Shanghai Foreign Trade Enterprises Co., Ltd. v. United States

Slip Op. 04-33

UNITED STATES COURT OF INTERNATIONAL TRADE

Before: Timothy C. Stanceu, Judge

:

SHANGHAI FOREIGN TRADE :

ENTERPRISES CO., LTD., and :

SHANGHAI PUDONG MALLEABLE IRON :

PLANT, :

:

Plaintiffs, : Court No. 03-00218

:

v. :

:

UNITED STATES, :

:

Defendant, :

:

and :

:

ANVIL INTERNATIONAL, INC. and :

WARD MANUFACTURING, INC. :

:

Defendant-Intervenors. :

:

[Antidumping determination remanded.]

Decided: April 9, 2004

Lafave & Sailer LLP, (Francis J. Sailer and Arthur J. Lafave III), for Plaintiffs.

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

Branch, Civil Division, Jeanne E. Davidson, Deputy Director, Stefan Shaibani, Trial Attorney,

United States Department of Justice; Michael D. Stroud, Office of Chief Counsel, U.S.

Department of Commerce, of Counsel, for Defendant.

Schagrin Associates, (Roger B. Schagrin), for Defendant-Intervenors.

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OPINION AND ORDER

STANCEU, Judge:

I. INTRODUCTION AND SUMMARY

Plaintiffs, Shanghai Foreign Trade Enterprises Co., Ltd. and Shanghai Pudong Malleable

Iron Plant, challenge certain aspects of a final antidumping duty determination, and the resulting

antidumping duty order, that the United States Department of Commerce (“Commerce”) issued

in 2003 on imported non-malleable cast iron pipe fittings from the People’s Republic of China.

Shanghai Foreign Trade Enterprises is a Chinese exporter of this merchandise, and Shanghai

Pudong is a Chinese producer. Anvil International, Inc. and Ward Manufacturing, Inc., domestic

producers of non-malleable cast iron pipe fittings, participated as petitioners in the antidumping

investigation before Commerce and have intervened in this action in support of the position of

the defendant United States. The matter is before the court on plaintiffs’ motion for judgment

upon an agency record, brought under Rule 56.2 of the Rules of this Court.

In their motion, plaintiffs challenge the method by which Commerce calculated the

antidumping duty rate that was applied to their exports in the administrative proceedings at issue

in this case. See Notice of Antidumping Duty Order: Non-Malleable Cast Iron Pipe Fittings

from the People’s Republic of China, 68 Fed. Reg. 16,765 (April 7, 2003); Notice of Final

Determination of Sales at Less Than Fair Value: Non-Malleable Cast Iron Pipe Fittings From

the People’s Republic of China (“Final Determination”), 68 Fed. Reg. 7,765 (Feb. 18, 2003). As

is its practice, Commerce calculated the antidumping duty rate using “surrogate” data from a

market economy country (in this case, India) in place of data pertaining to the actual production

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and sale of the merchandise exported from the People’s Republic of China (“China,” or the

“PRC”), which Commerce considers to be a nonmarket economy country.

Plaintiffs do not contest the selection of India as the surrogate country but instead

challenge Commerce’s selection of particular surrogate data from India. Plaintiffs allege, first,

that Commerce improperly relied on non-industry-specific data obtained from the Reserve Bank

of India to calculate the surrogate values for selling, general and administrative expenses, factory

overhead, and profit. Second, plaintiffs contend that Commerce used inappropriate surrogate

data to value the cost of the foundry pig iron used as a material in manufacturing the exported

non-malleable cast iron pipe fittings.

This court has jurisdiction pursuant to 28 U.S.C. § 1581(c) and 19 U.S.C.

§ 1516a(a)(2)(A)(i). This court grants plaintiffs’ motion and remands this matter to Commerce

because the findings in Commerce’s decision are not supported by substantial evidence on the

record, because that decision did not provide adequate explanations for the choices of surrogate

values, and because the decision did not explain adequately the departures from Commerce’s

established administrative practices.

II. BACKGROUND

A. Determining Normal Value of Goods Produced in a Nonmarket Economy Country

Under the antidumping laws, antidumping duty represents the amount by which the

“normal value” of the imported merchandise that was the subject of the Commerce Department’s

investigation (identified as the “subject merchandise”) exceeds the “export price” for that

merchandise. 19 U.S.C. § 1673. “Normal value” usually is determined by the price for which

the “foreign like product” corresponding to the subject merchandise (generally, identical or like

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merchandise made by the same foreign producer in the same foreign country, as determined

according to 19 U.S.C. § 1677(16)) is first sold, or offered for sale, for consumption in the

exporting country. 19 U.S.C. § 1677b(a)(1). “Export price” usually refers to the price at which

the subject merchandise is first sold, before the date of importation into the United States, by the

producer or exporter outside of the United States, to an unaffiliated purchaser. 19 U.S.C.

§ 1677a(a).

Because it deems China to be a nonmarket economy country, Commerce generally

considers information on sales in China and financial information obtained from Chinese

producers to be unreliable for determining, under 19 U.S.C. § 1677b(a), the normal value of the

subject merchandise. Accordingly, Commerce invokes a different statutory procedure for

determining normal value if the subject merchandise is exported from a nonmarket economy

country.

Under the substitute procedure, Commerce calculates the normal value by determining

and aggregating “surrogate values” for various “factors of production” used in producing the

subject merchandise, to which it also adds an amount for general expenses and profit as well as

amounts for the cost of containers, coverings, and other expenses. 19 U.S.C. § 1677b(c)(1). The

factors of production include, but are not limited to, labor hours, raw materials, energy and other

utilities, and representative capital cost, including depreciation. 19 U.S.C. § 1677b(c)(3). The

statute requires Commerce to base its valuation of the factors of production on the “best

available information regarding the values of such factors in a market economy country or

countries considered appropriate by the administering authority [i.e., Commerce].” 19 U.S.C.

