Petition for Writ of Certiorari — BMT Commodity Corp. v. United States

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In The

October Term, 1988

BMT COMMODITY CORP. and DELCA DISTRIBUTORS,

INC.,

Petitioners,

VS.

THE UNITED STATES,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

JACK GUMPERT WASSERMAN

Counsel of Record

FREEMAN, WASSERMAN & SCHNEIDER

Attorneys for Petitioners

90 John Street

New York, New York 10038

(212) 619-1770

8027

tz *NJ (201) 257-6850 (800) 3 APPEAL *NY (212) 840-4640°MA (617) 542-1114

DOC (202) 783-7288°PA (215) 925-6500°USA (800) 5 APPEAL

ry A ., y

QUESTIONS PRESENTED

1. In a case of first impression arising under the federal

antidumping law, did a panel of the Court of Appeals err when

it affirmed the reviewing court’s use of inferences and assumptions

to supply a rationale wholly missing from the agency’s explanation

of the applicable legal standard?

2. Did the panel of the Court of Appeals err when it affirmed

the lower court’s conclusion that the agency’s determination was

supported by substantial evidence on the record, where the agency

conceded that its determination (a) rested on evidence that contains

a blatant and fatal error and (b) ignored evidence of record which

the reviewing court held to be directly relevant to the crucial issue?

PARTIES TO THE PROCEEDINGS

The caption of the case contains the name of all parties in

the U.S. Court of Appeals for the Federal Circuit and the U.S.

Court of International Trade,* except that Codfish Corporation**

appeared as Defendant-Intervenor in the U.S. Court of

International Trade.

* Petitioner BMT Commodity Corp. is a privately held corporation whose

shareholders are private individuals. Delica Distributors, Inc. is a wholly-owned

subsidiary of BMT. Neither corporation has any publicly held affiliates.

** Upon information and belief, Codfish Corporation is a privately held

corporation.

itt

TABLE OF CONTENTS

Page

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The Antidumping Proceeding And The Commission’s

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PE cida rah swans cheba wa kee ea een ant 8

The Decision Of The Court Of Appeals ........... 9

Reasons For Granting The Writ ...................... 10

Contents

Page

I. The Lower Court Improperly Supplied A Rationale

Not Articulated By The Commission. ........... 10

Il. The Commission’s Determination Was Not Supported

Br Ss CPI pwccncncedscccccunssss 14

A. The Feasibility Study Contains A Blatant Error

That Invalidates Its Conclusions............ 14

B. The Commission Failed To Consider Relevant

Evidence In The Citicorp Study. ........... 16

edt Dale eee ee aa anaes es 18

TABLE OF CITATIONS

Cases Cited:

American Rubber Products Corp. v. N.L.R.B., 214 F.2d 47

Ss SE cba nsnadccdcccdpscuniaaneesesecsea 17

Babcock & Wilcox Co. v. United States, 2 CIT 74, 521 F.

Supp. 479 (1981), vacated as moot, 4 CIT 3 (1982)

PO ee Pe FE OE EEE EERE a My EAP ge We ES 14

Baltimore Gas & Electric Co. v. National Resources Defense

Council, Inc., 462 U.S. 87, 103 S. Ct. 2246 (1983)

Bowen v. American Hospital Ass’n, 476 U.S. 610, 106 S. Ct.

Sy Ms cddabiebcsencdsesedadudaedeeieeswes 11

Contents

Page

Bowman Transportation, Inc. v. Arkansas-Best Freight

System, Inc., 419 U.S. 281, 95 S. Ct. 438 (1975)

WYTTPTITITTT ITT TT ee ee 16

Burlington Truck Lines v. United States, 371 U.S. 156, 83

SB. GR. Bae CE hd ac chvevccstannsss sss 11

Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402,

ee rg | Ar 11

Consolidated Edison Co. v. N.L.R.B., 305 U.S. 197, 59S.

CR, Be ED kd dan ddarie tases PER ee a re 16

Kenda Rubber Industrial Co. v. United States, 10 CIT__,

Gao F. Be. Bee Clee + 8 eeskctadetreeee 16

Motor Vehicie Mfrs. Ass’n v. State Farm Mut. Auto. Ins.

Co., 463 U.S. 29, 103 S. Ct. 2856 (1983) ....... 4, 11, 13

SEC v. Chenery Corp., 332 U.S. 194, 67 S. Ct. 1575

GRPGE) « Siccpecccsccedssassbvsecesndensananiaaee 11

USX Corp. v. United States, 11 CIT ___, 655 F. Supp. 487

(RSET) 0sb-bbsneducennssesssxb0s2 te 16

Contents

Page

Statutes Cited:

Tariff Act of 1930:

§ S16A(b\(1)(B), 19 U.S.C. § 1516(b)(1)(B) ........ 2

§ 735(b)(1)(B), 19 U.S.C. § 1673(b) 1B) .......... 3

Other Authority Cited:

K. Davis, Administrative Law Treatise (2d ed. 1980)

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APPENDIX

Appendix A—Opinion Of The United States Court Of

Appeals For The Federal Circuit .................. la

Appendix B—Opinion Of The United States Court Of

International Trade (Denying Rehearing) .......... 3a

Appendix C—Opinion Of The United States Court Of

International Trade (Decision And Judgment) ...... lla

Appendix D—Determination Of The U.S. International

Tends Comment 2... ccccccccccescccncoccesseces 2Sa

No.

In The

Supreme Court of the United States

October Term, 1988

BMT COMMODITY CORP. and DELCA DISTRIBUTORS,

INC.,

Petitioners,

vs.

THE UNITED STATES,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

Petitioners BMT Commodity Corp. and Delica Distributors,

Inc. (hereinafter collectively referred to as ‘“‘BMT’’), respectfully

pray that a Writ of Certiorari issue to review the judgment of

the United States Court of Appeals for the Federal Circuit entered

on August 9, 1988.

OPINIONS BELOW

The opinion of a panel of the Court of Appeals is set forth

as Appendix A and is reported at 852 F.2d 1285. The opinions

of the Court of International Trade are set forth in Appendices

B and C and are reported at 674 F. Supp. 868 and 667 F. Supp.

880, respectively. The determination of the United States

International Trade Commission is set forth in Appendix D and

is published as USITC Publication No. 1711.

JURISDICTION

The judgment of the Court of Appeals was entered on August

9, 1988. (App. A). The jurisdiction of this Court is invoked under

28 U.S.C. § 1254(1).

STATUTES INVOLVED

Section 516A(b)(1)(B), 19 U.S.C. § 1516a(b)(1)(B), provides

as follows:

Judicial review in countervailing duty and

antidumping duty proceedings

(b) Standards of review.—

(1) Remedy.—The court shall hold

unlawful any determination, finding, or

conclusion found—

(B) in an action brought under paragraph

(2) of subsection (a) of this section, to

be unsupported by substantial evidence

on the record, or otherwise not in

accordance with law.

Section 735(b)(1)(B) of the Tariff Act of 1930, 19 U.S.C.

§ 1673d(b)(1)(B) (prior to 1984 amendment), provides as follows:

Final determinations

(b) Final determination by Commission.—

(1) In general.—The Commission shall

make a final determination of whether—

(B) the esteblishment of an industry in

the United States is materially retarded, ©

by reason of imports of the merchandise with

respect to which the administering authority

has made an affirmative determination under

subsection (a)(1) of this section.

STATEMENT OF THE CASE

This case arises from a determination of the U.S. International

Trade Commission (the ‘‘Commission’’) in an antidumping

‘‘injury’’ proceeding. In July 1985, the Commission determined

that the establishment of an industry in the United States was

materially retarded by reason of imports of certain Canadian fish

products which the U.S. Department of Commerce had found

to be sold at less-than-fair-value. Certain Dried Salted Codfish

from Canada, Inv. No. 731-TA-199 (Final), USITC Pub. 1711

(July 1985) [Appendix D].

BMT sought judicial review of the Commission’s

determination. On July 22, 1987, the U.S. Court of International

Trade entered a judgment upholding the Commission’s

determination. On November 22, 1987, BMT ’s motion for

rehearing was denied. BMT Commodity Corp. v. United States,

11 CIT___, 667 F. Supp. 880 (1987) [Appendix C], rehearing

denied, 11 CIT___, 674 F. Supp. 868 (1987) [Appendix B]}.

BMT appealed to the U.S. Court of Appeals for the Federal

Circuit, which affirmed the lower court’s judgment on the basis

of the lower court’s opinions. BMT Commodity Corp. v. United

States, 852 F.2d 1285 (Fed. Cir. 1988) [Appendix A]. This petition

follows.

The Issues Presented

The first issue presented by this petition is whether the panel

of the Court of Appeals correctly applied this Court’s decision

in Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,

463 U.S. 29, 43, 103 S.Ct. 2856, 2866-67 (1983), and similar cases.

It is petitioner’s position that the lower court improperly

reformulated the different opinions of the individual

Commissioners and admittedly employed the liberal use of

assumptions and inferences to supply its own rationale for the

agency decision.

The second issue presented by this petition is whether the

panel of the Court of Appeals erred in affirming the Commission’s

determination notwithstanding the Commission’s admission that

(i) the sole evidence which the Commissioners considered on the

dispositive issue contains a blatant, obvious and critical error,

and (ii) the Commissioners failed to consider all the evidence of

record which the lower court held to be probative of the issue.

Overview

The federal courts have not previously considered the legal

standard for determining whether the establishment of an industry

in the United States has been ‘‘materially retarded’’ by less-than-

fair-value (‘‘dumped’’) imports and, therefore, this is a case of

first impression. All the parties agree that this determination must

rest on a finding that the nascent U.S. industry is viable before

it is entitled to protection from imports. (This long-standing

principle was recognized in 1791 by Alexander Hamilton in his

‘*Report on Manufacturers.’’) The parties disagree over the

standard for assessing an industry’s viability.

Here, the individual members of the Commission never

articulated a common legal standard and, in fact, voiced sharply

different opinions. Faced with widely different views, the lower

court resorted, admittedly, to inferences and assumptions to

reformulate the Commission’s views and identify a single legal

standard which the court then ascribed to the Commission’s

majority.

Equally wrong, the lower court also held that the

Commission’s determination of ‘‘viability at inception’’ was

supported by substantial evidence of record, even though the

Commission’s conclusion was based on fundamentally (and

admittedly) flawed evidence and ignored other evidence which

the court admitted was directly relevant.

Statement Of Facts

The product at the center of this litigation — dried salted

codfish — has long been a traditional food for peoples living along

the Mediterranean and Caribbean Seas and throughout Latin

America. U.S. demand for dried salted fish is concentrated in

Puerto Rico. Petitioner BMT, a United States corporation, imports

this product from Canada and elsewhere and sells it in Puerto Rico.

Codfish Corp., of Ponce, Puerto Rico, the defendant-

intervenor in the lower court, is the only company trying to

produce dried salted codfish in the United States. In 1982, the

promoters of Codfish Corp. produced a so-called ‘‘market

feasibility study.’’ According to this study, the proposed project

would involve the purchase of semi-processed (or ‘‘wet-salted’’)

codfish in Canada or Norway, the transport of this fish to Puerto

Rico and the drying of the fish at a local facility. The feasibility

study alleged that the new company would make substantial profits

in its first year of operation.

