Rhodia, Inc. v. United States

Slip Op. 01-138

United States Court of International Trade

RHODIA, INC.,
Plaintiff,

v.

UNITED STATES,
Defendant Before: Pogue, Judge

Consol. Court No. 00-08-00407
and

JILIN PHARMACEUTICAL CO., LTD.;
SHANDONG XINHUA PHARMACEUTICAL
FACTORY, LTD.,

Defendant-Intervenors.

[ITA determination affirmed-in-part and remanded-in-part.]

Decided: November 30, 2001

Williams Mullen Clark & Dobbins (James R. Cannon, Jr., Julia
Bailey, Francisco Orellana, Jimmie V. Reyna) for Plaintiffs.

Robert D. McCallum, Jr., Assistant Attorney General, David M.
Cohen, Director, Ada E. Bosque, Attorney, Commercial Litigation
Branch, Civil Division, U.S. Department of Justice; Emily Lawson,
Attorney, Office of the Chief Counsel for Import Administration,
U.S. Department of Commerce, Of Counsel, for Defendant.

White & Case (William J. Clinton, Adams C. Lee, Robert G.
Gosselink, Albert Lo) for Defendant-Intervenor Jilin Pharmaceutical
Co., Ltd.

Garvey, Shubert & Barer (William E. Perry, John C. Kalitka) for
Defendant-Intervenor Shandong Xinhua Pharmaceutical Factory, Ltd.
Consol. Court No. 00-08-00407 Page 2

OPINION

Pogue, Judge: This case is before the court on motions for

judgment upon the agency record challenging certain aspects of the

International Trade Administration of the United States Department

of Commerce’s (“Commerce” or “Department”) Notice of Final

Determination: Sales at Less than Fair Value: Bulk Aspirin from

the People’s Republic of China, 65 Fed. Reg. 33,805 (Dep’t Commerce

May 25, 2000), as amended, 65 Fed. Reg. 39,598 (Dep’t Commerce June

27, 2000)(“Final Determination”) and the accompanying Issues and

Decision Memorandum, P.R. Doc. No. 155 (May 17, 2000)(“Decision

Memorandum”). This court has jurisdiction pursuant to 28 U.S.C. §

1581(c) and 19 U.S.C. § 1516a(2)(B)(iii).

Plaintiffs in these consolidated actions are foreign and

domestic producers of bulk aspirin. Foreign producers, Jilin

Pharmaceutical Co., Ltd. (“Jilin”) and Shandong Xinhua

Pharmaceutical Factory, Ltd. (“Shandong”), argue that (1) Commerce

erred in applying overhead costs at each upstream production stage

and (2) Commerce inappropriately applied a weighted average ratio

rather than a simple average ratio to calculate overhead, selling,

general and administrative expenses (“SG&A”), and profit rates.

Domestic producer, Rhodia, Inc. (“Rhodia”) argues that (1) Commerce

improperly used import data rather than domestic data as the

surrogate value for phenol; (2)Commerce erred in excluding

purchased salicylic acid from Shandong’s normal value calculation;
Consol. Court No. 00-08-00407 Page 3

and (3) Commerce incorrectly included sales of traded goods in the

denominator of the factory overhead ratio. The Department asks for

a voluntary remand for the limited purpose of removing sales of

traded goods from the denominator of the factory overhead ratio and

recalculating the ratio.

Background

On May 28, 1999, Rhodia filed a petition requesting the

imposition of antidumping duties on imports of bulk acetylsalicylic

acid, commonly referred to as aspirin, from the People’s Republic

of China (“PRC”). Rhodia alleged that the subject imports were

being sold at prices below fair market value. The Department, in

response, initiated an investigation, see Initiation of Antidumping

Duty Investigation: Bulk Aspirin from the People’s Republic of

China, 64 Fed. Reg. 33,463 (Dep’t Commerce June 23, 1999), and

preliminarily determined that bulk aspirin from the PRC was being,

or was likely to be, sold in the United States at less than fair

value (“LTFV”) as provided in section 733 of the Act. See Notice

of Preliminary Determination of Sales at Less Than Fair Value: Bulk

Aspirin from the People’s Republic of China, 65 Fed. Reg. 116

(Dep’t Commerce Jan. 3, 2000)(“Preliminary Determination”).

Pursuant to section 1677b(c), and in accordance with its

treatment of the PRC in all past antidumping investigations,
Consol. Court No. 00-08-00407 Page 4

Commerce found the PRC to be a nonmarket economy (“NME”) country.1

See Preliminary Determination at 117. Finding India to be at a

level of economic development comparable to the PRC and a

significant producer of bulk aspirin, Commerce selected India as

the surrogate market economy country in accordance with 19 U.S.C.

§ 1677b(c)(4). See id. at 119; see also 19 U.S.C. §

1677b(c)(1)(The normal value of goods in a NME country may be

ascertained by determining the cost of the “factors of production”

used to manufacture the goods.). No party challenges the use of
India as the surrogate market economy. See Letter to Sec. Daley

from the Law Firm of Stewart & Stewart, P.R. Doc. No. 75 at 1 (Oct.

8, 1999).

Standard of Review

The Court must uphold a final determination by Commerce in an

antidumping 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).

1
The term “nonmarket economy country” is defined by statute
as “any foreign country that the administering authority
determines does not operate on market principles of cost or
pricing structures, so that sales of merchandise in such country
do not reflect the fair value of the merchandise.” 19 U.S.C. §
1677(18)(A).
Consol. Court No. 00-08-00407 Page 5

Discussion

Commerce calculates an antidumping duty margin by comparing

the imported products’ price in the United States to the normal

value of comparable merchandise. See 19 U.S.C. § 1677b(a).