§ 1677b(c)(1).

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To implement the statutory directive to add amounts for “general expenses and profit,”

Commerce usually calculates separate values for selling, general and administrative (“SG&A”)

expenses, manufacturing overhead and profit, using ratios derived from financial statements of

one or more companies that produce identical or comparable merchandise in the surrogate

country. To calculate the SG&A ratio, the Commerce practice is to divide a surrogate

company’s SG&A costs by its total cost of manufacturing. See, e.g., Manganese Metal From the

People’s Republic of China; Final Results of Second Antidumping Administrative Review,

64 Fed. Reg. 49,447, 49,448 (Sept. 13, 1999). For the manufacturing overhead ratio, Commerce

typically divides total manufacturing overhead expenses by total direct manufacturing expenses.

Id. Finally, to determine a surrogate ratio for profit, Commerce divides before-tax profit by the

sum of direct expenses, manufacturing overhead and SG&A expenses. Id. These ratios are

converted to percentages (“rates”) and multiplied by the surrogate values assigned by Commerce

for the direct expenses, manufacturing overhead and SG&A expenses. Id.

In this investigation, Commerce determined that financial information from producers of

identical or comparable merchandise was unavailable or unsuitable for use as surrogate data.

Based on that determination, Commerce chose to calculate the ratios based on aggregated

financial information compiled by the Reserve Bank of India from a survey of 1,914 Indian

manufacturing companies. Using the Reserve Bank of India data, Commerce established a rate

for SG&A expenses of 25.93 percent, a factory overhead rate of 20.42 percent and a profit rate

of 5.51 percent.

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B. Administrative Proceedings Culminating in This Litigation

Domestic producers of non-malleable cast iron pipe fittings petitioned Commerce (and

concurrently, the U.S. International Trade Commission) on February 21, 2002, seeking the

imposition of antidumping duties on non-malleable cast iron pipe fittings from the PRC. On

September 25, 2002, Commerce published an affirmative preliminary dumping determination for

the period of investigation from July 1, 2001 to December 31, 2001. Notice of Preliminary

Determination of Sales at Less Than Fair Value and Postponement of Final Determination:

Non-Malleable Cast Iron Pipe Fittings From the People’s Republic of China (“Preliminary

Determination”), 67 Fed. Reg. 60,214 (Sept. 25, 2002). Plaintiffs and another Chinese producer,

Jinan Meide Casting Co. (also a respondent in the proceedings before Commerce), filed

responses alleging clerical errors in the Commerce preliminary determination. In its Final

Determination, Commerce acknowledged errors in the Preliminary Determination, which it

corrected in the final determination but viewed as insufficient to require an amended preliminary

determination. See Final Determination, 68 Fed. Reg. at 7,766. The Final Determination

assigned an antidumping rate (weighted average margin) of 6.34 percent to exports of the subject

merchandise by plaintiff Shanghai Foreign Trade Enterprises, 7.08 percent to subject

merchandise produced by Jinan Meide Casting Co., and 75.50 percent to all other subject

merchandise from China. Id. at 7,768. After the U.S. International Trade Commission notified

Commerce, on March 24, 2003, of its final determination that the industry in the United States

producing non-malleable cast iron pipe fittings was threatened with injury by reason of imports

of the subject merchandise, Commerce issued its antidumping duty order.

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III. CONTENTIONS OF THE PARTIES

Plaintiffs challenge two classes of surrogate values chosen by Commerce in calculating

the antidumping duty rates, and specifically the 6.34 percent antidumping duty rate that

Commerce assigned to merchandise produced and exported by plaintiffs. They contend that the

determinations by Commerce to use these surrogate values are unsupported by substantial

evidence on the administrative record or otherwise are not in accordance with law.

A. Challenge to the Use of Reserve Bank of India Data for SG&A, Overhead, and Profit

Plaintiffs contend that Commerce’s use of the Reserve Bank of India data to calculate

surrogate financial ratios for SG&A expenses, overhead, and profit was improper because the

record contained a better source of financial data, specifically, the financial data of Indian

producers of merchandise that plaintiffs claim to be comparable to the subject merchandise.

Plaintiffs submit that the consistent prior practice of Commerce, as reflected in its regulations, is

to use record evidence obtained from producers of comparable merchandise in the surrogate

country and that Commerce departed from this practice without adequate explanation. Plaintiffs

contend that Commerce should have used data from the financial reports of Jayaswals Neco Ltd.,

an Indian producer of iron and steel castings including brake rotors, and Kalyani Brakes Ltd., an

Indian manufacturer of ferrous and aluminum castings for brake assemblies and other

automotive parts. According to plaintiffs, Commerce should have regarded these two Indian

companies as producers of merchandise comparable to non-malleable cast iron pipe fittings.

Plaintiffs object to Commerce’s use of Reserve Bank of India information because that

information was not obtained from Indian producers of iron castings and instead was derived

from financial data of various manufacturing enterprises in India. Specifically, the source of the

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Reserve Bank of India data is the 1999-2000 combined income, value of production, expenditure

and appropriation account for a sample of 1,914 public limited companies in India, as reported in

the June 2001 Reserve Bank of India Bulletin.

Defendant United States asserts that Commerce acted within its discretion in using the

Reserve Bank of India data to determine surrogate financial ratios for SG&A expenses,

manufacturing overhead, and profit. While acknowledging the Commerce preference for

surrogate values derived from producer-specific data pertaining to identical or comparable

merchandise, defendant contends that Commerce was compelled to rely upon broader industry

groupings once it had determined that the surrogate companies identified on the administrative

record either were unprofitable or did not produce identical or comparable merchandise.

