Bridgestone Americas, Inc. v. United States

Slip Op. 09-79

UNITED STATES COURT OF INTERNATIONAL TRADE

__________________________________________
:
BRIDGESTONE AMERICAS, INC., :
BRIDGESTONE AMERICAS TIRE :
OPERATIONS, LLC, and TITAN TIRE :
CORPORATION, :
:
Plaintiffs, :
:
v. : Before: Jane A. Restani, Chief Judge
:
UNITED STATES, : Consol. Court No. 08-00256
:
Defendant, : Public Version
:
and :
:
XUZHOU XUGONG TYRES CO., LTD. :
:
Defendant-Intervenor. :
__________________________________________:

OPINION

[Plaintiffs Bridgestone Americas, Inc. and Bridgestone Americas Tire Operations, LLC’s motion
for judgment on the agency record granted in part. Plaintiff Titan Tire Corporation’s motion for
judgment on the agency record granted in part. Remand to Department of Commerce to
reconsider treatment of inputs as indirect materials.]

Dated: August 4, 2009

King & Spalding, LLP (Joseph W. Dorn, Daniel L. Schneiderman, and J. Michael
Taylor) for plaintiffs Bridgestone Americas, Inc. and Bridgestone Americas Tire Operations,
LLC.

Stewart and Stewart (Wesley K. Caine) for plaintiff Titan Tire Corporation.

Tony West, Assistant Attorney General; Jeanne E. Davidson, Director, Franklin
E. White, Jr., Assistant Director, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice (John J. Todor and Loren Misha Preheim); Irene H. Chen and David
Richardson, Office of the Chief Counsel for Import Administration, U.S. Department of
Commerce, of counsel, for the defendant.
Consol. Court No. 08-00256 Page 2

White & Case, LLP (Adams C. Lee and Frank H. Morgan) for the defendant-
intervenor.

Restani, Chief Judge: This matter is before the court on the motions of plaintiffs

Bridgestone Americas, Inc. and Bridgestone Americas Tire Operations, LLC (collectively,

“Bridgestone”) and Titan Tire Corporation (“Titan”) for judgment on the agency record pursuant

to USCIT Rule 56.2. Plaintiffs, domestic producers of certain off-the-road (“OTR”) tires,

contest the Department of Commerce’s (“Commerce”) exclusion of defendant-intervenor

Xuzhou Xugong Tyres Co., Ltd. (“Xugong”), a Chinese producer of OTR tires, from the scope

of a final antidumping (“AD”) determination. See Certain New Pneumatic Off-The-Road-Tires

from the People’s Republic of China: Final Affirmative Determination of Sales at Less Than Fair

Value and Partial Affirmative Determination of Critical Circumstances, 73 Fed. Reg. 40,485

(Dep’t Commerce July 15, 2008) (“Final Determination”). Bridgestone and Titan contest

Commerce’s determination that fifteen of the raw material inputs Xugong used in producing the

tires were indirect materials. Titan also contests Commerce’s refusal to include the amount of

value-added tax (“VAT”) that Xugong paid in acquiring inputs to produce the tires, but was not

refunded by the Chinese government, in Xugong’s normal value calculation.1 Xugong opposes

the motions. Commerce opposes Titan’s motion as to the unrefunded VAT but seeks a remand

to reconsider and explain its decision as to the fifteen inputs.2 For the following reasons,

1
Bridgestone initially joined in this argument but has abandoned it. (See Order of Partial
Dismissal (June 2, 2009); Partial Consent Mot. for Partial Dismissal.) Bridgestone has also
abandoned its argument that Commerce should have applied “zeroing” in calculating Xugong’s
dumping margin. (See Order of Partial Dismissal; Partial Consent Mot. for Partial Dismissal.)
2
Without “confess[ing] error,” Commerce requested a voluntary remand to “reconsider
(continued...)
Consol. Court No. 08-00256 Page 3

Bridgestone’s motion will be granted in part and denied in part, and Titan’s motion will be

granted in part and denied in part.

