SLIP OP. 99 - 118

               UNITED STATES COURT OF INTERNATIONAL TRADE


MANNESMANNROHREN-WERKE AG AND                      :
MANNESMANN PIPE & STEEL CORP.,                     :
                                                   :
                     Plaintiffs,                   :
                                                   :       BEFORE: Wallach, Judge
              v.                                   :       Court No.: 98-04-00886
                                                   :
THE UNITED STATES,                                 :       PUBLIC VERSION
                                                   :
                     Defendant,                    :
                                                   :
              and                                  :
                                                   :
GULF STATE TUBE DIVISION OF                        :
VISION METALS,                                     :
                                                   :
                     Defendant-Intervenor.         :
                                                       :

[Remanded in part]

                                                           Decided: October 29, 1999


Sutherland Asbill & Brennan LLP (Mark D. Herlach, Mary Patricia Michel and Christer L.
Mossberg) for Plaintiffs.

David Ogden, Acting Assistant Attorney General; David M. Cohen, Director; U.S. Department
of Justice, Civil Division, Commercial Litigation Branch, (Velta A. Melnbrencis); Brian Peck,
Office of the Chief Counsel for Import Administration, U.S. Department of Commerce, Of
Counsel, for Defendant.

Schagrin Associates (Roger B. Schagrin) for Defendant-Intervenor.
Court No. 98-04-00886                                                                         Page 2

                                             OPINION

                                                  I

                                        INTRODUCTION

       At issue in this case are various determinations made by the U.S. Department of
Commerce, International Trade Administration ("Commerce") in Small Diameter Circular
Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe From Germany: Final Results
of Antidumping Duty Administrative Review ("Final Results"), 63 Fed. Reg. 13,217 (1998).
Plaintiffs, Mannesmannrohren-Werke AG And Mannesmann Pipe & Steel Corp. ("Mannesmann"),
through a motion for judgment on the agency record and an accompanying memorandum
(collectively, "Mannesmann's Motion"), argue that Commerce erred (a) in its interpretation of 19
U.S.C. § 1677b(f)(2) and (3) (1994); (b) in its use of adverse facts available to value
Mannesmann's purchases of steel billets from a related supplier; and (c) in its use of adverse facts
available to value the customs duties Mannesmann paid on its U.S. sales.


       For the reasons set forth below, the Court finds that while Commerce reasonably
interpreted 19 U.S.C. § 1677b(f)(2) and (3) (1994), what Commerce has identified as substantial
record evidence does not support its decisions to use adverse facts available. This determination
is remanded to Commerce for further proceedings consistent with this opinion.


                                                 II

                                         BACKGROUND


       On March 18, 1998, Commerce issued its first administrative review of antidumping duties
on certain small diameter seamless carbon and alloy steel pipes from Germany. This review
covered one manufacturer/exporter of the subject merchandise, Mannesmannrohren-Werke AG
and Mannesmann Pipe & Steel Corporation, for the period January 27, 1995, through
Court No. 98-04-00886                                                                       Page 3

July 31, 1996. Final Results, 63 Fed. Reg. at 13,217. Two aspects of this review are relevant for
present purposes.


Commerce's Affiliated Party Input Adjustment:


       As in any antidumping investigation, in this instance Commerce was required to compare
the U.S. prices of the subject merchandise to the prices ("normal value") for the same or similar
merchandise in the home market. See 19 U.S.C. § 1677a (1994) ("Export price and constructed
export price") and 19 U.S.C. § 1677b (1994) ("Normal value"). In the course of calculating the
normal value of the subject merchandise in this case, Gulf State Tube Division of Vision Metals, a
domestic interested party and Defendant-Intervenor in the current action, alleged that
Mannesmann was selling the foreign like product in its home market (Germany) at prices below
Mannesmann's cost of production. Pursuant to 19 U.S.C. § 1677b(b) (1994), such below cost
sales, if shown to exist, may be disregarded by Commerce in its calculation of normal value. On
January 31, 1997, Commerce determined that this allegation of below-cost sales was adequately
supported, initiated a sales-below-cost investigation, and requested that Mannesmann respond to
Section D of Commerce's Antidumping Duty Questionnaire, covering "Cost of Production and
Constructed Value." See Letter from Linda Ludwig to Mark Herlach of 01/31/97, Appendix of
Record Documents Accompanying The Memorandum In Support Of The Motion Of Plaintiffs
[Mannesmann] For Judgment On The Agency Record "Mannesmann Appendix"), App. 3.
Mannesmann does not contest initiation of the below-cost sales investigation.


       Although the Section D Questionnaire requested substantial information concerning
Mannesmann's cost-of-production, the question here most pertinent was Question II.A.6.b. In
relevant part, Question II.A.6. provided as follows:


       6.      List the major inputs received from affiliated parties and used to produce
               the merchandise under review during the cost calculation period. . . . For
               each major input identified, provide the following information:
Court No. 98-04-00886                                                                       Page 4

               a.     the total volume and value of the input purchased from all sources
                      by your company during the cost calculation period, and the total
                      volume and value purchased from each affiliated party during the
                      same period;

               b.     the per-unit transfer price charged for the input by the affiliated
                      party (if the affiliated party sells the identical input to other,
                      unaffiliated purchasers, provide documentation showing the price
                      paid for the input by the unaffiliated purchaser; if your company
                      purchases the identical input from unaffiliated suppliers, provide
                      documentation showing the unaffiliated party's sales price for the
                      input); and

               c.     if you are responding to this section of the questionnaire in
                      connection with an investigation of sales below cost, provide the
                      per-unit cost of production incurred by the affiliated party in
                      producing the major input.

               In addition, specify the basis used by your company to value each major
               input for purposes of computing the submitted COP and CV amounts (e.g.
               transfer price, cost of production).

Defendant's Memorandum In Opposition To Plaintiffs' Motion For Judgment On The Agency
Record ("Defendant's Response"), Public Ex. 1, at 91-92.


       Mannesmann responded to subpart (a) of the question by stating, inter alia, that it had not
"sourced billets used in producing subject merchandise from unrelated parties." Response Of
[Mannesmann] To Section D Of The Antidumping Questionnaire, Mannesmann Appendix, App.
4, at 8. This answer was not fully responsive, since the question asked for information on input
purchases related to the "merchandise under review" and not "subject merchandise." As defined
in a footnote to Section A of Commerce's Antidumping Questionnaire, "products under review"
and "merchandise under investigation" referred generally to "all products within the scope of the
order that your company sold during the period of review in any market," while "subject
merchandise" referred only to "products sold to the United States." See Commerce's
Antidumping Questionnaire, Defendant's Response, Public Ex. 1, at 15 n.6.
Court No. 98-04-00886                                                                            Page 5

        In response to subpart (b) of Question II.A.6., Mannesmann provided a substantial
amount of information concerning its relationship with Huttenwerke Krupp Mannesmann GmbH
("HKM"), an affiliated party from whom it purchases the vast majority of the steel it uses to
produce seamless and welded tubes. See Response Of [Mannesmann] To Section D Of The
Antidumping Questionnaire, Mannesmann Appendix, App. 4, at 9-13. Mannesmann's response,
however, did not provide any information in regard to the last part of subpart (b), which
requested that "if your company purchases the identical input from unaffiliated suppliers, provide
documentation showing the unaffiliated party's sales price for the input." Commerce's
Antidumping Questionnaire, Defendant's Response, Public Ex. 1, at 91.


        Finally, responding to subpart (c) of Question 6, Mannesmann stated that it utilized
transfer price from its affiliated supplier, HKM, to value steel billets, and that "this transfer price
exceeded HKM's cost of production." Response Of [Mannesmann] To Section D Of The
Antidumping Questionnaire, Mannesmann Appendix, App. 4, at 14. As discussed below, this
statement was of considerable importance, since Commerce found that reliance on transfer price
from an affiliated party makes 19 U.S.C. §1677b(f)(2) (1994) applicable to its analysis and
findings.


        Subsequently, Commerce provided Mannesmann with a supplemental questionnaire
("Supplemental Section D Questionnaire"), which asked Mannesmann two further questions that
are relevant here. First, Question 11 of the Supplemental Section D Questionnaire asked
Mannesmann:


        As requested in the original Section D questionnaire, please provide a complete,
        translated listing of all inputs used to produce the merchandise under review. For
        each input received from an affiliated party, provide the name of the affiliated party
        and state the nature of the affiliation. Also, report the total volume and value of
        the purchases and the percentage of the COM of the subject merchandise
        represented by the value of the purchases.
Court No. 98-04-00886                                                                        Page 6



Response Of [Mannesmann] To Supplemental Section D Of The Antidumping Questionnaire,
Mannesmann Appendix, App. 5, at 7 (emphasis in original). Answering this question,
Mannesmann provided the short response that "[s]teel billets are the only input from affiliated
suppliers for the subject merchandise. All of the steel billets purchased for producing the subject
merchandise were produced at HKM." 

response was limited to "subject
merchandise," although the question asked for information on the broader category of
"merchandise under review."


