Sinopec Sichuan Vinylon Works v. United States

Slip Op. 06-78

UNITED STATES COURT OF INTERNATIONAL TRADE

____________________________________
:
SINOPEC SICHUAN VINYLON WORKS, :
:
Plaintiff, :
:
v. :
:
UNITED STATES, : Before: Judith M. Barzilay, Judge
: Court No. 03-00791
Defendant, : Public Version
:
CELANESE CHEMICALS, LTD., :
E.I. DUPONT DE NEMOURS & CO, :
:
Defendant-Intervenors. :
____________________________________:

OPINION

[Upon Plaintiff's USCIT Rule 56.2 motion for judgment on the agency record, the Department of
Commerce's remand results are affirmed in part, and the case is remanded to Commerce.]

Dated: May 25, 2006

Garvey Schubert Barer (Ronald M. Wisla), J. Patrick Briscoe, William E. Perry, Lizabeth R.
Levinson, for Plaintiff Sinopec Sichuan Vinylon Works.

Peter D. Keisler, Assistant Attorney General; David M. Cohen, Director; (Patricia M. McCarthy)
Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of
Justice (Stephen C. Tosini); Arthur D. Sidney, Office of the Chief Counsel for Import
Administration, United States Department of Commerce, of counsel, for Defendant.

Wilmer, Cutler, Pickering, Hale & Dorr, LLP (Atman M. Trivedi), Ronald I. Meltzer, Jack A.
Levy, for Defendant-Intervenors Celanese Chemicals, Ltd., & E.I. DuPont de Nemours &
Company.

Williams, Mullen, Clark & Dobins (James R. Cannon, Jr.), Dean A. Barclay, for Amicus Solutia,
Inc.
Court No. 03-00791 Page 2

I. Introduction

This case evaluates remand results from the Department of Commerce (“Commerce”)

produced in response to this court’s order in Sinopec Sichuan Vinylon Works v. United States, 29

CIT __, 366 F. Supp. 2d 1339 (2005) (“Sinopec I”).1 On August 11, 2003, Commerce published

a final determination that found Plaintiff Sinopec Sichuan Vinylon Works (“SVW”), a producer

and exporter of polyvinyl alcohol (“PVA”) from the People’s Republic of China (“China” or

“PRC”), to be dumping PVA into the United States market and that calculated a final dumping

margin of 6.91 percent. See Notice of Final Determination of Sales at Less Than Fair Value:

Polyvinyl Alcohol from the People’s Republic of China, 68 Fed. Reg. 47,538 (Aug. 11, 2003), as

amended, 68 Fed. Reg. 52,183 (Sept. 2, 2003). The period of investigation (“POI”) covered

January 1, 2002, to June 30, 2002. In response to these findings, Plaintiff brought suit to contest

Commerce’s decisions in four areas: (1) Commerce’s decision to not apply the “self-produced”

rule to SVW’s joint-venture (“JV”) produced inputs; (2) Commerce’s use of a value-based

methodology to allocate costs between acetylene and acetylene tail gas, instead of a heat-of-

combustion based methodology; (3) the use of only the ceiling price of published Indian natural

gas prices as the surrogate value for natural gas; and (4) Commerce’s decision regarding when

and how to apply a by-product credit in the calculations of Plaintiff’s normal value (“NV”). See

Sinopec I, 366 F. Supp. 2d at 1340.

This court affirmed Commerce’s results with respect to issue (2), Commerce requested a

voluntary remand on issue (3), and the court remanded the two remaining issues. See id.

