Appleton Papers Inc. v. United States

Slip Op. 13- 87

UNITED STATES COURT OF INTERNATIONAL TRADE

Before: Nicholas Tsoucalas, Senior Judge

APPLETON PAPERS INC., :
:
Plaintiff, :
:
v. :
: Consol. Court No.: 12-00116
UNITED STATES, :
:
Defendant, : PUBLIC VERSION
:
and :
:
PAPER RESOURCES LLC, :
:
Defendant-Intervenor. :
:

OPINION

Held: Plaintiff’s motion for judgment on the agency record is
denied because the Department of Commerce’s final scope ruling is
supported by substantial evidence and is otherwise in accordance
with the law.

Dated: July 11, 2013

King & Spalding LLP (Gilbert B. Kaplan, Brian E. McGill, and
Joseph W. Dorn) for Appleton Papers Inc., Plaintiff.

Stuart F. Delery, Principal Deputy Assistant Attorney General;
Jeanne E. Davidson, Director, Reginald T. Blades, Jr., Assistant
Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice (Joshua E. Kurland and Carrie A.
Dunsmore); Office of the Chief Counsel for Import Administration,
United States Department of Commerce, Whitney Rolig, Of Counsel,
for the United States, Defendant.

Greenberg Traurig, LLP (Rosa S. Jeong and Philippe M. Bruno)
for Paper Resources LLC, Defendant-Intervenor.

TSOUCALAS, Senior Judge: This consolidated action comes
Consol. Court No. 12-00116 Page 2

before the court on plaintiff Appvion, Inc.’s1 (“Appvion”) motion

for judgment on the agency record challenging the United States

Department of Commerce’s (“Commerce”) determination in Final Scope

Ruling for Paper Resources, LLC’s Lightweight Thermal Paper

Converted and Packaged in the People’s Republic of China Using

Jumbo Rolls Produced in a Third Country, Case Nos. A-570-920 and C-

570-921 (Mar. 23, 2012), Public Rec. 2/32 (“Final Scope Ruling”).2

See Preliminary Scope Ruling for Paper Resources, LLC’s Lightweight

Thermal Paper Converted and Packaged in the People’s Republic of

China Using Jumbo Rolls Produced in a Third Country, Case Nos. A-

570-920 and C-570-921 (Dec. 21, 2011), CR 2/11 (“Preliminary Scope

Ruling”). Commerce and defendant-intervenor Paper Resources LLC

(“Paper Resources”) oppose Appvion’s motion. For the reasons

stated below, Appvion’s motion is denied.

BACKGROUND

Lightweight thermal paper (“LWTP”) “is a paper coated with

1
By letter dated June 21, 2013, Appleton Papers Inc. notified
the court that it changed its name to Appvion, Inc. on May 13,
2013. See Letter to the Hon. Tina Kimble, Clerk of the Court, re:
Appleton Papers Inc. v. United States (June 21, 2013), ECF No. 55.
2
All citations to the record are from the countervailing duty
inquiry (C-570-921). The record for the antidumping duty inquiry
(A-570-920) contains identical documents. See Def.’s Resp. Pl.’s
Mot. J. Agency R. at 2 n.1. Hereinafter, all documents in the
amended public record will be designated “PR” and all documents in
the confidential record designated “CR” without further
specification except where relevant. Documents listed in parts one
and two of the record will be cited as “1/X” and “2/X,”
respectively, with “X” referring to the document number within that
record.
Consol. Court No. 12-00116 Page 3

thermal active chemicals . . . which react to form an image when

heat is applied.” CR 1/1 at 2. It is “specially intended to be

used in special printers containing thermal print heads.” Id.

“LWTP is typically produced in jumbo rolls that are converted to

narrower width rolls appropriate for its specific end uses.”3 Id.

Production of LWTP occurs in three stages: (1) manufacturing jumbo

rolls (“JRs”) of LWTP; (2) applying thermal coating to the JRs; and

(3) slitting and repackaging the coated JRs, a process called

“conversion.” Id. at 3–4.

LWTP from the People’s Republic of China (“PRC”) is subject to

antidumping duty (“AD”) and countervailing duty (“CVD”) orders.