Defendant contends that Commerce, based on substantial evidence on the record,

properly declined to use the financial data of Jayaswals Neco Ltd. because the 2000-2001

financial statement of that company, which statement corresponded to the fiscal year overlapping

the period of investigation (July 1, 2001 to December 31, 2001), showed a financial loss. In the

proceeding below and in previous cases, Commerce has taken the position that financial data of

a company reporting a loss are not reliable for use as surrogate values in nonmarket economy

antidumping investigations. Although the Jayaswals financial data for 1998-1999 showed a

profit, Commerce rejected the use of these data because, in its view, no party provided

justification for such use. Defendant maintains that Commerce was justified in rejecting the

financial data of Kalyani Brakes Ltd. because, it contends, the record did not demonstrate that

this company manufactured merchandise comparable to the subject merchandise.

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B. Challenge to the Use of Indian Import Statistics to Value Foundry Pig Iron

Plaintiffs argue that Commerce acted improperly in assigning what they view as an

aberrantly high surrogate value to foundry pig iron, a material used in producing non-malleable

cast iron pipe fittings. The value Commerce used was $0.228 per kilogram, which it derived

from import data published in the Monthly Statistics of the Foreign Trade of India (“Indian

Import Statistics”), using the statistics corresponding to the six-month period of investigation.

Plaintiffs contend that Commerce should have determined the surrogate value for pig iron

according to publicly available price information from two sources in India, as placed on the

record below by plaintiff Shanghai Foreign Trade and adjusted to remove the effect of domestic

taxes.

Plaintiffs view the Indian Import Statistics as unrepresentative of the true pig iron price

in the Indian market. They point out that the total quantity of pig iron imported into India for the

six month period, according to the Indian Import Statistics, was a mere 1,132 tons and

represented, in their estimation, less than one-tenth of one percent of Indian domestic

consumption. Plaintiffs estimate that total pig iron consumption in India was at least 1.5 million

tons for the six-month period, based on information in the petition identifying the output of

6,000 foundries in India. The minuscule percentage indicates, according to plaintiffs, that

domestic demand for pig iron in India is satisfied almost exclusively by domestic pig iron, with

the result that import prices must be viewed as an unreliable indicator of the market price.

According to plaintiffs, Commerce should have followed its practice of rejecting

surrogate values obtained from import data that are shown to be aberrational. They assert that

the value chosen by Commerce is 20 percent higher than the prices for pig iron reported in an

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Indian domestic publication of the Joint Plant Committee, the JPC Bulletin. They further argue

that the prices shown in the JPC Bulletin are corroborated by those for pig iron reported weekly

on IndiaInfoline.com, a privately-owned website providing financial services and economic

information regarding India.

A third objection raised by plaintiffs concerns the effect of domestic internal taxes on the

prices for pig iron in the Indian market. Plaintiffs assert that Commerce typically will not

include domestic taxes in calculating surrogate values and further assert that relatively high

domestic taxes inflate Indian domestic pig iron prices. They argue that Commerce should base

its surrogate value on the Indian domestic pig iron prices established by the JPC Bulletin and

IndiaInfoline.com and then adjust these prices to remove the effect of domestic taxes. When this

is done, they contend, the resulting prices are $0.15 per kilogram and $0.16 per kilogram,

respectively—substantially less than the $0.228 price that Commerce used in the antidumping

investigation.

Defendant maintains that Commerce’s use of the Indian Import Statistics was justified

and supported by substantial evidence on the record. Commerce properly rejected the use of the

JPC Bulletin and IndiaInfoline.com price information, defendant contends, because neither

source discloses information on the quantity of pig iron used in deriving the reported price

information and because Shanghai Foreign Trade, in urging the use of this information in the

investigation, did not place on the record any such quantity information. Defendant argues that

given the absence of this quantity information, Commerce was justified in concluding that it had

no record evidence upon which it could conclude that the price data in the JPC Bulletin and

IndiaInfoline.com were derived from statistically or commercially significant quantities.

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Responding to plaintiffs’ argument that during the antidumping investigation Commerce

never requested the quantity information on pig iron sales from Shanghai Foreign Trade or any

other respondent and never contacted JPC Bulletin or IndiaInfoline.com to request that quantity

information, defendant argues that plaintiffs, in the administrative proceeding below, had the

burden of developing the record by submitting factual information. Because they did not do so,

according to the argument of defendant, Commerce was well within its discretion in rejecting the

price information of JPC Bulletin and IndiaInfoline.com in favor of price information gathered

from official Indian import statistics.

IV. DISCUSSION

A. Standard of Review

This court must evaluate whether the challenged findings by Commerce are supported by

substantial evidence on the record or are otherwise in accordance with law. See 19 U.S.C.

§ 1516a(b)(1)(B)(i). Substantial evidence is “such relevant evidence as a reasonable mind might

accept as adequate to support a conclusion.” Consolidated Edison Co. of New York v. NLRB,

305 U.S. 197, 229 (1938); Matsushita Elec. Indus. Co., Ltd. v. United States, 750 F.2d 927, 933

(Fed. Cir. 1984). The standard of review for a Commerce construction of the governing statute

is not relevant as none is challenged in this case.

B. Commerce’s Decision to Use Reserve Bank of India Data

In the antidumping investigation, Commerce chose to use Reserve Bank of India data to

calculate the surrogate financial ratios for SG&A expenses, manufacturing overhead and profit.

As discussed above, Commerce obtained those data from the 1999-2000 combined income,

value of production, expenditure and appropriation account for a sample of 1,914 public limited

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companies in India, as reported in the June 2001 Reserve Bank of India Bulletin. Commerce

made this choice after rejecting the use of data on the record that was contained in financial

statements of four Indian manufacturers, Rajesh Malleables Ltd., Rico Auto Industries, Ltd.,

Jayaswals Neco Ltd., and Kalyani Brakes Ltd.