Specifically, the court found that with respect to issue (1), Commerce did not sufficiently explain

1
Familiarity with the procedural history and reasoning of Sinopec I is presumed.
Court No. 03-00791 Page 3

the relationship between corporate organization and deciding whether inputs qualified as self-

produced. The court also ordered Commerce to address Plaintiff’s argument that because

Jubilant, the Indian surrogate producer used to formulate the relevant data, possessed a more

vertically integrated2 corporate structure than SVW, using Jubilant’s figures would grossly inflate

SVW’s estimated overhead. See id. at 1344-45. Finally, on issue (4) the court determined that

while Commerce accounted for SVW’s acetic acid recovery3 in its calculations, it did not

adequately consider the firms’ differing levels of integration and “the fact that Jubilant’s

overhead costs are not representative of SVW’s.” Id. at 1350. Commerce needed to either

“sufficiently explain[] its decision to apply Jubilant’s financial ratios” without accounting for the

greater costs Jubilant endures during acetic acid production, “a process which . . . SVW does not

undergo,” or make adjustments to its calculations. Id. at 1351.

II. Jurisdiction & Standard of Review

This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1581(c). The court

“must sustain ‘any determination, finding or conclusion found’ by Commerce unless it is

‘unsupported by substantial evidence on the record, or otherwise not in accordance with the

law.’” Fujitsu Gen. Ltd. v. United States, 88 F.3d 1034, 1038 (Fed. Cir. 1996) (quoting 19

U.S.C. § 1516a(b)(1)(B)). Substantial evidence consists of “such relevant evidence as a

reasonable mind might accept as adequate to support a conclusion.” Matsushita Elec. Indus. Co.

v. United States, 750 F.2d 927, 933 (Fed. Cir. 1984) (quoting Consol. Edison Co. of N.Y. v.

2
Vertical integration refers to the “[c]ombination of two or more businesses on different
levels of operation such as manufacturing, wholesaling and retailing the same product.” Deluxe
Black’s Law Dictionary 809 (6th ed. 1990).
3
Jubilant does not perform this process.
Court No. 03-00791 Page 4

NLRB, 305 U.S. 197, 229 (1938)) (quotations omitted). “[T]he possibility of drawing two

inconsistent conclusions from the evidence does not prevent an administrative agency’s finding

from being supported by substantial evidence.” Id. (quoting Consolo v. Fed. Mar. Comm’n, 383

U.S. 607, 619-20 (1966)) (quotations omitted). The court therefore “affirms Commerce’s factual

determinations so long as they are reasonable and supported by the record as a whole, even if

there is some evidence that detracts from the agency’s conclusions.” Olympia Indus., Inc. v.

United States, 22 CIT 387, 389, 7 F. Supp. 2d 997, 1000 (1998) (citing Atl. Sugar, Ltd. v. United

States, 744 F.2d 1556, 1563 (Fed. Cir. 1984)). It may not “substitut[e] its judgment for that of

the agency.” Hangzhou Spring Washer Co. v. United States, 29 CIT ___, ___, 387 F. Supp. 2d

1236, 1251 (2005) (citing Koyo Seiko Co. v. United States, 36 F.3d 1565, 1570 (Fed. Cir. 1994)).

III. Discussion

A. Commerce’s Evaluation of Sinopec Sichuan Vinylon Works’ Acetic Acid Inputs

1. Commerce’s Position

After remand, Commerce again determined that the acetic acid that SVW purchases from

its PRC-based JV4 does not constitute a self-produced input and valued SVW’s acetic acid

consumption using a surrogate value on the acetic acid itself obtained from India. See Remand

Results at 4. Commerce explains this decision by highlighting 19 C.F.R. § 351.401(f)5 and

4
SVW is a [ ] in the JV. See Final Results of Redetermination Pursuant to Court
Remand at 14 (“Remand Results”).
5
In relevant part, 19 C.F.R. § 351.401(f), also known as the collapsing regulation, reads:
(1) In general. In an antidumping proceeding under this part, the Secretary will
treat two or more affiliated producers as a single entity where those producers
have production facilities for similar or identical products that would not require
substantial retooling of either facility in order to restructure manufacturing
priorities and the Secretary concludes that there is a significant potential for the
Court No. 03-00791 Page 5

noting that SVW and the JV do not meet the requirements of the regulation’s collapsing factors,

a finding that attests to a high level of independence between the companies. See Remand

Results at 4. While not in itself dispositive, corporate organization, as viewed through the lens of

the collapsing factors, can clarify the “level of integration” between the firms and elucidate