BACKGROUND

In July 2007, Commerce initiated an AD investigation to determine whether

imports of certain pneumatic OTR tires from the People’s Republic of China for the period of

October 1, 2006 through March 31, 2007, were being sold in the United States at less than fair

value. See Initiation of Antidumping Duty Investigation: Certain New Pneumatic Off-the-Road

Tires From the People’s Republic of China, 72 Fed. Reg. 43,591 (Dep’t Commerce Aug. 6,

2007). Commerce selected Xugong as a mandatory respondent. Certain New Pneumatic Off-

The-Road Tires From the People’s Republic of China; Preliminary Determination of Sales at

Less Than Fair Value and Postponement of Final Determination, 73 Fed. Reg. 9278, 9282–83

(Dep’t Commerce Feb. 20, 2008) (“Preliminary Determination”).3 In a preliminary

determination, Commerce calculated a dumping margin of 51.81% for Xugong. Id. at 9291.

After the preliminary determination, Commerce issued Xugong a supplemental

2
(...continued)
and give further explanation for its decision.” (Def.’s Resp. to Pls.’ Mot. for J. upon the
Administrative R. (“Government’s Resp. Br.”) 28.) The court denied the request pending full
briefing. (See Order (May 19, 2009).)
3
The other mandatory respondents were Guizhou Tyre Co., Ltd., Hebei Starbright Co.,
Ltd., and Tianjin United Tire & Rubber International Co., Ltd. Id. at 9278 n.3, 9283. Those
respondents were also mandatory respondents in an accompanying countervailing duty (“CVD”)
investigation. See Certain New Pneumatic Off-the-Road Tires From the People’s Republic of
China: Final Affirmative Countervailing Duty Determination and Final Negative Determination
of Critical Circumstances, 73 Fed. Reg. 40,480, 40,483 (Dep’t Commerce July 15, 2008).
Currently pending before the court are challenges to the final AD and CVD determinations as
they relate to those separate respondents. See GPX Int’l Tire Corp. v. United States, Consol. No.
08-00285.
Consol. Court No. 08-00256 Page 4

questionnaire requesting clarifying information and an updated factors of production (“FOP”)

database for the purpose of calculating normal value to compare with the United States price.4

(See Xugong’s Fifth Supplemental Questionnaire Resp. (“Fifth Supplemental Questionnaire”),

Exs. Accompanying the Resp. Br. of Xugong (“Xugong’s App.”) Tab 1.) In addition to

providing the requested information, Xugong informed Commerce that fifteen of the raw

material inputs it previously reported as direct materials were in fact indirect materials, as they

were used for “cleaning or supplemental purpose[s] in the production process,” and included the

corrections in the updated database. (Fifth Supplemental Questionnaire 4, Xugong’s App.

Tab 1.) Commerce had treated the fifteen inputs as direct materials in calculating the

preliminary dumping margin. (See Surrogate Value Memorandum, A-570-912, POR 10/01/06-

3/31/07, at 3 n.6 (Feb. 5, 2008), Xugong’s App. Tab 12.) Although Bridgestone requested that

Commerce “verify that . . . each of [the fifteen] inputs is properly treated as overhead and cannot

be reported as a direct input” (Pre-Verification Comments 4, Xugong’s App. Tab 3),

Commerce’s verification report does not discuss the nature of the inputs (see Verification

Report, Xugong’s App. Tab 4).5 In their case briefs submitted after verification, none of the

4
Dumping occurs when a foreign manufacturer sells foreign goods in the United States at
less than the fair market value of the goods in the foreign country. See 19 U.S.C. §§ 1673,
1677(34); AIMCOR v. United States, 141 F.3d 1098, 1101 (Fed. Cir. 1998). Where dumping
causes or threatens material injury to a domestic industry, an AD duty is imposed upon the
dumped merchandise. See 19 U.S.C. § 1673. The AD duty assessed is “an amount equal to the
amount by which the normal value exceeds the export price (or the constructed export price) for
the merchandise.” 19 U.S.C. § 1673; see AIMCOR, 141 F.3d at 1101 (stating that dumping
margin is “the amount by which the foreign market value of the goods exceeds their United
States price.”)
5
Commerce, however, conferred with Xugong regarding the use of one of the inputs,
(continued...)
Consol. Court No. 08-00256 Page 5

parties addressed the issue of whether the fifteen inputs were direct or indirect materials. In its

case brief, however, Titan did argue that Commerce should have included in normal value the

amount of VAT that the Chinese producers had paid to acquire inputs in producing the goods but

which the Chinese government had not refunded. (Pet’r’s Case Br. (“Titan’s Case Br.”) 13–19,

App. in Supp. of Defs.’ Resp. to Pls.’ Mot. for J. Upon the Administrative R. Tab 3.)