Generally, normal value is the price of the merchandise in the

producer’s home market, its export price to countries other than

the United States, or a constructed value of the merchandise. See

19 U.S.C. § 1677b(a)(1). When the exporting country is a NME

country, however, section 1677b(c) requires that Commerce “shall

determine the normal value of the subject merchandise on the basis

of the value of the factors of production utilized in producing the

merchandise and to which shall be added an amount for general

expenses and profit plus the cost of containers, coverings, and

other expenses.” 19 U.S.C. § 1677b(c)(1)(B).

I. Application of Overhead Costs at each Upstream Production Stage

Once Commerce determined India to be the appropriate surrogate

country for the PRC, it sought surrogate values for each factor of

production, and for general expenses and profit. Factory overhead

is “one component of a product’s cost of manufacturing.” See Air
Prods. & Chems., Inc. v. United States , 22 CIT 433 , 441, 14 F.

Supp. 2d 737, 745 (1998). The value of factory overhead is

calculated as a percentage of manufacturing costs. See id.;

Magnesium Corp. of Am. v. United States, 20 CIT 1092, 1102, 938 F.
Supp. 885, 896 (1996). Commerce calculates a ratio of overhead to
Consol. Court No. 00-08-00407 Page 6

material, labor and energy inputs (“MLE”) for producers of

comparable merchandise in the surrogate country, India, and then

applies this ratio to the NME producer’s MLE. See 19 C.F.R. §

351.408(c)(4).

In its final determination Commerce used data from three

Indian producers of aspirin inputs to separately account for

overhead costs for each upstream production stage for Jilin and

Shandong. 2 Commerce determined that “the degree of integration of

a facility affects a facility’s overhead costs.” Def.’s Mem. Opp’n

to Mot. J. Agency R. at 22 (“Def.’s Mem.”). Because it determined

that none of the Indian producers reflect the degree of integration
represented by Shandong and Jilin, Commerce concluded that a single

application of an overhead ratio would understate overhead

expenses, not reflecting the expenses incurred to produce two major
inputs into aspirin and the final aspirin product itself. Decision

Memorandum at 11-12.

Jilin and Shandong argue, however, that not only did Commerce

merely assume that a fully integrated producer has a higher

overhead to raw material input ratio than a non-integrated

producer, but Commerce also assumed that the operations of the

Indian producers were not fully integrated. Shandong further

argues that Commerce’s methodology is a change from Commerce’s

prior practice and contrary to the plain language of the statute.

2
Commerce used surrogate values from three Indian producers:
Alta Laboratories, Ltd. (“Alta”), Andhra Sugars, Ltd. (“Andhra”),
and Gujarat Organics, Ltd. (“Gujarat”). See Shandong Br. at 24.
Consol. Court No. 00-08-00407 Page 7

A. Accordance with law

Section 1677b(c) requires normal value to be calculated “on

the basis of the value of the factors of production utilized . .

. to which shall be added an amount for general expenses and profit

plus the cost of containers, coverings, and other expenses.” 19

U.S.C. § 1677b(c)(emphasis supplied). Shandong argues that

Commerce, by applying an overhead ratio at each upstream production

stage, added amounts and costs into the dumping margin calculation.

Shandong Br. Supp. Mot. J. Agency R. at 13 (“Shandong Br.”).

Rather, according to Shandong, Commerce should have applied the

overhead amount at one time and as an overall percentage. In
support of this argument, Shandong cites to the Department’s

Antidumping Manual and what it argues is mandatory language in the
statute. See id. at 13-14; Int’l Trade Admin., U.S. Dep’t

Commerce, Antidumping Manual , Chap. 8 at 85(1998)(“ Antidumping

Manual”); 19 U.S.C. § 1677b(c).

The statute does require that the Department include an amount

for overhead expenses. Commerce, contrary to Shandong’s

assertions, did only include “an” amount. “Amount” is defined as
“a: the total number or quantity; b: the quantity at hand or under

consideration.” Merriam-Webster,available at http://www.m-w.com.

In this case, Commerce argues that to account for the overhead

expenses of an integrated producer, it was necessary to look at the

expenses incurred during each stage of the multi-stage production

process. Commerce used surrogate factory overhead values for each

stage of the multi-stage process and calculated a total amount
Consol. Court No. 00-08-00407 Page 8

based on these figures. The calculated overhead rate was not

contrary to the statute as only a single figure for general

expenses and profit was included in normal value. Normal value,

therefore, only included the total number and quantity under

consideration, consistent with “an amount,” not “amounts” as

Shandong contends.

Furthermore, Shandong’s reliance on the Antidumping Manual is
misplaced. 3 The manual, under a section entitled “Sample

Calculation for [Normal Value],” presents a “very simple example of

the type of factors valuation calculation that is done in

investigations or reviews involving merchandise from a NME
country.” Antidumping Manual, Chap. 8 at 92. The methodology that

the manual presents is merely an example; further, it is a “very

simple example.” This implies that Commerce is not bound exactly
to this very simple example in the Antidumping Manual rather, the
;

Manual presents a model that illustrates one approach to

calculating the factory overhead ratio. The production process

utilized in the making of bulk aspirin, however, is not a simple
process. Therefore, Commerce did not depart from prior practice by

not following the Antidumping Manual ’s “simple example”; but

3
It should be noted that while the Antidumping Manual “is
not a binding legal document, it does give insight into the
internal operating procedures of Commerce.” Koenig & Bauer-
Albert AG v. United States, 24 CIT , , 90 F. Supp. 2d 1284,
1292 n.13 (2000), aff’d in part, vacated in part, remanded by 259
F.3d 1341 (Fed. Cir. 2001).
Consol. Court No. 00-08-00407 Page 9

instead used this model and adapted it to a more complex situation.

B. Substantial Evidence

Shandong and Jilin also argue that the Department did not show

why overhead would be higher for an integrated producer, nor

support its finding that Indian producers have a lower overhead

with evidence from the record.
Commerce’s determination is reviewed on the basis of the

reasons articulated and evidence relied on in its decision. SEC v.

