# China National MacHinery Import & Export Corp. v. United States

> United States Court of International Trade · February 13, 2003 · 264 F. Supp. 2d 1229

URL: https://www.frixlaw.com/law-library/cases/818981

## Case

- **Full name:** CHINA NATIONAL MACHINERY IMPORT & EXPORT CORPORATION, Plaintiff, v. UNITED STATES, Defendant, and the Timken Company, Defendant-Intervenor
- **Court:** United States Court of International Trade
- **Decided:** February 13, 2003
- **Citations:** 264 F. Supp. 2d 1229; 27 Ct. Int'l Trade 255; 27 C.I.T. 255; 25 I.T.R.D. (BNA) 1239; 2003 Ct. Intl. Trade LEXIS 41
- **Precedential status:** Published
- **Opinion:** Opinion by Barzilay
- **Judges:** Judge Judith M. Barzilay
- **Cited by:** 24 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/818981

## How later opinions describe it (automated extraction)

- noting that during oral argument, Commerce stated: “[A]s a matter of commonsense, we can assume that no one is going to leave money on the table. [Companies] are going to take advantage of a program that’s out there and exists.”
- noting Government’s position that “as a matter of common sense, we can assume that no one is going to leave money on the table. [Companies] are going to take advantage of a program that’s out there and exists.”
- noting that the regulation “merely indicates a preference for market prices”

## Opinion text

Slip Op. 03-16

UNITED STATES COURT OF INTERNATIONAL TRADE

Before: Judge Judith M. Barzilay

---------------------------------------------------------------x
:
CHINA NATIONAL MACHINERY
IMPORT & EXPORT CORPORATION, :

Plaintiff, :

v. : Court No. 01-01114

UNITED STATES, : Public Version

Defendant, :

and :

THE TIMKEN COMPANY, :

Defendant-Intervenor. :

--------------------------------------------------------------- x

[Plaintiff’s Motion for Judgment upon an Agency Record is denied in part, granted in part, and
the case is remanded.]
Decided: February 13, 2003

Crowell & Moring L.L.P., (Jeffrey L. Snyder), Alexander H. Schaefer, for Plaintiff.

Robert D. McCallum, Jr., Assistant Attorney General, United States Department of Justice,
David M. Cohen, Director, Commercial Litigation Branch, Civil Division, Lucius B. Lau,
Assistant Director, (Ada E. Bosque), Trial Attorney; Scott D. McBride, Office of the Chief
Counsel for Import Administration, United States Department of Commerce, of Counsel, for
Defendant.

Stewart and Stewart, Terence P. Stewart, (Wesley K. Caine), Amy A. Karpel, for Defendant-
Intervenor.
Court No. 01-01114 Page 2

OPINION

BARZILAY, JUDGE:

I. INTRODUCTION

Before the court is Plaintiff China National Machinery Import & Export Corporation’s

(“CMC”) Motion for Judgment upon an Agency Record pursuant to USCIT R. 56.2. CMC

challenges certain aspects of the United States Department of Commerce’s (“Commerce” or

“Defendant”) determination in Tapered Roller Bearings and Parts Thereof, Finished and

Unfinished, From the People’s Republic of China; Final Results of 1999-2000 Administrative

Review, Partial Rescission of Review, and Determination Not to Revoke Order in Part, 66 Fed.

Reg. 57,420 (Nov. 15, 2001) (“Final Results”). The court has jurisdiction pursuant to 28 U.S.C.

§ 1581(c).

II. BACKGROUND

Plaintiff CMC is an exporter of tapered roller bearings and parts thereof, finished and

unfinished (“TRBs”), from the People’s Republic of China (“PRC” or “China”) to the United

States. The antidumping duty order concerning TRBs from the PRC was issued on May 27,

1987. See Tapered Roller Bearings from the People’s Republic of China; Final Determination

of Sales at Less Than Fair Value, 52 Fed. Reg. 19,748 (May 27, 1987). Commerce designated

the PRC as a non-market economy (“NME”) country.1 See Tapered Roller Bearings and Parts

Thereof, Finished and Unfinished, From the People’s Republic of China: Preliminary Results of

1
An NME country is “any foreign country that [Commerce] determines does not operate
on market principles of cost or pricing structures, so that sales of merchandise in such country do
not reflect the fair value of the merchandise.” 19 U.S.C. § 1677(18)(A) (1999). There is no
dispute here as to the PRC’s NME status.
Court No. 01-01114 Page 3

1999-2000 Antidumping Duty Administrative Review, Partial Rescission of Review, and Notice

of Intent Not to Revoke Order in Part, 66 Fed. Reg. 35,937, 35,938 (July 10, 2001)

(“Preliminary Results”). At issue in this case are the 1999-2000 sales of TRBs from the PRC,

which constitute sales made during the thirteenth administrative review of the antidumping duty

order (“POR”). Specifically, CMC challenges Commerce’s rejection of the actual market prices

that CMC paid for steel used in the production of the TRBs, in favor of using surrogate values

for steel in the final calculation of normal value (“NV”) to determine dumping margins.2

On July 7, 2000, Commerce published the preliminary results of the twelfth

administrative review, which showed a zero dumping margin for CMC. See Tapered Roller

Bearings and Parts Thereof, Finished and Unfinished, From the People’s Republic of China;

Preliminary Results of 1998-1999 Administrative Review, Partial Rescission of Review, and

Notice of Intent to Revoke Order in Part, 65 Fed. Reg. 41,944, 41,949 (July 7, 2000). On July

31, 2000, Commerce initiated the thirteenth administrative review. See Initiation of

Antidumping and Countervailing Duty Administrative Reviews and Requests for Revocation in

2
“The term ‘dumping margin’ means the amount by which the normal value exceeds the
export price . . . of the subject merchandise.” 19 U.S.C. § 1677(35)(A). “Subject merchandise”
is merchandise subject to an antidumping investigation, review or order. § 1677(25). “Normal
value” is “the price at which the [subject merchandise or its equivalent] is first sold (or . . .
offered for sale) for consumption in the exporting country.” § 1677b(a)(1)(B)(i); § 1677(16).
“The term ‘export price’ means the price at which the subject merchandise is first sold (or agreed
to be sold) . . . in the United States.” § 1677a(a). The dumping margin is thus the difference
between the domestic price and the United States price of the subject merchandise. In the case
of an NME exporting country, the domestic price will not be market determined, and the normal
value must accordingly be constructed. The statute provides that the values for factors of
production used in the construction of normal value for exports of an NME country will be those
of a market economy country of comparable economic development, the so-called surrogate.
See § 1677b(c).
Court No. 01-01114 Page 4

Part, 65 Fed. Reg. 46,687 (July 31, 2000), amended by 65 Fed. Reg. 48,968 (Aug. 10, 2000).