In July 2008, Commerce published a final determination, calculating a zero

dumping margin for Xugong. Final Determination, 73 Fed. Reg. at 40,488. In its calculations,

Commerce did not include unrefunded VAT in Xugong’s normal value because its surrogate

value methodology did not rely on Chinese prices and costs. Issues and Decision Memorandum

for the Antidumping Investigation of Certain New Pneumatic Off-the-Road Tires from the

People’s Republic of China, A-570-912, POR 10/1/2006-3/31/2007, at 21 (July 7, 2008),

available at http://ia.ita.doc.gov/frn/summary/PRC/E8-16156-1.pdf (“Issues and Decision

Memorandum”). Commerce also reasoned that the normal value was already tax neutral and

therefore no adjustment for unrefunded VAT was warranted. Id. Commerce did not address the

nature of the fifteen inputs in its issues and decision memorandum, but in a separate

memorandum calculating Xugong’s final dumping margin, it stated: “Because there is no

evidence that these raw materials are direct materials, we have treated all 15 inputs as indirect

materials and excluded them from the calculation of the normal value.” (Analysis Memorandum

5
(...continued)
[[ ]], but it was to determine how Xugong recorded purchases of certain inputs, not
to verify the nature of the fifteen inputs at issue here. (See Verification Report 22, Xugong’s
App. Tab 4.)

Confidential Data Deleted
Consol. Court No. 08-00256 Page 6

for the Final Determination: Xuzhou Xugong Tyres Co., Ltd., A-570-912, POR 10/01/06-

3/31/07, at 3 (July 7, 2008) (“Final Analysis Memorandum”), App. of Docs. Cited in

Bridgstone’s Br. in Supp. of Mot. for J. on the Agency R. (“Bridgestone’s App.”) Tab 21.)

Thereafter, Bridgestone and Titan submitted comments, contending that

Commerce’s treatment of the fifteen inputs as indirect materials was a “ministerial error.”

(Comments Regarding Ministerial Errors In The Final Margin Calculations For Xugong 2–12,

Bridgestone’s App. Tab 26.) Commerce rejected the contention.6 (Final Determination of

Antidumping Duty Investigation on Certain New Pneumatic Off-The-Road Tires from the

People’s Republic of China: Allegations of Ministerial Errors, A-570-912, POR 10/01/06-

03/31/07, at 7 (Aug. 14, 2008) (“Ministerial Errors Memorandum”), Bridgestone’s App. Tab 27.)

Bridgestone and Titan then commenced separate actions, challenging Commerce’s exclusion of

Xugong from the final determination. (Titan’s Compl ¶ 1; Bridgestone’s Compl. ¶ 1.) Xugong

intervened in both (Order (No. 08-00258) (Sept. 25, 2008); Order (No. 08-00256) (Sept. 23,

2008)), and the actions were consolidated (Order (Dec. 22, 2008)).

Bridgestone and Titan now move for judgment on the agency record pursuant to

USCIT Rule 56.2. Both contend that Commerce’s treatment of the fifteen inputs as indirect

materials was unsupported by substantial evidence and not in accordance with law and that

substantial evidence actually shows that the inputs were direct materials. (Bridgestone’s Br. in

6
In an amended final determination accounting for other unrelated ministerial errors,
Xugong’s dumping margin remained at zero. Certain New Pneumatic Off-the-Road Tires From
the People’s Republic of China: Notice of Amended Final Affirmative Determination of Sales at
Less Than Fair Value and Antidumping Duty Order, 73 Fed. Reg. 51,624, 51,625 (Dep’t
Commerce Sept. 4, 2008).
Consol. Court No. 08-00256 Page 7

Supp. of Mot. for J. on the Agency R. (“Bridgestone’s Br.”) 13–25, 31; Br. of Titan in Supp. of

Mot. for J. Upon the Agency R. (“Titan’s Br.”) 14–22.) Titan also argues that Commerce’s

refusal to include the amount of unrefunded VAT in Xugong’s normal value calculation was

unsupported by substantial evidence and not in accordance with law. (Titan’s Br. 12–14, 22.)

