Slip Op. 10-126
UNITED STATES COURT OF INTERNATIONAL TRADE
__________________________________________
:
QINGDAO TAIFA GROUP CO., LTD., :
:
Plaintiff, :
:
v. : Before: Jane A. Restani, Judge
:
UNITED STATES, : Court No. 08-00245
:
Defendant, :
:
and :
:
GLEASON INDUSTRIAL PRODUCTS, INC. :
and PRECISION PRODUCTS, INC., :
:
Defendant-Intervenors. :
__________________________________________:
OPINION
[Department of Commerce’s second remand results in antidumping duty matter remanded for
reconsideration or explanation of application of China country-wide rate.]
Dated: November 12, 2010
Adduci, Mastriani & Schaumberg, LLP (Louis S. Mastriani and William C.
Sjoberg) for the plaintiff.
Tony West, Assistant Attorney General; Jeanne E. Davidson, Director, Patricia M.
McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department
of Justice (Stephen C. Tosini); Thomas M. Beline, Office of the Chief Counsel for Import
Administration, U.S. Department of Commerce, of counsel, for the defendant.
Crowell & Moring LLP (Matthew P. Jaffe and Alexander H. Schaefer) for the
defendant-intervenors.
Restani, Judge: This matter comes before the court following its decision in
Qingdao Taifa Grp. Co. v. United States, 710 F. Supp. 2d 1352 (CIT 2010) (“Taifa II”), in which
Court No. 08-00245 Page 2
the court remanded the Final Results of Redetermination Pursuant to Court Remand (Dep’t
Commerce Jan. 22, 2010) (Docket No. 100) (“First Remand Results”) on Hand Trucks and
Certain Parts Thereof from the People’s Republic of China; Final Results of 2005-2006
Administrative Review, 73 Fed. Reg. 43,684 (Dep’t Commerce July 28, 2008) to the United
States Department of Commerce (“Commerce”).
BACKGROUND
The facts and procedural history of this case are fully explained in the court’s two
prior opinions in this matter. See Taifa II, 710 F. Supp. 2d at 1353 55; Qingdao Taifa Grp. Co.
v. United States, 637 F. Supp. 2d 1231, 1234 36 (CIT 2009) (“Taifa I”).
In Taifa II, the court instructed Commerce “to determine, after proper
investigation and analysis, whether a government entity exercised nonmarket control over”
plaintiff Qingdao Taifa Group Co., Ltd. (“Taifa”) sufficient to link the People’s Republic of
China (“PRC”) entity-wide rate to Taifa. Taifa II, 710 F. Supp. 2d at 1357. The court gave
Commerce three options:
First, if Commerce determines that Taifa is not independent of the PRC
government’s control based on . . . documents indicating town government
ownership, Commerce must explain, based on PRC law, prevailing practices in
the PRC, or other relevant information, why these particular documents are
significant to the issue of government control, how the documents ultimately link
Taifa to central PRC government control and a rate relating thereto, and why the
fact that . . . documents indicating the transfer of the town government’s interest
were not properly registered in the PRC is significant to the issue of government
control. Alternatively, if Commerce finds that the evidence does not indicate that
a government entity controlled Taifa’s prices, export activities, or operations and
no ultimate link between Taifa and the rates applicable to central PRC
government-controlled entities, then Commerce should conclude that Taifa has
established its independence from government control sufficient to reject a
country-wide rate. Finally, if, after thorough investigation and analysis,
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Commerce finds the evidence regarding government control of pricing, export
activities, or operations and regarding Taifa’s relationship to the central PRC
government in equipoise, Commerce may apply a well-supported and explained
presumption based on current conditions that Taifa is government-controlled and
apply the appropriate rate.
Id. at 1358 (footnote call numbers omitted).
Commerce asserts it chose the third option on remand. Final Results of
Redetermination Pursuant to Court Remand 4, 23 (Dep’t Commerce July 27, 2010) (Docket No.
