CARMAN, Judge:
Plaintiff U.K. Carbon and Graphite Company, Ltd. ("Plaintiff" or "UKCG") contests the final determination by Defendant United States Department of Commerce ("Defendant" or "Commerce") regarding the circumvention
The product at issue is small diameter graphite electrodes ("SDGE"). In 2009, Commerce imposed an antidumping duty order upon imports of SDGE from China. Antidumping Duty Order: Small Diameter Graphite Electrodes from the People's Republic of China, 74 Fed.Reg. 8,775 (Feb. 26, 2009) ("AD Order" or "SDGE Order"). The scope of the AD Order covers:
Id. at 8,775.
On October 12, 2010, domestic producers of SDGE — SGL Carbon LLC and Superior Graphite Company, Defendant-Intervenors in the instant case (collectively referred to as "Defendant-Intervenors" or "Petitioners") — requested that Commerce conduct a scope or an anticircumvention inquiry on SDGE produced by UKCG from Chinese manufactured artificial/synthetic graphite forms. See Petitioners' Request for Scope Review or Anticircumvention Inquiry (Oct. 12, 2010) ("Initiation Request"), Part 1, P.R. 1. Petitioners alleged that UKCG was part of "an ongoing scheme to evade payment of antidumping duties under the SDGE Order" with Chinese producers. Id. at 1-2. Petitioners alleged that UKCG was first importing unfinished SDGE from China to the U.K. "for minor completion or assembly" then exporting to the U.S., thereby circumventing the AD Order duty assessment by improperly claiming the U.K. as
Petitioners asserted the SDGE that UKCG imported was "for every relevant purpose an unfinished graphite electrode subject to the antidumping duty order when it leaves China," because "[a]ll of the physical, chemical and performance characteristics of an electrode have been given to the product in China." Id. at 14. Petitioners explained that
Id. at 14 (emphasis added).
Commerce acknowledged that there was "substantial record evidence which may support the initiation of either" a scope inquiry or an anticircumvention inquiry. Small Diameter Graphite Electrodes From the People's Republic of China: Initiation of Anti-Circumvention Inquiry, 76 Fed.Reg. 14,910, 14,912 (Mar. 18, 2011) ("Initiation Notice"). Commerce decided that an anticircumvention inquiry was the more appropriate avenue given the "specificity" of the allegation to a single company and "certain record information as to the timing of the pattern of trade." Id.
UKCG provided timely responses to Commerce's information requests, and all parties submitted timely comments regarding surrogate country and surrogate value selection. Def.'s Mem. in Opp'n to Pl.'s R. 56.2 Mot. for J. upon the Agency Record ("Def.'s Opp'n") at 5. Commerce also conducted a verification of UKCG's questionnaire responses at two of its U.K. facilities during February 16-17, 2012. Pl. UKCG's Mem. of Law in Supp. of Their R. 56.2 Mot. for J. on the Agency Record ("Pl.'s Mot.") at 6, 38; Def.'s Opp'n at 5.
In June 2012, Commerce subsequently issued a preliminary affirmative determination of circumvention. See Small Diameter Graphite Electrodes From the People's Republic of China: Affirmative Preliminary Determination of Circumvention of the Antidumping Duty Order and Extension of Final Determination, 77 Fed.Reg. 33,405 (June 6, 2012) ("Preliminary Determination"). In its Preliminary Determination, Commerce first found that the products exported by UKCG to the U.S. were completed or assembled in the U.K. from "unfinished" Chinese-origin inputs "subject to" the AD Order, based upon the scope language and product descriptions from the petition and the report of the International Trade Commission ("ITC"). Id. at 33,410-11; Small Diameter Graphite Electrodes from China, Inv. No. 731-TA-1143 (Final), ITC Pub. 4062 (Feb. 2009) ("ITC Report"). Commerce therefore determined that it was appropriate to use the surrogate value methodology from antidumping proceedings for non-market economy ("NME") countries. Id. at 33,407-08.
