Maverick Tube Corp. v. US, Court No. 87-04-00636.

• Citation: 687 F. Supp. 1569
• Decision Date: 24 May 1988
• Docket Number: Court No. 87-04-00636.
• Parties: MAVERICK TUBE CORP. and Tex-Tube Div., Cyclops Corp., Plaintiffs, v. UNITED STATES and the United States International Trade Commission, Defendants, and IPSCO Inc. and IPSCO Steel Inc., Defendant-Intervenors.
• Court: U.S. Court of International Trade

687 F. Supp. 1569

MAVERICK TUBE CORP. and Tex-Tube Div., Cyclops Corp., Plaintiffs, v. UNITED STATES and the United States International Trade Commission, Defendants and IPSCO Inc. and IPSCO Steel Inc., Defendant-Intervenors.

Court No. 87-04-00636.

United States Court of International Trade.

May 24, 1988.

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Schagrin Associates (Roger B. Schagrin, Paul W. Jameson and Mark C. Del Bianco), Washington, D.C., for plaintiffs.

Lyn M. Schlitt, Gen. Counsel, James A. Toupin, Asst. Gen. Counsel, U.S. International Trade Com'n (Jack M. Simmons, III), Washington, D.C., for defendants.

Barnes, Richardson & Colburn (Rufus E. Jarman, Jr. and Matthew J. Clark), Washington, D.C., for defendant-intervenors.

DiCARLO, Judge:

Plaintiffs move under Rule 56.1 of the Rules of this Court for judgment on the agency record to contest the 4-1 negative preliminary determination of the United States International Trade Commission (Commission) that there is no reasonable indication that a United States industry is being materially injured by reason of imports of welded carbon steel line pipes and tubes from Canada at less than fair value (LTFV). Certain Line Pipes and Tubes From Canada, Inv. No. 731-TA-375 (Preliminary), USITC Pub. 1965 (Mar.1987); 52 Fed.Reg. 11,349 (Apr. 8, 1987). This Court has jurisdiction under 19 U.S.C. § 1516a(a)(1)(C) (Supp. IV 1986) and 28 U.S. C. § 1581(c) (1982). The Court holds, consistent with USX Corp. v. United States, 12 CIT ___, Slip Op. 88-30 (Mar. 15, 1988), that one Commissioner's use of a predatory pricing analysis underlying a 2.5 percent rebuttable presumption and another Commissioner's elasticisity estimates are not supported by substantial evidence and are not in accordance with law. The Court also remands a portion of the determination of two other Commissioners to consider whether the likelihood of contrary evidence on the "Southern Colorado" sale alters their assessment of material injury or threat of material injury.

STANDARD OF REVIEW

This Court will overturn a negative preliminary material injury determination of the Commission when it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 19 U.S.C. § 1516a(b)(1)(A) (1982). The Commission's role in a preliminary injury determination is to decide, based on the best information available to it at the time, whether there is a reasonable indication that a domestic industry is being materially injured or threatened with material injury by reason of imports of the merchandise under investigation. 19 U.S.C. § 1673b(a) (1982). In American Lamb Co. v. United States, 4 Fed.Cir. (T) 47, 55, 785 F.2d 994, 1001 (1986), our appellate court affirmed the administrative interpretation of this statute as meaning that the Commission should reach a negative injury finding in a preliminary investigation only when the record as a whole contains clear and convincing evidence that there is no material injury or threat of material injury by reason of imports, and there is no likelihood that contrary evidence will arise in a final investigation.

DISCUSSION

The Commission found that the industry against which the impact of the alleged LTFV imports was to be assessed was the industry producing welded carbon steel line pipe of 0.375 inches or more but not over 16 inches outside diameter, classifiable under items 610.3208 and 610.3209 of the Tariff Schedules of the United States Annotated. USITC Pub. 1965, at a-2. See also id. at 5-7, 27, 36-37. These line pipes and tubes (line pipe) are generally used to transport gas, oil, or water in pipeline or utility distribution systems. Id. at a-2 to a-3. Each of the Commissioners found a reasonable indication that the domestic industry has been materially injured, id. at 12, 30, 38, 50, but four of the five Commissioners voting found that the material injury was not caused "by reason of" imports of Canadian line pipe. Plaintiffs assert that the Chairman and Vice-Chairman used improper economic analyses, and that two of the other Commissioners reached incorrect conclusions of fact.

I. Rebuttable 2.5 Percent Presumption

In determining whether there is a reasonable indication that a United States industry is materially injured or threatened with material injury by reason of imports, the Commission is directed to consider as a factor the volume of imports of the merchandise which is the subject of the investigation. 19 U.S.C. §§ 1671b(a) and 1677(7)(B)(i) (1982). In evaluating the volume of imports, the Commission is instructed to "consider whether the volume of imports of the merchandise, or any increase in that volume, either in absolute terms or relative to the production or consumption in the United States, is significant." 19 U.S.C. § 1677(7)(C)(i) (1982).