“whether SVW’s production facility is sufficiently similar to” that of the JV so that Commerce

may treat SVW as the producer6 of the acetic acid. Remand Results at 5. In this case, Commerce

found that SVW “does not self-produce acetic acid because it purchased its acetic acid and it is

not fully integrated with respect to acetic acid production.” Remand Results at 7. Furthermore,

although SVW purchases acetic acid from an affiliated7 JV, facts on record demonstrate that “1)

SVW and its supplier [ ] are legally separate corporate entities; 2) SVW does not produce

acetic acid within its corporate production facility; and 3) SVW purchases acetic acid that was

produced in a separate, although affiliated, corporate production facility.” Remand Results at 10;

manipulation of price or production.
(2) Significant potential for manipulation. In identifying a significant potential for
the manipulation of price or production, the factors the Secretary may consider
include: (i) The level of common ownership; (ii) The extent to which managerial
employees or board members of one firm sit on the board of directors of an
affiliated firm; and (iii) Whether operations are intertwined, such as through the
sharing of sales information, involvement in production and pricing decisions, the
sharing of facilities of employees, or significant transactions between the affiliated
producers.
19 C.F.R. § 351.401(f). The elements described in this regulation are known commonly as the
“collapsing factors.”
6
Commerce defines “producer” as “the corporate entity(s) actually producing the subject
merchandise.” Remand Results at 10 (citing Anshan Iron & Steel Co. v. United States, 2003 WL
22018898 (CIT 2003) (not reported in F. Supp.)).
7
Sinopec is “affiliated” with its JV because Sinopec owns over [ ] of its shares. See
19 U.S.C. § 1677(33)(E).
Court No. 03-00791 Page 6

see Remand Results at 14-16. Commerce therefore turned to the Indian surrogate to value the

acetic acid.

2. Plaintiff’s Position

Plaintiff SVW responds that in failing to treat SVW’s acetic acid purchases as self-

produced, Commerce has disregarded its statutory mandate, which requires that Commerce

calculate NV “based on the ‘factors of production utilized in producing the merchandise.’” Pl.’s

Cmts. 2, 3 (citing 19 U.S.C. § 1677b(c)(1)). Plaintiff also insists that Commerce has deviated

from its practice of “us[ing] factors of production only for inputs that are manufactured by the

producer of the subject merchandise or by its affiliates,” and that by using the surrogate value for

acetic acid, Commerce has not used the “best available information.” Pl.’s Cmts. 2, 3. Further,

Plaintiff asserts that Commerce has improperly focused on the fact that Plaintiff and its JV are

“legally separate entities” to the exclusion of other factors that may demonstrate a high level of

vertical integration between the two firms. Pl.’s Cmts. 4. Plaintiff avers that according to

Commerce precedent, because Plaintiff owns a [ ] interest in its JV, its acetic acid purchases

qualify as “captively-produced,” i.e. self-produced, inputs, and Commerce must value the acetic

acid’s factors of production rather than the acetic acid itself.8 Pl.’s Cmts. 2 (quoting Final

Determination of Sales at Less Than Fair Value: Coumarin from the People’s Republic of China,

59 Fed. Reg. 66,895, 66,899 (Dec. 28, 1994). Furthermore, SVW contests the use of the

collapsing factors as irrelevant to the inquiry. See, e.g., Pl.’s Cmts. 5-6, 14.

8
Here, the court notes that valuing the acetic acid’s factors of production would not
preclude Commerce’s use of surrogate values for those factors.
Court No. 03-00791 Page 7

3. Analysis

In non-market economy (“NME”) cases, such as this one, Congress has instructed

Commerce to employ “the best available information” when calculating the NV of subject

merchandise. 19 U.S.C. § 1677b(c)(1). If Commerce cannot obtain adequate information from

the NME firm or country, it alternatively may base its calculations on “comparable . . . subject

merchandise . . . produced in one or more market economy countries that are at a level of

economic development comparable to that of the nonmarket economy country.” 19 U.S.C. §

1677b(c)(2); see 19 C.F.R. § 351.408(a). Contrary to SVW’s claims, Commerce has no

obligation to use the JV’s factors of production costs; nor, as reflected in 19 U.S.C. § 1677b(c)(2)

(outlining when and how to employ surrogate values in NME cases), do the JV’s factors of

production costs necessarily constitute the best information available.