The company commenced operations in December 1982, but

began to lose money immediately. Faced with serious losses,

Codfish Corp. commissioned a second study by the Citicorp

Capital Markets Group to assess the viability of the company’s

operations and to provide advice concerning future options. The

Citicorp study concluded, in substance, that the company’s existing

operations were not viable’ and recommended that the company

develop a new source of ‘‘wet-salted’’ fish in Alaska. However,

Codfish Corp. was unable to secure the financing needed to

implement the Citicorp study’s recommendations and, in

November 1985, filed a petition for reorganization under Chapter

11 of the U.S. Bankruptcy Code.’

The Antidumping Proceeding And

The Commission’s Determination

On July 19, 1984, Codfish Corp. filed an antidumping petition

1. Since the contents of the Citicorp study are confidential business

information covered by a judicial protective order, the specific conclusions of

the study are discussed in the confidential supplement to this petition.

2. These bankruptcy proceedings are still pending.

ry)

with the U.S. Department of Commerce and the U.S. International

Trade Commission. In July 1985, the Commission, by a 4-to-1

vote, ruled that the establishment of an industry in the United

States (represented solely by Codfish Corp.) was ‘‘materially

retarded’’ by reason of less-than-fair-value imports.of dried salted

codfish from Canada.’

The majority agreed with the contention of all parties that

“*{t}he viability of the nascent domestic industry is a relevant

consideration.’’* Accordingly, the Commissioners focused on ‘‘the

Canadian producers’ and importers’ argument . . . that [Codfish

Corp.'s] operation in Puerto Rico is inherently unviable, and could

never operate profitably, regardless of LTFV imports.’’* The

opinion by the majority Commissioners concluded that:

On the basis of our analysis of [Codfish Corp.'s]

marketing and feasibility study, the initial business

plan of the petitioner appears reasonably calculated

and could have succeeded.*

The majority also determined that Codfish Corp. possessed

‘future viability’’ in the sense of being ‘‘able to recommence

operations . . . and stabilize its production and sales at a level

which will allow it to become established.’’’

3. Appendix D at 2Sa.

4. Id. at 32a. However, as discussed infra at notes 20-21 and accompanying

text, two members of the Commission majority qualified their views in certain

respects. See Appendix D at 3la-32a nn. 16, 20.

5. Id. at 3la.

6. Id. at 32a.

7. Id. at 33a. One Commissioner, Mr. Eckes, did not consider future

viability and therefore did not join this determination.

Having resolved the issue of viability in favor of Codfish

Corp., the Commission ruled that the performance of the company

was ‘‘substantially poorer than that which could reasonably have

been expected’’ and that less-than-fair-value imports from Canada

had contributed to the material retardation.‘

The Decisions Of The U.S. Court Of International Trade

The Court of International Trade first addressed the legal

standard used by the Commission in determining that Codfish

Corp. was ‘‘viable.’’ The court agreed that ‘‘Codfish

Corporation’s viability at inception is a relevant consideration

in this case.’’* However, the court admitted that the ‘“‘majority

opinion does not explicitly state that the Commission was

considering the viability of Codfish Corporation from the time

of its inception,’’ but said that ‘‘this fact may be inferred’’ from

the opinion.'® On the basis of this inference, the court held that

a majority of the Commission had properly considered viability

at inception.

The court also ruled that the consideration of ‘‘future

viability’’ by three members of the Commission majority was

erroneous, but that this error ‘‘does not compel remand.’’''

On the issue of substantial evidence, the court addressed

8. Id. at 3la, 33a-39a.

9. Appendix C at 16a. The court noted that no party contested the relevance

of viability at inception. /d.

10. /d. at 17a n.4 (emphasis supplied).

11. Jd. at 19a.

BMT’s arguments that the Commission should not have relied

on Codfish Corp.’s patently and obviously flawed feasibility study,

and had erroneously failed to consider the Citicorp study (which

concluded that Codfish Corp. was not viable).'? Despite its

agreement with BMT that the Citicorp report was directly relevant

to the issue of viability at inception,'’ the lower court held ‘‘that

the Commission’s determination was supported by substantial

evidence.’’'*

On BMT’s motion for rehearing, the court adhered to its

Original decision, despite once again noting BMT’s ‘“‘assert{ion]

. . . that the initial feasibility study prepared on behalf of Codfish

Corporation and the break-even analysis prepared by the

Commission staff are ‘a mass of obviously incomplete data,

demonstrably faulty assumptions and half-baked accounting

techniques.’ ’’'* om

The Decision Of The Court Of Appeals

The Court of Appeals, on the basis of the lower court’s

decision, affirmed the judgment of the trial court that the

Commission’s determination was supported by substantial evidence

and was not otherwise contrary to law.'®

12. Id. at 20a-21a.

13. Id. at 2la-22a.

14. Id. at 22a.

1S. Appendix B at 7a.

16. Appendix A at 2a.

REASONS FOR GRANTING THE WRIT

The decisions of the U.S. Court of International Trade and

the U.S. Court of Appeals for the Federal Circuit are in conflict

with decisions of this Court on two of the most basic principles

of administrative law: first, the administrative agency, and not

the reviewing court, must articulate a legally sufficient explanation

for its action; and second, an agency’s determination is supported

by substantial evidence only if, based on all relevant evidence

in the record, a reasonable mind might accept that evidence as

adequate to support the determination. The decisions below so

egregiously misapplied their roles as reviewing courts and so grossly

misread the evidence of record as to warrant this Court’s exercise

of its powers of supervision.

The Commission’s failure to articulate the legal standard for

its determination, the court’s substitution of its own rationale

for that of the Commission and the serious misreading of the

evidence of record are impermissible acts which frustrate the

statutory framework of judicial review of administrative action.

The result is even more egregious since it occurs in the context

of a case of first impression.

THE LOWER COURT IMPROPERLY SUPPLIED A

RATIONALE NOT ARTICULATED BY THE COMMISSION.

This Court has held on numerous occasions that it is the

administrative agency, and not a reviewing court, that ‘“‘must

articulate a satisfactory explanation for [the agency’s] action,

including a ‘rational connection between the facts found and the

choice made.’ *’'’ Where the agency has failed to provide a legally

sufficient explanation for its action ‘‘{t}he reviewing court should

not attempt itself to make up for such deficiencies; [the reviewing

court] may not supply a reasoned basis for the agency’s action

that the agency has not given.’’'* In short, the reviewing ‘*‘ ‘court

is not empowered to substitute its judgment for that of the

agency.’ rrie

In this case, the four majority Commissioners clearly did not

adopt a common legal standard. Commissioner Eckes, explained

that, unlike the other majority Commissioners, he ‘‘focused on

the viability of the domestic industry during the period of

investigation”’ and ‘‘d[id] not believe that the petitioner must prove

17. Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463

U.S. 29, 43, 103 S.Ct. 2856, 2866 (1983) (citing Burlington Truck Lines v. United

States, 371 U.S. 156, 168, 83 S.Ct. 239, 246 (1962)); accord, e.g., Bowen v.

American Hospital Ass'n, 476 U.S. 610, ___., 106 S.Ct. 2101, 2112-2113 (1986)

(plurality opinion by Stevens, J., joined by Marshall, Blackmun, and Powell,

JJ.); Baltimore Gas & Electric Co. v. National Resources Defense Council, Inc.,

462 U.S. 87, 105-106, 103 S.Ct. 2246, 2256 (1983); Bowman Transportation,

Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 286-287, 95 S.Ct.

438, 442-443 (1975).

18. Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., supra,

463 U.S. at 43, 103 S.Ct. at 2867 (citing SEC v. Chenery Corp., 332 U.S. 194,

196, 67 S. Ct. 15875, 1577 (1947)); accord, e.g., Bowman Transportation, Inc.

v. Arkansas-Best Freight System, Inc., supra, 419 U.S. at 285-286, 95 S. Ct.

at 442; cf. Baltimore Gas & Electric Co. v. National Resources Defense Cour. *'

Inc., supra, 462 U.S. at 105-106, 103 S. Ct. at 2256 (“Our only task is to

determine’’ whether the agency provided a legally sufficient explanation.).

19. Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc.,

supra, 419 U.S. at 285, 95 S. Cr. at 442 (citing Citizens to Preserve Overton

Park v. Volpe, 401 U.S. 402, 416, 91 S. Ct. 814, 824 (1971)); cf Bowen v.

American Hosp. Ass'n, supra, 106 S.Ct. at 2112 (“‘Agency deference has not

come so far that we will uphold regulations whenever it is possible to ‘conceive

a basis’ for administrative action."’).

future viability . . . . ’’*° Commissioner Lodwick stated that he

**focused his attention ... primarily on the viability of the

domestic industry at its inception . . . . [but] also believe[d] that

. future viability is relevant.’’?' The other two majority

Commissioners, Chairwoman Stern and Commissioner Rohr, did

not set forth independent positions, but apparently looked at

something identified as ‘inherent viability’’ and at future viability.

On review, the lower court ignored the individual views of

the Commissioners. Instead, the court conciuded that the history

of Codfish Corp. divides into two time periods. According to

the lower court, the first period was “‘viability at inception,’’ which

apparently meant the viability of the company as it existed when

it commenced operations. (The court ruled that this period of

‘“*inception’’ was the proper time frame for the Commission’s

consideration.) The second period identified by the court was

‘*future viability,’’ which presumably meant the viability of tae

company in its restructured form. (The court ruled that this period

of ‘‘future viability’? should not have been considered by the

Commission.)

But these time periods are not delineated anywhere in the

Commission’s opinion. In fact, the lower court correctly observed

that the Commissioners’ opinion ‘‘does not explicitly state that

the Commission was considering the viability of Codfish

Corporation from the time of its inception.’’*? Instead, the court

“*inferred’” that the majority Commissioners had done so. The

court erroneously believed that it could properly ‘‘infer’’ an

20. Appendix D at 3la n.16, 32a n.21 (emphasis added).

21. /d. at 32a n.20 (emphasis added).

22. Appendix C at l6a n.4.

23. Id. (emphasis added).

explanation that the Commission did not articulate.

Equally improper, the lower court stated that ‘“‘the

Commission appears to have used the terms ‘inherent viability’

and ‘viability at inception’ interchangeably.’’** This statement is

contradicted by the lower court’s previous statement that the

Commission’s determination did not explicitly say that it was

considering viability at inception. To the extent the apparent

explanation of the Commission’s views were first advanced in

the Commission’s brief to the lower court, the court improperly

relied on a post hoc rationalization by counsel instead of the

grounds stated by the Commission.** In any event, the court

conceded that the Commission ‘‘appears to have used the terms

. . . interchangeably,’’ and it is obvious that the court based its

decision on what it assumed the Commission meant tc say —

not what the Commission said.