The choice to use the Reserve Bank of India data was a departure from the established

Commerce procedure. Commerce has included in its regulations a rule under which

manufacturing overhead, general expenses and profit “normally” will be valued using

“information gathered from producers of identical or comparable merchandise in the surrogate

country.” The rule, codified at 19 C.F.R. § 351.408(c)(4), states as follows:

Valuation of Factors of Production. For purposes of valuing the

factors of production, general expenses, profit, and the cost of

containers, coverings, and other expenses (referred to collectively

as “factors”) under section 773(c)(1) of the Act the following rules

will apply:

....

(4) Manufacturing overhead, general expenses, and profit. For

manufacturing overhead, general expenses, and profit, the Secretary

normally will use non-proprietary information gathered from

producers of identical or comparable merchandise in the surrogate

country.

Although the rule allows for some deviation from the prescribed procedure by including the

word “normally,” the rule does not identify an alternate method or alternate source of

information.

Commerce’s own characterization of 19 C.F.R. § 351.408(c)(4) is that “[w]henever

possible, the Department has used producer-specific data. Unlike industry-specific data, which

tends to be broader in terms of merchandise included, product-specific data pertains directly to

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the subject merchandise.” Issues and Decision Memorandum for the Final Determination in the

Antidumping Duty Investigation of Non-Malleable Cast Iron Pipe Fittings from the People’s

Republic of China (“Issues and Decision Memorandum”) at 19, Pub. Doc. 213 (Feb. 7, 2003).

The data obtained from the Reserve Bank of India does not qualify even as “industry-specific,”

as it was derived from a sample of 1,914 public limited companies in India. In Yantai Oriental

Juice Co. v. United States, which involved a challenge to the use of Reserve Bank of India data

to calculate Indian surrogate values for manufacturing overhead, SG&A expenses and profit in

an antidumping investigation concerning Chinese apple juice concentrate (“AJC”), this Court

observed that the Reserve Bank of India data “appears to bear little relationship to the actual

costs of an Indian AJC producer.” 26 CIT ___, ___, Slip Op. 02-56 at 27 (June 18, 2002).

At issue in this case is the administrative decision by Commerce to deviate from its

general, promulgated rule––under which it would have used information gathered from

producers of merchandise identical or comparable to the subject merchandise—and to use,

instead, the nonspecific information compiled by the Reserve Bank of India. This court would

be required to conclude that Commerce’s decision is supported by substantial evidence on the

record before it could uphold the final antidumping determination. The court also would need to

discern in the Commerce decision a “rational connection between the facts found and the choice

made.” Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962); Neenah

Foundry Co. v. United States, 25 CIT ___, ___, 142 F. Supp. 2d 1008, 1014 (2001). Because its

decision is a departure from its practice and the rule of 19 C.F.R. § 351.408(c)(4), Commerce in

this proceeding has an additional duty “to explain its departure from prior norms.” Atchison,

Topeka & Santa Fe Railway Co. v. Wichita Board of Trade, 412 U.S. 800, 808 (1973); Saha

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Thai Steel Pipe Co., Ltd. v. United States, 19 CIT 273, 279-280, 879 F. Supp. 1331, 1336-1337

(1995).

This court is unable to sustain the Commerce decision affecting manufacturing overhead,

SG&A expenses, and profit. Commerce’s decision is not supported by substantial evidence on

the record and does not demonstrate a rational connection between the record evidence and the

decision to use the Reserve Bank of India data. Commerce also failed to explain its departure

from its rule and practice to use producer-specific data in the calculation of the surrogate values.

These shortcomings result generally from the conclusory way in which Commerce addressed the

issue of “comparable merchandise” manufactured in the surrogate country, India.

In the investigation, respondents placed financial statements of Rajesh, Rico, Kalyani and

Jayaswals on the record, arguing at various times that one or more of these four companies were

producers of cast iron merchandise that is comparable to the subject merchandise. Commerce

rejected using any of these four sets of data. The Rajesh financial data was rejected because

during the period of investigation Rajesh had suffered through a long labor strike, experienced

financial difficulty, and did not make a profit. No party questions that determination before this

court. Commerce declined to use the Rico financial information on the ground that it could not

“find any evidence demonstrating that Rico produces cast iron automobile components.”1 Issues

1

While plaintiffs do not challenge Commerce’s rejection of Rico as a surrogate,

the court finds unsupportable Commerce’s assertion that it cannot find evidence that Rico

is a producer of cast iron automobile components. In antidumping proceedings for brake

rotors from China, Commerce used the financial statements of Jayaswals, Kalyani and

Rico, among others, because they “produced both brake drums and brake rotors.” See

Notice of Final Determination of Sales at Less Than Fair Value: Brake Drums and Brake

Rotors From the People’s Republic of China, 62 Fed. Reg. 9,160, 9,168 (Feb. 28, 1997).

In the Brake Rotors From the People’s Republic of China: Preliminary Results of the

Sixth Antidumping Duty New Shipper Review, Commerce calculated SG&A expenses

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and Decision Memorandum at 21. Commerce also claimed that any cast-iron products

represented only 1.66 percent of Rico’s raw material consumption. No party asserts in this

litigation that Rico’s financial statements should have been used.

