STANCEU, Judge.
Plaintiff United States Steel Corporation ("U.S.Steel"), a domestic manufacturer of corrosion-resistant carbon steel flat products ("CORE"), brought this action under section 516A of the Tariff Act of 1930 ("Tariff Act" or the "Act"), 19 U.S.C. § 1516a (2006), to contest a determination (the "Final Results") that the International Trade Administration, United States Department of Commerce ("Commerce" or the "Department") issued in the fourteenth periodic administrative review of an antidumping duty order on imports of certain CORE from the Republic of Korea ("subject merchandise"). U.S. Steel Compl. ¶¶ 1, 3; Certain Corrosion-Resistant Carbon Steel Flat Products from the Republic of Korea: Notice of Final Results of the Fourteenth Admin. Review & Partial Rescission, 74 Fed.Reg. 11,082 (Mar. 16, 2009) ("Final Results"). In an action (Court No. 09-00152) consolidated with that brought by U.S. Steel, Nucor Corporation ("Nucor"), a domestic manufacturer of CORE, also contested the Final Results.
Before the court are U.S. Steel's and Nucor's Rule 56.2 motions for judgment upon the agency record. U.S. Steel claims that Commerce, when determining the cost of production of subject merchandise produced by respondent Union Steel Manufacturing Co., Ltd. ("Union"), acted in disregard of its own regulation in declining to adjust data pertaining to the costs Union incurred in obtaining from suppliers affiliated with Union a production input, "steel substrate" (carbon steel coil used to make the subject merchandise), based on a finding
Defendant voluntarily requests a remand order under which the Department would reconsider its determination that potential adjustments to Union's reported costs for acquiring steel substrate should be disregarded as negligible. Def.'s Resp. to Pls.' Mot. for J. upon the Agency R. 1-2 ("Def.Resp."). U.S. Steel supports the government's remand request, which the court will grant. Reply Br. in Supp. of Pl.'s Mot. for J. on the Agency R. under Rule 56.2, at 2. With one exception, the court finds merit in Nucor's claims and includes in the remand order instructions under which Commerce must address these claims.
Commerce published the antidumping duty order on corrosion-resistant carbon steel flat products in 1993. Antidumping Duty Orders on Certain Cold-Rolled Carbon Steel Flat Products & Certain Corrosion-Resistant Carbon Steel Flat Products From Korea, 58 Fed.Reg. 44,159 (Aug. 19, 1993). On September 25, 2007, Commerce initiated the fourteenth review of the order, which pertains to imports of subject merchandise made during the period of August 1, 2006 through July 31, 2007 (the "period of review"). Initiation of Antidumping & Countervailing Duty Admin. Reviews & Requests for Revocation in Part, 72 Fed.Reg. 54,428, 54,428 (Sept. 25, 2007). On September 9, 2008, Commerce issued the preliminary results of the review ("Preliminary Results"). Certain Corrosion-Resistant Carbon Steel Flat Products From the Republic of Korea: Notice of Prelim. Results of the Antidumping Duty Admin. Review, 73 Fed. Reg. 52,267 (Sept. 9, 2008) ("Prelim.Results"). Following publication on March 16, 2009 of the Final Results, 74 Fed.Reg. at 11,082, U.S. Steel and Nucor instituted the current actions. U.S. Steel Compl.; Nucor Compl.
The court exercises jurisdiction pursuant to section 201 of the Customs Courts Act of 1980, 28 U.S.C. § 1581(c), which grants the Court of International Trade exclusive jurisdiction over any civil action commenced under 19 U.S.C. § 1516a. The court reviews the Final Results based on the agency record. See Customs Courts Act of 1980, § 301, 28 U.S.C. § 2640(b); 19 U.S.C. § 1516a(b)(1)(B)(i). The court "shall hold unlawful any determination, finding, or conclusion found ... to be unsupported by substantial evidence on the record, or otherwise not in accordance with law...." 19 U.S.C. § 1516a(b)(1)(B)(i). "Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Consol. Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126 (1938).
Commerce may "decline to take into account adjustments which are insignificant
U.S. Steel challenges the Department's valuation of steel substrate that Union purchased from affiliated suppliers. U.S. Steel Mem. 2. U.S. Steel argues that under both the "transactions disregarded rule" of section 773(f)(2) of the Tariff Act, 19 U.S.C. § 1677b(f)(2), and the "major input rule" of section 773(f)(3) of the Tariff Act, 19 U.S.C. § 1677b(f)(3), Commerce erred in valuing an input obtained from affiliated suppliers using the transfer prices, which U.S. Steel alleges to have been lower than the market prices. U.S. Steel Mem. 12.