On February 26, 2001, Commerce published the amended final results of the twelfth

administrative review, which reflected a jump from zero to 0.82% (despite remaining de

minimis)3 of CMC’s dumping margin determined in the preliminary. See Tapered Roller

Bearings and Parts Thereof, Finished and Unfinished, From the People’s Republic of China;

Amended Final Results of 1998-1999 Administrative Review and Determination to Revoke in

Part, 66 Fed. Reg. 11,562, 11,564 (Feb. 26, 2001). Commerce changed its methodology

regarding the prices for steel input in mid-review in the twelfth administrative review.4

On July 10, 2001, Commerce published the preliminary results of the thirteenth

administrative review. See Preliminary Results. Commerce found a 4.79% dumping margin for

CMC in this preliminary investigation and therefore denied CMC’s revocation request. See id. at

35,941. On November 15, 2001, Commerce published the final results and found a 4.64%

dumping margin for CMC. See Final Results at 57,422. Commerce’s reasons for its

determinations are found in the accompanying Issues and Decision Memo for the 1999-2000

Administrative Review of Tapered Roller Bearings and Parts Thereof, Finished and Unfinished,

from the People’s Republic of China; Final Results (“Issues and Decision Memo”), A-570-601,

Pub. Doc. DAS I/1:JG (Nov. 7, 2001), in app. 14 to Pl.’s Mem. in Supp. of Mot. for J. upon an

3
“[A] weighted average dumping margin is de minimis if [Commerce] determines that it
is less than 2 percent ad valorem or the equivalent specific rate for the subject merchandise.” 19
U.S.C. § 1673b(b)(3).
4
The results of the twelfth administrative review of the antidumping duty order
(concerning 1998-1999 sales) are challenged in a separate action before another judge of this
Court. The issues raised in both actions are similar as they pertain to the same methodology
Commerce employed in both the twelfth and thirteenth administrative reviews.
Court No. 01-01114 Page 5

Agency R. (“Pl.’s Br.”). As it cannot meet the standard of three consecutive years of sales at not

less than fair value, see 19 C.F.R. § 351.222(b)(1)(i)(A) (2000), CMC remains subject to the

antidumping duty order regarding TRBs from the PRC.

The merchandise at issue here is cups and cones which CMC sold in the United States.

Tr. at 10:21-25 to 11:1-6.5 To manufacture cups and cones, CMC used hot-rolled alloy steel bar

which it imported from another country paying in market currency.6 Pl.’s Br. at 9. CMC thus

challenges Commerce’s use of surrogate values for its hot-rolled alloy steel bar input instead of

the actual price it paid. There is no indication on the record, nor is there an argument in the

parties’ briefs that CMC and its supplier are affiliated. The exporting country is a market

economy country. Normally, to construct NV for the final product, Commerce uses actual prices

which an NME producer pays for the input from a market economy country since actual market

prices are the best approximation of the input’s value. See 19 C.F.R. § 351.408(c)(1). However,

in this case, both in the final stage of the twelfth administrative review and in the entire

thirteenth administrative review, Commerce declined to use the actual prices CMC paid to the

supplier for its steel because it claimed it had a “reason to believe or suspect” that the supplied

steel was benefitting from subsidies, and the actual prices were thus distorted. See Preliminary

5
On November 14, 2002, oral argument was held before this court. “Tr.” refers to the
transcript of this oral argument.
6
CMC imported hot-rolled alloy steel bar from [[ ]].
The name of the exporting country and the identity of CMC’s supplier are confidential and set in
double brackets. During the POR, CMC’s shipments to the United States also included
assembled TRBs with cups, cones, rollers, and cages together. Pl.’s Br. at 9. To manufacture
cages, CMC’s supplier used cold-rolled steel sheet imported from [[ ]]
again paying in market currency. Id. To manufacture rollers, CMC used cold-rolled steel bar
obtained domestically in the Chinese market. Id.
Court No. 01-01114 Page 6

Results at 35,940; Issues and Decision Memo at 9. To support its finding that the steel was

subsidized, Commerce relied on an internal confidential memorandum, Market Economy Steel

Memo (Nov. 7, 2001), in app. 4 to Pl.’s Br.

The Market Economy Steel Memo lists various affirmative antidumping and

countervailing duty findings applying to various steel products from the market economy

country at issue.7 Also listed in the Market Economy Steel Memo is a negative finding from

1999 relating to one particular steel product, [[ ]], from the market

economy country: Final Negative Countervailing Duty Determination: [[

]] (“Final Negative

Determination”). There are no specific antidumping or countervailing duty findings regarding

the hot-rolled alloy steel bar that is at issue here. See Market Economy Steel Memo; Tr. at 11:7-

11. However, during these antidumping or countervailing duty investigations, Commerce

“discovered . . . not company specific” but generally available subsidies to steel producers in the

concerned country, including directed credit, export industry facility loans, short-term export

financing, and investment tax credits. Market Economy Steel Memo. Commerce maintains

without further elaboration that “in two of the three recent [pertinent] investigations, [these

general subsidies] are greater than de minimis.” Tr. at 16:2-4. There is no record evidence of a

generally available subsidy verified in the case of hot-rolled alloy steel bar from the country in

7
For example, Commerce found in 1999 that [[
]] exports from the exporting country in question were being dumped in the United
States. In addition, in 2000 and 1999, respectively, Commerce determined that [[
]] exports were being subsidized. There is also an
affirmative preliminary dumping finding by the PRC of [[ ]] from
that country.
Court No. 01-01114 Page 7

question as Commerce has never specifically investigated this merchandise. See Market

Economy Steel Memo. In addition, Commerce never specifically verified whether CMC’s

supplier had ever taken advantage of any generally available subsidies for this or any other steel

product. See Tr. at 17:21-25 to 18:1-16. Commerce nevertheless believes that CMC’s supplier

may have (or must have) benefitted from generally available subsidies resulting in a distortion in

the prices of hot-rolled alloy steel bar and, therefore, such prices cannot properly be used in the

NV calculations for the cups and cones CMC sold in the United States. The contention is that

“as a matter of commonsense, we can assume that no one is going to leave money on the table.

