CP Kelco US, Inc. v. United States

• Decision Date: 10 February 2020
• Docket Number: 2019-1207
• Citation: 949 F.3d 1348
• Parties: CP KELCO US, INC., Plaintiff-Appellant v. UNITED STATES, Neimenggu Fufeng Biotechnologies Co., Ltd., Shandong Fufeng Fermentation Co., Ltd., Defendants-Appellees
• Court: U.S. Court of Appeals — Federal Circuit

949 F.3d 1348

CP KELCO US, INC., Plaintiff-Appellant

v.UNITED STATES, Neimenggu Fufeng Biotechnologies Co., Ltd., Shandong Fufeng Fermentation Co., Ltd., Defendants-Appellees

2019-1207

United States Court of Appeals, Federal Circuit.

Decided: February 10, 2020

Nancy Noonan, Arent Fox, LLP, Washington, DC, argued for plaintiff-appellant. Also represented by Matthew L. Kanna, Friederike Goergens.

Kelly A. Krystyniak, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee United States. Also represented by Joseph H. Hunt, Jeanne Davidson, Patricia M. McCarthy ; Brandon Jerrold Custard, Office of the Chief Counsel for Trade Enforcement and Compliance, United States Department of Commerce, Washington, DC.

Jordan Charles Kahn, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, Washington, DC, argued for defendants-appellees Neimenggu Fufeng Biotechnologies Co., Ltd., Shandong Fufeng Fermentation Co., Ltd. Also represented by Dharmendra Narain Choudhary, Brandon M. Petelin, Andrew Thomas Schutz ; Bruce M. Mitchell, Ned H. Marshak, New York, NY.

Before Newman, Moore, and Chen, Circuit Judges.

Moore, Circuit Judge.

CP Kelco U.S., Inc. appeals the decision of the United States Court of International Trade (Trade Court) upholding the Department of Commerce’s treatment of Xanthomonas Campestris (X. Campestris ) as an asset rather than a direct material input, and Commerce’s decision to use the Thai Fermentation Industry Ltd. (Thai Fermentation) financial statements to calculate surrogate financial ratios. For the reasons described below, we affirm the Trade Court’s decision to uphold Commerce’s treatment of X. Campestris as an asset. We reverse its decision regarding Commerce’s use of the Thai Fermentation financial statements to calculate surrogate financial ratios and reinstate Commerce’s determination to use the Ajinomoto (Thailand) Co., Ltd. (Thai Ajinomoto) financial statements.

BACKGROUND

This appeal comes to us following a long and complicated procedural history, both at Commerce and the Trade Court. On June 5, 2012, CP Kelco filed a petition concerning imports of xanthan gum from the People’s Republic of China (PRC). On July 2, 2012, Commerce initiated an antidumping duty investigation of xanthan gum from the PRC for the period of investigation of October 1, 2011 through March 31, 2012. Appellees Neimenggu Fufeng Biotechnologies Co., Ltd. and Shandong Fufeng Fermentation Co., Ltd. (collectively, Fufeng) export xanthan gum from the PRC.¹

A. Commerce’s Determination

On January 3, 2013, Commerce preliminarily determined "that xanthan gum from the People’s Republic of China (PRC) is being, or is likely to be, sold in the United States at less than fair value (LTFV)." Commerce considers the PRC to be a non-market economy (NME) country. For a NME country, Commerce must "determine the normal value of the subject merchandise on the basis of the value of the factors of production utilized in producing the merchandise .... based on the best available information regarding the values of such factors in a market economy country ...." 19 U.S.C. § 1677b(c)(1). The normal value is calculated as "the price at which the foreign like product is first sold ... in the exporting country." Id. § 1677b(a)(1)(B)(i). Commerce values factors of production by utilizing "prices or costs of factors of production" from a market economy country that is "at a level of economic development comparable to that of the nonmarket economy country" and is a "significant producer[ ] of comparable merchandise." Id. § 1677b(c)(4). Commerce chose Thailand as the primary surrogate country for the investigation because it "is economically comparable to the PRC and is a significant producer of comparable merchandise."² Commerce used the audited financial statements of Thai Ajinomoto to value factory overhead, selling, general, and administrative expenses, and profit. Commerce preliminarily assessed an antidumping margin of 21.69 percent for Fufeng.