Section 1677b(c)(1), in fact, “grants to Commerce broad discretion to determine the ‘best

available information’ in a reasonable manner on a case-by-case basis.” CITIC Trading Co. v.

United States, 27 CIT ___, ___, 2003 WL 1587093, at *6 (2003) (not reported in F. Supp.)

(quoting Timken Co. v. United States, 25 CIT 939, 944, 166 F. Supp. 2d 608, 616 (2001)

(quotations omitted)); see Shakeproof Assembly Components, Div. of Ill. Tool Works, Inc. v.

United States, 268 F.3d 1376, 1381 (Fed. Cir. 2001); CITIC Trading Co., 2003 WL 1587093, at

*14 (“[N]othing in the [statute] or its legislative history mandates that Commerce must derive

foreign market values exclusively from either actual prices paid by the nonmarket economy, or

from surrogate-based values.” (quoting Lasko Metal Prods., Inc. v. United States, 16 CIT 1079,

1082, 810 F. Supp. 314, 317 (1992)) (quotations omitted) (second brackets in original)).
Court No. 03-00791 Page 8

In this instance, Commerce first must determine whether SVW exercises control over its

JV to the extent that acetic acid transactions between the firms no longer occur at arms’ length.

See 19 C.F.R. § 351.102(b). If it exercises such control,9 which often becomes manifest through

the firms’ organizational and financial structure, Commerce should treat the JV’s acetic acid as

SVW’s self-produced input. However, if the firms do not operate in such an integrated manner,

Commerce may not treat the acetic acid as self-produced by SVW. Next, Commerce must

determine whether it should employ surrogate values to calculate the NV of the input it found

appropriate to examine in the first step, be it the acetic acid or the acetic acid’s factors of

production. See 19 C.F.R. § 351.408(a).

While Commerce does not traditionally look to the collapsing regulation 19 C.F.R. §

351.401(f) to determine whether an input of subject merchandise is self-produced,10 select

aspects of the regulation nevertheless provide acceptable tools to examine the depth of

integration and business control that a firm shares with another, and remains consistent with

Commerce’s underlying practice. See Hangzhou Spring Washer Co., 387 F. Supp. 2d at 1248-49

(“Commerce has articulated its preference for surrogate prices over build-up prices in its

determinations when a producer is not fully integrated. . . . ‘If the NME . . . . firm was not

integrated, . . . [Commerce] value[s] the purchased [product] and not the factors [of

production].’” (quoting Issues and Decision Memorandum for the Antidumping Duty

9
With respect to “affiliated persons,” such as SVW and its JV, “a person shall be
considered to control another person if the person is legally or operationally in a position to
exercise restraint or direction over the other person.” 19 U.S.C. § 1677(33).
10
The collapsing regulation customarily is applied to determine the degree of horizontal
integration between parties.
Court No. 03-00791 Page 9

Investigation of Polyvinyl Alcohol from the People’s Republic of China, A-570-879, cmt. 1

(Dep’t Commerce Aug. 4, 2003)) (first, third & fourth brackets in original) (third ellipses in

original)); cf. Anshan Iron & Steel Co. v. United States, 27 CIT ___, ___, 2003 WL 22018898, at

*6 (2003) (not reported in F. Supp.). Specifically, the factors in 19 C.F.R. § 351.401(f)(2)

present a series of tests to determine whether there exists a significant potential for price

manipulation, which would attest to a high degree of vertical integration. In contrast, the general

elements laid out in 19 C.F.R. § 351.401(f)(1) reveal nothing about vertical integration between

firms, and Commerce’s use of these factors to assess the relationship between SVW and its JV is

inappropriate. See, e.g., Remand Results at 5 (insisting that dissimilarity of SVW and its JV’s

production facilities indicates firms not vertically integrated), 10 (asserting that lack of acetic

acid production in SVW’s facilities demonstrates that SWV and its JV not vertically integrated),

14 (claiming that because SVW and its JV’s production facilities would require substantial

retooling to produce similar or identical products indicates that companies not vertically

integrated).