Bridgestone and Titan request that the court remand the matter with instructions directing

Commerce to reclassify the fifteen inputs as direct materials and to recalculate Xugong’s

dumping margin accordingly. (Bridgestone’s Br. 31; Titan’s Br. 22–23.) Bridgestone

additionally requests that the court instruct Commerce to value thirteen of the inputs as it had

valued them in the preliminary determination and, with respect to the remaining two, to consider

the proper Harmonized Tariff Schedule (“HTS”) classification to use in valuing them.7

(Bridgestone’s Br. 31.) Titan also requests that the court direct Commerce to include unrefunded

VAT in the recalculation. (Titan’s Br. 22–23.)

JURISDICTION AND STANDARD OF REVIEW

The court has jurisdiction under 28 U.S.C. § 1581(c). The court must uphold

Commerce’s final determination in an AD investigation 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). “Commerce’s findings must be reached by reasoned decision-making,

7
The two inputs are [[ ]]. (Bridgestone’s Confidential Br. 3.) In
their joint case brief, Bridgestone and Titan contended that Commerce should apply HTS
[[ ]] and HTS [[ ]] in calculating the final dumping margin, as opposed to
HTS [[ ]] and HTS [[ ]], which Commerce applied in the preliminary
determination. Commerce did not address the issue because it decided that it did not need to
value the inputs.

Confidential Data Deleted
Consol. Court No. 08-00256 Page 8

including a reasoned explanation supported by a stated connection between the facts found and

the choice made.” Rhodia, Inc. v. United States, 185 F. Supp. 2d 1343, 1349 (CIT 2001)

(internal quotation marks, citations, and alteration omitted).

DISCUSSION

I. Direct/Indirect Materials

A. Procedural Issues

Titan argues that Commerce’s change of position as to the treatment of the fifteen

inputs in the final determination was not in accordance with law because Xugong’s case brief did

not contest Commerce’s treatment of the inputs as direct materials in the preliminary

determination and Titan therefore did not have an opportunity to rebut Xugong’s corrections.

(Titan’s Br. 18–19.) Titan argues that under 19 C.F.R. § 351.309(c)(2), Xugong was required to

raise the issue so that Titan was afforded notice and an opportunity to be heard. (Id. at 18–22).

Titan’s reliance on 19 C.F.R. § 351.309(c)(2) is misplaced.

Interested parties in an AD investigation may submit case briefs after publication

of a preliminary determination to raise arguments that the parties want Commerce to consider

before it renders a final determination. See 19 C.F.R. § 351.309(c)(1)(i). Under 19 C.F.R.

§ 351.309(c)(2), the case briefs “must present all arguments that continue in the submitter’s view

to be relevant to [Commerce’s] final determination or final results, including any arguments

presented before the date of publication of the preliminary determination or preliminary results.”

Id. § 351.309(c)(2). Titan claims that the requirement to “present all arguments” precluded

Commerce from changing its position “outside normal briefing procedures when [Titan] could

have briefed [the issue of the nature of the fifteen inputs] and thereby subjected it to full
Consol. Court No. 08-00256 Page 9

examination.” (Titan’s Br. 19.) Titan contends that Corus Staal BV v. United States, 502 F.3d

1370 (Fed. Cir. 2007), Nakornthai Strip Mill Public Co. v. United States, 558 F. Supp. 2d 1319

(CIT 2008), and Ta Chen Stainless Steel Pipe, Ltd. v. United States, 342 F. Supp. 2d 1191 (CIT

2004) support its assertion that adherence to 19 C.F.R. § 351.309(c)(2) is essential to fair

procedure. (Id. at 19–20.) These cases, however, state that the requirement to present all

arguments is to ensure that parties have exhausted their administrative remedies. See Corus, 502

F.3d at 1378; Nakornthai, 558 F. Supp. 2d at 1329; Ta Chen, 342 F. Supp. 2d at 1205–06. The

doctrine of administrative exhaustion “requires a party to present its claims to the relevant

administrative agency for the agency’s consideration before raising these claims to the Court.”