The lower court conceded that the ‘‘Commission’s use of

the term ‘future viability’ is somewhat confusing.’’** However,

the court resolved the confusion by volunteering that ‘‘{i]n this

investigation, . . . the term ‘future viability’ refers to the viability

of Codfish Corporation only in its restructured condition.’’*” Here

again, the court supplied an explanation not set forth in the

Cormmission’s determination.

24. Id. at 17a n.5 (emphasis added).

25. See e.g., Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto Ins.

Co., supra, 463 U.S. at 50, 103 S. Ct. at 2870 (“courts may not accept appellate

counsel’s post hoc rationalizations for agency action’’).

26. Appendix C at 18a n.6. The court could not ascertain with certainty

whether the Commission had used this term to mean the ability to survive into

the future or the viability of Codfish Corp. in its restructured form foreseen

in 1985.

27. Id. at 18a n.6.

Further, the lower court pointed out that “‘[o]ne of the four

commissioners in the majority stated that he had considered

‘viability during the period of investigation’ rather than viability

at inception.’’** Despite this explicit statement, the court ruled

that he ‘‘appears to have considered the same factors as the other

members of the majority.’’** Once again, the lower court’s decision

rests on what the court assumed, and not on what the

Commissioner said.

In sum, based entirely on what the majority ‘‘appeared”’ to

have done and what the court “‘inferred,’’ the reviewing court

supplied its own rationale to support the Commission's

determination. In so doing it violated a basic precept of

administrative law. Instead, it should have remanded the case for

further proceedings in accordance with law.”

THE COMMISSION'S DETERMINATION WAS NOT

SUPPORTED BY SUBSTANTIAL EVIDENCE.

A. The Feasibility Study Contains A Blatant Error That Invalidates

Its Conclusions.

The majority Commissioners admitted that their assessment

of the viability of Codfish Corp. at its inception was made ‘‘[o]n 4

28. Id. at 20a n.9. . 7

Id. (emphasis added). The lower court ruled that if Commissioner Eckes’

standard was not the same as “‘viability at inception,”’ his decision was erroneous.

Id.

30. Cf. Babcock & Wilcox Co. v. United States, 2 CIT 74, 76, $21 F. Supp.

479, 482 (1981) (remanding case for further consideration where ‘*[t}he views

of the Commissioners . . . are diverse’"), vacated as moot, 4 CIT 3 (1982).

preenreenuals

the basis of our analysis of [Codfish Corp.’s] marketing and

feasibility study . . . ."’’' Their reliance on the study was grossly

misplaced, for it contains a blatant error which, if corrected, leads

to the conclusion that Codfish Corp. was expected to be a losing

venture from the beginning.

The feasibility study’s projection of expenses, sales, and

profits purportedly shows that the company would have substantia!

profits in its first year of business.’* However, this projected

conclusion requires the company to sell a substantial quantity of

merchandise that it was not planning to produce. In the Court

of Appeals, counsel for the Commission conceded that the

feasibility study contains this error.’’ If the error is corrected,

the feasibility study shows that the company would suffer massive

losses, without showing any possibility of future profitability.

This error is fatal to the Commission’s determination that

Codfish Corp. was a viable entity at its inception. The Commission

determined that ‘‘[t]he elements of viability which are important

in this investigation [include] the ability to produce a. . . product

. . which can be sold at a price which is competitive with fairly

31. Appendix D at 32a. The Commissioners’ opinion does not identify

any other evidence of record that was considered on this issue.

For purposes of Point II of the Argument, BMT assumes, arguendo, that

the lower court correctly ruled that ‘‘viability at the inception’’ was the standard

applied by all members of the Commission majority.

32. Since the entire contents of the feasibility study are confidential business

information covered by a judicial protective order, the conclusions of the study

and the error in the projected earnings are discussed in the confidential

supplement to this petition.

33. See Appellee’s Confidential Brief at 39-40, BMT Commodity Corp.

v. United States, App. No. 88-1188 (May 4, 1988).

traded imports.’’** But Codfish Corp.’s own feasibility study shows

(after the blatant error is corrected) that it could not make a profit.

Both courts below disregarded this error in assessing the

substantiality of the evidence of record. This Court has

unequivocally held that substantial evidence ‘‘ ‘means such relevant

evidence as a reasonable mind might find adequate to support

a conclusion’ *’** and that the ‘‘substantiality of evidence must

take into account whatever in the record fairly detracts from its

weight.’’** Had this standard been properly applied to the evidence

of record in this case, the result below could not stand.

B. The Commission Failed To Consider Relevant Evidence In

The Citicorp Study.

The lower court apparently agreed with BMT’s argument that,

if the Commission had failed to consider the Citicorp study, its

investigation would have been legally insufficient. The court

explained that the ‘‘absence of information necessary for a

thorough analysis may render a [Commission] determination

unsupported by substantial evidence.’’’’ Moreover. the lower court

34. Appendix D at 32a.

35. Universal Camera Corp. v. N.L.R.B., 340 U.S. 474, 477, 71 S.Ct. 456,

459 (1951) (citing Consolidated Edison Co. v. N.L.R.B., 305 U.S. 197, 229,

59 S. Ct. 206, 216-217 (1938)). j

36. Universal Camera Corp. v. N.L.R.B., supra, 340 U.S. at 488, 71 S.Ct.

at 464.

37. USX Corp. v. United States, 11 CIT ___, 655 F. Supp. 487, 493 (1987);

accord, e.g., Kenda Rubber Industrial Co. v. United States, 10 CIT __., 630

F. Supp. 354, 358 n.4 (1986) (Reversible error would exist where *‘the Commission

ha[s} not conducted a thorough investigation as required by statute."’); Budd

Co. v. United States, 1 CIT 67, 74, 507 F. Supp. 997, 1003 (1980) (‘‘[T]here

has been a lack of diligence by the Commission in seeking informaticn available

| Fae ’

rejected the government’s contention that the Citicorp study was

not a reasonable basis to assess viability at the inception because,

as the government argued, the study was ‘‘ ‘prepared with the

benefit of two years experience, and the hindsight which

accompanies experience ... .’ ’’** Instead, the court ruled that

the timing of the study does not diminish its ‘‘probative value

on the issue of viability’? and that ‘‘[a] report analyzing the

progress of an industry over time may contain important insights

into how ... specific factors affect profitability ....’’*°

However, the lower court erroneously concluded that the

Commission’s failure to consider the Citicorp study did not

warrant reversal because the Commission had considered the study

in assessing future viability.*° This reasoning ignores the court’s

own ruling that future viability should not have been considered;

it also erroneously assumes that the Commission would have

reached the same determination on viability at inception if it had

considered the Citicorp study.

The affirmance of the lower court’s position by the Court

of Appeals in this case is at variance with the views of other circuit

courts of appeals. In analogous cases the reviewing court (in other

circuits) has reversed and remanded an agency determination where

the agency had erroneously failed to consider relevant evidence.*'

38. Appendix C at 2la.

39. Id. at 2la-22a.

40. Id. at 22a.

41. E.g., American Rubber Products Corp. v. N.L.R.B., 244 F.2d 47, 51

(7th Cir. 1954) (N.L.R.B. finding reversed where ‘‘the Board erred in holding

{that certain] evidence lacked probative value... . ’’). See generally 3 K. Davis,

Administrative Law Treatise § 16:11 (2d ed. 1980).

In summary, if the Commission had considered the Citicorp

study, the Commission would, in all likelihood, have determined

that the company was not viable. The Commission failed to

consider the study for this purpose and therefore committed

reversible error; as did the reviewing courts in sustaining the

Commission’s determination.

CONCLUSION

For the foregoing reasons, petitioners respectfully pray that

this Court issue a Writ of Certiorari to review the judgment of

the United States Court of Appeals for the Federal Circuit.

Dated: New York, New York

November 7, 1988

Respectfully submitted,

Jack Gumpert Wasserman

Counsel of Record

FREEMAN, WASSERMAN &

SCHNEIDER

Attorneys for Petitioners

90 John Street

New York, New York 10038

(212) 619-1770

APPENDIX A—OPINION OF THE UNITED STATES COURT

OF APPEALS FOR THE FEDERAL CIRCUIT

BMT COMMODITY CORP. and Delca Distributors Inc.,

Plaintiffs-Appellants,

Vv.

The UNITED STATES,

Defendant-Appellee,

Codfish Corp.,

Defendant.

Appeal No. 88-1188

United States Court of Appeals,

Federal Circuit

Aug. 9, 1988

Appealed from U.S. Court of International Trade; Restani,

Judge.

Jerry P. Wiskin, Freeman, Wasserman & Schneider, New

York City, argued for plaintiffs-appellants. With him on the brief

were Jack Gumpert Wasserman and Patrick C. Reed.

Judith M. Czako, Office of General Counsel, U.S. Intern.

Trade Com’n, Washington, D.C., argued for defendant-appellee.

With her on the brief were Lyn M. Schlitt, Gen. Counsel and

James A. Toupin, Asst. Gen. Counsel.

Appendix A

Before SMITH and MAYER, Circuit Judges, and

BENNETT, Senior Circuit Judge.

PER CURIAM.

BMT Commodity Corporation (BMT) appeals from the

judgment of the Court of International Trade in BMT Commodity

Corp. v. United States, 667 F.Supp. 880 (Ct. Int’] Trade 1987)

(Restani, J.). In this judgment the court sustained the International

Trade Commission’s (Commission) decision ‘‘that ‘the

establishment of an industry in the United States is materially

retarded by reason of imports of dried heavy salted codfish from

Canada, which the Department of Commerce has determined are

sold at less than fair value.’ ’’ Jd. at 881. BMT contests whether

the Commission applied the proper legal standard, whether the

Commission’s procedures were understood by the court, whether

the Commission’s determination was supported by substantial

evidence, and whether the Court of International Trade correctly

ruled that plaintiffs should have contested adverse confidential

evidence during the Commission’s proceedings.

We find no justifiable basis for overturning the decision of

the trial court and we see no need to reiterate its published analysis,

which we adopt. Accordingly, we affirm on the basis of that

opinion.

AFFIRMED.

)

APPENDIX B—OPINION OF THE UNITED STATES COURT

OF INTERNATIONAL TRADE (DENYING REHEARING)

BMT COMMODITY CORP.,

and

Delica Distributors, Inc.,

Plaintiffs,

The UNITED STATES,

e. Defendants,

and

Codfish Corp.,

Defendant-Intervenor.

No. 85-7-00915

United States Court of International Trade

Nov. 19, 1987

Freeman, Wasserman & Schneider (Jack G. Wasserman and

Jerry P. Wiskin), New York City, for plaintiffs.

Lyn M. Schlitt, Gen. Counsel, James A. Toupin, Asst. Gen.

Counsel and Judith M. Czako, U.S. International Trade Com’n,

Washington, D.C., for defendants.

Appendix B

Patton, Boggs & Blow (Bart S. Fisher, Michael D. Esch, and 4

Daniel E. Waltz), Washington, D.C., for defendant-intervenor.

OPINION

RESTANI, Judge.

Plaintiffs, BMT Commodity Corp. and Delca Distributors,

Inc., pursuant to Rule 59 of the Rules of this court, move for

a rehearing of this court’s opinion and judgment in this action.