       Second, Question 12 of the Supplemental Section D Questionnaire asked that
Mannesmann:


       Use the following headings to provide a chart which reports purchases of billets
       from unrelated suppliers, regardless of whether or not they are used in subject
       merchandise. (Unrelated supplier, month during [the period of review], billet
       grade, volume purchased, value of purchases. [sic]

Mannesmann responded to this question by providing an exhibit that
listed billet purchases from unrelated suppliers. See 

Regarding Purchases of Billets,

This exhibit, however, did not respond to Commerce's request for billet grade
information.


       Seeking yet further information, Commerce thereafter requested that Mannesmann
answer a third questionnaire (Commerce's "Second Supplemental Section D Questionnaire").
Question 4 of that questionnaire stated as follows:


       In Exhibit D-4 of the Supplemental D questionnaire response, you provided a
       breakdown of billet purchases from unaffiliated parties. When compared to the
       billet prices provided in Exhibit E of the Section D response, it appears that the
       average POR cost of billets purchased from unaffiliated parties significantly
       exceeds the cost of billets purchased from HKM. Explain the reason for such
       difference.
Court No. 98-04-00886                                                                             Page 7

Mannesmann Second Supplemental Section D Response, Mannesmann Appendix, App. 6, at 2.
Explaining this cost differential between billets from affiliated and unaffiliated suppliers,
Mannesmann responded, inter alia, that:


        MWR and MWS only purchase from other suppliers billets that HKM does not
        produce, such as billets comprised of special alloy grades or purities. The price of
        these specialized billets with higher alloy content or higher purity is quite naturally
        greater than the price for the standard grade billets manufactured by HKM.

September 9, 1997, Commerce published the preliminary results of its administrative
review in the Federal Register. See Small Diameter Circular Seamless Carbon and Alloy Steel
Standard, Line and Pressure Pipe From Germany: Preliminary Results of Antidumping Duty
Administrative Review ("Preliminary Results"), 62 Fed. Reg. 47,446 (1997). In the Preliminary
Results, Commerce calculated Mannesmann's cost of production by disregarding those billet sales
between Mannesmann and HKM that did not reflect market value for these inputs. See 

those instances where Commerce found that the billet sales between Mannesmann and
HKM did not reflect market value, Commerce, pursuant to § 773(f)(2) and (3) of the Tariff Act
of 1930 [19 U.S.C. § 1677b(f)(2) and (3) (1994)], used market prices to value the inputs
purchased from HKM and, in turn, calculate Mannesmann's cost of production. See id.; see also
Department of Commerce Preliminary Results Analysis Memorandum of 09/02/97, Mannesmann
Appendix, App. 11 ("Preliminary Results Memo."), at 16.


        To determine market value, Commerce compared the relative prices of one grade of billets
which Mannesmann had purchased from both affiliated and non-affiliated parties during the period
of review. See Preliminary Results, 62 Fed. Reg. at 47,451. Finding the price paid to the non-
affiliated party to be 30.9 % higher than the price paid to HKM, Commerce increased the transfer
prices reported for all HKM billet sales to Mannesmann by 30.9% to approximate
Court No. 98-04-00886                                                                            Page 8

market value. See id.; Preliminary Results Memo. at 16. As 94.21% of Mannesmann's billet
purchases was from HKM, this resulted in an aggregate cost of steel billets 29.11 % higher than
originally reported by Mannesmann. See Preliminary Results Memo. at 16.1


       In response to this aspect of the Preliminary Results, Mannesmann argued, inter alia, that
Commerce "improperly invoked the special rule for major inputs in section 773(f)(3) of the Act
when it ignored Mannesmann's verified billet costs in calculating the company's cost of
production." Final Results, 63 Fed. Reg. at 13,218. Mannesmann also argued that Commerce
"had no reasonable basis for applying an across-the-board percentage price increase on all billets
based on one exceptional purchase of a steel grade that was not sold in the United States." 

the Final Results, Commerce dismissed both these criticisms. After first reaffirming its
position in the Preliminary Results, Commerce stated that "[w]e disagree with Mannesmann's
assertion that the Department improperly invoked the special rule for major inputs." 

§ 773(f)(2) and (3) of the Tariff Act of 1930 gave it the legal authority
to use the highest of transfer price, cost of production, or market value to value the billets
purchased from HKM. 

Mannesmann's second complaint (that Commerce had no reasonable basis for
applying the market value adjustment to all purchases from affiliated suppliers), Commerce stated
that, because Mannesmann had not acted to the best of its ability to comply with its information
requests, it was applying this market value adjustment in the Final Results as adverse


1
  By increasing the price of a party's inputs, Commerce increases the party's cost of production
for purposes of excluding below-cost sales. This, in term, leads the "normal value" of a party's
home market sales to be higher, since a larger percentage of a party's home market sales will be
excluded as having been made "below cost." See Raj Bhala, International Trade Law: Cases and
Materials 654 (1996) ("It is an arithmetic fact that the exclusion raises the average and, therefore,
increases the likelihood of finding, and size of, a dumping margin.")
Court No. 98-04-00886                                                                           Page 9

facts available. 

apply adverse facts available appears to have been based on
two events. First, Commerce observed that although it requested information on any purchases of
the identical input from unaffiliated suppliers in Question II.A.6.b of the Section D Questionnaire,
"Mannesmann did not respond to this portion of the questionnaire." Id.; see also Department of
Commerce Final Results Analysis Memorandum of 03/09/98, Mannesmann Appendix, App. 8
("Final Results Memo."), at 14. Second, and in regard to Question 4 of the Second Supplemental
Section D Questionnaire, Commerce pointed out that although Mannesmann stated that it "only
purchase[d] from other suppliers billets that HKM does not produce, such as billets comprised of
special alloy grades or purities," this assertion did not hold true at verification. See Final Results,
63 Fed. Reg. at 13,220; Final Results Memo. at 14. Sampling Mannesmann's purchases for one
month, Commerce discovered purchases by Mannesmann of the same grade of billets from both
HKM and an unaffiliated party. Final Results Memo. at 14. Commerce viewed this as "an
unexpected discovery, as Mannesmann had specifically denied that they purchase the same grade
of billets from HKM and unaffiliated parties." 

Duties:


        The second part of the Final Results at issue involves the customs duties that
Mannesmann, in answering Section C of the Commerce's Antidumping Questionnaire, reported
that it had paid on its U.S. sales.


        During verification, Commerce examined over half of Mannesmann’s total U.S. sales in its
review of U.S. duty paid. See Mannesmann's Motion at 28 (noting that Commerce's observations
covered 52% of the subject merchandise (in terms of tonnage) sold in the United States). In
determining whether U.S. duty was properly reported, Commerce "summed total U.S. duty paid
on the entry [Commerce was] examining and compared it to total U.S. duty reported in the
applicable observations." Final Results, 63 Fed. Reg. at 13,222. For several entries,
Court No. 98-04-00886                                                                       Page 10

Commerce found that Mannesmann had underreported the total U.S. duty paid -- a fact which it
found "indicates that errors exist which are more pervasive than can be explained by rounding or
allocation methodologies." 

Mannesmann was unable to recreate or
explain the allocation methodologies it used in its submission to Commerce. 

these findings, Commerce again determined that the use of adverse facts
available was appropriate, since "[b]y not providing verifiable information for U.S. duties when
such information was available to Mannesmann . . . Mannesmann failed to cooperate by not acting
to the best of its ability to comply with a request for information." 

for the Final Results, Commerce used the duty rates reported by Mannesmann in the three
instances where it was able to confirm Mannesmann's figures. 

Results Memo.
at 12. For all other sales, however, including those where Commerce otherwise calculated the
correct amount of duty paid, Commerce used the highest U.S. duty amounts reported by
Mannesmann. Final Results, 63 Fed. Reg. at 13,222.2 Generally, this resulted in duties
significantly higher than either those reported by Mannesmann or, where applicable, those
calculated by Commerce. See, e.g., Analysis of U.S. Duty Adjustment, Mannesmann's Motion,
Ex. A.




2
   Specifically, Commerce applied the highest reported duty amount for carbon products
($86.35/ton) to all sales of carbon products, and it applied the highest reported duty amount for
alloy products ($119.07/ton) to all sales of alloy products. See Final Results, 63 Fed. Reg. at
13,222; Final Results Memo. at 12.
Court No. 98-04-00886                                                                           Page 11



                                                 III

                                           DISCUSSION

                                                  A

                                        Standard Of Review


       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) (1994). Substantial evidence is something more than a "mere
scintilla," and must be enough evidence to reasonably support a conclusion. Primary Steel, Inc. v.
United States, 

, 1085, 

, 1380 (1993); Ceramica Regiomontana,
S.A. v. United States, 

, 405, 

, 966 (1986), aff'd, 

(Fed.
Cir. 1987). "As long as the agency's methodology and procedures are reasonable means of
effectuating the statutory purpose, and there is substantial evidence in the record supporting the
agency's conclusions, the court will not impose its own views as to the sufficiency of the agency's
investigation or question the agency's methodology." Ceramica Regiomontana, 

, 636 F. Supp. at 966.