Second, Commerce determined to use surrogate values from the Ukraine to analyze whether the value of the merchandise produced in China constituted a "significant portion" of the value of the merchandise exported to the United States. Id. at 33,407-08, 33,415. Third, Commerce determined that the value of UKCG's processing in the U.K. was "minor and insignificant." Id. at 33,417. Commerce therefore preliminarily determined that UKCG had circumvented the antidumping duty order. Id.
A couple months after issuing its Preliminary Determination, Commerce issued its Final Determination. See 77 Fed.Reg. 47,596. The significant changes in the Final Determination from the Preliminary Determination are summarized as follows. First, regarding the product covered by the scope language, Commerce "specifically refuted UKCG's allegation that the agency manipulated language from the petition to supplement its textual analysis," and after taking into account evidence submitted by UKCG, Commerce "determined that this evidence `d[id] not overcome [the] explicit inclusion' of unfinished [SDGE] in the order." Def.'s Opp'n at 7 (quoting I & D Memo at 6). Second, Commerce added HTSUS 3801.10 to the description of the AD Order's scope for "convenience and customs purposes." Id. at 8.
Third, with respect to surrogate values, Commerce noted the circumvention provisions of the antidumping statute do not "prescribe a specific method to determine whether the value of the merchandise produced in China is a significant portion of the value of the merchandise exported to the United States." Id. Noting that the antidumping statute "elsewhere presumes that costs and prices" from a NME are "inherently unreliable," Commerce, "consistent with its past practice, found it reasonable to use surrogate values" from the Ukraine. Id. However, Commerce also noted that its circumvention analysis showed the Chinese inputs made up a significant portion of the value UKCG's U.S. exports, "regardless of whether it used Ukrainian surrogate values or UKCG's purchase price," and that the choice to use surrogate values was therefore not essential to the outcome. Id. (citing I & D Memo at 7).
Fourth, Commerce rejected UKCG's complaints about its value-added calculation under 19 U.S.C. § 1677j(b)(2)(E) (2006)
Fifth, relating to the cash deposit requirements, Commerce explained that it is "appropriate and consistent with past practice to assign UKCG's exports of SDGE to the United States the rate applicable to the relevant [Chinese]-producer of the subject input" since 19 U.S.C. § 1677j(b)(1)(E) requires Commerce to prevent evasion of antidumping duties "irrespective of the exporter" of the subject merchandise being entered into the U.S. Id. at 9 (citing I & D Memo at 14-15).
The Court has jurisdiction pursuant to 28 U.S.C. § 1581(c). The Court sustains circumvention determinations, findings or conclusions by Commerce unless they are "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
Commerce has two types of inquiries available when examining allegations that a particular product should be covered by an existing antidumping order: scope inquiry or circumvention inquiry. Petitioners requested an examination of UKCG's product through both of these avenues, in the alternative. See Def.'s Opp'n at 4; accord Initiation Request. In a scope inquiry, Commerce analyzes "whether a particular product is included within the scope of an order" pursuant to regulatory criteria set forth in 19 C.F.R. § 351.225(k). In a circumvention inquiry, Commerce analyzes whether a product outside an order's literal scope should nevertheless be included within the scope to prevent circumvention of antidumping and countervailing duty orders pursuant to statutory criteria set forth in 19 U.S.C. § 1677j
Based on these particular facts, Commerce decided that the issues raised by the parties are "better addressed in the context of an anticircumvention proceeding" rather than a scope inquiry. Initiation Notice, 76 Red. Reg. at 14,912. Commerce explained that "due to the specificity of Petitioners' request as it pertains to a particular company (i.e., UKCG) and certain record information as to the timing of the pattern of trade ..., [Commerce] has determined that a decision to initiate an anti-circumvention inquiry is the most appropriate course of action to address Petitioners' concerns at present." Id.