BMT Commodity Corp. v. United States, 11 CIT ___, 667

F.Supp. 880 (1987). That opinion and judgment denied plaintiffs’

motion for judgment based upon the administrative record

challenging the International Trade Commission’s (Commission)

final affirmative dumping determination in Certain Dried Salted

Codfish from Canada, USITC Pub. No. 1711, Inv. No.

731-TA-199 (July 1985) (ITC Determination).

In their motion for rehearing, plaintiffs argue that: (1) the

court misconstrued the opinions of the Commission regarding

*“‘viability at inception’’ and ‘‘viability in the future,’’ and (2)

the court misinterpreted or overlooked evidence of record. For

the following reasons, plaintiffs’ motion for rehearing is denied

in all respects. .

A motion for rehearing is addressed to the sound discretion

of the court. United States v. Gold Mountain Coffee, Ltd., et

al., 8 CIT 336, 601 F.Supp. 212 (1984). The exceptional

circumstances for granting a rehearing were clearly enunciated

in W.J. Byrnes & Co. v. United States, 68 Cust. Ct. 358, C.R.D.

72-5 (1972) as follows:

A rehearing may be proper when there has

Appendix B

been some error or irregularity in the trial, a serious

evidentiary flaw, a discovery of important new

evidence which was not available, even to the

diligent party, at the time of trial, or an occurrence

at trial in the nature of an accident or unpredictable

surprise or unavoidable mistake which severely

impaired a party’s ability to adequately present its

case. In short, a rehearing is a method of rectifying

a significant flaw in the conduct of the original

proceeding.

68 Cust. Ct. at 358 (footnote omitted).

The purpose of a rehearing is not to retry a case. Brookside

Veneers, Ltd. v. United States, II CIT__, 661 F.Supp. 620

(1987), appeal docketed, No. 87-1379 (Fed. Cir. June 4, 1987).

With regard to their first argument, plaintiffs assert

specifically that the court wrongly inferred that the Commission

majority explored Codfish Corporation’s viability at inception.

In addition, plaintiffs allege that the court incorrectly concluded

that Codfish Corporation filed a petition under the bankruptcy

laws in late 1984 and that this error ‘‘colors the relevant time

frames which all parties (and the Court) recognize as critical and

bears directly on the sufficiency of the evidence relied on by the

Commission’s majority.’’ Plaintiffs’ Memorandum at 4-5.

These grounds possess none of the criteria upon which a

rehearing may be granted. Plaintiffs argued at length in their

motion for judgment on the administrative record that the

Commission failed to focus its material retardation analysis on

Codfish Corporation’s ‘‘viability at inception.’’ They are not now

entitled to a rehearing simply because the court rejected those

Appendix B

arguments. This court has consistently denied motions for

rehearing premised solely on the moving party’s dissatisfaction

with the trial court’s decision. E.g., V.G. Nahrgang Co. v. United

States, 6 CIT 210 (1983); Industrial Fasteners Group v. United

States, 3 CIT i104 (1982); Gold Mountain Coffee, 8 CIT 336, 601

F.Supp. 212.

There appears to be some confusion between the date of

bankruptcy and the date operations of Codfish Corporation first

ceased. In fact, the bankruptcy petition appears not to have been

filed until November, 1985, several months after the Commission’s

final determination of July, 1985 and approximately a year after

Codfish Corporation first discontinued its operations. Any error

as to the date of official filing is not, however, a ‘‘significant

flaw’’ which gives rise to the right for rehearing. In fact, such

an error would in no way affect the substance of the court’s

decision. Because this court concluded, and plaintiffs agree, that

the appropriate focus of analysis of viability of the domestic

industry in this material retardation case was at its inception, the

precise date dt which the bankruptcy petition was filed is

inconsequential. Furthermore, to the extent the court discussed

viability other than based on analysis of initial feasibility, it was

concerned with plans for future operations, not change in legal

status under the bankruptcy laws.

Plaintiffs’ second argument in support of their motion is that

the court misinterpreted or overlooked evidence of record.

Specifically, they claim that the court erroneously concluded that

plaintiffs did not contest the raw data contained in Codfish

Corporation’s initial feasibility study; and that the court

misconstrued the record in determining that there was substantial

evidence to establish that Codfish Corporation had sufficient

working capital and that the market for dried salted codfish was

not declining.

Appendix B

Plaintiffs assert now, as they did in their original brief, that

the two documents on which the Commission relied, the initial

feasibility study prepared on behalf of Codfish Corporation and

the break-even analysis prepared by the Commission staff, are

‘‘a mass of obviously incomplete data, demonstrably faulty

assumptions and half-baked accounting techniques.’’ Plaintiffs’

Memorandum at 12. In support of this general condemnation,

plaintiffs claim that transportation costs utilized in the initial

feasibility study were flawed and that the study’s reliance on the

procurement of raw materials from traditional source countries

was misplaced. Plaintiffs’ Memorandum at 13.

In making its determination, the Commission concluded that

any disadvantages Codfish Corporation may have had vis-a-vis

Canadian producers in the areas of transportation costs or in

procuring raw materials were offset by advantages gained in

reduced labor costs and easy access to local markets. ITC

Determination at 7. The court found this conclusion to be

supported by substantial evidence in the record. 667 F.Supp. at

885-86.

Plaintiffs’ present assertion that ‘‘the raw data in the initial

feasibility study regarding Codfish Corporation’s transportation

costs was specifically attacked and unquestionably demonstrated

to be seriously flawed’’ is simply incorrect. Plaintiffs’

Memorandum at 13. The only attack on transportation costs by

plaintiffs prior to the motion for rehearing was leveled at raw

data contained in Codfish Corporation’s May, 1985 study, not

the initial feasibility study, and relates to the cost of transporting

raw material from ‘‘new sources.’’ Plaintiffs’ Main Brief

supporting their Rule 56.1 motion at 30. The accuracy of this

data, which is relevant only to the issue of Codfish Corporation’s

viability after it was already affected by LTFV imports, affords

Appendix B

plaintiffs no basis for a rehearing. Likewise, plaintiffs’ preference

for conclusions contained in the Citicorp study regarding the cost

effectiveness of Codfish Corporation procuring raw materials from

traditional source countries over those contained in the initial

feasibility study affords plaintiffs no basis for a rehearing.

Plaintiffs, once again, are simply repeating arguments previously

made in this case which have been rejected by the court.

Plaintiffs state two objections to the court’s treatment of

the working capital issue: first, the court should not have faulted

plaintiffs for failing to present specific evidence regarding Codfish

Corporation’s capital needs because the Commission denied

plaintiffs’ request for disclosure of Codfish Corporation’s initial

feasibility study; and second, the court’s conclusion that Codfish

Corporation’s working capital was adequate was based on

unsubstantiated statements of counsel which demonstrates an

absence in the record of substantial evidence which would support

this factual determination by the court. Plaintiffs’ Memorandum

at 14-17.

While access to Codfish Corporation’s feasibility study might

have helped plaintiffs prepare their argument, given the availability

of other sources of relevant information, including the opportunity

to question Codfish Corporation’s president Paulo da Cunha at

the May 20, 1985 ITC hearing, the court is not convinced that

the Commission’s refusal to disclose the feasibility study

irreparably hindered plaintiffs’ presentation. In any case, disputes

regarding access to information at the administrative level should

be resolved during the administrative proceeding. Substantial

evidence exists in the record to support the Commission’s

determination and the determination will not be overturned merely

because, under other circumstances, plaintiffs might have presented

more evidence.

Appendix B

Plaintiffs argue that the court’s opinion on working capital

cites only statements of counsel in support of this conclusion and

not actual evidence in the record. Although counsels’ statements

are cited, this does not signify that evidence of record does not

exist. The court had before it the entire record compiled before

the Commission, including the initial feasibility study, when it

evaluated plaintiffs’ arguments and the Commission’s

determination. E.g., ITC Staff Report at A-31 to A-38; Codfish

Corporation’s Initial Market Feasibility Study, reprinted in ITC

Staff Report A-101, A-109 (Appendix C). Based upon this

evaluation of the record, the court found that substantial evidence

existed to support the conclusion that Codfish Corporation did

not lack working capital with which to purchase inventory. If

plaintiffs wish to take issue with this evaluation, they may not

do so now before this court. ‘‘An allegedly incorrect evaluation

of evidence by a trial court is not a proper ground for rehearing

but for appeal.’’ Eiseman-Ludmar Co. v. United States, 2 CIT

109 (1981). Although this matter did not come before the court

for de novo hearing, the proposition remains true here as well.

Plaintiffs’ final argument, that substantial evidence does not

exist to support the conclusion that the demand for cod was not

declining, must also be dismissed. Plaintiffs cite a statement by

the Puerto Rico Chamber of Commerce that demand in Puerto

Rico for dried salted fish had declined. In support of the contrary

conclusion, the Commisson relied upon data that the sales volume

of cod was stable at relatively high price levels. Plaintiffs contend

that this data is inaccurate and beyond the scope of investigation

because the data was not compiled at the time of Codfish

Corporation’s inception. First, this argument takes issue with the

court’s evaluation of evidence and provides plaintiffs with no basis

for a rehearing. Second, this argument is not compelling. The

pricing data relied upon by the Commission appears in the

10a

Appendix B

appendix to the determination. The fact that the data was compiled

in 1985 should not obviate its probative value. In verifying the

relevance of portions of the Citicorp Study, the court recognized

that following the progress of an industry could reveal important

information about initial viability, (provided LTFV effects were

taken into consideration). Consumer demand is clearly a factor

that may be better understood by observing fluctuations over time.

Thus, there does not seem to be any inconsistency in the court’s

analysis.

In summary, plaintiffs have advanced no argument that the

court did not consider in its original decision and have presented

no acceptable grounds for granting a rehearing.

Accordingly, plaintiffs’ motion for a rehearing, pursuant to

Rule 59, is denied and the original decision must be adhered to.

lla

APPENDIX C—OPINION OF THE UNITED STATES COURT

OF INTERNATIONAL TRADE (DECISION AND

JUDGMENT)

BMT COMMODITY CORP., and Delica Distributors, Inc.,

Plaintiffs,

UNITED STATES and United States International Trade

Commission

Defendants,

and

Codfish Corp.,

Defendant-Intervenor.

Court No. 85-7-00915

United States Court of International Trade.

July 22, 1987.

Freeman, Wasserman & Schneider, Jack G. Wasserman, New

York City, for plaintiffs.

Lyn M. Schlitt, General Counsel, Michael P. Mabile, Asst.

General Counsel and Judith M. Czako, U.S. Intern. Trade Com’n,

Washington, D.C., for defendants.

12a

Appendix C

Patton, Boggs & Blow, Bart S. Fisher and Michael D. Esch, ’

Washington, D.C., for defendant-intervenor. -

OPINION

RESTANI, Judge:

Plaintiffs initiated this action to challenge the International

Trade Commission’s (Commission) final affirmative dumping

determination in Certain Dried Salted Codfish from Canada, Inv.

