issued its Preliminary Results, and invited comments. See generally

Fresh Garlic from the People’s Republic of China: Preliminary Results of Antidumping Duty

Administrative Review and Rescission in Part, 69 Fed. Reg. 70,638 (Dec. 7, 2004) (“Preliminary

Results”).7 Commerce also conducted verifications and “took the unusual step of inviting the

interested parties to submit argument regarding issues raised in the Preliminary Results, specifically

regarding the [intermediate input] methodology applied in the Preliminary Results and the relative

impact on yield from the [factors of production] used in the production of garlic.” Decision

Memorandum at 3.8

Following briefing and oral argument before the agency, Commerce published the Final

Results of the administrative review. See generally Final Results, 70 Fed. Reg. 34,082. In the Final

Results, Commerce decided, inter alia, (1) to apply adverse facts available to Ziyang’s and FHTK’s

7

In the Preliminary Results, Commerce calculated dumping margins of 61.43% for Ziyang,

90.27% for FHTK, 41.28% for Harmoni, 36.75% for Jinan Yipin, 58.26% for Linshu Dading,

27.24% for Sunny, and 101.51% for Dong Yun. See Preliminary Results, 69 Fed. Reg. at 70,643.

8

Commerce ultimately declined to apply the intermediate input methodology in the Final

Results, reserving it for the tenth administrative review of fresh garlic from the PRC. See

Zhengzhou Harmoni Spice Co. v. United States, 33 CIT ____, ____, 2009 WL 1321025 * 1-9

(2009).

Court No. 05-00399 Page 9

growing and harvesting factors of production (including, inter alia, garlic seed, water, and labor),

(2) to calculate the surrogate value of garlic seed using pricing data from the National Horticultural

Research and Development Foundation (“NHRDF”), (3) to calculate the surrogate labor wage rate

using Commerce’s standard regression model, (4) to assign a surrogate value to irrigation water, (5)

to apply a surrogate value for garlic seed to certain producers that grew their own seed, (6) to apply

a surrogate value for cold storage, (7) to use import statistics rather than domestic price quotes for

the surrogate valuation of cardboard cartons, (8) to use import statistics rather than domestic price

quotes for the surrogate valuation of plastic jars and lids, (9) to rely on Maersk freight shipping rates

for the surrogate valuation of ocean freight, (10) to apply a surrogate value for land, and (11) to

exclude certain companies from the financial ratio calculation, to exclude losses from the profit

calculation, and to include certain costs in the financial ratios that were not incurred by all

respondents. See generally Decision Memorandum.

The actions consolidated here ensued. In the meantime, the parties requested that Commerce

correct certain ministerial errors. At the request of the Government, this matter was remanded to

the agency for that purpose. See Defendant’s Consent Motion for Leave to Publish Amended Final

Results Correcting Ministerial Errors; Order Granting Defendant’s Consent Motion; see also

Amended Final Results, 70 Fed. Reg. 56,639. Based on those corrections, Commerce recalculated

the dumping margins for five of the Chinese Producers. See Amended Final Results, 70 Fed. Reg.

at 56,640.9

9

Commerce calculated amended dumping margins of 15.09% for Ziyang, 19.68% for FHTK,

14.20% for Harmoni, 15.92% for Jinan Yipin, and 10.78% for Linshu Dading. See Amended Final

Results, 70 Fed. Reg. at 56,640.

Court No. 05-00399 Page 10

In addition, the Government requested and was granted a voluntary remand to determine

whether Commerce had miscalculated the labor wage rate by erroneously omitting certain data. See

Defendant’s Partial Consent Motion for Voluntary Remand; Order Granting Defendant’s Partial

Consent Motion; see also Final Results of Redetermination Pursuant to Court Remand (“Remand

Results”).10 On remand, Commerce determined to include the omitted data, and recalculated the

dumping margins for six of the Chinese Producers. See Remand Results at 1-2, 18-19.11

III. Analysis

In their motions for judgment upon the agency record, the Chinese Producers advance

numerous claims contesting the Final Results. Ziyang and FHTK contend that Commerce erred by

applying adverse facts available to their growing and harvesting factors of production. FHTK and

the GDLSK Plaintiffs argue that Commerce erred in selecting a surrogate value for garlic seed. The

GDLSK Plaintiffs contend that Commerce erred by applying a surrogate value for purchased garlic

seed to certain producers who grew their own seed, that Commerce erred in the calculation of the

surrogate labor wage rate, and that Commerce erred in the surrogate valuation of irrigation water,

cold storage, cardboard cartons, plastic jars, and ocean freight. Dong Yun asserts that Commerce

erred in calculating a separate surrogate value for land as a factor of production, that Commerce

erred in the valuation of irrigation water, and that Commerce miscalculated the surrogate labor wage

10

This issue is distinct from the challenge to the labor rate methodology raised by the

GDLSK Plaintiffs and Dong Yun.

11

In the Remand Results, Commerce recalculated dumping margins at 12.58% for Ziyang,

15.75% for FHTK, 8.79% for Harmoni, 13.21% for Jinan Yipin, 7.97% for Linshu Dading, and

9.17% for Sunny. See Remand Results at 19.

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rate and surrogate financial ratios.

Each of the parties’ individual claims is discussed in turn below. For the reasons detailed

there, Ziyang’s Motion for Judgment on the Agency Record is denied. On the other hand, the

Motions for Judgment on the Agency Record by FHTK, Dong Yun and the GDLSK Plaintiffs are

granted in part.

A. Adverse Facts Available

Ziyang and FHTK object to Commerce’s application of adverse facts available to their

growing and harvesting factors of production.12 Both Ziyang and FHTK claim that their conduct

in the administrative review did not warrant Commerce’s application of facts available. Further,

both parties assert that the additional requirement for the application of an adverse inference – that

Commerce find a party failed to cooperate by acting to the best of its ability to comply with a request

for information – was not established with substantial evidence and was arbitrarily applied. See

generally Ziyang Brief at 1-39; Ziyang Reply Brief at 1-15; Ziyang Supplemental Brief at 1-6;

FHTK Brief at 13-37; FHTK Reply Brief at 1-15. But see Def. Response Brief at 1-59; Def.

Rebuttal Brief at 1-3, 7-15; Domestic Producers Response Brief at 1-3, 8-23. As discussed below,

however, the objections of Ziyang and FHTK are wide of the mark.

When goods are produced in a non-market economy (“NME”) country such as the PRC,

Commerce presumes that factors of production are under state control and that home market sales

12

In this case, the growing and harvesting factors of production include, inter alia, garlic

seed, water, and labor. See Preliminary Results, 69 Fed. Reg. at 70,643.

Court No. 05-00399 Page 12

are not reliable indicators of normal value. See 19 U.S.C. §§ 1677(18)(A), (C), 1677b.13

Accordingly, Commerce calculates normal value by isolating each factor of production in the

production process in the NME country and assigning to it a value from a surrogate market economy

country – in this case, India – using the “best available information.” See 19 U.S.C. § 1677b(c)(1).

In essence, Commerce creates a “hypothetical” market value to approximate the production

experience in the NME country. See Nation Ford Chem. Co. v. United States, 166 F.3d 1373, 1377-

78 (Fed. Cir. 1999). The statutory factors of production include, but are not limited to, labor, raw

materials, energy and other utilities, and representative capital cost, including depreciation. See 19

U.S.C. § 1677b(c)(3). Commerce adds to the total factors of production an estimated amount for

general expenses and profit, plus the cost of containers, coverings, and other expenses. See 19

U.S.C. § 1677b(c)(1).

To determine what factors of production are required for the subject merchandise, an

antidumping questionnaire is issued to all respondents, as well as to those exporters and producers

requesting treatment as voluntary respondents. See Antidumping Manual, Chap. 4 at 14-15 (Dept.

of Commerce Jan. 22, 1998) (“AD Manual”).14 The antidumping questionnaire is designed to elicit

13

Dumping occurs when goods are imported into the U.S. and sold at a price lower than their

“normal value” – i.e., the foreign market value of the subject merchandise. 19 U.S.C. §§ 1673,

1677(34). Normal value is calculated using either the exporting market price (i.e., the price in the

“home market” where the goods are produced), or the cost of production of the goods. 19 U.S.C.

§ 1677b. The difference between the normal value of the goods and the U.S. price is the “dumping

margin.” 19 U.S.C. § 1677(35). When normal value is compared to the U.S. price and dumping is

found, antidumping duties equal to the dumping margin may be imposed to offset the dumping. 19

U.S.C. § 1673(2)(B).

14

Generally, the antidumping questionnaire consists of five sections, numbered A through

E, plus several appendices. AD Manual, Chap. 4 at 2-8. Section A requires respondents to submit

Court No. 05-00399 Page 13

all information necessary to determine whether a respondent is dumping and, if so, to calculate the

dumping margin. AD Manual, Chap. 6 at 11.

Where Commerce is unable to obtain all of the necessary information from a respondent,

however, the agency may use “facts available”as a substitute. 19 U.S.C. § 1677e(a);15 19 C.F.R. §

general information about their corporate structure and business practices, as well as information

concerning the allegedly dumped goods. AD Manual, Chap. 4 at 2. Section B requires respondents

to list sales transactions of the goods in the appropriate foreign market (either the exporting “home

country” market or the third country market), in order to determine the normal value of the goods.

AD Manual, Chap. 4 at 3. Section C requires respondents to list U.S. sales transactions, for use in

determining the U.S. price against which normal value is compared. AD Manual, Chap. 4 at 6.

Section D solicits information on the costs of producing the goods.

In NME cases, such as the instant review, “the respondents are always required to respond

to a specially-tailored version of this section so that [Commerce] can determine the factors of

production to which surrogate values are applied.” AD Manual, Chap. 6 at 6-7. Section E seeks

information about value added in the U.S. to the goods, prior to delivery to unaffiliated U.S.

customers. AD Manual, Chap. 4 at 7. Commerce regulations state that for the final results of an

administrative review, a submission of factual information is due no later than “140 days after the

last day of the anniversary month.” 19 C.F.R. § 351.301(b)(2).

15

Specifically, 19 U.S.C. § 1677e(a) provides:

(a) In general. 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 title,

(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 [19 U.S.C. § 1677m],

(C) significantly impedes a proceeding under this title, or

(D) provides such information but the information cannot be verified

as provided in section [19 U.S.C. 1677m(i)], the administering

authority and the Commission shall, subject to section [19 U.S.C.

1677m(d)], use the facts otherwise available in reaching the

Court No. 05-00399 Page 14

351.308.16 Thus, for example, Commerce may use facts available where a respondent withholds

information or fails to provide it on time or in the form requested, or where the information provided

the respondent cannot be verified. 19 U.S.C. § 1677e(a)(2); 19 C.F.R. § 351.308(a). Moreover,

where a respondent affirmatively “fail[s] to cooperate by not acting to the best of its ability” in

responding to the agency’s requests for information, Commerce may resort to “adverse facts

available,” by applying an inference that is adverse to that respondent in selecting among the “facts

available.” 19 U.S.C. § 1677e(b);17 19 C.F.R. § 351.308(a);18 See also AD Manual, Chap. 6 at 14-

applicable determination under this title.

19 U.S.C. § 1677e(a).

16

19 C.F.R. § 351.308(a) provides that, 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(a).

17

Specifically, 19 U.S.C. § 1677e(b) provides:

(b) Adverse inferences. If the administering authority or the Commission (as the

case may be) finds that an interested party has failed to cooperate by not acting to the

best of its ability to comply with a request for information from the administering

authority or the Commission, the administering authority or the Commission (as the

case may be), in reaching the applicable determination under this title, may use an

inference that is adverse to the interests of that party in selecting from among the

facts otherwise available. Such adverse inference may include reliance on

information derived from –

(1) the petition,

(2) a final determination in the investigation under this title,

(3) any previous review under [19 U.S.C. § 1675] or determination under [19

U.S.C. § 1675b], or

(4) any other information placed on the record.

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16. When it is warranted, Commerce may use “facts available” or “adverse facts available” as a

substitute for all or part of the information required to calculate a respondent’s dumping margin.

See 19 U.S.C. § 1677e; 19 C.F.R. § 351.308.

In the administrative review at issue, Ziyang and FHTK submitted responses to Commerce’s

standard questionnaire, supplemental questionnaires and requests for information concerning the

companies’ reported factors of production.19 In the Final Results, Commerce applied adverse facts

available to both Ziyang’s and FHTK’s growing and harvesting factors of production, after finding

that the two parties “did not provide reliable and whole information and did not act to the best of

their ability in reporting factors of production data.” See Final Results, 70 Fed. Reg. at 34,084;

Decision Memorandum at 59-63. Commerce concluded:

. . . [W]ithin the meaning of [19 U.S.C. § 1677e(a)], both FHTK and Ziyang have

failed to provide necessary accurate information in response to the Department’s

questionnaires. The lack of this necessary data impeded the conduct of the

administrative review. We conclude that the information regarding [factors of

production] provided by FHTK and Ziyang is not reliable or usable and that,

therefore, the use of facts otherwise available is appropriate.

19 U.S.C. § 1677e(b).

18

Specifically, “If the Secretary finds that an interested party ‘has failed to cooperate by not

acting to the best of its ability to comply with a request for information,’ the Secretary may use an

inference that is adverse to the interests of that party in selecting from among the facts otherwise

available.” See 19 C.F.R. § 351.308(a).

19

See generally Ziyang Section D Response (Pub. Doc. No. 74); FHTK Section D Response

(Pub. Doc. No. 73); Ziyang First Supplemental Questionnaire (Pub. Doc. No. 131); FHTK First

Supplemental Questionnaire (Pub. Doc. No. 130); Ziyang Second Supplemental Questionnaire (Pub.

Doc. No. 181); FHTK Second Supplemental Questionnaire (Pub. Doc. No. 210); Ziyang Third

Supplemental Questionnaire (Pub. Doc. No. 201); Ziyang Third Party Submission (Pub. Doc. No.

255); FHTK Third Party Submission (Pub. Doc. No. 256); Ziyang and FHTK Intermediate Input and

Factors of Production Response (Pub. Doc. No. 290).

Court No. 05-00399 Page 16

. . . [W]ithin the meaning of [19 U.S.C. § 1677e(b)], FHTK and Ziyang failed to

cooperate by not acting to the best of their abilities in complying with the

Department’s requests for information for certain [factors of production] and that the

use of [adverse facts available] is appropriate. FHTK and Ziyang’s responses to the

Department’s questions concerning herbicide and polyethylene film (PE) film

contained significant omissions, mischaracterizations, and overall lack of clarity.

For the Department to calculate an accurate margin in an NME proceeding,

respondents must provide the Department with correct responses to its

questionnaires. The Department has no confidence in the reliability of FHTK’s and

Ziyang’s reported growing and harvesting [factors of production]. Despite numerous

opportunities to provide factual information or argument to support their reported

[factors of production], FHTK and Ziyang did not act to the best of their respective

abilities in providing information on the record . . . . Accordingly, we find that the

application of an adverse inference is warranted in the selection of facts available.

Decision Memorandum at 61-62.