       In reviewing an agency’s construction of a statute that it administers, the Court's initial
inquiry is to determine “whether Congress has directly spoken to the precise question at issue."
Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 

, 842 (1984). "If
Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority
to the agency to elucidate a specific provision of the statute by regulation." 

“[t]he court will defer to the agency's construction of the statute as a permissible
construction if it ‘reflects a plausible construction of the plain language of the statute[s] and does
not otherwise conflict with Congress' express intent.’" Torrington Co. v. United States, 

, 1044 (Fed. Cir. 1996) (quoting Rust v. Sullivan, 

, 184 (1991)).
Court No. 98-04-00886                                                                         Page 12

                                                  B

               Commerce Correctly Interpreted The Statutory Framework For
                          Valuing Mannesmann's Billet Costs.


        As noted above, in the Final Results Commerce interpreted 19 U.S.C. § 1677b(f)(2) and
(3) (1994) as giving it the legal authority to use the highest of transfer price, cost of production,
or market value to value the billets Mannesmann purchased from HKM. Pursuant to this
interpretation, Commerce used constructed market values in valuing these billets, per §
1677b(f)(2), since it found that this value exceeded both the transfer price reported by
Mannesmann and HKM's cost of production. See Preliminary Results Memo. at 16.


        Mannesmann challenges this result as an improper application of the "major input rule," 19
U.S.C. § 1677b(f)(3). Mannesmann argues that Commerce "should never have applied an
alternative valuation under § 1677b(f)(2) as a substitute for actual billet transfer prices because
the condition precedent contained in § 1677b(f)(3) (the use of a below cost input), which triggers
the ability of the agency to resort to § 1677b(f)(2), was not met." Plaintiffs' Reply To Defendant's
Memoranda In Opposition To Plaintiffs' Motion For Judgment On The Agency Record
("Mannesmann's Reply") at 2. According to Mannesmann, § 1677b(f)(3) would permit
Commerce to disregard the transfer prices for billets supplied by HKM, and use § 1677b(f)(2) to
value major inputs, only if the transfer prices were found to be below HKM's cost of production.
See 

major inputs are involved, resort to § 1677b(f)(2) is only permitted if the
transfer price of the major input is below cost."). This condition precedent, Mannesmann asserts,
was not met in this case, since Commerce fully examined HKM's cost data and verified that HKM
sold billets to Mannesmann at prices above its cost of production. See Mannesmann's Motion at
9-10.


        In relevant part, 19 U.S.C. § 1677b(f)(2) and (3) (1994) provide as follows:
Court No. 98-04-00886                                                                          Page 13

       
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       authority may determine the value of the major input on the basis of the information
       available regarding such cost of production, if such cost is greater than the amount
       that would be determined for such input under paragraph (2).


       On its face, nothing in the language of these provisions supports Mannesmann's position
that the "major input rule" serves as any sort of condition precedent to § 1677b(f)(2). First,
nothing in § 1677b(f)(2) either makes reference to § 1677b(f)(3) or otherwise indicates that,
before relying on market values in the case of a "major input," Commerce must show that the
transfer prices at issue are below the affiliated party's cost of production. Rather, by its plain
language, § 1677b(f)(2) simply sets forth a general rule for affiliated party transactions which
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Court No. 98-04-00886                                                                         Page 14

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Similarly, the plain language of § 1677b(f)(2) makes clear that Congress may substitute an arms-
length, or market, value ("what the amount would have been if the transaction had occurred
between persons who are not affiliated") for a reported transfer price when the transfer price
"does not fairly reflect" market value. Read together, these provisions appear to create a
statutory scheme in which Commerce is to use the highest of market price, actual transfer price,
or cost-of-production in valuing a major input supplied by an affiliated party. This, of course, is
exactly how Commerce interpreted these provisions and applied them to the case at bar.


       In addition to the statutory language, the legislative history of the major input rule further
supports Commerce's interpretation. In support of its position, Mannesmann cites a House
conference report for the proposition that "[c]learly, the conferees contemplated that the
Department would use 'best information' only if the related seller 'does not provide reliable data
Court No. 98-04-00886                                                                         Page 15

on its cost [sic] of production.'" Mannesmann's Motion at 12 (quoting H.R. Conf. Rep. No. 100-
576, at 595 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1628). Since Mannesmann supplied,
and Commerce verified, HKM's cost-of-production data, Mannesmann repeats its argument that
"[t]here was no basis to reject the actual cost data in favor of a manifestly less accurate figure
[arms-length values]." 

trying to pick a selected aspect of the major input rule, § 1677b(f)(3),
and apply it to § 1677b(f)(2). In relevant part, Mannesmann cites to the following section of
House Conference Report No. 100-576:


       The conferees expect that, if petitioner makes a bona fide allegation that the transfer
       price for the major input or the arms-length price is less than the related party's cost
       of production, then Commerce will investigate such claims and may request cost-of-
       production information from the related party seller of the input. If the related party
       seller does not provide reliable data on its costs of production, and Commerce has
       reasonable grounds to believe or suspect that the transfer price and also the arms-
       length price would be less than the cost of production, then Commerce should use
       best information to establish a reasonable estimate of the related party’s costs of
       production for such input.


H.R. Conf. Rep. No. 100-576, at 595 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1628
(emphasis added). Contrary to what Mannesmann alleges, the "best information" referred to in
this language does not refer to arms-length prices used in accordance with § 1677b(f)(2), but
refers only to estimates of a related party's cost-of-production for purposes of § 1677b(f)(3).
Commerce, however, did not rely on the major input rule as a basis for disregarding the transfer
prices reported by Mannesmann. Rather, after verifying that HKM's billets costs did not exceed
the transfer prices reported by Mannesmann, Commerce relied on § 1677b(f)(2) in using market
values to value the billet inputs. Accordingly, the legislative history concerning "best information"
for purposes of the major input rule simply had no relevance to Commerce's analysis.
Court No. 98-04-00886                                                                            Page 16

       Beyond simply not supporting Mannesmann's argument concerning "best information,"
however, the legislative history of the major import rule actually supports Commerce's
interpretation of § 1677b(f)(2) and (3). As stated in the quotation above, the conferees made
clear in H.R. Conf. Rep. No. 100-576 that Commerce should use best information to estimate a
related party’s cost of production only when it has "reasonable grounds to believe or suspect that
the transfer price and also the arms length price would be less than the cost of production." 

in making reference to the relationship of the "new" major input rule
to §773 of the Trade Act, the conference report explicitly says that valuation under this rule
would only take place "when such costs are greater than the price that would be used as a result
of the application of paragraph (2) ('arms-length price')." 

for the major
input rule provided in the conference report states:


       The Senate recedes with a substitute amendment which provides . . . (2) authority
       for the Commerce Department, when foreign market value is based on constructed
       value, to base the value of a major input which has been provided by a related
       party on its costs of production, rather than the price authorized under section
       773(e)(2), when certain conditions exist.

in 1988 U.S.C.C.A.N. 1547, 1627 (emphasis added).


       All three of these quotations demonstrate that, far from creating an independent rule to
govern affiliated party transactions involving "major inputs," Congress actually intended the major
input rule to be an exception to the general rule set out in § 773(e)(2) of the Trade Act [19
U.S.C. § 1677b(f)(2) (1994)]. Like the language of the major input rule itself, the conference
report makes clear that this exception only has relevance when Commerce has "reasonable
grounds to believe or suspect" that both the transfer price and the arms-length price would be less
than the affiliated party's cost of production. Consistent with this explanation, in this case
Commerce did not rely on the major input rule, since it found that HKM's cost-of-production did
not exceed either of these two prices. Accordingly, given the facts at hand, the legislative history
cited above indicates that Commerce acted reasonably in interpreting the provisions of §
Court No. 98-04-00886                                                                         Page 17

1677b(f)(2), and not those of the major input rule, as applying to the valuation of Mannesmann's
billet purchases.3


        In short, both the plain language of § 1677b(f)(2) and (3), as well as the legislative history
of the major input rule, support Commerce's decision to use the highest of transfer price, cost of
production, or market value to value the billets Mannesmann purchased from HKM. Contrary to
Mannesmann's claims, Commerce reasonably interpreted § 1677b(f)(2) and (3) in finding that §
1677b(f)(3) did not limit its ability to use market value information, notwithstanding the fact that
HKM's billet costs of production were verified as being below the transfer prices reported by
Mannesmann. Accordingly, the Court rejects Mannesmann's claims on this point.


                                                  C

             Commerce's Use Of Adverse Facts Otherwise Available To Value
           Mannesmann's Billet Purchases Was Neither In Accordance With Law
                   Nor Supported By Substantial Record Evidence.