No. 731-TA-199, USITC Pub. No. 1711.' In its determination,

the Commission concluded that ‘‘the establishment of an industry

in the United States is materially retarded by reason of imports

of dried heavy salted codfish from Canada, which the Department

of Commerce (Commerce) has determined are sold at less than

fair value (LTFV).’’ ITC Determination at 3.

The domestic industry under review consists of only one

company, defendant-intervor Codfish Corporation, which

commenced operations in November 1982, in Ponce, Puerto Rico.’

1. The results of the final determination are also published at 51 Fed.Reg.

16,904 (May 7, 1986).

2. Although the Tariff Act of 1930 does not specifically include Puerto

Rico as part of the United States for purposes of the Act, plaintiffs have not

contested this issue. The court notes that the Tariff Schedules of the United

States and the Antidumping Act of 1921 both contained definitions of ‘‘The

United States’’ which encompassed Puerto Rico. The Trade Agreements Act

of 1979 did not adopt the definition of ‘“‘United States’’ included in the

Antidumping Act of 1921, but there is no indication that Congress intended

to exclude Puerto Rico from the purview of the Act. See S. Rep. No. 249,

96th Cong., Ist Sess. at 107 (no substantial rules intended to be changed except

as indicated in the Report), reprinted in 1979 U.S.Code Cong. & Admin.News

381, 493.

13a

Appendix C

Id, at 5. Due to declining import prices, Codfish Corporation

suffered large operating losses from 1982 through the third quarter

of 1984. On July 19, 1984, it filed its antidumping petition; five

months later it ceased operating and filed a petition for

reorganization under the federal bankruptcy laws. At the time

the final determination was published, Codfish Corporation had

taken steps to reopen its plant. It received approval for a $2 million

line of credit from the Government Development Bank, and

negotiated several new agreements for the procurement of fresh

cod and the distribution of its processed product. Jd. at 8-9.

In its determination, the Commission concluded that a

pervasive pattern of underseliing by dominant Canadian imports

of codfish had resulted in the suppression and depression of

domestic prices. Jd. at 11. The Commission confirmed virtually

all of defendant-intervenor’s allegations of lost sales and revenues,

id. at 12, and further found that the prices of Canadian imports,

after falling continuously from 1982 through the third quarter

of 1984, rose across the board after defendant-intervenor ceased

production in the final quarter of 1984. Jd. at 11.

Plaintiffs do not contest these conclusions; rather, they

challenge a portion of the legal framework developed by the

Commission for cases involving the material retardation of

domestic industries. The parties agree that existing case law,

administrative precedent, and legislative history offer little guidance

in this area. Prior Commission determinations establish only that

‘*(1) application of the material retardation standard is not limited

to industries that have not yet begun production, but extends as

well to new facilities that have initiated production but have not

yet stabilized their operations; (2) because the attempt to establish

a new industry is inherently unique, determination of whether

the establishment of an industry is materially retarded is to be

l4a

Appendix C

made on a case-by-case basis; and (3) in instances involving an

industry that has not yet undertaken production, there must be

a sufficient indication that the industry has made a ‘substantial

commitment’ to commence production.’’’ Jd. at 4-5.

The Commission developed additional legal standards to

complete the analytical framework necessary for its material

retardation analysis. It first attempted to ascertain whether the

investigation involved material injury or the threat thereof, rather

than material retardation. Because defendant-intervenor was

“‘never able to stabilize production at a level which even

approached a reasonable break-even point,’’ the Commission

determined that its operations were never ‘‘established,’’ and,

therefore, that material retardation was the applicable legal

standard. Jd. at 5.

Having concluded that material retardation was at issue, the

Commission then stated that the proper inquiry for determining

the presence of material retardation was ‘‘whether the level of

activities of Codfish Corporation reflect merely the normal start-

up conditions of a company entering an admittedly difficult market

or whether the performance is worse than what could reasonably

be expected and thus be deemed materially retarded.’’ Jd. The

majority determined that Codfish Corporation’s performance was,

in fact, worse than what could reasonably be expected, but it did

not conclude that material retardation had been established at

3. See, e.g., Thin Sheet Glass from Switzerland, Belgium, and the Federal

Republic of Germany, Inv. Nos. 731-TA-127, 128, and 129, USITC Pub. No.

1376 (1983) (Preliminary Dumping); Certain Commuter Airplanes from France

and Italy, Inv. Nos. 701-TA-174 and 175, USITC Pub. No. 1296 (1982)

(Preliminary Dumping); Sa/mon Gill Fish Netting of Manmade Fibers from

Japan, Inv. No. 751-TA-5, USITC Pub. No. 1234 (1982) (Review of Dumping

Determination under § 751(b) of the Tariff Act of 1930).

15a

Appendix C

this point. Instead, the majority stated that the viability of

defendant-intervenor’s business was also a relevant concern in

this case. Jd. at 7. The elements of viability that the Commission

considered important in this case were “‘the ability to produce

a marketable product, which is qualitatively acceptable to

purchasers, and which can be sold at a price which is competitive

with fairly traded imports.’’ /d. at 8. After finding that Codfish

Corporation’s business was viable, the Commission concluded

that material retardation had been established. Jd. at 8-9.

Plaintiffs object to the Commission’s treatment of the viability

issue, claiming that the legal standard of viability formulated by

the majority was not in accordance with law, and that its finding

of viability was unsupported by substantial evidence. These issues

are addressed below.

I. The Legal Propriety of the Commission’s Viability Standard

Plaintiffs argue that the Commission’s determination was

not in accordance with law because a majority of the

commissioners did not adopt ‘‘a single, identifiable standard of

law’’ on the issue of viability. Plaintiffs’ Reply Brief at 7. In the

determination, one commissioner focused solely upon the viability

of the domestic industry during the period of investigation. He

explicitly stated that, in his opinion, the petitioner need not prove

future viability. ITC Determination at 7 n. 16. Another

commissioner considered the viability of Codfish Corporation at

its inception, but stated that future viability was also relevant

‘*as it strengthen[ed] his conclusions concerning the viability of

the domestic industry.”” Jd. at 8 n. 20. The two remaining

commissioners who concurred in the majority opinion focused

upon the viability of Codfish Corporation at its inception and

in the future. Jd. at 7-8.

16a

Appendix C

In order for the Commission’s determination to be upheld

in this case, the court must be able to discern from the

determination that a majority of the Commission has based its

conclusions upon legally sufficient reasoning. See 19 U.S.C.

§ 1677(11)(c)(1982). C. USX Corp. v. United States, 11 CIT

___., 655 F.Supp. 487, 497 (1987) (action remanded where

majority of commissioners failed to cumulate imports for reasons

contrary to law). The court will first consider the soundness of

the Commission’s legal approach and will then discuss the extent

to which the legal underpinnings were accepted by the individual

commissioners.

None of the parties to this proceeding have challenged the

Commission’s conclusion that Codfish Corporation’s viability at

inception is a relevant consideration in this case.‘ As plaintiffs

have stated, it would be counterproductive for the unfair trade

laws to provide relief to domestic industries that cannot compete.

See R. Caves and R. Jones, World Trade and Payments 260 (1973)

(‘protection is not worthwhile if the [domestic] industry could

never compete’’); accord, J. Viner, Dumping: A Problem in

International Trade 137 (1966). The imposition of duties upon

foreign :mports would only increase costs to American consumers,

without providing a reciprocal benefit to nascent American

industries. In its determination, the Commission considered

Codfish Corporation’s labor, energy and raw materials costs; the

cost-effectiveness of its distribution and marketing channels; and

the effect of the hot, humid Puerto Rican climate on the cost

4. The majority determination does not explicitly state that the Commission

was considering the viability of Codfish Corporation from the ‘time of its

inception; however, this fact may be inferred from the Commission’s statement

that it analyzed the company’s initia/ business plan and original marketing and

feasibility study. ITC Determination at 8.

17a

Appendix C

of drying the codfish. ITC Determination at 7-8. These variables

can all affect the viability of a nascent enterprise, and therefore

were proper objects of scrutiny for the Commission.’

Although it agrees with the analysis of ‘‘viability at inception’’

performed by the Commission, the court has some reservations

about the Commission’s analysis of ‘‘future viability.’ Observing

that Codfish Corporation had ceased operations and filed for

bankruptcy in November 1984, the Commission stated that ‘‘[t]he

future viability of petitioner’s business operations is a relevant

5. Codfish Corporation seizes upon language in the determination to argue

that the Commission was solely concerned with inherent viability. See ITC

Determination at 7. It contends that the inherent viability standard requires

the Commission to conclude that an industry is not viable only if “‘inherent

disadvantages entirely unrelated to the effects of LTFV imports . . . remove

any commercial possibility that the industry could become established. " Brief

of Defendant-Intervenor at 13. In effect, Codfish Corporation requests that

the Commission ‘‘defer to the business judgment of investors, so long as their

plan of operations is within the realm of commercial reasonableness.”’ /d. at 12.

In the determination and in its brief, the Commission appears to have used

the terms ‘‘inherent viability’’ and ‘‘viability at inception’’ interchangeably. Its

finding of viability was based upon evidence that ‘‘the initial business plan of

(Codfish Corporation] appear(ed] reasonably calculated and could have

succeeded.’ ITC Determination at 8. This analysis of viability does not appear

to be as deferential to the judgment of investors as the interpretation offered

by Codfish Corporation. Some of the factors considered by the Commission,

such as marketing channels and energy costs are not truly inherent in the nature

of an enterprise since they may change over the short term. Furthermore, nothing

in the Commission’s determination implies that the judgment of investors, no

matter how misguided, should be accorded substantial deference. Without

attempting to define the parameters of the viability standard further, a task

the Commission will no doubt undertake in future cases, the court simply

concludes that the Commission acted reasonably in the selection of factors to

be considered in making the viability determination here.

18a

Appendix C

issue in determining whether the establishment of a domestic

industry is being materially retarded.’’ ITC Determination at 8.

It then discussed Codfish Corporation’s new plans for

recapitalization, product distribution, and alternative sources of

cod supply. Jd. at 8-9. On the basis of this information, the

Commission performed a ‘‘break-even analysis’? of Codfish

Corporation’s operations to determine whether it ‘‘could be able

to recommence operations, given fairly traded competition from

imports, and stabilize its production and sales at a level which

will allow it to become established.’’ Jd. at 9.°

The import of the Commission’s analysis is that it could have

denied relief based upon the conditions under which Codfish

Corporation was to be reorganized. In other words, even if it

had found Codfish Corporation’s pre-reorganization problems

were attributable to LTFV imports, the Commission could have

made a negative determination simply because the imposition of

duties would not have been an effective solution to the injured

industry’s problems.