See AD Orders: LWTP From Germany and the PRC, 73 Fed. Reg. 70,959

(Nov. 24, 2008); LWTP from the PRC: Notice of Amended Final

Affirmative CVD Determination and Notice of CVD Order, 73 Fed. Reg.

70,958 (Nov. 24, 2008) (“CVD Order,” and collectively, the

“Orders”). The Orders contain identical scope language, covering:

certain [LWTP], . . . irrespective of dimensions; with or
without a base coat on one or both sides; with thermal
active coating(s) on one or both sides that is a mixture
of the dye and the developer that react and form an image
when heat is applied; with or without a top coat; and
without an adhesive backing.

CVD Order, 73 Fed. Reg. at 70,958 (internal footnotes omitted). An

explanatory footnote to the scope definition states that “[b]oth

jumbo and converted rolls (as well as LWTP in any other form,

3
LWTP’s end uses include “ATM receipts, credit card receipts,
gas pump receipts, retail store receipts, etc.” CR 1/1 at 2.
Consol. Court No. 12-00116 Page 4

presentation, or dimension) are covered by the scope of these

orders.” Id. at 70,958 n.1.

Paper Resources imports LWTP that is manufactured in JR form

and coated in [[ ]] then is converted in the PRC by Shanghai

Hanhong Paper Company (“Hanhong”). See PR 2/1 at 1. In February

2011, Paper Resources requested that Commerce determine that LWTP

manufactured in this fashion is outside the scope of the Orders

because its country of origin is not the PRC. CR 1/1 at 1, 4–10.

Commerce initiated a scope inquiry in April 2011. See PR 1/9 at 1.

In the Preliminary Scope Ruling, Commerce found that Paper

Resources’s LWTP was outside the scope of the Orders because its

country of origin was not the PRC. CR 2/11 at 11–12. Using its

substantial transformation analysis, Commerce concluded that the

conversion process was insufficient to change the country of origin

of [[ ]] JRs because (1) JRs and converted rolls were of the

same class or kind of merchandise; (2) conversion operations

required only “minimal” capital investment and expertise; and (3)

conversion did not alter the JRs’ end use, mechanical properties,

or essential characteristic. See id. at 6–12. Commerce also

declined to include an anti-circumvention inquiry in its country of

origin analysis. Id. at 13–15.

Commerce upheld the results of its preliminary determination

in the Final Scope Ruling. See PR 2/32 at 3–4. Additionally,

Commerce declined Appvion’s request to impose a mandatory country
Consol. Court No. 12-00116 Page 5

of origin certification program on Hanhong and Paper Resources

because it did not first make an affirmative determination that

either party circumvented the Orders. Id. at 6.

Appvion challenges Commerce’s scope determination and the

decision not to impose a mandatory country of origin certification

program. See Pl.’s Br. Supp. Mot. J. Agency R. at 2–4 (“Pl.’s

Br.”). The court held oral argument on June 27, 2013. Oral

Argument, Appleton Papers Inc. v. United States, Consol. Ct. No.

12-00116 (Ct. Int’l Trade June 27, 2013) (“Oral Arg.”).

JURISDICTION

The Court has jurisdiction over this matter pursuant to

section 516A(a)(2)(B)(vi) of the Tariff Act of 1930 (the “Act”),4

as amended, 19 U.S.C. § 1516a(a)(2)(B)(vi) (2006), and 28 U.S.C. §

1581(c).

STANDARD OF REVIEW

This Court must uphold Commerce’s scope determination unless

it is “unsupported by substantial evidence on the record, or

otherwise not in accordance with law.” 19 U.S.C. §

1516a(b)(1)(B)(i). “Substantial evidence is ‘such relevant evidence

as a reasonable mind might accept as adequate to support a

conclusion.’” Huaiyin Foreign Trade Corp. (30) v. United States,

322 F.3d 1369, 1374 (Fed. Cir. 2003) (quoting Consol. Edison Co. v.

4
All further references to the Act will be to the relevant
provisions of Title 19 of the United States Code, 2006 edition, and
all applicable supplements thereto.
Consol. Court No. 12-00116 Page 6

NLRB, 305 U.S. 197, 229 (1938)). This Court grants “significant

deference to Commerce’s interpretation of its own orders,”

Allegheny Bradford Corp. v. United States, 28 CIT 830, 842, 342 F.