        Pursuant to 19 U.S.C. § 1677e(a) (1994), Commerce is required to use facts otherwise
available4 if necessary information is not available on the record, or:


        (2) an interested party or any other person -
                (A) withholds information that has been requested by [Commerce]
                . . . under this subtitle,


3
  Mannesmann also cites SKF USA Inc. and SKF GmbH v. United States, 

, 888 F.
Supp. 152 (1995), as supporting its position that the major input rule cannot be applied to the
case at bar. See Mannesmann's Motion at 10; Mannesmann's Reply at 4-5. While SKF is
distinguishable from this case in many ways, it is sufficient to say that nothing in SKF undermines
the reasonableness of Commerce's interpretation of § 1677b(f)(2) and (3). In fact, because of the
factual difference between the two cases, the Court's analysis in SKF is irrelevant to the question
at hand.
4
  Formerly referred to as “best information available” or “BIA” under 19 U.S.C. § 1677e(c)
(1988).
Court No. 98-04-00886                                                                         Page 18

               (B) fails to provide such information by the deadlines for
               submission of the information or in the form and manner
               requested, subject to subsections (c)(1) and (e) of section 1677m of
               this title,
               (C) significantly impedes a proceeding under this subtitle, or
               (D) provides such information but the information cannot be
               verified as provided in section 1677m(i) of this title.

       Section 1677e(a) provides, however, that the use of facts available shall be subject to the
limitations set forth in 19 U.S.C. § 1677m(d) (1994). Section 1677m, which were enacted as
part of the Uruguay Round Agreements Act ("URAA"), Pub. L. 103-465 § 231, is "designed to
prevent the unrestrained use of facts available as to a firm which makes its best effort to
cooperate with [Commerce]." Borden, Inc. v. United States, 

, 1245 (CIT
1998). Section 1677m(d), entitled "[de]ficient submissions," provides that:


       If [Commerce] . . . determines that a response to a request for information under
       this subtitle does not comply with the request, [Commerce] . . . shall promptly
       inform the person submitting the response of the nature of the deficiency and
       shall, to the extent practicable, provide that person with an opportunity to remedy
       or explain the deficiency in light of the time limits established for the completion
       of investigations or reviews under this subtitle. If that person submits further
       information in response to such deficiency and either -
                (1) [Commerce] finds that such response is not satisfactory, or
                (2) such response is not submitted within the applicable time
                limits,
       then [Commerce] . . . may, subject to subsection (e) of this section, disregard all
       or part of the original and subsequent responses.


Subsection (e), in turn, provides that:


       In reaching a determination . . . [Commerce] . . . shall not decline to consider
       information that is submitted by an interested party and is necessary to the
       determination but does not meet all the applicable requirements established by
       [Commerce] . . . if -
              (1) the information is submitted by the deadline established for its
              submission,
              (2) the information can be verified,
              (3) the information is not so incomplete that it cannot serve as a reliable
Court No. 98-04-00886                                                                           Page 19

                basis for reaching the applicable determination,
                (4) the interested party has demonstrated that it acted to the best of its
                ability in providing the information and meeting the requirements
                established by [Commerce] . . . with respect to the information, and
                (5) the information can be used without undue difficulties.


19 U.S.C. § 1677m(e) (1994).


        In short, before Commerce may use facts available, 19 U.S.C. § 1677m(d) (1994)
requires that Commerce give a party an opportunity to remedy or explain deficiencies in its
submission. If the remedy or explanation provided by the party is found to be "not satisfactory"
or untimely, the information may be disregarded in favor of facts available, subject to the five
part test in Subsection (e). See 

("Subsection (e) may require use
of the respondent's information notwithstanding that a remedy or explanation is unsatisfactory.").




        Once Commerce determines that use of facts available is warranted, 19 U.S.C. §
1677e(b) (1994) further permits Commerce to apply an adverse inference if it makes the
additional finding that "an interested party has failed to cooperate by not acting to the best of its
ability to comply with a request for information." As this Court has recently made clear, in
order to find that a party "has failed to cooperate by not acting to the best of its ability," it is not
sufficient for Commerce to simply assert this legal standard as its conclusion or repeat its finding
concerning the need for facts available. See 

("Here, the
Department did not make the required additional finding that De Cecco had failed to act to the
best of its ability. In essence, it simply repeated its 19 U.S.C. § 1677e(a)(2)(B) finding, using
slightly different words . . . .") (citation omitted); Ferro Union, Inc. v. United States, 44 F.
Supp.2d 1310, 1329 (CIT 1999) ("Once Commerce has determined under 19 U.S.C. § 1677e(a)
that it may resort to facts available, it must make additional findings prior to applying 19 U.S.C. §
1677e(b) and drawing an adverse inference.").


        Rather, to be supported by substantial evidence, Commerce needs to articulate why it
Court No. 98-04-00886                                                                         Page 20

concluded that a party failed to act to the best of its ability, and explain why the absence of this
information is of significance to the progress of its investigation. See Ferro 

("If overall the failure to identify these companies was of no significance to the progress
of the investigation, then Commerce cannot apply total adverse facts on the basis of the non-
identification of these companies."). As recently noted, "[u]nder the URAA, Commerce is now
required to make more subtle judgments than under the previous best information available ('BIA')
standard." 

these standards to the facts at hand, the Court finds that Commerce's decision to
use adverse facts available in this instance is neither in accordance with law nor supported by
substantial record evidence.


                                                   1

                Commerce Has Not Adequately Identified How Mannesmann
                "Failed to Cooperate by Not Acting to the Best of its Ability."


       In support of its Motion For Judgment On The Agency Record, Mannesmann essentially
argues that Commerce's use of adverse facts available to value its billet purchases from HKM was
inappropriate, since Mannesmann fully and timely complied with Commerce's requests for
information. See Mannesmann's Motion at 22-27; Mannesmann's Reply at 6-12. According to
Mannesmann, this Court's case law makes clear that Commerce's use of adverse information is
limited to circumstances where a party has ignored Commerce's requests, "failed to provide
information key to a substantive determination, or otherwise behaved in ways that render the
Department's regulatory duties impossible to perform." Mannesmann's Motion at 24. At most,
Mannesmann argues, it reported information "with arguably minor errors," and that this "is not
the same as deliberately withholding information or deliberately misleading ITA with respect to
key information." Mannesmann's Reply at 8. In support of these points, Mannesmann also
alleges that Commerce misrepresents as inadequate, inconsistent and misleading its responses to
Court No. 98-04-00886                                                                          Page 21

Commerce's questions concerning input purchases from unaffiliated suppliers. See Mannesmann's
Motion at 14-21.


        In response, Defendant argues that the fact that Mannesmann may have responded fully to
requests for other information is irrelevant to the issue of whether it was justified in using adverse
facts available. See Defendant's Response at 23. According to Defendant, Commerce clearly did
not fully reply to Question II.A.6.b of the first Section D Questionnaire, since Mannesmann, in
limiting its response to "subject merchandise," did not provide the market price information
requested concerning any purchases of the identical input from unaffiliated suppliers. See 

Defendant notes, "question 6.b did not refer to 'subject merchandise' and the
introductory paragraph of question 6 clearly referred to major inputs used to produce [the broader
category] 'the merchandise under review.'" 

addition, Defendant also reiterates
Commerce's finding from the Final Results that Mannesmann's response to Question 4 of the
Second Supplemental Section D Questionnaire was "misleading information because, as
Commerce discovered at verification, Mannesmann had purchased during one sampled month the
same grade of steel billets from the affiliated as well as the unaffiliated supplier." 

these two instances together, Defendant argues, "Commerce properly found that
Mannesmann had failed to cooperate by not acting to the best of its ability . . . and drew an
inference adverse to Mannesmann." 

its part, Defendant-Intervenor adds that, in addition to the failings identified by
Commerce, Mannesmann inappropriately limited its responses to Question 11 of the
Supplemental Section D Questionnaire and Question 4 of Second Supplemental Questionnaire to
"subject merchandise," and omitted important grade information requested by Commerce in the
Supplemental Section D Questionnaire. Memorandum of Gulf States Tube Division Of Vision
Metals In Opposition To Plaintiff's Motion For Judgment On The Agency Record ("Defendant-
Intervenor's Response") at 20-22.
Court No. 98-04-00886                                                                      Page 22

       As discussed previously, in the Final Results and the Final Results Memorandum
Commerce identified two errors in support of its conclusion that Mannesmann failed to cooperate
by not acting to the best of its ability to comply with Commerce's information requests: (1)
Mannesmann's failure to fully respond to Question II.A.6.b of the first Section D Questionnaire;
and (2) Mannesmann's inaccurate response to Question 4 of the Second Supplemental Section D
Questionnaire. See Final Results, 63 Fed. Reg. at 13,220; Final Results Memo. at 14-15. In
discussing the first of these errors in the Final Results, Commerce stated simply that "[m]arket
price information was requested in the Section D questionnaire for any purchases of the identical
input from unaffiliated suppliers, but Mannesmann did not respond to this portion of the
questionnaire." Final Results, 63 Fed. Reg. at 13,220. In its Final Results Memorandum,
Commerce remarked on the significance of this omission, stating that Mannesmann "failed to
respond to the Department's request to an issue that has great importance and relevance to the
verification." Final Results Memo. at 14.