Commerce decided not to use the financial data in the Jayaswals 1999-2000 annual report

on the claim that no party argued for the use of those data. Issues and Decision Memorandum

at 20. Because information on the record indicates that Jayaswals did not make a profit during

that period, the record contains evidence to support that decision. However, Commerce also

decided to reject the data presented in the 1998-1999 Jayaswals annual report (which showed a

profit), concluding that no interested party “provided justification for using” those data. That

decision, however, is unsupported by the record and in fact is contradicted by Commerce’s own

findings as set forth in the Issues and Decisions Memorandum. Jinan Meide argued in the

investigation for the use of financial data from Jayaswals, Rico and Kalyani in the calculation of

the profit ratio and, as an alternative to the Rajesh financial data, for use of that data in the

calculation of the SG&A expenses and manufacturing overhead ratios as well. Jinan Meide,

noting that Rajesh made malleable cast iron pipe fittings, argued specifically that Indian cast iron

brake rotor manufacturers (i.e., Jayaswals, Rico and Kalyani) produced the merchandise which

was the next most comparable to the subject merchandise. Commerce specifically

acknowledged that Jinan Meide advanced these arguments. Issues and Decision Memorandum

at 20.

using the 1998-1999 Jayaswals annual report, the 2000-2001 Kalyani annual report, and

the 1998-1999 Rico annual report. See 67 Fed. Reg. 38,251, 38,253 (June 3, 2002). The

period of review for that determination was April 1, 2001 to September 30, 2001.

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Commerce decided not to use the Kalyani financial information on the premise that

respondent Jinan Meide did not show how Kalyani “is representative of a manufacturer that

produces identical or comparable merchandise.” Id. Here too, the record contradicts the

Commerce premise. Commerce itself summarized, five pages earlier in the Issues and Decision

Memorandum, a detailed argument by Jinan Meide presenting the reasons why the products

made by Kalyani constituted merchandise comparable to the subject merchandise. Issues and

Decision Memorandum at 15 (“JMC [Jinan Meide] states that these cast iron brake rotors are

made with strikingly similar materials, methods, foundry equipment, and finishing procedures as

the subject merchandise. JMC contends that the similarities in the production processes of brake

rotors and pipe fittings outweigh the differences in their end uses.”).2

In the investigation, the petitioners favored the use of the Reserve Bank of India data and

urged Commerce to reject the use of financial data from the Indian brake rotor producers. The

Issues and Decision Memorandum describes petitioners’ position that brake rotors are not

2

In the case brief it submitted to Commerce in the investigation, Jinan Meide had

argued as follows:

Brake rotors and non-malleable pipe fittings are made of the same

material: gray iron. The factors valuation memorandum for the recent

Sixth Antidumping Duty New Shipper Review of Brake Rotors from the

People’s Republic of China lists pig iron, steel scrap, ferrosilicon,

ferromanganese, limestone, and lubrication oil as the material inputs and

lists firewood, electricity, and coking coal as the energy inputs. These are

precisely the same factors of production consumed in JMC’s casting,

smoothing and threading workshops. The Department has verified that

the brake rotors and pipe fittings are molded, cast, and cleaned using

congruent facilities and methods.

Pub. Doc. 192 at 8 (footnotes omitted; emphasis in original).

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comparable merchandise because they do not share the same physical characteristics (meaning

size and shape) as pipe fittings and do not share the same end use. Issues and Decision

Memorandum at 17. Missing from the document, however, is an analysis setting forth

Commerce’s own findings and reasoning on this issue. The Commerce treatment of the issue

presents little more than paraphrases of the contentions of the parties and the conclusory

statements, contradicted by the record, that no party “provided justification” for use of the

Jayaswals information and that no party showed how the Kalyani products were comparable to

the subject merchandise. Most notably, Commerce fails to discuss why merchandise made by

Jayaswals and Kalyani, including in particular cast iron brake rotors, is or is not comparable to

the subject merchandise.

To determine if a product produced by a company in the surrogate country is comparable,

Commerce’s established practice is to apply a three-part test that examines “physical

characteristics, end uses, and production processes.” Issue and Decision Memorandum at 19,

citing Certain Cased Pencils from the People’s Republic of China; Final Results and Partial

Rescission of Antidumping Duty Administrative Review, 67 Fed. Reg. 48,612 (July 25, 2002)

(“Pencils Final Results”) and accompanying Issues and Decision Memorandum at Comment 5.

Neither the Federal Register notice announcing the Final Determination nor the Issues and

Decision Memorandum provides reasons why Commerce, in this case, departed from its practice

by omitting an analysis of its application of the three-part test or another such test. As a result,

the Commerce decision, failing to address the record evidence concerning Indian producers of

cast iron products, does not adequately explain why Commerce considered Reserve Bank of

India data preferable to the company-specific data for its surrogate value analysis. The court’s

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understanding on this point is not furthered by the statement in the Issues and Decision

Memorandum that the Reserve Bank of India information “contains a number of potentially

comparable producers of pipe fittings.” Issues and Decision Memorandum at 22. This assertion,

which is not further explained or justified by any reference to record evidence, seems

incongruent with the generalized nature of the Reserve Bank of India data as derived from a

broad sampling of Indian companies. It also invites questions concerning which publicly owned

companies in India included in the Reserve Bank of India compilation are “potentially

comparable producers of pipe fittings” and why Commerce did not consider using financial data

from those producers for calculating SG&A expenses, manufacturing overhead and profit.

In some past cases in which Commerce has applied its three-part “comparable

merchandise” test to two classes of products made using similar materials and production

processes, it has found comparability despite differences in shape, size and end use. See Notice

of Preliminary Determination of Sales at Less than Fair Value and Postponement of Final

Determination: Lawn and Garden Fence Posts From the People’s Republic of China, 67 Fed.