Supp. 2d 1172, 1183 (2004), “[h]owever, Commerce cannot ‘interpret’

an antidumping order so as to change the scope of that order, nor

can Commerce interpret an order in a manner contrary to its terms.”

Duferco Steel, Inc. v. United States, 296 F.3d 1087, 1095 (Fed.

Cir. 2002) (citing Eckstrom Indus., Inc. v. United States, 254 F.3d

1068, 1072 (Fed. Cir. 2001)).

“Courts look for a reasoned analysis or explanation for an

agency’s decision as a way to determine whether a particular

decision is arbitrary, capricious, or an abuse of discretion.”

Wheatland Tube Co. v. United States, 161 F.3d 1365, 1369 (Fed. Cir.

1998). “An abuse of discretion occurs where the decision is based

on an erroneous interpretation of the law, on factual findings that

are not supported by substantial evidence, or represent an

unreasonable judgment in weighing relevant factors.” WelCom

Prods., Inc. v. United States, 36 CIT __, __, 865 F. Supp. 2d 1340,

1344 (2012) (citing Star Fruits S.N.C. v. United States, 393 F.3d

1277, 1281 (Fed. Cir. 2005)). “[A]n agency action is arbitrary

when the agency offers insufficient reasons for treating similar

situations differently.” SKF USA Inc. v. United States, 263 F.3d

1369, 1382 (Fed. Cir. 2001).
Consol. Court No. 12-00116 Page 7

DISCUSSION

Appvion does not argue that the conversion process in the PRC

substantially transformed the [[ ]] JRs. Oral Arg. at 14:05;

see CR 2/8 at 6 (“Paper Resources is correct that [Appvion] does

not contend that the converting operations are sufficient to

transform [JRs].”). Instead, Appvion argues that Paper Resources’s

LWTP is subject merchandise because the Orders cover all LWTP

converted in the PRC. Pl.’s Br. at 12–15. Accordingly, Appvion

insists it was inappropriate for Commerce to conduct a substantial

transformation analysis. Id. at 20. Appvion also argues that

Commerce abused its discretion by declining to consider evidence of

circumvention in its scope ruling. See id. at 22–26. Finally,

Appvion contends that Commerce’s failure to impose a mandatory

country of origin certification program was arbitrary, capricious,

and an abuse of discretion. See id. at 27–30.

I. Commerce’s Interpretation of the Scope Language

Appvion argues that the Orders cover all LWTP converted in the

PRC, regardless of the origin of the underlying JRs. Id. at 13.

According to Appvion, Commerce abused its discretion by using the

substantial transformation test to “preclude[] relief for a portion

of subject merchandise,” namely, LWTP converted in the PRC using

JRs from a third country. Id. at 20. However, Appvion fails to

demonstrate that Commerce altered the scope of the Orders or

misapplied the substantial transformation test.
Consol. Court No. 12-00116 Page 8

“‘Commerce cannot interpret an antidumping order so as to

change the scope of that order, nor can Commerce interpret an order

in a manner contrary to its terms.’” King Supply Co. v. United

States, 674 F.3d 1343, 1348 (Fed. Cir. 2012) (quoting Walgreen Co.

v. United States, 620 F.3d 1350, 1354 (Fed. Cir. 2010)). “While

the petition, factual findings, legal conclusions, and preliminary

orders can aid in the analysis, they cannot substitute for the

language of the order itself, which remains the ‘cornerstone’ in

any scope determination.” Walgreen, 620 F.3d at 1357 (citing

Duferco Steel, 296 F.3d at 1097). Therefore, it is the “explicit

terms” of an order that “must control [Commerce’s] subsequent

decisions in scope rulings.” Gleason Indus. Prods., Inc. v. United

States, 31 CIT 393, 398 (2007) (not reported in the Federal

Supplement) (citing Duferco Steel, 296 F.3d at 1096–97).

