Shanghai Foreign Trade Enterprises Co. v. U.S., Slip Op. 04-33.

• Decision Date: 09 April 2004
• Docket Number: Slip Op. 04-33.,Court No. 03-00218.
• Parties: SHANGHAI FOREIGN TRADE ENTERPRISES CO., LTD., and Shanghai Pudong Malleable Iron Plant, Plaintiffs, v. UNITED STATES, Defendant, and Anvil International, Inc. and Ward Manufacturing, Inc. Defendant-Intervenors.
• Court: U.S. Court of International Trade

Page 1339

318 F.Supp.2d 1339

SHANGHAI FOREIGN TRADE ENTERPRISES CO., LTD., and Shanghai Pudong Malleable Iron Plant, Plaintiffs, v. UNITED STATES, Defendant, and Anvil International, Inc. and Ward Manufacturing, Inc. Defendant-Intervenors.

Slip Op. 04-33.

Court No. 03-00218.

United States Court of International Trade.

April 9, 2004.

Lafave & Sailer LLP, (Francis J. Sailer and Arthur J. Lafave III), Washington, DC, for Plaintiffs.

Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, Commercial Litigation Branch, Civil Division, Jeanne E. Davidson, Deputy Director, Stefan Shaibani, Trial Attorney, United States Department of Justice; Michael D. Stroud, Office of Chief Counsel, U.S. Department of Commerce, for Defendant, of counsel.

Schagrin Associates, (Roger B. Schagrin), Washington, DC, for Defendant-Intervenors.

OPINION AND ORDER

STANCEU, Judge.

I. INTRODUCTION AND SUMMARY

Plaintiffs, Shanghai Foreign Trade Enterprises Co., Ltd. and Shanghai Pudong Malleable Iron Plant, challenge certain aspects of a final antidumping duty determination, and the resulting antidumping duty order, that the United States Department of Commerce ("Commerce") issued in 2003 on imported non-malleable cast iron pipe fittings from the People's Republic of China. Shanghai Foreign Trade Enterprises is a Chinese exporter of this merchandise, and Shanghai Pudong is a Chinese producer. Anvil International, Inc. and Ward Manufacturing, Inc., domestic producers of non-malleable cast iron pipe fittings, participated as petitioners in the antidumping investigation before Commerce and have intervened in this action in support of the position of the defendant United States. The matter is before the court on plaintiffs' motion for judgment upon an agency record, brought under Rule 56.2 of the Rules of this Court.

In their motion, plaintiffs challenge the method by which Commerce calculated the antidumping duty rate that was applied to their exports in the administrative proceedings at issue in this case. See Notice of Antidumping Duty Order: Non-Malleable Cast Iron Pipe Fittings from the People's Republic of China, 68 Fed.Reg. 16,765 (April 7, 2003); Notice of Final Determination of Sales at Less Than Fair Value: Non-Malleable Cast Iron Pipe Fittings From the People's Republic of China ("Final Determination"), 68 Fed.Reg. 7,765 (Feb. 18, 2003). As is its practice, Commerce calculated the antidumping duty rate using "surrogate" data from a market economy country (in this case, India) in place of data pertaining to the actual production and sale of the merchandise exported from the People's Republic of China ("China," or the "PRC"), which Commerce considers to be a nonmarket economy country.

Plaintiffs do not contest the selection of India as the surrogate country but instead challenge Commerce's selection of particular surrogate data from India. Plaintiffs allege, first, that Commerce improperly relied on non-industry-specific data obtained from the Reserve Bank of India to calculate the surrogate values for selling, general and administrative expenses, factory overhead, and profit. Second, plaintiffs contend that Commerce used inappropriate surrogate data to value the cost of the foundry pig iron used as a material in manufacturing the exported non-malleable cast iron pipe fittings.

This court has jurisdiction pursuant to 28 U.S.C. § 1581(c) and 19 U.S.C. § 1516a(a)(2)(A)(i). This court grants plaintiffs' motion and remands this matter to Commerce because the findings in Commerce's decision are not supported by substantial evidence on the record, because that decision did not provide adequate explanations for the choices of surrogate values, and because the decision did not explain adequately the departures from Commerce's established administrative practices.

II. BACKGROUND

A. Determining Normal Value of Goods Produced in a Nonmarket Economy Country

Under the antidumping laws, antidumping duty represents the amount by which the "normal value" of the imported merchandise that was the subject of the Commerce Department's investigation (identified as the "subject merchandise") exceeds the "export price" for that merchandise. 19 U.S.C. § 1673. "Normal value" usually is determined by the price for which the "foreign like product" corresponding to the subject merchandise (generally, identical or like merchandise made by the same foreign producer in the same foreign country, as determined according to 19 U.S.C. § 1677(16)) is first sold, or offered for sale, for consumption in the exporting country. 19 U.S.C. § 1677b(a)(1). "Export price" usually refers to the price at which the subject merchandise is first sold, before the date of importation into the United States, by the producer or exporter outside of the United States, to an unaffiliated purchaser. 19 U.S.C. § 1677a(a).