       In regard to the second alleged error, Mannesmann's statement that "MWR and MWS
only purchase from other suppliers billets that HKM does not produce," Commerce noted that:


       At verification the Department attempted to verify this claim by examining
       Mannesmann's purchases of billets in one sample month. We discovered one such
       purchase in this month, and utilized this purchase price as market value.


Final Results, 63 Fed. Reg. at 13,220. According to Commerce, "[i]t was reasonable to assume
that because Mannesmann's assertion was found to be untrue in one sample month, that there may
have been other instances in which Mannesmann's claim proved untrue and the same grade of
billets was purchased from both HKM and un unaffiliated party." Final Results Memo. at 14-15.


       Through these statements and its decision to use adverse facts available, Commerce
appears to suggest that Mannesmann had evidence concerning its purchases of billets from
Court No. 98-04-00886                                                                       Page 23

unaffiliated suppliers that were of the same grade as those purchased from HKM, but willfully
tried to keep such information from Commerce. Commerce, however, does not explicitly state
such a conclusion, nor does it identify why these two errors were anything more than inadvertent
omissions. For instance, while Commerce observes that Mannesmann "failed to respond" to
Commerce's information request in Question II.A.6.b of the first Section D Questionnaire, Final
Results Memo. at 14, failure to respond is only a basis for using "facts available." See 19 U.S.C.
§ 1677e(a)(2)(A) (1994) (withholding requested information) and 19 U.S.C. § 1677e(a)(2)(B)
(1994) (failure to provide requested information by the appropriate deadlines or in the form and
manner requested). Without an additional finding that this failure to respond was because
Mannesmann "failed to cooperate by not acting to the best of its ability," however, 19 U.S.C. §
1677e(b) (1994) prohibits Commerce from applying an adverse inference.


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Court No. 98-04-00886                                                                       Page 24


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       This explanation is equally applicable to Mannesmann's failure to fully respond to
Question II.A.6.b. Although failing to respond to an information request is a basis for using
"facts available," once the requirements of 19 U.S.C. § 1677m(d) and (e) (1994) have been met,
failing to respond does not have to be read negatively. A respondent can fail to respond because
it was not able to obtain the requested information, did not properly understand the question
asked, or simply overlooked a particular request. Thus, without further explanation by
Commerce, the Court will not infer that a respondent's failure to respond constitutes substantial
evidence that it HCKNGF VQ EQQRGTCVG VQ VJG DGUV QH KVU CDKNKV[ 6JKU KU GURGEKCNN[ VTWG YJGTG CU
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       Concerning the second basis asserted by Commerce for using adverse facts available,
Mannesmann's alleged misrepresentation in response to Question 4 of the Second Supplemental
Section D Questionnaire, Commerce similarly fails to explain why it believes this
misrepresentation constitutes anything more than an inadvertent error. As noted above, in its
Final Results Memorandum, Commerce explains that Mannesmann's answer "was found to be
untrue during the course of sampling at verification," Final Results Memo. at 14, and that "[i]t
was reasonable to assume that because Mannesmann's assertion was found to be untrue in one
sample month, that there may have been other instances in which Mannesmann's claim proved
untrue and the same grade of billets was purchased from both HKM and an unaffiliated party," 

taking Commerce's assumption concerning "other instances" to be true, nothing in
this conclusion addresses the issue of whether Mannesmann cooperated to the best of its ability.
As Mannesmann points out in its Reply, the 80-ton billet purchase that Commerce discovered at
verification constituted only ".08 percent of Mannesmann's monthly purchase of tube rounds
Court No. 98-04-00886                                                                        Page 25

from its affiliated supplier." Mannesmann's Reply at 8 n.4. Omission of one or more purchases of
such a relatively small quantity could just as easily have been an oversight by Mannesmann as a
deliberate evasion. As such, the Court will not uphold, without a more substantial showing,
Commerce's conclusion that Mannesmann's failure to mention this purchase was willful --
especially in the face of Mannesmann's firm assertion to the contrary. See 

the time it
responded to ITA's questionnaire, the responsible company officials were not aware of any
purchases of the same grade of input billets that were purchased from both affiliated and
unaffiliated suppliers."); cf. Helmerich & Payne, Inc. v. United States, 

, 309
n.16 (CIT 1998) ("Plaintiff here does not claim that it was providing information to the best of
its ability and that therefore Commerce erred in adopting adverse inferences. . . . Here, neither
Plaintiff nor NKK claimed that they could not submit the information. NKK simply did not
complete the questionnaire.").


       In short, Commerce failed to identify any basis for its determination that Mannesmann
purposely failed to cooperate in this aspect of its investigation, as 19 U.S.C. § 1677e(b) (1994)
now requires. See 

("Commerce has articulated no reason for
finding De Cecco's failure was an unwillingness, rather than simply an inability, to cooperate,
other than vague hints that De Cecco was 'cooking the books.'"); Ferro 

("Commerce is obliged to explain why it concluded that a party failed to comply to the best
of its ability prior to applying adverse facts, and it did not do so here."). Accordingly, this case
is remanded so that Commerce may make specific findings as to whether Mannesmann acted to
the best of its ability in providing information about input purchases from both affiliated and
non-affiliated parties. See Ferro 

("In order to apply adverse facts
available, Commerce must be explicit in its reasoning . . . ."). If Commerce cannot identify
substantial record evidence in support of such a conclusion, it may not continue to use adverse
facts available in valuing Mannesmann's billet purchases from HKM.


       In remanding this determination, the Court is not holding that Commerce may not use
Court No. 98-04-00886                                                                          Page 26

Mannesmann's initial failure to provide information and its later, arguably misleading, assertion as
evidence of Mannesmann's failure to cooperate to the best of its ability. Rather, the Court simply
finds that, as it now stands, the evidence cited by Commerce in the Final Results, and the
explanations it provides in relation to this evidence in the Final Results and its Final Results
Memorandum, do not meet the substantial evidence requirement laid out in 19 U.S.C. § 1677e(b)
(1994). Accordingly, Commerce may use this evidence, as well as any other evidence it can
identify in the record, should it continue to believe that the use of adverse facts available is
warranted. See Borden, Inc. v. United States, 

(CIT 1998), at 1 (noting that, in
determining whether a party has cooperated to the best of its ability, "Commerce must necessarily
draw some inferences from a pattern of behavior"). Further, and if appropriate, Commerce may
(but need not) request further information from Mannesmann to determine whether the billet
purchase from the non-affiliated supplier, Vallourec, is evidence of an isolated oversight or a
deliberate effort to keep information on related party purchases from Commerce.


                                                   2

               The Court May Not Consider Other Alleged Misstatements and
                    Omissions by Mannesmann in Determining Whether
                  Commerce's Use of Adverse Facts Available Is Justified.


        As noted above, in its memorandum opposing Mannesmann's Motion For Summary
Judgment, Defendant-Intervenor cites three instances where it alleges that Mannesmann, in
response to Commerce questions seeking information on the "merchandise under review,"
deliberately tried to mislead Commerce by limiting its responses to "subject merchandise." See
Defendant-Intervenor's Response at 18-22 (discussing Mannesmann's responses to Question
II.A.6.b of the first Section D Questionnaire, Question 11 of the Supplemental Section D
Questionnaire, and Question 4 of Second Supplemental Questionnaire). In addition, Defendant-
Intervenor notes that, although Mannesmann did provide Commerce with an exhibit that
contained some of the information on billet purchases from unaffiliated parties that Commerce
Court No. 98-04-00886                                                                    Page 27

requested in Question 12 of the Supplemental Section D Questionnaire, "Mannesmann's
submission (Exhibit D-4) omitted the grade information requested by Commerce, which might
have permitted Commerce to discover that the purchases from unaffiliated parties were of the
same grade as those also produced by Mannesmann's affiliated party." 

these criticisms may be valid, in the Final Results Commerce did not cite these
alleged deficiencies as grounds for applying an adverse inference to Mannesmann.5 Thus, they
constitute post hoc rationalizations of Commerce's actions, which this Court may not consider in
this review. See Hoogovens Staal BV v. United States, 

, 1219 (CIT 1998);
Al Tech Specialty Steel Corp. v. United States, 

, 514 (CIT 1996); Shieldalloy
Metallurgical Corp. v. United States, 

, 531 (CIT 1996). As this Court stated in
Shieldalloy Metallurgical, "[t]he grounds upon which an administrative order must be judged are
those upon which the record discloses that its action was based." Shieldalloy 

.


       Because these reasons were not identified by Commerce in the Final Results, the Court
will not evaluate whether they support Commerce's use of adverse facts available at this time.
Upon remand, however, Commerce may consider this record evidence.




