Slip Op. 01-120
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: RICHARD W. GOLDBERG, SENIOR JUDGE
FUJIAN MACHINERY AND EQUIPMENT
IMPORT & EXPORT CORPORATION, and
SHANDONG MACHINERY IMPORT &
EXPORT CORPORATION,
Plaintiffs,
v. PUBLIC VERSION
UNITED STATES, and THE UNITED Court No. 99-08-00532
STATES DEPARTMENT OF COMMERCE,
Defendants,
and
O. AMES COMPANY,
Defendant-Intervenor.
[ITA antidumping duty determination sustained in part and
remanded in part]
Dated: September 28, 2001
Powell, Goldstein, Frazier & Murphy LLP (Lawrence R. Walders) for
plaintiffs Fujian Machinery and Equipment Import & Export
Corporation and Shandong Machinery Import & Export Corporation.
Stuart E. Schiffer, Acting Assistant Attorney General, David M.
Cohen, Director, Kenneth S. Kessler, Attorney, Commercial
Litigation Branch, Civil Division, United States Department of
Justice; Office of the Chief Counsel for Import Administration,
United States Department of Commerce (John F. Koeppen), of
counsel, for defendant.
Wiley, Rein & Fielding (Charles O. Verrill, Jr. and Eileen P.
Bradner) for defendant-intervenor O. Ames Company.
Court No. 99-08-00532 Page 2
OPINION
GOLDBERG, Judge: In this action, the Court considers plaintiffs’
challenges to the final results of the Department of Commerce
(“Commerce”) for the seventh administrative review of the
antidumping duty order on heavy forged hand tools (“HFHTs”). See
Heavy Forged Hand Tools, Finished or Unfinished, With or Without
Handles, From the People’s Republic of China; Final Results and
Partial Recission of Antidumping Duty Admin. Reviews, 64 Fed.
Reg. 43,659 (August 11, 1999) (“Final Results”). Plaintiffs
Fujian Machinery and Equipment Import & Export Corporation
(“FMEC”) and Shandong Machinery Import & Export Corporation
(“SMC”) argue that: (1) Commerce erred in determining that there
was a total failure of verification at FMEC, SMC, and two of the
supplier factories; (2) Commerce erred by denying plaintiffs’
claims for separate company-specific dumping margin rates; and
(3) Commerce acted unlawfully by using facts available, and in
particular by applying adverse inferences, on the basis of
alleged verification failures and subsequently discovered
unreported sales.
The Court exercises jurisdiction over this matter pursuant
to 28 U.S.C. § 1581(c) (1994).
BACKGROUND
On March 23, 1998, Commerce initiated the seventh
administrative review of HFHTs. Initiation of Antidumping and
Court No. 99-08-00532 Page 3
Countervailing Duty Admin. Reviews, 63 Fed. Reg. 13,837 (March
23, 1998). With respect to the People’s Republic of China
(“PRC”), the review covered axes/adzes, bars/wedges,
hammers/sledges, and picks/mattocks. Id. Commerce issued an
initial set of questionnaires to plaintiffs on April 23, 1998.
Supplemental questionnaires followed for SMC on August 7, 1998,
for FMEC on August 10, 1998, and for both companies on September
15, 1998. SMC and FMEC timely responded to all questionnaires.
On September 24, 1998, Commerce faxed the verification
outlines for SMC and FMEC to the Washington office of plaintiffs’
counsel. Verification began at FMEC the morning of October 5,
1998, and lasted two days. Subsequently, Commerce conducted
verification at SMC October 8-9, 1998, and at two of the
plaintiffs’ suppliers’ factories the following week: [
], termed “Factory A” by Commerce, on
October 12-13, 1998; and [ ],
termed “Factory B” by Commerce, on October 14-15, 1998
(collectively, the “Factories”).
On January 29, 1999, Commerce issued an internal memorandum
determining that FMEC, SMC,1 Factory A, and Factory B had each
failed verification. See App. (“Pls.’ App.”) to Pls.’ Mot. for
J. upon the Agency R. (“Pls.’ Memo”) 8, Determination of Adverse
Facts Available Based on Verification Failure in the Admin.
1
The letter refers to SMC as “SMEC.”
Court No. 99-08-00532 Page 4
Review of HFHTs from the PRC (“AFA Memo”). On February 9, 1999,
FMEC’s counsel wrote to Commerce requesting an opportunity to
provide information that the memorandum had identified as
unavailable during FMEC’s verification. See Pls.’ App. 9, Heavy
Forged Hand Tools From the PRC--Clarification of Verification
(“FMEC’s Add’l Submissions Letter”). On February 26, 1999,
Commerce denied this request as untimely. See Pls.’ App. 10,
Antidumping Duty Admin. Review of HFHTs from the PRC (1997-1998)
(“Commerce’s Add’l Submissions Letter”).
On February 5, 1999, Commerce published the preliminary
results of the antidumping review. Heavy Forged Hand Tools,
Finished or Unfinished, With or Without Handles, From the PRC;
Preliminary Results and Partial Recission of Antidumping Duty
Admin. Reviews, 64 Fed. Reg. 5,770 (February 5, 1999)
(“Preliminary Results”). In the Preliminary Results, Commerce
determined that sales of HFHTs from the PRC were made at less
than fair value during the period of review, February 1, 1997,
through January 31, 1998. Id. With respect to both FMEC and
SMC, Commerce stated that “serious problems” at verification made
it impossible to confirm that U.S. sales for either company were
properly reported. Id. at 5,771. Commerce further determined
that “the nature of the verification failures of both companies
and the inadequacy of their cooperation” was such that neither
FMEC nor SMC had established that it was entitled to a separate,
Court No. 99-08-00532 Page 5
company-specific rate, rather than the government-entity rate
otherwise applicable to exporters in non-market economies that
fail to demonstrate an absence of government control over their
export activities. Id. at 5,772. Finally, Commerce concluded
that the non-responsiveness of the PRC’s Ministry of Foreign
Trade and Economic Cooperation (“MOFTEC”), as well as the
verification failures of FMEC and SMC, demonstrated that the “PRC
entity” (including FMEC and SMC) had failed to cooperate to the
best of its ability, and that application of adverse facts
available (“AFA”) under 19 U.S.C. § 1677e(b) (1994) was therefore
appropriate. Id.
On April 22, 1999, Commerce informed FMEC and SMC that a
review by the U.S. Customs Service had disclosed several
unreported sales of bars/wedges by both companies. FMEC and SMC
filed comments explaining these unreported sales on May 10, 1999.
See Pls.’ App. 11, Heavy Forged Hand Tools From China (“Pls.’
Unreported Sales Letter”). On August 3, 1999, Commerce issued a
memorandum rejecting plaintiffs’ explanations. See Pls.’ App.
12, Antidumping Duty Admin. Review of HFHTs from the PRC (1997-
1998)--Unreported Sales (“Commerce’s Unreported Sales Letter”).
On August 11, 1999, Commerce published the Final Results, in
which it again determined that FMEC, SMC, and their suppliers’
factories failed verification; that neither FMEC nor SMC
warranted a separate rate; and that the application of AFA was
Court No. 99-08-00532 Page 6
appropriate. See 64 Fed. Reg. at 43,661-69. Commerce assigned
FMEC and SMC the following PRC-wide dumping margins: for
axes/adzes, 18.72%; for bars/wedges, 47.88%; for hammers/sledges,
27.71%; and for picks/mattocks, 98.77%. Id. at 43,672.
STANDARD OF REVIEW
The Court will sustain Commerce’s Final Results unless they
are “unsupported by substantial evidence on the record, or
otherwise not in accordance with law.” 19 U.S.C. §
1516a(b)(1)(B)(i) (1994). Substantial evidence is “more than a
mere scintilla. It means such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.”
Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938); accord
Matsushita Elec. Indus. Co., Ltd. v. United States, 3 Fed. Cir.
(T) 44, 51, 750 F.2d 927, 933 (1984). “[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. Federal Maritime Comm’n,
383 U.S. 607, 620 (1966) (citations omitted).
While Congress has thus directed the Court to test whether
Commerce’s Final Results are supported by substantial evidence,
the Court of Appeals for the Federal Circuit has determined that
a nominally different standard of review applies to one aspect of
the methodology from which the Final Results are derived. In
Micron Tech., Inc. v. United States, 15 Fed. Cir. (T) __, 117
Court No. 99-08-00532 Page 7
F.3d 1386 (1997), the Federal Circuit observed that although
Congress has directed Commerce to “verify all information relied
upon in making . . . a final determination in an investigation
. . . [or] a final determination in a[n antidumping] review,” 19
U.S.C. § 1677m(i)(3) (1994),2 Congress never defined what
successful verification entails, 15 Fed. Cir. (T) at __, 117 F.3d
at 1394, and neither Congress nor Commerce has either specified a
particular verification methodology. Id. at 1395. Accordingly,
the Micron Tech. court looked to the Supreme Court’s decision in
Chevron U.S.A. Inc. v. National Resources Defense Council, Inc.,
467 U.S. 837 (1984), to derive the appropriate level of deference
due Commerce’s verification methodology. See 15 Fed. Cir. (T) at
__, 117 F.3d at 1394.
In Chevron, the Supreme Court observed:
If Congress has explicitly left a gap for the agency to
fill, there is an express delegation of authority to
the agency to elucidate a specific provision of the
statute by regulation. Such legislative regulations
are given controlling weight unless they are arbitrary,
capricious, or manifestly contrary to the statute.
2
Congress’s directive to Commerce to verify information
has not substantively changed between the pre-URAA law cited in
Micron Tech., 19 U.S.C. § 1677e(b) (1988), and the current
codification, except that the latter no longer requires Commerce
“to report the methods and procedures used to verify such
information.” Id. That text was evidently deleted when Congress
dropped the provision for using “best information available” in
favor of “facts otherwise available,” the sanction that now
applies when information cannot be verified. See 19 U.S.C. §
1677e(a)(2) (1994). In any event, a similar reporting
requirement applies under Commerce’s own regulations. See 19
C.F.R. § 351.307(c) (2000).
Court No. 99-08-00532 Page 8
Sometimes the legislative delegation to an agency is
implicit rather than explicit. In such a case, the
court may not substitute its own construction of a
statutory provision for a reasonable interpretation
made by the administrator of an agency.
Id. at 843-44 (footnotes omitted). Apparently in reliance on
that language, the Micron Tech. court held, among other things,
that “Congress has implicitly delegated to Commerce the latitude
to derive verification procedures ad hoc. . . . Therefore, we
review verification procedures employed by Commerce in an
investigation for abuse of discretion,3 rather than against
previously-set standards.” 15 Fed. Cir. (T) at __, 117 F.3d at
1396 (footnote added).
Insofar as this holding was based on a Chevron analysis, two
recent Supreme Court decisions call its vitality into question.
In Christensen v. Harris County, 529 U.S. 576 (2000), the Supreme
Court held that an agency’s interpretation of an ambiguous
statute is not entitled to Chevron deference when that
interpretation is expressed informally, as through an opinion
letter, rather than through a regulation adopted after formal
adjudication or notice-and-comment rulemaking. Id. at 586-88.
More recently, in deciding whether Customs Service
3
The arbitrary or capricious standard cited in Chevron and
the abuse of discretion standard cited in Micron Tech. are
identical. See Administrative Procedure Act, 5 U.S.C. §
706(2)(A) (1994) (requiring reviewing court to set aside agency
findings that are “arbitrary, capricious, [or] an abuse of
discretion”).
