Hangzhou Spring Washer Co., Ltd. v. United States

Slip Op. 05-80

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: CARMAN, JUDGE

________________________________________________

:

HANGZHOU SPRING WASHER CO., LTD., :

:

Plaintiff, :

:

v. :

:

UNITED STATES, : Court No. 04-00133

:

Defendant, :

:

and :

:

SHAKEPROOF ASSEMBLY COMPONENTS :

DIVISION OF ILLINOIS TOOL WORKS, INC., :

:

Defendant-Intervenor. :

________________________________________________:

[Upon consideration of Plaintiff’s Rule 56.2 motion for judgment upon the agency record,

Defendant and Defendant-Intervenor’s responses, and Plaintiff’s reply, Plaintiff’s motion is

granted in part and denied in part. The Department of Commerce’s determination in Certain

Helical Spring Lock Washers from the People’s Republic of China, 69 Fed. Reg. 12,119 (Dept’s

Commerce Mar. 15, 2004) (notice of final results of antidumping duty admin. review) is affirmed

in part and remanded in part.]

Dated: July 6, 2005

White & Case LLP (William J. Moran, William J. Clinton, Adams C. Lee, Emily Lawson),

Washington, D.C., for Plaintiff.

Peter D. Keisler, Assistant Attorney General; David M. Cohen, Director, Commercial

Litigation Branch, Civil Division, United States Department of Justice; Jeanne M. Davidson,

Deputy Director, Commercial Litigation Branch, Civil Division, United States Department of

Justice; David S. Silverbrand, Trial Attorney, Commercial Litigation Branch, Civil Division,

United States Department of Justice; James K. Lockett, Senior Attorney, Office of Chief Counsel

for Import Administration, United States Department of Commerce, Of Counsel, for Defendant.

Hume & Associates PC (Robert T. Hume), Washington, D.C., for Defendant-Intervenor.

Court No. 04-00133 Page 2

OPINION

CARMAN, Judge: This matter comes before this Court on a motion for judgment on

the agency record filed by Plaintiff Hangzhou Spring Washer Company (“Plaintiff” or

“Hangzhou”). Plaintiff challenges the final results by the United States Department of

Commerce (“Defendant” or “Commerce”) in Certain Helical Spring Lock Washers from the

People’s Republic of China, 69 Fed. Reg. 12,119 (Dep’t Commerce Mar. 15, 2004) (notice of

final results of antidumping duty admin. review) [hereinafter Final Results]. Plaintiff seeks

remand on the following four issues: (1) valuation of steel wire rod; (2) valuation of plating; (3)

valuation of overhead, selling, general and administrative expenses (“SG&A”), and profit; and

(4) request for revocation. The parties concur regarding the remand request on the issue of the

subsidy suspicion determination. This Court affirms in part and remands in part the Final

Results as set forth below. This Court has jurisdiction over this case pursuant to 28 U.S.C. §

1581(c) (2000) and 19 U.S.C. § 1516a(a)(2)(A)(i) (2000).

BACKGROUND

This is the ninth administrative review of the antidumping duty order pertaining to helical

spring lock washers (“HSLW”) from the People’s Republic of China (“China”), and the period of

review (“POR”) is from October 1, 2001, through September 30, 2002. Pursuant to 19 C.F.R.

§ 351.222(e)(1) (2004),1 Hangzhou requested revocation of the antidumping duty in this

1

19 C.F.R. § 351.222(e)(1) states:

Antidumping proceeding. During the third and subsequent annual

anniversary months of the publication of an antidumping order or

suspension of an antidumping investigation, an exporter or producer may

request in writing that the Secretary revoke an order or terminate a

Court No. 04-00133 Page 3

administrative review, claiming this is the third consecutive year it sold the subject merchandise

not below normal value. (Pl.’s Mem. of P. & A. in Supp. of Hangzhou’s Mot. for J. on the

Agency R. at 38 (“Pl.’s Mem.”).) However, Commerce found that HSLW were being sold in the

United States at below normal value by Hangzhou during this POR. Final Results, at 12,120.

Accordingly, Commerce determined not to revoke the antidumping duty order with respect to

Hangzhou pursuant to 19 C.F.R. § 351.222(b)(1) (2004).2 Id.

On October 2, 2002, Commerce published Antidumping or Countervailing Duty Order,

Finding, or Suspended Investigation, 67 Fed. Reg. 61,849 (Dep’t Commerce Oct. 2, 2002)

(opportunity to request administrative review). In response to Hangzhou and Defendant-

Intervenor Shakeproof Assembly Components Division of Illinois Tool Works, Inc.’s

(“Defendant-Intervenor” or “Shakeproof”) timely request, Commerce initiated a review.

Initiation of Antidumping and Countervailing Duty Administrative Reviews and Requests for

Revocation in Part, 67 Fed. Reg. 70,402 (Dep’t Commerce Nov. 22, 2002).

Because it is undisputed that the China qualifies as a non-market economy (“NME”),

Commerce constructed a normal value for the various factors of production by gathering

surrogate normal value data from market economy sources using a factors of production

suspended investigation . . . .

2

19 C.F.R. § 351.222(b)(1)(i), in relevant part, reads:

In determining whether to revoke an antidumping duty order or terminate a

suspended antidumping investigation, the Secretary will consider:

(A) whether all exporters and producers covered at the time of

revocation by the order or the suspension agreement have sold the

subject merchandise at not less than normal value for a period of at

least three consecutive years . . .

