Wonderful Chemical Industrial, Ltd. v. United States

Slip Op. 03-26

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: RICHARD W. GOLDBERG, SENIOR JUDGE

WONDERFUL CHEMICAL INDUSTRIAL, LTD.,
KWONG FAT HONG DYE-CHEMICALS, LTD.,
BEIJING DYESTUFFS PLANT, CHINA
JIANGSU INTERNATIONAL ECONOMIC
TECHNICAL COOPERATION CORPORATION,
CHINA NATIONAL CHEMICAL CONSTRUCTION
JIANGSU COMPANY, CHONGQING
CHUANRAN CHEMICALS GENERAL PLANT,
CHONGQING DYESTUFF IMPORT & EXPORT
UNITED CORPORATION, HEBEI JINZHOU
IMPORT & EXPORT CORPORATION, HEBEI
WUQIANG CHEMICAL FACTORY, JIAHUI
CHEMICAL WORKS, JIANGSU TAIFENG
CHEMICAL INDUSTRY CO., SHANGHAI
YONGCHEN INTERNATIONAL TRADING
COMPANY, LTD., SINOCHEM HEBEI IMPORT
& EXPORT CORPORATION, TAIXING
TAIFENG DYESTUFF CO., LTD., TIANJIN
HONGFA GROUP CO., and WUHAN TIANJIN Court No. 00-07-00369
CHEMICALS IMPORTS & EXPORTS CORP.,
LTD.,

Plaintiffs,

v.

UNITED STATES,

Defendant,

and

BUFFALO COLOR CORPORATION,

Defendant-Intervenor.

[Department of Commerce’s Final Determination is sustained.]

Dated: March 12, 2003
Court No. 00-07-00369 Page 2

Aitken Irvin Berlin & Vrooman, LLP (Bruce Aitken) for
plaintiffs.

Robert D. McCallum, Jr., Assistant Attorney General; David
M. Cohen, Director, Commercial Litigation Branch, Civil Division,
United States Department of Justice; Velta A. Melnbrencis,
Assistant Director, Commercial Litigation Branch, Civil Division,
United States Department of Justice; Lyn M. Schlitt, General
Counsel, United States Trade Commission; Philip J. Curtin,
Attorney, Office of the Chief Counsel, United States Department
of Commerce, for defendant.

Collier Shannon Scott, PLLC (Michael R. Kershow and Paul C.
Rosenthal) for defendant-intervenor.

MEMORANDUM OPINION AND ORDER

GOLDBERG, Senior Judge: In this action, the Court reviews a

challenge to the Department of Commerce’s (“Commerce”) final

determination to impose an antidumping (“AD”) order covering

certain producers of synthetic indigo from the People’s Republic

of China (“PRC”). See Synthetic Indigo from the People’s

Republic of China; Notice of Final Determination of Sales at Less

Than Fair Value, 65 Fed. Reg. 25706 (May 3, 2000) (“Final

Determination”).

Plaintiffs, Wonderful Chemical Industrial, Ltd.

(“Wonderful”), Kwong Fat Hong Dye-Chemicals, Ltd. (“Kwong Fat”),

Beijing Dyestuffs Plant, China Jiangsu International Economic

Technical Cooperation Corporation, China National Chemical

Construction Jiangsu Company, Chongqing Chuanran Chemicals

General Plant, Chongqing Dyestuff Import & Export United

Corporation, Hebei Jinzhou Import & Export Corporation, Hebei
Court No. 00-07-00369 Page 3

Wuqiang Chemical Factory, Jiahui Chemical Works, Jiangsu Taifeng

Chemical Industry Co., Shanghai Yongchen International Trading

Company, Ltd., Sinochem Hebei Import & Export Corporation,

Taixing Taifeng Dyestuff Co., Ltd., Tianjin Hongfa Group Co., and

Wuhan Tianjin Chemicals Imports & Exports Corp., Ltd.

(collectively “Plaintiffs”), are PRC-based producers of the

subject merchandise and seek relief from Commerce’s action under

USCIT Rule 56.2. Plaintiffs argue that the Final Determination

was neither in accordance with law nor supported by substantial

evidence.