Court No. 99-08-00532 Page 9
classification rulings deserved Chevron deference, the Supreme
Court held that “administrative implementation of a particular
statutory provision qualifies for Chevron deference when it
appears that Congress delegated authority to the agency generally
to make rules carrying the force of law, and that the agency
interpretation claiming deference was promulgated in the exercise
of that authority.” United States v. Mead Corp., 533 U.S. __,
__, 121 S. Ct. 2164, 2171 (2001) (emphasis added). In Mead, the
Court doubted that Congress had delegated to the Customs Service
the authority to issue classification rulings with the force of
law. 533 U.S. at __, 121 S. Ct. at 2173-74. More importantly,
the Court observed that the Customs Service itself did not appear
to have “set out with a lawmaking pretense in mind” in issuing
the rulings, as they were not issued after notice and comment and
did not bind third parties. 533 U.S. at __, 121 S. Ct. at 2174.
Accordingly, the Court held that the classification rulings did
not merit Chevron deference. 533 U.S. at __, 121 S. Ct. at 2175.
Instead, such rulings, like the opinion letters at issue in
Christensen, warrant judicial respect to the extent they have the
“power to persuade,” as determined by their “thoroughness, logic
and expertness, [their] fit with prior interpretations, and any
other sources of weight.” 533 U.S. at __, 121 S. Ct. at 2175-76
(quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)); see
also Christensen, 529 U.S. at 587.
Court No. 99-08-00532 Page 10
The proceedings in an antidumping investigation or
administrative review constitute a very strange creature in the
taxonomy of modern American administrative law. Congress has
stated that such proceedings are “investigatory” rather than
adjudicatory, see NEC Corp. v. United States Dep’t of Commerce,
21 CIT 933, 948-49, 978 F. Supp. 314, 329 (1997) (citing H.R.
Rep. No. 96-317, at 77 (1979), and S. Rep. No. 96-249, at 100
(1979), reprinted in 1979 U.S.C.C.A.N. 381, 486), aff’d 16 Fed.
Cir. (T) __, 151 F.3d 1361 (1998); see also Uruguay Round
Agreements Act, Statement of Administrative Action (“SAA”), H.R.
Doc. No. 103-316, at 892 (1994), although the Court of
International Trade (“CIT”) has observed that in substance they
are quasi-adjudicatory. See GSA, S.R.L. v. United States, 23 CIT
__, __, 77 F. Supp. 2d 1349, 1359 (1999) (quoting Monsanto Co. v.
United States, 12 CIT 937, 947, 698 F. Supp. 275, 283 (1988)).
Given their anomalous classification, such proceedings may not
constitute a suitable vehicle for Commerce to express statutory
interpretations worthy of Chevron deference, particularly with
respect to their more investigatory aspects, such as the conduct
of verification.4 If Congress’s delegation of authority to
4
To be sure, the Court in Mead did not restrict Chevron
deference by classification of the administrative action, but it
did suggest that the overwhelming majority of statutory
interpretations deserving Chevron deference would be expressed
through rulemaking or formal adjudication. 533 U.S. at __, 121
S. Ct. at 2172-73.
Court No. 99-08-00532 Page 11
Commerce to derive a verification methodology is “implicit,” and
if that methodology is derived “ad hoc” and does not give rise to
“set standards,” see Micron Tech., 15 Fed. Cir. (T) at __, 117
F.3d at 1396, then Commerce does not “set out with a rulemaking
pretense in mind” when it decides on a methodology for a given
proceeding.5 Cf. Mead, 533 U.S. at __, 121 S. Ct. at 2174.
Thus, any statutory interpretation that Commerce expresses under
such circumstances should not merit Chevron deference.6 But cf.
U.S. Steel Group v. United States, slip op. 01-110, at 12-14,
2001 WL 1012761, at *4-6 (Ct. Int’l Trade Aug. 31, 2001)
(affording Chevron deference to Commerce’s interpretation of the
suspension agreement statute, while “mak[ing] clear that . . .
[in antidumping cases] less deference may be owed by the Court of
International Trade to agency interpretations in other
contexts”).
5
It is perhaps regrettable that Commerce has seen fit to
codify almost none of its verification practices. While that is
its right, see SEC v. Chenery Corp., 332 U.S. 194, 202 (1947),
the Court wonders whether the loss of flexibility would not be
outweighed by the gain in predictability, particularly with
regard to the procedural aspects of verification. Cf. Nippon
Steel Corp. v. United States, 25 CIT __, __, 146 F. Supp. 2d 835,
842 (2001) (observing that Commerce’s resistance to adopting
definitive rules for the application of AFA increases the risk
that its decisions will appear arbitrary).
6
Instead, Skidmore deference would apply. See Mead, 533
U.S. at __, 121 S. Ct. at 2171-72. “Th[is] approach has produced
a spectrum of judicial responses, from great respect at one end
to near indifference at the other.” Id. at __, 121 S. Ct. at
2172 (citations omitted).
Court No. 99-08-00532 Page 12
The Court hesitates to reach this conclusion, however, for
several reasons. First, the Federal Circuit did not fully
explicate its reasoning, so the extent to which its holding
depends on Chevron is unclear. Second, even if its holding does
rest entirely on Chevron, Christensen and Mead are not directly
on point, and a trial court may not disregard the controlling
precedent of its appellate court where an intervening Supreme
Court decision merely casts doubt on the continuing viability of
that precedent, rather than directly overruling it. Finally,
there is another basis to support the Federal Circuit’s
determination that Commerce’s verification methodology is
reviewed for abuse of discretion: the residual standard of review
applicable to the proceedings as a whole.
Under that standard, Courts must uphold “any determination,
finding, or conclusion” that Commerce makes in an administrative
review 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), 1516a(a)(2)(B)(iii). On at least one occasion
prior to the Federal Circuit’s decision in Micron Tech., the CIT
looked to this standard in determining that Commerce’s choice of
verification methodology should be reviewed for substantial
evidence. See Hercules, Inc. v. United States, 11 CIT 710, 726,
673 F. Supp. 454, 469 (1987) (“The decision to select a
particular [verification] methodology rests solely within
Court No. 99-08-00532 Page 13
Commerce’s sound discretion. As long as there is ‘substantial
evidence on the record’ to support the choice, the Court will
sustain the methodology chosen by Commerce.”).
Yet testing Commerce’s choice of verification methodology
for substantial evidence appears problematic on its face. Taking
as an example one issue from the case at bar, see infra Part
I.A.1.a, what does it mean to say that Commerce’s decision to
release the verification outline when it did must be supported by
substantial evidence? Substantial evidence of what?
Particularly with regard to the more procedural aspects of the
verification methodology, the substantial evidence test seems
awkward and inapt.
Perhaps for this reason, the CIT more commonly emphasizes
the second half of the standard of review when examining an
agency’s methodology, by asking whether it is “in accordance with
law.” In Coalition for the Pres. of Am. Brake Drum & Rotor
Aftermarket Mfrs. v. United States, 23 CIT __, 44 F. Supp. 2d 229
(1999) (“Coalition”), the court observed:
Commerce need not prove that its methodology was the
only way or even the best way . . . as long as it was a
reasonable way. When an agency’s method is challenged,
[t]he proper role of this court is to determine whether
the methodology used by the agency is in accordance
with law, and as long as the agency’s methodology and
procedures are reasonable means of effectuating the
statutory purpose, and there is substantial evidence in
the record supporting the agency’s conclusions, the
court will not impose its own views as to the
sufficiency of the agency’s investigation or question
the agency’s methodology.
Court No. 99-08-00532 Page 14
23 CIT at __, 44 F. Supp. 2d at 258 (citations, internal
quotation marks, brackets, and original ellipses omitted). In
other words, the agency’s methodology must be reasonable, it must
be in accordance with law, and it must effectuate the statutory
purpose. But how does a court reconcile these precepts with
Micron Tech.’s directive to review Commerce’s verification
methodology for abuse of discretion?
In fact, abuse of discretion is not a substantively
different standard of review. Rather, “abuse of discretion” and
“in accordance with law” are merely different phrasings of the
same concept. See Administrative Procedure Act, 5 U.S.C §
706(2)(A) (requiring the reviewing court to overturn agency
action that is “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law”) (emphasis added).
Neither, at least in most cases, are these standards any
different than substantial evidence review, historical
conceptions to the contrary notwithstanding.7 Instead,
7
Traditionally, de novo review and abuse of discretion
review have been conceived as lying at opposite ends of a
continuum of deference, with substantial evidence review falling
well on the side of greater deference, yet still distinctly less
deferential than abuse of discretion. See, e.g., In re Gartside,
203 F.3d 1305, 1312 (Fed. Cir. 2000) (observing that substantial
evidence “is considered to be a less deferential review standard
than ‘arbitrary, capricious’”) (citing American Paper Inst., Inc.
v. American Elec. Power Serv. Corp., 461 U.S. 402, 412-13 n.7
(1983); Abbott Labs. v. Gardner, 387 U.S. 136, 143 (1967)).
However, then-Judge Scalia was among the first to note that an
agency action can pass muster under substantial-evidence review
but still fail under the supposedly more lenient abuse of
Court No. 99-08-00532 Page 15
substantial evidence and arbitrary and capricious “connote[] the
same substantive standard of review.” Bangor Hydro-Elec. Co. v.
FERC, 78 F.3d 659, 663 n.3 (D.C. Cir. 1996). Substantial
evidence “is no more than a recitation of the application of the
‘arbitrary and capricious’ standard to factual findings.”
Maryland People’s Counsel v. FERC, 761 F.2d 768, 774 (D.C. Cir.
1985) (Scalia, J.); see also Dickinson v. Zurko, 527 U.S. 150,
164 (1999) (“A reviewing court reviews an agency’s reasoning to
determine whether it is ‘arbitrary’ or ‘capricious,’ or, if bound
up with a record-based factual conclusion, to determine whether
it is supported by ‘substantial evidence.’).
In contrast to substantial evidence review, arbitrary and
capricious is not tethered to review of agency factfinding, but
rather can serve as a catch-all standard when substantial
evidence is inapplicable. See In re Gartside, 203 F.3d at 1312-
13 (citations omitted). “[T]he arbitrary and capricious standard
focuses on the rationality of an agency’s decisionmaking process
rather than on the rationality of the actual decision.”
Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1575 (10th
Cir. 1994). Thus, it “more naturally fits a determination of a
discretion standard. See, e.g., Association of Data Processing
Serv. Orgs., Inc. v. Board of Governors, 745 F.2d 677, 683 (D.C.
Cir. 1984) (Scalia, J.) (“[A]n agency action which is supported
by the required substantial evidence may in another regard be
‘arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law’--for example, because it is an abrupt and
unexplained departure from agency precedent.”).
Court No. 99-08-00532 Page 16
mixed question of factfinding and policy implementation.” Bangor
Hydo-Electric, 78 F.3d at 663 n.3.8
Therefore, so long as Commerce’s verification methodology
may be fairly characterized as a means to implement policy, the
abuse of discretion standard applies--but as another guise of the
statutorily-mandated substantial-evidence/in-accordance-with-law
test, not as a discrete or more stringent standard.
Alternatively, if Commerce’s choice of verification methodology
is conceived as an exercise in statutory interpretation,9 then
Skidmore deference is all it merits.
8
By contrast, then-Judge Scalia noted that “the
substantial evidence test applies almost exclusively to formal
adjudication . . . which is . . . characteristically long on
facts and short on policy--so that the inadequacy of factual
support is typically the central issue in the judicial appeal.”
Association of Data Processing Serv. Orgs., 745 F.3d at 685 n.6.
9
The Court doubts whether this is so. In an analogous
case, in which the D.C. Circuit reviewed an agency’s methodology
for determining what actions satisfied a statutory requirement of
“substantial compliance,” the court observed:
Chevron is principally concerned with whether an agency
has authority to act under a statute.
* * *
In the present case, however, there is no question
that the [agency] had authority to define the
circumstances constituting . . . substantial
compliance. . . . The only issue here is whether the
[agency’s] discharge of that authority was reasonable.