An anticircumvention inquiry is similar to the more frequently invoked scope inquiry because they are both subsets of a scope ruling. The criteria for circumvention and scope inquiries differ, however:
Def.'s Opp'n at 27-28. The Court may only review the underlying proceeding that Commerce chose to conduct, which is the anticircumvention inquiry in this case, and therefore any discussion relating to the scope factors pursuant to 19 C.F.R. § 351.225(k) is extraneous and will be disregarded for this review.
Circumvention cases are governed by 19 U.S.C. § 1677j. See Pl.'s Mot. at 27; Def.'s Opp'n at 14. When merchandise is completed or assembled in a third country other than the country named in the antidumping
19 U.S.C. § 1677j(b). Commerce considers whether the criteria listed under 19 U.S.C. § 1677j(b)(1) are satisfied by considering the factors listed in 19 U.S.C. § 1677j(b)(2) and (3). However, none of the factors listed under 19 U.S.C. § 1677j(b)(2) or (3) is controlling.
Defendant-Intervenors provided the following description of the production process for SDGE, which was taken from the Chinese respondents' Section D questionnaire responses in the antidumping duty investigation:
Def.-Intervenors' Resp. Br. ("Def.-Ints.' Opp'n") at 4-6 (citations omitted). These thirteen stages of production take place over a substantial number of days, and the first eleven stages are done in China. Id. at 13. The record shows that only the finishing is done by UKCG in the U.K., and Commerce determined at verification that finishing "takes approximately five minutes per electrode." Verification of Responses of U.K. Carbon & Graphite Co. Ltd. in the Anti-Circumvention Inquiry of Small Diameter Graphite Electrodes From the People's Republic of China at 15 (May 30, 2012) ("Verification"), Part 2, P.R. 53; Part 4, C.R. 46.
Commerce claims that only subsections 19 U.S.C. § 1677j(b)(1)(B) and (C) of the circumvention statute are at issue in this case, requiring only determinations of whether the imports of SDGE are completed abroad from Chinese subject merchandise and, if so, whether the process of assembly or completion in the U.K. is minor or insignificant. Def.'s Opp'n at 15. But Plaintiff lists eight issues in its motion, including "plain language" issues relevant to a scope inquiry, and concerns about use of surrogate value for UKCG's production inputs. Pl.'s Mot. at 1-2. Upon review of all parties' briefs, the Court boils down the arguments to four main issues:
See Pl.'s Mot. at 1-2; Def.'s Opp'n at 2-3; Def.-Ints.' Opp'n at 2-3. The Court will address these four issues within the statutory scheme by reviewing the record for substantial evidence to support each statutory criterion.
The first statutory consideration is whether the merchandise imported to the U.S. is of the "same class or kind" as merchandise subject to the AD Order. 19 U.S.C. § 1677j(b)(1)(A). Plaintiff contends that its product — artificial graphite rod — differs from merchandise subject to the AD Order — small diameter graphite electrodes. Pl.'s Mot. at 4-5. Plaintiff makes much ado about the term "unfinished" and advances that Commerce misapplied the "plain meaning" principle. Id. at 9-10, 15-22. Finally, Plaintiff relies on the fact that artificial graphite falls under HTSUS 3801.10, which was originally not included as part of the scope description but was subsequently added in the Final Determination.
Defendant-Intervenors advise that Plaintiff's product, artificial graphite rod, is of the same class or kind of merchandise subject to the AD Order. They explain that artificial graphite rod is "an electrode in unfinished form ..., regardless of whether it is called a rod or an electrode." Def.-Ints.' Opp'n at 3 (citing Initiation Request at 14) (emphasis added). Defendant-Intervenors counter Plaintiff's objection to the term "unfinished" as ambiguous and instead offer that the term is "quite common in antidumping lexicon and has
The Court finds that Commerce's affirmative determination regarding class or kind is supported by the record. For clarification's sake, while the parties use various terminology throughout their briefs and on the record — Petitioners characterize the inputs as "unfinished SDGE" while Plaintiff characterizes the inputs as "artificial graphite rods" — they are actually one and the same. See, e.g., Final Determination, 77 Fed.Reg. at 47,597 n. 2 ("For ease of reference, these materials are referred to as `unfinished SDGE components' or `artificial graphite rods' throughout this notice.") Next, regarding the meaning of the term "unfinished," Plaintiff admits that "there is no evidence on the record that `unfinished' has any meaning whatsoever in the trade." Pl.'s Mot. at 16. Commerce considered carefully the scope language "whether or not finished," and determined that "unfinished SDGE" meant "an SDGE product that has completed the graphitization stage and needs only finishing to be used as a finished SDGE in a furnace." Def.'s Opp'n at 19 (citing I & D Memo at 5).