Chenery Corp., 332 U.S. 194, 196 (1947). Furthermore, Commerce

must articulate a “rational connection between the facts found and

the choice made.” Burlington Truck Lines, Inc. v. United States,

371 U.S. 156, 168 (1962).

In this case, Commerce adopted Rhodia’s argument, stating in
its Decision Memorandum that “[a] fully integrated producer will

have an overhead to raw material input ratio that is higher than

the same ratio for a non-integrated producer, other things being

equal.” Decision Memorandum at 11 (“[W]e agree with the petitioner
that degree of integration is a relevant factor that can affect

overhead rates.”). Beyond this conclusory statement, Commerce gave

no explanation for its finding that producers of bulk aspirin in

the PRC are more integrated than the surrogate producers in India.

See id. at 11-12. The Decision Memorandum also failed to identify

any evidence in the record to support Commerce’s conclusion. For

example, Commerce does not cite any evidence to support its finding

that vertically integrated producers have higher overhead costs or
Consol. Court No. 00-08-00407 Page 10

that, except with regard to the level of integration, the Indian

and PRC producers are otherwise “equal.” Although Commerce’s brief

addresses in greater detail the reasons that integrated producers

have higher overhead costs, the “‘post hoc rationalizations’ of

counsel [cannot] supplement or supplant the rationale or reasoning

of the agency.” Hoogovens Staal BV v. United States, 24 CIT __,

__, 86 F. Supp. 2d 1317, 1331 (2000)(internal citations and

quotations omitted); see also Burlington Truck Lines, 371 U.S. at

168-69; Fed. Power Comm’n v. Texaco, Inc., 417 U.S. 380, 397
(1974).

Not only, however, did the Decision Memorandum state that

integrated producers have higher overhead costs than non-integrated

producers generally, Commerce also found that producers of bulk
aspirin in the PRC were more fully integrated than the Indian

surrogates. See Decision Memorandum at 11 (“After considering all

available information on the record, [Commerce] determine[d] that

none of the Indian producers reflect the degree of integration

represented by the respondents in this investigation.”). Of the
three surrogate companies only one, Andhra, produces aspirin, and

its aspirin production is equal to just 3.57 percent of the

company’s total sales. See id. The other surrogate Indian

companies, Alta and Gujarat, do not produce aspirin but do produce

salicylic acid and derivatives. See id. Based on this evidence,

Commerce determined that the Indian surrogates only produce aspirin

inputs and, therefore, “are more representative of the overhead

expense incurred by the upstream input producers.” Id. at 12.
Consol. Court No. 00-08-00407 Page 11

Commerce’s determination that the Indian surrogate companies

only produce aspirin inputs is flawed. This statement is based on

the premise that (1) Andhra produces only a minuscule amount of

aspirin, so the majority of its output is also aspirin inputs; 4 and

(2) Alta and Gujarat produce salicylic acid and derivatives and

that these derivatives are aspirin inputs. While salicylic acid is

an input in aspirin production, aspirin is also a derivative of

salicylic acid. See Jilin Mem. Supp. Mot. J. Agency R. at 18

(“Jilin Br.”). Salicylic acid derivatives, therefore, are not

necessarily just aspirin inputs. Alta and Gujarat, as producers

of “salicylic acid and derivatives,” and Andhra as a producer of

bulk chemicals other than aspirin, could be producers of

merchandise identical or comparable to aspirin. Therefore, the

conclusion that Indian surrogates only produce aspirin inputs does
not follow from the premise that Alta and Gujarat produce salicylic

acid derivatives and Andhra produces bulk chemicals. Consequently,

Commerce’s conclusion is not based on a reasonable inference drawn

from the evidence in the record.

As previously discussed, Commerce’s findings must be “reached

by ’reasoned decision-making,’ including . . . a reasoned

4
The majority of Andhra’s production is bulk chemicals other
than aspirin. These chemicals include acetic acid, acetic
anhydride and caustic soda. See Decision Memorandum at 11-12.
According to Commerce, many of these chemicals are inputs for
aspirin production. See id. Absent some explanation from
Commerce, the Court cannot determine whether this evidence is
sufficient to support Commerce’s conclusion that Andhra’s
overhead costs are not representative because the chemicals
produced are the result of a less integrated production process.
Consol. Court No. 00-08-00407 Page 12

explanation supported by a stated connection between the facts

found and the choice made.” Elec. Consumers Res. Council v. Fed.

Energy Regulatory Comm’n, 747 F.2d 1511, 1513 (D.C. Cir.

1984)(citing Burlington Truck Lines, 371 U.S. at 168). Here,

Commerce has not drawn a reasonable inference from the evidence in

the record in order to support its finding that producers in the

PRC are more fully integrated than the Indian producers or that the

salicylic acid derivatives produced by Alta and Gujarat or the

chemicals produced by Andhra are the result of a less integrated

production process.

By failing to make any findings regarding its choice, see

Taiwan Semiconductor Indus. Ass’n v. United States, 23 CIT __, __,

59 F. Supp. 2d 1324, 1336 (1999), aff’d, 266 F.3d 1339 (Fed. Cir.

2001), Commerce errs. Accordingly, Commerce’s overhead calculation

is remanded for reconsideration. On remand, Commerce is to

articulate the facts in the record that support its remand

determination.

II. Weighted Average v. Simple Average

In the final determination, Commerce calculated surrogate

overhead, SG&A, and profit ratios using a weighted average of the

three Indian producers; Alta, Andhra, and Gujarat.5 Jilin and

5
Commerce’s treatment of the overhead ratio provides an
example of the weighted average calculation. Commerce calculated
overhead ratios “by dividing the total overhead expenses for all
Consol. Court No. 00-08-00407 Page 13

Shandong argue that a weighted average is not appropriate when

there are a limited number of data points, that Commerce has a

long-standing practice of using simple averages, and that the

decision to use a weighted average is not supported by substantial

evidence.6 See Jilin Br. at 7, 22; Shandong Br. at 12.