As a preliminary matter, Ziyang and FHTK assert that Commerce changed its method of

valuing factors of production in this review, without justification and without a sufficiently reasoned

explanation. See Ziyang Brief at 12-15; Ziyang Reply Brief at 1-7; FHTK Brief at 17-20; FHTK

Reply Brief at 9-12. Ziyang argues that, in prior reviews of fresh garlic from the PRC, Commerce

calculated normal value using a respondent’s submitted data concerning factor usage and relied on

the verification process to confirm the accuracy of the reported data. See Ziyang Brief at 12; Ziyang

Reply Brief at 2.20 According to Ziyang and FHTK, in the current review, Commerce changed its

methodology to compare, or “benchmark,” individual respondents’ factors of production data against

20

See also Issues and Decision Memorandum for the New Shipper Review of the

Antidumping Duty Order on Fresh Garlic from the PRC: Jinxiang Shanyang Freezing Storage Co.,

Ltd., and Wangtun Fresh Vegetable Factory, 2004 WL 3524433 (Sept. 30, 2004), at comment 4;

Fresh Garlic From the PRC: Final Results of Antidumping Duty Administrative Review and New

Shipper Reviews, 69 Fed. Reg. 33,626 (June 16, 2004); Issues and Decision Memorandum for the

Administrative Review and New Shipper Reviews of the Antidumping Duty Order on Fresh Garlic

from the PRC, 2004 WL 3524395 (June 16, 2004), at comment 8.

Court No. 05-00399 Page 17

the data of other respondents. See Ziyang Brief at 12-15; Ziyang Reply Brief at 3; FHTK Brief at

17-20; FHTK Reply Brief at 6-8.

This argument amounts to a claim that, in reviewing the information provided by one

respondent, Commerce cannot consider information provided by other respondents. But, as the

Government properly points out, “Commerce is required [to] consider all significant, relevant

information on the record.” See Def. Response Brief at 28; 19 U.S.C. § 1675(a). Moreover, as the

Government notes, there was in fact no real change in methodologies: “[F]ar from a change in

practice, Commerce fully reviewed the facts in the administrative record and addressed individual

party comments, as is required by 19 U.S.C. § 1675(a).” See Def. Response Brief at 28 (citing

Decision Memorandum at 59-63).

In the Preliminary Results, Commerce compared all of the Chinese Producers’ reported

factors of production data to certain guidelines set forth in two Chinese articles, to assess the

reliability of the reported data. See Preliminary Results, 69 Fed. Reg. at 70,642.21 But, thereafter,

Commerce concluded that the specific benchmarks in the Chinese articles were not reliable. As a

result, in the Final Results, Commerce employed a different methodology, analyzing the Chinese

Producers’ reported factors of production as a whole. In that process, the data of Ziyang and FHTK

stood out as inconsistent with the data reported by other Chinese Producers. See Decision

Memorandum at 59-63.

21

See “Garlic Production Technology Regulations” and “Environmentally Safe Garlic

Production Technology Regulations,” included with Memorandum to File re: Research on Chinese

Garlic Production and Costs (Nov. 29, 2004); Decision Memorandum at 2 n.4 (citing Research on

Chinese Garlic Production and Costs (Conf. Doc. No. 69)).

Court No. 05-00399 Page 18

Ziyang and FHTK assert that it is unrealistic to benchmark factors of production, and

contend that – because Commerce found the benchmark methodology unreliable in the Preliminary

Results – Commerce’s continued use of benchmarking in the Final Results was not supported by

record evidence and was inconsistent with Commerce’s own statements. See Ziyang Brief at 12-15;

Ziyang Reply Brief at 1-7; FHTK Brief at 17-20; FHTK Brief at 17-20; FHTK Reply Brief at 10-11;

see also Preliminary Results, 69 Fed. Reg. at 70,642.

But Ziyang and FHTK either misunderstand or misrepresent the methodology that

Commerce used in reaching the Final Results. As noted above, in the Final Results, Commerce did

not rely on the Chinese articles to establish benchmark parameters for factors of production data.

Nor did Commerce require data on individual factors of production to fall within certain specified

ranges. Indeed, the Final Results expressly disclaimed benchmarking. Commerce concluded:

The record of this particular administrative review does not support the usage of

objective benchmarks in this segment of the proceeding. Thus, we have determined

not to rely on the benchmarks used in the Preliminary Results for the final results of

this review.

Decision Memorandum at 10-11. As the Final Results explained, Commerce instead took a “holistic

look at the entire growing process – that is, the collective whole of all growing and harvesting

[factors of production] in relation to the overall yield – in order to determine whether such data

[made] sense, and [were] reliable, for purposes of calculating normal value.” See Decision

Memorandum at 10; Def. Response Brief at 27.

For purposes of the Final Results, Commerce’s analysis thus focused on observed

discrepancies in the respondents’ reported data as a whole. Commerce noted, for example, that

respondents could achieve the same yield with varying levels of herbicide and labor – that is, more

Court No. 05-00399 Page 19

herbicide to kill weeds would require less labor to pull weeds, and vice versa. See Decision

Memorandum at 10. Using this holistic approach, Commerce reasonably determined that an

explanation was required where a respondent that reported using zero herbicide and extremely low

levels of labor achieved the same yields as other respondents using herbicide and average levels of

labor. Commerce carefully reviewed the facts on the record, including the other respondents’ data

as a whole, and made a studied determination that the factors of production data reported by Ziyang

and FHTK were not reliable. See Def. Response Brief at 28, 51-52; see also Decision Memorandum

at 17.

Commerce adequately explained the purpose and reasoning behind the methodology

employed to analyze the respondents’ factors of production, as discussed in greater detail below.

See Def. Response Brief at 17-18; Domestic Producers Response Brief at 11; Decision

Memorandum at 10-13; see generally Ziyang AFA Memorandum (Pub. Doc. No. 357; Conf. Doc.

No. 119); FHTK AFA Memorandum (Pub. Doc. No. 357; Conf. Doc. No. 118). The claims of

Ziyang and FHTK to the contrary are lacking in merit.

1. Facts Available

Ziyang and FHTK argue that Commerce erred on several grounds in its determination to use

facts available to value their growing and harvesting factors of production. See 19 U.S.C.

§1677e(a). Initially, Ziyang and FHTK rehash their claims that Commerce’s use of benchmarking

to evaluate their reported factors of production was arbitrary, and they maintain that any

conclusions reached using the methodology were not supported by substantial evidence. Ziyang and

FHTK also deny withholding information from Commerce, and insist that they provided data in the

Court No. 05-00399 Page 20

form and manner requested by the agency. Ziyang and FHTK similarly deny that their actions

impeded the administrative review, or that they provided unverifiable information. Ziyang argues

in the alternative that – if the information submitted was deficient or proved to be an impediment

– Commerce improperly failed to notifiy Ziyang of that fact.

Ziyang and FHTK maintain that the usage rates for factors of production in garlic cultivation

vary for a variety of reasons. They contend that Commerce’s conclusion that their reported rates

of usage “were not reasonably within a range established by the other respondents’ data, some of

which was unverified” was not supported by substantial evidence. See Ziyang Brief at 15; see also

FHTK Brief at 18-20. As documented in the Final Results, however, Commerce identified

significant discrepancies between the usage rates submitted by Ziyang and FHTK and those of other

respondents – discrepancies which Ziyang and FHTK failed to satisfactorily explain, despite

repeated opportunities to do so. See Decision Memorandum at 3; Def. Response Brief at 23.

Ziyang’s and FHTK’s arguments to the contrary are baseless.

In the review at issue, Ziyang and FHTK reported no use of herbicides or pesticides,

claiming that plastic polyethylene (“PE”) film was sufficient to prevent weeds. But Commerce

noted that “all nine respondents use [PE] film to cover the ground during the production process and

yet many other companies still applied herbicides and pesticides.” See Def. Response Brief at 21;

see also Modification of Factors of Production Memorandum (Conf. Doc. No. 79), at 5. Thus, as

the Government points out, Commerce reasonably determined that “it did not seem credible, given

that all nine respondents reported using the same type of [PE] film, that Ziyang would not use

herbicides or pesticides.” See Def. Response Brief at 21.

Court No. 05-00399 Page 21

Moreover, Commerce’s determination that Ziyang’s factors of production were unreliable

was not based solely on Ziyang’s failure to report the use of herbicide-impregnated PE film.

Commerce also analyzed Ziyang’s high overall garlic yield in comparison to the company’s

relatively low usage rates for various factors of production, including, inter alia, seed, water, and

labor. See Def. Response Brief at 24-27; Ziyang AFA Memorandum (Pub. Doc. No. 357), at 11.

For example, Commerce observed that Ziyang’s and FHTK’s claimed water consumption was

considerably lower than that of other respondents with farms less than 42 kilometers away. See Def.

Response Brief at 21; Preliminary China Cost Memorandum (Conf. Doc. No. 69), Exh. 3.22 Indeed,

the Government points out that Dr. Voss (retained by FHTK and Ziyang as a garlic expert) stated

that “FHTK’s reported water rate was ‘very little’ and, although it was ‘possible’ to use such little

water, ‘it would probably take rare circumstances.’” Def. Response Brief at 44 (quoting FHTK Third

Party Submission (Conf. Doc. No. 85), Exh. 22; FHTK AFA Memorandum (Pub. Doc. No. 356),

at 7.

Both Ziyang and FHTK had the opportunity to explain the discrepancies in their reported

data. After issuing its initial antidumping questionnaire, Commerce sent several supplemental

questionnaires and also a request for third party independent data to Ziyang and FHTK. Decision

Memorandum at 60-61. However, Ziyang’s and FHTK’s submissions did not directly respond to

Commerce’s request to explain the factors of production information, nor did the submissions

22

In fact, Ziyang’s own expert, “Dr. Ronald Voss, ‘could not ascertain a reasonable

explanation for the reasons why Ziyang’s water usage differed dramatically from other respondents

whose farms were located less than 42 [kilometers] away.’” Def. Response Brief at 25 (quoting

Ziyang AFA Memorandum (Pub. Doc. No. 357), at 6-7); see also Def. Response Brief at 26, n.3.

Court No. 05-00399 Page 22

explain Ziyang’s and FHTK’s reported factor input levels or the relationship of the reported factor

inputs to the reported yield. See Ziyang AFA Memorandum (Pub. Doc. No. 357), at 5; FHTK AFA

Memorandum (Pub. Doc. No. 356), at 5. Thus, as Ziyang and FHTK “failed to answer Commerce’s

concerns about the basic reliability of their [factors of production] data,” Commerce’s determination

that the reported factors of production data was unreliable is sustained. See Domestic Producers

Response Brief at 19.

Ziyang and FHTK also claim that they did not withhold information from Commerce in the

administrative review, pursuant to 19 U.S.C. § 1677e(a)(1)(A). Ziyang asserts that if Commerce

was lacking information, Commerce had the affirmative duty under 19 U.S.C. § 1677m(d) to inform

Ziyang of that fact.23 At issue is Ziyang’s disclosure that it used herbicide laced PE film as a factor

23

Specifically, 19 U.S.C. § 1677m(d) provides:

(d) Deficient submissions

If the administering authority or the Commission determines that a response

to a request for information under this subtitle does not comply with the

request, the administering authority or the Commission (as the case may be)

shall promptly inform the person submitting the response of the nature of the

deficiency and shall, to the extent practicable, provide that person with an

opportunity to remedy or explain the deficiency in light of the time limits

established for the completion of investigation or reviews under this subtitle.

If that person submits further information in response to such deficiency and

either–

(1) the administering authority or the Commission (as the case may

be) finds that such response is not satisfactory, or

(2) such response is not submitted within the applicable time limits,

then the administering authority or the Commission (as the case may

be) may, subject to subsection (e) of this section, disregard all or part

of the original and subsequent responses.

Court No. 05-00399 Page 23

of production, after repeatedly denying that any herbicide was used, and the contradictory responses

to herbicide use submitted by FHTK.24 In the initial questionnaire, Commerce instructed Ziyang to

report all the factors of production used in the cultivation of garlic. Ziyang reported that no

herbicide was used. After finally disclosing the use of herbicide after the Preliminary Results were

already issued, Ziyang attempted to justify its misrepresentation by stating that herbicide

impregnated plastic film is not specifically identified on the questionnaire as a factor of production

and therefore Ziyang was not at fault for not reporting. See Ziyang Brief at 17-19; Ziyang Reply

Brief at 7-9. Ziyang insists that it answered the questionnaires in the form and manner requested

by Commerce, which treated herbicide and PE film as separate factors of production. Ziyang Brief

at 17-18; see Commerce Questionnaire (Pub. Doc. No. 26), at App. V7, V9-V17. Ziyang argues

that, “Defendant and [the Domestic Producers] refuse to acknowledge that [Commerce’s]

questionnaire defined ‘herbicide’ and ‘plastic cover’ as distinct [factors of production].” Ziyang

Reply Brief at 8. Furthermore, “[a]lthough Ziyang used plastic film that contained herbicide

blended into the film, Ziyang reasonably recorded this item as ‘plastic cover’ in [Commerce’s]

worksheet, because that was the most fitting categorization.” Ziyang Brief at 18; Ziyang Reply Brief

at 8; Ziyang Section D Response (Pub. Doc. No. 94; Conf. Doc. No. 8), Exh. 7.

But, as the Government points out, it is the respondent’s obligation to provide truthful and

accurate information. Def. Response Brief at 30 (citing Gourmet Equip. Corp. v. United States, 24

19 U.S.C. § 1677m(d).

24

FHTK continues to deny that it used any herbicide as part of its garlic growing processes.

FHTK Brief at 14-17; FHTK Reply Brief at 5.

Court No. 05-00399 Page 24

CIT 572, 574 (2000); Kaiyuan Group v. United States, 28 CIT 698, 720, 343 F. Supp. 2d 1289, 1310

(2004); Firth Rixon Special Steels Ltd. v. United States, 27 CIT 873, 883-84 (2003); Atlantic Sugar,

Ltd. v. United States, 744 F.2d 1556, 1560 (Fed. Cir. 1994); Gulf States v. United States, 21 CIT

1013, 1040, 981 F. Supp. 630, 653 (1997)). Respondents must identify the factors of production for

the particular merchandise – in a timely manner and without mischaracterization – so that Commerce

can select appropriate surrogate values and calculate accurate dumping margins. See Def. Response

Brief at 29-31. Commerce’s questionnaire called for a “complete and detailed narrative response[]”

to the factors of production used in growing garlic, which Ziyang failed to provide. Def. Response

Brief at 19; see also Commerce Questionnaire (Pub. Doc. No. 26), at 19. And, as the Domestic

Producers emphasize, even Ziyang’s eventual disclosure that it used herbicide PE film was

confusing, because Ziyang notified Commerce “that it used herbicide laced plastic film – in four

short sentences – within a 600 page document, and devoted an additional four pages more of non-

chemical approaches to weed control.” See Domestic Producers Response Brief at 17; Ziyang AFA

Memorandum (Pub. Doc. No. 357), at 10. In essence, Ziyang proposes that using herbicide film

does not qualify as a use of herbicide. See Domestic Producers Response Brief at 17-18, Ziyang

AFA Memorandum (Pub. Doc. No. 357), at 10. This argument has no merit. Because Ziyang was

obligated to report the use of herbicide and failed to do so in a non-obfuscating and timely manner,

Commerce’s conclusion that Ziyang withheld information was reasonable. Def. Response Brief at

24; Decision Memorandum at 60-62.