Commerce’s narrow focus on the fact that SVW and the JV are legally distinct entities

deviates from its prior methodology and fails to adequately address a central tenet of

antidumping margin calculation: Affiliated parties often have the potential to manipulate the

prices and costs of their transactions with each other – a potential not coextensive with the de

jure unity or independence of the parties, as Commerce suggests. Compare Remand Results at

10, 13-14, with 19 U.S.C. § 1677(4)(B) (“[A] party shall be considered to directly or indirectly

control another party if the party is legally or operationally in a position to exercise restraint or

direction over the other party.”) (emphasis added) and 19 C.F.R. § 351.102(b) (“Affiliated
Court No. 03-00791 Page 10

persons . . . . In determining whether control over another person exists, . . . the Secretary will

consider the following factors, among others: corporate or family groupings; franchise or joint

venture agreements . . . .”) (emphasis added). In fact, Commerce has previously counted as self-

produced inputs a NME firm’s purchases from completely unaffiliated sources. See, e.g., Final

Determination of Sales at Less Than Fair Value: Wooden Bedroom Furniture from the People’s

Republic of China, 69 Fed. Reg. 67,313, (Dep’t Commerce Nov. 17, 2004). Whether companies

possess separate legal identities has never formed the basis of Commerce’s methodology. Aside

from examining the legal connections between SVW and its JV, Commerce must examine the

possibility of SVW exerting de facto control over the JV. Cf. Shangdong Huarong Gen. Group

Corp. v. United States, 27 CIT ___, ___, 2003 WL 22757937 at *17 (2003).

Stripped of these unlawful and inadequate means of examining the relationship between

Plaintiff and its joint-venture – respectively the first prong of the collapsing factor test and a test

based solely on the legal identity of the JV and SVW – Commerce is left with only circular

arguments to buttress its refusal not to treat SVW’s acetic acid purchases as self-produced. See,

e.g., Remand Results at 5 (“[T]he Department cannot value the inputs used to produce acetic acid

as SVW’s own factors of production because SVW does not self-produce acetic acid . . . .”), 8

(“[W]hen the producer of subject merchandise obtains its factor(s) from a separate supplier

entity, as SVW does in this case . . . .”). It provides too little explanation and guidance as to how

it reached its conclusion. See CITIC Trading Co., 2003 WL 1587093 at *14; cf. China Steel

Corp. v. United States, 264 F. Supp. 2d 1339, 1359 (2003) (stating that Commerce decisions

must be “reached by reasoned decisionmaking [sic], including . . . a reasoned explanation

supported by a stated connection between the facts found and the choice made.” (ellipses in
Court No. 03-00791 Page 11

original) (quotations omitted)). Commerce’s treatment of SVW’s acetic acid is REMANDED

for further analysis and explanation not inconsistent with this opinion.

B. The Surrogate Value for Natural Gas

In its original determination, Commerce calculated the surrogate value of natural gas used

in SVW’s PVA production as the ceiling price provided by the Gas Authority of India, Ltd.

(“GAIL”), for the period of investigation, but later requested a voluntary remand on this issue.

See Sinopec I, 366 F. Supp. 2d at 1340. Commerce’s revised calculation averages the floor and

ceiling natural gas prices supplied by GAIL, as “[i]t is clear . . . that consumers pay a range of

prices and not merely the ceiling.” Remand Results at 47; see Remand Results at 17. No party

contests this modification. Because substantial record evidence supports the basis for this new

calculation, and since the calculation conforms to the requirements established by 19 U.S.C. §

1677b(c) (outlining methods for deriving NV of subject merchandise for NME countries) and 19

C.F.R. § 351.408 (same), Commerce’s use of the revised surrogate value for natural gas is

AFFIRMED.