Court No. 04-00133 Page 4

methodology. Commerce invited interested parties to submit information regarding surrogate

values. (Public Record (“P.R.”) 13-14.) After Commerce issued the initial and first

supplemental questionnaires and received responses from Hangzhou and deficiency comments

from Shakeproof, the concept of subsidy suspicion against this subject merchandise appeared on

the record. (P.R. 19, 23, 24, 28, 30, 39, 49.)

On June 20, 2003, Shakeproof requested that Commerce apply its subsidy suspicion

policy in its pre-preliminary determination comments. Shakeproof cited subsides found in earlier

Commerce countervailing duty investigations involving cut-to-length steel from the United

Kingdom (“UK”) and contended that Hangzhou’s wire rod supplier may have benefitted.

Commerce then issued a second supplemental questionnaire to Hangzhou and subsequently

conducted a verification of Hangzhou’s second supplemental questionnaire responses. (P.R. 45.)

On October 31, 2003, Commerce issued a memorandum on the valuation of the factors of

production, which determined that India would be the surrogate country and detailed the

valuation of the factors of production. (P.R. 49.)

On November 7, 2003, Commerce published Certain Helical Spring Lock Washers from

the People’s Republic of China, 68 Fed. Reg. 63,060 (Dep’t Commerce Nov. 7, 2003)

(preliminary results of antidumping duty admin. review) [hereinafter Preliminary Results]. In the

Preliminary Results, Commerce declined to value wire rod at the price Hangzhou paid its market

economy supplier because Hangzhou’s supplier may have benefitted from subsidies.

Preliminary Results at 63,063. Commerce instead used surrogate country data to determine the

value of the steel wire rod and the value of the plating factors of production. Commerce also

opted to use more contemporaneous surrogate data than formerly used in prior reviews.

Court No. 04-00133 Page 5

In December 2003, Hangzhou submitted additional information on surrogate value. In

January 2004, Hangzhou and Shakeproof submitted case and rebuttal briefs. (P.R. 58-61.) On

March 15, 2004, Commerce issued the Final Results. Commerce found that Hangzhou sold

HSLW at below normal value during the POR, calculated Hangzhou’s dumping margin to be

28.59 percent ad valorem, and rejected Hangzhou’s request for revocation. Final Results, 69

Fed. Reg. at 12,119-20. Hangzhou timely appealed.

STANDARD OF REVIEW

In reviewing a challenge to Commerce’s final determination in an antidumping

administrative review, the Court will uphold Commerce’s decision unless it is “unsupported by

substantial evidence on the record, or otherwise not in accordance with law . . . .” Tariff Act of

1930, § 516A(b)(1)(B) (codified as amended at 19 U.S.C. § 1516a(b)(1)(B)(i) (2000)).

“Substantial evidence is more than a mere scintilla. It means such relevant evidence as a

reasonable mind might accept as adequate to support a conclusion.” Consol. Edison Co. v.

NLRB, 305 U.S. 197, 229 (1938) (citations omitted); see also Micron Tech., Inc. v. United States,

117 F.3d 1386, 1393 (Fed. Cir. 1997). “As long as the agency’s methodology and procedures are

reasonable means of effectuating the statutory purpose, and there is substantial evidence in the

record supporting the agency’s conclusions, the court will not impose its own views as to the

sufficiency of the agency’s investigation or question the agency’s methodology.” Ceramica

Regiomontana, S.A. v. United States, 10 CIT 399, 404-05, 636 F. Supp. 961 (1986) (citations

omitted), aff’d, 810 F.2d 1137 (Fed. Cir. 1987).

Court No. 04-00133 Page 6

In determining whether Commerce’s interpretation and application of the antidumping

statute is in accordance with law, this Court must consider “whether Congress has directly

spoken to the precise question at issue,” and if not, whether the agency’s interpretation of the

statute is reasonable. Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-

43 (1984). “[A] court must defer to an agency’s reasonable interpretation of a statute even if the

court might have preferred another.” Koyo Seiko Co. v. United States, 36 F.3d 1565, 1570 (Fed.

Cir. 1994) (citation omitted). Deference is based upon a recognition that Commerce has special

expertise in administering the anti-dumping law. Ta Chen Stainless Steel Pipe, Inc. v. United

States, 298 F.3d 1330, 1335 (Fed. Cir. 2002).

PARTIES’ CONTENTIONS

Plaintiff appeals four main issues: (1) valuation of steel wire rod; (2) valuation of plating;

(3) valuation of overhead, SG&A, and profit; and (4) request for revocation. The contentions of

the parties are set forth below.

A. Plaintiff’s Contentions

(1) Valuation of steel wire rod

Hangzhou argues that Commerce’s rejection of its market economy prices for steel wire

rod is an arbitrary and unreasonable departure from its past practice. Hangzhou points to

Commerce’s longstanding preference for using market economy prices. (Pl.’s Mem. at 8.)

Hangzhou cites to case law requiring that Commerce rely upon “particular, specific and objective

evidence” to reject market prices under the subsidy suspicion policy. (Id. at 9.) Hangzhou

contends that Shakeproof’s speculation that Hangzhou’s supplier benefitted from additional

Court No. 04-00133 Page 7

subsidies does not meet the evidentiary requirements to invoke the subsidy suspicion policy. (Id.

at 14.)

Hangzhou also argues that there is no evidence that any possible subsidy from its UK

supplier benefitted Hangzhou since it purchased steel wire rod imports through a third country

trading company in Hong Kong. (Pl.’s Mem. at 24.) Hangzhou cites to Certain Color Television

Receivers from the People’s Republic of China, 69 Fed. Reg. 20,594, 20,597 (Apr. 16, 2004)

(notice of final determination) [hereinafter Color TVs3], in support of its assertion that the

presumption of a subsidy does not automatically pass through to an intermediate trading

company. (Pl.’s Mem. at 24.)