Appvion cannot demonstrate that Commerce unlawfully altered

the scope of the Orders. AD and CVD orders cover a particular

class or kind of merchandise from a particular country. See 19

U.S.C. §§ 1671, 1673; Ugine & ALZ Belg., N.V. v. United States, 31

CIT 1536, 1550, 517 F. Supp. 2d 1333, 1345 (2007) (“Commerce’s [AD]

and CVD orders must specify both the class or kind of merchandise

and the particular country from which the merchandise

originates.”), aff’d after remand, 551 F.3d 1339 (Fed. Cir. 2009).

The Orders state that “[b]oth jumbo and converted rolls . . . are

covered by the scope of these orders.” CVD Order, 73 Fed. Reg. at
Consol. Court No. 12-00116 Page 9

70,958 n.1. Accordingly, the Orders cover JRs and converted rolls

of Chinese origin. Ugine, 31 CIT at 1550, 517 F. Supp. 2d at 1345.

The scope definition simply does not address whether LWTP converted

in the PRC using JRs from a third country is subject merchandise.

Because it did not alter the plain meaning of the Orders,

Commerce’s decision to conduct a country of origin analysis was

reasonable.5 See id. at 1551, 517 F. Supp. 2d at 1345 (“[I]f

merchandise does not meet one of the parameters — either class or

kind, or country of origin — it is outside the scope of the [AD] or

CVD order.”).

Appvion also argues that Commerce abused its discretion by

using the substantial transformation analysis to exclude otherwise

subject LWTP from the scope of the Orders. Pl.’s Br. at 20.

According to Appvion, application of the substantial transformation

test, and specifically the change in class or kind factor, is

improper in cases where the scope covers upstream and downstream

5
Appvion also argues that Commerce’s interpretation of the
scope language does not reflect the intent of the petition, as it
intended the Orders to cover all LWTP converted in the PRC when
drafting the proposed scope language. See Pl.’s Br. at 15.
However, Appvion does not identify any evidence in the record
supporting this assertion. See Pl.’s Br. at 15; PR 2/32 at 4
(“[T]here was no specific discussion during the investigation of
LWTP, in either the AD or CVD segments, as to whether JRs produced
in a third-country and converted in the PRC would be subject to the
[Orders].”); cf. Minebea Co. v. United States, 16 CIT 20, 22–24,
782 F. Supp. 117, 120–121 (1992) (Tsoucalas, J.) (finding that the
an order covered certain products not explicitly mentioned in the
scope definition where petition and numerous post-petition
submissions evidenced petitioner’s intent to include those products
within the scope), aff’d, 984 F.2d 1178 (Fed. Cir. 1993).
Consol. Court No. 12-00116 Page 10

forms of a product and manufacturing occurs across multiple

countries. Id. In such cases, Appvion contends, the downstream

processing “inherently cannot be sufficient to move the merchandise

from one class or kind to another,” and always indicates that a

substantial transformation did not occur. Id.

Appvion admitted before Commerce and the court that conversion

was not a substantial transformation. See CR 2/8 at 6; Oral Arg.

at 14:05. To the extent that Appvion is challenging the propriety

of Commerce’s use of the substantial transformation analysis,

however, this argument is unconvincing. This Court has upheld

Commerce’s use of the substantial transformation analysis as a

means of determining the country of origin of merchandise produced

in multiple countries. See E.I. DuPont de Nemours & Co. v. United

States, 22 CIT 370, 373–76, 8 F. Supp. 2d 854, 858–59 (1998)

(applying Chevron deference to the substantial transformation

test). The substantial transformation test “provides a yardstick

for determining whether the processes performed on merchandise in

a country are of such significance as to require that the resulting

merchandise be considered the product of the country in which the

transformation occurred.” Id. at 373–74, 8 F. Supp. 2d at 858.

This is precisely the analysis that Commerce undertook below with

regards to the conversion process. See CR 2/11 at 6–12; PR 2/32 at

3–4. As the JRs from [[ ]] were not substantially transformed

in the PRC, they were not of Chinese origin. See DuPont, 22 CIT at
Consol. Court No. 12-00116 Page 11

373–74, 8 F. Supp. 2d at 858. Accordingly, Paper Resources’s LWTP

was never subject merchandise. See Ugine, 31 CIT at 1551, 517 F.