Plaintiff admits that it has never argued that "the HTS categories are controlling," but asserts that Petitioners "treatment of such categories is relevant in determining what the Petition meant by the vague term `unfinished.'" Pl.'s Mot. at 20. The Court declines to adopt Plaintiff's position. It is well-settled that "a reference to an HTSUS number is not dispositive about the scope" of an antidumping order. Novosteel SA v. United States, 284 F.3d 1261, 1270 (Fed.Cir.2002) (internal citations omitted); see also Preliminary Determination, 77 Fed.Reg. at 33,411. Consequently, Plaintiff's HTSUS arguments are vitiated by settled case law regarding scope determinations. Despite Plaintiff's quibbling over the meaning of "unfinished," the Court cannot say that Commerce's consideration and decision to use Petitioners' definition of "unfinished" is unreasonable, arbitrary or capricious.
The Court also finds that Plaintiff's argument regarding Commerce's lack of consideration of the classification rulings is not supported by the record. Pl.'s Mot. at 24 (contending that it is "flatly false" that Commerce "ever addressed, considered, or took into account" the U.K. and U.S. classification rulings). Commerce stressed that it considered the classification rulings, both foreign and domestic, and then explained throughout the record why it did not rely on these rulings. See, e.g., Initiation Notice, 76 Fed.Reg. at 14,917 ("neither the BOI nor the [CBP] ruling are legally binding for the purposes of antidumping proceedings in the United States"); Preliminary Determination, 77 Fed.Reg. at 33,410 ("U.S. and E.U. customs rulings are not controlling" in anticircumvention proceedings, "as the two determinations are made for different reasons and under different laws"); I & D Memo at 6 ("Contrary to UKCG's assertion, [Commerce] has indeed considered this information and taken the various rulings and actions into account in the instant determination.") Commerce has provided ample reasoned explanations for its decision to not rely on the classification rulings.
Accordingly, the Court finds that Commerce's determination that Plaintiff's artificial graphite rods are "of the same class or kind" as the subject merchandise of the AD Order, satisfying 19 U.S.C. § 1677j(b)(1)(A), is supported by substantial
The second statutory consideration is whether imported merchandise is completed or assembled in a third county from merchandise which is either subject to the order or is produced in the country to which the order applies. 19 U.S.C. § 1677j(b)(1)(B). Commerce "made an affirmative determination as to both" of the statutory criteria — (i) being subject to an order
Plaintiff asserts that subsection (ii) was not considered in the underlying administrative proceeding. Pl.'s Reply Br. in Supp. of Its Mot. for J. on the Agency Record ("Pl.'s Reply") at 5 ("Commerce is not compelled to utilize both (i) and (ii) but instead may utilize either provision .... [it] did so here by analyzing (i) .... [n]ever once did it analyze or mention (ii).")
A review of the record does not support Plaintiff's assertion. In the I & D Memo, Commerce stated:
I & D Memo at 7. Commerce's conclusion is supported on the record. It is sufficient that Commerce reached a conclusion pursuant to subsection (ii), that UKCG's inputs were produced in China, a country to which the AD Order applied. Commerce, however, went further and analyzed the scope language of the AD Order, the petition and the ITC Report to determine if Plaintiff's inputs were subject to order pursuant to subsection (i). I & D Memo at 6-7. Commerce found that the plain language of the scope order includes UKCG's inputs where it indicates "small diameter graphite electrodes, whether or not finished." AD Order, 74 Fed.Reg. at 8,775; ITC Report at I-9; I & D Memo at 5.
