BMT Commodity Corp. v. US

• Decision Date: 22 July 1987
• Docket Number: Court No. 85-7-00915.
• Citation: 667 F. Supp. 880
• Parties: BMT COMMODITY CORP., and Delca Distributors, Inc., Plaintiffs, v. UNITED STATES and United States International Trade Commission, Defendants, and Codfish Corp., Defendant-Intervenor.
• Court: U.S. Court of International Trade

667 F. Supp. 880

BMT COMMODITY CORP., and Delca Distributors, Inc., Plaintiffs, v. UNITED STATES and United States International Trade Commission, Defendants and Codfish Corp., Defendant-Intervenor.

Court No. 85-7-00915.

United States Court of International Trade.

July 22, 1987.

Freeman, Wasserman & Schneider, Jack G. Wasserman, New York City, for plaintiffs.

Lyn M. Schlitt, General Counsel, Michael P. Mabile, Asst. General Counsel and Judith

M. Czako, U.S. Intern. Trade Com'n, Washington, D.C., for defendants.

Patton, Boggs & Blow, Bart S. Fisher and Michael D. Esch, Washington, D.C., for defendant-intervenor.

OPINION

RESTANI, Judge:

Plaintiffs initiated this action to challenge the International Trade Commission's (Commission) final affirmative dumping determination in Certain Dried Salted Codfish from Canada, Inv. No. 731-TA-199, USITC Pub. No. 1711.¹ In its determination, the Commission concluded that "the establishment of an industry in the United States is materially retarded by reason of imports of dried heavy salted codfish from Canada, which the Department of Commerce (Commerce) has determined are sold at less than fair value (LTFV)." ITC Determination at 3.

The domestic industry under review consists of only one company, defendant-intervenor Codfish Corporation, which commenced operations in November 1982, in Ponce, Puerto Rico.² Id. at 5. Due to declining import prices, Codfish Corporation suffered large operating losses from 1982 through the third quarter of 1984. On July 19, 1984, it filed its antidumping petition; five months later it ceased operating and filed a petition for reorganization under the federal bankruptcy laws. At the time the final determination was published, Codfish Corporation had taken steps to reopen its plant. It received approval for a $2 million line of credit from the Government Development Bank, and negotiated several new agreements for the procurement of fresh cod and the distribution of its processed product. Id. at 8-9.

In its determination, the Commission concluded that a pervasive pattern of underselling by dominant Canadian imports of codfish had resulted in the suppression and depression of domestic prices. Id. at 11. The Commission confirmed virtually all of defendant-intervenor's allegations of lost sales and revenues, id. at 12, and further found that the prices of Canadian imports, after falling continuously from 1982 through the third quarter of 1984, rose across the board after defendant-intervenor ceased production in the final quarter of 1984. Id. at 11.

Plaintiffs do not contest these conclusions; rather, they challenge a portion of the legal framework developed by the Commission for cases involving the material retardation of domestic industries. The parties agree that existing case law, administrative precedent, and legislative history offer little guidance in this area. Prior Commission determinations establish only that "(1) application of the material retardation standard is not limited to industries that have not yet begun production, but extends as well to new facilities that have initiated production but have not yet stabilized their operations; (2) because the attempt to establish a new industry is inherently unique, determination of whether the establishment of an industry is materially retarded is to be made on a case-by-case basis; and (3) in instances involving an industry that has not yet undertaken production, there must be a sufficient indication that the industry has made a `substantial commitment' to commence production."³ Id. at 4-5.

The Commission developed additional legal standards to complete the analytical framework necessary for its material retardation analysis. It first attempted to ascertain whether the investigation involved material injury or the threat thereof, rather than material retardation. Because defendant-intervenor was "never able to stabilize production at a level which even approached a reasonable break-even point," the Commission determined that its operations were never "established," and, therefore, that material retardation was the applicable legal standard. Id. at 5.