Such a question falls within the province of
traditional arbitrary and capricious review.
Arent v. Shalala, 70 F.3d 610, 616-17 (D.C. Cir. 1995)
Court No. 99-08-00532 Page 17
For the reasons given above, the Court cannot overrule its
appellate court. Even if it were in a position to do so,
however, the substantive result would likely be no different.
Accordingly, the Court reviews Commerce’s ad hoc verification
methodology for abuse of discretion.
DISCUSSION
FMEC and SMC move for judgment on the agency record pursuant
to U.S.C.I.T. R. 56.2. They challenge Commerce’s determination
that they failed verification, Commerce’s decision to apply the
PRC-wide rates rather than separate rates, and Commerce’s
decision to apply adverse facts available. The Court considers
each of these arguments in turn.
I. Substantial Evidence Supports Commerce’s Determination That
SMC Failed Verification, But Its Findings Concerning FMEC
and the Factories Are Not in Accordance with Law.
A. Verification of FMEC
FMEC alleges two essential reasons why Commerce erred in
determining that it failed verification: (1) Commerce conducted
the verification in a manner prejudicial to FMEC by not allowing
sufficient time either for pre-verification preparation or for
the verification itself; and (2) FMEC provided substantially all
the information Commerce requested, and the information it did
not provide was immaterial.
1. Timing issues related to verification
a. Release of the verification outline
Court No. 99-08-00532 Page 18
FMEC’s first claim regarding the timing of verification
concerns the date Commerce released the verification outline.
Commerce did so the afternoon of Thursday, September 24, 1998,
whereupon the outline was faxed to FMEC’s counsel, who was
already in China. Thursday, October 1, and Friday, October 2,
were both national holidays in China, during which time FMEC was
closed for business. FMEC’s verification began on Monday,
October 5. Thus, FMEC had only four business days to consult the
outline in preparation for verification.
FMEC argues that Commerce abused its discretion by issuing
the verification outline only four business days prior to the
start of verification. See Pls.’ Memo, at 22-26. FMEC suggests
that the resolution of this issue should be controlled by the
Court’s prior opinion in Rubberflex Sdn. Bhd. v. United States,
23 CIT __, 59 F. Supp. 2d 1338 (1999). In Rubberflex, the Court
held that Commerce abused its discretion by issuing a
verification outline only two days prior to the start of
verification. Id. at 1349.
Commerce distinguishes Rubberflex on the grounds that FMEC
had twice as much time for preparation as did the Rubberflex
plaintiff. See Commerce’s Memo, at 32-33. Commerce further
argues that it followed its standard practice of issuing an
outline not fewer than seven days prior to the verification, and
that FMEC cannot prove that Commerce officials deliberately
Court No. 99-08-00532 Page 19
ignored the Chinese holidays. See id. Finally, Commerce notes
that FMEC knew of and agreed to the verification date in advance,
and suggests that by such acceptance FMEC forfeited its right to
complain about the scheduling of the verification. See id.
Although relevant, none of the considerations cited by
Commerce is dispositive.10 While four-day notice of the
verification outline may be insufficient in some cases, the Court
declines to adopt a per se rule. Instead, the Court applies the
essential test of Rubberflex, which asks whether the verification
outline was issued so tardily as to “preclude[ FMEC] from having
a meaningful opportunity to participate in the review process.”
Rubberflex, 23 CIT at __, 59 F. Supp. 2d at 1345.
In Rubberflex, the plaintiff produced record evidence
10
While the Court cannot agree that FMEC’s assent to the
verification date negates its right to protest the outline
release date, the Court does note that in Rubberflex Commerce
denied the exporter’s request to delay verification to allow
further time for preparation. See Rubberflex, 59 F. Supp. 2d at
1343. By contrast, FMEC concurred in the scheduling of
verification and, upon the delayed issuance of the verification
outline, never indicated any concern to Commerce or suggested
that it would be unable to complete its preparations. Moreover,
the Court is unwilling to charge Commerce with sole
responsibility for keeping track of foreign holidays. If an
exporter foresees a problem with the scheduling of verification,
either initially or after Commerce delays issuing a verification
outline, it should inform Commerce immediately rather than wait
to make post hoc objections after a failed verification. See,
e.g., Notice of Postponement of Final Antidumping Duty
Determination: Disposable Pocket Lighters from the PRC, 60 Fed.
Reg. 5,899, 5,900 (January 31, 1995) (exporters requested
postponement in part due to “scheduling conflicts resulting from
[their] observance of Chinese New Year”).
Court No. 99-08-00532 Page 20
demonstrating that the late issuance of the verification outline
directly impacted its ability meaningfully to participate in the
verification. In that case, as in this one, the verification
outline instructed the subject of verification to present
corrections to questionnaire responses at the start of
verification. See 23 CIT at __, 59 F. Supp. 2d at 1346; Pls.’
App. 5, Antidumping Duty Admin. Review of HFHTs from the PRC
Verification Agenda for FMEC (“FMEC Verification Outline”), at 1,
3. The Rubberflex plaintiff was unable to complete its
corrections prior to the start of verification, Commerce
subsequently refused to accept its corrected worksheets. See 23
CIT at __, 59 F. Supp. 2d at 1347. In the instant case, by
contrast, FMEC evidently had no trouble successfully completing
its corrections prior to verification. See Pls.’ App. 16, Fujian
Mach. & Equip. Imp. and Exp. Corp.: Report on the Verification of
Sales Info. Submitted in the Admin. Review Covering February 1,
1997 through January 31, 1998 (“FMEC Verification Report”), at 2.
Of course, as this Court noted in Rubberflex, an outline
facilitates the verification subject’s preparations in other
ways, by narrowing the scope of verification and identifying
specific transactions on which the verifiers intend to focus.
See 23 CIT at __, 59 F. Supp. 2d at 1347-48. However, FMEC has
not made any showing that its preparations were actually
materially prejudiced by the delayed issuance of the outline, or
Court No. 99-08-00532 Page 21
that Commerce’s stated reasons for finding a failure of
verification follow in any way from the delay. In order for the
Court to take the “extraordinary step of ordering the parties to
repeat verification,” Rubberflex, 23 CIT at __, 59 F. Supp. 2d at
1349, FMEC must do more than complain that it did not have enough
time; it must provide some record evidence to show that
verification would have proceeded differently if Commerce had
afforded it more time to prepare.
For example, the FMEC Verification Report and the Final
Results both cite FMEC’s failure to provide quantity and value
worksheets as one of several factors supporting Commerce’s
determination that U.S. sales were unverifiable. A credible
allegation that FMEC lacked sufficient time to prepare such
worksheets would constitute prima facie evidence that it was
prejudiced by the delayed issuance of the outline. By its own
admission, however, FMEC failed to provide quantity and value
worksheets for either of two reasons that were completely
unrelated to the late issuance of the verification outline.11
11
Before this Court, FMEC argues that it did not provide
quantity and value worksheets because the verifiers neglected to
request them until late on the second day of verification, after
the accountant who had access to them had left for the day. See
Pls.’ Memo at 8, 28-29. FMEC had previously argued this same
point to Commerce. See Pls.’ App. 7, Heavy Forged Hand Tools
From China - Revised Case Brief Filed on Behalf Of FMEC, Shandong
Huarong, TMC, and SMC (“Pls.’ Case Brief”), at 24-25. At the
same time, however, and in an apparent self-contradiction, FMEC
also stated that it was unable to prepare quantity and value
worksheets because it lacked the requisite flexible accounting
Court No. 99-08-00532 Page 22
Likewise, none of the other problems that Commerce identified at
FMEC’s verification are causally connected to the late issuance
of the outline.12 Accordingly, because FMEC has not shown any
prejudice, the Court finds that Commerce did not abuse its
discretion by issuing the verification outline when it did.13
b. Time allotted for verification
FMEC’s second objection related to the timing of
verification concerns the actual duration of the verification.
Specifically, FMEC argues that Commerce allowed insufficient time
to conduct the verification, inflexibly adhered to a
predetermined two-day schedule, and unfairly penalized FMEC for
verification tasks that went uncompleted. See Pls.’ Memo, at 26-
27. FMEC claims that Commerce has previously allowed more than
two days for verifications in the PRC, both in an earlier
administrative review of the antidumping duty order at issue
system. See id. at 23.
12
FMEC does argue in passing that “[s]ome of the problems
encountered during the verification might have been avoided if
FMEC had more time to prepare. . . .” See Pls.’ Memo, at 25.
However, FMEC never identifies which problems might thus have
been avoided, or, more importantly, ties such problems to the
specific deficiencies cited by Commerce in the Final Results.
13
The Court observes once again that Commerce’s statutory
mandate is to determine dumping margins as accurately as
possible. See Rhone Poulenc, Inc. v. United States, 8 Fed. Cir.
(T) 61, 67, 899 F.2d 1185, 1191 (1990). To the fullest extent
possible, verification should be a cooperative process. The
Court trusts that its decision on this issue will not promote
future gamesmanship by either Commerce or exporters.
Court No. 99-08-00532 Page 23
here,14 and in reviews of other orders. See, e.g. Tapered Roller
Bearings and Parts Thereof, Finished and Unfinished, From the
PRC; Final Results of Antidumping Duty Admin. Reviews, 61 Fed.
Reg. 65,527, 65,542 (Dec. 13, 1996) (three-day verification).
FMEC largely blames its verification failure on the verification
officials, who it claims were unfamiliar with the case and wasted
precious time asking general questions. See Pls.’ Memo, at 28.
FMEC also claims that the verifiers could have obtained much
of the information that the Final Results identified as not
provided. In particular, FMEC alleges that the verifiers waited
until after business hours on the second and final day of
verification to ask to see FMEC’s voucher books and quantity and
value worksheets. See Pls.’ Memo, at 28. By that time, FMEC’s
American counsel had, with the verifiers’ assent, already
proceeded to SMC to prepare for SMC’s verification, and the FMEC
employees with access to the relevant information had gone home
for the day. Id. at 28-29; FMEC’s Add’l Submissions Letter, at
2, 4. FMEC alleges that when its officials finally reached one
of the errant employees three and a half hours later, at 9:00
p.m., the verifiers said it was “too late” and that it was “not
14
Although FMEC states that the verification of SMC took
three days in a previous review, the case it cites does not
discuss the length of any verification. See Pls.’ Memo, at 27
(citing Heavy Forged Hand Tools, Finished or Unfinished, With or
Without Handles, from the PRC; Final Results of Antidumping Duty
Admin. Reviews, 60 Fed. Reg. 49,251 (Sept. 22, 1995)).
Court No. 99-08-00532 Page 24
necessary” for the employee to return to FMEC’s offices to supply
the requested information. See Pls.’ Memo, at 28-29; Pls.’ Case
Brief, at 24-25; FMEC’s Add’l Submissions Letter, at 6. FMEC
further claims that when the verifiers caught up with its counsel
at SMC’s offices, they never indicated otherwise when he
repeatedly asked them whether FMEC had supplied all requested
information. See FMEC’s Add’l Submissions Letter, at 6. Eleven
days after publication of the AFA Memo, and four days after the
publication of the Preliminary Results, FMEC’s counsel wrote to
Commerce alleging these facts and requesting an opportunity to
submit documents unavailable during verification. See FMEC’s
Add’l Submissions Letter. Commerce denied the request as
untimely. See Commerce’s Add’l Submissions Letter, at 1.
In its briefs before this Court, Commerce conversely blames
FMEC for being unprepared and suggests that if it “had taken a
few simple steps” to make its records more accessible, all tasks
could easily have been completed in the allotted two days. See
Def. Memo. in Opp. to Pls.’ Mot. for J. upon the Agency R.