The Court exercises jurisdiction over this matter pursuant

to 28 U.S.C. § 1581(c) (2000). For the reasons that follow, the

Court sustains Commerce’s Final Determination.

I. BACKGROUND

On or about June 28, 1999, domestic producers of synthetic

indigo, including defendant-intervenor Buffalo Color Corporation

(“Buffalo”), and the unions representing their workers filed

antidumping duty petitions with Commerce and the International

Trade Commission. The petition alleged that the domestic

industry was materially injured or threatened with material

injury due to imports of certain synthetic indigo sold at less

than fair market value from the PRC.

On July 28, 1999, Commerce initiated its antidumping

investigation of possible producers/exporters of synthetic
Court No. 00-07-00369 Page 4

indigo. Notice of Initiation of Antidumping Duty Investigation:

Synthetic Indigo from the People’s Republic of China, 64 Fed.

Reg. 40831 (July 28, 1999). Due to limited resources, Commerce

limited the number of mandatory respondents in the investigation

to the two largest producers/exporters of synthetic indigo,

Wonderful and Kwong Fat. Notice of Preliminary Determination of

Sales at Less Than Fair Value and Postponement of Final

Determination: Synthetic Indigo From the People’s Republic of

China, 64 Fed. Reg. 69723, 697925 (Dec. 14, 1999) (“Preliminary

Determination”). Wonderful and Kwong Fat are exporters of

synthetic indigo based in the PRC and Hong Kong, respectively.

The focused investigation was permissible under 19 U.S.C. §

1677f-1(c)(2).1

Upon further analysis, Commerce shifted its investigation

from Kwong Fat to Tianjin Hongfa pursuant to 19 U.S.C. §

1677a(a).2 Tianjin Hongfa is a PRC-based trading company.

1
19 U.S.C. § 1677f-1(c)(2) permits Commerce to limit its
investigation to the largest producers if “it is not practicable
to make individual weighted average dumping margin
determinations....because of the large number of exporters or
producers involved in the investigation or review.” In such
cases “the administering authority may determine the weighted
average dumping margins for a reasonable number of exporters or
producers by limiting its examination to....exporters and
producers accounting for the largest volume of the subject
merchandise from the exporting country that can be reasonably
examined.” Id.
2
19 U.S.C. § 1677a(a) provides that “export price is
determined by the price at which the subject merchandise is first
sold before the date of importation by the producer or exporter
Court No. 00-07-00369 Page 5

Specifically, Commerce examined whether Tianjin Hongfa sold the

subject merchandise to Kwong Fat with the knowledge that the

merchandise was destined for export to the United States.

On December 14, 1999, Commerce issued a preliminary

determination. Preliminary Determination, 64 Fed. Reg. at 69297.

In its Preliminary Determination, Commerce found that Tianjin

Hongfa knew or should have known that the merchandise was for

export to the United States at the time of sale.

Based on that finding, Commerce, pursuant to 19 U.S.C. §

1677b, calculated the dumping margin to determine if Tianjin

Hongfa sold its exports at less than fair market value. Id. at

69729. Commerce calculated the dumping margin using surrogate

values from Daurala, an Indian-based exporter of phenlyglycine.

Phenlyglycine is the primary chemical used in the production of

synthetic indigo. Commerce selected Daurala because India is a

country that Commerce considers economically comparable to the

PRC and because no data was available from a synthetic indigo

producer in any other economically comparable country. Id. at

69728. Wonderful offered surrogate values from Atul and Traspek,

two Indian-based producers of various chemicals including

phenylglycine. Commerce claims that it rejected the Atul and

Transpek data on the grounds that departmental practice is to use

of the subject merchandise outside of the United States...to an
unaffiliated purchaser for exportation to the United States.”
Court No. 00-07-00369 Page 6

financial data that is more narrowly limited to a producer of

comparable merchandise.