Thus, the Court finds that both of Commerce's determinations — that Plaintiff's artificial graphite rods are produced from input materials covered under the scope of the AD Order and that Plaintiff's exports are finished from inputs produced in China — satisfy 19 U.S.C. § 1677j(b)(1)(B), are supported by substantial evidence on the record, and are otherwise in accordance with law.
The third statutory consideration is whether the process of "assembly or completion" in the foreign country, in this case the U.K., is "minor or insignificant." 19 U.S.C. § 1677j(b)(1)(C). The statute provides five factors to consider when conducting a "minor or insignificant" analysis:
19 U.S.C. § 1677j(b)(2). None of the five factors is dispositive. Uruguay Round Agreements Act, Statement of Administrative Action, H.R.Rep. No. 103-316, at 893 (1994), reprinted in 1994 U.S.C.C.A.N. 4040, 4216 ("SAA"). Commerce is to evaluate the factors "depending on the particular circumvention scenario" on a case-by-case basis. Id.
In its underlying determination, Commerce compared in each country the level of investment, "both in initial capital and equipment," the production facilities, the processes performed, and the number of production employees in each country (China and the U.K.). Preliminary Determination, 77 Fed.Reg. at 33,412. Commerce found that research and development ("R & D") is not a significant factor in this case, because Plaintiff did not provide "any substantial evidence of R & D programs or expenditures." Id.
Regarding the value-added factor, Commerce found that "aside from the cost of labor and energy, UKCG did not consume or impart any additional direct material inputs to produce the finished SDGE" and found that "the value of the energy and labor consumed by UKCG in the production of the finished SDGE" is insignificant. Id. at 33,313. Commerce weighed all the factors and found that "the nature of the production process and extent of the production facilities in the U.K. are minor in comparison to those utilized in [China] for the production of the unfinished [SDGE] components sourced from [China]," explaining that Chinese producers "have invested extensively in the SDGE industry, which includes significant investment in both manufacturing facilities and production equipment worth millions of dollars, the bulk of which goes to the heavy industrial processes required for the production of SDGE .... which occur[s] prior to the final machining stage." Id.
In the instant action Plaintiff only challenges subsection (E), the value-added factor. Pl.'s Mot. at 32-38; Pl.'s Reply at 20. The Court notes that the five factors are to be separately taken into consideration, as appropriate, and their totality weighed. Commerce "performed a qualitative and quantitative value-added analysis" pursuant to 19 U.S.C. § 1677j(b) and "found that they both supported the conclusion that the value of the processing performed in the U.K. represents a `small proportion' of the value of the merchandise imported into the United States." Def.'s Opp'n at 33 (citing I & D Memo at 10, Preliminary Determination, 77 Fed.Reg. at 33,413); see also SAA at 894.
Examining the breakdown of the production process for SDGE placed on the record by Defendant-Intervenors, all but five minutes of the production process that takes a substantial number of days is done in China. Verification at 15. Given the information on the record — breakdown of the production process, facility and employee number comparison, and relative gross value amounts — the Court cannot say that Commerce's conclusion that UKCG's finishing touches are minor or insignificant is unreasonable, arbitrary or capricious.
Upon review of the SDGE manufacturing process, the detailed information presented by Petitioners, and Commerce's weighing of all the factors with the information placed on the record, the Court finds that Commerce's determination that the manufacturing completed in the
The fourth statutory consideration is whether the value of the merchandise produced in the foreign country to which the antidumping duty order applies — here, China — is a significant portion of the total value of the merchandise exported to the U.S. 19 U.S.C. § 1677j(b)(1)(D). The statute is silent, however, about the definition of "value" in the context of a NME in the circumvention provisions. See 19 U.S.C. § 1677j; Def.'s Opp'n at 38. It is well-established that where a statute is silent, an agency may fill in the gap and courts must defer to that interpretation as long as it is "based upon a permissible construction of the statute." Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).