In almost every antidumping investigation where Commerce uses

only a few surrogate companies, Commerce applies a simple average

to derive overhead, SG&A, and profit.7 See, e.g., Certain

three producers by the total expenses for materials, labor, and
energy. A simple average overhead ratio would first calculate
the overhead ratios for each of the three producers, and then
take the straight average of those three ratios.” Jilin Br. at 22
n.72.
6
Rhodia argues that Shandong and Jilin did not previously
raise this issue and therefore waived their right to have this
Court review it. Exhaustion, however, is only required to the
extent that the court determines it appropriate. 26 U.S.C. §
2637(d). Here, Shandong and Jilin were under no notice that
Commerce would apply a weighted average. It was not until the
Factors Valuation Memorandum on May 17, 2000 that the decision to
use a weighted average was made. See Memorandum, Factors of
Production Valuation for the Final Determination, P.R. Doc. No.
156 at 1 (May 17, 2000)(“Final Factors Memo.”). This was the
same day the Decision Memorandum was issued. See Decision
Memorandum at 1. Accordingly, neither Shandong nor Jilin will be
required by the court to further exhaust its administrative
remedies with regard to this issue.
7
In some cases, Commerce relies upon weighted average
information derived from the Reserve Bank of India Bulletin.
This information, however, is based on the aggregated financial
statistics of an entire industry sector. Here, Commerce only
used financial data from three companies. When only a small set
of numbers are used to calculate a weighted average overhead
ratio, the result will be significantly affected by the size of
the companies. In this case Commerce’s weighted average was
21.06. See Final Factors Memo. at 12. This is close to the
overhead ratio of Andhra, the largest of the three Indian
Consol. Court No. 00-08-00407 Page 14

Preserved Mushrooms From the People’s Republic of China, 65 Fed.

Reg. 66,703, 66,707 (Dep’t Commerce Nov. 7, 2000); Certain Cut-to-

Length Carbon Steel Plate from the People’s Republic of China, 62

Fed. Reg. 61,964, 61,970 (Dep’t Commerce Nov. 20, 1997). In only

one case did Commerce explicitly use a weighted average, and the

decision was not, in that case, questioned by the parties. See

Final Results: Tapered Roller Bearings and Parts Thereof, Finished

and Unfinished from the People’s Republic of China, 64 Fed. Reg.

61,837 (Dep’t Commerce Nov. 15, 1999). The issue of averages is

specifically addressed in very few cases, the most informative

being Notice of Final Determination of Sales at Less Than Fair

Value: Bicycles From the People’s Republic of China, 61 Fed. Reg.

19,026, 19,039 (Dep’t Commerce Apr. 30, 1996)(“Bicycles”).

In Bicycles, the respondents asked Commerce to calculate a

weighted average factory overhead, SG&A, and profit for each Indian

producer of bicycles because, the respondent argued, a clear

correlation existed between costs and production quantities for all

of the Indian bicycle producers. The Department rejected this

position, agreeing with the petitioners that the use of the

weighted average method would imply that the experience of larger

Indian producers was more representative of Chinese producers than

smaller Indian producers. According to the Department not all

producers. See id. To calculate Andhra’s overhead ratio of
21.64, we divided Andhra’s overhead cost of 372,987,500 by its
MLE of 172,353,400. See id. at Exhibit EE.
Consol. Court No. 00-08-00407 Page 15

Chinese producers were large scale producers. Moreover, several

factors, other than costs and production quantities, could affect

overhead, SG&A, and profit ratios. Consequently, Commerce “used a

simple average . . . consistent with [its] normal practice because,

barring evidence to the contrary, we assume that all of these

surrogate values are equally representative of the surrogate

experience.” Id. (emphasis added).

Here, no such findings concerning representativeness were

made. Commerce applied a weighted average with no explanation of

its reasoning. The general practice of Commerce is to apply a

simple average. In order to depart from this practice Commerce

needs to “explain the reasons for its departure.” Hussey Copper,

Ltd. v. United States, 17 CIT 993, 997, 834 F. Supp. 413, 418

(1993)(internal quotations and citations omitted); Allegheny Ludlum

Corp. v. United States, 24 CIT , , 112 F. Supp. 2d 1141, 1147

(2000). It is possible, on remand, that Commerce will determine

that a weighted average is the correct method to calculate the

necessary ratios. Commerce must, however, give an explanation for

this decision. See, e.g., Bicycles, 61 Fed. Reg. at 19,039

(indicating the necessity of citing evidence as to why the

surrogate values are or are not “equally representative of the

surrogate experience”).
Consol. Court No. 00-08-00407 Page 16

III. Import Data v. Domestic Data

Not only must Commerce assign surrogate values for general

expenses, but Commerce must also assign surrogate values to each

factor of production in order to construct a normal value.8 One

such factor of production is phenol, an aspirin input. See

Preliminary Determination at 119; see also 19 U.S.C. § 1677b(c)(3).

In order to calculate normal value Commerce assigned a value to

phenol using surrogate Indian prices.

India imposes a tariff on phenol imports that can be waived

through a duty drawback system. According to Commerce, this

creates a “two-tiered” price structure, one for use in the sale of

domestic products and the other for use in the sale of merchandise

for export. As a result of India’s tariff structure, Commerce

determined that the Indian domestic phenol price was artificially

high and, therefore, valued phenol by using the import price from

the India Chemical Weekly. Rhodia contends that Commerce not only

departed from prior practice by using the import price rather than

the domestic price but that this decision was also not supported by

substantial evidence. See Mem. Supp. Rhodia’s Mot. J. Agency R. at

2 (“Rhodia’s Br.”).