Using surrogate values from Daurala, Commerce calculated a

dumping margin of 25 percent. Based on that data, Commerce

stated in the Preliminary Determination that it had reasonable

grounds to believe that critical circumstances existed with

respect to synthetic indigo from Plaintiffs. Id. at 69725.

As defined by 19 U.S.C. § 1673b(e), critical circumstances

exist if Commerce has reasonable grounds to believe that:

(A)(i) there is a history of dumping and material injury by
reason of dumped imports in the United States or elsewhere
of the subject merchandise,
or
(A)(ii) the person by whom, or for whose account, the
merchandise was imported knew or should have known that the
exporter was selling the subject merchandise at less than
fair value; and
(B) there have been massive imports of the subject
merchandise over a relatively short period of time.

19 U.S.C. § 1673b(e).

Based on its finding of critical circumstances under

subsections (A)(ii) and (B), Commerce issued its final

determination on May 3, 2000. Final Determination, 65 Fed. Reg.

at 25706. Subsequently, Buffalo petitioned Commerce for a

recalculation of the dumping margins on the grounds that Commerce

failed to consider other profits of Plaintiffs. Upon

reconsideration, prompted by Buffalo’s petition, Commerce amended

the dumping margins to account for profits not included in its

original calculation. See Notice of Amendment of Final
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Determination of Sales at Less Than Fair Value and Antidumping

Duty Order: Synthetic Indigo From the People’s Republic of China,

65 Fed. Reg. 37961 (June 19, 2000).

Plaintiffs appeal the Final Determination on three grounds.

First, Plaintiffs appeal Commerce’s decision to treat Tianjin

Hongfa as an exporter. Plaintiffs argue that Commerce

incorrectly found that Tianjin Hongfa had the requisite knowledge

of the final destination of the synthetic indigo it sold to Kwong

Fat. Plaintiffs also argue that Tianjin Hongfa was an agent of

Kwong Fat, rather than an exporter, based on the definitions

provided by 19 U.S.C. § 1677(13). Second, Plaintiffs argue that

Commerce’s use of surrogate values from Daurala produced

aberrational results. Third, Plaintiffs claim that Commerce

improperly found the existence of critical circumstances based on

the miscalculation of a 25 percent dumping margin.

There are two issues on appeal: (1) whether Commerce’s

determination to treat Tianjin Hongfa as an exporter was proper

and (2) whether Commerce’s use of surrogate values from Daurala

was proper.3 Commerce’s Final Determination with respect to both

3
Plaintiffs’ third argument on appeal challenges
Commerce’s finding of the existence of critical circumstances.
Plaintiffs argue that Commerce’s finding of critical
circumstances was improper since it was based on the calculation
of a dumping margin that exceeded 25 percent. Plaintiffs’ sole
argument is that Commerce’s reliance on surrogate values from
Daurala resulted in a miscalculation of the dumping margin at 25
percent. See Pl’s Reply Br. in Opp. to Def’s Briefs at 8.
Because the Court has rejected Plaintiffs’ challenge to
Court No. 00-07-00369 Page 8

issues is sustained.

II. STANDARD OF REVIEW

The Court will sustain Commerce’s Final Determination if it

is supported by substantial evidence on the record and is

otherwise in accordance with law. See 19 U.S.C. § 1516(b)(1)(B)

(1994). To determine whether Commerce’s interpretation of a

statute is in accordance with law, the Court applies the two-

prong test set forth in Chevron U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837 (1984). First, the Court

must determine “whether Congress has directly spoken to the

precise question at issue.” See id. at 842. The Court does so

by looking to the statute’s text to ascertain Congress’s purpose

and intent. Timex V.I., Inc. v. United States, 157 F.3d 879, 881

(Fed. Cir. 1998). If Congress’s intent is unascertainable and

the statute is either silent or ambiguous on the question at

issue, “the question for the court is whether the agency’s answer

is based on a permissible construction of the statute.” Chevron,

467 U.S. at 843. Thus, the reviewing court “is obliged to accept

the agency’s position if Congress has not previously spoken to

the point at issue and the agency’s interpretation is

reasonable.” United States v. Mead Corp., 533 U.S. 218, 229

(2001).