5
  As noted previously, in the Final Results Commerce cited two bases for its use of adverse facts
available: (1) Mannesmann's failure to fully respond to Question II.A.6.b of the first Section D
Questionnaire, and (2) Mannesmann's inaccurate response to Question 4 of the Second
Supplemental Section D Questionnaire. See Final Results, 63 Fed. Reg. at 13,220. Commerce
did not specifically criticize the fact that Mannesmann limited its response to "subject
merchandise" in regard to Question II.A.6.b or Question 4 of the Second Supplemental Section D
Questionnaire, and it did not mention any (alleged) errors made by Mannesmann in answering
Questions 11 or 12 of the Supplemental Section D Questionnaire.
Court No. 98-04-00886                                                                             Page 28


                                                   3

                Use of One Mannesmann Billet Purchase from an Unrelated
               Supplier Is Rationally Related to Establishing an Arm's-Length
                Value for All of Mannesmann's Billet Purchases from HKM.


       In addition to arguing that Commerce's use of adverse information available was
inappropriate, Mannesmann also argues that "it would be unreasonable to permit the Department
to apply punitive information to the cost of all billets based on the price of a single transaction
that is not representative of Mannesmann's normal course of business." Mannesmann's Motion
at 14; see also 

Reply at 7. According to Mannesmann, the billet
purchase that Commerce used to determine market prices was a small, exceptional purchase of a
grade of billets that was not used in producing seamless pipe for the U.S. market. See
Mannesmann's Motion at 22. Thus, Mannesmann claims, "it is inappropriate to use this grade of
steel from this single sale to value all of Mannesmann's billet costs." 

if Commerce is permitted to adjust billet costs at all, this exceptional purchase
should only be used to adjust the price for the same grade of billet (SPEC2H 61 and 62), since
"[t]he price differential calculated by the Department for this steel grade is not reliable nor
appropriate evidence for a calculated price differential for any other grade." 

argues that Mannesmann "misses the point of the
adjustment" when it argues that the price differential between the affiliated and non-affiliated
party transactions should not be used to adjust purchases of other steel grades from HKM. See
Defendant-Intervenor's Response at 31. Defendant-Intervenor argues:


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Court No. 98-04-00886                                                                       Page 29

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Defendant briefly adds that Commerce has broad discretion in choosing
adverse facts available and that, in this case, its choice of facts was reasonable because it was
based on actual market data for a sale to Mannesmann during the period of review. Defendant's
Response at 16-17.


       On its face, it is clear that Mannesmann argues that there is not a rational relationship
between the data chosen (one, small-quantity billet purchase from an unrelated supplier) and the
valuation of its purchases from HKM. As this Court has repeatedly stated, even when the use of
facts available is appropriate, a rational relationship must exist between the data chosen and the
matter to which they are to apply. Cultivos Miramonte S.A. v. United States, 

,
996 (CIT 1998); National Steel Corp. v. United States, 

, 1132, 

,
1136 (CIT 1994); Manifattura Emmepi S.p.A. v. United States, 

, 623-24, 799 F.
Supp. 110, 115-16 (1992).


       In this case, substantial evidence shows that such a relationship does exist, at least for
purposes of using "adverse" facts available. As discussed in Section III.B., Commerce correctly
interpreted 19 U.S.C. § 1677b(f)(2) and (3) as giving it the authority to use the highest of transfer


6
  As discussed below in Section III.C.4, should Commerce determine that its use of adverse facts
available cannot be justified, the likelihood exists that Commerce may use data other than
Mannesmann's (SPEC2H 61 and 62) billet purchase from Vallourec as "facts available." Given
this reality, the Court does not currently address the issue of whether, outside the context of
using "adverse" facts available, Commerce's use of one billet purchase from Vallourec is
rationally related to the establishment of an arm's-length value for Mannesmann's billet
purchases from HKM.
Court No. 98-04-00886                                                                       Page 30

price, cost of production, or market value in valuing Mannesmann's billet purchases from HKM.
Because it determined that the major input rule (19 U.S.C. § 1677b(f)(3) (1994)) was not
applicable, since HKM's cost of production was below the transfer price reported by
Mannesmann, Commerce relied on § 1677b(f)(2) to value the inputs. Section 1677b(f)(2)
requires Commerce to determine whether the prices HKM charged Mannesmann for billets fairly
TGHNGEVGF OCTMGV XCNWGU CPF KH VJG[ FKF PQV WUG KPHQTOCVKQP CXCKNCDNG EQPEGTPKPI OCTMGV

RTKEGU VQ XCNWG VJG VTCPUCEVKQPU +P NKPG YKVJ VJKU OCPFCVG HQT VJG (KPCN 4GUWNVU %QOOGTEG

WUGF VJG UQNG KPUVCPEG YJGTG KV HQWPF VJCV /CPPGUOCPP JCF RWTEJCUGF VJG UCOG ITCFG QH UVGGN

HTQO DQVJ *-/ CPF C PQPCHHKNKCVGF RCTV[ CU VJG DCUKU HQT CFLWUVKPI CNN QH *-/	U DKNNGV

RWTEJCUGU




       9JKNG UWEJ CP CFLWUVOGPV OC[ NGCF VQ OCTMGV RTKEGU HQT /CPPGUOCPP	U TGNCVGF RCTV[

VTCPUCEVKQPU VJCV KP TGCNKV[ CTG VQQ JKIJ VJG %QWTV FQGU PQV HKPF UWEJ C OGCPU QH GUVKOCVKPI

OCTMGV XCNWG NCEMKPI KP TCVKQPCNKV[ 4CVJGT    a close nexus exists between the data chosen and
the matter to which it applies since, GUUGPVKCNN[   %QOOGTEG FKF PQ OQTG VJCP WUG CXCKNCDNG

                                                                                   
TGEQTF GXKFGPEG QH C OCTMGV RTKEG VQ JGNR KV CRRTQZKOCVG QVJGT OCTMGV RTKEGU




       +P NKIJV QH VJKU EQPENWUKQP UJQWNF %QOOGTEG FGOQPUVTCVG QP TGOCPF VJCV VJG WUG QH

CFXGTUG DGUV KPHQTOCVKQP CXCKNCDNG KU UVKNN CRRTQRTKCVG VJG %QWTV YKNN UWUVCKP   as supported by
substantial record evidence VJG TCVKQPCNKV[ QH WUKPI the billet purchase (SPEC2H 61 and 62)
from Vallourec as a means of determining market values for all of Mannesmann's billet
purchases from HKM.




7
  The Court also notes that use of this value would be consistent with the purpose of adverse
facts available, which is to ensure that an uncooperative party "does not obtain a more favorable
result by failing to cooperate than if it had cooperated fully." Statement of Administrative Action
Accompanying the URAA ("SAA"), H.R. Doc. No. 103-316, at 870 (1994), reprinted in 1994
U.S.C.C.A.N. 4040, 4199.
Court No. 98-04-00886                                                                          Page 31



                                                  4

              The Court Will Not Consider Whether Commerce's Calculation
                 of Market Value Is Sustainable as a Facts Available, As
                  Opposed to an Adverse Facts Available, Determination.


       In its memorandum opposing Mannesmann's Motion For Summary Judgment,
Defendant-Intervenor argues that:


       Contrary to Mannesmann's claim, Commerce's valuation of the billets at issue
       here not [sic] a punitive application of adverse facts available. Indeed,
       Commerce's valuation finding need not have been characterized as adverse and is
       sustainable as a facts available determination.


Defendant-Intervenor's Response at 18.


       Regardless of the merit of this position, this Court should not, and will not, consider it at
this point in the litigation. For the Final Results, Commerce made clear that it was using data
from one purchase of billets from an unaffiliated supplier as "adverse facts available" in making
a 30.9% price adjustment to Mannesmann's purchases from HKM. See Final Results, 63 Fed.
Reg. at 13,220; Final Results Memo. at 15. Nowhere did Commerce indicate that it was also, or
alternatively, using this data on the basis of "facts available." For this reason, the Court
recognizes that, should Commerce conclude upon remand that it cannot continue to apply
adverse facts available, Commerce will not necessarily continue to apply the same data. Rather,
the likelihood exists that Commerce will choose other figures, or request further information,
that it may use as "facts available." In light of these possibilities, it would be inappropriate for
the Court to currently consider the issue of whether Commerce's reliance on one purchase of
billets from an unaffiliated supplier is sustainable on a "facts available," as opposed to an
"adverse facts available," basis.
Court No. 98-04-00886                                                                       Page 32




                                                 D

     Commerce's Use Of Adverse Facts Otherwise Available To Value Mannesmann's
        U.S. Duty Amounts Is Not Supported By Substantial Record Evidence.