Reg. 72,141, 72,145 (Dec. 4, 2002) (rejecting use of Reserve Bank of India data after finding

circular steel pipe to be comparable to steel fence posts because they have similar production

processes and material inputs); see also Glycine from the People’s Republic of China: Final

Results of New Shipper Administrative Review, 66 Fed. Reg. 8,383 (Jan. 31, 2001) and

accompanying Issues and Decision Memorandum at Comment 7 (finding that similarity in

production processes of glycine, a food additive, and phenylglycine, a toxic ingredient in dyes,

outweighed any difference in the final end use of the products); see also Pencils Final Results

and accompanying Issues and Decision Memorandum at Comment 5 (finding that wooden

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cabinets, doors and handicrafts were comparable to pencils based on similarities in production

and rejecting use of generic Reserve Bank of India data). In some cases, Commerce has given

the term “comparable” an expansive interpretation. See Tapered Roller Bearings and Parts

Thereof, Finished or Unfinished, From Romania: Final Results of Antidumping Duty

Administrative Review, 62 Fed. Reg. 37,194, 37,199 (July 11, 1997) ( “As the Department

noted . . . in defending the use of data from the Turkish pipe and tube industry, ‘the term

“comparable” encompasses a larger set or products than “such or similar.”’ Thus we have

supported the use of pipe industry data in earlier reviews of this proceeding as being sufficiently

‘comparable’ to tapered roller bearings.”). If steel fence posts are comparable to steel pipes and

pipe fittings, if a food additive is comparable to a toxic dye ingredient, if pencils are comparable

to furniture, and if bearings are comparable to steel pipes, then Commerce must explain, in the

context of its established practice, how cast iron pipe fittings are not comparable to cast iron

brake rotors.

With regard to the Jayaswals financial statements, Commerce also apparently overlooked

evidence that Jayaswals may qualify as a producer of comparable merchandise other than brake

rotors. The record indicates that Jayaswals has a diversified casting business: “Jayaswals

produces iron and steel castings, including drainage pipes and cylinder heads, that weigh 500

grams to 5 tonnes.” Def.’s Mem. in Opp’n to Pls.’ Rule 56.2 Mot. for J. upon the Agency R.

at 32 (Sept. 26, 2003) (citing 1999-2000 Jayaswals Annual Report, Pub. Doc. 1, Ex. 20). If

Commerce determines that brake rotor manufacturers produce comparable merchandise, then

Jayaswals would appear to qualify as a brake rotor producer. If Commerce determines that

brake rotors are not comparable merchandise, it also must consider whether Jayaswals would

Court No. 03-00218 Page 20

qualify as a producer of identical or comparable merchandise based on its larger casting

business, which apparently includes pipes and other products.

In summary, Commerce’s decision not to use the data contained in the 1998-1999

Jayaswals and the 2000-2001 Kalyani financial statements fails because it is not supported by

substantial evidence. It also fails because it lacks a rational connection between its conclusion

and the evidence in the record and also lacks a justification for the departure from Commerce’s

rule and past practice.

Accordingly, the court remands this case to Commerce for correction of the inadequacies

in its determination concerning the surrogate values for SG&A expenses, manufacturing

overhead and profit. On remand, Commerce either must follow the general rule of 19 C.F.R.

§ 351.408(c)(4) by calculating these values using “non-proprietary information gathered from

producers of identical or comparable merchandise in the surrogate country,” or it must provide

an explanation sufficient to justify its use of information that falls short of that standard. That

explanation must be grounded in evidence on the record and must explain the rational

connection between the record evidence and the conclusion reached. Commerce must determine

whether cast iron brake rotor manufacturers produce merchandise comparable to the subject

merchandise. If it concludes that they do not, then it must state its reasons for that conclusion

and justify its determination that a product made with similar materials and production processes

is not comparable to the subject merchandise. Even if Commerce determines that brake rotors

are not comparable merchandise, then it must explain why Jayaswals, which the record indicates

to have a significant iron casting business, is not a producer of comparable merchandise.

Court No. 03-00218 Page 21

C. Valuation of Pig Iron

Commerce obtained its surrogate value of $0.228 per kilogram (10.99 Rupees per

kilogram) for pig iron, a primary material in the manufacturing of non-malleable cast iron pipe

fittings, from Indian Import Statistics corresponding to the six-month period of investigation. As

discussed previously, plaintiffs challenge this surrogate value on various grounds, alleging in

particular that it is based on a quantity of pig iron, 1,132 metric tons for the six-month period,

that is so small as to be statistically and commercially insignificant when viewed against the

total Indian domestic consumption of pig iron.

Plaintiffs also assert that the surrogate value chosen by Commerce is substantially higher

than prices for pig iron shown in two Indian domestic references for pig iron prices. During the

investigation, Shanghai Foreign Trade placed on the record two such sources: the JPC Bulletin,

an Indian government publication of market prices in six major cities in India, and the website

IndiaInfoline.com. Plaintiffs identified a pig iron price of 9.12 Rupees/kg. (7.21 Rs/kg.

excluding excise tax) based on JPC Bulletin and a price of 9.852 Rs/kg. (7.79 Rs/kg. excluding

excise tax) based on IndiaInfoline.com. Mem. in Supp. of Mot. for J. on the Agency R. under

Rule 56.2 filed by Pls. (“Pls.’ Br.”). at 25-26 (July 7, 2003). Plaintiffs urge that Commerce use

these two sources, exclusive of the excise tax, to calculate the pig iron surrogate value.

The governing statute grants considerable discretion to Commerce in choosing among

surrogate values for the factors of production. See, e.g., Nation Ford Chemical Co. v. United

States, 166 F.3d 1373, 1377 (Fed. Cir. 1999). Nevertheless, the statute requires that “the

valuation of the factors of production shall be based on the best available information regarding

the values of such factors in a market economy country or countries” that Commerce considers

Court No. 03-00218 Page 22

“appropriate.” 19 U.S.C. § 1677b(c). In addition, it is Commerce’s duty to ensure that the

antidumping rates are as accurate as possible. See Rhone Poulenc, Inc. v. United States, 899

F.2d 1185, 1191 (Fed. Cir. 1990).

Consistent with the statutory mandate to use the best available information, Commerce

must evaluate all data in the record to determine reliability. See Olympia Industrial, Inc. v.