(“Commerce’s Memo”), at 33. Commerce does not specifically
address FMEC’s claim that it unfairly penalized FMEC for the
temporary unavailability of documents at verification. However,
in the Final Results, Commerce averred that “[a]t no time during
the verification did [FMEC] officials request additional time to
provide the information.” 64 Fed. Reg. at 43,663.
Court No. 99-08-00532 Page 25
Based on the record before it, the Court is in no position
to resolve which participants in the verification were
comparatively less disorganized. Regardless, FMEC’s citations to
cases in which verifications lasted longer than two days do not
demonstrate the sort of consistent practice a deviation wherefrom
Commerce would be obliged to explain.15 This Court has
previously acknowledged Commerce’s discretion in setting the
length of verifications, in recognition of the time constraints
imposed by statute for the completion of the review as well as
limits on the agency’s resources. See Persico Pizzamiglio, S.A.
v. United States, 18 CIT 299, 307 (1994); see also Micron Tech.,
15 Fed. Cir. (T) at __, 117 F.3d at 1396 (affording Commerce “the
latitude to derive verification procedures ad hoc”). Inasmuch as
the parties concur that two days would have sufficed had the
verification progressed more smoothly, the Court finds that
Commerce did not abuse its discretion by allocating two days for
FMEC’s verification, and conducting it in that time.
However, Commerce’s discretion in establishing and
maintaining a schedule for verification, while great, is not
unbounded. At all times, “Commerce must give respondents a
reasonable opportunity to participate in the review and
verification process.” Rubberflex, 23 CIT at __, 59 F. Supp. 2d
15
Evidence of Commerce’s practice in reviews of
antidumping duty orders of different subject merchandise, in
different countries, is of particularly dubious relevance.
Court No. 99-08-00532 Page 26
at 1346. See also Böwe-Passat v. United States, 17 CIT 335, 339
(1993) (“[T]he review process is bilateral and interactive. The
party must be afforded a reasonable opportunity . . . to satisfy
evidentiary concerns.”). Where it becomes apparent in the course
of a verification that strict adherence to the verification
schedule will impinge a respondent’s opportunity to satisfy
evidentiary concerns, the verifying officials have two choices.
First, the verifiers may amend or adapt the verification
schedule to allow the respondent additional time to meet their
evidentiary requests. Commerce’s discretion in establishing and
maintaining a verification schedule necessarily subsumes the
ability to modify that schedule as the need arises.
Alternatively, if the exigencies of the verification
schedule do not allow the verifiers to adapt it sufficiently to
permit the full participation of the respondent, the verifiers
must allow the respondent to submit requested documentary
evidence shortly after the end of verification, pursuant to
Commerce’s own regulations.16 Specifically, 19 C.F.R. § 351.301
provides:
(b) Time limits in general. Except as provided in
paragraphs (c) and (d) of this section and § 351.302, a
submission of factual information is due no later than:
16
It is axiomatic that “Commerce, like other agencies,
must follow its own regulations.” Torrington Co. v. United
States, 14 Fed. Cir. (T) __, __, 82 F.3d 1039, 1049 (1996)
(citing Fort Stewart Schools v. Federal Labor Relations Auth.,
495 U.S. 641, 654 (1990)).
Court No. 99-08-00532 Page 27
* * *
(2) For the final results of an administrative
review, 140 days after the last day of the
anniversary month, except that factual information
requested by the verifying officials from a person
normally will be due no later than seven days after
the date on which the verification of that person is
completed.
19 C.F.R. § 351.301(b)(2) (1998) (emphasis added). “Factual
information,” in turn, is defined in the regulations as: “(1)
Initial and supplemental questionnaire responses; (2) Data or
statements of fact in support of allegations; (3) Other data or
statements of facts; and (4) Documentary evidence.” 19 C.F.R. §
351.102(b) (1998).
The regulations are plainly written, and their meaning is
clear: when verifying officials request information from a
respondent, including data and documentary evidence in support of
the respondent’s questionnaire responses,17 the respondent is not
legally obligated to satisfy the request until a minimum18 of one
week after the conclusion of that respondent’s verification.19
17
Of course, the questionnaire responses themselves are
typically due well before verification, according to Commerce’s
specification. See 19 C.F.R. § 351.301(c).
18
See Antidumping Duties; Countervailing Duties 62 Fed.
Reg. 27,296, 27,332 (May 19, 1997) (amending 19 C.F.R. §§ 351,
353, 355) (explaining that the word “normally” was added to a
draft version of section 351.301(b)(2) “to clarify that the
deadline can be extended where appropriate”).
19
In practice, a respondent should be fully prepared for
verification and try to satisfy all requests for factual
information immediately, not only because much evidentiary
Court No. 99-08-00532 Page 28
In the instant case, the record suggests that FMEC was
motivated to cooperate with the verifiers’ evidentiary requests,
but was unable to resolve complications that arose during the
final hours of the verification, when its American counsel had
departed and many of its employees had left work for the day.
Under these circumstances, a request to submit temporarily
inaccessible documents pursuant to 19 C.F.R. § 351.301(b)(2)
would have been entirely reasonable. However, FMEC made no such
request until after the release of the AFA Memo, see FMEC’s Add’l
Submissions Letter, long after the seven-day window provided by §
351.301(b)(2) had closed. In the Final Results, Commerce
suggested that FMEC was responsible for this omission. See 64
Fed. Reg. at 43,663. FMEC conversely blames the verifiers for
failing to inform it that its document production was inadequate,
citing 19 U.S.C. § 1677m(d) (1994).20
The Court declines to consider whether the statute imposes
such an affirmative duty on Commerce in the context of
documentation feasibly can only be inspected on-site, but also to
reduce the risk that the verifying officials will find the
information to be deficient. Otherwise, the respondent would
have no time left to correct the deficiency, and Commerce would
be entitled to use facts otherwise available in lieu of the
respondent’s information. See 19 U.S.C. §§ 1677m(d), 1677e(a)(2)
(1994). The Court expresses no opinion as to whether this purely
hypothetical scenario would support the use of adverse facts
available under 19 U.S.C. § 1677e(b).
20
Section 1677m(d) requires Commerce to give prompt notice
of deficiencies in a response to an information request and to
permit remedial action if practicable.
Court No. 99-08-00532 Page 29
verification, because FMEC did not press the issue in its briefs
before the Court.21 In this case, Commerce did not merely
neglect to inform FMEC that certain responses were
unsatisfactory; it implicitly represented to FMEC that the
responses were satisfactory, on at least two occasions. First,
the verifiers told FMEC officials that it was “not necessary” to
recall the employee with access to the quantity and value
worksheets. Inasmuch as the verifiers had already modified
numerous information requests to take account of FMEC’s
rudimentary record-keeping, FMEC officials could reasonably have
interpreted this comment as an indication that the verifiers did
not consider the matter worth pursuing.
More importantly, when the verifying officials met up with
FMEC’s counsel at SMC’s headquarters, they apparently remained
silent in the face of his repeated inquiries as to whether FMEC
had supplied all necessary information.22 Under the
circumstances, FMEC’s counsel could reasonably interpret their
silence as an indication that FMEC had satisfied the verifiers’
21
Although FMEC cites the statute once, in its “Summary of
Argument” section, see Pls.’ Memo at 4, nowhere else in its
briefs does it develop this argument.
22
Neither in Commerce’s Add’l Submissions Letter, nor in
the Final Results, nor in its briefs before this Court does
Commerce ever contest FMEC’s version of these events. Thus, the
Court assumes them to be substantially true.
Court No. 99-08-00532 Page 30
information requests.23 The alacrity with which FMEC
subsequently offered to provide the relevant documents, upon
learning from the AFA Memo that Commerce considered them
important, strongly suggests that FMEC would have submitted them
immediately after verification had the verifying officials not
implied that to do so was unnecessary.
The verifying officials should have known that their
comments and actions would dissuade FMEC from timely submitting
data that could facilitate the calculation of an accurate dumping
margin.24 Therefore, Commerce abused its discretion by
subsequently refusing to accept the proffered documentation. Cf.
Ta Chen Stainless Steel Pipe v. United States, slip op. 99-117,
1999 WL 1001194, at *12-14 (Ct. Int’l Trade Oct. 28, 1999)
23
For the same reason, the Court’s determination on this
issue is not altered by the brief remark in the Final Results
that “[r]espondents maintained a list of data requests by [the
verifiers] and understood what had been supplied and what was
still pending.” 64 Fed. Reg. at 43,664. In the context of a
verification in which the verifiers modified numerous requests,
it would be unfair to expect FMEC’s counsel to give more credence
to this list than to the verifiers’ representations. Moreover,
Commerce does not discuss this list in its brief before this
Court.
24
In a previous case, the CIT declined to draw any
inferences from the conduct of verifiers who left a verification
early without informing the respondent that corrections to a
database were unsatisfactory. See Acciai Speciali Terni S.P.A.
v. United States, 25 CIT __, __, 142 F. Supp. 2d 969, 986-87
(2001). In that case, however, the respondent sought to require
Commerce to use already-submitted data pursuant to 19 U.S.C. §
1677m(e) (1994); the instant case concerns Commerce’s obligation
to allow respondents to submit data pursuant to 19 C.F.R. §
351.301(b)(2).
Court No. 99-08-00532 Page 31
(holding that a party’s noncompliance with the deadlines
established by the prior version of 19 C.F.R. § 351.301(b)(2) was
excused by its reliance on Commerce’s representations).
Accordingly, the Court finds that Commerce must now afford FMEC
the opportunity to submit those documents that it would have
provided at the verification or immediately afterwards.
The Court limits its order to the information that FMEC
would have provided at verification or in the seven days
thereafter, but for the misunderstandings described above.25
Needless to say, FMEC may not take this opportunity to craft new
documentation to satisfy Commerce’s information requests, as the
CIT has repeatedly upheld Commerce’s policy of rejecting
verification data that was not generated “in the ordinary course
of business.” See, e.g., Heveafil Sdn. Bhd. v. United States,
slip op. 01-22, at 8, 2001 WL 194986, at *3 (Ct. Int’l Trade Feb.
27, 2001) (citations and quotations omitted); see also Gourmet
Equip. (Taiwan) Corp. v. United States, slip op. 00-78, at 10,
2000 WL 977369, at *3 (Ct. Int’l Trade July 6, 2000) (upholding
25
In addition to the voucher books and quantity and value
worksheets discussed above, there is record evidence tending to
show that that FMEC did not provide the verifiers with other
factual information, including documentation on short- and long-
term investments, and financial records for two [ ],
because of the same time constraints. See Pls.’ Case Brief at
24, 26-27. Although FMEC does not specifically discuss these
data in its briefs before this Court, the Court considers them to
be subsumed within the category of “documents” that FMEC later
petitioned Commerce to accept. See FMEC’s Add’l Submissions
Letter.
Court No. 99-08-00532 Page 32
Commerce’s rejection of an audit prepared solely for the
antidumping review). Thus, for example, FMEC may submit quantity
and value worksheets only if it demonstrates that it was prepared
to do so at the time of verification.
2. FMEC’s remaining arguments about verification
The last-minute problems with accessibility of documents do
not explain all of the problems that Commerce found during and
after verification. Two other key problems identified by
Commerce were: 1) FMEC’s failure to provide a complete list of
sales; and 2) FMEC’s total failure to report any sales of
bars/wedges, an omission that Commerce learned about only after
it had issued the Preliminary Results.
During the verification, the verifying officials requested a
complete list of all products sold during the period of review,
which FMEC was unable to provide. Instead, FMEC officials
offered a complete catalogue of FMEC’s products, explaining that
it did not have an “integrated computer system.”26 Final
Results, 64 Fed. Reg. at 43,662; Pls.’ Case Brief, at 22-23.