Because it deems China to be a nonmarket economy country, Commerce generally considers information on sales in China and financial information obtained from Chinese producers to be unreliable for determining, under 19 U.S.C. § 1677b(a), the normal value of the subject merchandise. Accordingly, Commerce invokes a different statutory procedure for determining normal value if the subject merchandise is exported from a nonmarket economy country.

Under the substitute procedure, Commerce calculates the normal value by determining and aggregating "surrogate values" for various "factors of production" used in producing the subject merchandise, to which it also adds an amount for general expenses and profit as well as amounts for the cost of containers, coverings, and other expenses. 19 U.S.C. § 1677b(c)(1). The factors of production include, but are not limited to, labor hours, raw materials, energy and other utilities, and representative capital cost, including depreciation. 19 U.S.C. § 1677b(c)(3). The statute requires Commerce to base its valuation of the factors of production on the "best available information regarding the values of such factors in a market economy country or countries considered appropriate by the administering authority [i.e., Commerce]." 19 U.S.C. § 1677b(c)(1).

To implement the statutory directive to add amounts for "general expenses and profit," Commerce usually calculates separate values for selling, general and administrative ("SG & A") expenses, manufacturing overhead and profit, using ratios derived from financial statements of one or more companies that produce identical or comparable merchandise in the surrogate country. To calculate the SG & A ratio, the Commerce practice is to divide a surrogate company's SG & A costs by its total cost of manufacturing. See, e.g., Manganese Metal From the People's Republic of China; Final Results of Second Antidumping Administrative Review, 64 Fed.Reg. 49,447, 49,448 (Sept. 13, 1999). For the manufacturing overhead ratio, Commerce typically divides total manufacturing overhead expenses by total direct manufacturing expenses. Id. Finally, to determine a surrogate ratio for profit, Commerce divides before-tax profit by the sum of direct expenses, manufacturing overhead and SG & A expenses. Id. These ratios are converted to percentages ("rates") and multiplied by the surrogate values assigned by Commerce for the direct expenses, manufacturing overhead and SG & A expenses. Id.

In this investigation, Commerce determined that financial information from producers of identical or comparable merchandise was unavailable or unsuitable for use as surrogate data. Based on that determination, Commerce chose to calculate the ratios based on aggregated financial information compiled by the Reserve Bank of India from a survey of 1,914 Indian manufacturing companies. Using the Reserve Bank of India data, Commerce established a rate for SG & A expenses of 25.93 percent, a factory overhead rate of 20.42 percent and a profit rate of 5.51 percent.

B. Administrative Proceedings Culminating in This Litigation

Domestic producers of non-malleable cast iron pipe fittings petitioned Commerce (and concurrently, the U.S. International Trade Commission) on February 21, 2002, seeking the imposition of antidumping duties on non-malleable cast iron pipe fittings from the PRC. On September 25, 2002, Commerce published an affirmative preliminary dumping determination for the period of investigation from July 1, 2001 to December 31, 2001. Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Non-Malleable Cast Iron Pipe Fittings From the People's Republic of China ("Preliminary Determination"), 67 Fed.Reg. 60,214 (Sept. 25, 2002). Plaintiffs and another Chinese producer, Jinan Meide Casting Co. (also a respondent in the proceedings before Commerce), filed responses alleging clerical errors in the Commerce preliminary determination. In its Final Determination, Commerce acknowledged errors in the Preliminary Determination, which it corrected in the final determination but viewed as insufficient to require an amended preliminary determination. See Final Determination, 68 Fed.Reg. at 7,766. The Final Determination assigned an antidumping rate (weighted average margin) of 6.34 percent to exports of the subject merchandise by plaintiff Shanghai Foreign Trade Enterprises, 7.08 percent to subject merchandise produced by Jinan Meide Casting Co., and 75.50 percent to all other subject merchandise from China. Id. at 7,768. After the U.S. International Trade Commission notified Commerce, on March 24, 2003, of its final determination that the industry in the United States producing non-malleable cast iron pipe fittings was threatened with injury by reason of imports of the subject merchandise, Commerce issued its antidumping duty order.

III. CONTENTIONS OF THE PARTIES

Plaintiffs challenge two classes of surrogate values chosen by Commerce in calculating the antidumping duty rates, and specifically the 6.34 percent antidumping duty rate that Commerce assigned to merchandise...