Timken Co. v. United States, 201 F. Supp. 2d 1316, 1340 (CIT 2002).

Here, Titan is not arguing that Xugong is barred from asserting that the fifteen

inputs were indirect materials because Xugong failed to present that position to Commerce and

Commerce therefore did not have an opportunity to consider it. In fact, Xugong had presented it,

and Commerce had considered it. (See Final Analysis Memorandum at 3, Bridgestone’s App.

Tab 21.) Rather, Titan is contending that Commerce’s adoption of Xugong’s position was

procedurally unfair because Titan did not have notice of the position and therefore did not have

an opportunity to rebut the position. Titan does not cite any authority for the proposition that 19

C.F.R. § 351.309(c)(2) is intended to afford notice and opportunity to be heard such that a

private party may rely on it to bar another’s judicial challenge. In any event, the record shows

that Titan had notice of Xugong’s submissions and could have challenged them.

Subject to time limitations, parties are entitled to submit corrected information, as

acceptance of corrections effectuate “the overarching principle of the antidumping statute, that
Consol. Court No. 08-00256 Page 10

is, to determine dumping margins as accurately as possible.” Timken U.S. Corp. v. United

States, 318 F. Supp. 2d 1271, 1277–79 (CIT 2004) (permitting respondent to submit previously

misclassified home market sales after preliminary determination in tenth administrative review);

see also Antidumping Duties; Countervailing Duties, 62 Fed. Reg. 27,296, 27,327 (Dep’t

Commerce May 19, 1997) (“Prior to the deadline for submission of factual information, the

Department’s practice normally is to accept a respondent’s correction of an error in its own data

because the Department has time to review, analyze, and where applicable, verify the corrected

data.”). Here, Xugong timely submitted the corrections. Pursuant to 19 C.F.R. § 351.301(b)(1),

the deadline to submit new factual information was March 18, 2008, seven days before the start

of verification of another mandatory respondent. (Notifications Regarding Deadline for New

Factual Information, Xugong’s App. Tab 2.) Xugong submitted the corrected information on

March 11, 2008. (Letter accompanying Fifth Supplemental Questionnaire, Xugong’s App.

Tab 1.) Commerce did not begin verification of Xugong until April 1, 2008. (Verification

Report 1, Xugong’s App. Tab 4.)

Undermining Titan’s claim of lack of notice is the fact that Bridgestone was

aware of the corrected information and had requested that Commerce ascertain the nature of the

fifteen inputs at verification. (See Pre-Verification Comments 4, Xugong’s App. Tab 3.) Also,

Titan could have expected that Commerce would treat the fifteen inputs as indirect materials.

Before verification, Commerce informed Xugong that it would examine “the most recent . . .

[FOP] databases reported.” (Verification Agenda 4, Bridgestone’s App. Tab 13.) After

verification and before filing of the case briefs, Commerce requested that Xugong correct certain

information and submit a revised FOP database. (See Re-submission of Revised Databases,
Consol. Court No. 08-00256 Page 11

Xugong’s App. Tab 7.) Nothing in the record indicates that Commerce had ever requested

Xugong to reclassify any of the fifteen inputs as direct inputs.

Titan also could have objected to Xugong’s corrections. Interested parties “may

submit factual information to rebut, clarify, or correct factual information submitted by any other

interested party.” 19 C.F.R. § 351.301(c)(1). At a minimum, like Bridgestone, Titan could have

requested that Commerce verify the nature of the inputs. To the extent that Titan may argue that

such a request would be futile, as Commerce did not address the issue in its verification report,

Titan could have sought further clarification as to Commerce’s position. See Antidumping

Duties; Countervailing Duties, 62 Fed. Reg. at 27,332 (“Parties are free to comment on

verification reports and to make arguments concerning information in the reports up to and

including the filing of case and rebuttal briefs.”) Given the record, Titan cannot claim that it was

not afforded notice or opportunity to be heard.