Defendant responds by stating that "because Commerce's finding that certain potential adjustments under the major input rule and transactions disregarded rule were negligible may have been based on erroneous calculations, we respectfully request a remand to reexamine the accuracy of those calculations, to make any necessary corrections to those calculations, and to reconsider, if appropriate, the treatment of those adjustments." Def. Resp. 6. The court concludes that Commerce should be granted the opportunity on remand to reconsider the decision to disregard the adjustments as negligible and to make all changes that may be required to resolve this issue in accordance with the antidumping statute and regulations.
In the Final Results, Commerce applied the major input rule to only one of Union's related suppliers of steel substrate. Issues & Decisions Mem., A-580-816,
The court is required to review a determination of an agency on the basis of the reasoning the agency puts forth. SEC v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct. 1575, 91 L.Ed. 1995 (1947) ("[A] reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency."). The Decision Memorandum, unlike the "proprietary calculation memorandum" to which defendant refers therein, is incorporated by reference into the Final Results and, therefore, presents the reasoning on which the court must consider the Department's decision not to apply the major input rule to the POSCO Group. Because that reasoning is based on a finding of fact that is, as defendant concedes, unsupported by substantial record evidence, the decision not to apply the major input rule to the valuation of Union's purchases of substrate from the POSCO Group must be reviewed and reconsidered on remand.
The one supplier of steel substrate affiliated with Union to which Commerce applied the major input rule, JFE Steel, sold to Union through a trading company also affiliated with Union. Br. in Opp'n to the Mot. of Pls. U.S. Steel Corp. & Nucor Corp. for J. upon the Agency R. 12 ("Union Br.") (disclosing that Commerce applied the major input rule to JFE Steel). Decision Mem. 21. ("We note that Union purchased various forms of steel substrate manufactured by [a] certain affiliated supplier and sold to Union through a certain affiliated supplier during the POR."). In applying the major input rule, under which Commerce is to value the input on the basis of the information available regarding
Nucor claims that Commerce misapplied the major input rule in requesting and examining only data from the trading company and not cost of production data from the actual producer. Nucor Br. 10-11. Although Nucor acknowledges that application of the major input rule is discretionary, it argues that once Commerce decided to apply the major input rule, it was required to value the input according to information on the actual cost of production. Id. at 11 ("In this case, the Tariff Act explicitly states that `[i]f, in the case of a transaction between affiliated persons involving the production by one of such persons of a major input to the merchandise... then the administering authority may determine the value of the major input on the basis of the information available regarding such cost of production.'" (alterations in original) (citing 19 U.S.C. § 1677b(f)(3))).
Defendant argues that Commerce complied with the major input rule by comparing the trading company's average selling price to Union with the "cost of production," which it based on the cost the trading company incurred in purchasing substrate from the producer and the trading company's selling, general, and administrative expenses. Def. Resp. 10. Defendant bases its argument on the language of 19 U.S.C. § 1677b(f)(3), emphasizing that the statute allows valuation "on the basis of the information available regarding such cost of production." Id. at 9 (quoting 19 U.S.C. § 1677b(f)(3)). According to defendant, Commerce could base its application of the major input rule on data from the trading company because those data were the best information available, in that the record contained no cost of production information from the producer. Id. at 10.
The court must consider Commerce's decision based on the reasoning the Department put forth. Chenery Corp., 332 U.S. at 196, 67 S.Ct. 1575. The Decision Memorandum, however, contains only the briefest explanation of the reasoning underlying the Department's decision to request and use the information from the trading company. The Decision Memorandum explains that "[b]ecause this certain affiliated supplier is a trading company, and therefore does not manufacture, we requested and obtained its weighted average purchase costs for certain steel substrates during the POR." Decision Mem. 21 (emphasis added). There is no explanation in the Decision Memorandum of why Commerce did not seek to obtain production cost information from the producer rather than purchase cost information from the trading company or why it concluded that purchase cost information from the trading company would suffice for application of the major input rule. Defendant, in its response to Nucor's motion, argues that there was no guarantee that the trading company would have responded to an information request, noting that the trading company was not a party to the proceeding, could not have been compelled to provide information, and, in a previous segment of the proceeding, had refused to provide its cost of production data. Def. Resp. 10-11. This explanation appears nowhere in the Decision Memorandum and, therefore, does not constitute a statement of the Department's reasoning for purposes of judicial review.