8
Factors of production include, but are not limited to,
labor, raw materials, utilities and capital costs. See 19 U.S.C.
§ 1677b(c)(3).
Consol. Court No. 00-08-00407 Page 17

A. Departure from Prior Practice

“[T]he valuation of the factors of production shall be based

on the best available information regarding the values of such

factors in a market economy country or countries considered to be

appropriate by the administering authority.” 19 U.S.C. §

1677b(c)(1) . As the statute does not define “best available

information,” it “grants to Commerce broad discretion to determine

the ‘best available information’ in a reasonable manner on a case-

by-case basis.” Timken Co. v. United States, slip op. 01-96, at 12

(CIT Aug. 9, 2001). This discretion is curtailed by the purpose of

the statute, i.e., to construct the product’s normal value as it

would have been if the NME country were a market economy country.

See Nation Ford Chem. Co. v. United States, 166 F.3d 1373, 1375

(Fed. Cir. 1999); Baoding Yude Chem. Indus. Co., Ltd. v. United

States, slip op. 01-117, at 4 (CIT Sept. 26, 2001); see also Air

Prods. & Chems., 22 CIT at 435, 14 F. Supp. 2d at 741 (citing

Tianjin Mach. Import & Export Corp. v. United States, 16 CIT 931,

940, 806 F. Supp. 1008, 1018 (1992); Timken Co. v. United States,

16 CIT 142, 144, 788 F. Supp. 1216, 1218 (1992)9).

In previous administrative reviews of a Chinese product

containing phenol, Commerce used the Indian domestic value of

9
These cases, regarding Commerce’s NME methodology, were
decided under the pre-Uruguay Round version of the antidumping
statute. However, this aspect of the statute was not changed by
the Uruguay Round amendments. Compare 19 U.S.C. § 1677b(c)(1988)
with 19 U.S.C. § 1677b(c)(1994).
Consol. Court No. 00-08-00407 Page 18

phenol in calculating normal value. Specifically, Rhodia points to

Commerce’s actions in Sebacic Acid from the People’s Republic of

China, 64 Fed. Reg. 69,503 (Dec. 13, 1999) and the preliminary

determination in the subsequent annual review of Sebacic Acid, 65

Fed. Reg. 18,968, 18,971 (April 10, 2000), where Commerce used the

India Chemical Weekly average domestic price. The valuation of

phenol in those administrative reviews does not, however, require

Commerce to use the domestic phenol price in the present case. The

decision on which price to use - domestic or import - is based on

which value will result in a more accurate normal value. In the

past, the domestic phenol value may have been “best available

information.” Previous circumstances and the mere fact that the

domestic price is available do not require Commerce to continue

using the domestic value of phenol. See Issues and Decision

Memorandum for the Administrative Review of Manganese Metal from

the People’s Republic of China, 66 Fed. Reg. 15,076 (Dep’t Commerce

March 15, 2001)(“[A] surrogate value which is the best available

information during one investigation or review does not necessarily

remain the best available information during subsequent reviews.”).

In fact, in the final determination for Sebacic Acid Commerce did

not value phenol using domestic India Chemical Weekly data and

instead valued phenol using India Chemical Weekly import data. See

Sebacic Acid from the People’s Republic of China, 65 Fed. Reg.

49,537 (Dep’t Commerce Aug. 14, 2000).
Consol. Court No. 00-08-00407 Page 19

Rhodia notes that Commerce has a stated preference for the use

of the domestic price over the import price, all else being equal.

This preference, as previously discussed, does not require Commerce

to use the domestic price in all circumstances. The use of the

domestic price as surrogate values is not appropriate when the

available domestic data is distorted by a protective tariff. See

Nation Ford, 166 F.3d at 1377; Baoding Yude, slip op. 01-117 at

14;10 Decision Memorandum at 5-6. In such situations the domestic

and import price are not “equal” surrogates. This practice is

consistent with Congress’ intention that Commerce not use distorted

surrogate prices. See Nation Ford, 166 F.3d at 1377-78; H.R. Conf.

Rep. No. 100-576, at 590 (1988), reprinted in 1988 U.S.C.C.A.N.

1547, 1623. Furthermore, in the past, Commerce has used import

prices to value factors of production where it determines that the

import price is the more accurate value. See Nation Ford Chem. Co.

v. United States, 21 CIT 1371, 1373, 985 F. Supp. 133, 135 (1997),

aff’d, 166 F.3d 1373 (Fed. Cir. 1999); Nation Ford Chem. Co. v.

United States, 21 CIT 1378, 1378-79, 985 F. Supp. 138, 139-40

(1997); Tehnoimportexport, UCF Am. Inc. v. United States, 16 CIT

10
This Court’s opinion in Baoding Yude is consistent with
Commerce’s decision here. In Baoding Yude, the previous
distortion of the domestic price was substantially diminished by
the reduction in the tariff. See Baoding Yude, slip op. 01-117,
at 14-17. Therefore, the import price was no longer the best
available information, as it had been in previous administrative
reviews; rather, the use of the domestic price resulted in the
most accurate normal value.
Consol. Court No. 00-08-00407 Page 20

13, 15-16, 783 F. Supp. 1401, 1404-05 (1992).

Therefore, in accordance with the statute, Commerce has the

discretion to determine that the import price of phenol is the more

accurate surrogate value for determining normal value in the PRC

under the circumstances present during the period of investigation.

Thus, Commerce’s use of import values is not a departure from its

prior practice and is appropriate as long as its decision is

supported by substantial evidence.

B. Substantial Evidence

According to Rhodia, the Indian tariff cited by Commerce does

not distort the domestic price but distorts the import price.

Rhodia Br. at 14, 19. Rhodia argues that Commerce ignored the

evidence, including the safeguard measures imposed by India on

phenol imports, demonstrating the tariff’s effect on the import

price. Id. at 18. Rhodia also contends that the record

establishes that the Indian surrogate producers purchase the

majority of their raw materials domestically and therefore Commerce

should have used the domestic price for phenol. Id. at 18-19.

Lastly, Rhodia argues that Commerce’s normal value determination

was internally inconsistent. Id. at 19.