118) (“Second Remand Results”). Commerce found that “Taifa failed verification with respect
to its separate rate status,” id. at 19, because Commerce found documents indicating that the
Yinzhu Town Government owned a majority interest in Taifa, contrary to representations in
Taifa’s separate rate questionnaire responses, and because Taifa failed to register with the proper
authorities documents indicating the transfer of the majority interest to certain individuals, six of
whom were also members of Taifa’s board of directors, which controls and manages the
company, id. at 5 19. Commerce concluded that it could not determine whether those directors
“actually operate under their own legitimate independent direction as Taifa claims, or whether
the absence of proper documentation reflects an undisclosed continuation of governmental
control over Taifa.” Id. at 13. Commerce found that Taifa had not established a legitimate
separation from the town government and applied a “presumption” that a respondent in a
nonmarket economy (“NME”) country such as the PRC is state-controlled. Id. at 13 19.
Following the remand determination, the court met with the parties in an attempt
to learn how Commerce addresses these issues and the basis for its presumption of state control
in this industry or for this company, which contrary to the court’s order did not appear to be
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explained adequately. The parties were forthcoming about their views of these matters, but their
approaches understandably differ. The court must address these underlying methodological
issues in order for it to resolve the basic dispute of whether plaintiff should receive its own rate
or the 383.60% PRC-entity rate.1
JURISDICTION AND STANDARD OF REVIEW
The court has jurisdiction pursuant to 28 U.S.C. § 1581(c). The court will not
uphold Commerce’s final determination in an antidumping review if 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).
DISCUSSION
The essence of Commerce’s reasoning is that Taifa’s assertion that it is controlled
by an independent board of directors is not credible because Taifa impeded Commerce’s review
by withholding information relating to its town government ownership and provided information
that could not be verified in records outside the company. See Second Remand Results at 15 19.
Although in assigning an antidumping duty rate Commerce may draw an adverse inference
against a respondent that withholds information, significantly impedes a proceeding, or provides
1
Commerce believes that the 383.60% rate could be applied as an Adverse Facts
Available (“AFA”) rate even if Taifa is a separate entity, but there would still have to be
substantial evidence supporting application of such a rate to Taifa, whether one calls it
corroboration of secondary data or something else. Compare Gallant Ocean (Thai.) Co., Ltd. v.
United States, 602 F.3d 1319 (Fed. Cir. 2010) (“Gallant”), with KYD, Inc. v. United States, 607
F.3d 760 (Fed. Cir. 2010) (“KYD”). How such a rate is sufficiently linked to Taifa, which had a
rate of less than 30% in the original investigation, and where the actually calculated rates of
competitors has been less than that, in fact, down to zero, has never been adequately explained in
these proceedings.
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information that cannot be verified if Commerce finds that the respondent “failed to cooperate by
not acting to the best of its ability to comply with a request for information,” 19 U.S.C.
§ 1677e(b); see id. § 1677e(a)(2), such an adverse rate should “be a reasonably accurate estimate
of the respondent’s actual rate, albeit with some built-in increase intended as a deterrent to non-
compliance,” not a punitive or unreasonably high rate “with no relationship to the respondent’s
actual dumping margin,” F.Lli de Cecco di Filippo Fara S. Martino S.p.A. v. United States, 216
F.3d 1027, 1032 (Fed. Cir. 2000) (“De Cecco”). Accordingly, Commerce may not apply the
PRC-wide rate if substantial evidence does not support the finding that a government entity
exercised nonmarket control over the respondent, and if there is no ultimate link between the
respondent and the central PRC government.2 See Taifa II, 710 F. Supp. 2d at 1356 57; Taifa I,
637 F. Supp. 2d at 1240 44; see also Gerber Food (Yunnan) Co. v. United States, 387 F. Supp.
2d 1270, 1287 88 (CIT 2005); Shandong Huarong Gen. Grp. Corp. v. United States, 27 CIT
1568, 1594 95 (2003).
In order to understand how this case arrived in its current posture and how it may
be resolved, it is necessary to explain the development of the case, one hopes, in plain terms.