(2) Valuation of plating

Hangzhou contends Commerce’s decision to use a single surrogate price quote for plating

services is contrary to established practice and not in accordance with law. Hangzhou argues that

Commerce improperly used a single surrogate price rather than following its past practice to

value the factors of production used by Hangzhou’s plating subcontractors. (Id. at 25.)

Hangzhou argues that Commerce deviated from its practice followed in the eight previous

3

In Color TVs, Commerce reasoned:

The regulation does not address those instances where subsidized exports

are shipped through a third-country trading company to its final

destination. The trading company in the third country is not subject to the

investigation, and cannot therefore be presumed to have benefitted from

any subsidies received by the producer or exporter of the merchandise.

Issues and Decision Memorandum for the Antidumping Duty Investigation of

Certain Color Television Receivers from the People’s Republic of China, A-570-884,

cmt. 8 (Apr. 16. 2004).

Court No. 04-00133 Page 8

reviews by disregarding Hangzhou’s subcontractor’s factors of production for plating. Hangzhou

asserts that in the prior reviews Commerce rejected the very method applied in this review

because the use of a single surrogate price impermissibly double-counts the amounts for

overhead, SG&A and profit. (Id. at 26 (citing Certain Helical Spring Lock Washers from the

People’s Republic of China, 67 Fed. Reg. 8,520, 8,522, cmt. 2 (Dep’t Commerce Feb. 25, 2002)

(final results of antidumping duty admin. review) [hereinafter Seventh Review].)

Hangzhou also asserts that using a surrogate value for plating will effectively treat

Hangzhou’s plating subcontractor as an independent producer by calculating separate overhead,

SG&A, and profit values, in violation of 19 C.F.R. § 351.401(h) (2004).4 According to

Hangzhou, this methodology is inexplicably inconsistent with past reviews, in which Commerce

found that Hangzhou controlled its subcontractors. (Pl.’s Mem. at 27.) Because Hangzhou

controlled its subcontractors, Commerce did not consider the subcontractors to be producers for

purposes of calculating plating expenses.

In past administrative reviews of HSLWs, [Commerce]

acknowledged that applying the surrogate overhead, SG&A, and

profit to the subcontracted plating operations before being

incorporated as a material input in the respondent’s normal value

calculation would result in double-counting because all overhead,

SG&A, and profit expenses were already captured by the

application of the surrogate overhead, SG&A[,] and profit ratios at

the final production stage.

4

19 C.F.R. § 351.401(h) states:

Treatment of subcontractors (“tolling” operations). The Secretary will not

consider a toller or subcontractor to be a manufacturer or producer where

the toller or subcontractor does not acquire ownership, and does not

control the relevant sale, of the subject merchandise or foreign like

product.

Court No. 04-00133 Page 9

(Pl.’s Mem. at 28 (citing Certain Helical Spring Lock Washers from the People’s Republic of

China, 65 Fed. Reg. 31,143, 31,144, cmt. 3 (Dep’t Commerce May 16, 2000) (final results of

antidumping duty admin. review); Certain Helical Spring Lock Washers from the People’s

Republic of China, 64 Fed. Reg. 13,401, 13,404, cmt. 2 (Mar. 18, 1999) (final results of

antidumping duty admin. review)).)

(3) Valuation of overhead, SG&A, and profit

Hangzhou contends that Commerce’s decision to use general, contemporaneous data

rather than industry specific, less recent data to calculate surrogate financial ratios is unsupported

by regulations, evidence and facts on the record. (Pl.’s Mem. at 32.) Hangzhou asserts that

Commerce’s use of 1,927 public companies’ ratios from the Reserve Bank of India Bulletin

(“RBI Bulletin data”) is not industry-specific and therefore not representative of Hangzhou’s

operations. (Id.) Hangzhou argues that Commerce should have continued to use the RBI data set

“Processing and Manufacturing: Metals, Chemicals, and Products Thereof” (“metals data”) that it

used in all the prior administrative reviews. (Id. at 33.) Hangzhou claims that availability of

more recent but generic data is insufficient justification to depart from Commerce’s practice in

the previous reviews, in which the agency used the older but more industry specific data.5 (Id. at

35.) Hangzhou asserts that Commerce failed to explain its rationale for imposing time

parameters on the available data and why these chosen parameters have an impact on the

reliability of the financial data. (Id. at 37.)

5

The general RBI Bulletin data is from 2000 to 2001, and the industry specific metals

data is from 1992. (Def.’s Resp. at 30.)

Court No. 04-00133 Page 10

(4) Request for revocation

Hangzhou contends that Commerce’s change in factors of production methodology is of

particular concern because the antidumping duty order against its HSLW was eligible for

revocation in this review. (Pl.’s Mem. at 38.) Hangzhou pointed out that in the two previous

reviews Commerce found that Hangzhou had not sold subject merchandise at less than fair value.

(Pl.’s Mem. at 38 (citing Seventh Review; Certain Helical Spring Lock Washers from the

People’s Republic of China, 67 Fed. Reg. 69,717 (Dep’t Commerce Nov. 19, 2002) (final results

of antidumping duty admin. review) [hereinafter Eighth Review]).) Hangzhou argues that

Commerce’s unwarranted change in established practice resulted in “substantially increasing

Hangzhou’s margin in this review and disqualifying Hangzhou for revocation.” (Pl.’s Mem. at

38.) Hangzhou claims that Commerce “must be bound by its prior actions so that parties have a

chance to ‘purge themselves’ of antidumping liabilities.” (Id. (citing Shikoku Chem. Corp. v.