Such a test would run afoul of 19 U.S.C. § 1673d(b)(1)(B),

by allowing the Commission to make a negative determination

when material retardation is being caused by LTFV imports. In

its determination, the Commission considered the reorganized

industry’s new characteristics to evaluate future viability. The

6. The Commission’s use of the term ‘‘future viability’’ is somewhat

confusing. A determination that an industry is ‘‘viable’’ necessarily means that

it is capable of surviving into the future. To the extent that ‘‘future viability’’

is used in this redundant fashion, the court has no objection to it. In this

investigation, however, the term ‘“‘future viability’’ refers to the viability of

Codfish Corporation only in its restructured condition. The court’s objection

to the Commission’s ‘‘future viability’’ analysis specifically refers to the use

of the term in this fashion. ss

vay ere" | |

19a

Appendix C

Commission, however, failed to consider how the existence of

LTFV imports in the marketplace affected the terms upon which

the reorganized Codfish Corporation procured fresh financing

and signed new contracts. Where the Commission judges ‘‘future

viability’’ based upon factors affected by LTFV imports, without

adequately considering such effects, its analysis is inherently

flawed. If no allowance is made for the continuing effects of LTFV

imports, foreign enterprises that force nascent domestic firms into

bankruptcy, in certain circumstances, could preclude indefinitely

the establishment of such industries. Such a result cannot

reasonably be intended by the statute.’

The Commission’s analysis of ‘‘future viability,’’ however,

does not compel remand. The Commission did not make a negative

determination based upon ‘‘future viability.’” The Commission’s

decision was affirmative, and its analysis is sufficient to support

the affirmative determination. All four commissioners concurring

in the majority opinion agreed on the analysis of the relevant

issue here: Codfish Corporation’s viability apart from the effects

of LTFV imports (which in this case is essentially ‘‘viability

7. Plaintiffs argue that the Commission’s finding of ‘‘future viability’’ is

equivalent to a determination that there is a ‘‘threat of future injury’’ to a nascent

industry. Plaintiffs’ Brief at 12. Plaintiffs contend that this test defies

Congressional intent, because Congress specifically chose to incorporate a

“*threat’’ analysis only with respect to material injury of an established industry.

See 19 U.S.C. § 1673d(b)(1)(A) (1982 & Supp. III 1985). The court does not

find this argument persuasive. The Commission did not find that there was

a threat of ‘‘future retardation,’’ as plaintiff contends. Rather, the Commission

concluded that the reorganized corporation could become established. ITC

Determination at 9. In effect, the Commission performed a present material

retardation analysis with respect to both the original and restructured entities.

20a

Appendix C

at inception’’).* The only difference of opinion among this group

concerned the propriety of ‘‘future viability’’ as a relevant factor

in the case.’ For this reason, the court concludes that the

determination was reached in a manner in accordance with law.

II. Substantial Evidence

Plaintiffs also contend that the Commission’s final

determination is not supported by substantial evidence in the

record. ‘‘Substantial evidence’’ refers to ‘such relevant evidence

as a reasonable mind might accept as adequate to support a

conclusion.’’ Matsushita Electric Indus. Co. v. United States, 750

F.2d 927, 933 (Fed.Cir.1984) (quoting Universal Camera Corp.

v. NLRB, 340 U.S. 474, 477, 71 S.Ct. 456, 459, 95 L.Ed. 456

(1951)). Again, plaintiffs, do not challenge the portion of the

determination regarding causation, but attack only that portion

of the determination relating to the viability of Codfish

Corporation. Specifically, plaintiffs contend that the Commission

relied upon ‘‘error-ridden’’ documents; accepted the company’s

unrealistic assertions regarding its fixed costs, future sources of

cod, and future costs of transportation; and improperly failed

8. The court does not preclude the possibility that in another case it can

be demonstrated that an industry once considered viable is no longer viable

because of changing conditions, apart from the effects of LTFV imports. See

supra, note 6. This is not the case at hand. Plaintiffs have made no showing

that there were such unaffected factors.

9. One of the four commissioners in the majority stated that he had

considered ‘‘viability during the period of the investigation,’’ rather than viability

at inception. ITC Determination at 7 n. 16. This commissioner, however appears

to have considered the same factors as the other members of the majorit’. Even

if his reasoning were construed to conflict with the other members, the

determination would still be supported by a majority of three commissio.ers.

2la

Appendix C

to consider the declining market for cod in its break-even analysis.

Plaintiffs’ Brief at 24-34. In addition, plaintiffs contend that

Codfish Corporation was not viable at its inception because it

was located in a hot, humid region where drying costs are high,

and because it lacked adequate capital, marketing ability, and

an economical source of cod. Plaintiffs’ Brief at 18-22.

Plaintiffs do not contend that the initial feasibility study

considered by the Commission was flawed because of defects in

the raw data contained in the report. Rather, plaintiffs challenge

the conclusions reached in the document, and express a preference

for the findings made in a separate study prepared by the Citicorp

Capital Markets Group. Plaintiffs allege that the majority erred

by not considering this report and adopting some of its conclusions.

In essence, plaintiffs are questioning the thoroughness of the

Commission’s investigation. See Kenda Rubber Indus. Co. v.

United States, 10 CIT ___., 630 F.Supp. 354, 356 n. 4 (1986)

(contrasting determinations not supported by substantial evidence

to those in which the underlying investigation was not legally

sufficient).

In response, the government has challenged the relevancy of

the Citicorp report, stating that ‘‘a study prepared with the benefit

of two years experience, and the hindsight which accompanies

experience, is hardly a reasonable basis upon which to conclude

that Codfish Corporation was not viable at its inception.’’

Defendants’ Brief at 20. Plaintiffs dismiss this argument as

‘“*crypto-legalese mumbo-jumbo”’ and maintain that the timing

of the report should not affect its probative value on the issue

of viability. Plaintiffs’ Reply at 13.

Plaintiffs’ characterization of defendants’ argument is a bit

overstated, but not far off the mark. A report analyzing the

22a

Appendix C

progress of an industry over time may contain important insights

into how a specific factors affect profitability, provided that these

factors are considered in light of the possible effect of LTFV

imports. Nevertheless, it is apparent that the Citicorp study was

considered by the Commission during the preparation of its own

break-even analysis. See ITC Determination at A-24. Thus, the

ITC cannot be said to have conducted an insufficient investigation

as a matter of law; the real question at issue is whether, in light

of the Citicorp report, the Commission’s findings are supported

by substantial evidence.

After reviewing the remaining allegations and related material

in the record, the court finds that the Commission’s determination

was supported by substantial evidence. Although plaintiffs assert

that Codfish Corporation’s working capital was inadequate, they

presented no evidence to the Commission regarding the level of

working capital necessary for the proper functioning of Codfish-

Corporation’s facility. Plaintiffs offered some evidence on the

amount of working capital their own facility requires, but this

data was not shown to be applicable to Codfish Corporation.

Hearing Transcript at 112. Furthermore, defendant-intervenor

presented uncontroverted evidence that Codfish Corporation never

lacked working capital with which to purchase inventory. See

Prehearing Brief of Codfish Corp. at 36. ;

From the record, it is also clear that the Commission was

aware of Codfish Corporation’s practice of marketing strictly to

wholesale purchasers. ITC Staff Report at A-13. Although

plaintiffs argue that this strategy destroyed the company’s viability,

there is no evidence in the record demonstrating that this was

an unreasonable practice, or that it was an inherent feature of

the company’s business strategy. Plaintiffs cite a passage from

the Citicorp study which concluded that the company ‘‘did not

23a

Appendix C

establish a coherent marketing strategy,’’ but the study did not

conclude that direct access to retailers was essential for viability.

It stated that ‘‘{a] link to an existing strong wholesaler with a

good sales force is the logical route for the company to follow

.... Citicorp Study, Doc. 2, at 49.

The Commission also rejected plaintiffs’ assertion that

consumer demand for cod was declining. It specifically noted that

the sales volume of codfish was stable at relatively high price levels

in 1985, a fact suggesting that demand was not declining for the

product. ITC Determination at 12. Plaintiffs’ remaining

contentions, that sources of codfish were too expensive, and that

the Puerto Rican climate is unacceptable for a fish drying

operation, were found by the majority not to outweigh advantages

that Codfish Corporation gained by locating near a large codfish

market with low labor costs. ITC Determination at 7. It is not

the function of this court to ‘‘re-weigh’’ factors considered by

the Commission; it may only consider whether the Commission’s

determinations are supported by substantial evidence. Matsushita

Electric, 750 F.2d at 936. The Commission has clearly satisfied

this test.

As indicated, the court has concluded that the Commission’s

finding regarding initial viability was supported by substantial

evidence. The court need not consider whether substantial evidence

supported the Commission’s determination with respect to the

industry’s post-bankruptcy cod sources, transportation costs, and

re-capitalization because the record contains no evidence to support

a decision to set aside the finding of initial viability due to changed

circumstances independent of LTFV imports.'°

10. As discussed above, the court does not find it necessary to review the

(Cont’d)

24a

Appendix C

For the foregoing reasons, the Commission’s decision is

sustained.

JUDGMENT

This case having been duly submitted for decision and the

Court, after due deliberation, having rendered a decision herein;

now, in conformity with said decision,

IT IS HEREBY ORDERED: that plaintiffs’ motion for

judgment based upon the administrative record is denied and this

action is hereby dismissed.

(Cont'd)

Commission's discussion of ‘future viability.’’ The court notes, however, that

if it had reviewed this aspect of the determination, it would have rejected

plaintiffs’ arguments. The Commission’s ‘future viability’’ analysis considered

the same factors discussed in its analysis of ‘‘viability at inception,”’ and was

supported by substantial evidence contained in the Citicorp study and in the

Commission’s own break-even analysis.

—

2Sa

APPENDIX D — DETERMINATION OF THE U.S.

INTERNATIONAL TRADE COMMISSION

UNITED STATES INTERNATIONAL TRADE COMMISSION

Washington, DC

Investigation No. 731-TA-199 (Final)

CERTAIN DRIED SALTED CODFISH FROM CANADA

Determination

On the basis of the record' developed in the subject

investigation, the Commission’ determines, pursuant to section

735(b) of the Tariff Act of 1930 (19 U.S.C. § 1673d(b)), that

the establishment of an industry in the United States is materially

retarded by reason of imports from Canada of certain dried heavy

salted codfish, provided for in item 111.22 of the Tariff Schedules

of the United States, which have been found by the Department

of Commerce to be sold in the United States at less than fair

value (LTFV).

Background

The Commission instituted this investigation effective January

29, 1985, following a preliminary determination by the Department

of Commerce that imports of certain dried heavy salted codfish

from Canada were being sold at LTFV within the meaning of

section 731 of the Act (19 U.S.C. § 1673). Notice of the institution

of the Commission’s investigation and of a public hearing to be

1. The record is defined in sec. 207.2(i) of the Commission’s Rules of

Practice and Procedure (19 CFR § 207.2(i)).

2. Vice Chairman Liebeler dissenting.

26a

Appendix D

held in connection therewith was given by posting copies of the

notice in the Office of the Secretary, U.S. International Trade

Commission, Washington, DC, and by publishing the notice in

the Federal Register of February 21, 1985 (SO FR 7236). The

hearing was held in Washington, DC, on May 20, 1985, and all

persons who requested the opportunity were permitted to appear

in person or by counsel.