First, what are no longer open issues before the court are 1) that plaintiffs may challenge, without
the bar of failure to exhaust claims, its designation as part of China’s state-owned enterprise
structure, 2) that plaintiff may not challenge the calculation of the dumping rate applied to that
2
As the court stated in Taifa I, “Commerce could not apply the PRC-wide rate to Taifa
based on Taifa’s failures to report [production] data for wheels or attempts to avoid producing
requested documents regarding sales and production at verification alone.” 637 F. Supp. 2d at
1241. These are separate matters, although this may influence the weight Commerce gives to
Taifa’s internal documents.
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structure, the PRC-wide entity rate, having waived that issue, and 3) that if plaintiff is to receive
a rate separate from the PRC-wide entity rate, it will still be a rate based on facts available and an
adverse inference (“AFA rate”), because of acts committed during Commerce’s verification visit
to its factory.
What remains at issue are the following: 1) Is plaintiff entitled to a separate
AFA rate. 2) If so, is the separate AFA rate calculated by Commerce in its first remand
determination supported by substantial evidence. The alternative PRC-wide entity rate plaintiff
seeks to avoid is 383.60%. There is little likelihood that in any real world this could be an
approximation of an actual rate. It is nearly four times the price of the subject merchandise, i.e.,
hand trucks and certain parts thereof.
As the court understands it, such rates derive from Commerce’s decision that the
PRC government, as the presumed owner of enterprises in a particular industry, which as a
sovereign does not respond to questionnaires and does not cooperate in the investigation,
receives a very high AFA rate based on information normally provided by the domestic industry
in its petition. Furthermore, any entity which does not establish its status as separate from the
PRC government receives this rate.3
In the preliminary determination, Commerce found that Taifa was sufficiently
separate from PRC government-ownership and control, that it would receive its own rate. See
Taifa I, 637 F. Supp. 2d at 1235. Events intervened, notably the failed verification of Taifa’s
3
Why one presumes that the PRC government owns some companies in this particular
industry has not been explored in the case, and the court accepts that for this case that limited
presumption is true. See, infra p. 9 discussion.
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sales and production data, and, as described earlier, information also gathered at verification that
cast doubt on Taifa’s claim that a majority of its shares were registered in the name of
independent private individuals or entities. See id.
All sides to this dispute emphasize that actual control of business decision-making
is the key. Nonetheless, the briefing focused on the share registration issue and the somewhat
conflicting views of Commerce, also reflected in the less than clear case law, as to the
importance of de jure ownership.4 As, normally, who owns a company might tell one something
about who controls its business decisions, one cannot fault the parties for at least considering the
issue of de jure ownership. There is record evidence, however, that this company makes its own
decisions, and there is no evidence of outside control of the relevant decisions. To be sure, Taifa
has been shown to be less than honest, and Commerce is entitled to treat internal documents
about who is running Taifa with skepticism. Skepticism, however, does not mean total disregard.
In any case, the court, in its review of Commerce’s initial final determination,
failed to see the connection between a PRC-wide entity rate and the way Taifa did business, so it
directed Commerce to describe the evidence which would get the court from A to B to C on the
issue or else give Taifa its own rate, adverse though it would be. Commerce, in its first remand
results returned a determination to the court objecting to rejection of its “presumption” of state-
4
Although some cases state that the showing of both de jure and de facto independence is
required, Sigma Corp. v. United States, 117 F.3d 1401, 1405 (Fed. Cir. 1997), the standard is
actually more flexible than this stark formulation may indicate, see Taifa I, 637 F. Supp. 2d at
1243 (stating that “Commerce previously has applied separate rates, rather than PRC-wide rates,
in instances where a government entity has an ownership interest in the respondent but does not
exercise de facto control over the respondent’s prices or export activities” (citing various agency
determinations)).
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ownership and the 383.60% rate. In that determination, Commerce stated that it has no choice
under the court’s decision but to assign Taifa a separate (and different) rate. It decided upon a
rate of 227.73%. This rate is from data in the latest review in which Taifa was a mandatory
respondent (and where its data was not rejected). It is from a less than fair value margin
calculation for a group of sales representing 12% of Taifa’s U.S. sales. First Remand Results at
3, 21. The court did not reach the issue of the validity of this rate but remanded the matter again
because it viewed its decision, not as directing a result, but as requiring Commerce to explain a
methodology that would link Taifa to the PRC-wide rate or make clear why it was not linked.