In a last attempt to justify the failure to report herbicide PE film to Commerce, Ziyang argues

that it did not fail to provide information to Commerce under 19 U.S.C. § 1677e(a)(2)(B), because

Court No. 05-00399 Page 25

Commerce, through the wording of the questionnaires, failed to communicate the question it wanted

answered and thus never gave Ziyang a chance to respond. See Ziyang Brief at 21; Ziyang Reply

Brief at 7-8; see 19 U.S.C. § 1677e(a)(2)(B). Ziyang states that, “[u]nder 19 U.S.C. § 1677m(d),

[Commerce] must give respondents an opportunity to remedy or to explain deficiencies in their

submissions prior to resorting to facts available in a final determination.” Ziyang Brief at 21-22

(citing SKF USA Inc. v. United States, 29 CIT 969, 979-980, 391 F. Supp. 2d 1327, 1336-37 (2005);

Citic Trading Co. Ltd. v. United States, 27 CIT 356, 370-71 (2003)); Ziyang Reply Brief at 9.

Ziyang claims that instead of being informed about the deficiency, Commerce “kept silent, and left

the false impression that it would continue to value plastic film using the method from prior

reviews.” Ziyang Brief at 22. However, as the Government persuasively argues, there was no way

Commerce could know about Ziyang’s use of herbicide film unless Ziyang reported it, which Ziyang

failed to do in the three questionnaires issued by Commerce. Def. Response Brief at 29-30. Until

“Ziyang placed Exh. 27 of its 600 page third-party submission on the record, after the Preliminary

Results were issued, and after all questionnaire responses had been filed with Commerce, there was

no evidence that Ziyang, or any company, used a product like polyethylene film laced with

herbicide.” Def. Response Brief at 30; Ziyang AFA Memorandum (Pub. Doc. No. 357), at 11.

But the Government zeroes in on the flaw in Ziyang’s underlying argument – that, “[i]n

essence, Ziyang’s contention is that although Commerce asked if it used polyethylene film and

herbicide, it never specifically asked if it ‘used polyethylene film laced with herbicide,’ making

Commerce at fault for its inaccurate reporting.” Def. Response Brief at 29. As stated above, the

questionnaire called for a “complete and detailed narrative response . . . ” for the factors of

Court No. 05-00399 Page 26

production used in growing garlic – which Ziyang failed to provide when it did not list herbicide

PE film as a factor of production. Def. Response Brief at 19; Commerce Questionnaire (Pub. Doc.

No. 26), at D2. The Government also notes that Ziyang’s suggested surrogate value submission for

plastic film was comparable to the values of regular PE film, which provided no indication that

Ziyang was using a specialized film. Def. Response Brief at 20; FHTK and Ziyang Surrogate Data

Submission (Pub. Doc. No. 154), Exh. 9. Indeed, “Commerce could not have informed Ziyang that

information was missing from its harvest of production data when it did not know that the

information submitted by Ziyang in the New Shipper Review and its various questionnaire responses

was incorrect.” Def. Response Brief at 33-34. As the Government points out, “Ziyang was the only

party with knowledge of its use of herbicide-laced polyethylene film and it failed to provide that

information in a timely or accurate manner.” Def. Response Brief at 31. Thus, Commerce’s

conclusion that Ziyang withheld information was reasonable and based on substantial evidence.

For its part, FHTK argues that “the record contains no evidence that FHTK was dishonest

in any of its submissions or that Commerce uncovered any evidence of dishonesty at any point

during the proceeding.” FHTK Reply Brief at 5.25 However, like Ziyang, FHTK provided confusing

answers to Commerce’s inquiries concerning the use of herbicide. See FHTK AFA Memorandum

(Pub. Doc. No. 356), at 7-10. Despite FHTK’s denial that any herbicide was used, and that only

regular PE film with additional labor for hand weeding was necessary, Commerce noted that

25

FHTK did reference the use of “weeding film” (a Chinese industry term for herbicide

impregnated PE film) in an attachment to its Third Party Submission, a letter from a Chinese garlic

production expert that consulted with FHTK. FHTK AFA Memorandum (Pub. Doc. No. 356), at

9, nn. 8-9.

Court No. 05-00399 Page 27

FHTK’s labor rates were less than that reported by respondents that did use herbicides. FHTK AFA

Memorandum (Pub. Doc. No. 356), 8-11 (emphasis added). Furthermore, FHTK attempted to

demonstrate the reliability of its reported factors of production by providing information to

Commerce about herbicide laced PE film as an alternative to regular herbicide use – but

simultaneously assert that such a description is not a “veiled admission” of herbicide use. See FHTK

Brief at 17.

But FHTK’s argument misses the point. Commerce reasonably determined that FHTK’s

reported factors of production were unreliable because FHTK did not provide an adequate answer

to Commerce’s inquiry about FHTK’s herbicide use, providing only generalized non-specific

answers and suggested alternatives to herbicide use that did not address FHTK’s actual methods or

Commerce’s concerns about reliability. See FHTK AFA Memorandum (Pub. Doc. No. 356), at 11.

FHTK claims the fact that their “yield is different from the yields reported by other

respondents does not constitute a valid basis upon which to reject FHTK’s [factors of production]

data.” FHTK Brief at 22. However, Commerce did not deny the fact that yields vary; rather,

Commerce focused on the interplay of various factors of production and questioned how FHTK

achieved such a high yield despite the low or extremely low inputs of raw materials. See FHTK

AFA Memorandum (Pub. Doc. No. 356), at 6. Because FHTK responded to Commerce’s request

for information concerning yields with a “broad discussion,” containing “little, if any, information

specific to the conditions at FHTK,” which “did little to explain how FHTK’s reported yield was

impacted by factor input levels,” Commerce reasonably determined that FHTK’s factors of

production could not be relied upon for the calculation of normal value. FHTK AFA Memorandum

Court No. 05-00399 Page 28

at 6.

Ziyang next contends that, even if its submissions were flawed, Commerce’s resort to facts

available violated 19 U.S.C. § 1677m(e), which requires the consideration of imperfect information

if certain criteria are met.26 Ziyang Brief at 22 (citing Borden Inc. v. United States, 22 CIT 233,

262-63, 4 F. Supp. 2d 1221, 1246 (1998); Ziyang Reply Brief at 10. Ziyang claims that it met the

requirements prescribed by 19 U.S.C. § 1677m(e). But, as stated above, Ziyang failed to list

herbicide PE film in the initial questionnaire issued by Commerce, and in subsequent questionnaires,

Ziyang continued to deny the use of herbicide in its garlic cultivation. Only after the time period

for reporting factors of production data closed and the Preliminary Results were published, did

Ziyang disclose the use of the herbicide film. As Commerce correctly determined, Ziyang’s specific

response was not placed on the record by the deadlines set forth by the agency to allow for surrogate

value submissions and comments.

Ziyang and FHTK also challenge Commerce’s analysis relevant to the second criterion of

26

Specifically, 19 U.S.C. § 1677m(e) provides that 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 the administering authority or the

Commission with respect to the information, and

(5) the information can be used without undue difficulties.

19 U.S.C. § 1677m(e).

Court No. 05-00399 Page 29

§ 1677m(e), that information must be verifiable. Ziyang Brief at 16, 22-23; FHTK Brief at 33-37;

FHTK Reply Brief at 12. Ziyang notes that Commerce previously verified Ziyang’s factors of

production rates in the semi-contemporaneous New Shipper Review.27 Ziyang Brief at 16, 22-23.

Ziyang asserts that Commerce’s conclusion in the current administrative review, that the reported

factors of production could not have been verified, “is impossible to accept.” See Ziyang Brief at

23; see also Ziyang Brief at 16 (stating the verification from the New Shipper Review was firm

evidence of the accuracy of Ziyang’s factors of production data (citing Mitsubishi Materials Corp.

v. United States, 17 CIT 301, 319, 820 F. Supp. 608, 624 (1993))). However, Commerce did not

ignore contrary evidence as Ziyang contends. In fact, Commerce “recognize[d] that Ziyang

requested verification on several occasions,” but noted that “[v]erification is not an exercise in

clarifying or reconciling contradictory, unclear, or mischaracterized information provided by a

respondent,” and “[t]aken in their entirety over the course of the proceeding, . . . we believe the on-

site verification of Ziyang’s response could not have resolved the discrepancies.” See Ziyang AFA

Memorandum (Pub. Doc. No. 357), at 15-16; Def. Response Brief at 32; see also FHTK AFA

Memorandum (Pub. Doc. No. 356), at 15. The Government explains that verification of Ziyang’s

books and records would “not necessarily indicate . . . that Ziyang’s [factors of production] were

accurate,” which was the central cause of concern for Commerce. See Def. Response Brief at 31-32.

Furthermore, unless a domestic party makes a request for verification, a verification has not been

27

The period of review for the New Shipper Review covered November 1, 2002 through

April 30, 2003, overlapping with the instant administrative review (which covered November 1,

2002 through October 31, 2003). Fresh Garlic From the People’s Republic of China: Final Results

of Antidumping Duty New Shipper Reviews, 69 Fed. Reg. 46,498 (Aug. 3, 2004).

Court No. 05-00399 Page 30

performed in the two prior reviews or Commerce determines good cause exists, verification is not

required in an administrative review.28 19 U.S.C. § 1677m(i); see also Domestic Producers

Response Brief at 21.

While Commerce accepted Ziyang’s factors of production in the New Shipper Review,

Commerce “did not have the opportunity in the new shipper review to compare Ziyang’s reported

factors of production with several other respondents, as it did in this review.” Def. Response Brief

at 31. It was the Commerce’s comparison of data submitted from all respondents that sent up red

flags concerning Ziyang’s (and FHTK’s) relatively high garlic yield – produced from unusually low

growing and harvesting factors of production. Furthermore, the Government points out that, “the

very fact that Commerce did verify Ziyang’s books and records in the new shipper review, and did

not discover, or even suspect, that Ziyang used a specialized herbicide-impregnated film,

undermines this argument.” Def. Response Brief at 31-32. Commerce’s determination not to verify

Ziyang and FHTK was reasonable given the record evidence in this review, and Commerce has

28

Specifically, 19 U.S.C. § 1677m(i) provides that Commerce shall verify all information

relied upon in making:

(1) a final determination in an investigation,

(2) a revocation under section 1675(d) of this title, and

(3) a final determination in a review under section 1675(a) of this title, if–

(A) verification is timely requested by an interested party as defined in section

1677(9)(C), (D), (E), (F), or (G) of this title, and

(B) no verification was made under this subparagraph during the 2 immediately

preceding reviews and determinations under section 1675(a) of this title of the same

order, finding, or notice, except that this clause shall not apply if good cause for

verification is shown.

19 U.S.C. § 1677m(i).

Court No. 05-00399 Page 31

provided a sufficient explanation of the rationale behind that decision.

Ziyang next asserts that the information submitted was not so confusing or unreliable, so as

to violate the third criterion of § 1677m(e) – that submitted information not be so incomplete that

it cannot be used as a reliable basis for reaching the applicable determination. However, as stated

supra, Commerce explained that the low factors of production usage rates submitted by Ziyang were

questionable because of Ziyang’s high yield. Then, only after Ziyang could not explain how the

yield was achieved, and later disclosed the use of herbicide PE film, did Commerce determine

Ziyang’s factors of production were unreliable. Therefore, because Ziyang’s reported factors of

production data was unreliable as a basis to determine the dumping margin, Ziyang failed to satisfy

the third criterion.

Ziyang also contends that it “did its best to report information related to plastic film and

herbicide in the form and manner requested by [Commerce],” fulfilling the fourth provision of §

1677m(e) to act to the best of its ability in providing information. Ziyang Brief at 24. However, as

discussed above, Commerce found that Ziyang “failed to report all its factors and provided

seemingly unreasonable data and contradictory statements throughout the proceeding.” Ziyang AFA

Memorandum (Pub. Doc. No. 357), at 16. Further, when asked to provide an explanation for the

high yield despite low factors of production usage rates, Ziyang provided “explanations [that] were

wholly confusing and often irrelevant, submitting hundreds of pages to the record that did not speak

to the primary purpose of [Commerce’s] requests to explain yield and factors input levels in the

context of Ziyang’s production.” Ziyang AFA Memorandum (Pub. Doc. No. 357), at 16. Ziyang

contends that Commerce “simply failed to communicate its confusion to Ziyang” regarding the

Court No. 05-00399 Page 32

herbicide PE film – and that Commerce cannot blame Ziyang for its confusion. Ziyang Brief at 24.

But, one is hard pressed to find any ambiguity in the instructions for completing Commerce’s factors

of production questionnaire, which state, “If you have questions regarding how to compute the

factors of the subject merchandise, please contact [Commerce] . . . . [P]rovide complete and detailed

narrative responses . . . . Provide a detailed description of the production process utilized for the

production of the subject merchandise . . . . If you are unable to complete any part of the worksheet,

please explain in detail why you are unable to do so.” Commerce Questionnaire (Pub. Doc. No. 26),

at D1-D2; Ziyang Section C and D Questionnaire Responses (Conf. Doc. No. 8), at D17; see also

Domestic Producers Response Brief at 17-19.

For the last criterion of § 1677m(e), Ziyang disputes Commerce’s claim that it could not use

the submitted information on factors of production without undue difficulties. Ziyang charges that

Commerce found Ziyang’s factors of production data to be invalid based on a faulty comparison to

other respondents’ data, despite the fact that some of Ziyang’s data had been previously verified in

the New Shipper Review. See Ziyang Brief at 25. But again, Ziyang’s arguments lack merit.

Commerce “operates under statutory deadlines by which it must publish its findings, analyses and

calculations,” and Commerce “could not continue to grant additional opportunities to Ziyang to

continually update and modify information – without undue difficulties to [Commerce] and its

ability to conduct a meaningful thorough analysis.” Ziyang AFA Memorandum (Pub. Doc. No.

357), at 16. The unreliable information submitted by Ziyang could not have been used without

undue difficulties – in fact, it could not have been used at all.

Ziyang also contests Commerce’s conclusion that Ziyang obstructed the conduct of the

Court No. 05-00399 Page 33

administrative review under 19 U.S.C. § 1677e(a)(2)(C). See Ziyang Brief at 20; Ziyang Reply

Brief at 9. Ziyang mistakenly contends that, “[i]f Commerce wanted to obtain a specific surrogate

value for herbicide treated plastic film, the record contains no support for Commerce’s claim that

Ziyang impeded its ability to do so, because Ziyang reported its use of this plastic film at the first

opportunity.” Ziyang Brief at 20. As the Government underscores, Commerce had insufficient time

to value herbicide PE film because of the delay in learning that Ziyang used that product – a delay

actually caused by Ziyang through the confusing manner in which it reported the use of herbicide

PE film. In Ziyang’s Third Party Submission, where Ziyang claims that it reported the use of

herbicide PE film, Ziyang supplied several conflicting statements. Ziyang devoted four pages of the

submission to herbicide alternatives, consistent with Ziyang’s prior submissions stating that no

herbicide was used. Ziyang also stated that “research indicates that it is not necessary to use

herbicide or pesticide in garlic production to produce a commercially viable crop,” and that

“[p]lastic films “provide non-chemical alternatives for control of insects, diseases, and weeds.”

Ziyang AFA Memorandum (Pub. Doc. No. 357), at 9-10 (quoting Ziyang Third Party Submission

(Pub. Doc. No. 255), at 13, 15). Then, on page 22 of the 600 plus page document, Commerce noted

one sentence stating that, “Ziyang used weeding film during (the) garlic planting period. Exhibit

27 includes information and a manual for weeding film from the producer.” Ziyang Third Party

Submission (Pub. Doc. No. 255), at 22. This is the extent of Ziyang’s admission to Commerce that

it used herbicide film.

