Fujian MacHinery & Equipment Import & Export Corp. v. United States

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