See Taifa II, 710 F. Supp. 2d at 1357 58.
In its second remand results, Commerce abandoned the 227.73% rate and returned to the
383.60% PRC-wide rate. It explained the methodology essentially as follows:
1) There is a “presumption” that Taifa is state-owned.
2) Taifa may rebut the presumption.
3) Taifa lied. Thus, it is not in a position to rebut the presumption.
4) If Commerce, pursuant to the court’s orders, must consider Taifa’s information, despite
3 above, Commerce finds there is evidence of equal weight (basically as to ownership)
that contradicts evidence favorable to Taifa so that the presumption is not rebutted.
See Second Remand Results at 19. The second remand results, however, did more. Commerce
finally came to grips with the fact that its “presumption” of state-control was a factual one,
subject to change over time and based on Chinese laws and policies in effect in 1993, but
apparently no longer in effect. See Second Remand Results at 28 31. Thus, Commerce looked
at an updated assessment of state-control of Chinese businesses. Id. It did not supply the
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document or even a web citation to it, but the parties seem to know what it is. See id.;
Antidumping Duty Investigation of Certain Lined Paper Products from the People’s Republic of
China (“China”) - China’s status as a non-market economy (“NME”), A-570-901 (Aug. 30,
2006) (“Certain Lined Paper”), available at http://ia.ita.doc.gov/download/prc-nme-status/prc-
lined-paper-memo-08302006.pdf (last visited Oct. 29, 2010). Therefore the court will address it,
even though technically it is not in the record. Whatever data underlie this document, however,
are clearly not in the record and Commerce did not cite to any particular part of the document as
explaining why companies such as Taifa must be presumed to be state-owned or controlled by
the state in such a way that a separate rate is not warranted. See Second Remand Results at
28 31.
The court, however, has examined the document, particularly the portion relating
to the manufacturing sector, beginning at page 36. It describes a movement over time from state-
control to private ownership and control, particularly as to smaller businesses, or non-core
industries. Certain Lined Paper at 36 40. It is unclear to the court what kind of private
ownership exists in China, but it does appear from Commerce’s document that private ownership
exists in this section of the economy, so that businesses keep their profits and even foreign
investment is permitted. Commerce seems to recognize this by allowing companies to
demonstrate separate status. There is no indication that Taifa has foreign investors, but the court
could not find the support Commerce alleges is in this document for a presumption that Taifa is
state-owned or controlled to a degree that warrants application of the country-wide rate. That
Commerce may make a judicially unreviewable decision that China is overall still a non-market
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economy,5 does not seem to answer the question of whether Commerce has supported a
presumption that a manufacturing company such as Taifa is likely to be state-owned. Thus, to
date there is no link to a rate other than Taifa’s own rate.
If this were a case between the government and Taifa alone, the court would say
“enough.” After two remands and a failure to provide the information sought by the court to
support Commerce’s determination, the court might leave the government to litigate this when,
presumably in another case, it is ready to support its view. In which case, the court would order
that Taifa receive a separate rate, especially in view of Commerce’s choice not to take the
opportunity to reopen the record. There is no requirement in the statute that a PRC-wide rate be
imposed when other adverse rates are available or may be constructed. This case, however,
involves other parties, the domestic competitors. They remain entitled to a well-explained
decision, as much as Taifa does.
So, we continue. While not a model of clarity, the second remand determination
finding that the evidence of town ownership is at least in equipoise is supported. See Second
Remand Results at 8 15. Share documents, which would indicate that a majority of stock is
privately held, are not properly registered. Id. Certain stamps on “chops” are missing from other
documents which might establish separation from town ownership. Id. at 9. Documents in
Chinese government records did not match Taifa claims. Id. at 10. Thus, a finding of de jure
town-ownership may stand.
Despite this, Commerce could find that an independent board of directors made
5
See 19 U.S.C. § 1677 (18)(D).