There is substantial evidence supporting Commerce’s use of the

import price to value phenol rather than the domestic price.

Substantial evidence is “such relevant evidence as a reasonable
Consol. Court No. 00-08-00407 Page 21

mind might accept as adequate to support a conclusion.” Consol.

Edison Co v. NLRB, 305 U.S. 197, 229 (1938). “[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.” Consolo v. Fed. Mar. Comm’n, 383 U.S. 607,

620 (1966).

Here, Commerce’s main reason for using the import value of

phenol was the existence of the 59.97 percent tariff imposed on

imports. See Decision Memorandum at 6. This import tariff,

according to Commerce, resulted in the distortion of the Indian

domestic price. In support of its decision, Commerce demonstrated

that by adjusting “the weight-averaged import phenol price (from

ICW) of 29.81 Rs/kg by the tariff percentage, the resulting value,

46.51 Rs/kg, is virtually equal to the weight-averaged domestic

phenol price from ICW - 46.50 Rs/kg.” Id.11 Commerce reasoned that

the high tariff, in this case, is being used to protect domestic

phenol. While it may be, as Rhodia claims, that the evidence in

the record could be construed to reach a different result, this

11
If the import price adjusted by the tariff is either equal
to or greater than the domestic price, as is the case here, it
supports Commerce’s finding that the domestic price is
“distorted,” in that it is protected by the tariff. The import
price is therefore a lower price and the tariff is added to make
the imported product more expensive in comparison to the domestic
product. The reverse is also true. If the adjusted import price
is less than the domestic price, it supports a finding that the
domestic price is no longer protected by the tariff. See, e.g.,
Baoding Yude, slip op. 01-117, at 14.
Consol. Court No. 00-08-00407 Page 22

court cannot conclude that Commerce’s inference is unreasonable.

See Am. Silicon Techs. v. United States, 23 CIT __, __, 63 F. Supp.

2d 1324, 1331 (1999), aff’d, 261 F.3d 1371 (Fed. Cir. 2001)(“The

specific determination we make is whether the evidence and

reasonable inferences from the record support” Commerce’s

findings.)(quoting Daewoo Elecs. v. United States, 6 F.3d 1511,

1520 (Fed. Cir. 1993)).

Commerce need not use the domestic value of phenol, as Rhodia

suggests, merely because the surrogate Indian producers use

primarily domestic raw material inputs. See Nation Ford, 166 F.3d

at 1377. In calculating normal value in a NME country, Commerce

must determine what the market price for inputs would be in the PRC

“if such prices . . . were determined by market forces.” Nation

Ford, 21 CIT at 1373, 985 F. Supp. at 135 (internal citations and

quotations omitted). Best available information is not a distorted

domestic price, even if the producers in the surrogate country use

the domestic product. Rather, best available information is the

price that results in the most accurate calculation of what the

cost of production would be in the PRC if the PRC were a market-

economy country.

Moreover, Commerce did not, as Rhodia appears to argue, ignore

the effects of India’s safeguard duties on the Indian import price

of phenol. In the Decision Memorandum, Commerce addresses Rhodia’s

concerns about India’s invocation of the WTO’s Safeguards Clause on
Consol. Court No. 00-08-00407 Page 23
phenol imports. See Decision Memorandum at 6. Commerce noted that

although the safeguard action did impose a duty on all imports of

phenol, this duty was not applied until after the period of

investigation. See id.; see also Rhodia Br. at 18. India did not

even invoke the WTO Safeguards Clause until August 12, 1999, more

than four months after the end of the period of investigation. See

Preliminary Determination at 117; Final Determination at 33,805.

Furthermore, a safeguards action does not indicate that the

price of phenol imports was distorted. Safeguard actions do not

account for whether imports are being dumped or are fairly traded.

See WTO Agreement on Safeguards at Art. 2.1. The only evidence

needed to impose a safeguard duty is injury to the domestic market.

See id. The safeguards action, therefore, does not demonstrate

that phenol imports were not fairly traded.12

Moreover, Commerce’s determination was also internally

consistent.13 Rhodia refers to Lasko Metal Prods., Inc. v. United

States, 16 CIT 1079, 1081, 810 F. Supp. 314, 317 (1992), aff’d, 43

12
As further evidence that the domestic values were distorted
by tariffs, Jilin notes that the domestic values “increased
substantially after the imposition of the safeguard duties.”
Jilin Br. Opp’n Rhodia’s Mot. J. Agency R. at 15.
13
Rhodia also states that Commerce used an “extreme
comparison,” comparing “the highest domestic value from any
source with the lowest import value.” Rhodia Br. at 15 (emphasis
omitted). Commerce, however, compared the average India Chemical
Weekly import value with average India Chemical Weekly domestic
value to determine the effect of the tariff. The comparison of
two average values is a reasonable comparison, especially when
the two values are obtained from the same source.
Consol. Court No. 00-08-00407 Page 24
F.3d 1442 (Fed. Cir. 1994), in support of its argument that use of

the import price for phenol’s surrogate value does not promote

accuracy in the dumping margin. In Lasko, the parties challenged

Commerce’s “mix and match” methodology.14 Id. at 1080, 810 F. Supp.

at 317. In that case, this court held that a mix and match

methodology is permissible under the statute, and “[o]nly if the

combination of surrogate values . . . would somehow produce less

accurate results would Commerce’s use of this information be

unreasonable.” Lasko, 16 CIT at 1081, 810 F. Supp. at 317.

Here, Commerce found that the best available information for

determining normal value is the Indian import price for phenol.

