Golden Dragon Precise Copper Tube Grp., Inc. v. United States

• Decision Date: 21 July 2016
• Docket Number: Court No. 15-00177,Slip Op. 16 - 73
• Parties: GOLDEN DRAGON PRECISE COPPER TUBE GROUP, INC., HONG KONG GD TRADING CO., LTD., GOLDEN DRAGON HOLDING (HONG KONG) INTERNATIONAL, LTD., and GD COPPER (U.S.A.) INC., Plaintiffs, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

GOLDEN DRAGON PRECISE COPPER TUBE GROUP, INC., HONG KONG GD TRADING CO., LTD.,GOLDEN DRAGON HOLDING (HONG KONG) INTERNATIONAL, LTD.,and GD COPPER (U.S.A.) INC., Plaintiffs, v. UNITED STATES, Defendant.

Slip Op. 16 - 73 Court No. 15-00177

UNITED STATES COURT OF INTERNATIONAL TRADE

July 21, 2016

Before R. Kenton Musgrave, Senior Judge

OPINION AND ORDER

[Remanding final results of administrative review for further explanation or reconsideration.]

Kevin M. O'Brien, Christine M. Streatfeild, and Yi Fang, Baker & McKenzie, LLP, of Washington DC, for the plaintiffs.

Michael D. Snyder, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C., for the defendant. With him on the brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Jeanne E. Davidson, Director, and Claudia Burke, Assistant Director. Of Counsel on the brief was David P. Lyons, Attorney, Office of the Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce, of Washington, D.C.

Musgrave, Senior Judge: The plaintiffs, Golden Dragon Precise Copper Tube Group, Inc. (et al.; collectively "Golden Dragon"), challenge several aspects of Seamless Refined Copper Pipe and Tube From the People's Republic of China, 80 Fed. Reg. 32087 (Jun. 8, 2015) (final results of 2012-2013 admin. review) ("Final Results") as stated in the accompanying issues and decision memorandum ("IDM") on the administrative record compiled by the defendant's International Trade Administration, U.S. Department of Commerce ("Commerce" or "the Department"). The Final Results cover the third administrative review of subject merchandise which covers the period of review ("POR") from November 1, 2012 to October 31, 2013. Golden Dragon was selected as the sole mandatory respondent at the administrative outset, and the proceeding resulted in a weighted average margin for Golden Dragon of 10.50%. Final Results, 80 Fed. Reg. at 32088.

Golden Dragon timely invokes the jurisdiction of the court under 19 U.S.C. §1516a(a)(2)(B)(iii) and 28 U.S.C. §1581(c). Its complaint challenges the administrative determinations to (i) make an unrecovered Value Added Tax ("VAT") adjustment of 4 percent to Golden Dragon's U.S. sales, (ii) apply the byproduct offset for recovered copper to normal value rather than to direct material costs, and (iii) rely upon a truck freight surrogate value that differed from a truck freight rate used previously. On such matters, the court will sustain an administrative determination unless it is "unsupported by substantial evidence on the record, or otherwise not in accordance with law". 19 U.S.C. §1516a(b)(1)(B)(i). This opinion remands for further explanation or reconsideration of Commerce's VAT determination. Each issue is addressed in turn, as follows.

I. Irrecoverable VAT Deduction

A. Background

In determining the dumping margin applied to producers or exporters from non-market economies ("NME"), Commerce must determine the export price ("EP") or constructed export price ("CEP") of the subject merchandise, or the price at which the subject merchandise is sold in the United States. 19 U.S.C. §1677b(a). Commerce treats the People's Republic of China ("PRC") as a NME. Decision Memorandum for Preliminary Results, PDoc 98 ("Prelim IDM") at 6. Both EP and CEP are then to be adjusted by reducing EP or CEP by, inter alia, "the amount, if included in such price, of any export tax, duty, or other charge imposed by the exporting country on the exportation of the subject merchandise to the United States". 19 U.S.C. §1677a(c). Commerce's stated practice in determining such reductions is to adjust EP or CEP for the amount of any (irrecoverable) value-added tax ("VAT") in certain NME countries, in accordance with 19 U.S.C. §1677a(c). See Methodological Change for Implementation of Section 772(c)(2)(B) of the Tariff Act of 1930, as Amended, in Certain Non-Market Economy Antidumping Proceedings, 77 Fed. Reg. 36481 (June 19, 2012) ("Methodological Change"), 36482. Commerce stated that in accordance with this practice, it would reduce a respondent's EP or CEP accordingly by the amount of the tax, duty, or other charge paid, but not rebated. Id.; see also IDM at 5-6. Specifically, for the Final Results Commerce stated:

In a typical VAT system, companies do not incur any VAT expense for exports; they receive on export a full rebate of the VAT they pay on purchases of inputs used in the production of exports ("input VAT"), and, in the case of domestic sales, the company can credit the VAT they pay on input purchases for those sales against the VAT they collect from customers. See, e.g., explanations in Diamond Sawblades and accompanying IDM at cmt 6, Wood Flooring from China and accompanying IDM at cmt 3, Methodological Change, 77 Fed. Reg. at 36483. That stands in contrast to the PRC's VAT regime, where some portion of the input VAT that a company pays on purchases of inputs used in the production of exports is not refunded. See Letter to the Department from Golden Dragon "Section C Questionnaire Response, Seamless Refined Copper Pipe and Tube from China" ("Section C Response") (April 7, 2014) at Exhibit C-13; see also Letter to the Department from Golden Dragon "Supplemental Section A, C, & D Questionnaire Response, Seamless Refined Copper Pipe and Tube from China" (July 10, 2014) at Exhibits SC-9 through SC-13; see also Methodological Change, 77 FR 36483. This amounts to a tax, duty or other charge imposed on exports that is not imposed on domestic sales, and thus we disagree with respondent's assertions that irrecoverable VAT should not be deducted from their U.S. prices. Where the irrecoverable VAT is a fixed percentage of U.S. price, the Department explained that the final step in arriving at a tax-neutral dumping comparison is to reduce the U.S. price downward by this same percentage. Id.

* * *

Information placed on the record of this review by Golden Dragon indicates that, according to the PRC VAT schedule, the standard VAT levy on the subject merchandise is 17 percent and the VAT rebate rate for the subject merchandise is 13 percent. See Supplemental Section A, C, & D Questionnaire Response (July 10, 2014), CDoc 33, 14. For the final results, therefore, we removed from the U.S. price an amount calculated based on the difference between these rates (i.e., four percent) applied to the export sales value, consistent with the definition of irrecoverable VAT under PRC tax law and regulation. See Prestressed Steel from China and accompanying IDM, at cmt 1.

Irrecoverable VAT is (1) the free-on-board value of the exported good, applied to the difference between (2) the standard VAT levy rate and (3) the VAT rebate rate applicable to exported goods. Id., at cmt 1, n. 35. The first variable, export value, is unique to each respondent while the rates in (2) and (3), as well as the formula for determining irrecoverable VAT, are each explicitly set forth in Chinese law and regulations. Id., at cmt 1, n. 36.

IDM at 5-6. Commerce determined that Golden Dragon, a bonded processor, used both imported and domestically sourced copper to produce subject merchandise. Id. at 7; see Supp. Questionnaire Response (July 10, 2014) ("SQR1"), 13; see Section D Resp. at Exs. D5-D6; see also SQR at Exs. SD-15. Golden Dragon averred in its administrative submissions that it would be liable to pay VAT on domestically sourced copper, even if this copper was used to produce subject merchandise destined for the United States. See IDM at 7-8; see also SQR1 at 13. Commerce further determined that Golden Dragon was unable to sufficiently demonstrate that only raw materials imported under bond, i.e. those materials exempt from the VAT, were used in the production of subject merchandise. IDM at 8; see Sec. D Resp. at Ex. D-2; see also SQR1 at Ex. SD3. Commerce stated that it required that a respondent substantiate any claimed exemption to the PRC VAT regulations according to those regulations. IDM at 7. Commerce further explained that Golden Dragon took contradictory positions during the hearing held on the issue; Golden Dragon asserted during the hearing that both domestically sourced and imported copper would be exempt from VAT, and further argued that it was exempt from the VAT because a greater quantity of exempt material was brought into the bonded facility than was exported to the United States. Id. at 7-8. Both of these assertions, Commerce stated, stand in opposition to record evidence on irrecoverable VAT and the purchase and inventory records provided by Golden Dragon. Id. Finally, Commerce determined that Golden Dragon only selectively translated the relevant VAT regulations, despite Commerce's request for the regulations to be fully translated. Id. at 8. Ultimately, Commerce "continued to adjust U.S. price by the amount of irrecoverable VAT (i.e., four percent) . . . because Golden Dragon has provided no evidence or support for adjusting these rate[s] for the consumption of in-bond material pursuant to the PRC VAT regulations." Id.

Golden Dragon does not argue with the fundamental rationale behind reducing the EP or CEP by the percentage of irrecoverable VAT, see Def.'s Resp. at 8; instead, Golden Dragon's claim is that the PRC's VAT is not included in the price of its exported merchandise not merely as a matter of law but as a matter of fact, as Golden Dragon is exempt from paying the VAT on the copper cathode it imports, under bond, into its bonded processing facility. See generally Pl's Br. at 3-6. Golden Dragon supports its claim of exempt status with a translated copy of its exemption declaration from PRC Customs, effective from December 2012 through June 2014, covering the POR. SQR1 at Ex. SC-11. According to Golden Dragon, this declaration shows that its import and export value have been "written off" by PRC Customs, and that its import and export status is "free", meaning that no VAT was owed or collected upon Golden Dragon's...