Bridgestone and Titan also argue that Xugong abandoned its position with respect

to two of the inputs. Specifically, they contend that Xugong’s insistence that Commerce use the

same HTS classifications as those used in the preliminary determination, and its failure to argue

that HTS classification was not necessary for indirect materials, in its rebuttal brief constituted

an implicit admission that the two inputs were direct materials. (Bridgestone’s Br. 23–24;

Titan’s Br. 21–22); see supra note 7. It is true that Xugong insisted that Commerce continue

using the same HTS classifications, but Xugong explained that it was merely rebutting

Bridgestone and Titan’s argument regarding the selection of surrogate values. (See Ministerial

Error Memorandum at 7, Bridgestone’s App. Tab 27; Xugong’s Rebuttal Case Br. 27–29,

Bridgestone’s App. Tab 18.) Xugong never explicitly disavowed its position as to the inputs.
Consol. Court No. 08-00256 Page 12

Given the lack of evidence of intentional relinquishment of the claim, the court does not

conclude that Xugong had abandoned its position as to the two inputs. See Former Employees of

Quality Fabricating, Inc. v. United States Dep’t of Labor, 343 F. Supp. 2d 1272, 1287–88 (CIT

2004) (holding that plaintiffs did not abandon claim merely by opposing motion for voluntary

remand absent evidence of intentional relinquishment or abandonment). Further, looking at the

circumstances as a whole, Xugong reasonably could have concluded that Commerce had

accepted its corrections as part of the record, and it would be unreasonable to assume that

Xugong abandoned a position that would have seemed to it to have been decided in its favor.

B. Sufficiency of the Evidence

Bridgestone and Titan argue that Commerce’s treatment of the inputs as indirect

materials is unsupported by substantial evidence, and that the court should remand the matter to

Commerce for recalculation of the dumping margin. (Bridgestone’s Br. 16–24; Titan’s Br.

14–18.) They further contend that the court should instruct Commerce to treat the inputs as

direct materials because substantial evidence shows that they were direct in nature.

(Bridgestone’s Br. 18–24; Titan’s Br. 14–18.)

Here, the only evidence on the record that could support Commerce’s

determination is Xugong’s claim that it used the fifteen inputs for “cleaning or supplemental”

purposes. (Fifth Supplemental Questionnaire 4, Xugong’s App. Tab 1.) This statement,

however, is conclusory, and Xugong did not provide any further information as to the use of the

inputs. Further, Commerce did not cite cleaning or supplemental purposes as a reason for its

treatment of the inputs. The only explanation it provided is that “there is no evidence that these

raw materials are direct materials.” (Final Analysis Memoradum at 3, Bridgestone’s App. Tab
Consol. Court No. 08-00256 Page 13

21.) Accordingly, the court cannot conclude that the record provides substantial evidence

supporting Commerce’s determination. The court also cannot conclude that Commerce’s

rationale was “a reasoned explanation supported by a stated connection between the facts found

and the choice made.” Rhodia, 185 F. Supp. 2d at 1349. Indeed, Commerce itself admits that it

“ha[d] not fully explained its reasons for treating the[] raw material inputs as indirect materials”

and requested a remand to “reconsider its decision and address certain information on the record

relating to the raw material inputs in question and provide a reasoned explanation for [its]

actions.” (Government’s Resp. Br. 28.)

