Holmes Products Corp. v. US

• Citation: 16 CIT 628,795 F. Supp. 1205
• Decision Date: 24 July 1992
• Docket Number: Court No. 91-12-00906.
• Parties: HOLMES PRODUCTS CORP. and Esteem Industries Ltd., Plaintiffs, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

795 F. Supp. 1205

16 CIT 628

HOLMES PRODUCTS CORP. and Esteem Industries Ltd., Plaintiffs, v. UNITED STATES, Defendant.

Court No. 91-12-00906.

United States Court of International Trade.

July 24, 1992.

Dickstein, Shapiro & Morin, Arthur J. Lafave III, Douglas N. Jacobson, Washington, D.C., for plaintiffs.

Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Civ. Div., U.S. Dept. of Justice, Jeffrey M. Telep, David Richardson, Office of Deputy Chief Counsel for Import Admin., U.S. Dept. of Commerce, Washington, D.C., of counsel, for defendant.

OPINION

RESTANI, Judge:

Plaintiffs, Holmes Products Corporation ("Holmes") and Esteem Industries, Ltd. ("Esteem") challenge the final determination of the International Trade Administration, United States Department of Commerce ("ITA" or "Commerce") in Oscillating Fans and Ceiling Fans From the Peoples's Republic of China, 56 Fed.Reg. 55,271 (Dep't Comm. Oct. 25, 1991) (final determination of sales at less than fair value) ("Final Det."). ITA's determination is reversed and remanded.

FACTS

Esteem is a Hong Kong corporation that produces electric oscillating fans in the People's Republic of China ("PRC"); Holmes is a U.S. corporation that markets and imports fans made by Esteem. On October 31, 1990, an antidumping duty petition was filed with Commerce and the United States International Trade Commission ("ITC"), alleging material injury to the domestic industry due to less than fair value ("LTFV") sales of certain electric oscillating and ceiling fans from the PRC. The petition also alleged that the PRC is a nonmarket economy ("NME"), requiring resort to the NME provisions of the antidumping law. See 19 U.S.C. § 1677b(c) (1988).

On November 27, 1990, Commerce initiated an antidumping duty investigation. On December 17, 1990, ITC issued a preliminary affirmative injury determination, and on June 5, 1991, ITA issued a preliminary determination which found a de minimis dumping margin for Holmes and Esteem. Oscillating Fans and Ceiling Fans From the People's Republic of China, 56 Fed. Reg. 25,664 (Dep't Comm. June 5, 1991) (prelim. determination of sales at less than fair value).

In its questionnaire responses, Esteem had combined its own production information with that of Super Electric Motor Limited, an affiliated Hong Kong corporation that supplied all of Esteem's fan motors. During on-site verification, Holmes and Esteem were cooperative; however, due to an effort to sever relations with the plaintiffs, Super Electric was uncooperative, and ITA was unable to verify direct material costs for motors. Due to Super Electric's failure to cooperate, Holmes and Esteem conceded the need to use best information available ("BIA") to calculate some of Esteem's production costs. ITA chose not to reject Esteem's response and base its margin entirely on BIA because it found that Esteem "substantially complied" with its request for information. Final Det., 56 Fed.Reg. at 55,279. Apparently, ITA concluded that Esteem was not controlling Super Electric's conduct. Holmes and Esteem proposed several alternatives for BIA, all of which were rejected by ITA. In the final determination, ITA used the Thai and PRC price quotations in the petition as BIA for raw material costs for motors, and the reported, unverified scrap figure as BIA for scrap costs. The result was an LTFV margin of 0.79% ad valorem for Holmes and Esteem.

After the disclosure conference, plaintiffs objected to ITA's methodology on the grounds that it resulted in double-counting of motor scrap and direct labor costs. Plaintiffs pointed out that the data submitted by Esteem included costs for raw materials, scrap and direct labor. When ITA substituted the finished motor price quotations in the petition for motor raw material costs, it deducted raw material costs from Esteem's figures, but did not deduct the motor scrap and direct labor costs. As these costs were almost certainly included in the price quotations, plaintiffs argued they were counted twice.

In a decision memorandum, ITA responded that it would not amend the final determination:

At disclosure, we explained to respondent's counsel that we deducted Super Electric's direct material motor costs and added the motor prices contained in the petition because Super Electric failed to cooperate at verification. We made no attempt at the final determination to break-out the hypothetical motor labor and motor scrap costs associated with the prices reported in the petition. Under this methodology, the petition motor prices were used as BIA for Super Electric's direct material motor costs.... It is our opinion that the Department should not be in the position of attempting to adjust petitioner's information using respondent's information when it is not clear that the information is comparable. For instance, we do not know how Super Electric's motor labor costs compare to the motor labor costs associated with producing the motor in the petition.

Administrative Record, at 437 (Memorandum from Richard W. Moreland to Francis J. Sailer).¹ This appeal followed.

DISCUSSION

Plaintiffs raise two arguments: (1) selection of unverified price quotations as BIA for Super Electric's direct material motor costs was error; and (2) ITA's failure to deduct Super Electric's motor labor and scrap costs from Esteem's reported factors of production resulted in double-counting.

1. Selection of Price Quotations as BIA

In a case involving a nonmarket economy, ITA may determine foreign market value ("FMV") based on the value of the factors of production utilized in producing the merchandise, plus an amount for general expenses, profit and packing costs. 19 U.S.C. § 1677b(c)(1) (1988). The factors of production include labor hours, quantities of raw materials, and amounts of energy and other utilities. 19 U.S.C. § 1677b(c)(3) (1988). The factors of production are valued based on the prices or costs of such factors in one or more market economy countries at comparable levels of economic development, and with substantial production of comparable merchandise. 19 U.S.C. § 1677b(c)(4) (1988). Plaintiffs argue that the motor price quotations in the petition, which ITA used as a surrogate for the raw materials factor of production for motors, were inflated and unreliable, and that any of the alternatives proposed by plaintiffs would have been more probative of the raw material costs. Plaintiffs had proposed three alternatives: (i) labor hours verified at Super Electric (multiplied by labor cost per hour in the surrogate country, Pakistan) plus the value of the motor raw material inputs as provided by other respondents during the investigation; (ii) verified transfer prices charged by Super Electric on motors supplied to Esteem; or (iii) verified weighted-average cost of motors actually purchased by Esteem from market economy countries.

ITA has discretion as to the choice of BIA, but this discretion must be exercised reasonably. See Timken Co. v. United States, 11 CIT 786, 789, 673 F.Supp. 495, 501 (1987). ITA rejected use of information from other respondents so as to avoid disclosure of business proprietary information. See 19 C.F.R. § 353.20(e) (1991). It declined to use the transfer price of fan motors supplied by Super Electric to Esteem because Super Electric and Esteem were related companies at the time of sale. It declined to use the weighted-average cost of motors...