Ipsco, Inc. v. US

• Citation: 687 F. Supp. 633,12 CIT 384
• Decision Date: 06 May 1988
• Docket Number: No. 86-06-00753.,86-06-00753.
• Parties: IPSCO, INC. and IPSCO Steel, Inc., Plaintiffs, and The Algoma Steel Corp., Ltd. and Sonco Steel Tube Div. Ferrum, Inc., Plaintiffs-Intervenors, v. The UNITED STATES, Defendant, and Lone Star Steel Company, Defendant-Intervenor.
• Court: U.S. Court of International Trade

687 F. Supp. 633

12 CIT 384

IPSCO, INC. and IPSCO Steel, Inc., Plaintiffs and The Algoma Steel Corp., Ltd. and Sonco Steel Tube Div. Ferrum, Inc., Plaintiffs-Intervenors, v. The UNITED STATES, Defendant and Lone Star Steel Company, Defendant-Intervenor.

No. 86-06-00753.

United States Court of International Trade.

May 6, 1988.

Barnes, Richardson & Colburn, Rufus E. Jarman, Jr., Matthew J. Clark, and Karin M. Burke, New York City, for plaintiffs.

Dow, Lohnes & Albertson, William Silverman, Carrie A. Simon, Douglas J. Heffner, Washington, D.C., for plaintiffs-intervenors Sonco Steel.

John R. Bolton, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Platte B. Moring, III, Civil Div., U.S. Dept. of Justice, Washington, D.C., for defendant.

Dewey, Ballantine, Bushby, Palmer & Wood, Michael H. Stein, Washington, D.C., for defendant-intervenor.

OPINION

RESTANI, Judge:

Plaintiffs, IPSCO, Inc. and IPSCO Steel, Inc. (collectively IPSCO), contest a final determination by the United States Department of Commerce, International Trade Administration (ITA) that oil country tubular goods (OCTG)¹ from Canada are being sold in the United States at less than fair value. Oil Country Tubular Goods from Canada, 51 Fed.Reg. 15,029 (Apr. 22, 1986), as amended Oil Country Tubular Goods (OCTG) from Canada 51 Fed.Reg. 29,579 (Aug. 19, 1986). Before the court is plaintiffs' motion for judgment upon the agency record, pursuant to Rule 56.1 of the rules of this court. Defendant, United States, opposes plaintiffs' motion and seeks affirmance of the administrative determination under challenge.

BACKGROUND

A petition was filed with ITA in July 1985 on behalf of the domestic OCTG industry alleging that imports of OCTG from Canada were being, or were likely to be, sold in the United States at less than fair value, and that these imports were materially injurious, or threatening to injure, an industry in the United States. See 19 U.S. C. § 1673 (1982 & Supp. IV 1986). ITA published notice of its determination to initiate an investigation in August. Oil Country Tubular Goods from Canada, 50 Fed.Reg. 33,387 (Aug. 19, 1985).

ITA sent questionnaires to four Canadian OCTG producers under investigation, including IPSCO. After examining the responses of the Canadian companies, ITA issued its preliminary determination that imports of OCTG from Canada were being sold at less than fair value in the United States, and that IPSCO's imports were being dumped at a margin of 40.88 percent. Oil Country Tubular Goods from Canada, 51 Fed.Reg. 660, 662 (Jan. 7, 1986).

ITA published its final affirmative antidumping duty determination in April, 1986, finding IPSCO to have sold OCTG in the United States at a weighted average dumping margin of 40.85 percent during the period of investigation. 51 Fed.Reg. at 15,036. After the United States International Trade Commission issued its final determination of material injury, ITA published an antidumping order requiring the cash deposit of estimated antidumping duties on all entries of OCTG from Canada at the rates set at ITA's final less than fair value determination. Oil Country Tubular Goods (OCTG) from Canada, 51 Fed.Reg. 21,782 (Jun. 16, 1986).

In response to complaints that certain clerical errors had been made in ITA's final determination, ITA amended both its June 16 antidumping order and the underlying final determination to reduce plaintiffs' weighted average dumping margin from 40.85 percent to 33.78 percent. 51 Fed. Reg. 29,579.

ARGUMENTS

Under the Tariff Act of 1930, as amended, dumping margins are measured by calculating the amount by which foreign market value exceeds the United States price of imported merchandise. 19 U.S.C. § 1673 (1982 & Supp. IV 1986). The methods by which foreign market value and United States price are determined are specifically provided for in the Act. 19 U.S.C. §§ 1677a-1677b (1982 & Supp. IV 1986). In the present action, plaintiffs contend that ITA made several errors in determining and adjusting the foreign market value and United States price of the subject OCTG. Specifically plaintiffs claim that:

(1) ITA's decision to treat limited service OCTG as a fully costed product, rather than as a by-product, in its calculations of cost of production and constructed value is contrary to law, and unsupported by substantial evidence in the administrative record.