United States, 16 CIT 382, 387, 795 F. Supp. 417 (1992)).) Hangzhou requests that any remand

decision include a direction to Commerce to reconsider Hangzhou’s request for revocation of the

antidumping duty order. (Id. at 39.)

B. Defendant’s Contentions

(1) Valuation of steel wire rod

Although Commerce admits to using market prices in the past reviews, Commerce

explains that the record in this review is different. Issues and Decision Memorandum for the

Final Results of Antidumping Duty Administrative Review of Certain Helical Spring Lock

Washers from the People’s Republic of China, A-570-822, cmt. 1 (Mar. 8, 2004) [hereinafter

Decision Memo]. In this review, Commerce received evidence that suggested for the first time

Court No. 04-00133 Page 11

that Hangzhou’s steel wire rod prices may have been distorted by subsidies. Commerce claims

that its “past findings in this proceeding do not preclude [it] from considering [new] information

and changing its treatment of Hangzhou’s [steel wire rod] prices based on that information.” Id.

Although Commerce acknowledges its preference for using actual market prices to value factors

of production, Commerce explains that legislative history limits the use of market economy

prices to “only untainted market economy prices,” and in this review, the market prices may have

been tainted by subsidy. (Def.’s Resp. at 14.)

Although Commerce contends that its decision to invoke the subsidy suspicion policy

was reasonable based upon Shakeproof’s submissions, Commerce admits that the subsidies were

generally used by the UK steel industry and admittedly were not tied to a particular steel product.

Commerce points out that this Court has recognized that even a general subsidy may provide a

reasonable basis to conclude that Hangzhou’s supplier may have benefitted from the alleged

subsidy. (Def.’s Resp. at 18-19 (citing China Nat’l Mach. Imp. & Exp. Corp. v. United States,

264 F. Supp. 1229, 1238 (CIT 2003)).)

While Commerce concedes that Color TVs, 69 Fed. Reg. at 20,594, represents a change

of policy, Commerce points out that this change occurred after this matter’s Final Results were

issued. Notwithstanding the subsequent timing, Commerce requests a voluntary remand on the

issue of the subsidy suspicion policy. (Def.’s Resp. at 19.) “Specifically, upon remand,

Commerce would consider the issue of whether the trading company included any benefit from

the subsidy when it sold to Hangzhou.” (Id.) Hangzhou consents to this remand request. (Reply

Br. in Supp. of Pl.’s Rule 56.2 Mot. for J. upon the Agency R. at 1.)

Court No. 04-00133 Page 12

(2) Valuation of plating

Commerce admits that it veered from its past practice in this review by using a single

surrogate plating price instead of a plating build-up price. Decision Memo at 16. Nevertheless,

Commerce notes that it prefers surrogate prices over build-up prices when the respondent is not a

fully integrated producer.6 Id. at 17. Hangzhou is not a fully integrated producer because it is

unable to plate its own HSLW. However, in prior reviews, the only available plating data was

Hangzhou’s platers’ factors of production. Id. In contrast, in this review, Shakeproof introduced

another option – a single plating price quote. Therefore, Commerce could employ its preference

for surrogate prices. Id. Commerce asserts its change in this review actually reflects its “normal

practice.” Id. Moreover, Commerce found that the single surrogate plating price was the best

available information because “it accurately reflects Hangzhou’s business operations and the

costs it incurs to produce plated HSLWs.” Id. Finally, Commerce asserts that it has “broad

discretion in selecting surrogate values,” and it has exercised this discretion. Id. at 19.

(3) Valuation of overhead, SG&A, and profit

Commerce contends that its decision to use more contemporaneous and nonspecific data

rather than specific and less contemporaneous data is statutorily permissible pursuant to its

discretionary power authorized in 19 U.S.C. § 1677b(c) (2000). (Def.’s Resp. at 27.) Although

conceding that the metals data is more specific than RBI Bulletin data, Commerce responds it

exercised its discretion in valuing contemporaneity over specificity. (See id.; see also Decision

Memo at 21.) Commerce argues that contemporaneous data is the best available information

“because the Indian economy has been quickly transforming in the past few years, negating the

6

Plating build-up is when the factors of production are consumed by unaffiliated plating

subcontractors. See Decision Memo at 16.

Court No. 04-00133 Page 13

relevancy of the nine year old data.” (Def.’s Resp. at 27.) Commerce further asserts that using

more contemporaneous data was consistent with its duty to calculate antidumping rates with

maximum accuracy. (Id. at 29.)

(4) Request for revocation

Commerce contends it properly determined that Hangzhou did not qualify for revocation

of the antidumping order because Hangzhou did not meet the regulatory requirement of three

consecutive zero or de minimis margins pursuant to 19 C.F.R. § 351.222(b)(1). (Def.’s Resp. at

36.) Although Commerce found Hangzhou to have de minimis margins in the two previous

reviews, Commerce determined that Hangzhou sold subject merchandise at less than normal

value during this review. (Id.) Commerce contends that it must consider new evidence presented

during each review without consideration that the review might be determinative of a revocation.

(Id.)

C. Defendant-Intervenor’s Contentions

(1) Valuation of steel wire rod

Shakeproof contends that Commerce properly rejected Hangzhou’s submission of market

economy prices for the valuation of steel wire rod. Although noting that Commerce typically

prefers market economy import prices, Shakeproof emphasizes that such preference is

discretionary and “does not override Commerce’s established practice to disregard a market price

if Commerce has a ‘reason to believe or suspect’ the market economy input benefitted from

subsidies.” (Def.-Intervenor’s Resp. in Opp’n to Pl.’s Mot. for J. upon the Agency R. at 3-4.