C. Sinopec Sichuan Vinylon Works’ Overhead Costs11

To calculate SVW’s final antidumping margin, Commerce relied on the factory overhead

ratios; selling, general, and administrative expenses (“SG&A”); and profit statements from the

11
The court will not discuss Plaintiff’s contention that Commerce should apply a by-
product credit related to the recovery of acetic acid after, rather than before, applying the
financial ratios, since the court affirmed this practice in Sinopec I. See Sinopec I, 366 F. Supp.
2d at 1351; Remand Results at 47. Crucially, though, the court did not hold that application of
the by-product credit in itself conformed with Commerce’s obligations. Immediately after
affirming Commerce’s decision to apply the by-product credit after the financial ratios, the court
noted that Commerce still “ha[d] not sufficiently explained its decision to apply Jubilant’s
financial ratios without accounting for the greater costs incurred by Jubilant.” Sinopec I, 366 F.
Supp. 2d at 1351 (emphasis added).
Court No. 03-00791 Page 12

Indian surrogate company Jubilant. See Remand Results at 17. It chose Jubilant because

1) it was a producer of comparable merchandise during the POI; 2) it produced in
the chosen surrogate country (i.e., India); 3) its financial statements were
contemporaneous with the POI; and 4) its production process for PVAc was
comparable to that of SVW’s for PVA, given that the two companies produced at
“equivalent levels of vertical integration.”

Remand Results at 18. On remand, the court ordered Commerce to examine whether Jubilant

had a higher level of vertical integration than SVW because, among other factors, Jubilant

produced its acetic acid, while SVW purchased acetic acid from an affiliate. Greater vertical

integration could indicate that Jubilant incurred higher capital and fixed overhead costs than

SVW, which might require Commerce to recalculate its cost figures for SVW. See Remand

Results at 18-19.

1. Commerce’s Position

Although Commerce recognizes differences in the production methods and resulting

products between SVW and Jubilant, it maintains that “the two companies operate at equivalent

integration levels with respect to the production of PVA and [ ].12 Remand Results at 20.

“Jubilant is more vertically integrated in some aspects of its production of PVAc and less

vertically integrated in others” when compared to SVW. Remand Results at 22. To bolster its

stance, Commerce notes that “[i]n the vast majority of the antidumping duty cases, the surrogate

12

Jubilant begins its production process with ethanol, which it either purchases or
makes by a simple process from molasses . . . Jubilant processes ethanol into
ethylene which it turns into VAM and then, ultimately, into [ ], a comparable
product to PVA. In contrast, . . . SVW produces PVA using acetylene
manufactured from additional self-produced inputs, and it hydrolyzes VAM into
PVA (a further processed version of PVAc).
Remand Results at 19 (ellipses in original).
Court No. 03-00791 Page 13

producers selected by [Commerce] produce different products and incur different types of costs

than the respondents. In these situations, our practice has been not to attempt to adjust the

surrogate producer’s overhead figures to account for potential cost differences.” Remand Results

at 20 (citing Notice of Final Determination of Sales at Not Less Than Fair Value: Pure

Magnesium from the Russian Federation, 66 Fed. Reg. 49,347 (Dep’t Commerce Sept. 27,

2001); Notice of Final Determinations of Sales at Less Than Fair Value: Pure Magnesium and

Alloy Magnesium from the Russian Federation, 60 Fed. Reg. 16,440, 16,446-47 (Dep’t

Commerce Mar. 30, 1995)). Furthermore, Commerce asserts that “any finding . . . that Jubilant’s

overhead is overstated vis-a-vis SVW’s production experience because it includes depreciation

expenses related to the manufacture of acetic acid – and then attempting to adjust for these

differences – could introduce unintended distortions into the data.” Remand Results at 21.

Therefore, Commerce again decided not to adjust Jubilant’s overhead ratio to account for acetic

acid production or other manufacturing differences between the two companies. See Remand

Results at 22.