FMEC now argues that Commerce may not penalize it for its
apparent lack of an advanced computing system, because the
26
Although the record is contradictory, see supra at n.11,
apparently the lack of such a system made it impossible for FMEC
to create quantity and value worksheets. See Pls.’ Case Brief,
at 23. This point needs to be clarified on remand. If true, the
analysis here would also apply to the failure to provide such
worksheets.
Court No. 99-08-00532 Page 33
antidumping laws require Commerce to “take into account any
difficulties experienced by interested parties, particularly
small companies, in supplying information,” Pls.’ Memo, at 21
(quoting 19 U.S.C. § 1677m(c)(2)), and to consider an exporter’s
individual circumstances, “including (but not limited to) the
party’s size, its accounting systems, and computer capabilities.”
Id. at 21 (quoting SAA at 865). Thus, FMEC argues, Commerce
should have used its imperfect data pursuant to 19 U.S.C. §
1677m(e), which requires Commerce to accept information submitted
by an interested party even if it does not meet all of Commerce’s
requirements, provided that
(1) the information is submitted by the deadline
established for its submission,
(2) the information can be verified,
(3) the information is not so incomplete that it cannot
serve as a reliable basis for reaching the applicable
determination,
(4) the party has demonstrated that it acted to the
best of its ability in providing the information and
meeting the requirements established by [Commerce] with
respect to the information, and
(5) the information can be used without undue
difficulties.
19 U.S.C. § 1677m(e) (1994).
FMEC’s arguments are unconvincing. The Court doubts whether
FMEC, with total sales in 1997 of over [ ], qualifies
as a small company. See Pls.’ Case Brief, at 21. More
importantly, there is ample evidence that the verifiers did
adjust many of their information requests to take account of
FMEC’s peculiar difficulties. See, e.g., FMEC Verification
Court No. 99-08-00532 Page 34
Report, at 7. The law requires no more than this. As the SAA
explains, Commerce is supposed to “explore alternative methods to
obtain the necessary data,” SAA at 865, not waive the need to
obtain the data altogether. The law is only “intended to
alleviate some of the difficulties encountered by small firms and
firms in developing countries . . . . It is not intended to
exempt [such] firms from the requirements of the antidumping and
countervailing duty laws.” Id. Because Commerce’s mission is to
calculate accurate dumping margins, see Rhone Poulenc, 8 Fed.
Cir. (T) at 67, 899 F.2d at 1191, nothing in the law requires it
to accept incomplete data simply because an exporter has a
deficient computing system.27 Section 1677m(e) is of no avail to
FMEC, because FMEC has not demonstrated that a mere catalogue is
sufficiently complete as to provide a reliable basis for
Commerce’s determination, or that it can be used without undue
difficulties, as required by § 1677m(e). See Fabrique de Fer de
Charleroi, S.A. v. United States, 25 CIT __, __, 155 F. Supp. 2d
801, 808 (2001) (holding that Commerce had discretion to use
facts available after determining that alternative forms in which
exporter submitted information were too incomplete to be reliable
and could not be used without undue difficulties).
27
Evidence of FMEC’s information technology shortcomings
is undeniably relevant to the question of whether it cooperated
to the best of its ability for the purpose of adverse facts
available. See infra, Part III.
Court No. 99-08-00532 Page 35
Moreover, the SAA also directs Commerce to consider the
“prior success of the same firm” in providing the requested
information in previous reviews. SAA at 865. There is no record
evidence to show that this was a new or unusual information
request. Accordingly, Commerce is entitled to disregard FMEC’s
sales catalogues.28
FMEC also failed to report any sales of bars/wedges,
although it made [ ] such sales during the period of review.
This omission was caught not during verification, however, but
later, after the Customs Service responded to an inquiry by
Commerce. FMEC explained to Commerce that it had inadvertently
failed to report the shipments because it lacked a computerized
record-keeping system, and its officials did not recognize the
product name or code number while preparing their questionnaire
responses. See Pls.’ Unreported Sales Letter, at 4-5. For this
reason, and because the sales of bars/wedges constitute a
relatively small portion of FMEC’s total sales of subject
merchandise during the period of review,29 FMEC argues that
28
Whether FMEC’s failure to provide a complete list of
sales is an isolated issue that may be remedied through
application of partial facts available, or whether such errors
instead corrupt the entire sales data and thus necessitates the
use of total facts available, is an issue that Commerce must
address on remand.
29
The unreported bars/wedges constitute [ ] percent of
the value of all subject merchandise imported during the period
of review. See Pls.’ Memo, at 15. The Court notes, however,
that treating each class of subject merchandise separately, as
Court No. 99-08-00532 Page 36
Commerce acted contrary to law by citing these unreported sales
as a basis for applying adverse facts available. See Pls.’ Memo,
at 13-17. FMEC also argues that because Commerce calculated
separate dumping margins for each of the four classes of subject
merchandise, its failure to report sales of bars/wedges should
not affect Commerce’s treatment of its sales of the other three
types of merchandise. FMEC does not, however, seriously argue
that Commerce may not use facts available to calculate a rate for
bars/wedges. That Commerce may do so necessarily follows from
the foregoing analysis regarding FMEC’s sales catalogue.
It is not obvious to the Court how, where different types of
subject merchandise receive different dumping margins, a flaw in
the data that affects only one type of merchandise has any
bearing on the data for the other types of merchandise. Commerce
has not explained its reasoning. Accordingly, the Court finds
that Commerce’s determination that FMEC failed verification with
respect to bars/wedges is supported by substantial evidence, but
remands so that Commerce may explain how and why this failure
affected its treatment of the other types of subject merchandise.
B. Verification at SMC
SMC contests Commerce’s finding that it failed verification
on the grounds that (1) like FMEC, it was hampered by the two-day
FMEC also urges, contradicts the logic its argument on this
issue. Expressed in those terms, FMEC failed to report 100
percent of its bars/wedges.
Court No. 99-08-00532 Page 37
time limit for verification30; and (2) it provided substantially
all the information Commerce requested, and any information not
provided was immaterial. See Pls.’ Memo, at 29-32.
Commerce argues, as it did with respect to FMEC, that two
days was sufficient for verification and that SMC’s lack of
preparation caused its verification failures. Commerce’s Memo,
at 33. Commerce also identifies a number of shortcomings in
SMC’s responses to its information requests. The most serious
problems included the verifiers’ lack of access to certain
records; SMC’s failure to provide information on its ownership
interest in its U.S. affiliate, Pacific Tools; and the verifiers’
inability to trace all sales due to SMC’s rudimentary
bookkeeping. Id. at 35-36; Final Results, 64 Fed. Reg. at
43,665. In addition, not only did the verifiers discover one
unreported sale of mattocks at verification, but the subsequent
review by the Customs Service disclosed that SMC had failed to
report at least one shipment of bars.31
30
SMC does not argue that the delayed release of the
verification outlines impinged its participation, presumably
because its verification began three days after FMEC’s.
31
The record is hopelessly confusing on this point.
Based on the information supplied by the Customs Service,
Commerce identified five unreported shipments of alleged subject
merchandise that it attributed to SMC, listed in Pls.’ Unreported
Sales Letter and Commerce’s Unreported Sales Letter as items 12
through 16.
Commerce now states that SMC did not ship the merchandise
listed in item 12 or item 15, even though SMC previously
acknowledged shipping item 12 and blamed the omission on its
Court No. 99-08-00532 Page 38
The Court finds that SMC’s claim that it was prejudiced by
the conduct of verification is unfounded, and that Commerce has
adduced substantial evidence supporting its finding that SMC
failed verification.
1. Effect of the two-day limit for verification
Unlike FMEC, SMC has failed to prove that Commerce’s manner
of conducting verification thwarted its opportunity for
meaningful participation, or was otherwise so prejudicial as to
amount to an abuse of discretion. Although SMC characterizes its
verification as plagued by “confusion and misunderstanding,” see
Pls.’ Memo, at 29, it has previously acknowledged that the
verification was comparatively well-organized, as the verifiers
adapted their methodology in light of their experience at FMEC.
See Pls.’ Case Brief, at 30-32, 33. The verifiers began SMC’s
verification by discussing what information packages SMC should
prepare, in recognition of the limits of SMC’s accounting system;
they listed each verification task in English and Chinese on a
rudimentary record-keeping system. See Commerce’s Memo, at 20
n.6; see Pls.’ Unreported Sales Letter, at 5-7. With respect to
SMC’s claim that the merchandise in items 13, 14, and 15 was not
subject merchandise, Commerce stated that SMC failed to request a
scope ruling and could not initiate such an inquiry itself.
Commerce’s Unreported Sales Letter, at 2-3. However, Commerce
does not address SMC’s claim that it did not ship the merchandise
listed in items 13 or 14. See Pls.’ Unreported Sales Letter, at
5-7.
The record lacks sufficient information for the Court to
solve this puzzle. SMC has failed to press this point in its
arguments before the Court, and in any event, has acknowledged
responsibility for at least some unreported sales.
Court No. 99-08-00532 Page 39
blackboard, and erased it upon its completion; they had all
verification records brought into a single room for ease of
access; and they identified the SMC officials with relevant
information whom they expected to be available throughout
verification. See id. at 30-31.32
In contradistinction to FMEC, SMC points to nothing in the
record to suggest that the verifiers lulled SMC into a false
belief that it had satisfied all requests for information. There
is no evidence that the plaintiffs’ American counsel ever asked
the verifiers whether SMC had satisfied all information requests.
Nor is there any evidence that the verifiers told SMC officials
or SMC’s counsel that it was “not necessary” to provide any
missing information. As a general rule, the mere fact that the
verifying officials erased any given task from the blackboard
before it was completed to their satisfaction likely reflected a
common recognition that SMC lacked the ability to provide the
requested information. As Commerce explained to SMC prior to
verification, under such circumstances its verifying officials
32
According to SMC, at the end of its verification only
one task remained on the blackboard: providing the records for
Pacific Tools, its U.S. affiliate. See Pls.’ Case Brief, at 31-
32. Thus, there appears to have been enough, or nearly enough,
time to complete all the verification tasks, especially since the
verifiers significantly moderated their information requests
because much of SMC’s data had to be compiled by hand rather than
by computer. See SMC Verification Report, at 8. This fact
belies SMC’s argument that the verifiers unreasonably sought “to
audit the entire operations of [SMC].” Pls.’ Case Brief, at 8.
Court No. 99-08-00532 Page 40
were obliged to move on to the next task. See Pls.’ App. 6,
Antidumping Duty Admin. Review of HFHTs from the PRC Verification
Agenda for SMC (“SMC Verification Outline”), accompanying letter
at 2.
There is, however, one important disparity between SMC’s
account of verification and Commerce’s version of events. SMC
claims that Commerce continues to labor under a mistaken belief
that SMC did not afford the verifiers access to the invoices and
sales documentation of its Agriculture Department and No. 2
Hardware & Tools Department, which were responsible for sales of
subject merchandise. See Pls.’ Memo, at 31. According to SMC,
the complete records were in the verification room throughout the
entire verification. Lacking the vantage of a fly on the wall of
that room, the Court cannot say which party is correct on this
score. Yet even if the Court were to give SMC the benefit of the
doubt, SMC’s failure to take any remedial steps upon learning of
Commerce’s alleged misapprehension negates any inference that the
verifiers hindered SMC’s exercise of a legal right.
Specifically, there is no indication that SMC ever sought to
provide temporarily inaccessible data pursuant to 19 C.F.R. §
351.301(b)(2), either immediately after the verification, or, by
comparison with FMEC, after dissemination of the AFA Memo. It is
uncontested that SMC was aware of its failure to provide the
requested information concerning its U.S. affiliate, Pacific
Court No. 99-08-00532 Page 41
Tools, yet at no stage of the proceedings did it ever attempt to
remedy this omission. Instead, SMC merely argues that it did not
need to provide information about Pacific Tools because such
information was irrelevant to the proceedings. See Pls.’ Memo,
at 32; Pls.’ Case Brief, at 43-44. Thus, it cannot impute its
failure to provide sales information to the verifiers.