The Decision Memorandum also states, confusingly, that "[t]he Department determines
The court next considers Nucor's claim that the Department acted unlawfully in applying the transaction disregarded rule, rather than the major input rule, to Union's affiliated suppliers of steel substrate other than the trading company and the POSCO Group. Nucor Br. 14-18. In the Decision Memorandum, Commerce explained that "[i]n determining whether an input is considered `major,' among other factors, the Department looks at both the percentage of the input obtained from affiliated suppliers (as opposed to unaffiliated suppliers) and the percentage the individual element represents in the product's cost of manufacture (COM)." Decision Mem. 20. Commerce found that only purchases of steel substrate from a certain affiliated supplier (i.e. the trading company, as discussed previously) qualified as major inputs under 19 U.S.C. § 1677b(f)(3) and 19 C.F.R. § 351.407(b) and therefore applied the major input rule to those purchases of steel substrate. Decision Mem. 20. For Union's purchases of steel substrate from all other affiliated suppliers, including in particular the POSCO Group, Commerce applied the transactions disregarded rule. Id. Commerce found, pursuant to 19 U.S.C. § 1677b(f)(3), that the purchases from the other affiliated suppliers and the POSCO Group "accounted for insignificant percentages of Union's total purchases of substrate during the POR." Id.
As discussed previously, Nucor concedes that the application of the major input rule
Defendant takes issue with Nucor's contention that the Department's decision not to apply the major input rule to the suppliers in question was a departure from practice. Def. Resp. 15. Defendant cites a recent administrative review in which "Commerce found that an input purchased by one affiliated supplier was not significant in relation to the total costs incurred to produce the merchandise" and "excluded that company's input from the major input rule while subjecting the same input from another affiliated supplier to the major input rule." Id. at 15-16 (citing Certain Hot-Rolled Carbon Steel Flat Products from Thailand: Final Results of Antidumping Duty Admin. Review & Partial Rescission of Antidumping Duty Admin. Review, 72 Fed.Reg. 27,802 (May 17, 2007); Issues & Decision Mem., A-549-817, ARP 5-07, cmt. 3 (May 7, 2007), available at http://ia.ita.doc.gov/frn/index.html). Defendant also cites the preamble accompanying the promulgation of the Department's regulations in support of the Department's decision to apply the major input rule to fewer than all affiliated suppliers of steel substrate. Id. at 15 (citing Antidumping Duties; Countervailing Duties; Final rule, 62 Fed.Reg. 27,295, 27,336 (May 19, 1997) ("The determination of which inputs are `major' must be made on a case-by-case basis taking into consideration the nature of the product, its inputs, and the company-specific information on the record.")).
As defendant's citation to a recent review demonstrates, what Nucor considers to be a Departmental "practice" has not been uniformly followed. The court, therefore, will not reject the Department's explanation of its reasons for declining to apply the major input rule to affiliates other than the POSCO Group and the trading company for failure to explain a departure from an alleged agency practice. The court also concludes that substantial evidence supports the Department's finding that the affiliated suppliers in question "accounted for insignificant percentages of Union's total purchases of substrate during the POR." See Decision Mem. 20.
In conclusion, the court rejects Nucor's claim that Commerce acted contrary to law in declining to apply the major input rule to the affiliated suppliers other than the POSCO Group and the trading company.
Acting under its regulation, 19 C.F.R. § 351.401(f)(1), Commerce decided not to
Nucor challenges the decision not to collapse Union and the POSCO Group. Nucor objects, first, that Commerce found in the Preliminary Results that the two companies have production facilities for manufacturing subject merchandise that would not require substantial retooling to restructure manufacturing priorities but then, contrary to the record evidence, reversed that finding in the Final Results. Nucor Br. 20. Nucor contends, second, that Commerce erroneously found that there was no potential for manipulation of price or production. Id. at 21. In making this second argument, Nucor takes issue with a finding by Commerce that there were no significant transactions between Union and the POSCO Group during the period of review. Id. at 19-20. Nucor's second argument relies on a memorandum of understanding between the POSCO Group and Union's parent company, which Nucor construes to signify "a real and significant potential for manipulation" that meets "the Department's forward-looking test for collapsing two companies." Id. at 22; Reply Br. of Nucor Corp. 13; Def. Resp. 20 (discussing the "memorandum of understanding").