[Companies] are going to take advantage of a program that’s out there and exists.” Tr. at 30:24-

25 to 31:1-3.

Given the designation of the PRC as an NME country, Commerce resorted to surrogate

country analysis pursuant to its authority under 19 U.S.C. § 1677b(c)(4).8 Accordingly,

Commerce selected India as surrogate and used adjusted weighted-averages of Japanese export

prices to India for hot-rolled alloy steel bar based on the Japanese Ministry of Finance statistics.

See Preliminary Results at 35,940. Commerce explained the selection of India as the surrogate

country by pointing out that India was at a comparable level of economic development with the

PRC and was the most significant producer and exporter of TRBs among other suitable

8
Section 1677b(c)(4) provides that:

[Commerce], in valuing factors of production . . . , 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. 01-01114 Page 8

countries, such as Pakistan, Indonesia, Sri Lanka, and the Philippines.9 See Selection of a

Surrogate Country and Steel Value Sources Memo at 3 (July 2, 2001) (“Surrogate Country

Memo”), in app. 14 to Pl.’s Br.; see also 19 C.F.R. § 351.408(b) (basing comparability on per

capita GDP). Finding India’s own import statistics “unreliable,” however, Commerce instead

chose Japanese export data to India as “the best data” because “the Japanese tariff category [was]

the narrowest category which could contain bearing quality steel, and because it [was] consistent

with values contained in our U.S. benchmark category.” Surrogate Country Memo at 3; see also

Def.’s Mem. in Opp. to Pl.’s Mot. for J. upon an Agency R. at 4 (“Def.’s Br.”).

After the preliminary results were released, CMC submitted rebuttal evidence to

Commerce in the form of a letter from its supplier which denied the existence of any subsidies or

financial assistance, direct or indirect, from its government in its production of steel sold to

CMC. See Pl.’s Br. at 10; Tr. at 12:8-11. CMC charges that Commerce ignored this evidence

submitted by CMC. See Pl.’s Br. at 26. Commerce counters that the letter was insufficient to

“refute[] [Commerce’s] reason to believe or suspect subsidization” since it was unsupported by

“sales, financial, or other empirical economic information demonstrating the supplier’s prices

were not subsidized.” Issues and Decision Memo at 8; see also Tr. at 13:17-19. “The statement

also lack[ed] any specificity, particularly as it [did] not indicate the basis upon which the

supplier [made] its statement.” Issues and Decision Memo at 8. Commerce further argues that,

in addition to being general, the letter was not “directed to Commerce. There [was] no

9
Even though in the briefs submitted to this court Plaintiff never fully explained nor
argued the point, Plaintiff maintains that if any surrogate were to be used Indonesia would have
been a better choice. See Tr. at 14:6-22. Plaintiff’s claim is that Indonesian prices would not
have exceeded the benchmark range as much as Indian values did. See id.
Court No. 01-01114 Page 9

indication . . . of what . . . the duties and responsibilities of the letter writer [were] and why he

would have knowledge of what subsidies the company did or did not take advantage of.” Tr. at

23:17-22. The letter also consisted of “two sentences,” Tr. at 24:4, and was not “in the form of

an affidavit,” Tr. at 33:13-14.10

On January 11, 2002, CMC filed its complaint (“Compl.”) with this court. First, CMC

challenges in general Commerce’s use of surrogate values in place of actual prices paid by CMC

for the input. Compl. ¶ 6-A. Second, CMC challenges in particular Commerce’s use of prices of

steel imported from Japan to India to value cups and cones. Compl. ¶ 6-B. In addition, CMC

challenges Commerce’s adjustment of the Japanese prices for freight and insurance costs which

were not included in the prices. Compl. ¶ 6-C. CMC claims Commerce’s determinations are

“arbitrary, capricious, unsupported by substantial evidence on the record, and [are] otherwise not

in accordance with law.” Compl. ¶ 6. The Timken Company (“Timken”) is the Defendant-

Intervenor in this case.

10
The letter titled “Subsidy Statement,” addressed “To whom it may concern,” dated
August 24, 2001, and signed by the general manager of the company’s overseas sales department
is found in appendix 6 of Pl.’s Br. It reads in its entirety:

We have reviewed the participation of [[ ]] in the programs the
US Department of Commerce has considered in the past to constitute
countervailable subsidies within the meaning of the US countervailing duty law.
Upon review, [[ ]] did not receive benefits from any of those programs in
our sales to China.
Court No. 01-01114 Page 10

III. DISCUSSION

The antidumping duty statute requires Commerce to use “the best available information”

concerning the values for factors of production from a market economy in the NV calculations

for product exported from an NME country. 19 U.S.C. § 1677b(c)(1) (1999).11 “The statute

does not define the phrase ‘best available information.’” Luoyang Bearing Factory v. United

States, 26 CIT __, __, Slip Op. 02-118 at 4 (Oct. 1, 2002). CMC argues that the statutory

mandate to use the best available information directs Commerce to utilize “actual prices paid to

market economy suppliers [over] surrogate values.” Pl.’s Br. at 15. As support, CMC relies on

Lasko Metal Prods., Inc. v. United States, 43 F.3d 1442, 1446 (Fed. Cir. 1994), which noted that

“‘[w]here we can determine that a [sic] NME producer’s input prices are market determined,

accuracy, fairness, and predictability are enhanced by using those prices. Therefore, using

surrogate values when market-based values are available would, in fact, be contrary to the intent

of the law’” (quoting Commerce’s determinations in the same case, Oscillating Fans and Ceiling

Fans from the People’s Republic of China, 56 Fed. Reg. 55,271, 55,275 (Oct. 25, 1991) (final

determination)). Pl.’s Br. at 16; see also Shakeproof Assembly Components, Div. of Illinois Tool

Works, Inc. v. United States, 268 F.3d 1376, 1382-83 (Fed. Cir. 2001) (echoing Lasko’s

reasoning).