       The final point of contention between the parties concerns the customs duties that
Mannesmann, in response to Section C of Commerce's Antidumping Questionnaire, reported as
having paid on its U.S. sales. As discussed above, at verification Commerce discovered that
Mannesmann had underreported its U.S. duties paid on a number of entries, and that Mannesmann
could not recreate the allocation methodologies it used to derive its figures. See Final Results, 63
Fed. Reg. at 13,222. In light of these problems, Commerce used the highest U.S. duty amounts
reported by Mannesmann for those instances where it was unable to exactly verify Mannesmann's
figures. 

presented as such, Plaintiffs appear to challenge three aspects of
Commerce's calculation of Mannesmann's U.S. duty amounts: (1) Commerce's initial decision to
reject the U.S. duty amounts reported by Mannesmann in favor of facts available; (2) Commerce's
decision to use "adverse" facts available; and (3) Commerce's use of impermissibly punitive
figures as adverse facts available. For the reasons below, the Court remands this case to
Commerce on the grounds that its use of "adverse" facts available is not supported by substantial
record evidence.


                                                 1

           Commerce's Use of Facts Available to Value Mannesmann's U.S. Duty
                    Amounts Is Supported by Substantial Evidence.


       Mannesmann first challenges Commerce's use of its highest reported U.S. duty amounts
on the grounds that "the discrepancies between reported and verified data were minimal and did
not justify rejection of actual information." Mannesmann's Motion at 27. According to
Court No. 98-04-00886                                                                        Page 33

Mannesmann, because subject and non-subject merchandise were generally present in the same
customs entry, it had to allocate duties paid for purposes of Commerce's investigation. 

to be made for harbor maintenance and merchandise processing fees. 

"[i]n performing these allocations, percentages had to be
calculated and applied, and rounding decisions had to be made. It is not surprising, therefore, that
minor discrepancies arose in Mannesmann's duty calculations compared with the Department's
calculations at verification." 

explaining why it was reasonable that the figures it reported as U.S. duties
paid differed from those Commerce calculated, Mannesmann further argues that the discrepancies
identified by Commerce were de minimis. According to Mannesmann, for the 52 percent of
subject merchandise examined by Commerce, Commerce found discrepancies ranging from $.07
to $.98 cents per ton. 

a percentage basis, this underreporting ranged from a high of
1.6 % of duties paid (per ton) to a low of 0.1 % of duties paid, and the weighted average
discrepancy equaled only 0.22 % of duties paid. Analysis of U.S. Duty Adjustment, 

these errors were so minor, and because Commerce was able to tie Mannesmann's
reported data to its "financials," Mannesmann argues that "the Department's total rejection of the
reported duty due to minor discrepancies with the verified duty paid is unwarranted." 

response, Defendant briefly asserts that Commerce was justified in using adverse facts
available pursuant to 19 U.S.C. § 1677e(a) because it was unable to verify the amounts of U.S.
duty reported by Mannesmann. According to Defendant, Commerce's finding that Mannesmann
failed to cooperate to the best of its ability "is clearly supported by the record because
Mannesmann possessed the source documentation, such as Customs entry forms and payment
records. It simply failed to report the accurate amounts of U.S. duty." Defendant's Response at
Court No. 98-04-00886                                                                         Page 34

28.8 Defendant also argues, in its supplemental brief, that as "[n]o statute or regulation authorizes
or requires Commerce to disregard de minimis errors . . . or specifies what constitutes de minimis
errors for determining whether a party has complied with an information request. . . . Commerce
. . . will make its determination of whether to apply facts available on a fact- and case- specific
basis." Defendant's Brief On The Issue Of What Constitutes A De Minimis Error For
Determining Whether A Party Has Complied With An Information Request From Commerce at 3.




       Pursuant to 19 U.S.C. § 1677e(a)(2)(D) and § 1677m(e)(2) (1994), Commerce may
disregard information submitted by a party that cannot be verified and substitute facts available.
In this case, Commerce found that it was unable to exactly verify the U.S. duty amounts reported
by Mannesmann and, consequently, resorted to facts available. Although Commerce has
considerable discretion in deciding whether a party has sufficiently replied to an information
request, 

, this discretion is not unfettered. For instance, this
Court has found Commerce's use of best information available (now "facts otherwise available")
to be arbitrary and an abuse of discretion where a respondent failed to give information that did
not exist, or where Commerce did not adequately request the information at issue. See
Outokumpu Copper Rolled Products AB v. United States, 

, 867-68, 

, 1386-87 (1993).


       Against this background, the fact that Commerce, on the basis of what are essentially
minimal, non-consequential deviations, found that it was unable to verify Mannesmann's reported
duty rates -- and, on this grounds, disregarded them -- gives the Court pause. Such a rigid
verification process appears to be in conflict with Commerce's normal practice of ignoring de
minimis errors, see, e.g., Notice of Final Determination of Sales at Less Than Fair Value:


8
  Defendant's comments on this part of the Final Results, like those of Defendant-Intervenor, deal
almost exclusively with the issue of why the use of "adverse" facts available was appropriate.
Court No. 98-04-00886                                                                           Page 35

 Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe
From Italy, 60 Fed. Reg. 31,981, 31987 (1995) (minor discrepancies between the respondent's
actual freight expenses and the reported freight expenses did not warrant the use of best
information available), and, without more, might constitute an abuse of discretion. Cf. NTN
Bearing Corp. v. United States, 

, 1208-09 (Fed. Cir. 1995) (noting, in regard to
Commerce's refusal to consider a request for correction of clerical errors, that "[w]hile the parties
must exercise care in their submissions, it is unreasonable to require perfection").


       In this instance, however, not only did Mannesmann's figures slightly vary from those
calculated by Commerce, but Mannesmann was unable to recreate or explain at verification the
method by which it arrived at its results. As such, Commerce was unable to examine
Mannesmann's methodology, compare it to its own, and determine why Mannesmann's reported
duties were slightly lower than those calculated by Commerce in most instances. In light of this
inability to verify Mannesmann's calculation methods, the Court finds Commerce's decision to use
appropriate facts available to be supported by substantial record evidence, despite the relative
insignificance of the errors involved.


                                                  2

                     Commerce's Use of "Adverse" Facts Available Is Not
                           Supported by Substantial Evidence.


       While the discrepancies Commerce identified at verification are sufficient to support its
use of appropriate facts available, these errors do not provide substantial evidence to support
Commerce's use of "adverse" facts available.


       As discussed previously, once Commerce finds that it may resort to facts available, it may
apply an adverse interest in choosing among facts available if it can show that "an interested party
has failed to cooperate by not acting to the best of its ability to comply with a request for
Court No. 98-04-00886                                                                          Page 36

information." 19 U.S.C. § 1677e(b) (1994). In this instance, and in contrast to its finding
concerning the valuation of Mannesmann's billet purchases, Commerce appears to have
adequately laid out its reasons for concluding that Mannesmann failed to act to the best of its
ability. Commerce found that Mannesmann had repeatedly underreported its U.S. duties paid,
and that such a pattern of underreporting "indicates that errors exist which are more pervasive
than can be explained by rounding or allocation methodologies." Final Results, 63 Fed. Reg. at
13,222. In addition, Commerce noted that "the company could not recreate or explain the
allocation methodologies used in its submission." 

have been stated more
directly, it seems clear from these statements that, in Commerce's view, the discrepancies it
identified at verification were evidence that Mannesmann had willfully not reported correct
figures. See AK Steel Corp. v. United States, 

, 607 (CIT 1997), aff'd 

(Fed. Cir. 1999) (quoting Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc.,

(1974)) ("The Court will 'uphold a decision of less than ideal clarity if the agency's
path may reasonably be discerned.'").


       Notwithstanding the adequacy of this explanation, however, the evidence identified by
Commerce does not provide substantial evidence that Mannesmann "failed to cooperate by not
acting to the best of its ability to comply with a request for information." See 19 U.S.C. §
1677e(b) (1994). In determining whether a party has acted to the best of its ability for purposes
of 19 U.S.C. § 1677e(b) (1994), Commerce, like this Court, must interpret this provision in light
of the principle that the law does not care for, or concern itself with, small or trifling errors. As
the Supreme Court made clear in Wisconsin Dep't of Revenue v. William Wrigley, Jr., Co., 

, 231 (1992), "the venerable maxim de minimis non curat lex ('the law cares not for
trifles') is part of the established background of legal principles against which all enactments are
adopted, and which all enactments (absent contrary indication) are deemed to accept." This
maxim of statutory construction applies with equal force to the interpretation of customs and
trade laws. See Alcan Aluminum Corp. v. United States, 

(Fed. Cir. 1999) (applying
Wrigley to country-of-origin determination); Washington Red Raspberries Comm'n v.
Court No. 98-04-00886                                                                               Page 37

United States, 

(Fed. Cir. 1988) (finding dumping margins of less than 0.5% to be de
minimis); Industria de Fundicao Tupy v. United States, 

, 882-83, 

,
1019-20 (1996) (recognizing the doctrine of de minimis non curat lex in holding that "[b]ased on
Plaintiffs' assertion that its transactions are 'insignificant' . . . the Court also dismisses [Plaintiffs']
Complaint pursuant to the long stated proposition that it should not bother with trifles").