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Taifa’s business decisions without contamination by government resource allocation or other
non-market controls. However, some explanation of how and by whom the decision-making of
town-owned manufacturing businesses generally is controlled in China is missing from the
second remand results.
Thus, this matter must be remanded to Commerce. If Commerce cannot explain
why substantial record evidence supports a finding of central government control that justifies
imposition of the PRC-wide entity rate, Taifa must get the rate its own lack of verifiable
production evidence warrants, without resort to an unconnected country-wide rate. Commerce is
permitted to reopen the record on the issue of the link to the country-wide rate. The mere
conclusions in the August 30, 2006, Memorandum, however, do not support a link to a PRC-
wide rate, as explained.
Finally to avoid yet another remand, the court will review the selection of
227.73%, the separate rate from the first remand results, and the only separate rate Commerce
has selected, to the extent it is able to do so on this record. Based on the results of the
investigation and reviews cited by the parties, the court doubts that this AFA rate reflects reality.
The issue is, is the AFA rate so far from what has been demonstrated by actual rates, that it must
be rejected as in Gallant, or is it an adequately supported rate as in KYD. First of all, this is not
an actual rate. It is not derived from an overall rate calculated for anyone by anyone. Unlike a
petition rate, which although it is not from respondent’s own data, is an overall rate, this rate is
for a portion of Taifa’s sales. Commerce sometimes uses a portion of sales to corroborate an
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overall rate based on facts available.6 7
It does not appear to have done that here.
The court does find support for Commerce’s rejection of Taifa’s 26.49% rate from
the original investigation. See First Remand Results at 2 3. After receiving such a rate, Taifa
failed to cooperate fully in a subsequent review. Commerce does not err by rejecting this rate.
Thus, Commerce should calculate a supported rate, particularly one somehow grounded in the
realities of this industry. Commerce is not necessarily confined to the rates of the investigation
(up to 47%), but the rate must somehow be grounded in reality to avoid imposition of a punitive
rate. See De Cecco, 216 F.3d at 1032.
The court does not presume to know how Chinese businesses in general, or Taifa
in particular, operate. And the court appreciates that Commerce is sometimes stymied in trying
to find answers to these questions. The court, however, can only review the record before it. The
court does appreciate the assistance of the parties in explaining the applicable methodologies, but
6
Under 19 U.S.C. § 1677e(c), Commerce must “to the extent practicable” corroborate
secondary information, i.e., information not “obtained in the course of an investigation or
review.” 19 U.S.C. § 1677e(c).
7
The court has a problem with Commerce’s apparent view of corroboration. This
requirement was added to the antidumping law pursuant to international commitments to keep
AFA rates grounded in reality and also to respond to criticisms of prior “Best Information
Available” methodology. H.R. Rep. No. 103-826, at 105 (1994); Uruguay Round Table
Agreements Act, Statement of Administrative Action, H.R. Doc. No. 103-316 at 869 (1994).
Narrowing the concept of secondary information, as the court in KYD, as least in dicta, seemed
to do, and simultaneously broadening the concept of corroboration (down to .50% of sales, see
PAM S.p.A. v. United States, 582 F.3d 1336, 1340 (Fed. Cir. 2009)), would not seem to aid the
control of punitive margins the statute intended. One must remember that under the particular
facts of Ta Chen Stainless Steel Pipe, Inc. v. United States, 298 F.3d 1330 (Fed. Cir. 2002) and
PAM, the rates that were corroborated by a very small portion of actual sales were 30.95% and
45.49% respectively. Ta Chen, 298 F.3d at 1339; PAM, 582 F.3d at 1340. When rates are in
multiples of 100%, one might assume that a bit more corroboration or record support is
warranted.
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in the final analysis, there must be substantial evidence supporting a decision. A presumption
based on nothing is not evidence; thin air is not evidence supporting a dumping margin,
particularly one of almost 400%.
REMANDED.
/s/ Jane A. Restani _
Jane A. Restani
Judge
Dated: This 12th day of November, 2010.
New York, New York.