CMC further argues that Commerce’s own regulations compel the use of actual market

11
Section 1677b(c)(1) in pertinent part provides that:
[T]he 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 considered to be appropriate by the
administering authority.
Court No. 01-01114 Page 11

values over surrogate values. See Pl.’s Br. at 17. The applicable regulation is 19 C.F.R. §

351.408(c)(1), which states that “where a factor is purchased from a market economy supplier

and paid for in a market economy currency, [Commerce] normally will use the price paid to the

market economy supplier” (emphasis added). CMC contends that the “only” exception to this

rule is “where the quantity of the input purchased was insignificant.”12 Pl.’s Br. at 17-18; Pl.’s

Reply to Def.’s Br. at 3.

Commerce responds that the antidumping duty statute does compel Commerce to use

“the best available information,” but not necessarily market values. Def.’s Br. at 10. Commerce

12
The court notes that, as support for this proposition, CMC mistakenly quotes Rules and
Regulations: Antidumping Duties; Countervailing Duties, 62 Fed. Reg. 27,296 (May 19, 1997)
(“Final Rule”), which document contains explanations of Commerce’s new rules revised in
conformity with the Uruguay Round Agreements Act, including 19 C.F.R. § 351.408(c)(1).
According to CMC, the Final Rule states on its page 27,413 that “[t]he only situation in which
[the Department] would not rely on the price paid by an NME producer to a market economy
supplier is where the quantity of the input purchased was insignificant.” Pl.’s Br. at 17-18
(emphasis in the original). Given that this quote is one of the cornerstones of its argument,
CMC’s mistake is unfortunate. The Final Rule merely states on its page 27,366 that “as noted in
the AD Proposed Regulations, 61 [Fed. Reg. 7308,] 7345, we would not rely on the price paid by
an NME producer to a market economy supplier if the quantity of the input purchased was
insignificant.” See also Proposed Rules: Antidumping Duties; Countervailing Duties, 61 Fed.
Reg. 7308, 7345 (Feb. 27, 1996) (“where the amount purchased [by an NME producer] from a
market economy supplier is insignificant, [the] price [paid to the market economy supplier] may
be disregarded.”). Without more, the “only” language simply cannot be read into the Final Rule
and, accordingly, into Commerce’s understanding of its own regulations as reflected in the Final
Rule. The court notes, however, that the same language appears in another case. See Certain
Helical Spring Lock Washers from the People’s Republic of China; Final Results of
Antidumping Duty Administrative Review, 62 Fed. Reg. 61,794, 61,796 (Nov. 19, 1997)
(containing the same quote supplied by CMC and citing to the Final Rule at 27,366). That is, in
at least one occasion, Commerce agreed with Plaintiff that the only situation that permitted a
deviation from the use of readily available market prices was when the quantity of input sold by
the market supplier was insignificant. What Commerce said or did in another case does not,
however, have the same persuasive value in this case as a pronouncement in the Final Rule
would have had.
Court No. 01-01114 Page 12

argues that it has “broad discretion to determine the ‘best available information’ in a reasonable

manner upon a case-by-case basis.” Id. at 11. Commerce further argues that “Congress

instructed Commerce to avoid using any prices ‘which it has reason to believe or suspect may be

dumped or subsidized prices.’” Def.’s Br. at 12 (quoting H.R. Conf. Rep. No. 100-576 at 590

(1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1623 (“House Report”)). Timken adds to this

argument by observing that “Congress did not intend for Commerce to conduct formal

investigations before rejecting unfair prices.”13 Def.-Intervenor’s Resp. to Pl.’s Mem. in Supp. of

Mot. for J. upon an Agency R. at 18. Finally, with respect to 19 C.F.R. § 351.408(c)(1),

Commerce contends that while, through the inclusion of the word “normally,” the “regulation

evinces a preference for the use of market values, that preference does not require Commerce to

use market values in all circumstances.” Def.’s Br. at 17. Commerce concludes that “[h]ere, the

use of market prices [was] not appropriate because those prices [were] distorted.” Id.

CMC objects to Commerce’s resort to the “reason to believe or suspect” standard under

these facts. See Pl.’s Br. at 20. According to CMC, the House Report from which Commerce

derived the “reason to believe or suspect” standard relates only to a selection among surrogate

values, not to the selection of surrogate values over market prices. See id. at 20-21. Thus,

13
The House Report further stated that:
However, the conferees do not intend for Commerce to conduct a formal
investigation to ensure that such prices are not dumped or subsidized, but rather
intend that Commerce base its decision on information generally available to it at
that time. In addition, Commerce should seek to use, if possible, data based on
production of the same general class or kind of merchandise using similar levels
of technology and at similar levels of volume as the producers subject to
investigation.
House Report at 590-91 (emphasis added).
Court No. 01-01114 Page 13

Plaintiff urges that the “reason to believe or suspect” standard would not be applicable where

market prices are available. See id.

A. Commerce’s use of certain surrogate prices over actual prices of inputs in NV
calculations under the statute.

“The court’s role is not to determine whether the information chosen by Commerce is the

‘best’ actually available, but whether the choice is supported by substantial evidence and is in

accordance with law.” Novachem, Inc. v. United States, 16 CIT 782, 786, 797 F. Supp. 1033,

1037 (1992) (citations omitted). Accordingly, the first issue before the court is whether

Commerce’s use of surrogate input values instead of the actual prices paid by an NME producer

to a market economy supplier is in accordance with law where Commerce has “reason to believe

or suspect” that the actual prices are distorted.

The court agrees with Commerce that nothing in the antidumping duty statute directs

Commerce to employ actual prices paid to a market economy supplier by an NME producer in

NV calculations. Under the antidumping duty statute, “Commerce's duty [is] to determine

margins as accurately as possible, and to use the best information available to it in doing so.”