(“Def.-Int.’s Resp.”).) Citing legislative history, Shakeproof argues that Commerce should

disregard market economy prices where there is a reason to believe or suspect the prices may be

Court No. 04-00133 Page 14

dumped or subsidized. (Def.-Int.’s Resp. at 9.) Shakeproof purports that it is sufficient that

Commerce suspected subsidization for it to apply the subsidy suspicion policy to the valuation of

steel wire rods.

(2) Valuation of plating

Shakeproof contends that Commerce’s decision to use a single surrogate price for the

valuation of plating services was supported by substantial evidence and otherwise in accordance

with law. (Def.-Int.’s Resp. at 17.) Shakeproof supplied a single surrogate price quote that

involved an arm’s length transaction in quantities similar to Hangzhou’s and was comparable to

the plating value calculated from separate inputs. (Id.) Commerce used Shakeproof’s single

price quote to value plating. (Id.) Shakeproof’s contentions are essentially the same as

Commerce’s (id. at 16-17), have been duly considered, and need not be reiterated in their

entirety.

(3) Valuation of overhead, SG&A, and profit

Shakeproof contends Commerce correctly chose the more contemporaneous RBI Bulletin

data to value overhead, SG&A, and profit. (Id. at 18.) As with the previous subsection,

Shakeproof’s contentions are virtually similar to Commerce’s (id. at 17-18), have been duly

considered, and will not be repeated.

ANALYSIS

Congress provided Commerce with a statutory scheme for calculating dumping margins.

When the antidumping investigation involves a non-market economy, as is China, 19 U.S.C.

§ 1677b(c) governs. This section provides that Commerce construct a normal value of the

Court No. 04-00133 Page 15

subject merchandise from the best available information on the valuation of the factors of

production. 19 U.S.C. § 1677b(c).7 Courts have noted that “the process of constructing foreign

market value for a producer in a nonmarket economy country is difficult and necessarily

7

19 U.S.C. § 1677b(c), in pertinent part, states:

(1) In general

If--

(A) the subject merchandise is exported from a nonmarket country, and

(B) the administering authority finds that available information does not

permit the normal value of the subject merchandise to be determined under

subsection (a) of this section,

the administering authority shall determine the normal value of the subject

merchandise on the basis of the value of the factors of production utilized in

producing the merchandise and to which shall be added an amount for general

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

Except as provided in paragraph (2), the valuation of the factors of production

shall be based on the best available information regarding the values of such

factors in a market country or countries considered to be appropriate by the

administering authority.

...

(3) Factors of production

For purposes of paragraph (1), the factors of production utilized in producing

merchandise include, but are not limited to--

(A) hours of labor required,

(B) quantities of raw materials employed,

(C) amounts of energy and other utilities consumed,

(D) representative capital cost, including depreciation.

(4) Valuation of factors of production

The administering authority, in valuing factors of production under paragraph (1),

shall utilize, 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.

Court No. 04-00133 Page 16

imprecise.” Nation Ford Chem. Co. v. United States, 166 F.3d 1373, 1377 (Fed. Cir. 1999)

(citation omitted). The critical question when valuing the factors of production is “whether the

methodology used by Commerce is based on the best available information and establishes

antidumping margins as accurately as possible.” Shakeproof Assembly Components, Div. of Ill.

Tool Works, Inc. v. United States, 268 F.3d 1376, 1382 (Fed. Cir. 2001) (“Shakeproof III”).

Because there is no statutory definition, courts have read this provision to give broad discretion

to Commerce on what constitutes the best available information. See, e.g., Luoyang Bearing

Corp. v. United States, 347 F. Supp. 2d 1326, 1333 (CIT 2004) (“The statute, however, does not

define the phrase ‘best available information’ . . . . Commerce is given broad discretion ‘to

determine margins as accurately as possible . . . . ’”) (internal citation omitted); Shakeproof

Assembly Components Div. of Ill. Tool Works, Inc. v. United States, 23 CIT 479, 481, 59 F.

Supp. 2d 1354 (1999) (“Shakeproof I”) (“The statute requires Commerce to use the best available

information, but does not define that term . . . . If Congress had desired to restrict the material on

which Commerce could rely, it would have defined best available information.”) (citations

omitted). Therefore, a reviewing court’s role is “not to evaluate whether the information

Commerce used was the best available, but rather whether Commerce’s choice of information is

reasonable.” Peer Bearing Co.-Changshan v. United States, 298 F. Supp. 2d 1328, 1336 (CIT

2003). Accordingly, the hallmark of a reviewing court’s standard of best available information is

reasonableness.