In the Ziyang AFA Memorandum, Commerce stated that it found it misleading that Ziyang

would devote four pages to a discussion of alternatives to herbicide or pesticide, followed by four

Court No. 05-00399 Page 34

sentences and an exhibit reference which discreetly acknowledged the use of herbicide impregnated

PE film. See Ziyang AFA Memorandum (Pub. Doc. No. 357), at 10. In addition, this “admission”

surfaced more than eleven months after Ziyang’s original questionnaire responses were submitted

to Commerce, after the close of the period for reporting factors of production usage levels, and

despite Ziyang’s submission of a surrogate value for PE film consistent with non-specialized or

ordinary PE film. Ziyang AFA Memorandum (Pub. Doc. No. 357), at 16; see also Def. Response

Brief at 20 (referencing FHTK and Ziyang Surrogate Data Submission (Pub. Doc. No. 154), Exh.

9)). By not reporting its use of herbicide until after the close of the time-frame to do so, and burying

that fact within a 600 page document, Ziyang hamstrung Commerce’s ability to value a necessary

factor of production. See Def. Response Brief at 24. Likewise, Ziyang’s argument that Commerce

was required by statute to provide Ziyang the opportunity to present new information about its use

of herbicide PE film – after the period for submitting factors of production data expired and after

repeatedly denying any herbicide was used – is baseless.

Further, in concluding that Ziyang impeded the administrative review, Commerce did not

rely solely on Ziyang’s failure to report the use of herbicide PE film. Def. Response Brief at 23-27.

Commerce also questioned Ziyang’s factors of production usage rates for seed, water and labor in

relation to the garlic yield Ziyang achieved. Def. Response Brief at 24-25. Commerce gave Ziyang

multiple opportunities to explain how Ziyang’s low usage rates for the reported factors of production

produced an above average yield, i.e., the validity of the submitted data, but failed to do so. See

Decision Memorandum at 60-61; Def. Response Brief at 33-34. However, instead of cooperating,

as the Domestic Producers point out, “Ziyang chose to swamp the record with confusing and

Court No. 05-00399 Page 35

irrelevant secondary data in an attempt to explain how different farmers’ production experience can

vary, but without directly addressing their own experience.” Domestic Producers Response Brief

at 19.

Ziyang did not provide the reliable factors of production data that Commerce needs to

calculate accurate dumping margins in NME proceedings. See Ziyang AFA Memorandum (Pub.

Doc. No. 357), at 16. As a result, Commerce reasonably determined that “Ziyang withheld or did

not provide complete and reliable information to [Commerce] pertaining to various [factors of

production] in the form and manner requested by [Commerce]. The lack of this necessary data

impeded the conduct of the administrative review.” Decision Memorandum at 61; see also Def.

Response Brief at 23-24. For all the preceding reasons, Commerce’s determination to apply facts

available to Ziyang’s and FHTK’s growing and harvesting factors of production is sustained.

2. Adverse Inferences

Ziyang and FHTK contest Commerce’s application of adverse inferences when selecting

from among the facts available to value their factors of production. See Ziyang Brief at 25-31;

Ziyang Reply Brief at 12-15; Ziyang Supplemental Brief at 3-4; FHTK Brief at 29-33; FHTK Reply

Brief at 2-9.29 Both Ziyang and FHTK allege that Commerce’s conclusion that neither cooperated

to the best of their ability is unsupported by substantial evidence and otherwise contrary to law. See

Ziyang Brief at 25; Ziyang Reply Brief at 12; Ziyang Supplemental Brief at 3-4; FHTK Brief at 29-

30; FHTK Reply Brief at 2-3. Ziyang and FHTK assert that they complied with all of Commerce’s

29

Commerce calculated a dumping margin of 12.58% for Ziyang and 15.75% for FHTK. See

Amended Final Results, 70 Fed. Reg. at 56,640; Remand Results at 19.

Court No. 05-00399 Page 36

requests for information and that some of the requested information was beyond the scope of what

a reasonable importer would keep as normal business records, making the request impossible to

fulfill. See Ziyang Brief at 25-31; Ziyang Reply Brief at 12-15; Ziyang Supplemental Brief at 3-4;

FHTK Brief at 29-33; FHTK Reply Brief at 2-9. Ziyang also contends that Commerce’s selection

of adverse facts is contrary to law. For the reasons that follow, Commerce’s determination to apply

partial adverse facts to Ziyang and FHTK is sustained.

The application of adverse inferences can only occur after Commerce first determines that

the use of facts available are appropriate under 19 U.S.C. § 1677e(a). As explained in section

III.A.1 above, Commerce’s determination to use facts available to value Ziyang’s and FHTK’s

factors of production is sustained. Consequently, to apply an adverse inference to the facts

available, Commerce must make an additional finding that a party has failed to act to the best of its

ability when complying with a request for information from Commerce.30

Ziyang and FHTK challenge Commerce’s finding that they failed to cooperate to the best

of their ability with the reporting of factors of production. Both Ziyang and FHTK rely on the

standard set forth by the Federal Circuit in Nippon Steel Corp. v. United States, 337 F.3d 1373 (Fed.

Cir. 2003). Ziyang Brief at 25-31; Ziyang Reply Brief at 12-15; Ziyang Supplemental Brief at 3;

FHTK Reply Brief at 3-4. The Nippon court preliminarily determined that 19 U.S.C. § 1677e(b)

does not expressly define “best of its ability.” Nippon, 337 F.3d at 1382. However, after analyzing

30

19 U.S.C. § 1677e(a) provides that if Commerce “finds that an interested party has failed

to cooperate by not acting to the best of its ability to comply with a request for information from

[Commerce], [Commerce], in reaching the applicable determination under this subtitle, may use an

inference that is adverse to the interests of that party in selecting from among the facts otherwise

available.” See 19 U.S.C. § 1677e(a).

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the plain meaning of the phrase, the court stated that under the “best of its ability” standard, a

respondent is required to do the maximum it is able to do. Nippon, 337 F.3d at 1382. Further, the

court held that to draw an adverse inference, Commerce must demonstrate:

[A]n objective showing that a reasonable and responsible importer would have

known that the requested information was required to be kept and maintained under

the applicable statutes, rules, and regulations.

Second, Commerce must then make a subjective showing that the respondent under

investigation not only has failed to promptly produce the requested information, but

further that the failure to fully respond is the result of the respondent’s lack of

cooperation in either: (a) failing to keep and maintain all required records, or (b)

failing to put forth its maximum efforts to investigate and obtain the requested

information from its records.

Nippon, 337 F.3d at 1382-83; see also Ziyang Brief at 26; Ziyang Reply Brief at 12-13. Ziyang

asserts that Commerce did not make the second, subjective, showing with regard to the reporting

of herbicide PE film – that Commerce did not show Ziyang failed to put forth its maximum efforts

in providing information to Commerce. Ziyang Brief at 26; Ziyang Reply Brief at 14. With regard

to Ziyang’s factors of production, Ziyang contends that Commerce failed to meet both the objective

and subjective requirements of the Nippon test. Ziyang Brief at 29-31; Ziyang Reply Brief at 13.

Ziyang unconvincingly argues that Commerce’s initial questionnaire instructions

distinguished herbicide and PE film as separate factors of production, justifying Ziyang’s failure to

report the use of herbicide PE film and demonstrating that Ziyang gave maximum effort to respond

to Commerce’s questionnaire. Ziyang Brief at 27-28. Ziyang stresses that the first supplemental

questionnaire only sought confirmation of the use of PE film and the thickness of the film, which

Ziyang provided. Ziyang states that the second supplemental questionnaire, asking Ziyang to verify

the non-use of herbicide, was answered consistently with the prior questionnaires – that Ziyang did

Court No. 05-00399 Page 38

not use herbicide as a factor of production. Ziyang Brief at 27. However, as discussed in section

III.A.1, this argument lacks credibility, as Commerce requested a complete and detailed description

of Ziyang’s garlic cultivation processes and instructed Ziyang to inquire about any problems

encountered while complying with that directive. Further, when asked in the second questionnaire

whether it used herbicide, Ziyang unequivocally stated that, “Ziyang confirms that it does not use

any herbicide or pesticide in the production of the subject merchandise.” See Ziyang Second

Supplemental Questionnaire (Pub. Doc. No. 193), at 7. Ziyang’s subsequent admission that it used

herbicide PE film directly contradicts this statement to Commerce. An adverse inference may be

drawn “under circumstances in which it is reasonable for Commerce to expect that more

forthcoming responses should have been made . . .” Nippon, 337 F.3d at 1383. Clearly, Commerce

was reasonably entitled to expect Ziyang to report the use of herbicide if herbicide was used.

Ziyang’s arguments to the contrary are meritless.

Ziyang and FHTK claim that Commerce’s request that they explain their factors of

production in relation to yield required information beyond the scope of their normal business

records. Ziyang Brief at 29-31; Ziyang Reply Brief at 13; Ziyang Supplemental Brief at 3; FHTK

Brief at 31-32; FHTK Reply Brief at 11. Both Ziyang and FHTK point out that hundreds of pages

of material were placed on the record in response to Commerce’s request – but neither Ziyang nor

FHTK highlight any specific information in the submissions regarding their specific practices or

procedures that resulted in such high yields despite the low factor inputs. Decision Memorandum

at 62-63; Ziyang AFA Memorandum (Pub. Doc. No. 357), at 17; FHTK AFA Memorandum (Pub.

Doc. No. 356), at 16. Ziyang and FHTK seem to suggest the submission of voluminous amounts

Court No. 05-00399 Page 39

of general non-responsive data is synonymous with the submission of relevant answers specific to

the question asked, which is obviously not the case. See NSK Ltd., v. United States, 481 F.3d 1355,

1361 (Fed. Cir. 2007) (finding it reasonable for Commerce to determine that a respondent did not

provide a legitimate attempt to provide a full and complete answer when the response submitted was

unrelated to the question). Further undermining Ziyang’s and FHTK’s supposition is the fact that

some of the information supplied either contradicted previous responses or was completely

unusable.31 Ziyang and FHTK, as exporters of goods to the United States, are expected to keep

records of its business operations and procedures for the cultivation of garlic and to apply maximum

efforts to provide Commerce with full and complete answers. See Nippon, 337 F.3d at 1382.

Further, as the Federal Circuit stated, while the best of ability “standard does not require perfection

31

The Government emphasizes that Ziyang and FHTK actually provided expert information

in their Third Party Submissions which contradicted the veracity of Ziyang’s and FHTK’s reported

factors of production, and both parties also submitted additional information that could not be used.

Def. Response Brief at 26, 44; Ziyang AFA Memorandum (Pub. Doc. No. 357), at 11-12; FHTK

AFA Memorandum (Pub. Doc. No. 356), at 10-11. To illustrate a contradiction, the Government

notes that Ziyang’s hired expert stated that garlic cultivation without the use of herbicide was

possible, but that it would require an increase in hand weeding – yet Ziyang’s labor usage rate was

lower than those respondents that did use herbicide. Ziyang AFA Memorandum (Pub. Doc. No.

357), at 11-12.

Additionally, the Government underscores the fact that “Commerce could not rely on many

of [the expert’s] statements because he: (1) relied upon a dataset that was not placed on the record;

(2) admitted all of his experience applied only to California growing and harvesting procedures; and

(3) admitted that he had no personal knowledge of Ziyang’s own growing or harvesting procedures.”

Def. Response Brief at 26 n.3 (citing Ziyang AFA Memorandum (Pub. Doc. No. 357), at 3-4).

Similarly, for FHTK, the Government notes that the hired expert (the same individual employed by

Ziyang) utilized a dataset for his analysis that was different than that submitted to Commerce by

FHTK, indicated an inability to perform certain analyses because of missing information, and

admitted he had little knowledge of FHTK’s growing and harvesting experience. See Def. Response

Brief at 44-45.

Court No. 05-00399 Page 40

and recognizes that mistakes sometimes occur, it does not condone inattentiveness, carelessness, or

inadequate record keeping. It assumes that importers are familiar with rules and regulations that

apply to the import activities undertaken.” Nippon, 337 F.3d at 1382. Commerce requested specific

information about production methods or practices to explain Ziyang’s and FHTK’s high yields and

low factors of production rates. Decision Memorandum at 60-62. Ziyang and FHTK unsuccessfully

attempt to recharacterize Commerce’s inquiry solely as an investigation of how other respondents

operate their garlic farms, but as discussed supra, that was not the case.

Ziyang and FHTK also attempt to show that Commerce failed to make the requisite statutory

showing that Ziyang and FHTK did not cooperate to the best of their abilities in reporting factors

of production information. Ziyang Brief at 29; Ziyang Reply Brief at 13-14; Ziyang Supplemental

Brief at 3-4; FHTK Brief at 29-33; FHTK Reply Brief at 8-9. Ziyang and FHTK contend that

Commerce cannot demonstrate that Ziyang and FHTK failed to put forth maximum efforts to

investigate and obtain the requested information from its records. Ziyang Brief at 30-31; Ziyang

Reply Brief at 13-14; Ziyang Supplemental Brief at 3-4; FHTK Brief at 29-33; FHTK Reply Brief

at 9-11. Yet, when given the opportunity in the Third Party Submission to assuage Commerce’s

concerns about the factors of production, Ziyang and FHTK only provided information describing

the wide variation of garlic inputs and yields throughout the world, including the United States,

which Commerce found convincing for the point that a wide variation of garlic production practices

exist internationally – but did not address the specifics of Ziyang’s and FHTK’s actual production

processes. Ziyang AFA Memorandum (Pub. Doc. No. 357), at 5; FHTK AFA Memorandum (Pub.

Doc. No. 356), at 5. Contrary to Ziyang’s and FHTK’s assertions, the information “did not directly

Court No. 05-00399 Page 41

respond to [Commerce’s] . . . request to explain the [factors of production] information for

respondents and the conditions unique to respondents within the PRC. Specifically, the information

did not explain Ziyang’s nor FHTK’s reported factors input levels, or their relationship to its

reported yield.” Ziyang AFA Memorandum (Pub. Doc. No. 357), at 5; FHTK AFA Memorandum

(Pub. Doc. No. 356), at 5.

The Government emphasizes that Commerce did not reject Ziyang’s data because Ziyang

did not report information about other respondents’ data. Rather, Commerce found Ziyang’s data

unreliable because Ziyang did not explain how it achieved an above average yield despite having

below average factors of production usage rates for seed, water, and labor. See Def. Response Brief

at 23-26; Decision Memorandum at 59-63; see also section III.A.1, supra. Likewise, FHTK’s

submissions were non-specific to FHTK and did not explain the above average garlic yield in light

of the below average factors of production rates. Commerce reasonably determined that “FHTK’s

responses to [Commerce’s] questions concerning factors-of-production focused on general variation

in production, but provided limited useful information in the context of FHTK’s production

process.” FHTK AFA Memorandum (Pub. Doc. No. 356), at 16.