Lasko, 43 F.3d at 1443; Allied-Signal Aerospace Co. v. United States, 996 F.2d 1185, 1190 (Fed.

Cir. 1993); Rhone Poulenc, Inc. v. United States, 899 F.2d 1185, 1191 (Fed. Cir. 1990).

Commerce has especially “wide discretion in the valuation of factors of production.” Nation

Ford Chem. Co. v. United States, 166 F.3d 1373, 1377 (Fed. Cir. 1999). The statute “simply

does not say–anywhere–that the factors of production must be ascertained in a single fashion.”

Lasko, 43 F.3d at 1446; Shakeproof Assembly Components, Div. of Illinois Tool Works, Inc. v.

United States, 102 F. Supp. 2d 486, 491 (2000), aff’d, 268 F.3d 1376 (2001). Commerce’s
Court No. 01-01114 Page 14

methodology in selecting values for factors of production will be upheld, as long as such

methodology does not contravene “the purpose of the statute, [which is] to construct the

product’s normal value as it would have been if the NME country were a market economy

country.” Rhodia, Inc. v. United States, 25 CIT __, __, 185 F. Supp. 2d 1343, 1351 (2001)

(citations omitted). The statutory term “best available information” is at best an ambiguous

term. See § 1677b(c)(1). When the statute is ambiguous on a point, the court must uphold an

agency’s reasonable constructions of the statute. Chevron, U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837, 843 (1984). In particular, “statutory interpretations

articulated by Commerce during its antidumping proceedings are entitled to judicial deference

under Chevron.” Pesquera Mares Australes Ltda. v. United States, 266 F.3d 1372, 1382 (Fed.

Cir. 2001); see also Allied-Signal, 996 F.2d at 1191 (observing that “because Congress has

‘explicitly left a gap for the agency to fill’ in determining what constitutes the best information

available [(which phrase appeared in 19 U.S.C. § 1677e(c) (1988)), Commerce’s] construction of

the statute must be accorded considerable deference” under Chevron).

Contrary to CMC’s contention, the Lasko decision cannot be construed as requiring

Commerce to employ actual prices (paid by an NME producer to a market economy supplier)

over surrogate values in every situation. In Lasko, Commerce won the right to use market prices

instead of surrogate values for factors of production in NV calculations on the rationale that

“accuracy, fairness, and predictability are enhanced by using those prices.” Lasko, 43 F.3d at

1446. Where actual prices reflect true market values, not to employ such prices would indeed be

contrary to Commerce’s mandate of estimating antidumping duty “margins as accurately as

possible.” Id. at 1443. If the prices CMC paid to its supplier for the steel input were artificially
Court No. 01-01114 Page 15

low, however, due to subsidies it was receiving from the government, then the calculated NV for

the end product, TRBs, would be artificially low, suppressing the dumping margins of CMC.

Thus, if CMC were indeed dumping in the United States, that fact would have been concealed by

the artificially low NV. If actual “market” prices are distorted in such a way, Commerce’s use of

such prices would undermine “accuracy, fairness, and predictability,” id. at 1446, in the

calculation of margins and contravene the antidumping and countervailing duty statute, the

purpose of which is to correct for the effect dumping and subsidies have on prices and

competition.

Moreover, nothing in the applicable regulations compels Commerce to choose actual

prices over surrogate values. As Commerce urges, 19 C.F.R. § 351.408(c)(1) merely indicates a

preference for market prices. That is, while Commerce will use market values under normal

circumstances, under certain circumstances Commerce may choose not to do so. The court

rejects the argument that Commerce may deviate from this practice only when quantities of input

purchased are insignificant. Section 351.408(c)(1) itself does not supply the exceptional

circumstances under which Commerce may disregard market prices. In explaining

§ 351.408(c)(1), Commerce had indicated that one situation where it “would not rely on the price

paid by an NME producer to a market economy supplier [is where] the quantity of the input

purchased was insignificant.” Rules and Regulations: Antidumping Duties; Countervailing

Duties, 62 Fed. Reg. 27,296, 27,366 (May 19, 1997). That cannot, however, be the only

situation when a deviation from the normal practice of using market prices is permissible.

It is true, as CMC urges, that the “reason to believe or suspect” standard articulated in the

House Report explicitly refers only to a selection among surrogate prices, as opposed to a choice
Court No. 01-01114 Page 16

between surrogate and market values. This Court and the United States Court of Appeals for the

Federal Circuit have, in addition, upheld Commerce’s use of the “reason to believe or suspect”

standard in the context of a choice among surrogate values and affirmed Commerce’s refusal to

use distorted surrogate values. See Nation Ford, 166 F.3d at 1377-78; Rhodia, 185 F. Supp. 2d

at 1352; Technoimportexport, UCF Am. Inc. v. United States, 16 CIT 13, 17, 783 F. Supp. 1401,

1405 (1992). “Evidently, the main consideration is the unreliability of the price information due

to the unknown dumping margin if any.” China Nat’l Metals & Minerals Imp. & Exp. Corp. v.

United States, 11 CIT 859, 864, 674 F. Supp. 1482, 1486 (1987). Such a consideration would,

however, also be pertinent whenever market values are involved. There are also policy concerns

on each side of this issue. The policy in favor of determining margins as accurately as possible

weighs against further use of the “reason to believe or suspect” standard. On the other hand,

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 “reason to believe or suspect” that it reflects dumping or

subsidies. “[S]urrogate country values are, at best, an estimate of the true value of the factors of

production” and, therefore, not precise. Shakeproof, 268 F.3d at 1382 (emphasis in original)

(citation omitted). However, if Commerce had “reason to believe or suspect” that steel used by

CMC in the production of the TRBs sold in the United States were subsidized, Commerce may

employ surrogate values where it determines that they are the best information under the

statute.14

14
Commerce may also choose among surrogates which fit the requirements of
§ 1677b(c)(4). See Shieldalloy Metallurgical Corp. v. United States, 20 CIT 1362, 1368, 947 F.
Court No. 01-01114 Page 17

B. Commerce’s use of the reason to believe or suspect standard in the case of certain
subsidies is unsupported by substantial evidence.