United States, 22 CIT 387, 390, 7 F. Supp. 2d 997, 1001 (1998) (“Commerce has an obligation

to review all data and then determine what constitutes the best available information or,

alternatively, to explain why a particular data set is not methodologically reliable.”). In fulfilling

this duty, Commerce’s practice is to discard as unreliable proposed surrogate market values that

are aberrational compared to other market values on the record. See Pencils Final Results,

67 Fed. Reg. 48,612, and accompanying Issues and Decision Memorandum at Comment 4

(citing Heavy Forged Hand Tools, Finished or Unfinished, With or Without Handles, from the

People’s Republic of China; Final Results of Antidumping Duty Administrative Reviews, 60 Fed.

Reg. 49,251, 49,253 (Sept. 22, 1995) (“Hand Tools Final Results”)).

Commerce has a preference for using import statistics to value material inputs because

they are “publicly available published information” and do not include domestic taxes or

subsidies. See Hand Tools Final Results, 60 Fed. Reg. at 49,252. However, if the import

statistics are based on a small quantity of imports for the period of investigation, the Commerce

practice is to determine if the price for those imports is aberrational. See Shakeproof Assembly

Components Div. of Ill. Tool Works, Inc. v. United States, 23 CIT 479, 485, 59 F. Supp. 2d 1354,

1360 (1999). If the price is aberrational, Commerce will consider the statistics unreliable and

use a different source. See Final Determination of Sales at Less Than Fair Value: Certain Cut-

Court No. 03-00218 Page 23

to-Length Carbon Steel Plate From the People’s Republic of China, 62 Fed. Reg. 61,964, 61,981

(Nov. 20, 1997) (“For pig iron, we were unable to use the Indian Monthly Statistics as we

determined that the import price was aberrational because the Indian data was based on a very

small quantity and was almost two times the price of the Indonesian pig iron.”); see also Hand

Tools Final Results, 60 Fed. Reg. at 49,253 (Commerce’s practice is to check import statistics

against “sources of market value if the total quantity imported under a specific category was

small, and, if the value was found to be aberrational, i.e., too high or too low, [Commerce has]

chosen another surrogate value.”).

The Commerce decision that the Indian import data was the “best available information”

from which to calculate a surrogate value for pig iron, as set forth in the Issues and Decision

Memorandum, suffers from two shortcomings. Commerce does not “explain its departure from

prior norms.” Atchison, Topeka & Santa Fe Railway Co. v. Wichita Board of Trade, 412 U.S. at

808. Nor does Commerce present a “rational connection between the facts found and the choice

made.” Burlington Truck Lines, Inc. v. United States, 371 U.S. at 168. A Commerce decision to

rely on potentially aberrational data without explanation and contrary to its own practice is not

based on substantial evidence and cannot be sustained. See Shakeproof Assembly Components,

59 F. Supp. 2d at 1360.

Commerce’s explanation of its decision to use the Indian Import Statistics is conclusory

and inadequately supported. Commerce claimed that it was “not persuaded” to stop using the

import statistics and that Shanghai Foreign Trade failed to show how the JPC Bulletin and

IndiaInfoline.com data “are a more accurate representation of competitive prices in the Indian

market.” Issues and Decision Memorandum at 26. Commerce also indicated that JPC Bulletin

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and IndiaInfoline.com do not disclose the amount of pig iron sold in the period and that

Commerce, therefore, had no evidence that the prices are “derived from statistically or

commercially significant quantities.” Id. There is little in the decision, beyond these conclusory

allegations, to support the choice to use the import data.3 Commerce’s decision to use the Indian

Import Statistics suffers from the same flaw that Commerce alleges as a basis for its rejecting

plaintiffs’ alternatives. The Commerce decision fails to establish that the small amount of pig

iron imported by India during the period of investigation was statistically or commercially

significant and demonstrates no apparent consideration of that issue. Commerce did not address

the issue whether the Indian Import Statistics were based on too small a sample to be reliable.

3

The Commerce analysis of this issue in the Issues and Decision Memorandum is

contained entirely in the following excerpt:

With regard to SFTEC’s [Shanghai Foreign Trade’s] claim that the data

supplied by SFTEC from the JPC Bulletin and the “Indiainfoline.com” are

superior to the data from the Indian Import Statistics, we note that the

Department has long used Indian Import Statistics values for other

investigations and reviews, and is not persuaded by SFTEC’s argument

that it should disregard this source in this investigation. See HFHTs Final

[Hand Tool Final Results], and accompanying Issues and Decision

Memorandum, at Comment 10. SFTEC has provided no record evidence

substantiating its claim that the information provided from

“Indiainfoline.com” and the JPC Bulletin are a more accurate

representation of competitive prices in the Indian market. Further, SFTEC

has offered no support for its assertion that the import quantities from the

Indian Import Statistics are neither statistically nor commercially

significant. In addition, SFTEC did not indicate the quantity of pig iron

reported in the JPC Bulletin or “Indiainfoline.com.” Therefore, the

Department has no evidence that SFTEC’s surrogate values for pig iron,

based on prices from the JPC Bulletin and “Indiainfoline.com,” are

derived from statistically or commercially significant quantities. Thus, for

this final determination, we have continued to calculate the surrogate

value for pig iron using India import statistics data . . . .

Issues and Decision Memorandum at 26.

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Commerce did not explain its decision to deviate from its past practice, under which it normally

would ensure that a small quantity of imports did not produce a price that is aberrational relative

to other sources of market value. Before Commerce can choose among various values to select

the most accurate, it must, consistent with its practice, discard those that are unreliable. In this

case, Commerce summarily discarded the alternatives as flawed but did not evaluate the

reliability of its own choice.