The court, however, disagrees with Bridgestone and Titan that substantial

evidence shows that the inputs were direct materials. The record does not provide information

sufficient for the court to determine how the inputs were used in the production process. As to

the contention that Commerce treated certain of the fifteen inputs as direct materials in

calculating the dumping margin for the other respondents, the court cannot discern whether these

inputs are in fact the same materials and, even if so, whether they were used in the same manner

by those respondents. As “factual determinations supporting anti-dumping margins are best left

to the agency’s expertise,” F.lli De Cecco Di Filippo Fara S. Martino S.p.A. v. United States,

216 F.3d 1027, 1032 (Fed. Cir. 2000), it would be more appropriate to let Commerce determine

the nature of each of the fifteen inputs.8 On remand, Commerce should reconsider the nature of

8
Bridgestone argues that there is a presumption that inputs are direct materials unless
affirmative evidence shows otherwise, and suggests that the presumption applies here because
Xugong failed to meet its burden of providing such affirmative evidence. (Bridgestone’s Br.
13–15.) Even if such a presumption exists, applying it here would be inappropriate because it is
unclear whether Commerce even apprised Xugong that it needed to submit evidence such that
(continued...)
Consol. Court No. 08-00256 Page 14

each of the fifteen inputs separately and, if necessary, reopen the record to allow the parties to

submit relevant information.

II. Unrefunded VAT

Titan argues that Commerce acted arbitrarily and illogically in refusing to include

the amount of unrefunded VAT in Xugong’s normal value calculation. (Titan’s Br. 12.) Titan

contends that the logic underlying Commerce’s inclusion of unrecovered VAT as a cost of

production in the “constructed value” of goods produced in market economy (“ME”) countries

should also apply in nonmarket economy (“NME”) cases where NME producers have paid VAT

to obtain inputs to produce the goods. (Id. at 12–14.) Titan asserts that because Xugong had

paid VAT in acquiring inputs for production of the subject merchandise, and the Chinese

government refunded only a portion of the VAT paid, the amount of unrefunded VAT constitutes

a cost that Xugong incurred in producing the subject goods and should be included in the normal

value calculation.9 (Id. at 13.) Titan asserts that “strictly as a practical matter no meaningful

distinction exists between the ME and NME producers so far as the impact of VAT is

concerned.” (Id. at 12.) Titan’s argument is unavailing.

In ME cases, Commerce determines the normal value of goods by looking at

home market sales or, if home market sales are insufficient, at third country sales. See 19 U.S.C.

8
(...continued)
Xugong had an opportunity to rebut the presumption. See Transcom, Inc. v. United States, 182
F.3d 876, 883 (Fed. Cir. 1999) (stating that “a party that is subject to the presumption has a right
to attempt to rebut it”).
9
Titan claims, and none of the parties dispute, that Xugong paid VAT at [[ ]]% and was
refunded [[ ]]%. (See Titan’s Confidential Br. 13.)

Confidential Data Deleted
Consol. Court No. 08-00256 Page 15

§ 1677b(a)(1)(B)–(C); 19 C.F.R. § 351.404; AIMCOR, 141 F.3d at 1101. If Commerce cannot

determine the normal value from home market or third country sales, it uses a “constructed

value” of the subject merchandise as the normal value. See 19 U.S.C. § 1677b(a)(4); 19 C.F.R.

§ 351.405(a). The constructed value is established by applying a statutory formula, and it

includes the cost of materials, certain expenses and profits, and packing costs. 19 U.S.C.

§ 1677b(e). The statute states that the “cost of materials” used in determining the constructed

value “shall be determined without regard to any internal tax in the exporting country imposed

on such materials or their disposition which are remitted or refunded upon exportation of the

subject merchandise produced from such materials.” Id. Based on this statutory language, the

Federal Circuit has held that, to the extent VAT paid on inputs has not been recovered by the

foreign producer upon exportation of the subject goods, the unrecovered VAT may be included

as a cost of materials in the constructed value. See Elkem Metals Co. v. United States, 468 F.3d

795, 802–03 (Fed. Cir. 2006); Camargo Correa Metals, S.A. v. United States, 200 F.3d 771, 774

(Fed. Cir. 1999); AIMCOR, 141 F.3d at 1108–10.

The AD laws distinguish between ME and NME cases. Congress recognizes that

NME countries, unlike ME countries, “do[] not operate on market principles of cost or pricing

structures, so that sales of merchandise in such countr[ies] do not reflect the fair value of the

merchandise.” 19 U.S.C. § 1677(18)(A). Thus, where merchandise is exported from a NME

country, Commerce may not be able to calculate the normal value using the methods that it

employs in valuing goods from ME countries. See id. § 1677b(c)(1). Where goods are exported

from a NME country and available information does not permit normal value calculation using

the methods in § 1677b(a), Commerce “shall determine the normal value of the subject
Consol. Court No. 08-00256 Page 16

merchandise on the basis of the value of the [FOP] utilized in producing the merchandise.” Id.