2. Plaintiff’s Position

SVW protests that by not revising its calculations to account for capital costs Jubilant

endures by producing acetic acid and for Jubilant’s supposedly higher overhead costs, SG&A,

and profit attributable to its manufacturing and sale of more products and by-products than SVW,

Commerce has acted unlawfully. See Pl.'s Cmts. 15. SVW avers that by making upward

adjustments to its NV to account for its PVA production from PVAc – a process Jubilant does

not undergo – while refusing to make downward adjustments for Jubilant’s acetic acid

production and other expenses, Commerce has “fail[ed] to provide a fair and accurate
Court No. 03-00791 Page 14

measurement of SVW’s normal value.” Pl.'s Cmts. 16. This disparate treatment between

upward and downward adjustments violates 19 U.S.C. § 1677b(c)(3)(D), which requires factors

of production to include a “representative capital cost.” Pl.'s Cmts. 18 (quoting 19 U.S.C. §

1677b(c)(3)(D)). SVW contends that “since Commerce determined that the [sic] Jubilant and

SVW are at ‘equivalent levels of vertical integration,’ common sense . . . dictate[s] that there

should . . . be[] no need for Commerce to have made an upward adjustment to SVW’s normal

value in the first place.” Pl.'s Cmts. 19. Likewise, SVW maintains that Commerce illegally

double-counted the overhead, SG&A, and profit attributable to SVW’s consumption of acetic

acid when it used the surrogate price for SVW’s acetic acid inputs – which SVW claims

“necessarily incorporated overhead, SG&A, and profit attributable to SVW’s purchased acetic

acid inputs”– and also applied the acetic acid-producing surrogate’s financial ratios to SVW’s

production costs. Pl.'s Cmts. 17.

3. Analysis

While Commerce’s refusal to adjust its calculations to compensate for SVW and

Jubilant’s differing levels of vertical integration has basis in both statutory and case law, its

reasoning rings hollow in light of its willingness to incorporate a by-product credit for SVW’s

acetic acid recovery into its figures.

Commerce does not generally adjust the surrogate values used in the calculation
of factory overhead. . . . [O]nce Commerce establishes that the surrogate produces
identical or comparable merchandise, closely approximating the nonmarket
economy producer’s experience, Commerce merely uses the surrogate producer’s
data.
....
Unless there is substantial evidence in the record which supports a finding that the
surrogate producers are less integrated that [sic] the PRC producers, and as a
result have a lower overhead ratio, Commerce cannot depart from its standard
practice.
Court No. 03-00791 Page 15

Rhodia, Inc. v. United States, 26 CIT 1107, 1110-11, 240 F. Supp. 2d 1247, 1250-51 (2002)

(citations omitted); see, e.g., Notice of Final Determination of Sales at Less Than Fair Value;

Polyvinyl Alcohol from the People’s Republic of China, 61 Fed. Reg. 14,057, 14,060 (Dep’t

Commerce Mar. 29, 1996); Synthetic Indigo from the People’s Republic of China; Notice of

Final Determination of Sales at Less Than Fair Value, 65 Fed. Reg. 25,706, 25,706-07 (Dep’t

Commerce May 3, 2000); Certain Helical Spring Lock Washers from the People’s Republic of

China; Final Results of Antidumping Duty Administrative Review, 64 Fed. Reg. 13,401, 13,404

(Dep’t Commerce Mar. 18, 1999); see 19 C.F.R. § 351.408(c)(4). In this case, Commerce has

repeatedly maintained that "Sinopec and Jubilant are at equivalent stages of integration." Def.'s

Resp. 8; see, e.g., Def.'s Resp. 9; Remand Results at 18, 54. It also has consistently reiterated that

making adjustments for perceived differences in the firms' vertical integration would create only

an illusion of increased accuracy. See, e.g., Def.'s Resp. 10-11; see Remand Results at 55-56;

Def.'s Resp. 11 ("Commerce does not adjust a surrogate producer's overhead to account for

potential cost differences, because the agency would be required to evaluate whether both the

surrogate company and the respondent possess identical cost structures, and then adjust the

companies' cost structures upon a line-by-line basis to account for all differences." (citing

Remand Results at 20-21)).