(2) ITA improperly failed to amortize all extraordinary costs incurred by IPSCO in the production of OCTG.

(3) ITA improperly failed to exclude merchandise not sold in the ordinary course of trade from its calculation of United States price.

(4) ITA improperly failed to grant IPSCO a circumstance of sale adjustment for its return to stock program.

(5) ITA improperly failed to grant IPSCO a circumstance of sale adjustment for warranty expenses incurred in the home market.

DISCUSSION

I. ITA'S TREATMENT OF LIMITED SERVICE OCTG.

Where merchandise identical or similar to the imported merchandise is sold or offered for sale in the home market of the country of exportation, ITA calculates foreign market value by resort to domestic prices with certain specified adjustments. 19 U.S.C. § 1677b(a) (1982 & Supp. IV 1986). When there are insufficient sales of the subject merchandise in the home market, or insufficient sales above the cost of production, foreign market value may be determined based on a constructed value of that merchandise. 19 U.S.C. § 1677b(a)(2), (b), (e) (1982 & Supp. IV 1986). In the present investigation, ITA determined that for certain OCTG products IPSCO had insufficient home market sales above the cost of production to calculate foreign market value entirely on the basis of sales in the home market. Consequently, ITA utilized constructed value for these products.

In calculating constructed value, ITA is obligated to allocate various costs, expenses and profit to the products subject to investigation. 19 U.S.C. § 1677b(e) (1982 & Supp. IV 1986). The products covered by this investigation included OCTG "manufactured to either American Petroleum Institute (API) or non-API (such as proprietary) specifications." 51 Fed.Reg. at 15,030. At issue in this case is ITA's decision to allocate the same cost of production to OCTG not meeting certain specifications (limited service OCTG) as it did to OCTG meeting API or proprietary specifications (prime quality OCTG) in its calculation of constructed value.²

Plaintiffs contend that ITA should have treated off-spec limited service OCTG as a by-product of prime quality OCTG for purposes of determining cost of production and constructed value. Plaintiffs specifically proposed that

ITA could value reject material at either the uniform accounting cost utilized by IPSCO for purposes of its cost accounting system; or, alternatively, that the material could be valued at its net actual realizable value. Whichever method was selected would yield an amount to be credited against prime costs consistent with GAAP Generally Accepted Accounting Principles and prior ITA practice.

Plaintiffs' Brief at 17-18 (citation omitted). By "averaging in by-products as fully costed prime or first quality merchandise," plaintiffs argue, ITA's method "seriously overstates the cost of production for the reject by-products, and results in by-products invariably being found to be sold below cost...." Id. at 11.

Defendant does not dispute plaintiffs' extensive discussion of the proper methodology for costing a by-product. Rather, defendant argues that "the basic dispute between the foreign producers and the United States ... is not one of methodology. It is one of characterization of the merchandise — whether limited service pipe is a by-product of prime quality pipe or a coproduct." Defendant's Brief at 10.

The court agrees with defendant that the issue raised here is one of product characterization. The relevant inquiry which must be addressed by the court is whether ITA's characterization of off-spec limited service OCTG as a co-product, and not as a by-product, of prime quality OCTG is supported by substantial evidence. Neither the statute nor ITA regulations define how ITA is to distinguish between by-products and co-products when conducting its less than fair value investigations.

Generally Accepted Accounting Principles (GAAP)³ and past ITA practice provide certain broad criteria for distinguishing by-products (including scrap and waste)⁴ from co-products (also referred to as the chief or major products) whose production processes and costs they share. Under GAAP, by-products are considered to be incidental, and of relatively small importance, to the production of the main product; production would not be carried out for their sake alone. E. Kohler, A Dictionary for Accountants 70 (4th ed. 1970) ("by-product"); W. Morse & H. Roth, Cost Accounting 157 (3d ed. 1986).⁵ Specifically, by-products are said to have a relatively low total sales value, as compared with the total sales value of their major co-products. Id.; E. Deakin & M. Maher, Cost Accounting 275 (1984). The relatively low total sales value of by-products may be due to small output, low unit selling prices, or both. Id.

In the past, ITA has relied upon various criteria in determining whether a product should be treated as a by-product, including the importance of a product to the overall economic activity of its producer and the product's value in relationship to the value of the primary product. Red Raspberries from Canada, 50 Fed.Reg. 19,768, 19,769 (May 10, 1985) (juice stock raspberries, representing a significant portion of the revenue and production of a producer's frozen berry business, were not treated as byproducts); Unrefined Montan Wax From the German Democratic Republic, 46 Fed. Reg. 38,555, 38,556 (July 28, 1981) (montan wax, whose sales were an important part of the economic activity at a facility, was found not to be a by-product of the production of energy in the form of mined...