Likewise, even assuming that the verifiers neglected to
apprise SMC of their belief that SMC had not made certain records
available, their omission would only be relevant insofar as it
excused SMC’s obligation to comply with the time limits for the
submission of information set forth in 19 C.F.R. § 351.301(b)(2).
Because SMC never attempted to submit such information even after
it became aware of the deficiency, it cannot show that it was
prejudiced by the way Commerce conducted verification.
2. SMC’s Non-Compliance With Information Requests
Commerce identified a number of problems with the
information SMC submitted, or failed to submit, at verification.
First, SMC’s failure to provide access to invoices and other
sales documents made it impossible for Commerce to perform a
completeness test. See Final Results, 64 Fed. Reg. at 43,665.
Second, SMC’s explanation that information regarding its U.S.
affiliate was immaterial is patently unacceptable. Commerce need
not accept at face value a respondent’s “mere statements” about
the nature, quality, or relevance of the information it submits.
Court No. 99-08-00532 Page 42
Cf. Fabrique de Fer, 25 CIT at __, 155 F. Supp. 2d at 808.
Otherwise, verification would be pointless. Third, insofar as
Commerce was unable to trace all sales due to SMC’s rudimentary
bookkeeping and computational capabilities, it is not required to
use SMC’s incomplete data, for the same reasons that the Court
held that Commerce did not have to accept FMEC’s similarly
imperfect information.33 See supra, Part I.A.2. Finally, SMC
failed to report several sales of subject merchandise. Such
omissions constitute substantial evidence supporting the use of
facts available, at least with respect to the classes of
merchandise that were not fully reported. See id.
The Court finds that these errors and omissions, taken
together, constitute substantial evidence that SMC failed
verification.
C. Verification of Factory A and Factory B
After the verifications at FMEC and SMC, Commerce proceeded
to conduct verifications at Factory A and Factory B, owned by the
plaintiffs’ suppliers. Commerce determined that the Factories’
reported caps34 were unreliable; that Factory A could not tie its
33
The Court notes that SMC is [ ] than
FMEC, with annual sales of [ ]. See Pls.’ Case Brief,
at 32. Nevertheless, the verifiers modified many of their
information requests to accommodate SMC’s limited accounting
resources. See, e.g., SMC Verification Report, at 8.
34
Caps are approximations, based on historical production
norms, of costs and quantities of inputs for factors of
production.
Court No. 99-08-00532 Page 43
purchases of steel to its consumption of steel; and that Factory
B had neglected to report three factor inputs altogether.
Consequently, Commerce determined that both Factories failed
verification. This failure was imputed to the plaintiffs, as the
Factories do not export subject merchandise themselves, but only
supply FMEC and SMC.
1. Treatment of caps
FMEC and SMC argue that Commerce abused its discretion by
refusing to accept the Factories’ use of caps in this review.
They argue that the Factories have, in the ordinary course of
business, always recorded inputs in the form of caps, and that
Commerce has accepted this practice in each prior review. See
Pls.’ Memo, at 32. Commerce does not discuss the Factories’
verifications in its brief before this Court, except to summarily
recite their verification failures in its “Statement of Facts.”
See Commerce’s Memo, at 8-11, 14-15. In the Final Results,
however, Commerce stated that although it did confirm that the
reported caps were “reasonable estimates of the weight of certain
material inputs,” see 64 Fed. Reg. at 43,665, it found them
unreliable because the Factories could not trace the caps to
their accounting records. See id. at 43,665-66.
FMEC and SMC protest that this latter requirement was an
unreasonable departure from Commerce’s practice in prior reviews,
when it was content merely to weigh the inputs in order to verify
Court No. 99-08-00532 Page 44
the reasonableness of the Factories’ use of caps. See Pls.’
Memo, at 34-35. They argue that the Factories’ rudimentary
accounting system does not permit the sort of product-specific
tracing35 that the verifiers sought, and that Commerce should
have taken these limitations into consideration as required by
the SAA. See id.; cf. supra, Part I.A.2. Accordingly, they
claim that Commerce abused its discretion by changing its
methodology.
As a rule, Commerce is free to discard one methodology in
favor of another, the better to calculate more accurate dumping
margins. See, e.g., NSK Ltd. v. United States, 19 CIT 1013,
1027, 896 F. Supp. 1263, 1275 (1995) (noting that Commerce need
not “adhere to its prior . . . methodology, especially where
Commerce is striving for more accuracy”), aff’d in part and rev’d
in part on other grounds, 15 Fed. Cir. (T) __, 115 F.3d 965
(1997). There are, however, two restrictions on its liberty to
do so. First, Commerce may not make minor but disruptive changes
in methodology where a respondent demonstrates its specific
35
From the record, it appears that the Factories use most
inputs, such as labor or paint, to produce a variety of goods,
including both subject- and non-subject merchandise. Their
accounting records do not record actual consumption on a per-
product basis (except that Factory A does record actual
consumption of steel). Thus, they rely on estimates based on
historical production norms. See Pls.’ Memo, at 32-35; Pls.’
Case Brief, at 44-47. Factory A also suggests that because steel
accounts for over [ ] percent of its total costs of production,
its use of caps for the other, relatively minor inputs is
particularly reasonable. See Pls.’ Memo, at 33.
Court No. 99-08-00532 Page 45
reliance on the old methodology used in multiple preceding
reviews. See Shikoku Chemicals Corp. v. United States, 16 CIT
382, 795 F. Supp. 417 (1992) (overturning Commerce’s use of a
slightly improved methodology whose effect was, after four
successive reviews finding zero or de minimis dumping, to deny
revocation of the antidumping duty order, where the exporter
demonstrated that it had set its prices in reliance on the old
methodology). In the instant case, there is no evidence of the
Factories’ deliberate reliance on the old methodology; accounting
limitations rather than any affirmative choice explain the
Factories’ continued preference for the old methodology. See
Sanyo Elec. Co., Ltd. v. United States, 23 CIT __, 86 F. Supp. 2d
1232, 1243 (1999) (upholding Commerce’s “disturbing” change in
methodology in part because respondent could not demonstrate
reliance on prior methodology).
There is a second limitation on Commerce’s ability to change
its methodology, however; as in every instance where an agency
changes tack, it must provide a reasoned explanation for doing
so. See RHP Bearings Ltd. v. United States, 24 CIT __, __, 120
F. Supp. 2d 1116, 1124 (2000) (“Although the application of the
special rule in only two prior reviews does not form a long-
established practice under the circumstances presented here,
Commerce is under an obligation to explain the apparent
inconsistency of its approach in this review and the two
Court No. 99-08-00532 Page 46
preceding reviews.”); Cinsa, S.A. de C.V. v. United States, 21
CIT 341, 349, 966 F. Supp. 1230, 1238 (1997) (“Commerce can reach
different determinations in separate administrative reviews but
it must employ the same methodology or give reasons for changing
its practice.”).
In this case, Commerce did not provide a sufficient
explanation. Instead, in response to the plaintiffs’ objections
to the change in methodology, it engaged in semantic
absurdities36 and then explained in the broadest terms that
“verification objectives, testing, and results vary with the
review segment, company, and facts.” Final Results, 64 Fed. Reg.
at 43,665. About its change in methodology Commerce said no
more, except to cite as evidence of its consistent approach the
final results from a different proceeding that do not, in fact,
appear to demonstrate such consistency at all. See Natural
Bristle Paintbrushes and Brush Heads from the PRC; Final Review
Results of Antidumping Duty Admin. Review, 64 Fed. Reg. 27,506,
27,510 (May 20, 1999) (“[A]t no time during the verification or
in the preliminary results of review, did [Commerce] attribute
the verification failure of [the respondent’s] supplier to the
quality of its financial statements.”). Accordingly, the Court
36
“It is not entirely accurate to say that [we] accepted
‘caps’ in previous reviews. Rather, . . . we confirmed that
. . . the ‘caps’ were reasonable approximations of actual
consumption. As such we used this data to calculate NV.” Final
Results, 64 Fed. Reg. at 43,665.
Court No. 99-08-00532 Page 47
finds that Commerce has failed to provide a reasoned explanation
for its change in methodology.37 The Court remands this issue in
order that Commerce may now do so.
2. Factory B’s unreported factors of production
At verification, Commerce found that Factory B had failed to
report three factors of production--[
]. The plaintiffs argue that under Commerce’s precedent,
Factory B was correct not to report these three items as factors
of production, because they are not physically incorporated into
the final product. See Pls.’ Memo, at 36-38; Pls.’ Case Brief,
at 53-55. Commerce does not respond to this claim in its briefs
before the Court; in the Final Results, Commerce merely stated
that “[t]here was no way to confirm these claims at
verification.” 64 Fed. Reg. at 43,667.
The Court agrees with the plaintiffs that Commerce’s
historical practice has been to treat not as factors of
production, but rather as factory overhead, those items that are
not physically incorporated into the subject merchandise. See,
e.g., Notice of Final Determination of Sales at Less Than Fair
Value: Brake Drums and Brake Rotors from the PRC, 62 Fed. Reg.
9,160, 9,169 (Feb. 28, 1997) (“We agree that [six items] are
indirect materials and should be treated as part of factory
37
The same analysis applies to Commerce’s findings
regarding Factory A’s lack of records tying its purchases of
steel to its consumption of steel.
Court No. 99-08-00532 Page 48
overhead, because the function of these materials is to ‘assist’
in the manufacturing process and do [sic] not enter physically
into the composition of the finished product.”). In fact,
Commerce made a similar finding in an earlier review of the
antidumping duty order at issue in this case. See Heavy Forged
Hand Tools, Finished or Unfinished, With or Without Handles, from
the PRC; Final Results of Antidumping Duty Admin. Reviews, 60
Fed. Reg. 49,251, 49,254 (Sept. 22, 1995) (“We agree with
respondents that pellets and detergent should be considered as
factory overhead, and have changed our analysis accordingly.
These items . . . are not physically incorporated into the
subject merchandise. As such, they should not be valued as
direct material inputs in the production of the subject
merchandise.”). In the instant case, the verifiers’ report
strongly suggests that the three unreported alleged factors of
production, [ ], also were not
physically incorporated into the subject merchandise. See Pls.’
App. 18, [Factory B]: Report on the Verification of Factors
Information Submitted in the Administrative Review Covering
February 1, 1997, through January 31, 1998 (“Factory B
Verification Report”), at 6. The plaintiffs have thus made a
prima facie case that Commerce erred in determining that it these
three items were unreported factors of production.
Again, Commerce has failed sufficiently to explain its
Court No. 99-08-00532 Page 49
apparent change in methodology and departure from precedent. Its
bare assertion that the claims could not be confirmed at
verification is unconvincing; the verifiers observed with their
own eyes the purposes for which the three items were put to use.
See id. If, nevertheless, they continued to entertain any doubts
as to whether the three items were physically incorporated, then
Commerce should have stated so. Instead, Commerce’s tendency to
disguise its lack of thoroughness through vague and nonresponsive
assertions does a disservice both to the respondents and to this
Court.
The Court remands this issue to Commerce with instructions
that, unless Commerce can demonstrate that it has changed its
methodology (and post hoc rationalizations will not suffice for
this purpose) or can adduce substantial evidence showing that
Factory B failed to prove that the three items were not
physically incorporated, it must find that Factory B did not fail
to report any factors of production.