Commerce’s use of surrogate values from Daurala, it is
unnecessary to address this issue any further.
Court No. 00-07-00369 Page 9

With respect to factual findings, the Court will uphold the

agency’s factual findings if they are supported by substantial

evidence. Koyo Seiko Co. v. United States, 1998 U.S. App. LEXIS

17524 (Fed. Cir. 1998). Thus, the Court must sustain Commerce’s

factual determinations as 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. See

Atlantic Sugar, Ltd. v. United States, 2 Fed. Cir. (T) 130, 137,

744 F.2d 1556, 1563 (1984).

III. DISCUSSION

A. Commerce’s determination to treat Tianjin Hongfa as an
exporter

Plaintiffs appeal Commerce’s decision to treat Tianjin

Hongfa as an exporter. Plaintiffs argue that Tianjin Hongfa does

not fall within the meaning of the term “exporter” as used by 19

U.S.C. § 1677(13) and that Tianjin Hongfa lacked knowledge that

the United States was the final destination of the exports.

Thus, Tianjin Hongfa lacked the requisite knowledge to pass

Commerce’s “knowledge test,” and, therefore, was not an exporter

but rather Kwong Fat’s “agent” as defined by Section 1677(13).

Since Section 1677(13) was repealed in 1994, it is no longer

applicable; the statute remains silent as to what constitutes an

individual exporter or producer. AK Steel Corp. v. United

States, 22 CIT 1070, 1079, 34 F. Supp. 2d 756, 764 (1998). In

any event, the parties do not dispute Commerce’s application of
Court No. 00-07-00369 Page 10

the knowledge test to determine Tianjin Hongfa’s status.

Therefore, the Court will not reach the issue of the

appropriateness of the application of the knowledge test. See

Princess Cruises, Inc. v. United States, 201 F.3d 1352, 1355

(Fed. Cir. 2000) (stating that the court need not address issues

that are not raised in the briefs on appeal). Thus, the Court

assesses the parties’ appeal of Commerce’s finding of Tianjin

Hongfa’s status as an exporter in light of their acceptance of

the knowledge test.

1. Definition of the Knowledge Test

Commerce has established and applied a “knowledge test” for

purposes of determining whether various parties involved in

importing and exporting goods are subject to antidumping laws.

A producer passes the knowledge test if the “producer knew

or had reason to know at the time of sale that the goods were for

export to the United States.” Statement of Administrative Action

Accompanying The Trade Agreements Act of 1979, H.R. Rep. No.

4537, 388, 411, reprinted in 1979 U.S.C.A.N. 665, 682.

Application of the knowledge test has been permitted in various

contexts. See L.G. Semicon Co., Ltd. v. United States, 23 CIT

1074 (1999) (approving Commerce’s application of the knowledge

test to determine whether plaintiff-importers were subject to

antidumping duties); see also NSK Ltd. v. Koyo Seiko Co., 190

F.3d 1321 (Fed. Cir. 1999) (upholding the use of the knowledge
Court No. 00-07-00369 Page 11

test to determine whether plaintiff was a “reseller” and subject

to an antidumping duty); Shieldalloy Metallurgical Corp. v.

United States, 20 CIT 1362, 947 F. Supp. 525 (1996) (upholding

the use of the knowledge test to calculate foreign market value

of plaintiff’s exports). In determining whether the producer

knew or should have known that the subject merchandise would be

exported, this court has held that Commerce need not find that

the producer had actual knowledge of the final destination of its

exports. Allegheny Ludlum Corp. v. United States, 24 CIT __, __,

215 F. Supp. 2d 1322, 1331 (2000). This is because, “‘under

those circumstances, it would be extremely difficult for Commerce

to ever conclude that a respondent knew sales were for

export[.]...The only way to determine actual knowledge is through

an admission of the respondent.’” Id. at 1332 (quoting INA

Walzlager Schaeffler KG, 21 CIT 110, 125, 957 F. Supp. 251, 263-

64 (1997)). A requirement of the producer’s actual knowledge

would “eviscerate the acknowledged standard.” Allegheny Ludlum,

215 F. Supp at 1332. Thus, constructive knowledge has been held

sufficient to satisfy the knowledge test. GSA, S.r.l. v. United

States, 23 CIT 920, 77 F. Supp. 2d 1349, 1355 (1999).