Contrary to Ziyang’s and FHTK’s assertions, Commerce did establish the two requirements

to apply adverse facts available, as required under the statute and illustrated in Nippon. First,

Commerce requested company specific information on growing procedures and processes which are

the type of information required to be kept by importers under the antidumping laws. See Nippon,

337 F.3d at 1384. Second, Commerce determined that the Ziyang and FHTK were able, but failed

to fully investigate and obtain the requested information from their records. See Nippon, 337 F.3d

Court No. 05-00399 Page 42

at 1384. Commerce reasonably determined that Ziyang’s and FHTK’s reported factors of production

were unreliable, thus Ziyang and FHTK failed to produce requested information within their control

that was critical to the calculation of an accurate margin. See Decision Memorandum at 62. Both

parties had multiple opportunities to provide the requested information and failed to do so in

Commerce’s determination, justifying the use of adverse inferences. Decision Memorandum at 62-

63; see NSK Ltd., v. United States, 481 F.3d 1355, 1359 (Fed. Cir. 2007) (finding that respondent’s

failure to provide usable data or explain why the data was not inaccurate or distortive, despite two

requests, justified Commerce’s conclusion that respondent had not acted to the best of its ability to

comply with Commerce’s request).

Next, Ziyang contests Commerce’s selection of adverse facts as being unsupported by

substantial evidence and contrary to law. Ziyang Brief at 31-33; Ziyang Reply Brief at 15; Ziyang

Supplemental Brief at 4. Ziyang claims that Commerce’s selection of adverse facts bore no rational

relationship to Ziyang’s actual rates. Ziyang Brief at 31; Ziyang Reply Brief at 15; Ziyang

Supplemental Brief at 4. However, Ziyang’s argument fails because Commerce did not abuse its

discretion in selecting which adverse facts to apply and reasonably selected only those adverse facts

related to the factors of production that Commerce found unreliable.

The selection of adverse facts is governed by 19 U.S.C. § 1677e(b), which states that after

concluding an adverse inference is warranted, Commerce may select adverse facts from “(1) the

petition, (2) a final determination in the investigation under this title, (3) any previous review under

19 U.S.C. § 1675 or determination under 19 U.S.C. § 1675b or (4) any other information placed on

the record.” See 19 U.S.C. § 1677e(b). When applying an adverse inference to the facts available,

Court No. 05-00399 Page 43

Commerce “must select non-aberrant facts rationally related to what they are used to calculate.”

Ziyang Brief at 31 (quoting Polyethylene Retail Carrier Bag Committee v. United States, 29 CIT

1418, 1424 (1996)). The Federal Circuit has stated that “the purpose of section 1677e(b) is to

provide respondents with an incentive to cooperate, not to impose punitive, aberrational, or

uncorroborated margins.” Ziyang Brief at 31 (quoting F.lli De Cecco, 216 F.3d at1032. The adverse

facts available rate is thus intended “to be a reasonably accurate estimate of the respondent’s actual

rate, albeit with some built-in increase intended as a deterrent to non-compliance.” F.lli De Cecco,

216 F.3d at 1032.

In this case, as Commerce found Ziyang’s and FHTK’s reported data on seed, fertilizer,

plastic film, herbicide, water and labor to be unreliable, Commerce assigned the highest usage rates

for these factors of production from among the respondents to Ziyang and FHTK. Decision

Memorandum at 62-63. The Government underscores that Commerce applied “facts available only

to Ziyang’s [and FHTK’s] harvest factors of production – and only to those harvest factors of

production that were used by Ziyang [and FHTK] (i.e., not pesticides).” Def. Response Brief at 35.

Ziyang complains that Commerce did not explain how these adverse facts were rationally related

to Ziyang’s usage rates, however, Commerce stated that the rates were chosen to “address

satisfactorily their insufficient and/or confusing submissions and provide for a result that ‘would not

benefit [these companies] from [their] lack of cooperation.’” Decision Memorandum at 62 (quoting

NSK Ltd. v. United States, 25 CIT 583, 618, 170 F. Supp. 2d 1280, 1312 (2001). As the Federal

Circuit notes, “Commerce is in the best position, based on its expert knowledge of the market and

the individuals respondent, to select adverse facts that will create the proper deterrent to non-

Court No. 05-00399 Page 44

cooperation with its investigations and assure a reasonable margin.” F.lli De Cecco, 216 F.3d at

1032. Furthermore, Commerce did rely on Ziyang’s and FHTK’s reported sales data and corporate

structure information for the calculation of normal value and only applied partial adverse facts to

the specific factors of production Commerce found unreliable, because “[t]he Courts have expressed

a preference for [Commerce] to use partial adverse facts available if [Commerce] believes the

respondent has only failed to comply in one respect.” Decision Memorandum at 63.

Ziyang cites several cases for the proposition that adverse facts should only be chosen to

create a proper deterrent and determine dumping margins accurately, but without doing so

punitively. Ziyang Supplemental Brief at 4 (citing Jinan Yipin Corporation, Ltd. v. United States,

31 CIT ___, ___, 526 F. Supp. 2d 1347, 1366 (2007); China Kingdom Import & Export Co., Ltd.

v. United States, 31 CIT ___, ___, ___, 507 F. Supp. 2d 1337, 1361-62, 1364 (2007); Gerber Food

(Yunnan) Co., Ltd. v. United States, 31 CIT ___, ___, 491 F. Supp. 2d 1326, 1348 (2007)). But the

cases cited by Ziyang are distinguishable or present different factual scenarios. In Jinan Yipin, the

court determined Commerce’s use of available facts was in error, negating the applicability of

adverse facts entirely; similarly in China Kingdom, the court held that Commerce’s use of available

facts was unwarranted and Commerce’s selection of total adverse facts, despite having reliable

information available, was contrary to law; and in Gerber Food, the issue was Commerce’s use of

the China-wide rate (i.e., total adverse facts) to a company determined not to be under government

control. See Jinan Yipin, 31 CIT at ____, 526 F. Supp. 2d at 1361; China Kingdom, 31 CIT at ___,

507 F. Supp. 2d at 1361-62; Gerber Food, 31 CIT at ___, 491 F. Supp. 2d at1348-53.

Commerce stated the reasoning behind its selection of adverse facts – the rates chosen were

Court No. 05-00399 Page 45

the highest rates reported from the nine respondents for the specific factors in the current

administrative review – and Commerce only selected rates for the factors reported by Ziyang and

FHTK that Commerce found to be unreliable. Decision Memorandum at 63. The Federal Circuit

has held that “we are convinced that is within Commerce’s discretion to choose which sources and

facts it will rely on to support an adverse inference when a respondent has been shown to be

uncooperative.” F.lli De Cecco, 216 F.3d at 1032. Ziyang has presented no evidence that

Commerce abused this discretion. Contrary to Ziyang’s claim, Commerce reasonably calculated a

dumping margin only using adverse facts for the unreliable factors of production, and selected the

adverse facts from the record compiled in this review.

Ziyang mounts a last ditch attack on Commerce, alleging biased and arbitrary actions. See

Ziyang Brief at 33-39. Ziyang asserts that Commerce refused to consider relevant documents and

actively or passively stifled Ziyang’s attempts to provide accurate timely information. Ziyang Brief

at 33-39. Ziyang’s assertions are meritless. The Government must be presumed to have acted in

good faith. See, e.g., Clemmons v. West, 206 F.3d 1401, 1403-04 (Fed. Cir. 2000) (citing Sanders

v. United States Postal Serv., 801 F.2d 1328, 1331 (Fed. Cir. 1986)). To overcome that

presumption, the proof must be “almost irrefragable.” Clemmons v. West, 206 F.3d at 1403-04; see

also Galen Medical Assoc., Inc. v. United States, 369 F.3d 1324, 1330 (Fed. Cir. 2004). But, Ziyang

has not presented any evidence to substantiate its assertions of bias on the part of Commerce. As

the Federal Circuit has stated, “[u]nsubstantiated suspicions and allegations are not enough.”

Spezzaferro v. Federal Aviation Admin., 807 F.2d 169, 173 (Fed. Cir. 1986). In Ziyang’s Motion

for Leave to Supplement the Administrative Record, Ziyang alleges that Commerce “impermissibly

Court No. 05-00399 Page 46

excluded from the administrative record” several documents that supported the reliability of

Ziyang’s reported information. See Motion for Leave to Supplement the Administrative Record

Before the Court. The Government points out that Commerce rejected the documents “in

accordance with its regulations and longstanding practice,” because the submissions were “untimely

and unsolicited during the administrative review.” See Defendant’s Response to Plaintiff’s Motion

for Leave to Supplement the Administrative Record Before the Court. Ziyang’s Motion to

Supplement was granted in part to determine whether Commerce’s decision to exclude Ziyang’s

submissions was proper, stating that “because, as even Defendant concedes, agency decisions to

exclude information from the administrative record must be judicially reviewable.” See Order

Granting in Part and Denying in Part Ziyang’s Motion for Leave to Supplement the Administrative

Record (citing Defendant’s Surreply to Plaintiff’s Motion to Supplement the Administrative Record

Before the Court); see also Recording of Oral Argument at 1:59:30 (Feb. 2, 2007). Thus, the

narrow issue presented is whether Commerce impermissibly rejected Ziyang’s submissions as

untimely filed or unsolicited material. As Commerce’s actions were proper and in accordance with

law, Ziyang’s Motion to Supplement must be denied.

Commerce’s regulations provide deadlines for the submission of factual information.

Specifically, “[f]or the final results of an administrative review . . . a submission of factual

information is due no later than . . . 140 days after the last day of the anniversary month.” See 19

C.F.R. § 351.301(b)(2). However, the agency may afford additional opportunities for parties to

respond on the record, by identifying time limits for responses, the specific information requested,

and the manner in which the party must submit the information. See 19 C.F.R. § 351.301(c)(2). In

Court No. 05-00399 Page 47

this case, the undisputed deadline for the submission of factual information was January 6, 2005.

On March 22, 2005, Commerce requested comments on certain factual information already on the

record of this review. See Letter To All Interested Parties (March 22, 2005) (Pub. Doc. No. 289)

at 2. Commerce stated that “[n]o new factual information will be accepted” and comments are

requested only on “the use of the intermediate-product methodology applied in the Preliminary

Results; and . . . the relative impact on yield from the factors of production . . .” Id.

A thorough review of the three documents at issue from Ziyang reveals the submission of

either written argument not requested by Commerce or new factual information provided after the

March 22, 2005 deadline. See Letter from White & Case to Dep’t of Commerce (April 7, 2005),

Letter from White & Case to Dep’t of Commerce (April 14, 2005), Letter from White & Case to

Dep’t of Commerce (April 18, 2005) (Confidential Appendix II Accompanying Memorandum of

Points and Authorities in Support of Plaintiff Taian Ziyang Food Company, Ltd.’s CIT Rule 56.2

Motion for Judgment Upon the Agency Record), at Tab 1-3.

Ziyang asserts that written argument may be submitted at any time prior to the issuance of

the Final Results. See Ziyang’s Sur-Reply to Defendant’s Response to Ziyang’s Motion for Leave

to Supplement the Administrative Record Before the Court, at 8-9. Ziyang selectively cites the first

sentence of 19 C.F.R. § 351.309(a), stating that “[w]ritten argument may be submitted during the

course of an antidumping or countervailing duty proceeding.” 19 C.F.R. § 351.309(a). But the

following sentence, and indeed the rest of the regulation, outlines the procedures for filing case

briefs and rebuttal briefs: “[t]his section sets forth the time limits for submission of case and rebuttal

briefs and provides guidance on what should be contained in these documents . . . the Secretary will

Court No. 05-00399 Page 48

consider written arguments in case or rebuttal briefs filed within the time limits in this section.”

19 C.F.R. §§ 351.309(a), (b). Ziyang also contests Commerce’s rejection of the April 14, 2005

submission on the grounds that there was no new information in the letter. See Ziyang’s Sur-Reply

to Defendant’s Response to Ziyang’s Motion for Leave to Supplement the Administrative Record

Before the Court, at 10-11. However, there was new information in the submission, because the

letter “summarized key aspects of [a] meeting” which occurred one week earlier, and the letter was

submitted before Commerce placed its statutorily mandated ex parte meeting memorandum on the

record. See Meeting with Taian Ziyang Food Co., Ltd. and Pure Produce, LLC. (May 5, 2005) (Pub.

Doc. No. 323); see also 19 U.S.C. § 1677f(a)(3). As Ziyang’s submissions to Commerce contained

either unsolicited material or untimely factual information, Commerce’s rejection of the submissions

was reasonable.

For these reasons, Commerce’s determination to apply adverse facts available to Ziyang’s

and FHTK’s factors of production was adequately justified, and must be sustained.

B. Valuation of Garlic Seed

FHTK and the GDLSK Plaintiffs maintain that Commerce improperly valued respondents’

garlic seed input. FHTK and the GDLSK Plaintiffs contend that Commerce erred by using pricing

data taken from India’s National Horticultural Research and Development Foundation (“NHRDF”)

for three “high-yield” garlic varieties grown in India, when it should have used data placed on the

record by the respondents during the administrative review.32 Two of the GDLSK Plaintiffs

32

Specifically either the country-wide data from the Agricultural Marketing Information

Network (“Agmarknet”) submitted by FHTK, or the Indian import data covering Indian garlic

Court No. 05-00399 Page 49

(Harmoni and Jinan Yipin) also claim that Commerce improperly assigned a surrogate value for

purchased garlic seed when they actually grew their own seed.33 See generally GDLSK Brief at 24-

28; GDLSK Supplemental Brief at 5-6;GDLSK Supplemental Response Brief at 10-11; FHTK Brief

at 37-41; FHTK Reply Brief at 13-15. But see Def. Response Brief at 69-78; Def. Supplemental

Brief at 18-25; Domestic Producer Response Brief at 32-36; Domestic Producer Rebuttal Brief. For

the reasons that follow, Commerce’s determination on this issue must be remanded.

As summarized above, in NME cases, Commerce must construct a surrogate value for each

factor of production, basing those values on “the best available information” from an appropriate

market economy country or countries – in this case, India. See 19 U.S.C. § 1677b(c)(1). Because

the statute does not define “best available information,” Commerce is granted broad discretion to

determine such information “in a reasonable manner on a case-by-case basis.” See Rhodia, Inc. v.

United States, 25 CIT 1278, 1286, 185 F. Supp. 2d 1343, 1351 (2001). However, Commerce’s

discretion is “curtailed by the purpose of the statute, i.e., to construct the product’s normal value as

it would have been if the NME country were a market economy country.” Rhodia, 25 CIT at 1286,

185 F. Supp. 2d at 1351 (citing Nation Ford Chem. Co. v. United States, 166 F.3d 1373, 1375 (Fed.

Cir. 1999)).

In the instant case, Commerce initially valued the respondents’ garlic seed using the average

price of three “high-yield” varieties of garlic taken from the NHRDF pricing information. See

imports during the period of review submitted by the GDLSK Plaintiffs. See GDLSK Brief at 24;

FHTK Brief at 40.

33

The Government requests a voluntary remand on this issue. See Def. Response Brief at 69-

71.

Court No. 05-00399 Page 50

Decision Memorandum at 19; Preliminary Results at 69 Fed. Reg. at 70,643; see also Preliminary

Factors Valuation Memorandum (Pub. Doc. No. 226), at 2-3.34 Commerce found that the physical

characteristics of the three varieties (i.e., their bulb size and the number of cloves per bulb) closely

matched the characteristics of the respondents’ garlic. See Decision Memorandum at 19;

Preliminary Factors Valuation Memorandum (Pub. Doc. No. 226), at 2. After the Preliminary

Results issued, the respondents submitted other data for Commerce’s consideration – specifically,

data from the Agricultural Marketing Information Network (“Agmarknet”), and Indian import

statistics. See Decision Memorandum at 14-16. In addition, some respondents urged Commerce

to value their garlic seed using their reported factors of production, because they grew their garlic

using self-produced garlic seed (i.e., seed retained from prior harvests). See Decision Memorandum

at 16.