VIEWS OF CHAIRWOMAN PAULA § STERN,

COMMISSIONER ALFRED E. ECKES,

COMMISSIONER SEELEY G. LODWICK, AND

COMMISSIONER DAVID B. ROHR

On the basis of the record in investigation No. 731-TA-199

(Final), we determine that the establishment of an industry in

the United States is materially retarded by reason of imports of

dried heavy salted codfish from Canada, which the Department

of Commerce (Commerce) has determined are sold at less than

fair value (LTFV). The Commission’s investigation reveals

suppression and depression of domestic prices, as well as confirmed

instances of lost sales and lost revenues due to imports from

Canada. The petitioner was unable to market its product

competitively and thereby stabilize its production and sales at a

level which would allow it to become established.

Like product and the domestic industry’

Dried heavy salted codfish is a processed fish made from

fresh cod, a groundfish caught on or near the sea bottom in cold

or temperate waters, such as the North Atlantic and the northern

1. Vice Chairman Liebeler joins in this discussion of the like product and

domestic industry.

Ne — ue ° “

27a

Appendix D

Pacific Ocean.’ In our preliminary determination’ regarding this

product, we concluded that the like product is dried heavy salted

codfish, and the domestic industry consists of the operations of

petitioner Codfish Corporation, the only known processor of dried

heavy salted codfish in the United States. No party has raised

any arguments in favor of a different determination, and the

information in the record does not suggest a different conclusion.

Therefore, we adopt the definitions of like product and domestic ~

industry reached in our preliminary determination.‘ *

Material retardation of the establishment of a domestic industry

Section 735 of the Tariff Act of 1930 requires that the

Commission make a final determination of whether—

(A) an industry in the United States—

(i) is materially injured, or

(ii) is threatened with material injury, or

(B) the establishment of an industry in the

United States is materially retarded,

2. Report of the Commission (Report) at A-2-A-3.

3. Certain Dried Salted Codfish from-Canada, Inv. No. 731-TA-199

(Preliminary), USITC Pub. 1571 (1984) (hereinafter Preliminary

Determination).

4. Preliminary Determination at 3-5.

5. Because of the manner in which petitioner maintains its records, some

of the information concerning the domestic industry includes data relating to

production of other dried salted fish such as pollock or hake. To the extent

possible, we have considered only data related to petitioner’s operations

producing dried heavy salted codfish.

OC —————

28a

Appendix D

by reason of LTFV imports.°

The petitioner in this investigation alleged that the

establishment of a domestic industry is materially retarded by

reason of LTFV imports of dried heavy salted codfish from

Canada. Prior Commission determinations regarding the issue

of material retardation establish that: (1) application of the

material retardation standard is not limited to industries that have

not yet begun production, but extends as well to new facilities

that have initiated production but have not yet stabilized their

operations; (2) because the attempt to establish a new industry

is inherently unique, determination of whether the establishment

of an industry is materially retarded is to be made on a case-by-

case basis; and (3) in instances involving an industry that has not

yet undertaken production, there must be a sufficient indication

that the industry has made a ‘‘substantial commitment’’ to

commence production.’

A significant question with regard to the issue of material

retardation in this investigation is whether it is appropriate to

view the case as one of material injury or the threat thereof, rather

6. 19 U.S.C. § 1673d.

7. See, e.g., Thin Sheet Glass from Switzerland, Belgium, and the Federal

Republic of Germany, Inv. Nos. 731-TA-127, 128, and 129 (Preliminary), USITC

Pub. No. 1376 (1983); Certain Commuter Airplanes from France and Italy, Inv.

Nos. 701-TA-174 and 175 (Preliminary), USITC Pub. No. 1296 (1982); Salmon

Gill Fish Netting of Manmade Fibers from Japan, Inv. No. 751-TA-5, USITC

Pub. No. 1234 (1982).

29a

Appendix D

than material retardation. Petitioner commenced production in

late 1982, and produced dried heavy salted codfish on a commercial

basis through November 1984, when it shut down its operations.*

However, during the entire period of its operations, the petitioner

was unable to stabilize production at a level which even approached

a reasonable break-even point. We determine that the domestic

industry in this investigation, which consists of petitioner’s

operations in Puerto Rico, was never ‘‘established,’’ and that

therefore material retardation is the applicable standard in this

investigation.

In the preliminary investigation, the Commission phrased the

question of material retardation as ‘‘whether the level of activities

of Codfish Corporation reflect merely the normal start-up

conditions of a company entering an admittedly difficult market

or whether the performance is worse than what could reasonably

be expected and thus be deemed materially retarded.’’® We used

this approach in analyzing the issue of material retardation in

this final investigation. The difficulty is determining what level

of performance ‘‘could reasonably be expected.’’ The market and

feasibility study prepared by petitioner and FOMENTO” at the

inception of its business operations provides us with a benchmark

of expected performance against which to measure the actual

8. Petitioner plans to reopen its plant in summer 1985, pending the

conclusion of negotiations with the FDIC concerning loans from the now-

bankrupt Girod Trust, and the receipt of additional capital financing from the

Government Development Bank of Puerto Rico. See Report at A-5.

9. Preliminary Determination at 6-7.

10. Project Description for the Establishment of the Portuguese-Puerto

Rican Codfish Corporation, reprinted at Report, Appendix C. FOMENTO is

the Spanish acronym for the Government of Puerto Rico Economic Development

Administration.

30a

Appendix D

performance of petitioner.''

There does not appear to be any serious dispute that Codfish

Corporation has not operated successfully.'* Domestic shipments

of dried heavy salted codfish during all periods of petitioner’s

operations were substantially below its projected break-even

quantities.'? Even during its best period, January-November 1984,

petitioner’s capacity utilization rate fell well below its projected

break-even level.'* Employment declined during petitioner’s period

of operations, and since November 30, 1984, all production and

related workers have been on temporary layoff.'’ Financial

information obtained from Codfish Corporation indicates that it

it lost money during its entire period of operations. The company

has a relatively large current debt, as well as long-term debt related

11. We note that such feasibility studies are based on assumptions about

the future and that it is not unexpected that petitioner’s actual performance

might be below that projected. A feasibility study such as that presented in

this investigation must be analyzed in light of actual conditions in order to

determine what performance could reasonably be expected.

12. Due to the relatively short time Codfish Corporation has been in

existence and the manner in which it maintains its data, we do not have the

same data available concerning the condition of the domestic industry as in

a more typical investigation.

13. Report at A-12. Because there is only one company in the domestic

industry, almost all information concerning its operations is business confidential

and thus can be discussed only in general terms.

14. Report at A-12. See Jd. at A-23 for a discussion of petitioner’s initial

market study and projected sales and production volumes. Further break-even

analyses of petitioner’s operations appear at pages A-24-A-26 of the Report.

15. Id. at A-13.

NC, SD en Dire Sm oa Nae

es care tn is wissen necii his

3la

Appendix D

to investment in physical facilities. Petitioner has never achieved

a level of operation which even approaches a break-even level.

Thus, the information on the record indicates that Codfish

Corporation’s performance to date is substantially poorer than

that which could reasonably have been expected.

A principal focus of the Canadian producers’ and importers’

argument has been that petitioner’s operation in Puerto Rico is

inherently unviable, and could never operate profitably, regardless

of LTFV imports.'* They allege that the hot, humid climate of

Puerto Rico makes it entirely unsuitable for a fish drying

operation.'’ Petitioner responds by arguing that its plant is a

feasible operation, due to lower labor costs and certain marketing

and distribution advantages, which outweigh its relatively high

energy costs. Our examination of the information in the record

indicates that the major component of petitioner’s costs of

production is raw material costs.'* The disadvantages of petitioner

vis-a-vis Canadian producers’ costs in certain areas are balanced

16. Commissioner Eckes focused on the viability of the domestic industry

during the period of investigation in making his determination of material

retardation. He does not believe the petitioner must prove future viability to

obtain relief from unfair imports.

17. Fish drying operations require the passage of constant streams of warm,

dry air over the fish for a period of up to 5 days. Petitioner’s entire factory

is air conditioned, to provide an appropriate temperature to prevent spoilage

of the fish during initial handling and processing. By contrast, the cooler, dryer

climate of Canada means that air conditioning of plants is not required. In

addition, the Canadian producers close their plants during the warmest months

of July and August. It must be noted, however, that petitioner’s plant is

acknowledged to be a state-of-the-art fish drying plant.

18. Report at A-15.

32a

Appendix D

against advantages enjoyed by petitioner in other areas.

The viability of the nascent domestic industry is a relevant

consideration in deciding the issue of material retardation in this

investigation. The elements of viability which are important in

this investigation are the ability to produce a marketable product,

which is qualitatively acceptable to purchasers, and which can

be sold at a price which is competitive with fairly traded imports. '*

On the basis of our analysis of the above-mentioned marketing

and feasibility study, the initial business plan of the petitioner

appears reasonably calculated and could have succeeded.

The Canadian producers and importers argue that, given its

current status and the current market for dried heavy salted

codfish, petitioner will never be able to reopen its plant and operate

it as a successful business.*° The future viability of petitioner’s

business operations is a relevant issue in determining whether the

establishment of a domestic industry is being materially retarded.*'

Codfish Corporation has provided us with information concerning

its plans to reopen its plant in Puerto Rico. Petitioner has received

approval of a $2 million line of credit from the Government

Development Bank, to provide necessary additional capital.*?

19. See Salmon Gill Fish Netting of Manmade Fibers from Japan, Inv.

No. 751-TA-5, USITC Pub. 1234 (1982).

20. Commissioner Lodwick focused his attention in this investigation

primarily on the viability of the domestic industry at its inception in making

his determination. However, he also believes that the following discussion of

Codfish Corporation's future viability is relevant, as it strengthens his conclusions

concerning the viability of the domestic industry.

21. See note 16, supra.

22. Report at A-S5.

33a

Appendix D

Codfish Corporation has also recently signed an agreement with

Packers Provision, the largest meat distributor in Puerto Rico,

pursuant to which Packers Provision will handle marketing and

distribution of petitioner’s product through its existing channels,

as well as develop new markets for the product.”’ In addition,

petitioner has made arrangements to procure raw material (wet

salted codfish) from Alaska and New England at competitive world

market prices.**

Based on this information concerning petitioner’s plans, the

Commission has prepared a break-even analysis of petitioner’s

operations, using information collected from independent sources

where possible as well as information provided by petitioner. We

are persuaded that petitioner could be able to recommence

operations, given fairly traded competition from imports, and

stabilize its production and sales at a level which will allow it

to become established.**

Causation

Petitioner’s argument regarding causation in this investigation

rests primarily on its contention that the price of Canadian imports

has been continually lowered in an effort to prevent its

23. Id. at A-7; Transcript of Hearing (Tr.) at 38-41, 61.

24. Report at A-26-A-27.

25. We do not believe a negative determination is warranted simply because

the imposition of antidumping duties may not be a complete solution to

petitioner’s difficulties. The antidumping-law is not intended to be punitive;

neither is it intended to protect domestic industries from fair competitive forces.

It is intended to allow domestic industries the opportunity to compete free from

injury caused by unfairly traded imports.

34a

Appendix D

entrance into the market.”* Thus, pricing data are critical in our

determination.