2. Application of the Knowledge Test

In GSA, the court upheld Commerce’s determination that a

producer knew that the exports at issue were destined for the

U.S. when the following factors were present: (1) the producer
Court No. 00-07-00369 Page 12

prepared certificates that stated that the destination of the

exports was the United States; (2) the packaging size was used

exclusively for the United States; and (3) the producer prepared

packages which stated the destination of the exports. Id.

Here, Commerce concluded that Tianjin Hongfa passed the

knowledge test based on the following factors: (1) Tianjin Hongfa

prepared the Certificates of Origin and Fumigation, both of which

stated that the exports were bound for the United States,4 and

(2) Tianjin Hongfa reported in its questionnaire that it only

sold synthetic indigo to Kwong Fat and knew that Kwong Fat only

shipped synthetic indigo to the United States. See Preliminary

Determination, 64 Fed. Reg. 69723, 69727. Thus, the fact that

Kwong Fat took title to the exports before shipment did not

detract from Tianjin Hongfa’s knowledge of the exports’ final

place of destination.

In response to Plaintiff’s agency argument, Commerce

acknowledges that the general manager of Kwong Fat had been hired

temporarily by Tianjin Hongfa to act as vice-manager. However,

Commerce found “no clear evidence on the record that he is

4
The Certificate of Origin explicitly stated that the
“country of destination [of the exports is] Charlotte, N.C.,
U.S.A and that the “means of transport and [the] route [were] by
steamer [and] from Xingang, China to Charlotte, N.C., U.S.A.”
Certificate of Origin of the People’s Republic of China, 0000033,
08/01/99. The Certificate of Fumigation also stated the exports’
destination. Fumigation/Disinfection Certificate, Ministry of
Agriculture of P.R.China, 0000031, Dec. 25, 1998.
Court No. 00-07-00369 Page 13

involved in the daily production and operation of Tianjin Hongfa,

or that his role is anything other than that of an advisor.”

Final Determination, 65 Fed. Reg. at 25717. Commerce concluded

that Tianjin Hongfa was not a mere “agent” of Kwong Fat, as

Plaintiffs argue, but rather was an exporter within the meaning

of 19 U.S.C. § 1677a(a). Id. at 25709.

The Court finds that Commerce acted reasonably in

determining that Tianjin Hongfa knew or should have known that

its products were bound for the United States. Tianjin Hongfa

prepared, signed, and verified two documents, the Certificates of

Origin and Fumigation, which explicitly stated that the exports

were destined for the United States. Additionally, Tianjin

Hongfa verified other shipping arrangement documents, which

plainly stated that the destination for the exports was the

United States. Preliminary Determination, 64 Fed. Reg. at 69727.

Finally, Tianjin Hongfa admitted to only selling synthetic indigo

to Kwong Fat and admitting to having known that Kwong Fat sold

synthetic indigo only to the United States. Id.

The Court finds that Commerce’s application of the knowledge

test and its resultant finding of Tianjin Hongfa’s constructive

or indirect knowledge is reasonable and supported by substantial

evidence on the record. Accordingly, Commerce’s determination

that Tianjin Hongfa had the requisite knowledge and thus

constituted an exporter is upheld. See Ceramica Regiomontana,
Court No. 00-07-00369 Page 14

S.A. v. United States, 10 CIT 399, 405, 636 F. Supp. 961, 966

(1986), aff’d, 5 Fed. Cir. (T) 77, 810 F.2d 1137 (1987).