In the Final Results, Commerce once again valued garlic seed using the NHRDF data. See

Decision Memorandum at 19. Commerce found that the respondents grew and exported to the U.S.

a “high-quality and high-yield garlic, while the garlic grown and sold in the general Indian market

is predominantly low-quality and low-yield varieties with a large number of cloves per bulb.” See

Decision Memorandum at 20. Commerce rejected the Agmarknet data as unreliable, finding that

the data provided “little specificity with respect to the product reflected by that data,” and

“appear[ed] to reflect prices of a product that is of a quality inferior to that used by the PRC garlic

producers.” See Decision Memorandum at 20. Similarly, Commerce found the Indian import data

34

The specific “high-yield” varieties were Agrifound Parvati, Yamuna Safed-3, and

Agrifound White. See Decision Memorandum at 19.

Court No. 05-00399 Page 51

unreliable, stating that it was “considerably less product-specific and thus [did] not allow [the

agency] to ascertain the quality or nature of the garlic products (i.e., bulbs, loose cloves, etc.) entered

under the applicable Indian Harmonized Tariff Schedule . . . category.” See Decision Memorandum

at 20. Commerce further concluded that seed must be valued even if a respondent grows garlic with

seed retained from a previous harvest. See Decision Memorandum at 21.

As FHTK and the GDLSK Plaintiffs contend, Commerce has failed to establish that its

chosen dataset – the NHRDF data – adequately approximates the respondents’ production

experience. See GDLSK Reply Brief at 12; FHTK Brief at 39, 41.

First, Commerce assertedly placed great value on the representativeness of the surrogate

data. But Commerce failed to establish that the NHRDF data are sufficiently representative of the

garlic seed used by the respondents. See Decision Memorandum at 19-20; FHTK Brief at 39.

Neither Commerce nor the Domestic Producers (on whose submission Commerce relied) provided

a complete description of the “high-yield” varieties represented in the NHRDF data. See Decision

Memorandum at 19-21; Preliminary Factors Valuation Memorandum (Pub. Doc. No. 226), at 2-3;

Domestic Producers’ Surrogate Value Submission (Pub. Doc. No. 156), Exh. 4. Commerce’s

Preliminary Factors Valuation Memorandum stated merely that: (1) “the Agrifound Parvati and

Yamuna Safed-3 varieties of garlic closely matched the subject merchandise in terms of bulb

diameter and number-of-cloves-per-bulb” in a recent new shipper review; and (2) “the price list in

the NHRDF Newsletter permits [the agency] to distinguish the three high-yield varieties from the

traditional varieties of Indian garlic and establishes the similarities of the three varieties to the

merchandise under review.” See Preliminary Factors Valuation Memorandum at 2-3 (internal

Court No. 05-00399 Page 52

quotation marks and citation omitted). Such vague descriptions are patently insufficient. Further,

Commerce’s reliance upon a past new shipper review, which only considered two of three garlic

varieties at issue, is an inadequate basis for Commerce’s finding of similarity in this case.

The Government and the Domestic Producers emphasize that the FHTK and the GDLSK

Plaintiffs “[do] not dispute the size and number of cloves within a garlic bulb influences the price

of garlic,” or “that the administrative record demonstrates the respondents grow and export high-

quality and high-yield garlic, while garlic grown and sold in the general Indian market is

predominately low-quality and low yield.” See Def. Response Brief at 75; see also Domestic

Producers Response Brief at 34 (“the linchpin of the Department’s analysis was its finding – which

was not disputed by any of the respondents – that the ‘subject merchandise’ . . . was high-yield,

high-quality garlic”); Decision Memorandum at 20 (“respondents have never denied . . . that their

garlic qualifies as high-yield or high-quality”). The Government similarly asserts that “common

sense dictates that NHRDF would charge more for higher-yield, high-quality garlic like [the

NHRDF varieties utilized by Commerce]” and, in turn, that these high-yield, high-quality varieties

are comparable to the respondents’ garlic. See Def. Response Brief at 76. However, simplistic

reasoning – “high-price-equals-large-bulb” – is also inadequate to establish that Commerce’s chosen

surrogates are adequately representative of the respondents’ garlic. A more thorough and factually-

grounded demonstration of representativeness is required.

FHTK faults the NHRDF data for being overly narrow and derived from an insufficient

number of market transactions. See FHTK Brief at 38-40. According to the Government, in an

effort to ensure representativeness, Commerce made a trade-off and focused on the physical

Court No. 05-00399 Page 53

characteristics of the surrogate garlic, sacrificing to some extent the agency’s general preference for

prices derived from numerous transactions. See Def. Response Brief at 76. As discussed above,

however, Commerce has failed to demonstrate that the surrogate garlic adequately approximates

the respondents’ product. Commerce’s asserted justification for using data from a limited region

and from a limited number of transactions therefore falters. See Decision Memorandum at 20-

21.Commerce based its valuation of garlic seed on the best available information.” Jinan Yipin, 31

CIT at ____, 526 F. Supp. 2d at 1372 (internal quotation marks and citation omitted); see GDLSK

Supplemental Brief at 6; GDLSK Supplemental Response Brief at 10-11.

FHTK and the GDLSK Plaintiffs further criticize Commerce for rejecting their proposed

datasets – the Indian import data and Agmarknet data. See FHTK Brief at 37-38, 40-41; FHTK

Reply Brief at 13-15; see also GDLSK Brief at 24-25; GDLSK Reply Brief at 12-13. Commerce

concluded that the information provided would not allow the agency “to ascertain the quality or

nature of the garlic” represented in the datasets proposed by the respondents. See Decision

Memorandum at 20. But Commerce must revisit this matter, too, on remand.

Lastly, the GDLSK Plaintiffs maintain that Commerce erred when it refused to value

Harmoni’s and Jinan Yipin’s garlic seed based on their actual growing costs, and instead used a

surrogate value for garlic seed. See GDLSK Brief at 26. During the administrative review, Harmoni

and Jinan Yipin placed information on the record establishing that they used garlic seed from the

prior year’s inventory, rather than purchasing seed. See Decision Memorandum at 16. The

companies provided Commerce with a garlic production breakdown from the prior harvest, which

had been submitted in the previous administrative review. See Decision Memorandum at 16. Citing

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Pacific Giant, Commerce concluded that seed must be valued even when a respondent uses retained

seed, because Commerce “must focus on the quantity of inputs used by the PRC producers in

valuing [factors of production], rather than on the costs associated with these factors.” See Decision

Memorandum at 21 (citing Pacific Giant, Inc. v. United States, 26 CIT 894, 223 F. Supp. 2d 1336

(2002)). Now claiming that Commerce misapplied its intermediate input methodology in its

valuation of garlic seed, the GDLSK Plaintiffs request that Commerce value the factors of

production utilized by Harmoni and Jinan Yipin to self-produce their garlic seed. See GDLSK Brief

at 28.

According to the Government, the GDLSK Plaintiffs made conflicting statements in their

administrative case brief concerning the valuation of Harmoni’s and Jinan Yipin’s garlic seed, and

Commerce was unable to value their garlic-seed input. See Def. Response Brief at 71. However,

with the GDLSK Plaintiffs’ arguments clarified, the Government now requests that the matter be

remanded to permit Commerce to fully respond to the request to value garlic seed for Harmoni and

Jinan Yipin using their reported factors of production of seed. See Def. Response Brief at 71. The

Government explains that a remand is necessary to allow Commerce to analyze the record, consider

the parties’ arguments, and take such action as may be appropriate as a result of the agency’s

analysis. See Def. Response Brief at 71.

As summarized above, Commerce’s analysis of the valuation of garlic seed was flawed in

a number of key respects. Remand is warranted to remedy those flaws in general, and will permit

Commerce to properly address the specific circumstances of Harmoni and Jinan as well.

Court No. 05-00399 Page 55

C. Valuation of Water

The GDLSK Plaintiffs and Dong Yun protest the surrogate value that Commerce assigned

for the irrigation water used in their cultivation of garlic. See generally GDLSK Brief at 3, 19-24;

GDLSK Reply Brief at 10-12; GDLSK Supplemental Brief at 3-5; GDLSK Supplemental Response

Brief at 11-12; Dong Yun Brief at 4, 10-14; Dong Yun Reply Brief at 1-8; Dong Yun Supplemental

Brief at 2; Dong Yun Supplemental Response Brief at 6. But see Def. Response Brief at 62-69; Def.

Supplemental Brief at 22-25; Domestic Producers Response Brief at 4-5, 30-32.

In the course of the administrative review, the respondents were required to report to

Commerce the volume of water used to irrigate their garlic crops. In addition to that information,

however, various respondents – including the GDLSK Plaintiffs and Dong Yun – reported that they

did not pay for their irrigation water, because it was drawn from nearby rivers or wells on their land.

Further, at least some of those respondents provided the agency with information on the amount of

electricity or diesel fuel consumed in pumping the water from its source into their fields. The

respondents also placed on the record documentation from various sources indicating that farmers

in India do not pay for irrigation water obtained from rivers and wells on their land.

On the basis of the record that they compiled, the GDLSK Plaintiffs and Dong Yun, among

others, argued in their case briefs that Commerce should not assign a value to irrigation water itself,

because the record evidence demonstrated that they did not incur a cost for the water (other than the

cost of pumping it), and because the record evidence indicated that similarly-situated farmers in

India also did not pay for irrigation water. Instead, they asserted that irrigation water should be

valued based on the cost of the electricity or diesel fuel consumed in pumping the water from its

Court No. 05-00399 Page 56

source into the field. Certain respondents, including Dong Yun, argued in the alternative that

separately valuing irrigation water would amount to double counting, reasoning that the cost of

water was already reflected in the financial statements that Commerce used to calculate the surrogate

financial ratios in this case. See generally Decision Memorandum at 22-24 (summarizing

respondents’ evidence and arguments).

In the Final Results, Commerce rejected the respondents’ arguments, and – indeed – even

refused to value irrigation water based on “agrarian” rates. See Decision Memorandum at 25-26.

Stating that “agrarian water rates for irrigation are highly subsidized by the Indian Government,”

Commerce assigned a surrogate value based on higher, non-agrarian “industrial” rates instead. Id.

The GDLSK Plaintiffs and Dong Yun here attack Commerce’s determination on numerous fronts,

successfully challenging the agency both on the law and the facts.

The GDLSK Plaintiffs and Dong Yun emphasize that it is undisputed that they did not pay

for the water used to irrigate their garlic crops, because the water was drawn from nearby rivers or

wells on their land. See Decision Memorandum at 22-23. Moreover, they assert that there is ample

uncontroverted record evidence indicating that the situation of Indian farmers is no different. See

GDLSK Brief at 20; Dong Yun Brief at 10.35 The Government and the Domestic Producers

35

See, e.g., Letter to Commerce from Counsel for Dong Yun (Jan. 6, 2005) (Pub. Doc. No.

247) (including two e-mail messages from officials of the Indian Ministry of Rural Development,

as well as an e-mail message from an official at the U.S. Embassy in New Delhi); Hongda

Comments on Value of Water in India (Jan. 6, 2005) (Pub. Doc. No. 248) (including information

from two experts from Indian Ministry of Rural Development, the World Bank, and the International

Water Management Institute); see generally Dong Yun Reply Brief at 2-5, 7-8 (analyzing record

evidence on cost of water in India, and addressing asserted misrepresentations by Commerce, the

Government, and the Domestic Producers).

Court No. 05-00399 Page 57

nevertheless contend that Commerce properly valued the respondents’ irrigation water, relying on

Pacific Giant. See Decision Memorandum at 25 (citing Pacific Giant, Inc. v. United States, 26 CIT

894, 896, 904-05, 223 F. Supp. 2d 1336, 1339, 1346 (2002)); Def. Response Brief at 68; Def.

Supplemental Brief at 25; Domestic Producers Response Brief at 4-5, 31-32.

Pacific Giant addressed Commerce’s treatment of water usage as a factor of production in

the production of freshwater crawfish tail meat in China. The plaintiff respondents there argued that,

because some producers did not incur a cost for water, Commerce erred by assigning a value to it.

The Pacific Giant court upheld Commerce’s determination to value water in that case, stating that

the statute “plainly focuses upon the quantity of inputs for factors of production rather than the costs

associated with them.” Pacific Giant, 26 CIT at 904, 223 F. Supp. 2d at 1346.

The GDLSK Plaintiffs and Dong Yun argue that the facts and the record in this case are

distinguishable from those in Pacific Giant. See GDLSK Brief at 23; GDLSK Reply Brief at 11;

Dong Yun Supplemental Response Brief at 6.36 In addition, they argue that Commerce’s reading

36

The GDLSK Plaintiffs point out, for example, that “there was no argument or record

evidence offered [in Pacific Giant] to show that water obtained in a comparable market economy

country for a similar use would be free.” GDLSK Brief at 23; see also GDLSK Reply Brief at 11

(same); Dong Yun Supplemental Response Brief at 6 (same). As the GDLSK Plaintiffs note, “[t]his

is a key distinction because the cost of obtaining the material input in China [the NME country] is

not relevant under the statute. . . . [T]he issue is whether or not the input can be obtained at no cost

in a market economy environment.” See GDLSK Brief at 23.

Similarly, the GDLSK Plaintiffs note that, unlike the record in this case, “the administrative

record in Pacific Giant contained no information regarding the energy used to pump the water, so

the court could not consider the merits of valuing the energy used to obtain the water rather than

placing a value on the water itself.” See GDLSK Supplemental Brief at 4 n.1 (citing Anshan Iron

& Steel Co. v. United States, 27 CIT 1234, 1239-40 (2003)); GDLSK Supplemental Response Brief

at 12 (same).

Court No. 05-00399 Page 58

of Pacific Giant is at odds with Rhodia, which explains that the purpose of the surrogate value

methodology is “to construct [a] product’s normal value as it would have been if the NME country

were a market economy country.” See Rhodia, Inc. v. United States, 25 CIT 1278, 1286, 185 F.

Supp. 2d 1343, 1351 (2001); see also Rhodia, Inc. v. United States, 26 CIT 1107, 1113-14, 240 F.

Supp. 2d 1247, 1253-54 (2002); GDLSK Brief at 22; GDLSK Reply Brief at 11-12; Dong Yun Brief

at 12; Dong Yun Reply Brief at 7; see generally Jinan Yipin Corp., Ltd. v. United States, 31 CIT

____, ____ & n.13, 526 F. Supp. 2d 1347, 1373-76 & n.13 (2007) (reviewing, inter alia,

Commerce’s reading of Pacific Giant, and rejecting agency’s narrow construction of statute as

“inconsistent with the breadth of discretion indicated by the plain meaning of the provision”;

remanding issue with instructions that agency “reconsider its surrogate value analysis for water

use”).