Nucor cites a pre-decisional memorandum ("Collapsing Memorandum" or "pre-decisional memorandum") in contending that Commerce, in the Preliminary Results, found that production facilities of Union and the POSCO Group would not require substantial retooling to restructure manufacturing priorities. Nucor Br. 20 (citing Mem. to Dir., AD/CVD Operations Office 3, at 4 (Sept. 2, 2008) (Admin R. Doc. No. 4733)). Based on its review of the Collapsing Memorandum, the court concludes that Nucor is correct in its characterization of the finding stated therein. As published, the Preliminary Results make no mention of such a finding. See Prelim. Results, 73 Fed.Reg. at 52,267-72. But referring to the Preliminary Results, the Decision Memorandum states that "[t]he Department also found that the POSCO Group and Union did not fit the criteria of 19 CFR 351.401(f), where two or more producers have production facilities for similar or identical products that would not require substantial retooling of either facility to restructure manufacturing priorities." Decision Mem. 22 (emphasis added).
The discussions in the Decision Memorandum and the pre-decisional memorandum appear to be inconsistent on what the Department decided in the Preliminary Results as to possible retooling of manufacturing facilities. The Decision Memorandum makes no separate finding on this point; it appears that Commerce considered
Regarding "the level of common ownership" criterion of 19 C.F.R. § 351.401(f)(2), the record evidence is that common ownership existed between the two entities but also that it was, as defendant argues, a small percentage of ownership. Def. Resp. 21. While the Department's application of the "common ownership" criterion is supported by substantial record evidence, the same cannot be said of the analysis the Department conducted under the criterion of "significant transactions between the affiliated producers," see 19 C.F.R. § 351.401(f). Without elaborating, Commerce found, in the Decision Memorandum, a lack of "any significant transactions" between Union and the POSCO Group during the period of review. Decision Mem. 22. Defendant attempts to characterize this finding as one supported by substantial evidence, arguing that "record evidence demonstrated that the POSCO Group made no purchases from Union during the period of review, while Union purchased only a limited amount of input materials from the POSCO Group-accounting for only a small portion of Union's overall purchases." Def. Resp. 19. As discussed previously, defendant concedes that the Department erred in stating in the Decision Memorandum that Union's purchases of steel substrate from the POSCO Group were an insignificant percentage of Union's total steel substrate purchases and describes that finding, as stated in the Decision Memorandum, as an "inadvertent error." Id. at 13.
The court holds that the Department erred in stating in the Decision Memorandum its finding that "[t]here is no evidence on the record of this proceeding which indicates that the POSCO Group and Union are engaged in any significant transactions during the POR." See Decision Mem. 22. Because that erroneous finding was one of the stated reasons why Commerce decided not to collapse Union and the POSCO Group, the court must remand for reconsideration the decision not to collapse Union and the POSCO Group. On remand, the Department also must revisit the question of whether the two companies have production facilities for manufacturing subject merchandise that would not require substantial retooling to restructure manufacturing priorities. As discussed previously, the Department answered that question in the affirmative in the pre-decisional memorandum prior to issuance of the Preliminary Results and then, in the Decision Memorandum, mischaracterized its earlier decision.
The court will grant defendant's request for a voluntary remand so that Commerce may review and reconsider its finding that adjustments to the valuation of steel substrate that Union obtained from its affiliated suppliers should be disregarded as negligible. On remand, the Department also
Based on the court's consideration of Certain Corrosion-Resistant Carbon Steel Flat Products from the Republic of Korea: Notice of Final Results of the Fourteenth Admin. Review & Partial Rescission, 74 Fed.Reg. 11,082 (Mar. 16, 2009) (the "Final Results"), the motions of plaintiffs under USCIT Rule 56.2 for judgment on the agency record, the submissions of all parties, and all other papers and proceedings herein, and upon due deliberation, it is hereby
19 C.F.R. § 351.413 (2007).
19 U.S.C. § 1677b(f)(2) (2006). The "major input" rule provides that,
19 U.S.C. § 1677b(f)(3).
19 C.F.R. § 351.407(b).