Furthermore, there is no statutory requirement for Commerce to use a particular

methodology to calculate valuation for factors of production. See, e.g., Shakeproof III, 268 F.3d

at 1382 (“the statute does not require the factors of production to be ascertained in a single

Court No. 04-00133 Page 17

fashion”) (citing Lasko Metal Prod., Inc. v. United States, 43 F.3d 1442, 1446 (Fed. Cir. 1994));

Peer Bearing, 298 F. Supp. 2d at 1336 n.3 (“the statute does not require Commerce to follow any

single approach”). Not only can it chose which methodology to employ, Commerce can also

change it. Although courts have found that Commerce should not change its methodology in the

final hour,8 more recent case law upholds a new methodology if found reasonable. See, e.g.,

Luoyang, 347 F. Supp. 2d at 1339 (“an agency decision to change its methodology should be

examined under the Chevron test and sustained if the new methodology is reasonable”); Koyo

Seiko, 36 F.3d at 1575 (holding that Commerce’s stated rationale for changing its methodology

was reasonable). Nevertheless, when an agency departs from its practice, it must “clearly set

forth” the ground “so that the reviewing court may understand the basis of the agency’s action

and so may judge the consistency of that action with the agency’s mandate.” Atchison, Topeka &

Santa Fe Ry. Co. v. Wichita Bd. of Trade, 412 U.S. 800, 808 (1973); see also Shanghai Foreign

Trade Enter. Co., Ltd. v. United States, 318 F. Supp. 2d 1339, 1346 (CIT 2004) (“Commerce . . .

has an additional ‘duty to explain its departure from prior norms.’”) (citations omitted).

Although courts have viewed the statute as a guideline to assist Commerce in the process

of constructing foreign market value for a producer in a non-market economy, they have

recognized “this section also accords Commerce wide discretion in the valuation of factors of

production in the application of those guidelines.” Nation Ford, 166 F.3d at 1377; see also

8

In Shikoku, the plaintiff relied on Commerce’s permission to adjust home market prices

to reflect repackaging costs paid to its subcontractor. However, in the final determination,

Commerce retroactively applied a new methodology excluding those repackaging costs. On

these facts, this Court held that Commerce’s change in methodology at this late stage went

against principles of fairness. 16 CIT at 388. The facts of the instant case are distinguishable.

There is no argument about retroactive changes of methodology on the record. Thus, any

reliance on Shikoku is misplaced.

Court No. 04-00133 Page 18

Fuyao Glass Indus. Group Co., Ltd. v. United States, Slip Op. 03-169, 2003 Ct. Int’l Trade

LEXIS 171, at *22 (CIT Dec. 18, 2003) (“this Court and the Court of Appeals for the Federal

Circuit have repeatedly upheld Commerce’s broad discretion in valuing factors of production”).

Commerce’s discretion is not without limitation, however, as the statute’s directive is “to

construct the subject merchandise’s normal value as it would have been if the [non-market

economy] country were a market economy country.” Peer Bearing, 298 F. Supp. 2d at 1336

(citation omitted); see also CITIC Trading Co., Ltd. v. United States, Slip Op. 03-23, 2003 WL

1587093, at *6 n.12 (CIT Mar. 4, 2003) (“This discretion . . . is constrained by the underlying

objective of the statute; to obtain the most accurate dumping margins possible.”).

(1) Valuation of steel wire rod

In this review, valuation of steel wire rod embodies the issue of the subsidy suspicion

policy. In light of its recent Color TVs determination, 69 Fed. Reg. at 20,597, Commerce

requests voluntary remand on this issue, and Hangzhou consents. This Court grants Commerce’s

request for voluntary remand. However, Commerce requests a limit on its review on remand to

whether any benefit was transferred to Hangzhou from its third country trading company.

Because this request is for a limited review, this Court believes the issue of subsidy suspicion

policy merits a short discussion.

Contrary to prior reviews where Hangzhou’s market economy prices were used,

Commerce invoked a subsidy suspicion policy in this review. For the first time in HSLW review

history, Shakeproof placed on the record a subsidization issue. Commerce reasonably notes that

its “past findings in this proceeding do not preclude [it] from considering [new] information and

changing its treatment of Hangzhou’s [steel wire rod] prices based on [new] information in this

Court No. 04-00133 Page 19

administrative review.” Decision Memo at 7. By invoking the subsidy suspicion policy,

Commerce went against its own regulatory norm of using market economy prices pursuant to 19

C.F.R. § 351.408(c)(1) (2004).9 Commerce defends its position by pointing to legislative history

which states, “In valuing such factors [of production], Commerce shall avoid using any prices

which it has reason to believe or suspect may be dumped or subsidized prices.” H.R. Conf. Rep.

No. 100-576, at 590 (1988) [hereinafter OTCA Legis. Hist.]. This Court finds Commerce and

Shakeproof’s arguments persuasive that the Congressional directive for subsidy suspicion and

regulatory preference for market prices are not mutually exclusive. Rather, Commerce’s

rationale that market prices will be used, as in past reviews, when the subsidy suspicion policy is

not invoked is reasonable. As aptly stated in China National, “given that the overarching

purpose of the antidumping and countervailing duty law is to counteract dumping and subsidies,

the court cannot conclude that Congress would condone the use of any value where there is a

‘reason to believe or suspect’ that it reflects dumping or subsidies.” 264 F. Supp. 2d at 1238; see

also Luoyang, 347 F. Supp. 2d at 1340.

Because the subsidy suspicion policy has no statutory definition, this Court has provided

instruction regarding the interpretation of the subsidy suspicion standard:

9

19 C.F.R. § 351.408(c)(1) states:

Information used to value factors. The Secretary will normally use publicly

available information to value factors. However, where a factor is purchased from

a market economy supplier and paid for in a market economy currency, the

Secretary normally will use the price paid to the market economy supplier. In

those instances where a portion of the factor is purchased from a market economy

supplier and the remainder from a nonmarket economy supplier, the Secretary

normally will value the factor using the price paid to the market economy

supplier.

Court No. 04-00133 Page 20

In attempting to define a similar phrase, “reasonable grounds to

believe or suspect,” which appears in 19 U.S.C. § 1677b(b)(1)

(1999), this Court observed that “in order for reasonable suspicion

to exist there must be ‘a particularized and objective basis for

suspecting’ the existence of certain proscribed behavior, taking

into account the totality of the circumstances, the whole picture.”