According to the GDLSK Plaintiffs and Dong Yun, the statute requires Commerce to

consider both the quantity of an input consumed and its value in a comparable market economy

country. See GDLSK Brief at 21-23; GDLSK Reply Brief at 11; see also Dong Yun Reply Brief

at 6-7. In defense of its position, Commerce emphasizes 19 U.S.C. § 1677b(c)(3), which provides

that the “factors of production” that are to be valued in an NME case include the “quantities of raw

materials employed.” See Decision Memorandum at 25. But Commerce apparently ignores the

language of the very next paragraph of the same statutory provision, which specifies that the factors

of production are to be valued based on “the prices or costs of [the] factors” in the chosen

comparable market economy country. See 19 U.S.C. § 1677b(c)(4) (emphasis added). Similarly,

Commerce ignores the statutory language which mandates that Commerce is to value factors of

Court No. 05-00399 Page 59

production on the basis of “the best available information regarding the values of such factors in a

market economy country or countries considered to be appropriate.” See 19 U.S.C. §

1677b(c)(1)(B) (emphasis added). Nowhere in the Final Results has Commerce sought to reconcile

its reading of Pacific Giant, and its determination on the valuation of water in this case, with the

plain language of 19 U.S.C. § 1677b(c)(1)(B) and § 1677b(c)(4).37

As Dong Yun observes, although Commerce may be required to value irrigation water as a

factor of production in this case, nothing in Pacific Giant indicates that the value assigned to a factor

of production necessarily must be a positive value. See, e.g., Dong Yun Brief at 12. If the record

establishes that farmers in India – like the Chinese garlic producers in this case – do not pay for

irrigation water drawn from nearby rivers or wells on their land, it is not clear how Commerce here

can assign to water a surrogate value greater than zero. Any other outcome would appear to

contravene both the plain language and the basic intent of the statute, as summarized above.

As the statute clearly instructs, and as the courts have consistently reaffirmed, factors of

production are to be valued based on their cost or price in the selected market economy country,38

37

In addition to “quantities of raw materials employed,” another factor of production

specified in the statute is “amounts of energy and other utilities consumed.” See 19 U.S.C. §

1677b(c)(3). The court in Jinan Yipin expressly instructed Commerce in that case to consider

valuing the energy costs incurred in pumping irrigation water, in lieu of valuing the water itself. See

Jinan Yipin, 31 CIT at ____, 526 F. Supp. 2d at 1374-76. Although the record here included data

on the costs of electricity and diesel fuel consumed in pumping the respondents’ irrigation water

from its source into the field, Commerce nevertheless failed to address the statute’s reference to

“amounts of energy and other utilities consumed,” and failed to consider the claim of the

respondents here that the agency should value the energy costs of pumping irrigation water, rather

than the water itself.

38

As Dong Yun underscores, “Commerce, itself, chose India as the most appropriate

surrogate country for factor values” in this case. See Dong Yun Reply Brief at 4.

Court No. 05-00399 Page 60

to reflect what the producer’s costs would be if the NME country were a market economy

environment. The GDLSK Plaintiffs and Dong Yun thus make a compelling argument that, if record

evidence establishes that an input may be obtained at no cost in a market economy environment,39

it is improper and distortive to assign a positive value to that particular factor of production.

Nothing in Commerce’s Final Results undermines the persuasiveness of their case.

Commerce’s seemingly unduly narrow reading of the law is compounded by the

Government’s strained interpretation of the record facts. See generally, e.g., Dong Yun Reply Brief

at 2-5, 7-8. For example, the Government argues:

Commerce acknowledged that Indian farmers do not have to pay for water from

wells they own . . . . It is undisputed that Dong Yun and the GDLSK plaintiffs lease

rather than own the land they use to grow garlic. . . . To the extent that Indian

farmers use water from their own wells on their own land to irrigate their garlic,

Dong Yun’s and the GDLSK Plantiffs’ arguments are erroneous because Chinese

farmers do not own the water on or around the land where they grow garlic.

Def. Response Brief at 65. Dong Yun vigorously disputes the Government’s assertions concerning

the state of the evidence.

Dong Yun accuses the Government of seriously “misconstru[ing] the facts on the record.”

Dong Yun Reply Brief at 1-2. Dong Yun argues that the Government wrongly suggests that the

status of an Indian farmer – as a landowner versus a renter – is significant. Dong Yun maintains

39

In its brief, the Government argues that “domestic [U.S.] garlic producers, as well as

producers in other countries . . . have to purchase the water used to irrigate their crops.” See Def.

Response Brief at 67. Dong Yun objects that “[t]here is no record evidence of this vague assertion.”

See Dong Yun Reply Brief at 4. In any event, as noted above, Dong Yun aptly points out that it was

Commerce that chose India as the appropriate surrogate country here. Id. And, moreover, as Dong

Yun further observes, “[t]he antidumping laws were not designed or intended to eliminate any and

all competitive advantages in the marketplace.” See Dong Yun Brief at 12-13.

Court No. 05-00399 Page 61

that, to the contrary, the evidence demonstrates that “Indian farmers (regardless of whether they are

landowners or renters of land) do not pay for water obtained from their own farmland.” See Dong

Yun Reply Brief at 2; see also id. at 3 (noting that “[t]he record simply shows that farmers having

wells on their farmland do not incur any cost for water,” and stating that record evidence “applied

to all farmers who have wells located on their farmland – not merely to “some” – and applied to [all

such] farmers regardless of their ownership interest (or lack thereof) in the land”), 4 (stating that

“[t]he record is clear that water rights are simply part of the value of owning or renting the land

itself,” and that the evidence demonstrates that “farmers obtaining water from wells located on their

own farmland pay nothing ($0.0)” for irrigation water).

As Dong Yun puts it, “some [Indian] farmers have wells and do not pay for water, and other

farmers do not have wells and have to pay for water.” See Dong Yun Reply Brief at 3. In other

words, according to Dong Yun, the key issue is whether an Indian farmer has access to water on the

land that he farms; whether the farmer is the owner of the property is irrelevant. Dong Yun thus

contends that – like the GDLSK Plaintiffs and Dong Yun itself, who lease land with access to a

source of irrigation water – Indian farmers who grow their crops on land with access to a source of

water also do not pay for that water, whether they own the land or not.

The parties similarly take the Government to task for its suggestion that water located on

Indian farmland is subsidized by the Indian government. Dong Yun states flatly: “There is no record

evidence that well water in India is subsidized. Specifically, there is no record evidence of the

government of India (1) controlling the price of well water, (2) controlling the output decisions of

well users, or (3) [controlling] the allocation of well water in India . . . . More importantly, there is

Court No. 05-00399 Page 62

no record evidence that the government of India legally should charge separately for well water and

then forego part or all of that charge, i.e., subsidize the cost of well water.” See Dong Yun Reply

Brief at 7-8; see generally id. at 2-8 (responding to Government’s arguments concerning

subsidization by Indian government); see also GDLSK Reply Brief at 12 (arguing that “[the]

assertion that the record indicates that well water or river water in India are ‘government subsidized’

is entirely false”). All in all, the plaintiff garlic producers’ analysis of the record evidence serves

only to further undermine Commerce’s determination.40

Apart from their argument that irrigation water should be assigned a value of zero because

similarly-situated Indian farmers do not pay for their water, Dong Yun and the GDLSK Plaintiffs

also maintain that Commerce’s valuation of irrigation water here effectively constituted double

counting. They contend that irrigation water costs were already reflected in the surrogate value for

factory overhead that Commerce derived from the financial statements of the Indian tea producers

selected as surrogates for purposes of calculating the respondents’ financial ratios in this case. See,

40

Dong Yun protests that, in effect, “the government presents an entirely new argument (not

based on facts in the review) in its Response Brief.” See Dong Yun Reply Brief at 8; see also id.

at 5 (arguing that “the entire basis of the [Government’s] Response Brief . . . is predicated on ‘facts’

that are not in the record,” and objecting that Commerce “made its decision on water based on

‘facts’ that are not in the record of the underlying review”). Dong Yun argues that much of the

Government’s case therefore should not be allowed to stand. See Dong Yun Reply Brief at 8.

Dong Yun’s concerns are well taken. Much of the Government’s argument is not reflected

to any degree in the Final Results. Thus, it arguably constitutes impermissible post hoc

rationalization. See, e.g., NEC Home Elecs., Ltd. v. United States, 54 F.3d 736, 743 (Fed. Cir.

1995). As Dong Yun emphasizes, “[a]ll parties must have an opportunity to respond to facts and

arguments” such as those the Government advances for the first time in this forum. See Dong Yun

Reply Brief at 8. The remand of this matter (ordered below) should afford all parties an appropriate

opportunity to clarify the record.

Court No. 05-00399 Page 63

e.g., Dong Yun Brief at 13-14; GDLSK Supplemental Brief at 3-4; see generally section III.J, infra

(discussing Commerce’s derivation of surrogate financial ratios). Commerce’s treatment of this

argument is also flawed.

Commerce’s discussion of the point in the Final Results consumed a mere two lines: “[T]he

Department finds no evidence in the selected surrogate financial statements to suggest that the

Indian surrogate tea companies incur a cost for water. Nor is there any evidence on the record that

irrigation water is essential to the production of tea in India.” See Decision Memorandum at 25.

Virtually the exact same language was found wanting in Jinan Yipin. The court there remanded the

matter to the agency, based in part on the court’s conclusion that “Commerce presumed, without

making actual findings of fact, that [the surrogate Indian tea producer’s] financial statement did not

include water . . . and that the cultivation of tea in India does not require irrigation, and there appears

to be no record evidence upon which such findings of fact could have been based.” See Jinan Yipin,

31 CIT at ____, 526 F. Supp. 2d at 1373, 1375-76. The same result must obtain here. See GDLSK

Supplemental Brief at 3-4.

As their ultimate argument in the alternative (and their last resort), the GDLSK Plaintiffs and

Dong Yun protest Commerce’s decision to use industrial (non-agrarian) rates to value irrigation

water here. See, e.g., GDLSK Brief at 23 (disputing “Commerce’s decision to apply a surrogate

value for industrial water to irrigation water that is obtained at no cost in India”); Dong Yun Reply

Brief at 4 (criticizing Commerce for “persist[ing] in not only valuing water in this review, but in

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using non-agricultural water prices to do so”).41 The GDLSK Plaintiffs object that “applying a

surrogate value to . . . free irrigation water based on a price for industrial water in India is contrary

to the plain language of the statute.” See GDLSK Brief at 22.

As noted above, Commerce sought to justify its use of industrial rates by stating in the Final

Results that “agrarian water rates for irrigation are highly subsidized by the Indian Government.”

See Decision Memorandum at 25. Commerce reasoned that valuing a factor of production “using

a rate known to be subsidized is not consistent with the purpose of [the NME provisions of the

statute].” Id. As discussed above, however, Commerce failed to adequately evaluate the record

evidence on the cost of water in India – including the evidence on the nature and extent of

government subsidization, if any. The foundation for Commerce’s rate determination thus collapses

like a house of cards.

In sum, here – as in Jinan Yipin – “the method by which Commerce addressed the question

of irrigation water lacks essential findings of fact and instead relies on mere assumptions, which find

41

See also GDLSK Brief at 20 (protesting Commerce’s decision to “disregard[ ] the

arguments made by the GDLSK [Plaintiffs] and appl[y] a surrogate value for water based on a ‘non-

agrarian’ rate for industrial water in India”); GDLSK Supplemental Brief at 5 (noting Jinan Yipin

court’s criticism of Commerce for assuming that Indian farmers “typically irrigate their . . . crops

using water supplied by municipal utilities, at costs associated with such utilities”); Dong Yun Brief

at 12 (arguing that “the value of $0.0 for well water in India was far superior to the values obtained

by Commerce for municipal water, industrial water, etc.”), 13 (stating that “[i]n selecting the

surrogate value for water from sources for municipal water, industrial water or any other type of

metered water, Commerce did not use the ‘best available information’”); Dong Yun Reply Brief at

3 (asserting lack of record evidence to support Commerce’s claim that “agrarian water rates for

irrigation are highly subsidized by the Indian Government”), 5 (objecting to Commerce’s use of data

that was, inter alia, “for non-agricultural use”), 6 (critiquing Commerce’s decision to base rate on

“non-agricultural water valued in part of only one state within India”), 7-8 (arguing at length that

“[t]here is no record evidence that well water in India is subsidized”).

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no apparent support in record evidence.” See Jinan Yipin, 31 CIT at ____, 526 F. Supp. 2d at 1375.

Moreover, Commerce’s legal analysis is flawed and incomplete, and the Final Results “do[ ] not

include a rational explanation for the choice that Commerce made” in this case. Id. Accordingly,

as in Jinan Yipin, this matter must be remanded to Commerce. On remand, Commerce shall

reconsider its surrogate value analysis for water use (reopening the record, if appropriate), and shall

detail its rationale for selecting from among the possible methods of valuing this factor (as supported

by substantial evidence in the record), explaining why the valuation method that it chooses yields

the most accurate dumping margin possible.

D. Wage Rate Calculation

The GDLSK Plaintiffs and Dong Yun take issue with Commerce’s valuation of respondents’

labor costs.42 The GDLSK Plaintiffs and Dong Yun first assert a facial challenge to Commerce’s

wage rate regulation, asserting that Commerce’s regression-based wage rate methodology violates

the plain language of the antidumping statute. The GDLSK Plaintiffs and Dong Yun also make an

as-applied challenge, taking issue with the dataset Commerce used when calculating respondents’

labor cost pursuant to the regression-based methodology. The GDLSK Plaintiffs and Dong Yun

assert that Commerce should have based its regression-based wage rate calculation on either: (1)

publicly-available, country-wide Indian data; or (2) a larger selection of countries meeting

Commerce’s selection criteria. See generally GDLSK Brief at 11-18; GDLSK Reply Brief at 1-5;

GDLSK Supplemental Brief at 1-3; GDLSK Supplemental Response Brief at 1-9; Dong Yun Brief

42

Only the GDLSK Plaintiffs and Dong Yun challenge Commerce’s wage rate calculation.

Court No. 05-00399 Page 66

at 16-20; Dong Yun Reply Brief at 8-11; Dong Yun Supplemental Response Brief at 1-5; Dong Yun

Supplemental Brief at 2-4. But see Def. Response Brief at 112-21; Def. Rebuttal Brief at 4-7; Def.

Supplemental Brief at 3-14; Domestic Producers Response Brief at 23-30. For the reasons that

follow, this issue is remanded to Commerce for further consideration.

When constructing the normal value of a product from an NME country, Commerce must

determine the “hours of labor required” as a factor of production. See 19 U.S.C. § 1677b(c)(3).

Like other factors of production, Commerce is directed to value labor “utiliz[ing], to the extent

possible, the prices or costs of factors of production in one or more market economy countries that

are[:] (A) at a level of economic development comparable to that of the nonmarket economy

country, and (B) significant producers of comparable merchandise.” 19 U.S.C. § 1677b(c)(4). In

doing so, Commerce essentially creates a “hypothetical” market value to approximate the production

experience in the NME country. See Nation Ford, 166 F.3d at 1377-78. Commerce, however,

values an NME-country producer’s cost of labor differently from the valuation of other factors of

production. See Dorbest v. United States, 30 CIT 1671, 1703, 462 F. Supp. 2d 1262, 1291 (2006),

appeal docketed, No. 2009-1257, -1266 (Fed. Cir. Mar. 20, 2009) (“Dorbest I”) (citing 19 C.F.R.