Supp. 2d at 1345.

Ultimately, Appvion’s argument boils down to its claim that

the Final Scope Ruling denies relief from dumped LWTP from the PRC.

Pl.’s Br. at 15. Appvion insists that Commerce’s determination

forces the filing of numerous petitions against any and all

countries from which Hanhong sources its JRs. See id. at 15.

According to Appvion, this result is unreasonable because relief

may be denied if fair trade practices mask dumping or total import

volume does not surpass negligibility thresholds. Id. at 15–17.

As Commerce did not articulate a “statutorily consistent mechanism”

by which Appvion can obtain relief, Appvion insists that Commerce’s

decision is erroneous. Id. at 15.

Appvion simply fails to articulate a legal basis by which to

determine that Paper Resources’s LWTP is within the scope of the

Orders. Commerce was not required to include the LTWP within the

scope of the Orders simply because it was converted by Hanhong.

See DuPont, 22 CIT at 375, 8 F. Supp. 2d at 859 (“[A]ntidumping

orders apply to merchandise from particular countries, not

individual producers . . . .”). Rather, the dispositive issue was

the country of origin. See Ugine, 31 CIT at 1551, 517 F. Supp. 2d

at 1345. And, as stated above, the country of origin of Paper

Resources’s LWTP was [[ ]], not the PRC.
Consol. Court No. 12-00116 Page 12

II. Circumvention

Appvion also argues that Commerce abused its discretion by

failing to consider evidence that Hanhong and Paper Resources were

circumventing the Orders. See Pl.’s Br. at 22–26. According to

Appvion, Hanhong’s “shift to third-country suppliers represents a

change in the commercial practices (e.g., pattern of trade)

indicating circumvention of existing relief.” Id. at 23. Appvion

insists that Commerce also should have considered the following

evidence: Hanhong and Paper Resources waited three years to request

a scope ruling from Commerce; Paper Resources [[

]]; Hanhong

and Paper Resources [[

]]; and Hanhong [[

]]. See Pl.’s Br. at 23–26.

Generally, Commerce addresses circumvention issues under 19

U.S.C. § 1677j, which grants it the power to include merchandise

within the scope of an order where that merchandise is of the same

class or kind as the covered merchandise and a large portion of the

merchandise’s value is derived from production in a covered

country, but minor downstream processing or assembly occurs in the

U.S. or a third country. See 19 U.S.C. § 1677j. Additionally,

Commerce has discretion to consider evidence of circumvention as

part of a country of origin analysis. See Issues and Decision

Memorandum for the Less-Than-Fair-Value Investigation of Certain
Consol. Court No. 12-00116 Page 13

Artist Canvas from the PRC at 7, Case No. A-570-899 (Mar. 22, 2006)

(recognizing that Commerce “may consider” the potential for

circumvention of an order in its country of origin analysis).

Commerce’s discretion is not unlimited, however, as it may not use

circumvention evidence to expand the scope of an order. E. Jordan

Iron Works, Inc. v. United States, 32 CIT 419, 422, 556 F. Supp. 2d

1355, 1358 (2008).

Here, Commerce declined to consider evidence of circumvention

for several reasons. See CR 2/11 at 13–15. First, Commerce

explained that the Orders did not cover [[ ]], the country in

which the JRs are produced, and therefore there was no concern that

relief under the Orders would be “eviscerated by moving minor

processing outside the country covered by the order.” Id. at 14.

Second, Commerce noted that the case did not lend itself to a

section 1677j analysis because downstream processing occurred in

the covered country rather than in the U.S. or a third country.

Id. at 14–15. Commerce also noted that this Court previously

upheld scope determinations conducted without considering evidence

of circumvention. Id. at 15.

Commerce’s decision was adequately explained and consistent

with the law. This Court has held that “a ‘scope ruling is not the

proper mechanism for addressing circumvention concerns.’” See

Laminated Woven Sacks Comm. v. United States, 34 CIT __, __, 716 F.