The second question before the court is whether, in this case, Commerce’s actions are

supported by substantial evidence that would have given Commerce “reason to believe or

suspect” that the steel used by CMC in the production of the TRBs sold in the United States was

subsidized.

Supp. 525, 532 (1996) (“Commerce does not need to prove that its methodology was the only
way, or even the best way to calculate surrogate values for” subject merchandise.). Such choices
will be upheld as long as they are reasonable. See Coalition for the Preservation of Am. Brake
Drum and Rotor Aftermarket Mfrs. v. United States, 23 CIT 88, 118, 44 F. Supp. 2d 229, 258
(1999). CMC failed to fully articulate to this court why Indonesia would have been a better
choice as a surrogate than India, other than claiming that Indonesian values would not have
exceeded the U.S. benchmark range as much as Indian values did. Commerce found that both
India and Indonesia were of comparable economic development to the PRC and explained that
India was selected over Indonesia (and over other suitable surrogates) because it was “the most
significant producer and exporter of tapered roller bearings.” Selection of a Surrogate Country
and Steel Value Sources Memo at 2 (July 2, 2001), in app. 14 to Pl.’s Br. Commerce’s action
was consistent with the statutory mandate under § 1677b(c)(4), to choose a “significant
producer” of the merchandise as a surrogate. Therefore, Commerce was within its discretion to
use Japanese export data to India, as opposed to any Indonesian values. Cf. Luoyang Bearing
Factory v. United States, 26 CIT __, __, Slip Op. 02-118 at 4 (Oct. 1, 2002) (pointing out that
Commerce has discretion to switch from primary to secondary surrogate data). Similarly,
Commerce may adjust data by adding ocean freight and marine insurance costs (“F&I”), as long
as such adjustment is reasonable. Here, the base values Commerce used were F.O.B. Japanese
export prices. “F.O.B.” or “Free-On-Board” prices do not include F&I whereas “C.I.F.” or
“Cost-Insurance-and-Freight” prices do. See International Chamber of Commerce, Incoterms
2000 49, 65 (1999). The F&I data used in the adjustment was that from the PRC to the United
States west coast. See Issues and Decision Memo at 14. Commerce claims that this data was
“the best available information [that] most closely approximate[d] the shipping distance between
Japan and India.” Id. CMC argues that the F&I used in the adjustment was approximately three
times the difference between F.O.B. and C.I.F. Japanese values and, therefore, such adjustment
was unreasonable. See Pl.’s Br. at 28-29. Even though subtracting F.O.B. values from C.I.F.
values may be one method of extracting F&I, it is not the only method, and it is not the method
Commerce chose to employ here. Plaintiff has not shown to this court why Commerce’s
adjustment methodology is unreasonable. We need not, however, decide this difficult issue as
Commerce’s basic decision must be remanded as unsupported by substantial evidence.
Court No. 01-01114 Page 18

The “reason to believe or suspect” standard that is argued here has no statutory

definition. In attempting to define a similar phrase, “reasonable grounds to believe or suspect,”

which appears in 19 U.S.C. § 1677b(b)(1) (1999),15 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.” Al Tech Specialty Steel Corp. v. United States, 6 CIT 245,

247, 575 F. Supp. 1277, 1280 (1983) (quoting from criminal law cases that analyzed the

“reasonable suspicion” standard for searches pursuant to Terry v. Ohio, 392 U.S. 1 (1968)). This

insistence on “a particularized and objective basis” has been interpreted to mean a “‘demand for

specificity.’” Id. (quoting United States v. Cortez, 449 U.S. 411, 418 (1981), and also citing

Marshall v. Barlow’s, Inc., 436 U.S. 307, 320-21 (1978), for the proposition that “probable cause

in the administrative law context is established by specific evidence” (emphasis in the

original)).16 Therefore, the “reason to believe or suspect” standard at issue here must be

predicated on particular, specific, and objective evidence.

On the other hand, substantial evidence is “more than a mere scintilla;” it is “such

15
“Whenever [Commerce] has reasonable grounds to believe or suspect that sales of [the
subject merchandise or its equivalent] for the determination of normal value have been made at
prices which represent less than the cost of production of that product, [Commerce] shall
determine whether, in fact, such sales were made at less than the cost of production.”
§ 1677b(b)(1).
16
The court notes that the exact quote from Marshall is: “For purposes of an
administrative search such as this, probable cause justifying the issuance of a warrant may be
based not only on specific evidence of an existing violation but also on a showing that
‘reasonable legislative or administrative standards for conducting an . . . inspection are satisfied
with respect to a particular [establishment].’” 436 U.S. at 320 (quotation omitted) (footnote
omitted).
Court No. 01-01114 Page 19

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). “For purposes of judicial

review, the evidence before this Court is limited to the evidence contained in the administrative

record.” Kerr-McGee Chem. Corp. v. United States, 21 CIT 1353, 1361, 985 F. Supp. 1166,

1173 (1997) (citations omitted). In applying the “substantial evidence” standard, “the court

affirms [an agency's] factual determinations so long as they are reasonable and supported by the

record as a whole, even if there is some evidence that detracts from the agency’s conclusions.”

Olympia Indus., Inc. v. United States, 22 CIT 387, 389, 7 F. Supp. 2d 997, 1000 (1998) (citing

Atlantic Sugar, Ltd. v. United States, 744 F.2d 1556, 1563 (Fed. Cir. 1984)).

Merging the two standards and under the facts of this case, the court will accordingly

affirm Commerce’s actions if, given the entire record as a whole, there is substantial, specific,

and objective evidence which could reasonably be interpreted to support a suspicion that the

prices CMC paid to its market economy supplier were distorted. Otherwise, this court may not

reweigh the evidence or substitute its own judgment for that of the agency. See Granges

Metallverken AB v. United States, 13 CIT 471, 474, 716 F. Supp. 17, 21 (1989) (citation

omitted). Additionally, the agency is presumed to have considered all of the evidence in the

record, and the burden is on the plaintiff to prove otherwise. Roses, Inc. v. United States, 13 CIT

662, 668, 720 F. Supp. 180, 185 (1989); Nat'l Ass'n of Mirror Mfrs. v. United States, 12 CIT 771,

779, 696 F. Supp. 642, 648 (1988).