The court’s examination of the record reveals indications that the 1,132 metric tons of pig

iron imported into India during the period of investigation are not commercially significant.

First, plaintiffs submitted for purposes of valuing the factors of production the 2000 Indonesian

import statistics. See Pub. Doc. 95, Dickstein, Shapiro, Morin & Oshinsky, LLP Letter to

Commerce, June 21, 2002. Those statistics show that Indonesia imported 107,542 metric tons of

pig iron (excluding 30,774 metric tons from the PRC) in 2000. When divided in half to

represent a six-month period equivalent to the period of investigation, this amount indicates that

Indonesia imported approximately fifty times the amount of pig iron imported into India.

Second, Jayaswals, which consumes and produces pig iron, produced 384,176 metric tons of pig

iron in 1998, according to its annual report. See Pub. Doc. 175, O’Melveny & Myers Letter to

Commerce, Nov. 4, 2002, Ex. 3B. The Jayaswals data indicates that the amount imported into

India was one-half of one percent of half the annual amount produced by just one Indian

domestic company.4

4

Plaintiffs, in briefs before this court, used record evidence to compare the six-

month quantity of pig iron imported into India with an estimated amount of Indian

domestic consumption. Plaintiffs based this estimate on the lowest rate of pig iron usage

per unit of finished product of any of the suppliers of subject merchandise to Shanghai

Foreign Trade. Plaintiffs applied that rate to the total output from Indian manufacturers

Court No. 03-00218 Page 26

In addition to the indications on the record that the India Import Statistics were based on

a commercially insignificant quantity of pig iron, the record contains indications that the price

for pig iron obtained from those statistics is aberrational relative to other sources for determining

market value. If an adjustment is made for the effect of excise taxes, as urged by plaintiffs, the

JPC Bulletin price for pig iron is 66 percent of the Indian Import Statistics price and the

IndiaInfoline.com price is 71 percent of that price. In addition, Indonesian import statistics for

2000 priced pig iron at $0.13, which constitutes only 56 percent of the Indian Import Statistics

price. The court finds that Commerce failed to justify the departure from its usual practice of

using import statistics only after concluding that they are based on commercially and statistically

significant quantities. Commerce also failed to explain its disregard of record evidence

indicating that the 1,132 metric tons of pig iron imported into India during the period of

investigation may be too small a quantity to support a reliable determination of market value in

the surrogate country. Moreover, Commerce does not address whether the value it chose is

aberrational relative to other record evidence of the market value of pig iron.5 Had Commerce

of products that contained pig iron. By this method, plaintiffs estimated that during the

six month period of investigation India consumed 1.5 million metric tons of pig iron.

Pls.’ Br. at 28. The Indian Import Statistics amount of 1,132 metric tons represents

0.075% of this figure. However, the record does not show that plaintiffs presented this

calculation to Commerce during the investigation.

5

At oral argument, defendant’s counsel mentioned one method of determining

whether an Indian Import Statistics price is aberrational: when import statistics include

imports from several countries, Commerce will compare the price from countries with

small quantity imports against those with large quantity imports, and Commerce will

discard small quantity import prices if they are aberrational. See Shakeproof Assembly

Components, 59 F. Supp. 2d at 1360. However, this method is not applicable in this case.

If the combined quantities are commercially insignificant, then no fraction of that amount

can have a measure of reliability.

Court No. 03-00218 Page 27

considered that evidence and the evidence that the Indian Import Statistics were not based on a

sufficient quantity, it then would have been in a position to make the determination the statute

requires, i.e., whether the value it chose was “based on the best available information.”

On remand, Commerce’s analysis must address whether the price for pig iron obtained

from the Indian Import Statistics is based on a statistically or commercially insignificant

quantity. To do this, Commerce must state its method for determining what is an insignificant

quantity. If Commerce concludes that the quantity is insignificant, then it must determine if the

Indian Import Statistics price is aberrational relative to other market-based sources for pig iron

prices. Commerce must state how it determines what qualifies as an aberrational price relative

to those other sources. If Commerce concludes that the value obtained from the Indian Import

Statistics is unreliable because it is aberrational relative to other sources for pig iron prices, then

Commerce must fulfill its statutory obligation to use the best available information by looking to

other sources to value pig iron. If those alternative sources are drawn from domestic information

from India, Commerce must address plaintiffs’ argument that domestic excise taxes should not

be included in the pig iron price established by Commerce. If necessary, Commerce should

re-open the record to establish a market value to compare to the Indian Import Statistics price or

to obtain another source for valuing pig iron.

V. CONCLUSION AND ORDER

Upon consideration of plaintiffs’ Rule 56.2 Motion for Judgment upon an Agency

Record, plaintiffs’ briefs in support of said motion, and defendant’s and defendant-intervenors’

opposition thereto, upon all relevant papers and proceedings had herein, and upon due

deliberation; it is hereby

Court No. 03-00218 Page 28

ORDERED that determinations by the United States Department of Commerce

(“Commerce”) in the Antidumping Duty Order: Non-Malleable Cast Iron Pipe Fittings from the

People’s Republic of China, 68 Fed. Reg. 16,765 (April 7, 2003), and the Final Determination of

Sales at Less Than Fair Value: Non-Malleable Cast Iron Pipe Fittings From the People’s

Republic of China, 68 Fed. Reg. 7,765 (Feb. 18, 2003), are remanded for proceedings consistent

with this opinion and order; and it is further

ORDERED that Commerce shall have ninety (90) days, until July 8, 2004, to complete

and file its remand determination; plaintiffs shall have thirty (30) days from that filing to file

comments, and Commerce and defendant-intervenors shall have twenty (20) days after

plaintiffs’ comments are filed to file any reply.

Dated: April 9, 2004 /s/ Timothy C. Stanceu

New York, New York Timothy C. Stanceu

Judge