Supp. 2d 1316, 1328 (2010) (Tsoucalas, J.) (quoting E. Jordan Iron
Consol. Court No. 12-00116 Page 14

Works, 32 CIT at 422, 556 F. Supp. 2d at 1358). Moreover, because

conversion did not substantially transform the [[ ]] JRs, CR

2/11 at 6–12 (unchanged in PR 2/32), Commerce risked expanding the

scope of the Orders by considering evidence of potential

circumvention. See E. Jordan Iron Works, 32 CIT at 422, 556 F.

Supp. 2d at 1358. Accordingly, Appvion cannot demonstrate that

Commerce abused its discretion.

III. Country of Origin Certification

Finally, Appvion argues that Commerce’s failure to impose a

mandatory country of origin certification program was arbitrary,

capricious, and an abuse of discretion. See Pl.’s Br. at 27.

Appvion insists that Commerce ignored evidence in the record

evidencing a “high likelihood of past and current circumvention.”

Id. Appvion also argues that Commerce failed to explain why it

treated the instant case differently than other cases in which it

imposed country of origin and end-use certification programs

without an affirmative finding of circumvention. Id. at 28–30.

Commerce has a certain amount of discretion to act in order to

“prevent[] the intentional evasion or circumvention” of the Act.

See Tung Mung Dev. Co. v. United States, 26 CIT 969, 979, 219 F.

Supp. 2d 1333, 1343 (2002), aff’d, 354 F.3d 1371 (Fed. Cir. 2004).

To that end, Commerce may impose measures such as mandatory

certification programs where it believes they will be effective in

preventing future circumvention of its orders. See, e.g., Issues
Consol. Court No. 12-00116 Page 15

and Decision Memorandum for the Final Determination of the

Anticircumvention Inquiry of Certain Tissue Paper Products from the

PRC at 9–12, Case No. A-570-894 (Sept. 19, 2008) (imposing country

of origin certification requirements to address circumvention).

Appvion fails to demonstrate that Commerce abused its

discretion or acted in an arbitrary and capricious manner. First,

this Court has held that “certification is not part of an ordinary

scope analysis.” Laminated Woven Sacks, 34 CIT at __, 716 F. Supp.

2d at 1328. Second, Commerce adequately explained its decision.

In the Preliminary Scope Ruling, Commerce explained that Appvion’s

country of origin concerns could be “appropriately dealt with by

[Customs and Border Protection].” CR 2/11 at 6. In the Final

Scope Ruling, Commerce did not impose a country of origin

certification program because it did not make an affirmative

finding of circumvention. See PR 2/32 at 6. As Commerce

explained, there was “no precedent of [Commerce] establishing a

certification program to preempt unfounded circumvention.”6 Id.

Commerce also noted that end-use certification cases are not

6
Appvion argues that Commerce’s decision was inconsistent
with Crystalline Silicon Photovoltaic Cells, Whether or Not
Assembled Into Modules, From the PRC: Preliminary Determination of
Sales at Less Than Fair Value, Postponement of Final Determination
and Affirmative Preliminary Determination of Critical
Circumstances, 77 Fed. Reg. 31,309 (May 25, 2012) (“Silicon
Cells”), in which it imposed country of origin certification
without an affirmative finding of circumvention. Pl.’s Br. at 28.
To the extent that Silicon Cells altered Commerce’s policy, it is
not relevant here because it was issued after the Final Scope
Ruling. Silicon Cells, 77 Fed. Reg. at 31,309.
Consol. Court No. 12-00116 Page 16

relevant because they involve different concerns — “avoid[ing]

liquidation of components intended to be used for subject

merchandise.” Id. Because Commerce provided a “reasoned analysis”

of its decision, the court finds that Commerce neither abused its

discretion nor acted in an arbitrary and capricious manner. See

Wheatland Tube, 161 F.3d at 1369.

CONCLUSION

For the foregoing reasons, the court finds that the Final

Scope Ruling is supported by substantial evidence on the record and

is otherwise in accord with the law.

/s/ Nicholas Tsoucalas
Nicholas Tsoucalas
Senior Judge
Dated: July 11, 2013
New York, New York