To support its contention that there is substantial evidence in the record, Commerce

argues that the discovery of subsidies which are not company specific in the investigations of
Court No. 01-01114 Page 20

other steel products gave it reason to infer that CMC’s supplier alongside other steel producers in

the relevant country may have benefitted from these so-called general subsidies. See Def.’s Br.

at 15. Commerce further argues that “the letter [from CMC’s supplier], at most, created a

conflict in the record,” to which Commerce was entitled to give “minimal weight.” Id. at 16.

CMC, on the other hand, points to contradictory evidence. First, “there are no current or

prior countervailing duty orders in the United States or in China on the material input in

question, hot-rolled bars and rods of bearing quality steel manufactured in [the exporting

country].” Pl.’s Br. at 25 (citing Market Economy Steel Memo). Second, not only the steel input

in question, but also CMC’s supplier was never investigated in any recent countervailing or

antidumping duty investigations. See id. Third, “[i]n a recent countervailing duty case on [a

steel input from the exporting country, Commerce] made a final negative countervailing duty

determination.” Id. (citing Final Negative Determination). According to CMC, this finding

would “obviously militate[] against the notion that there are ‘industry-wide’ subsidies conferring

benefits on manufacturers of steel products.” Id. at 25-26.

CMC is correct. Evidence exists in the record – Commerce’s own negative finding for

one steel product from the country at issue – compelling the conclusion that all steel products

from that country could not have benefitted from general subsidies. See Final Negative

Determination. This evidence is not merely a contradictory piece of evidence to which

Commerce is entitled to give minimal weight. On the contrary, this evidence directly

undermines Commerce’s justification of using surrogate values in CMC’s case. If this specific

finding is an anomaly, Commerce must explain to this court why it is an anomaly. Otherwise,

Commerce cannot reasonably claim that, if one or two steel products in the exporting country
Court No. 01-01114 Page 21

were subsidized, then all must have been because at least one was found by Commerce itself not

to have been subsidized. Conjectures are not facts and cannot constitute substantial evidence.

China Nat’l Arts and Crafts Imp. and Exp. Corp. v. United States, 15 CIT 417, 424, 771 F. Supp.

407, 413 (1991) (“Guesswork is no substitute for substantial evidence in justifying decisions.”).

In this case, it may be that there in fact exists a countervailable subsidy program to support steel

producers in the country in question, but CMC’s supplier might not have qualified for this

program and, therefore, could not have benefitted from it. There is no indication on this record

whether this program is offered across the board to all steel producers in the country, to those of

a certain size, to those which manufacture a certain product or set of products, to those in a

specific geographical area or so on. Without explaining more of the program and without

explaining, for example, who could benefit from the program or whether companies may choose

not to participate (for example, because the program comes with certain obligations), the

contention that all steel producers must have benefitted from the program is logically

unsupportable.

Moreover, even the existence of a sufficiently significant general subsidy program is in

question here. This court raised the issue with counsel at oral argument. The numbers that

appear in the Market Economy Steel Memo that allegedly indicate the existence of a subsidy

program appear to be very low numbers. The court was concerned that, even if there is an

available steel subsidy program in the country in question, its effects are minimal and do not rise

to the level of a distortion which Commerce must address. Neither Commerce in the

administrative proceedings, nor counsel at oral argument or in their papers explained the

magnitude of these “general” subsidies, i.e., whether they are de minimis and whether they,
Court No. 01-01114 Page 22

accordingly, must be treated as if they were zero. See Tr. at 16:5-11. The Market Economy Steel

Memo merely states that “the general subsidies found in [[ ]]

investigations are greater than de minimis.” If this program had no significant effect on the

prices CMC paid to its supplier, then there may be no distortion and, therefore, no justification to

deviate from the actual input prices.

The court is mindful of the fact that previous administrative reviews of CMC with respect

to TRBs yielded zero or de minimis dumping margins.17 Commerce rejected CMC’s actual

prices in favor of using surrogate values which are by their nature imprecise. Arguably,

Commerce was faced with a difficult choice between potentially distorted actual prices and

imprecise surrogate values. Choosing surrogate values resulted in above de minimis dumping

margins for CMC which were not found when actual prices were used. The court does not

question Commerce’s discretion to use surrogate values when it has reason to believe that the

actual prices are distorted.18 However, the alleged distortion in the actual prices must be shown

more clearly than present here. The regulation in question, 19 C.F.R. § 351.408(c)(1), evinces a

preference in favor of market prices. While this preference may not rise to the level of a legal

presumption, nevertheless, in order to deviate from its own regulation, Commerce must base its

17
The court notes that CMC may have been entitled to revocation by virtue of no
dumping for three consecutive years and such revocation may have been prevented by this
change of methodology – a result with great detrimental significance.
18
The court, however, questions whether a simple adjustment could not have corrected
this potential and alleged distortion in the actual prices which may have in turn resulted in more
accurate dumping margins, instead of discarding the set of actual prices in its entirety. The court
also questions whether Commerce did not perform this correction on CMC’s input prices
because it was difficult to ascertain the exact magnitude of the distortion.
Court No. 01-01114 Page 23

decision on a clearer and more substantial record than presented here.

The lack of any specific evidence linking either CMC’s supplier or its steel input to any

subsidies further undermines Commerce’s justification and reasoning to use surrogate values in

CMC’s case. Neither this specific steel input in question, nor CMC’s steel supplier was ever

investigated by Commerce. There is no evidence on the record indicating that CMC’s supplier

benefitted from generally available subsidies, which were incidentally discovered in other

investigations.19 This insistence on specific evidence in CMC’s case is consistent with the

remedial, not punitive, purpose of the antidumping duty laws. See, e.g., NTN Bearing Corp. v.

United States, 74 F.3d 1204, 1208 (Fed. Cir. 1995).

Finally, Commerce’s continuous reference to the Market Economy Steel Memo to support

its determinations in CMC’s case does not constitute a “reasoned explanation” that is required

under the statute. See, e.g., Usinor v. United States, 26 CIT __, __, Slip Op. 02-70, 01-10 at 14

(July 19, 2002); Altx, Inc. v. United States, 25 CIT __, __, 167 F. Supp. 2d 1353, 1360 (2001).