Commerce cannot have it both ways. It may not arbitrarily invoke prior practice to

buttress a blanket refusal to adjust for cost differentials that would benefit a party and

simultaneously abandon this prior practice to include adjustments that disadvantage that same

party. The court understands that "the process of constructing foreign market value for a

producer in a nonmarket economy country is difficult and necessarily imprecise." Hangzhou
Court No. 03-00791 Page 16

Spring Washer Co., 387 F. Supp. 2d at 1245 (quoting Nation Ford Chem. Co. v. United States,

166 F.3d 1373, 1377 (Fed. Cir. 1999)) (quotations omitted). Yet, although Commerce has

"broad discretion to determine the 'best available information' in a reasonable manner," this

discretion requires that "Commerce's choice of what constitutes the best available information

evidence[] a rational and reasonable relationship to the factor of production it represents." CITIC

Trading Co., 2003 WL 1587093, at *6 & n.12 (citations & quotations omitted); see Hangzhou

Spring Washer Co., 29 CIT at ___, 387 F. Supp. 2d at 1246; Peer Bearing Co.-Changshan v.

United States, 27 CIT ___, ___, 298 F. Supp. 2d 1328, 1336 (2003). Currently, Commerce's

methodology does not meet this standard. Commerce must revise its calculation methods on

remand so that they avoid these unreasonable inconsistencies.

In addition, by refusing to adjust SVW's NV to strip out costs that Jubilant incurs by

producing acetic acid – as explained above, a process that SVW does not undergo – while using

the surrogate acetic acid input price, Commerce seems to have double counted the overhead,

SG&A, and profit stemming from Jubilant's acetic acid production. "Double-counting is to be

avoided" when Commerce makes adjustments to its calculations. Holmes Prods. Corp. v. United

States, 16 CIT 628, 632, 795 F. Supp. 1205, 1208 (1992); see Sigma Corp. v. United States, 117

F.3d 1401, 1407-08 (Fed. Cir. 1997); 19 C.F.R. § 351.401(b)(2)13. See generally Floral Trade

Council v. United States, 15 CIT 497, 506-07, 775 F. Supp. 1492, 1502-03 (1991) (remanding to

13
In relevant part, the regulation states: (b) Adjustments in general. In making adjustments
to export price, constructed export price, or normal value, the Secretary will adhere to the
following principles: . . . . (2) The Secretary will not double-count adjustments. 19 C.F.R. §
351.401(b).
Court No. 03-00791 Page 17

Commerce because of multiple incidences of double-counting). On remand, Commerce should

adopt a calculation method that avoids double-counting insofar as it is reasonably avoidable.14

IV. Conclusion

For the reasons stated above, the court AFFIRMS revised calculation for the surrogate

value for natural gas and REMANDS the case to the Department of Commerce to reanalyze its

treatment of Sinopec Sichuan Vinylon Works’ acetic acid inputs and the calculation of the firm’s

overhead costs as discussed in section (C). To perform the requisite overhead cost revisions,

Commerce may either adhere to its customary practice of using the surrogate producer’s data

without adjustment, or it shall reopen the record to obtain data reasonably necessary to adjust

Jubilant’s overhead so that it accounts for differences between its manufacturing processes and

those of SVW. Naturally, Commerce’s revised treatment of the SVW’s acetic acid purchases

shall be reflected in the revisions to SVW’s overhead costs. Commerce shall have 60 days after

the issuance of this opinion to submit to this court its revised remand results, whereupon Plaintiff

and Defendant-Intervenors will have 30 days to submit their responses.

May 25, 2006 /s/ Judith M. Barzilay
Dated:______________________ _____________________
New York, NY Judge

14
Commerce has satisfactorily accounted for the supposed discrepancies between SVW
and Jubilant that may result from the different number of products the companies produce. See
Remand Determination at 23-24; Def.’s Resp. 11-12. The court will not disturb Commerce’s
treatment of this issue.