Commerce determined that the use of the import price, even though
it resulted in a mix and match methodology, produced a more

accurate result than using domestic prices to value all the

surrogate costs. This court has recognized Commerce’s use of both

import and domestic prices in order to obtain a more accurate

normal value. See Nation Ford, 166 F.3d at 1378 (Section “1677b(c)

merely requires the use of the ‘best available information’ with

respect to the valuation of a given factor of production; it does

not require that a uniform methodology be used in the valuation of

14
This “mix and match” methodology refers to a combination of
values used to calculate normal value. Lasko involved the
combination of surrogate values and prices paid by NME producers
to market-economy suppliers. Lasko, 16 CIT at 1080-81, 810 F.
Supp. at 316. The arguments in Lasko are equally compelling in
the instant case, where Commerce used different surrogate sources
within a single surrogate country to determine the most accurate
normal value.
Consol. Court No. 00-08-00407 Page 25
all relevant factors.”).

Moreover, the “purpose of the [NME] factors of production

methodology . . . is not to construct the cost of manufacturing the

subject merchandise in India per se but to use data from one or

more surrogate countries to construct what the cost of production

would have been in China were China a market economy.” Baoding

Yude, slip op. 01-117, at 22 (internal citations and quotations

omitted). As a result, Indian producers’ costs are not necessarily

the appropriate surrogates for all costs. Here, the domestic price

of phenol was a distorted price because, as Commerce explained, the

high tariff on imports influenced domestic prices. Consistent with

Congress’ directive to avoid such distortions, Commerce rejected

what it found to be an inaccurate domestic price, instead using a

“mix and match methodology” that allowed it to obtain the most

accurate normal value. “This type of line-drawing exercise is

precisely the type of discretion left within the agency’s domain.”

Baoding Yude, slip op. 01-117, at 17-18. As long as Commerce’s

methodology “seek[s] to effectuate the statutory purpose –

calculating accurate dumping margins,” as is the case here, and is

supported by substantial evidence, the margin will be upheld.

Shakeproof Assembly Components v. United States, 23 CIT __, __, 59

F. Supp. 2d 1354, 1358 (1999).

Here, Commerce “explain[ed] its finding of significance, with

sufficient . . . reference to the record[,]” and it is not the role
Consol. Court No. 00-08-00407 Page 26
of this Court to re-weigh that evidence. Shakeproof Assembly

Components v. United States, 24 CIT __, __, 102 F. Supp. 2d 486,

495 (2000), aff’d, slip op. 00-1521 (Fed. Cir. Oct. 12, 2001).

Therefore, determining that the import value for phenol was the

best available information on the record was a proper exercise of

Commerce’s discretion.

IV. Calculation of Normal Value for Shandong

Salicylic acid is a major input in bulk aspirin. Shandong

both purchases and produces salicylic acid. According to Shandong,

whether it purchases or produces salicylic acid determines the

quality of the end product. Based in part on this information,

Commerce concluded that only self-produced salicylic acid was used

in the production of the subject merchandise. As a result,

Commerce excluded costs associated with Shandong’s purchase of

salicylic acid, only including costs associated with Shandong’s

self-production of salicylic acid in calculating Shandong’s normal

value.

Rhodia, however, argues that the record does “not support the

conclusion that domestic-quality aspirin was in all cases inferior

or even different” from export-quality aspirin. Rhodia Br. at 23.

According to Rhodia, Commerce “assume[d]” domestic-quality and

export-quality aspirin were different “solely on the basis of

whether the aspirin has a certificate of compliance with the USP
Consol. Court No. 00-08-00407 Page 27
standard.” Id. Commerce, in Rhodia’s view, erred by not

considering whether purchased salicylic acid was used in aspirin

essentially equivalent to USP23-grade aspirin.15

A. Subject Merchandise

The antidumping statute defines the subject merchandise as

part of “the class or kind of merchandise that is within the scope

of an [antidumping] investigation.” 19 U.S.C. § 1677(25). The

only type of aspirin that can be sold in the United States is that

meeting USP standards. See Preliminary Determination at 117;

Petition from Law Firm of Stewart & Stewart to Sec. Commerce, C.R.

Doc. No. 1 at 40 (May 5, 1999). As a result, in the investigation,

Commerce defined the subject merchandise as bulk aspirin meeting

USP23 standards.16

15
Rhodia contends that Commerce did not establish that CP95
certified aspirin, the Chinese aspirin standard, is inferior to
USP23 aspirin, the United States aspirin standard. This argument
was not previously made before the agency because, according to
Rhodia, the issue was not raised until verification. Therefore,
Rhodia asks the court to take judicial notice of the published
standards, USP23 and CP95. It is not necessary for the Court to
consider Rhodia’s request as Commerce’s determination on the
scope of the investigation is affirmed.
16
The scope of the investigation was determined to be:

bulk acetylsalicylic acid, commonly referred to as bulk
aspirin, whether or not in pharmaceutical or compound
form, not put up in dosage form (tablet, capsule, powders
or similar form for direct human consumption). Bulk
aspirin may be imported in two forms, as pure ortho-
acetylsalicylic acid or as mixed ortho-acetylsalicylic
acid. Pure ortho-acetylsalicylic acid can be either in
crystal form or granulated into a fine powder
Consol. Court No. 00-08-00407 Page 28
Preceding the Initiation Notice, Commerce set aside a period

for parties to comment upon product coverage. Rhodia did not

attempt to do so. Even more compelling is that Rhodia, as the

petitioner in the underlying investigation, specified USP standards

as a description of the subject merchandise. See Initiation Notice

at 33,463-64. Rhodia argues that the issue of the scope of the

subject merchandise was not raised until verification. However,

Rhodia, as a party to the investigation, helps Commerce to “guide

the [investigation] process and must alert the agency to matters

which [it] believe[s] require unusually detailed inquiry.” Allied

Tube & Conduit Corp. v. United States, 25 CIT __, __, 132 F. Supp.

2d 1087, 1092 (2001); see generally Wheatland Tube Co. v. United

States, 21 CIT 808, 973 F. Supp. 149 (1997), aff’d, 161 F.3d 1365

(1998).

Commerce, in its Final Determination, found “that bulk aspirin

produced [by Shandong] for the Chinese domestic market (i.e.

domestic-quality aspirin) [was] distinct, in quality and

composition, from subject merchandise.” Decision Memorandum at 20.