II. Commerce’s Decision to Apply the PRC-Wide Rate is Contrary
to Law
The plaintiffs also protest Commerce’s decision to deny
separate rates to FMEC and SMC, and instead to use the PRC-wide
rate. Under U.S. antidumping law, special rules apply to the
determination of normal value of subject merchandise exported
from nonmarket economy countries. See 19 U.S.C. § 1677b(c)
(1994). For purposes of the antidumping statutes, the PRC is a
Court No. 99-08-00532 Page 50
nonmarket economy pursuant to 19 U.S.C. § 1677(18) (1994).
Commerce permits individual exporters in a nonmarket economy
to receive separate, company-specific rates, by demonstrating
that they operate independently of central government control.
See Manganese Metal From the PRC; Final Results and Partial
Rescission of Antidumping Duty Admin. Review, 63 Fed. Reg.
12,440, 12,441 (March 13, 1998). However, there is a presumption
of state control; the exporter must prove both de jure and de
facto independence. See Final Determination of Sales at Less
Than Fair Value: Sparklers From the PRC, 56 Fed. Reg. 20,588,
20,589 (May 6, 1991). Evidence that Commerce will consider in
support of a claim of de jure independence includes: “(1) An
absence of restrictive stipulations associated with an individual
exporter’s business and export licenses; (2) any legislative
enactments decentralizing control of companies; or (3) any other
formal measures by the government decentralizing control of
companies.” Coalition, 23 CIT at __, 44 F. Supp. 2d at 242
(citing Sparklers From the PRC, 56 Fed. Reg. at 20,589). Factors
that are probative of de facto independence include:
(1) whether each exporter sets its own export prices
independently of the government and other exporters;
(2) whether each exporter can keep the proceeds from
its sales;
(3) whether the Respondent has authority to negotiate
and sign contracts and other agreements; and
(4) whether the Respondent has autonomy from the
government in making decisions regarding the selection
of management.
Court No. 99-08-00532 Page 51
Coalition, 23 CIT at __, 44 F. Supp. 2d at 243; Notice of Final
Determination of Sales at Less Than Fair Value: Silicon Carbide
from the PRC, 59 Fed. Reg. 22,585, 22,587 (May 2, 1994).
Commerce has previously stated that “once a Chinese company
has demonstrated that it is entitled to a separate rate, unless
there is an indication that its status may have changed, it is
not necessary for that company to resubmit data supporting a
separate rate during subsequent reviews.” Certain Iron
Construction Castings from the PRC; Final Results of Antidumping
Admin. Review, 57 Fed. Reg. 24,245, 24,246 (June 8, 1992).
Although FMEC and SMC apparently established that they were
entitled to separate rates in each of the preceding reviews,38
Commerce nevertheless included questions on the separate rates
issue in its initial questionnaires to FMEC and SMC.
38
The plaintiffs made this unsubstantiated allegation in
their submissions to Commerce and to this Court. See Pls.’ App.
3, Antidumping Admin. Review--HFHTs for the PRC--FMEC Response to
Department’s April 23, 1998 Questionnaire--Section A (“FMEC’s
Questionnaire Response”), at 2; Pls.’ Memo. at 40. Commerce
acknowledged in the Preliminary Results that FMEC and SMC had
received separate rates in “several previous segments of these
proceedings,” including the 1996-97 reviews. 64 Fed. Reg. at
5,772. In addition, the public record supports the plaintiffs’
claim. See Heavy Forged Hand Tools From the PRC; Final Results
of Antidumping Duty Admin. Reviews, 62 Fed. Reg. 11,813, 11,818-
19 (March 13, 1997) (noting that FMEC and SMC had received
separate rates for the 1994-95 reviews and assigning separate
rates for the 1995-96 reviews); Heavy Forged Hand Tools, Finished
or Unfinished, With or Without Handles, From the PRC; Amendment
of Final Results of Antidumping Duty Admin. Review, 61 Fed. Reg.
24,285, 24,286 (May 14, 1996) (noting that FMEC and SMC received
separate rates for the 1992-93 reviews).
Court No. 99-08-00532 Page 52
In their questionnaire responses, both FMEC and SMC noted
that nothing had changed with regard to their independent status
since the previous reviews. See FMEC’s Questionnaire Response at
2; Pls.’ App. 13, Antidumping Admin. Review--HFHTs for [sic] the
PRC--SMC Response to Department’s April 23, 1998 Questionnaire--
Section A (“SMC’s Questionnaire Response”), at 2. In answering
each of Commerce’s questions, both FMEC and SMC made a convincing
prima facie case of de jure and de facto independence. With
regard to their legal autonomy, both FMEC and SMC explained that
they are independent from the national, provincial, and local
governments, and possess business licenses that permit the import
and export of a range of equipment, machinery, and other
industrial and manufacturing products, but otherwise contain no
restrictive stipulations. Although each is supervised by a
provincial administrative agency, they are solely responsible for
their business decisions. FMEC’s Questionnaire Response, at 2-4;
SMC’s Questionnaire Response, at 2-4. They also provided copies
of the national law decentralizing trading companies, as well as
their business licenses. FMEC’s Questionnaire Response exhs. 1 &
2; SMC’s Questionnaire Response exhs. 1 & 2. To prove
independence in fact, FMEC and SMC alleged that they set their
own prices, actively competed with other Chinese exporters of the
subject merchandise, kept their own profits, made their own
business decisions, and selected their own managers. FMEC’s
Court No. 99-08-00532 Page 53
Questionnaire Response at 2-8; SMC’s Questionnaire Response at 2-
9. Commerce acknowledged in the Preliminary Results that these
responses were “complete.” 64 Fed. Reg. at 5,772. Had it been
otherwise, Commerce would have been obliged to request further
information. See Sigma Corp. v. United States, 17 CIT 1288,
1303, 841 F. Supp. 1255, 1267 (1993) (“The burden of proof to
show that a company is independent is on the respondent, but if
it has not supplied enough information, the burden shifts to
Commerce to ask for more information.”), aff’d in part and rev’d
in part on other grounds, 15 Fed. Cir. (T) __, 117 F.3d 1401
(1997).
“Once an exporter has submitted information to establish its
independence from the state, it then becomes Commerce’s duty to
verify the information submitted by the respondent.” Id. at
1302, 841 F. Supp. at 1266. However, the verification outlines
that Commerce issued to FMEC and SMC did not indicate that
Commerce intended to verify their answers to the separate rates
questions. See FMEC Verification Outline; SMC Verification
Outline. The verifying officials did not verify any information
specifically related to the separate rates issue, except to
review FMEC’s and SMC’s business licenses. See FMEC Verification
Report; Pls.’ App. 15, SMC: Report on the Verification of Sales
Info. Submitted in the Admin. Review Covering February 1, 1997,
through January 31, 1998 (“SMC Verification Report”). Nor is any
Court No. 99-08-00532 Page 54
item related to separate rates listed among the “issues
discovered at verification” in the verification reports. See
FMEC Verification Report, at 2; SMC Verification Report, at 2.
Nevertheless, Commerce determined that FMEC and SMC had not
established their entitlement to separate rates. In a single
brief paragraph, Commerce explained its reasoning as follows:
[T]he failure to satisfy requests for information that
would confirm various elements of these firms’
questionnaire responses directly compromised the
information that formed the basis of these entities’
separate rates’ [sic] claims. More specifically, we
determined that, due to the nature of the verification
failures of SMC and FMEC and the inadequacy of their
cooperation, it was not possible to confirm information
regarding these entities’ affiliations, ownership
arrangements, and corporate structure. Thus, even
though we did not directly examine all aspects of these
firms’ separate rates’ [sic] claims at verification,
the separate rates’ [sic] claims were called into
question because the data unsuccessfully addressed at
verification were key to our separate rates’ [sic]
analysis.
Final Results, 64 Fed. Reg. at 43,669 (citation omitted).
Commerce’s explanation explains nothing. The essence of a
separate rates analysis is to determine whether the exporter is
an autonomous market participant, or whether instead it is so
closely tied to the communist government as to be shielded from
the vagaries of the free market.39 None of the putative
39
“The antidumping statute recognizes a close correlation
between a nonmarket economy and government control of prices,
output decisions, and the allocation of resources.” Sigma Corp.
v. United States, 15 Fed. Cir. (T) __, __, 117 F.3d 1401, 1405-06
(1997).
Court No. 99-08-00532 Page 55
verification failures identified by Commerce appear to relate to
this issue at all,40 an omission made especially glaring by the
fact that FMEC and SMC had demonstrated their independence in
numerous consecutive preceding reviews. Accordingly, the Court
finds that Commerce has failed to show by substantial evidence
that FMEC and SMC were not entitled to separate rates.
III. Commerce’s Decision to Apply Adverse Facts Available is
Contrary To Law
The final issue in this case concerns Commerce’s decision to
apply adverse facts available. Under the United States
antidumping laws, if a respondent withholds or fails to provide
information requested by Commerce, significantly impedes a
proceeding, or provides information that is not verifiable,
Commerce shall “use the facts otherwise available in reaching the
applicable determination.” 19 U.S.C. § 1677e(a)(2) (1994). If
40
For example, the Final Results refer to Commerce’s
inability “to confirm information regarding these entities’
affiliations.” 64 Fed. Reg. at 43,669. The only unresolved
affiliation issue discussed in the AFA Memo involves FMEC’s and
SMC’s relationships with their respective affiliated United
States entities, which bear on the issue of determining a
constructed export price, not on their affiliation (or lack
thereof) with any Chinese government-dominated entities.
By way of contrast, in Tapered Roller Bearings and Parts
Thereof, Finished and Unfinished, From the PRC; Preliminary
Results of Antidumping Admin. Review and Partial Termination of
Admin. Review, 62 Fed. Reg. 36,764 (July 9, 1997), Commerce
denied separate rates to one exporter that refused to allow on-
site verification, and to another exporter that did not timely
respond to a supplemental questionnaire and whose “initial
questionnaire response was incomplete, particularly with regard
to separate rates issues . . . .” Id. at 36,768 (emphasis
added).
Court No. 99-08-00532 Page 56
Commerce finds that the respondent “has failed to cooperate by
not acting to the best of its ability to comply with a request
for information . . . [Commerce] may use an inference that is
adverse to the interests of that party in selecting from among
the facts otherwise available.” 19 U.S.C. § 1677e(b).
The plaintiffs argue that even if Commerce properly
determined that FMEC, SMC, and the Factories failed verification
(and must therefore use facts available), it may not use AFA
because it has not demonstrated that they failed to cooperate to
the best of their ability. Pls.’ Memo, at 18. In particular,
they claim that the unreported sales were de minimis and that the
failure to report them was inadvertent, the result of inadequate
computer systems. Id. at 20. They also argue that because
Commerce calculated separate rates for each of the four classes
of subject merchandise, FMEC’s and SMC’s failure to report sales
for one or two classes does not allow Commerce to use AFA for the
other classes. Id. at 16-17. Finally, the plaintiffs maintain
that under applicable CIT precedent, Commerce may not apply AFA
unless it makes a specific finding that they failed to act to the
best of their ability, id. at 19-20, and that such failure was
deliberate or willful. Reply Brief of Pls. FMEC and SMC, at 15.
Commerce argues that AFA is appropriate because it
specifically found that the plaintiffs had failed to provide
sufficient sales information for the calculation of an accurate
Court No. 99-08-00532 Page 57
dumping margin. See Commerce’s Memo, at 30. Commerce claims
that the plaintiffs should have known from their experience in
prior reviews that they needed to be more vigilant about
reporting sales, id. at 34, and that under CIT precedent no proof
of willfulness or deliberateness is necessary to impose AFA. Id.
at 37. In Commerce’s view, the plaintiffs’ lack of advanced
computer capabilities does not “entitle[] them to underreport and
affirmatively misstate during a review.” Id. at 35. Commerce
also argues that the plaintiffs’ total failure to report sales of
bars/wedges is particularly egregious because they had asked
Commerce to rescind its review of that class of merchandise. Id.
at 35.