To "give effect" to 19 U.S.C. § 1677(7)(C)(i), the Commission Chairman employed "a rebuttable presumption that an import penetration ratio, after cumulating imports as required, of less than 2.5 percent of apparent U.S. consumption is too small to be a cause of material injury and that any increase in the import penetration to less than 2.5 percent is too small to constitute a threat of material injury." USITC Pub. 1965, at 31-32. The Chairman stated that "this presumption can be rebutted by showing that both domestic supply and demand for the product are inelastic." Id. at 32 (emphasis in original). A footnote refers to three determinations "for a complete discussion of the rationale behind this 2.5 percent presumption." Id. at n. 12. An examination of the determinations cited as support reveals that the "2.5 percent presumption" is based upon a predatory pricing analysis more akin to antitrust than antidumping. See, e.g., Certain Welded Carbon Steel Pipes and Tubes for the People's Republic of China, Inv. No. 731-TA-292 (Final), USITC Pub. 1885, at 17-28 (Aug.1986) (Additional Views of Chairman Liebeler); Certain Welded Carbon Steel Pipes and Tubes from Thailand and Venezuela, Inv. No. 701-TA-242 (Preliminary), USITC Pub. 1680, at 19-30 (Apr.1985) (Separate Views of Vice Chairman Liebeler). See also DeGrandis, Proving Causation in Antidumping Cases, 20 Int'l L. 563, 586-88 (1986); Jameson, Recent International Trade Commission Practice Regarding the Material Injury Standard: A Critique, 18 Law & Pol'y in Int'l Bus. 517, 548 (1986). This predatory pricing analysis was recently analyzed and rejected in USX Corp. v. United States, 12 CIT ___, Slip Op. 88-30, at 5-17 (Mar. 15, 1988). Consistent with the holding in USX Corp., the Court finds that predatory pricing analysis underlying the 2.5 percent presumption is not based on substantial evidence and is not in accordance with law.

II. Causation Analysis Based on an Elasticity Estimate

Like the Chairman, the Vice Chairman determined that the domestic industry was materially injured. The Vice Chairman also found that the injury was not by reason of Canadian imports.

In her individual views, the Vice Chairman stated:

To analyze the effects of dumped imports on the domestic industry, it is necessary to consider, among other key factors, the import penetration ratio of the dumped imports and the alleged dumping margin.

USITC Pub. 1965, at 38. She noted that the market shares of line pipe from Canada were 1.0 percent in 1984, 0.7 percent in 1985, and 1.1 percent in 1986, and that the average alleged dumping margin was 44.3 percent. Id. at 39. The Vice Chairman then made a number of assumptions. First, she assumed that the entire dumping margin was passed through to reduce the price of the imports. Second, she assumed that without dumping, imports from Canada would have been priced almost 50% higher, and would therefore have been priced out of the market. Third, she assumed that the United States industry would supply all of the line pipe that the Canadians would have supplied. Id. at 40-41. Using these assumptions, the Vice Chairman calculated that the dumped imports from Canada reduced shipments from United States producers by at most 1.9 percent. Id. at 41.

The Vice Chairman next stated that "it is also possible to determine an upper bound for the degree to which the dumped imports suppressed domestic prices." Id. (emphasis in original). To calculate this figure, she used a supply elasticity estimate for the United States basic steel industry based on 1956-76 data, which "indicates that a 1 percent increase in domestic price will produce at least a 3.5 percent increase in the quantity supplied by domestic producers." Id. From this bit of information, she concluded that "a 1.9 percent increase in demand for domestic product will lead to an increase in domestic price of only 0.6 percent." Id. at 41-42. The combined effect of the increased sales and increased price from the elimination of the Canadian product from the market would be 2.5 percent of the U.S. industry's revenue, from which the Vice Chairman concluded that "the adverse effects of dumped imports from Canada on the domestic industry were too small to be a cause of material injury to that industry." Id. at 43.

Plaintiffs argue that the Vice Chairman's error is not in considering elasticity, but in trying to precisely calculate the degree of elasticity using information which was not collected during the investigation and which has no bearing on the line pipe industry.

This Court has approved the use of valid economic models to assist the Commission in its causation analysis. USX Corp. v. United States, 12 CIT ___, Slip Op. 88-30 at 19 (Mar. 15, 1988); Alberta Pork Producers' Mktg. Bd. v. United States, 11 CIT ___, 669 F.Supp. 445, 461-65 (1987). Although the Commission does not need to establish the accuracy of elasticity estimates to a scientific degree of certainty before they may be used, this does not preclude a requirement that some threshold degree of reliability be established in the record if commissioners rely almost exclusively on these estimates in...