Commerce, faced with the need to evaluate value in a NME, chose to apply the surrogate value methodology used in other antidumping proceedings to arrive at an accurate valuation of UKCG's inputs, explaining that "the same concerns about the reliability of NME prices that underlie its normal valuation calculation also underlie its analysis of circumvention of an order imposed upon NME-origin merchandise." Def.'s Opp'n at 39 (citing I & D Memo at 8). Determining that "the actual prices that UKCG paid for its Chinese-sourced artificial graphite rods are `inherently unreliable'" as products of a NME, Commerce chose to use surrogate values from the Ukraine. Def.'s Opp'n at 37 (citing I & D Memo at 8). Commerce used Ukrainian surrogate values for artificial graphite rods in calculating "the value of the merchandise produced in [China] to which the [SDGE Order] applies." Id. In doing so, Commerce rejected Plaintiff's contention that the proper method for a value-added analysis was to examine the difference between the input price and the U.S. sales price. Id. at 35-36.
The Court defers to Commerce's decision to use a surrogate value methodology in determining the value of inputs from a NME country in an anticircumvention inquiry, because it is a reasonable construction of the statute. Upon review, the Court finds that Commerce's determination that the value of the merchandise produced in China was a significant portion of the total value of the merchandise exported to the U.S., satisfying 19 U.S.C. § 1677j(b)(1)(D), is supported by substantial evidence on the record and otherwise in accordance with law.
The circumvention statute also lists other factors to consider in determining whether to include merchandise assembled or completed in a foreign country in an antidumping duty order. 19 U.S.C. § 1677j(b)(3). These factors include pattern of trade, company affiliations, and import increases. Id. These (b)(3) factors are not at issue in this case, because UKCG does not challenge Commerce's consideration of them. See Def.'s Opp'n at 16 n. 5; see generally Pl.'s Mot.
Plaintiff challenges Commerce's decision to apply the China-wide cash-deposit rate to its exports to the U.S., claiming this decision is simultaneously punitive and erroneous, and requests relief in the form of a separate rate. See Pl.'s Mot. at 38-40. Because it is "not under the control of any governmental entity of China," Plaintiff urges that if a rate is to be applied at all, it is "entitled to the current separate rate." Id. at 38. Further, Plaintiff argues that it
In the meantime, in accordance with its past practice in circumvention cases, Commerce found it "appropriate to instruct [CBP] to collect a cash deposit at the [China]-wide rate, consistent with [Commerce's] standard practice to assign the [China]-wide rate to non-reviewed exporters." I & D Memo at 15. Commerce also notes that it has "made no final determination of dumping with respect to UKCG." Def.'s Opp'n at 48 (citing I & D Memo at 15, Final Determination, 77 Fed. Reg. at 47,600).
The Court finds that Commerce's determination to apply a China-wide rate as a cash deposit to UKCG is supported by substantial evidence on the record and otherwise in accordance with law. To the extent that UKCG seeks a remedy regarding the cash deposit rate that it has not yet sought through normal administrative channels, the Court declines to grant relief due to the failure to exhaust administrative remedies. See 28 U.S.C. § 2637(d).
The Court has considered the remaining arguments and found them to be either subsumed into the analysis above or without merit.
As a result of the considerations detailed above, the Court holds that Commerce based its circumvention determination on substantial evidence on the administrative record and acted in accordance with law. Consequently, it is hereby
Judgment to enter accordingly.
77 Fed.Reg. at 47,598; see also Def.-Ints.' Opp'n at 18 ("Petitioners' request to include HTSUS 3801 within the scope language makes clear that they always intended to include both unfinished and finished small diameter graphite electrodes within the scope of the antidumping duty order."). Plaintiff does not challenge Commerce's authority to alter the scope to add another HTSUS category but asseverates that Commerce's alteration to include HTSUS 3801 is an admission of a "knowing and intentional" omission from the original scope, and thus products classified under HTSUS 3801 should be considered ab initio excluded from the scope. Pl.'s Mot. at 12, 26. This argument is neither persuasive nor supported by the record.