The subject merchandise is USP quality aspirin, not just aspirin

exported to the United States, as Rhodia claims. The Department

(pharmaceutical form). This product has the chemical
formula C9H8O4. It is defined by the official monograph
of the United States Pharmacopoeia (“USP”) 23. It is
classified under the Harmonized Tariff Schedule of the
United States (“HTSUS”) subheading 2918.22.1000.

Preliminary Determination at 117.
Consol. Court No. 00-08-00407 Page 29
specifically found that the Chinese domestic-quality aspirin

produced by Shandong was of a different quality than that meeting

USP standards. See id. (“Shandong’s domestic-quality aspirin is

not within the scope of this investigation because it does not meet

the quality standards, as established by the United States

Pharmacopoeia.”). As a result, Commerce properly determined that

Shandong’s domestic-quality aspirin was not within the scope of the

investigation because it did not meet the USP quality standards.17

The statute requires Commerce to calculate normal value “on

the basis of the value of the factors of production utilized in

producing the merchandise.” 19 U.S.C. § 1677b(c)(1). During the

course of Commerce’s verification of Shandong’s facilities,

Commerce “reviewed invoices, certificates of analysis and

production/batch reports for both domestic and export sales of

subject merchandise.” Def.’s Br. at 50; see also Memorandum,

Results of Sales Verification of Shandong Xinhua Pharmaceutical

Factory, P.R. Doc. No. 140 at 12 (April 4, 2000); Shandong

Verification Ex. at F-4. Commerce verified that Shandong only uses

self-produced salicylic acid in the manufacture of export-quality

17
Additional evidence exists in the record demonstrating
that the USP23 standard has sixteen inspection items while CP95
has only eight. See Shandong Br. Opp’n Rhodia’s Mot. J. Agency
R. at 32 (citing to Shandong Verification Ex. at S-4); see also
Shandong Verification Ex. at F-8. Based on this, Commerce could
reasonably conclude that USP23 is a more difficult standard to
meet.
Consol. Court No. 00-08-00407 Page 30
18
salicylic acid. See Decision Memorandum at 20. In accordance with

the statute, Commerce only includes those factors of production,

such as Shandong’s self-produced salicylic acid, actually used in

producing the subject merchandise, USP quality aspirin. See id. at

20-21. Therefore, Commerce correctly determined and applied the

scope of the subject merchandise.

B. Low Cost

Rhodia argues that Commerce is allowing Shandong to manipulate

normal value through “cost-shifting.” E.I. DuPont de Nemours & Co.

v. United States, 4 F. Supp. 2d 1248, 1253 (1998). Allegedly, in

order to manipulate the normal value in this manner, Shandong would

assign low cost inputs, i.e. phenol, to U.S. exports and high-cost

inputs, i.e. salicylic acid, to domestic sales.

As previously discussed, Commerce’s decisions to use the

18
All the parties agree that salicylic acid is sold in
different grades. See Petition from Law Firm of Stewart &
Stewart to Sec. Of Commerce, P.R. Doc. No. 1 at 13 (May 28,
1999). “[W]ithout further processing, salicylic acid contains
impurities such as sodium sulfate.” Id. This grade is
“typically termed ‘technical’ grade salicylic acid.” Id. at 14.
According to Rhodia, “pharmaceutical grade” salicylic acid,
without any impurities, is needed to produce aspirin. See id.
Although “technical-grade” salicylic acid could be used to
produce USP quality aspirin if it undergoes a “sublimation
process,” see id., there is no indication that the technical-
grade salicylic acid purchased by Shandong actually goes through
such a process. Therefore, Commerce’s determination that
Shandong produces two distinct products is consistent with
Rhodia’s claim that only pharmaceutical grade salicylic acid can
be used to produce USP quality aspirin.
Consol. Court No. 00-08-00407 Page 31
import value of phenol and to exclude the cost of purchased

salicylic acid are supported by substantial evidence and otherwise

in accordance with law. Furthermore, Commerce determined that

“Shandong uses one production process and one production facility

to produce two distinct products.” Decision Memorandum at 20.

Because there is only one production process, Commerce reasonably

concluded that it did not allow Shandong to assign the low-cost

production process to serve as a basis for normal value. Id. at

21.

V. Traded Goods

Commerce, in its final determination, included the cost of

Gujarat’s “trade sales” in the denominator of the factory overhead

rate. “Trade sales” or “traded goods” are products that “are

already manufactured and do not affect production.”19 Timken Co.

v. United States, 23 CIT __, __, 59 F. Supp. 2d 1371, 1379 (1999);

Timken Co., slip op. 01-96, at 48. The Timken cases held that

Commerce should not include sales of traded goods in the

denominator for calculating an overhead ratio because these goods

have no effect on production. Timken Co., slip op. 01-96, at 48-

50.

Commerce, recognizing its error in this regard, asks for a

19
The parties refer to “trade sales” and “traded goods.” In
this case, the reporting of the “trade sales” is synonymous with
“traded goods.” Both are finished merchandise that do not affect
production.
Consol. Court No. 00-08-00407 Page 32
voluntary remand to remove traded goods from the denominator for

the calculation of overhead ratio. Although all the parties agree

that the inclusion of trade sales has a minimal effect on the

overall ratio if Commerce continues to use a weighted average,

remand of this issue to Commerce is appropriate as this court is

remanding other aspects of the final determination, including

Commerce’s use of a weighted average. Accordingly, Commerce’s

request is granted.
Consol. Court No. 00-08-00407 Page 33

Conclusion

The Department shall reconsider its determination in a manner

consistent with this opinion. The Department shall file its remand

determination with the Court within 90 days. The parties are

granted 30 days to file comments on the remand determination. The

Department may respond to any comments filed within 20 days.

______________________
Donald C. Pogue
Judge

Dated: November 30, 2001
New York, New York