. . . This insistence on “a particularized and objective basis” has

been interpreted to mean a “‘demand for specificity.’” . . .

Therefore, the “reason to believe or suspect” standard at issue here

must be predicated on particular, specific, and objective evidence.

China Nat’l, 264 F. Supp. 2d at 1239 (internal citations omitted); see also Peer Bearing, 298 F.

Supp. 2d at 1336. Although invocation of the suspect standard requires specificity, this does not

mean that subsidies must be company specific. This Court has found subsidies “generally

available in the exporting market-economy country,” but not company specific, as sufficient

evidence on the record to affirm application of the suspect suspicion policy. See Peer Bearing,

298 F. Supp. 2d at 1337 (“The Court finds that Commerce made a logical inference that [the

respondent’s] supplier may have benefitted from the generally available subsidies.”) (emphasis

added). This Court notes that Congress did “not intend for Commerce to conduct a formal

investigation to ensure that such prices are not dumped or subsidized, but rather intend[ed] that

Commerce base its decision on information generally available to it at that time.” OTCA Legis.

Hist., at 590-91; see also Luoyang, 347 F. Supp. 2d at 1341; Peer Bearing, 298 F. Supp. 2d at

1336; Fuyao, 2003 Ct. Intl. Trade LEXIS 717, at *36-37. In Peer Bearing, the subsidies were

generally available, but this Court held that “[a]ny level of subsidization found in the exporting

country is enough evidence to support a determination that Commerce had ‘reason to believe or

suspect’ that prices are distorted.” 298 F. Supp. 2d at 1337. Once Commerce presents adequate

evidence to support a subsidy suspicion, a rebuttable presumption is established that prices are

Court No. 04-00133 Page 21

distorted. Luoyang, 347 F. Supp. 2d at 1342. “The presumption shifts the burden to the party

challenging Commerce’s determination to present evidence demonstrating that its supplier did

not benefit from such subsidies.” Id. In Luoyang, this Court suggested that the challenger’s

burden would be met by sufficient evidence that the prices paid were market-determined or

credible evidence that the supplier did not participate in any subsidies programs. Id. at 1342

n.10.

This Court does not decide whether the challenging party has met its burden in this case,

but rather, this Court grants voluntary remand for Commerce to conduct its review consistent

with the discussion herein.

(2) Valuation of plating

Commerce valued plating using a single surrogate price submitted by Shakeproof rather

than build-up prices from subcontractors of Hangzhou. Although Hangzhou claims this is a

departure from past practice in prior reviews and Commerce concedes this point, Commerce

explains that this change is consistent with its established preferences. Commerce has articulated

its preference for surrogate prices over build-up prices in its determinations when a producer is

not fully integrated. See Issues and Decision Memorandum for the Antidumping Duty

Investigation of Polvinyl Alcohol from the People’s Republic of China, A-570-879, cmt. 1 (Dep’t

Commerce Aug. 4, 2003) (“If the NME [] self-produces an input, we take into account the factors

utilized in each stage of the production process. . . . If, on the other hand, the firm was not

integrated, . . . [Commerce] valued the purchased [product] and not the factors [of production].)”

Commerce stated that because Hangzhou does not have the capacity to plate HSLW but rather

must subcontract out this task, it is not a fully integrated producer. Decision Memo at 17.

Court No. 04-00133 Page 22

Commerce explained that in past reviews, the build-up price was the only option, but in this

review, another option was introduced so Commerce could exercise its discretionary authority

and utilize its preferred policy. Commerce reasoned that a single surrogate price was the best

available information in this review “because it accurately reflects Hangzhou’s business

operations and the costs it incurs to produce plated HSLWs.” Id. This Court does not find that

Commerce changed its methodology in this situation, as Hangzhou suggests. Because

Commerce had two choices in this review, where in prior reviews it had only one, this Court

finds that Commerce considered the available new information and acted within the bounds of

reason when making its decision based on the best available information.

Moreover, the record reflects Commerce’s assertion of its preferred policy for valuing

factors for integrated versus non-integrated producers, and the record does not reflect any dispute

that Hangzhou is a non-integrated producer. Although Commerce may have previously found

that Hangzhou controlled its subcontractors, this does not negate Commerce’s current finding

that Hangzhou remains a non-integrated producer. This Court cannot make a judgment on

Commerce’s preferred policy of using a surrogate price over a build-up approach for non-

integrated producers but instead finds that Commerce did not act arbitrarily in reaching its

decision to use a single surrogate price. See Peer Bearing, 298 F. Supp. 2d at 1336 (“Commerce

may not act arbitrarily in reaching its decision.”).

Regarding the issue of the single surrogate price as double-counting of overhead, SG&A,

and profit, Hangzhou argues that this Court should treat its subcontractors as “affiliated” despite

the fact that “Hangzhou explained that it is not affiliated with [its] platers.” Decision Memo at

18; see also P.R. 45. This Court declines to create facts on the record. Explaining that the record

Court No. 04-00133 Page 23

contained surrogate value information for two groups of companies that both lacked specific

information on integration, Commerce analyzed the record and selected the best available

information without regard to the surrogate overhead, SG&A, and profit. Decision Memo at 18.

This Court defers to Commerce as to what constitutes the best available information and finds

that Commerce’s decision regarding the issue of double-counting for overhead, SG&A, and

profit has a “rational connection between the facts found and the choice made.” Shanghai

Foreign Trade, 318 F. Supp. 2d at 1346 (quotation and citations omitted); see also Timken Co. v.