§ 1677b(c)(1); see 19 C.F.R. § 351.408(a). Valuation of the FOP is based on “the best available

information regarding the values of such factors” in a surrogate ME country or countries. 19

U.S.C. § 1677b(c)(1).

Here, Commerce classified China as a NME country and determined that India

was the most appropriate surrogate ME country to use to value the FOP. Final Determination,

73 Fed. Reg. at 40,487. Commerce therefore used Indian surrogate values, rather than actual

Chinese costs and prices, in calculating Xugong’s normal value. Although Xugong paid VAT to

acquire inputs in producing the subject goods, the Chinese VAT system is part of the “cost or

pricing structure” of China. Pursuant to the statute, Commerce has determined that elements of

the Chinese “cost or pricing structure” should not be used in calculating the normal value, as the

elements do not reflect the fair market value of the merchandise. See 19 U.S.C. §§ 1677(18)(A),

1677b(c)(1). Because the surrogate value methodology used here does not rely on Chinese

prices and costs, the amount of unrefunded VAT is irrelevant to the normal value calculation.10

Further, Xugong’s normal value is already tax neutral. The Indian surrogate

values used here are exclusive of Indian taxes, Issues and Decision Memorandum at 21, and

Commerce’s “normal methodology” is to exclude VAT from antidumping calculations involving

goods from NME countries, Issues and Decision Memorandum for the Final Results of

10
As to Titan’s contention that Commerce uses actual prices paid by NME producers to
ME suppliers for inputs to calculate normal value under 19 C.F.R. 351.408(c), the court need not
address the propriety of including unrefunded VAT in such a situation. (See Titan’s Reply to the
United States’ and Xugong’s Resp. to Titan’s Mot. for J. upon the Agency R. 3.) Titan admits
that “Commerce used only surrogate values to calculate Xugong’s [normal value]; it did not use
actual prices paid [to] market-economy suppliers.” (Id. at 3 n.2.)
Consol. Court No. 08-00256 Page 17

Polyethylene Retail Carrier Bags (“PRCBs”) from the People’s Republic of China (“PRC”),

A-570-886, POR 8/1/05-7/31/06, at 4–5 (Dep’t Commerce Mar. 10, 2008), available at

http://ia.ita.doc.gov/frn/summary/PRC/E8-5300-1.pdf. As the normal value calculation is net of

taxes, an adjustment for unrefunded VAT would be inappropriate. See Notice of Final

Determination of Sales at Less Than Fair Value: Manganese Metal From the People’s Republic

of China, 60 Fed. Reg. 56,045, 56,052 (Dep’t Commerce Nov. 6, 1995) (“Because the [foreign

market value] is net of taxes, neither a downward adjustment to [foreign market value] nor the

alternative upward adjustment to [the United States price] suggested by respondents is

necessary.”) In any event, as the surrogate values used here are independent of the elements of

the cost or pricing structures in China, any adjustment for Chinese VAT would be unwarranted.

Accordingly, Commerce’s refusal to include unrefunded VAT is in accordance with law.

CONCLUSION

Based on the foregoing, the court remands this matter to Commerce to reconsider

whether each of the fifteen inputs was a direct or indirect material, to reopen the record as

appropriate, and to recalculate the dumping margin accordingly. If Commerce concludes that the

inputs [[ ]] were direct materials, it should also consider the proper

valuation of those inputs.

Commerce shall file its remand determination with the court within sixty days of

Confidential Data Deleted
Consol. Court No. 08-00256 Page 18

this date. Titan, Bridgestone, and Xugong have eleven days thereafter to file objections, and

Commerce will have seven days thereafter to file its response.

/s/ Jane A. Restani
Jane A. Restani
Chief Judge

Dated: This 4th day of August, 2009.
New York, New York.