B. Surrogate values from Daurala

Plaintiffs claim that Commerce erred in its calculation of

the normal value of synthetic indigo by using costs of production

and profits from Daurala, an Indian-based producer of

phenylglycine. Phenylglycine is the primary chemical used in the

production of synthetic indigo. Plaintiffs argue that the

financial data from Daurala was inappropriate since Daurala was

an inefficient producer and did not produce the same final

product as Plaintiffs. Additionally, Plaintiffs claim that data

from Atul and Transpek, other Indian-based producers of various

chemicals including phenylglycine, provided a better basis for

valuing the factors of production and profit. Commerce claims

that since it could not find a producer of synthetic indigo, it

used Daurala and rejected surrogate data from Atul and Transpek.

It did so because Atul and Transpek produced a wider range of

products than Plaintiffs and Daurala. Commerce’s practice is to

use financial data that is more narrowly limited to a producer of

comparable merchandise. Preliminary Determination, 64 Fed. Reg.

at 69723. Commerce rejects data based on a producer of a wider

range of products when former data are available. Id. According

to Commerce, the more narrowly limited data produces more

representative results. Id. See also Taiyuan Heavy Mach. Import
Court No. 00-07-00369 Page 15

& Export Corp. v. United States, 23 CIT 701, 707 (1999)

(approving Commerce’s preference for and use of surrogate data

that is product-specific).

Commerce is obligated to value the factors of production

based on the “best available information” from market economy

countries that are at a level of economic development comparable

to that of the non-market economy country. Those values must be

from a significant producer of “comparable” subject merchandise.

See 19 U.S.C. § 1677b. Commerce is granted broad latitude and

substantial discretion in choosing the information on which it

relies. Shandong Huarong Gen. Corp. v. United States, 159 F.

Supp. 2d 714, 718 (Ct. Int’l. Trade 2001). In Shandong Huarong,

the court upheld Commerce’s use of surrogate values from an

Indian-based producer of HTS Category 7214.10.09 forged steel

(“forged steel”), a product that was deemed comparable to the

subject merchandise, steel bars. The court recognized that it

was arguable that the forged steel was used in the production of

the subject merchandise. See id. at 722. Yet the court upheld

Commerce’s surrogate values because “Congress has granted

Commerce substantial discretion and has bound the Court to

respect that discretion, even where the Court would have reached

a different conclusion had this case been reviewed de novo.” Id.

at 723. Thus, the standard of review precludes a court from

deciding whether the surrogate values used were the absolute best

available in these circumstances. Id.
Court No. 00-07-00369 Page 16

Likewise, based on the substantial discretion afforded

Commerce in selecting the data on which it relies and the meaning

of “best available information” in 19 U.S.C. § 1677b, Commerce’s

use of surrogate values from Daurala was reasonable. See

Shandong Huarong, 159 F. Supp. 2d at 718. In doing so, the Court

does not decide whether the surrogate value chosen by Commerce

was the absolute best available information. The sole product

produced by Daurala, phenylglycine, is considered the primary

component used in the production of synthetic indigo. In

addition, data from Atul and Transpek covered a wider range of

products and therefore may have been less comparable to

Plaintiffs’ factors of production. Accordingly, Commerce’s use

of surrogate values from Daurala is upheld.

IV. CONCLUSION

For the aforementioned reasons, the Court (1) affirms

Commerce’s determination that Tianjin Hongfa had knowledge of the

final destination of its exports and was an exporter; and (2)

affirms Commerce’s use of surrogate values from Daurala.

SO ORDERED.

Richard W. Goldberg
Senior Judge

Date: March 12, 2003
New York, New York
 ERRATA

Wonderful Chemical Industrial Ltd. et al v. United States, Court
No. 00-00369, Slip Op. 03-26, issued March 12, 2003.

• On page 2, the identification of defendant’s counsel should
read “Robert D. McCallum, Jr., Assistant Attorney General,
David M. Cohen, Director, Lucius B. Lau, Assistant Director,
Commercial Litigation Branch, Civil Division, United States
Department of Justice; Philip J. Curtin, Attorney, Office of
the Chief Counsel, United States Department of Commerce, for
defendant.”