Having concluded that material retardation was at issue, the Commission then stated that the proper inquiry for determining the presence of material retardation was "whether the level of activities of Codfish Corporation reflect merely the normal start-up conditions of a company entering an admittedly difficult market or whether the performance is worse than what could reasonably be expected and thus be deemed materially retarded." Id. The majority determined that Codfish Corporation's performance was, in fact, worse than what could reasonably be expected, but it did not conclude that material retardation had been established at this point. Instead, the majority stated that the viability of defendant-intervenor's business was also a relevant concern in this case. Id. at 7. The elements of viability that the Commission considered important in this case were "the ability to produce a marketable product, which is qualitatively acceptable to purchasers, and which can be sold at a price which is competitive with fairly traded imports." Id. at 8. After finding that Codfish Corporation's business was viable, the Commission concluded that material retardation had been established. Id. at 8-9.

Plaintiffs object to the Commission's treatment of the viability issue, claiming that the legal standard of viability formulated by the majority was not in accordance with law, and that its finding of viability was unsupported by substantial evidence. These issues are addressed below.

I. The Legal Propriety of the Commission's Viability Standard

Plaintiffs argue that the Commission's determination was not in accordance with law because a majority of the commissioners did not adopt "a single, identifiable standard of law" on the issue of viability. Plaintiffs' Reply Brief at 7. In the determination, one commissioner focused solely upon the viability of the domestic industry during the period of investigation. He explicitly stated that, in his opinion, the petitioner need not prove future viability. ITC Determination at 7 n. 16. Another commissioner considered the viability of Codfish Corporation at its inception, but stated that future viability was also relevant "as it strengthened his conclusions concerning the viability of the domestic industry." Id. at 8 n. 20. The two remaining commissioners who concurred in the majority opinion focused upon the viability of Codfish Corporation at its inception and in the future. Id. at 7-8.

In order for the Commission's determination to be upheld in this case, the court must be able to discern from the determination that a majority of the Commission has based its conclusions upon legally sufficient reasoning. See 19 U.S.C. § 1677(11)(c) (1982). Cf. USX Corp. v. United States, 11 CIT ___, 655 F.Supp. 487, 497 (1987) (action remanded where majority of commissioners failed to cumulate imports for reasons contrary to law). The court will first consider the soundness of the Commission's legal approach and will then discuss the extent to which the legal underpinnings were accepted by the individual commissioners.

None of the parties to this proceeding have challenged the Commission's conclusion that Codfish Corporation's viability at inception is a relevant consideration in this case.⁴ As plaintiffs have stated, it would be counterproductive for the unfair trade laws to provide relief to domestic industries that cannot compete. See R. Caves and R. Jones, World Trade and Payments 260 (1973) ("protection is not worthwhile if the domestic industry could never compete"); accord, J. Viner, Dumping: A Problem in International Trade 137 (1966). The imposition of duties upon foreign imports would only increase costs to American consumers, without providing a reciprocal benefit to nascent American industries. In its determination, the Commission considered Codfish Corporation's labor, energy and raw materials costs; the cost-effectiveness of its distribution and marketing channels; and the effect of the hot, humid Puerto Rican climate on the cost of drying the codfish. ITC Determination at 7-8. These variables can all affect the viability of a nascent enterprise, and therefore were proper objects of scrutiny for the Commission.⁵

Although it agrees with the analysis of "viability at inception" performed by the Commission, the court has some reservations about the Commission's analysis of "future viability." Observing that Codfish Corporation had ceased operations and filed for bankruptcy in November 1984, the Commission stated that "the future viability of petitioner's business operations is a relevant issue in determining whether the establishment of a domestic industry is being materially retarded." ITC Determination at 8. It then discussed Codfish Corporation's new plans for recapitalization, product distribution, and alternative sources of cod supply. Id. at 8-9. On the basis of this information, the Commission performed a "break-even analysis" of Codfish Corporation's operations to determine whether it "could be able to recommence operations, given fairly traded competition from imports, and stabilize its production and sales at a level which will allow it to become established." Id. at 9.⁶

The import of the Commission's analysis is that it could have denied relief based upon the conditions under which Codfish Corporation was to be reorganized. In other words, even if it had found Codfish Corporation's pre-reorganization problems were attributable to LTFV imports, the Commission could have made a negative determination simply because the imposition of duties would not have been an effective solution to the injured industry's problems.

Such a test would run afoul of 19 U.S.C. § 1673d(b)(1)(B), by allowing the Commission to make a negative determination when material retardation is being caused by LTFV imports....