In the Final Determination, Commerce concluded Fufeng was selling xanthan gum in the United States at less than fair value and assessed Fufeng a 12.90 percent dumping margin. Xanthan Gum from the People’s Republic of China , 78 Fed. Reg. 33,351 (Dep’t of Commerce June 4, 2013) (final determ.), as amended, 78 Fed. Reg. 43,143 (July 19, 2013) (amend. final determ.). As part of its determination, Commerce considered whether X. Campestris is (1) a direct material that should be valued as a factor of production or (2) was accounted for in the surrogate financial ratios and therefore did not need to be valued separately as a direct material input. Commerce did not value X. Campestris as a factor of production, or a direct material input, because Fufeng’s costs associated with the maintenance and use of X. Campestris bacteria are similar to those of Thai Ajinomoto’s costs associated with maintaining the bacteria used to produce comparable merchandise (i.e. MSG and l-lysine). Commerce found that evidence on the record of the present investigation shows that (1) Fufeng and Deosen "acquired [their] [X . C ]ampestris strain for payment-in-full long before the [period of investigation]," (2) "the acquisitions included the right to further grow and exploit the resulting bacteria for the production of xanthan gum," and (3) Fufeng and Deosen continually regenerate the bacteria for use in their xanthan gum production. Due to their "ownership and regenerative use of the bacteria," Commerce determined that it is more similar to an asset than a direct material input. J.A. 8174.

In calculating the surrogate financial ratios, Commerce used the Thai Ajinomoto financial statements. The financial statements of Thai Fermentation were also on the record, however, Commerce determined them to be incomplete and that it would not have been able to fully evaluate the financial information contained therein. The parties disagreed as to which financial statements were appropriate for use. CP Kelco supported the use of Thai Ajinomoto’s financial statements, arguing that all other available statements are incomplete, not fully translated, or from companies that do not produce comparable merchandise. Fufeng argued that Thai Ajinomoto’s financial statements are distorted by countervailable subsidies and supported the use of Thai Fermentation’s financial statements. Commerce determined that the Thai Fermentation financial statements are incomplete because they lack complete English translations, precluding Commerce from fully evaluating the financial information contained therein, and noted its practice to exclude such statements. J.A. 8154. Specifically, two complete paragraphs at the bottom of Accounting note twelve, concerning depreciation of assets, are untranslated. Id. at n.70; compare J.A. 6280–81 with J.A. 6305–06. Although Commerce agreed with Fufeng that the Thai Ajinomoto statements show evidence of the receipt of countervailable subsidies, it noted that its general practice to exclude such statements presupposes the existence of other sufficiently reliable data. Having no such data, it found Thai Ajinomoto’s statements to "represent the only complete and fully translated financial statements on the record" and therefore "the best available information within the meaning of the statute." J.A. 8152, 8154–55.

B. First Trade Court Remand Order and Resulting First Redetermination

CP Kelco appealed Commerce’s final determination to the Trade Court, as relevant here, with respect to Commerce’s decision to treat X. Campestris as an asset, rather than as a direct material input, and Fufeng appealed Commerce’s selection of the Thai Ajinomoto financial statements over the Thai Fermentation statements for calculating surrogate financial ratios. CP Kelco U.S., Inc. v. United States , 2015 WL 1544714, at *1 (Ct. Int’l Trade Mar. 31, 2015) ( CP Kelco I ). The Trade Court upheld Commerce’s decision to treat X. Campestris as an asset rather than as a direct material input determining it was supported by substantial evidence and was otherwise in accordance with law. Id. at *4. The Trade Court determined it was "reasonable for Commerce to use the time that Fufeng paid for the X. Campestris as evidence that the bacteria was an asset: Fufeng’s one-time purchase and the bacteria’s self-regenerating properties made it look like an asset." Id. It further determined that it was proper for Commerce to conclude that the bacteria was an asset based on grounds that the "bacteria self-regenerated, such that Fufeng only needed to pay for the bacteria once," rendering it "unlike direct material inputs used up in the production process." Id.

The Trade Court remanded Commerce’s decision to use the Thai Ajinomoto financial statements to calculate surrogate financial ratios for further explanation, stating that "Commerce never addressed why the weakness of the Thai Fermentation statements—incompleteness—was worse than the weakness of the Thai Ajinomoto statements: evidence of subsidies." Id. at *6. The Trade Court explained that Commerce created its own conundrum by preemptively rejecting the Thai Fermentation statements, which then required it to accept the Thai Ajinomoto statements, the only other statements left on the record, despite evidence that Thai Ajinomoto had received countervailable subsidies. Id. at *7. Specifically, the Trade Court instructed that Commerce must "compare and contrast the Thai Fermentation and Thai Ajinomoto financial statements, and ... explain why the Thai Ajinomoto statements constitute a better source." Id. at 8.

In its first remand redetermination, on July 24, 2015, Commerce compared Thai Fermentation’s financial statements with Thai Ajinomoto’s financial statements and again found that Thai Ajinomoto’s statements constituted "the best available information on the record." Commerce noted that both companies’ statements "are flawed in different ways" and that it must ...