The Court finds that Commerce’s decision to impose AFA is
not supported by substantial evidence and is not otherwise in
accordance with law. As the parties have noted, “Once Commerce
has determined under 19 U.S.C. § 1677e(a) that it may resort to
facts available, it must make additional findings prior to
applying 19 U.S.C. § 1677e(b) and drawing an adverse inference.”
Ferro Union, Inc. v. United States, 23 CIT __, __, 44 F. Supp. 2d
1310, 1329 (1999); accord Mannesmannrohren-Werke AG v. United
States (“Mannesmannrohren-Werke I”), 23 CIT __, __, 77 F. Supp.
2d 1302, 1313-14 (1999); Kawasaki Steel Corp. v. United States,
24 CIT __, __, 110 F. Supp. 2d 1029, 1034 (2000) (“It has been
well established by the court that a ‘mere recitation of the
Court No. 99-08-00532 Page 58
relevant [AFA] standard is not enough for Commerce to satisfy its
obligation under the statute.’”) (citations omitted). “In order
for its finding to be supported by substantial evidence,
‘Commerce needs to articulate why it concluded that a party
failed to act to the best of its ability, and explain why the
absence of this information is of significance to the progress of
its investigation.’” Nippon Steel Corp. v. United States (“Nippon
Steel I”), 24 CIT __, __, 118 F. Supp. 2d 1366, 1378 (2000)
(quoting Mannesmannrohren-Werke I, 23 CIT at __, 77 F. Supp. 2d
at 1313-14 (omitting citation)).
The Court agrees with the plaintiffs that Commerce has not
adduced substantial evidence to support the application of AFA,
in either the AFA Memo, the Preliminary Results, the Final
Results, or its briefs before this Court. The author of the AFA
Memo, one of the verifying officials, listed the major problems
at verification, and then proceeded to assume that such problems
supported the use of AFA, without discussing why, effectively
skipping two steps of a proper AFA analysis. See AFA Memo, at 3
(stating, without first determining that facts available should
apply or that plaintiffs had not acted to the best of their
abilities, that the only issue was the choice between partial AFA
and total AFA).
In the Final Results, as in the Preliminary Results,
Commerce gave two reasons for its decision to apply AFA: (1) the
Court No. 99-08-00532 Page 59
PRC entity had failed to cooperate; and (2) “the accuracy of
SMC’s and FMEC’s individual responses could not be substantiated
at verification. These verification failures were the direct
result of these companies’ failure to supply a wide variety of
information.” Final Results, 64 Fed. Reg. at 43,667-68; see also
Preliminary Results, 64 Fed. Reg. at 5,772 (using nearly
identical language). Commerce gave no further explanation,
except to refute the plaintiffs’ claim that its decision in a
different proceeding precluded the use of AFA under the facts of
this review. Final Results, 64 Fed. Reg. at 43,668. Commerce’s
brief before this Court continues in this vein, arguing that
Commerce specifically found that plaintiffs had provided
insufficient sales information, and that in light of the
plaintiffs’ experience with antidumping investigations, ipso
facto they had not cooperated to the best of their abilities.
See Pls.’ Memo, at 30, 34.
Commerce’s reasoning is inadequate, because it suggests that
AFA inevitably follows from its finding that the plaintiffs
failed verification. Ample precedent from the CIT demonstrates
that AFA is not a mere tautology, however. Instead, Commerce
must show that FMEC and SMC had the ability to comply but did not
do so. See Nippon Steel Corp. I, 24 CIT at __, 118 F. Supp. at
1378-79 (“At a minimum, Commerce must find that a respondent
could comply, or would have had the capability of complying if it
Court No. 99-08-00532 Page 60
knowingly did not place itself in a condition where it could not
comply.”); Borden, Inc. v. United States, 22 CIT 233, 265, 4 F.
Supp. 2d 1221, 1247 (1998) (“Given the history of [respondent’s]
numerous communications, explanations, and submissions to
Commerce, if there is no evidence that [respondent] could have
provided all the information Commerce wanted in a timely manner,
Commerce may not draw an adverse inference.”), aff’d in part sub
nom. F.LLI De Cecco Di Filippo Fara S. Martino S.p.A. v. United
States, 18 Fed. Cir. (T) __, 216 F.3d 1027 (2000), rev’d in part
on other grounds sub nom. Borden, Inc. v. United States, 2001 WL
312232 (Fed. Cir. 2001) (unpublished opinion); Krupp Thyssen
Nirosta GMBH v. United States, slip op. 00-89, at 14-15, 2000 WL
1118114, at *7 (Ct. Int’l Trade July 31, 2000) (remanding for
reconsideration of AFA because Commerce failed to address the
“critical issue . . . whether [respondent] had the resources
available to it prior to verification to discover the errors”)
(emphasis in original). Moreover, even if Commerce does
demonstrate that the respondent had the ability to comply, if the
respondent pleads that “it did not do so because of simple
inadvertence, [Commerce] must show more.” See Nippon Steel Corp.
v. United States (“Nippon Steel II”), 25 CIT __, __, 146 F. Supp.
2d 835, 841 (2001). Possible factors include multiple erroneous
submissions, non-responsive answers to multiple inquiries, and
other evidence of a “pattern of unresponsiveness” or that
Court No. 99-08-00532 Page 61
“strongly indicat[es] a specific intent on the part of the
respondent to evade [Commerce’s] requests for information.” Id.
at 840 (internal quotation marks omitted) (distinguishing
Mannesmannrohren-Werke AG v. United States (“Mannesmannrohren-
Werke II”), 24 CIT __, __, 120 F. Supp. 2d 1075, 1077-80, 1084-87
(2000)).
Although Commerce is correct that it need not find willful
or deliberate noncompliance, see Nippon Steel I, 24 CIT at __,
118 F. Supp. 2d at 1378 (“A finding of willfulness, . . . in the
sense of a deliberate decision not to comply is not always a
prerequisite to the drawing of an adverse inference.”), where it
cannot demonstrate such willfulness, it must tread especially
carefully. See Nippon Steel II, 25 CIT at __, 146 F. Supp. 2d at
841-42 (“[T]hose cases that do not suggest willfulness on the
part of the respondent pose particular challenges for [Commerce]
to draw appropriate lines.”). The more complex the review, the
greater the need for such restraint. See id. at __, 146 F. Supp.
2d at 841 (“[The respondent’s] efforts must also be viewed in the
context of what [Commerce] recognized as a difficult case raising
‘unique and complex issues.’”); Final Results, 64 Fed. Reg. at
43,660 (acknowledging that Commerce had been obliged to extend
the deadline for issuing the Final Results because the review was
“extraordinarily complicated”). “[A] completely errorless
investigation is simply not a reasonable expectation. Even the
Court No. 99-08-00532 Page 62
most diligent respondents will make mistakes, and Commerce must
devise a non-arbitrary way of distinguishing among errors.”
Nippon Steel II, 25 CIT at __, 146 F. Supp. 2d at 841 n.10.
There is abundant record evidence tending to show that most
of the problems associated with verification, from the unreported
sales (and the concomitant request to rescind the review with
respect to bars/wedges) to the Factories’ inability to trace caps
to accounting records, were inadvertent and directly attributable
to the inadequate accounting and computing resources of the
plaintiffs and their suppliers’ factories. Commerce, however,
declined to take this factor into account. See Commerce’s Memo,
at 34 (“[P]laintiffs’ claims that its [sic] ommissions [sic] are
merely inadvertent, unintentional, and insignificant, depreciates
Commerce’s role in gathering accurate sales data.”). This
refusal is not in accordance with law. See Borden, 22 CIT at
264, 4 F. Supp. 2d at 1246 (remanding for reconsideration of AFA
where “Commerce seem[ed] to have leaped to the conclusion that
[respondent] willingly did not comply and to have misapprehended,
or not adequately considered, [respondent’s] repeated statements
that it did not have a cost accounting system”) (emphasis in
original).
Commerce’s claim that the plaintiffs’ experience in
preceding reviews exacerbates their failures in this one likewise
fails. Their experience would be germane only if Commerce could
Court No. 99-08-00532 Page 63
show that prior reviews had served to give them notice of
deficiencies in their cooperation, see Nippon Steel II, 25 CIT at
__, 146 F. Supp. 2d at 839 (“[Commerce] has not shown . . . that
the inadvertence claimed in this case also occurred in another
review, or that the specific element focused on in a previous
review . . . is also at issue in this case.”); NSK Ltd., 19 CIT
at 1026, 896 F. Supp. at 1274 (noting that Commerce had
“explicitly warned” respondent during the first review that its
reporting methodology would not be accepted in subsequent
reviews), or if Commerce could point to their specific actions in
prior reviews that would tend to prove they had the ability to
cooperate in the present review. See Nippon Steel II, 25 CIT at
__, 146 F. Supp. 2d at 841. See also Gourmet Equip., slip op.
00-78, at 16, 2000 WL 977369, at *4 (“Past participation may be
relevant to notice, knowledge, and reliance issues.”). Instead,
the record suggests that the plaintiffs’ sudden failures in this
review owe more to changes in Commerce’s methodology than to any
newfound disinclination to cooperate. Within the constraints
discussed above, Commerce has wide latitude to adapt its
methodology, but when by doing so it imposes new burdens on
respondents, it must take those burdens into account in making
its AFA decision.41
41
Evidence of this factor in the present review is
particularly strong with respect to the Factories, who did not
even receive notice in the verification outlines that Commerce
Court No. 99-08-00532 Page 64
Commerce’s decision to apply AFA is also unsupported by
substantial evidence because it was based in considerable part on
the lack of cooperation of the PRC entity. For the reasons
discussed supra, in Part II, FMEC and SMC are entitled to
separate rates. Therefore, it would be grossly unfair to hold
them responsible for MOFTEC’s non-responsiveness to a separate
rates inquiry.42
Accordingly, the Court remands so that Commerce may
reconsider its decision to apply AFA to SMC, as well as to FMEC
if Commerce determines on remand that FMEC or the Factories
failed verification. In so ordering, the Court does not
predetermine the outcome on remand, as there are numerous
ambiguities in the record.
intended to require tracing of caps to accounting statements.
See FMEC Verification Outline, accompanying letter at 2; SMC
Verification Outline, accompanying letter at 2; Pls.’ Case Brief,
at 51. Cf. NSK Ltd., 19 CIT at 1026, 896 F. Supp. at 1274.
42
In an antidumping investigation, under some
circumstances Commerce may impose AFA on a respondent for the
failure of a non-respondent to cooperate with the investigation,
although its ability to do so is more restricted than under the
precursor to the AFA statute. See, e.g., Helmerich & Payne, Inc.
v. United States, 22 CIT 928, 932 n.6, 24 F. Supp. 2d 304, 309
n.6 (1998); Kawasaki Steel, 24 CIT at __, 110 F. Supp. 2d at
1033-39 (upholding use of AFA where respondent failed to use its
best efforts to persuade its U.S. affiliate, a petitioner in the
review, to supply requested information necessary to determine
CEP). In all such cases, however, there is some sort of privity,
whether contractual, commercial, or ownership, between the
respondent and the uncooperative third party. In the absence of
evidence of such privity between FMEC or SMC and MOFTEC, it is
unreasonable to impute MOFTEC’s silence to the plaintiffs.
Court No. 99-08-00532 Page 65
CONCLUSION
For all of the foregoing reasons, the Court sustains
Commerce’s Final Results in part and remands in part. A separate
order will be entered accordingly.
__________________________
Judge Richard W. Goldberg
Date: September 28, 2001
New York, New York
Fujian MacHinery & Equipment Import & Export Corp. v. United States
Boost your productivity today
Delegate legal research to Cetient AI. Ask AI to search, read, and cite cases and statutes.