A new entrant into the market must consider what sales

volume, at a certain price, is necessary for the business venture

to succeed. Petitioner’s initial business plans called for prices to

be established somewhat below the then-current prices for imports

of dried heavy salted codfish from Canada. As a new entrant

to the market, particularly when, as is the case here, the product

is sold largely on the basis of price, it would be reasonable for

petitioner, whose product was as yet unproven, to seek to undersell

the dominant Canadian imports in order to capture a share of

the market.

The pricing data gathered in this investigation indicate that,

at the wholesale level,”’ prices of both imports and the domestic

26. We note that some attention has been given by all the parties to

the question of whether Canadian producers commenced dumping in order to

prevent petitioner from establishing the domestic industry. Predatory dumping

is not at issue in this investigation, because the Canadian producers’ intent is

irrelevant to the Commission’s determination. Commerce has determined that

imports of dried heavy salted codfish from Canada have been sold at LTFV

in the United States. The Commission must therefore determine whether the

establishment of the domestic industry is materially retarded by reason of those

LTFV imports, regardless of whether they were intended to have that effect.

27. The wholesale level is the most relevant for purposes of comparisons

of import and domestic prices in the U.S. market for dried heavy salted codfish.

Sales to a relatively small number of large wholesale distributors in Puerto Rico

are the first and most critical level of competition between Canadian imports

of dried heavy salted codfish and the domestic product. Prices to these

wholesalers determine not only profit (or loss) to the importer and the domestic

producer, but also set the competitive price advantage or disadvantage of these

(Cont'd)

35a

Appendix D

product declined throughout the period under investigation until

the fourth quarter of 1984.** Moreover, imports of Canadian dried

heavy salted codfish in the most popular product categories, semi-

dry cure heavy salted codfish from Newfoundland and ordinary

cure heavy salted codfish from Nova Scotia and other non-

Newfoundland sources, undersold the domestic product during

most of the quarters for which comparisons are possible until

the fourth quarter of 1984.** Thus, margins of underselling at

the wholesale level characterize prices of the bulk of imports of

dried heavy salted codfish from Canada.*°

Canadian imports accounted for the vast majority of domestic

consumption during the entire period under investigation.’' These

imports came from a number of Canadian producers, and were

(Cont'd)

wholesalers in resales to sub-wholesalers, supermarkets and cash-and-carry chains,

and independent retail grocers. Absent an integrated island-wide distribution

capability in-house, the domestic producer, of necessity, competed with imports

from Canada for sales to these large wholesale distributors.

28. Report at A-30-A-34.

29. Id. Semi-dry cure accounts for the majority of the dried heavy salted

codfish imported from Newfoundland; virtually all imports from Nova Scotia

are of ordinary cure.

30. Report at A-30-A-34.

31. Because imports of dried heavy salted codfish enter the United States

in a ‘“‘basket”’ tariff category, including different types of both wet and dried

heavy salted fish, the Commission has calculated import figures for dried heavy

salted codfish based on the questionnaire responses of importers estimated to

have accounted for over 90 percent of all U.S. imports from Canada in 1984.

Report at A-29. Apparent consumption was estimated to be the sum of Canadian

exports to the United States and Codfish Corporation’s domestic shipments,

since imports from third countries were apparently minimal until late 1984. Jd.

at A-28-A-29.

36a

Appendix D

imported into the United States by several Puerto Rican importers,

as well as through brokers in the United States and Canada.*”

The result of this pervasive pattern of underselling by these

dominant imports was suppression and depression of domestic

prices. The result of declining prices in the U.S. market was the

inability of petitioner to market its product competitively at the

wholesale level at a price which would allow it to recoup its costs

and make a profit.”

In addition, we note that the price of imports from Canada

increased at the wholesale level across the board during the fourth

quarter of 1984.°* This increase occurred even before the

imposition of a bonding requirement-following the preliminary

affirmative determination of Commerce. At that time, the market

presence of Codfish Corporation was minimal, as it had sold off

most of its remaining product preparatory to shutting down its

operation in November 1984.

We note, moreover, that first quarter 1985 sales, at higher

prices, appear to have remained at levels comparable to those

achieved in previous years, suggesting that the higher prices did

not significantly affect sales.** This suggests a certain degree of

32. Id. at A-6-A-8.

33. Moreover, when the domestic producer, unable to market its product

competitively at the wholesale level, attempted to sell to the sub-wholesale/ retail

market, offering the same prices, it was undersold at the low end of the import

price range by semi-dry Canadian dried heavy salted codfish. Report at

A-34-A-36.

34. Id. at A-30-A-34.

35. See Prehearing Brief of Codfish Corporation at Attachment E.

tee

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Oat be AE BEI Aa wabns cere

37a

Appendix D

inelasticity of demand, which contradicts the Canadian producers’

and importers’ argument that prices declined due to

decreasing demand in the Puerto Rican market during this time

period. Had the LTFV imports from Canada not drawn the U.S.

market price of dried heavy salted codfish downward during the

period under investigation, petitioner would have been able to

market its product- at prices which would have allowed it to

establish itself in the marketplace. Furthermore, the information

in the record concerning petitioner’s plans for sourcing wet salted

codfish indicates that Codfish Corporation should now be able

to price its product at levels which would allow it to establish

itself in the marketplace. ~

In addition to our analysis of the pricing data in this

investigation, we note that the Commission was able to confirm

virtually all allegations of lost sales and lost revenues by Codfish

Corporation to imports from Canada.** *’ In most of these cases,

the purchasers indicated that the quality of petitioner’s product

was adequate, and that they would be willing to buy petitioner’s

product, provided the price was competitive.”*

Two importers of Canadian dried heavy salted codfish argued

in their briefs and at the hearing that the Commission should

reach a negative determination because dumping by the Canadians

is the result of market forces (i.e., a declining world market price

36. Report at A-41-A-44.

37. Chairwoman Stern notes that these lost sales and lost revenue allegations

represented only a small percentage of domestic shipments and net sales for

the period January 1, 1983 through November 1984.

38. Report at A-41-A-44.

38a

Appendix D

for dried heavy salted codfish, and declining demand in the Puerto

Rican market) and not a response to petitioner’s attempt to

commence production. In addition, the Canadian producers and

importers argued that international market conditions determine

the price of dried heavy salted codfish in the U.S. market, and

that if antidumping duties were imposed, the Canadian imports

in the U.S. market would simply be replaced by low-priced imports

from Norway, Iceland, or some other third country source.”

These arguments are not supported by information on the

record. Such replacement would require that these countries divert

exports from current markets to the U.S. market. Information

in the record suggests that there is a limited amount of dried heavy

salted codfish available from third country sources which can be

directed to the U.S. market.’’

38. We note that, according to information submitted by the Canadian

producers, during 1983 and 1984, Canadian export prices to the United States

were higher than to the rest of the worid. However, there does not appear to

have been a significant increase in third country imports into the U.S. market

until the most recent period. See Report at A-28.

39. Currently, the cod catch is reportedly down 30 percent from prior years,

and this decline has been predicted to continue. Telephone notes of Staff

Economist. Moreover, the proportion of the catch being processed into dried

heavy salted codfish also appears to be declining. Tr. at 135-36. Information

on the record indicates that if the short catch of cod continues, Norway, the

largest producer of dried heavy salted codfish in the world, will not be able

to supply the Puerto Rican market appreciably. Norway has a more profitable

alternative market for fresh cod in the European Community, in addition to

its longstanding barter arrangement with Brazil, the world’s largest consumer

of dried heavy salted codfish, to exchange dried heavy salted fish for coffee.

Report at A-15; Telephone notes of Staff Economist; Letter from O. Biorge,

Norwegian fish producer/exporter, Exhibit 1 to Hearing Testimony of Paolo

da Cunha.

39a

Appendix D

Moreover, the fact that Canadian imports might be forced

out of the market and be replaced by low-priced third country

imports should an antidumping duty order be imposed is irrelevant

to the determination the Commission must make, that is, whether

LTFV Canadian imports materially retard the establishment of

the domestic industry. A mere possibility that the domestic industry

may not be able to compete with third country imports at some

unknown time in the future, whether the imports are fairly or

unfairly traded, does not affect our consideration of the effect

of imports from Canada which are being sold at LTFV.

Thus, we conclude that the establishment of an industry in

the United States is materially retarded by imports of dried heavy

salted codfish from Canada which are sold at LTFV.

VIEWS OF VICE CHAIRMAN LIEBELER

The question before the Commission in Inv. 731-TA-199 is

one of material retardation. The petitioner has not succeeded in

establishing a domestic dried heavy salted codfish industry. Has

the establishment of a domestic industry been materially retarded

by reason of imports of Canadian dried salted codfish which have

been sold at less than fair value?

If the petitioner would not have been able to establish a viable

industry even had the sales of Canadian dried heavy salted codfish

not occurred at less than fair value, then the establishment of

such an industry has not been materially retarded by the less than

fair value sales. The critical question, therefore, is, would there

now be a viable domestic industry, but for these sales at a weighted

average 16.3% below fair value?

I am convinced that the failure to establish a domestic industry

cannot be laid at the door of these LTFV sales. The drying and

curing necessary to produce this product requires hot-dry air, with

40a

Appendix D

the emphasis on the dry. The world’s leading producer of this

product is Norway, followed by Canada. In addition, Portugal,

Iceland and the United Kingdom are also producers. Consumers,

on the other hand, are located in Latin America (especially in

Brazil), Portugal, Italy, Greece, and Spain. It is not mere chance

that has caused a product that is consumed in tropical regions

to be produced at northern latitudes. It is in the nature of the

technology and costs of the industry.

Because the drying process requires removing moisture from

the fish, the lower the moisture content of the ambiant

surroundings, the cheaper and easier the process. Warm air of

a given humidity will contain more mositure than cold air.

Therefore, it is easier to extract moisture from fish in a colder

region. The Canadians and Norwegians have a cost advantage,

in spite of their higher labor costs, in drying and curing the fish

because they need not spend as much on energy in order to carry

out the process.

In addition to the lower energy costs, there are two other

important reasons why the drying is done in Norway and Canada.

The fish are caught at northern latitudes. The drying and curing

process both eliminates weight and prevents spoilage. The closer

the drying is done to the place the fish are caught, the less chance

of spoilage and the lower the shipping cost.

These arguments are persuasive, and are made compelling

by the fact that although the Puerto Rican market is a small

segment of the world market, none of the low-wage South

American countries have a significant dried salted codfish industry.

It is inconceivable that if this industry were viable in Puerto Rico

it would not be even more profitable in Brazil. The failure of

the market to induce other firms to enter in countries with larger

4la

Appendix D

markets, lower wages and similar climates convinces me that this

is not a viable United States industry, capable of competing against

fairly traded imports.

Nor is it likely to become competitive due to a rise in demand.

The market for this product is limited to Peurto Rico and other

ethnic markets in several major cities on the mainland. This is

an ethnic food, consumed primarily as a low cost source of

protein. As incomes rise, purchases of this product fall. The

petitioner has entered a declining industry at an uneconomic

location.

In conclusion, therefore, I determine that the domestic dried

salted codfish industry has not been materially retarded by less

than fair value sales of Canadian dried salted codfish.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.