§ 351.408(c)(3) (2003)); see also Decision Memorandum at 50.43

Commerce has found that, “in calculating wage rates, an analysis different in some aspects

43

Commerce is permitted to depart from typical surrogate valuation and to value factors of

production according to source data outside of the data from the chosen surrogate country – provided

that the “methodology used by Commerce is based on the best available information and establishes

antidumping margins as accurately as possible.” Shakeproof Assembly Components v. United

States, 268 F.3d 1376, 1381-82 (Fed. Cir. 2001) (“we have specifically held that Commerce may

depart from surrogate values when there are other methods of determining the ‘best available

information’ regarding the values of the factors of production”).

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from valuing other [factors of production is] warranted in light of [the agency’s] concerns about

wide variances in wage rates between comparable economies.” See Decision Memorandum at 50.

Thus, when valuing the cost of labor in NME country cases, Commerce departs from traditional

factor of production valuation and employs “regression-based wage rates reflective of the observed

relationship between wages and national income” in a variety of market economy countries. See 19

C.F.R. § 351.408(c)(3); see also Dorbest I, 30 CIT at 1703, 462 F. Supp. 2d at 1291. Pursuant to this

regression-based methodology, “Commerce determines the relationship between countries’ per

capita Gross National Product (‘GNI’) and their wage rates” and “approximates the wage rate of the

PRC by using the PRC’s GNI as the variable in the equation that was the result of the regression.”

Dorbest I, 30 CIT at 1703-04, 462 F. Supp. 2d at 1291 (internal quotation marks and citations

omitted); see also Remand Results at 3. Unlike its valuation of other factors of production in an

NME case, Commerce bases its surrogate wage rate on data from a broad “basket” of countries, and

does not limit itself to market economy countries at a level of economic development comparable

to the NME country in question. See Dorbest I, 30 CIT at 1706, 462 F. Supp. 2d at 1293.44

44

The Domestic Producers explain that Commerce initially adopted the regression-based

methodology because of the “great variation in the wage rates of the market economy countries that

[Commerce] typically treats as being economically comparable.” See Domestic Producers Response

Brief at 26 (quoting Antidumping Duties; Countervailing Duties; Proposed Rule, 61 Fed. Reg. 7308,

7345 (Feb. 27, 1996) (“Proposed Rule”) (emphasis omitted); see also Def. Response Brief at 118

(“Commerce adopted the labor wage rate regression methodology . . . to arrive at a more accurate

labor wage rate.”). According to Domestic Producers, in an effort to enhance accuracy and

predictability, Commerce produces “the average wage to be applied in any NME proceeding” each

year pursuant to the regression-based analysis and based on “the wage rates and per capita GDP of

approximately 45 market economy countries.” See id. (quoting Proposed Rule, 61 Fed. Reg. at

7345) (internal quotation marks omitted). The Government submits that “[t]his approach is fully

consistent with [the statute] because the use of prices or costs from multiple market economy

countries allows for more accurate results given the variability of wage rates in countries with

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In the Final Results of the present case, Commerce “used the 2004-revised expected wage

rate of $0.93 per hour as a surrogate for PRC labor costs, which [Commerce] derived using its

regression-based methodology for the determination of wage rates for the PRC.” See Decision

Memorandum at 54. The Government, however, subsequently sought voluntary remand for the

limited purpose of re-examining and correcting the labor rate calculation to comply with other

remand determinations involving imported products from the PRC. See Remand Results at 1.

Remand was granted and in the Remand Results, Commerce stated that it had recalculated a new

wage rate of $0.85 per hour using the correct up-to-date 2004 wage rates. See Remand Results at

2, 18-19.

The GDLSK Plaintiffs and Dong Yun now contend that Commerce’s application of a

regression-based labor rate calculation to value labor as a factor of production is not in accordance

with 19 U.S.C. § 1677b(c)(4). See GDLSK Brief at 11-18; GDLSK Reply Brief at 1-5; GDLSK

Supplemental Brief at 1-3; GDLSK Supplemental Response Brief at 1-9; Dong Yun Brief at 18-19;

Dong Yun Reply Brief at 9-11. The GDLSK Plaintiffs and Dong Yun argue that the regression-

based wage rate methodology facially violates the statute’s direct and specific instruction to derive

surrogate values from market-economy-country data that is (1) economically comparable, and (2)

based on significantly comparable merchandise. See GDLSK Brief at 12 (citing 19 U.S.C. §

1677b(c)(4)) GDLSK Reply Brief at 2-3; Dong Yun Brief at 16-17. As the GDLSK Plaintiffs note,

Commerce’s regression-based rate was calculated using data from numerous non-comparable, non-

similar per capita GNI.” See Def. Response Brief at 118 (citing Proposed Rule, 61 Fed. Reg. at

7345).

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producer countries (e.g., Austria, Belgium, Japan, Norway), and excluded data from other countries

meeting Commerce’s regression analysis criteria. See GDLSK Brief at 12, 15-18; GDLSK

Supplemental Response Brief at 1-3; Dong Yun Brief at 16-17. Moreover, Dong Yun points out that

Commerce’s resulting wage rate – $0.85 per hour following remand – is “more than 500 percent

higher than that of India,” an economically comparable country, which, according to Dong Yun, has

a wage rate of $0.14 per hour. See Dong Yun Brief at 17; Dong Yun Reply Brief at 11. Finally, the

GDLSK Plaintiffs also claim that Commerce’s use of China’s GNI in its wage rate calculation, runs

counter to the statute because it injects NME-country data into the calculation of the surrogate wage

rate. See GDLSK Brief at 12-13.

This court considered similar claims in Allied Pacific II, and concluded that, in determining

the surrogate wage rate according to its regulation and its methodology, Commerce failed to satisfy

both the “economic comparability” criterion and the “significant producer” criterion of §

1677b(c)(4). See Allied Pacific Food (Dalian) Co. v. United States, 32 CIT ____, ____, 587 F.

Supp. 2d 1330, 1351-61 (2008) (“Allied Pacific II”) (citing 19 U.S.C. § 1677b(c)(4)). Allied Pacific

II faulted the regulation for essentially precluding consideration of any investigation-specific

information, and thus found it contrary to Congress’ plain statutory mandate. See Allied Pacific II,

32 CIT at ____, 587 F. Supp. 2d at 1356.45 The same reasoning is applicable in the present case, and

45

The Allied Pacific II court recognized that none of the Court of Appeals cases that have

recognized Commerce’s wide discretion – in general factor of production valuation and to deviate

from normal surrogate valuation in the interest of greater accuracy in dumping-margin calculations

– actually support Commerce’s regression methodology as prescribed by 19 C.F.R. § 351.408(c)(3).

See Allied Pacific II, 32 CIT at ____, 587 F. Supp. 2d at 1359–61 (discussing, inter alia,

Shakeproof, 268 F.3d 1376; Nation Ford Chem. Co. v. United States, 166 F.3d 1373 (Fed. Cir.

1999); Lasko MetalProds., Inc. v. United States, 43 F.3d 1442 (Fed. Cir. 1994)). As Allied Pacific

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the GDLSK Plaintiffs and Dong Yun successfully undermine Commerce’s reasoning and

conclusion. The antidumping statute requires surrogate valuation to be based on data from

economically comparable market economy countries, and based on significantly comparable

merchandise. See 19 U.S.C. § 1677b(c)(4); see also Allied Pacific II, 32 CIT at ____, 587 F. Supp.

2d at 1356-57. The reason for such a requirement is obvious – Commerce is tasked with choosing

a surrogate representative of respondents’ production experience, and is essentially required to

create a “hypothetical” market value to approximate the production experience in the NME country.

See Nation Ford, 166 F.3d at 1377-78. The regression-based wage rate methodology, however, does

not satisfy those aims, and Commerce’s explanation for while deviation from the norm is necessary

in this area is unconvincing.

As the GDLSK Plaintiffs and Dong Yun state (and Allied Pacific II found), the Department’s

procedure unacceptably “pays no heed to § 1677b(c)(4), the second criterion of which is

investigation-specific, and does not permit the Secretary to determine the best available labor cost

information with respect to the particular investigation being conducted.” See Allied Pacific II, 32

CIT at ____, 587 F. Supp. 2d at 1356-57; GDLSK Reply Brief at 3 (use of “a regulation that alleges

to permit Commerce to disregard the plain language of the statue should be rejected”). Because

Commerce’s regression-based wage rate methodology does not meet the requisite statutory criteria

– i.e., the comparable level of economic development as the subject country criterion and the

II noted, these cases did not hold or suggest that Commerce is permitted to “adopt a methodology,

by regulation or otherwise, under which Commerce cannot consider labor costs in one or more

surrogate countries that potentially are better [sources of] information than the country-wide labor

cost information that the regulation, and methodology implementing it, requires Commerce to use.”

See Allied Pacific II, 32 CIT at ____, 587 F. Supp. 2d at 1360.

Court No. 05-00399 Page 71

producer of comparable merchandise criterion – the regulation authorizing such a methodology –

19 C.F.R. § 351.408(c)(3) – is inconsistent with the statutory mandate, and thus does not survive the

GDLSK Plaintiff’s and Dong Yun’s facial challenge under Chevron U.S.A. Inc. v. Natural Res. Def.

Council, Inc., 467 U.S. 837, 842-44 (1984) (“regulations are given controlling weight unless they

are arbitrary, capricious, or manifestly contrary to the statute”). Although the antidumping statute

affords Commerce wide discretion, and “does not preclude consideration of pricing or costs beyond

the surrogate country if necessary,” Commerce must, at the very least, explain that necessity and

support its decision to utilize the particular methodology and dissimilar information (i.e., that which

is “beyond” comparable market-economy-country data). See Nation Ford, 166 F.3d at 1378 n.5.

Here, Commerce did neither.

Additionally, as the GDLSK Plaintiffs point out, Commerce’s incorporation of China’s

“unreliable” GNI data in its calculation of respondents’ labor cost runs counter to the basic premise

of surrogate valuation. See GDLSK Brief at 12-13. As the GDLSK Plaintiffs note, the agency’s

“entire non-market economy methodology is predicated upon the theory that prices and other

economic data from China are unusable because they are not market-driven and are therefore

unreliable.” GDLSK Brief at 13. Thus, because Commerce uses “unreliable,” non-market-driven

Chinese data, “this wage rate calculation is in conflict with the underlying premise for the entire

surrogate value policy and statutory provisions.” Id. The Government attempts to defend the

agency’s procedure by asserting that “[u]sing China’s GNI in the regression analysis . . . provides

a seed of data that is tied to China which constitutes the ‘best information available’ to derive a

comparable market economy labor wage rate.” Def. Response Brief at 120-21 (quoting 19 U.S.C.

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§ 1677b(c)(1)). That “seed,” however, does not blossom into a “best available information” tree.

As stated above, one of the primary deficiencies with the regression-based analysis is the fact that

it is not investigation-specific. Attempting to make the calculation country-specific (though still

ignoring the investigation-specific requirement) by using inherently flawed data does not remedy

the regulation’s statutory infirmity.

For these reasons, Commerce’s use of the regression-based wage rate methodology cannot

be sustained.

Finally, the GDLSK Plaintiffs and Dong Yun challenge the dataset used in calculating the

regression-based wage rate as-applied in the present case. The GDLSK Plaintiffs and Dong Yun

first contend that, given that India was the chosen surrogate market economy country in the present

case, Commerce should have used the publicly available, country-wide wage rate data for India –

as it had when valuing respondents’ other inputs – to value respondents’ labor costs. See GDLSK

Brief at 11-15; Dong Yun Brief at 17. Alternatively, the GDLSK Plaintiffs and Dong Yun assert

that Commerce’s data selection was over inclusive (included data from numerous non-comparable,

non-producer countries), and excluded data from a substantial number of countries (22) that satisfied

Commerce’s selection criteria. See GDLSK Brief at 12, 15-18; GDLSK Reply Brief at 1-5; GDLSK

Supplemental Brief at 1-3; GDLSK Supplemental Response Brief at 1-9; Dong Yun Brief at 16-20;

Dong Yun Reply Brief at 8-11; Dong Yun Supplemental Brief at 2-4; Dong Yun Supplemental

Response Brief at 1-5. The GDLSK Plaintiffs argue that the exclusion of these 22 countries inflated

the resulting calculation, which would have otherwise been approximately $0.56 per hour, rather

than $0.85 per hour. See GDLSK Brief at 16.

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Commerce failed to adequately consider these claims in both the Decision Memorandum and

the Remand Results, perfunctorily stating that the methodology by which Commerce valued

respondents’ labor cost was justified because it is the methodology by which Commerce values

respondent labor costs. See Decision Memorandum at 54; Remand Results at 15-18. For example,

in the Decision Memorandum, Commerce dismissed the GDLSK Plaintiffs insistence on using only

Indian data merely as “contrary to the Department’s regulations.” See Decision Memorandum at

54. And in the Remand Results, Commerce stressed that “[t]he purpose of the voluntary remand was

not to make changes to an established methodology that the Department has employed for several

years, but to correct inadvertent departures from its normal methodology[.]” Remand Results at 15.

Rather than respond to respondents’ claims, Commerce merely summarily stated the supposed

attributes of the “long-established” regression-based methodology, and that any changes to the

methodology should be subject to public comment. See Remand Results at 15-18. Such general

statements are unresponsive to the claims the GDLSK Plaintiffs made twice before Commerce and

reiterate here.

Given that this matter is remanded to Commerce to reconsider the validity of its regression-

based wage rate methodology, there is no need to here reach the merits of the challenge to the

dataset Commerce utilized in its regression-based calculation.46 Although dependent on the outcome

of Commerce’s overall consideration of the regression-based methodology, Commerce should

remain mindful of the GDLSK Plaintiffs’ and Dong Yun’s challenge to its dataset, and avail itself

46

As noted, however, Commerce failed to adequately respond to the parties’ various

challenges in the Decision Memorandum or the Remand Results.

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of the opportunity to consider the implications of the parties’ arguments and authorities, as well as

any other relevant developments (as appropriate).47

In sum, in the absence of sufficient evidence and adequate explanation and justification to

support Commerce’s use of its regression-based methodology to calculate the applicable wage rate

here, and in light of the agency’s failure to properly consider the respondents’ objections during the

administrative review, this matter must be remanded to Commerce for further consideration.48

E. Valuation of Leased Land

Dong Yun disputes Commerce’s decision to calculate a surrogate value for leased land,

asserting that it constitutes unlawful double counting, because – according to Dong Yun – the

surrogate financial statements that Commerce used to calculate surrogate financial ratios in this case

already included rent and lease payments as part of “selling, general, and administrative” (“SG&A”)

expenses. See generally Dong Yun Brief at 3-4, 8-10; Dong Yun Reply Brief at 11-13.49 But see

Def. Response Brief at 78-82; Def. Surreply Brief; Domestic Producers Response Brief at 38. As

discussed below, Dong Yun’s argument is not without merit.

47

See, e.g., Antidumping Methodologies: Market Economy Inputs, Expected Non-Market

Economy Wages, Duty Drawback; and Request for Comments, 71 Fed. Reg. 61,716 (Oct. 19, 2006);

see also Def.’s Supplemental Brief at 6-7 (acknowledging that Commerce modified “the criteria it

use[s] to determine the countries utilized in its calculations” following the present determination.).

48

Because this issue is being remanded to Commerce for reconsideration, the limited issue

of the application of modified calculations from the Remand Results to Dong Yun, which the

Government requested be remanded to Commerce, need not b

This text is long and has been trimmed here. Open the source document for the complete record.