Under the statute, Commerce must “include in a final determination . . . an explanation of the

basis for its determination that addresses relevant arguments, made by interested parties who are

parties to the investigation or review . . . , concerning the establishment of dumping or a

countervailable subsidy.” 19 U.S.C. § 1677f(i)(3)(A). This does not mean that Commerce must

“make an explicit response to every argument made by a party, but instead requires that issues

material to [Commerce’s] determination be discussed so that the ‘path of the agency may

19
The court notes that CMC’s other [[ ]] supplier, [[ ]], of other steel was
investigated and “the subsidies to [[ ]] were found to be de minimis.” Market Economy
Steel Memo .
Court No. 01-01114 Page 24

reasonably be discerned’ by a reviewing court.” Statement of Administrative Action at 892,

accompanying H.R. Conf. Rep. No. 103-826(I), reprinted in 1994 U.S.C.C.A.N. 4040, 4215

(quoting case law). Commerce “must specifically reference in [its] determinations factors and

arguments that are material and relevant or must provide a discussion or explanation in the

determination that renders evident [Commerce’s] treatment of a factor or argument.” H.R. Conf.

Rep. No. 103-826(I) at 98, reprinted in 1995 U.S.C.C.A.N 3773. What constitutes an

explanation is an “articulat[ion of a] rational connection between the facts found and the choice

made.” Queen’s Flowers De Columbia v. United States, 21 CIT 968, 978, 981 F. Supp. 617, 627

(1997) (quotation omitted). Here, Commerce attempted to establish a link between

certain “not company specific” subsidies found in other investigations and CMC. However, it is

not a reasonable exercise of discretion for Commerce to use a subsidy finding of a past or

different investigation and apply it without inquiring further whether such a finding is applicable

to the particular set of circumstances at hand. Cf. Nation Ford Chem. Co. v. United States, 21

CIT 1371, 1377, 985 F. Supp. 133, 138 (1997), aff’d, 166 F.3d 1373 (Fed. Cir. 1999) (“[S]ubsidy

findings are fact-specific, and circumstances often change;” therefore, “factual findings in past

determinations, while often relevant, are not binding in subsequent cases.”). It is “material and

relevant” that other merchandise subject to antidumping and countervailing duty orders differs

from the input at issue in this case. Accordingly, Commerce must explain its decision

sufficiently so that this court can reasonably discern the path of Commerce’s reasoning as to why

CMC’s supplier must have benefitted from subsidies discovered elsewhere in the production of

hot-rolled alloy steel bar sold to the PRC. The Issues and Decision Memo of the thirteenth

administrative review simply references the Market Economy Steel Memo without much
Court No. 01-01114 Page 25

elaboration.20 Market Economy Steel Memo is a five page document with sparse text, reporting

(mostly in tables) Commerce’s (and other countries’) dumping and subsidy findings about steel

from the market economy country in question without further explanation. The so-called

“general” subsidies at issue here are reported in a separate table tabulating various subsidies,

such as investment tax credits, short-term export financing and the like, against three steel

products, [[ ]].21

Again, there is no mention of hot-rolled alloy steel bar, the steel product in question here, in the

table. The numbers that appear in the table are also presented without explanation.

20
The relevant portions of the Issues and Decision Memo state on pages 7 to 9:

CMC . . . contend[s] that the record lacks substantial evidence that the
material inputs used to produce the subject merchandise were dumped or
subsidized. However, our analysis in TRBs XII[, i.e., the twelfth administrative
review,] of CVD findings provides reason in the instant review to believe or
suspect that certain market economy prices paid by PRC producers of TRBs for
their steel inputs are subsidized. [(citing to Market Economy Steel Memo)]
. . . In TRBs XII, [Commerce] conducted an exhaustive analysis of current
CVD orders and found that we could reasonably infer that the particular market
economy steel used by PRC TRB producers was subsidized. [(citing to Market
Economy Steel Memo)]
...
. . . [W]e do not consider [the letter from the supplier] as credible as our
Market Economy Steel Memo.
. . . With regard to the valuation of steel inputs in the instant case, we have
examined the available information and find credible, particular, and objective
evidence from the Market Economy Steel Memo that supports our reason to
believe or suspect that certain market economy steel purchased for use in TRBs
benefitted unfairly from subsidization. . . .

21
The court notes that one of these products is the subject of a negative finding by
Commerce. See Final Negative Countervailing Duty Determination: [[
]].
Court No. 01-01114 Page 26

Therefore, the court remands this case to Commerce to review and augment the

administrative record and to explain its determinations adequately. It must demonstrate

particular, specific, and objective evidence to uphold its reason to believe or suspect that the

prices CMC paid the supplier for the inputs were subsidized. “If the record before the agency

does not support the agency action, if the agency has not considered all relevant factors, or if the

reviewing court simply cannot evaluate the challenged agency action on the basis of the record

before it, the proper course, except in rare circumstances, is to remand to the agency for

additional investigation or explanation.” Florida Power & Light Co. v. Lorion, 470 U.S. 729,

744 (1985). Following the language of the House Report, a “formal investigation” may not be

necessary here; however, a presentation by Commerce to this court of substantial, specific

evidence and an adequate elucidation of reasons for its determinations are essential for the court

to uphold Commerce’s results in the thirteenth administrative review.

26
Court No. 01-01114 Page 27

V. CONCLUSION

For all the foregoing reasons, the court holds that Commerce’s determinations in Tapered

Roller Bearings and Parts Thereof, Finished and Unfinished, From the People’s Republic of

China; Final Results of 1999-2000 Administrative Review, Partial Rescission of Review, and

Determination Not to Revoke Order in Part, 66 Fed. Reg. 57,420 (Nov. 15, 2001), are

unsupported by substantial evidence and, therefore, should be remanded to the agency for review

and action consistent with this opinion.

A separate order will be entered accordingly.

Dated: ___________________ ___________________________
New York, NY Judith M. Barzilay
Judge

27

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/818981. Public record. Not legal advice.