        Unless a statute sets out specific guidelines,9 the question of whether an activity is a de
minimis derivation from a prescribed standard must be determined in reference to the purpose of
the standard. 

. As stated in the Statement of Administrative Action that
accompanied the Uruguay Round Agreements Act, "Commerce's potential use of [facts available]
provides the only incentive to foreign exporters and producers to respond to Commerce
questionnaires." SAA, H.R. Doc. No.103-316, at 868, reprinted in 1994 U.S.C.C.A.N. at 4198.10
Consistent with this goal of ensuring compliance, the SAA states that, where a party has been
uncooperative, Commerce "may employ adverse inferences about the missing information to
ensure that the party does not obtain a more favorable result by failing to cooperate than if it had
cooperated fully." 

in 1994 U.S.C.C.A.N. at 4199. The SAA further
provides that "[i]n employing adverse inferences, one factor the agencies will consider is the
extent to which a party may benefit from its own lack of cooperation." 

in light of this "purpose" for applying adverse facts
available, the Court finds Mannesmann's errors to be de minimis. While it is true that the U.S.


9
  No specific statute or regulation defines what constitutes a de minimis error for purposes of
determining whether a party has complied with an information request or acted to the best of its
ability.
10
  19 U.S.C. § 3512(d) (1994) provides that the SAA "shall be regarded as an authoritative
expression by the United States concerning the interpretation and application of the Uruguay
Round Agreements and [the URAA] in any judicial proceeding in which a question arises
concerning such interpretation or application."
Court No. 98-04-00886                                                                      Page 38

duties reported by Mannesmann were lower than those calculated by Commerce in most
instances, the degree of these variances was generally trifling. As Mannesmann makes clear in its
brief, the weighted average discrepancy found by Commerce equaled only 0.22 % of duties paid.
Analysis of U.S. Duty Adjustment, Mannesmann's Motion, Ex. A. Further, in 89% of those
instances where Commerce found that Mannesmann had underreported its duties paid, the
discrepancy from the numbers calculated by Commerce equaled 0.1% of the duty paid. See id.11
Only 11% of the discrepancies found equaled more than 1% of the duty paid, see id.,12 and in
three instances Commerce found no discrepancies, see Final Results, 63 Fed. Reg. at 13,222;
Final Results Memo. at 12.


       Given the limited nature of these errors, the Court does not find substantial evidence to
support Commerce's conclusion that "errors exist which are more pervasive than can be explained
by rounding or allocation methodologies" and its related decision to use adverse facts available.
As noted above, the purpose of using an adverse inference is to "ensure that the party does not
obtain a more favorable result by failing to cooperate than if it had cooperated fully." SAA, H.R.
Doc. No.103-316, at 870, reprinted in 1994 U.S.C.C.A.N. at 4199. In this case, the limited
amounts by which Commerce found that Mannesmann had underreported its U.S. duties
presumably would not have had any substantive effects upon the calculation of the U.S. price for
Mannesmann's products, and Defendant has not identified any record evidence to indicate
otherwise. Accordingly, errors in the figures Mannesmann provided would have given it almost


11
   According to Mannesmann's exhibit ("Analysis of U.S. Duty Adjustment"), sales observations
1,5,6, and 8-11 were underreported by 0.1%. These observations accounted for [confidential #]
of the [confidential #] tons of product that Commerce found to have been underreported, or
approximately 89%. The Court notes, however, that because Commerce was able to verify
Mannesmann's reported duties for three sales, Final Results Memo. at 12, the frequency with
which the duties reported by Mannesmann either equaled, or were within 0.1%, of the figures
calculated by Commerce was likely at or above 90%.
12
   Sales observations 45, 46, 49-51, 53 and 54 (accounting for [confidential #] tons of product)
were underreported by 1.1%, while sales observations 84-91 ([confidential #] tons) were
underreported by 1.6%. These observations accounted for [confidential #] of the [confidential
#] tons of product that Commerce found to have been underreported, or approximately 11%.
Court No. 98-04-00886                                                                      Page 39

no advantage compared to the "correct" figures calculated by Commerce.


       Further, although Commerce noted that Mannesmann could not recreate or explain the
allocation methodologies it used for its submission during verification, the record does not show
that Mannesmann kept any of the information underlying its conclusions from Commerce.
Rather, Mannesmann provided Commerce with the relevant source documentation, and
Commerce was able to compute its own, nearly identical, figures for the U.S. duties paid by
Mannesmann. See U.S. Sales Verification Report, dated 09/02/97, Conf. AR-57, Mannesmann
Appendix, App. 10, at 21-26. Given Mannesmann's willingness to provide this information (and
given how close the figures provided by Mannesmann were to those calculated by Commerce),
this does not appear to be a situation where Mannesmann tried to obtain a more favorable result
by not providing relevant information. In fact, substantial record evidence supports an opposite
conclusion.


       In light of the foregoing, the Court finds that Commerce's decision to apply an adverse
inference in this case is not supported by substantial record evidence. While the figures reported
by Mannesmann were generally lower than those calculated by Commerce, the differences
between the figures were so small that they could not reasonably be viewed as evidence of non-
cooperation by Mannesmann. See 0QVKEG QH (KPCN &GVGTOKPCVKQP QH 5CNGU CV .GUU 6JCP (CKT
8CNWG 5VCKPNGUU 5VGGN 2NCVG KP %QKNU (TQO 5QWVJ #HTKEC  (GF 4GI   



HKPFKPI VJCV CNVJQWIJ VJG TGURQPFGPV EQOOKVVGF C PWODGT QH GTTQTU CPF KP EGTVCKP ECUGU

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QP =TGURQPFGPV	U? RCTV Mannesmann also appears to have supplied Commerce with all its

relevant source data; a fact which undermines any idea that Mannesmann was purposefully
withholding data in order to obtain a more favorable outcome.


       Accordingly, this aspect of the Final Results is remanded so that Commerce may identify
Court No. 98-04-00886                                                                         Page 40

other record evidence to support its use of "adverse" facts available. In order to do this,
Commerce may, at its discretion, calculate the duties paid on the entries that it did not review at
verification and compare its figures to the duty amounts reported by Mannesmann. Should
Commerce be unable to, or choose not to, identify such substantial evidence, it may only use
reasonable, non-adverse facts available13 to value the U.S. duties paid by Mannesmann.14


                                                  IV

                                          CONCLUSION

       For the foregoing reasons, the Court finds that although Commerce correctly interpreted
19 U.S.C. § 1677b(f)(2) and (3) (1994), its use of adverse facts available to value Mannesmann's
billet purchases from HKM was neither in accordance with law nor supported by substantial
record evidence. The evidence cited by Commerce in the Final Results, and the explanation it
provides in relation to this evidence, do not demonstrate that Mannesmann failed to cooperate to
the best of its ability in this aspect of the investigation, as required by 19 U.S.C. § 1677e(b)
(1994). Accordingly, this aspect of the Final Results is remanded so that Commerce may



13
   A reasonable choice of facts available may include use of the figures provided by Mannesmann
(subject to necessary adjustments), use of the figures calculated by Commerce (where available),
or the use of any other record evidence which bears a rational relationship to the calculations of
the U.S. duties paid by Mannesmann, see Koenig & Bauer-Albert AG v. United States, 15 F.
Supp.2d 834, 846 (CIT 1998), and is otherwise in accordance with law and supported by
substantial evidence. Similarly, Commerce may use record evidence to calculate U.S. duties for
those Mannesmann sales that it did not attempt to review at verification, if appropriate. That said,
however, the Court notes that these possible alternatives are only suggestions; the ultimate choice
of facts available is a matter largely reserved to Commerce's discretion. See Allied-Signal
Aerospace Co. v. United States, 

, 1191 (Fed. Cir. 1993) (recognizing that, as
Congress did not explicitly define what constitutes BIA (now facts otherwise available),
Commerce's "construction of the [BIA] statute must be accorded considerable deference").
14
   Because substantial record evidence does not support Commerce's decision to apply adverse
facts available, the Court need not reach the question, raised by Plaintiffs, of whether the adverse
information chosen by Commerce was impermissibly punitive.
reconsider its conclusion, or more specifically articulate why it concluded, that Mannesmann
failed to act to the best of its ability in providing information about input purchases from both
affiliated and non-affiliated parties. See Ferro 

("In order to apply
adverse facts available, Commerce must be explicit in its reasoning . . . .").


       Similarly, and in light of the de minimis nature of the errors at issue, the Court also finds
that the record evidence identified by Commerce does not adequately support its conclusion that
Mannesmann failed to cooperate to the best of its ability (and, in turn, that the use of adverse facts
available was appropriate). Thus, this aspect of the Final Results is also remanded for further
consideration by Commerce. Upon remand, Commerce may seek to identify other record
evidence to support its use of "adverse" facts available, or, should it choose (or be unable) to do
so, it may use non-adverse record evidence to value the U.S. duties paid by Mannesmann.




                                               __________________________
                                                   Evan J. Wallach, Judge


Date: October 29, 1999
      New York, New York