United States, 25 CIT 939, 944, 166 F. Supp. 2d 608 (2001) (“[T]he statute grants to Commerce

broad discretion to determine the ‘best available information’ in a reasonable manner on a case-

by-case basis.”).

Accordingly, this Court holds that Commerce’s change in methodology to use a single

surrogate price in this review is supported by substantial evidence on the record or otherwise in

accordance with law.

(3) Valuation of overhead, SG&A, and profit

Regulation 19 C.F.R. § 351.408(c)(4) (2004) states that Commerce “normally will use

non-proprietary information gathered from producers of identical or comparable merchandise in

the surrogate country” to value overhead, SG&A, and profit. In this review, however, Commerce

decided to use the general but more contemporaneous data submitted by Shakeproof. This was a

departure from the previous reviews, where Commerce used the specific but less

contemporaneous industry specific data provided by Hangzhou. As stated above, a change in

methodology is permissible, but it must be supported by substantial evidence on the record. See

Atchison, 412 U.S. at 808.

Court No. 04-00133 Page 24

Commerce, therefore, has two tasks to explain: (1) why it chose to ignore the regulatory

norm and (2) why it departed from past practice. This Court finds that Commerce provided

sufficient reasons for both. This Court recognizes that the regulations, like the statute, establish a

structure that is not mandatory but rather provides guidance. See Shakeproof III, 268 F.3d at

1381. Since neither the statute nor the regulations speak to the issue of contemporaneity versus

specificity and case law has not delineated a bright line rule on the matter, Commerce has the

statutory discretion to give greater weight to one over the other, provided it offers a reasoned

explanation when such a decision deviates from past practice.10 Here, Commerce explained that

the use of more contemporaneous data is “consistent with its duty to ensure antidumping duty

rates . . . are as accurate as possible” (Def.’s Resp. at 29), given that “the Indian economy has

been transforming quickly in the past few years, negating the relevancy of the nine year old data”

(Def.’s Resp. at 27). This Court finds this explanation reasonable for both inquires.

Although this Court has upheld the favoring of specificity, it was not done so at the

expense of contemporaneity. The court in Yantai Oriental Juice Co. v. United States considered

that the generalized data was “dramatically more outdated” than the specific data. Slip Op. 02-

10

The Court notes that Commerce has favored specificity where there was a five year

span between the specific versus non-specific data. See Heavy Forged Hand Tools from the

People’s Republic of China, 62 Fed. Reg. 11,813, 11,816 (Dep’t Commerce Mar. 13, 1997) (final

results of antidumping duty admin. review) [hereinafter 1997 Hand Tools] (in valuing labor

costs, Commerce chose to use industry specific data from 1990 rather than less specific data from

1992 during the period of review for 1995-96); Partial-Extension Steel Drawer Slides with

Rollers from the People’s Republic of China, 60 Fed. Reg. 54,472, 54,474-76 (Dep’t Commerce

Oct. 24, 1995) (notice of final determination of sales at less than fair value) [hereinafter

Drawers] (in valuing rivet inputs, Commerce chose to use industry specific data from 1994

rather than the less specific data from the period of investigation during 1995). Commerce

defends its decision in the present matter, however, in that the “metals data are eight years older

than the RBI [Bulletin] data, and are much further removed from the POR than the data available

to [Commerce] in 1997 Hand Tools and Drawers.” Decision Memo at 21.

Court No. 04-00133 Page 25

56, 2002 WL 1347018, at *11 (CIT June 18, 2002) (finding that Commerce’s decision to value

SG&A on the basis of outdated generalized rather than contemporaneous specific data was not

supported by substantial evidence on the record); see also CITIC, 2003 WL 1587093, at *6

(“This court, however, has repeatedly recognized that Commerce’s practice is to use surrogate

prices from a period contemporaneous with the period of investigation.”). This Court does not

decide, however, whether contemporaneity should be valued over specificity without direct

statutory instruction because a reviewing court is prohibited from substituting its judgment for

that of the agency. See Koyo Seiko, 36 F.3d at 1570 (“[A] court must defer to an agency’s

reasonable interpretation of a statute even if the court might have preferred another.”) (citation

omitted).

Accordingly, this Court holds that Commerce’s decision to use the more

contemporaneous but general data is supported by substantial evidence on the record or

otherwise in accordance with law.

(4) Request for revocation

This Court notes that this ninth review was determinative of a revocation. Pursuant to 19

C.F.R. § 351.222(b), Commerce denied revocation because it found Hangzhou sold subject

merchandise at less than normal value in this review. Although the decision as it stands is

supported by substantial evidence or otherwise in accordance with law, this Court finds that the

issue of revocation may be affected by the voluntary remand. If upon review Commerce finds

Hangzhou’s dumping margin to be de minimis, then revocation may be warranted. This Court

remands the issue of revocation along with the issue of subsidy suspicion policy, as these issues

may affect each other.

Court No. 04-00133 Page 26

CONCLUSION

For the foregoing reasons, this Court affirms in part and remands in part Commerce’s

Final Results. This Court affirms Commerce’s determinations on the issues of valuation of

plating, and overhead, SG&A, and profit as being supported by substantial evidence on the

record or otherwise in accordance with law. This Court grants Defendant’s request for voluntary

remand on the issue of subsidy suspicion policy regarding the valuation of steel wire rod. This

Court also directs remand on the issue of revocation insofar as the voluntary remand review may

affect the outcome of the revocation.

/s/ Gregory W. Carman

Gregory W. Carman

Judge

Dated: July 6, 2005

New York, New York