United States Court of International Trade

Court Sustained Commerce’s Final Determination in Less than Fair Value Investigation

Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. v. United States, Slip Op. 15-57, Court No. 13-98 (June 12, 2015) involved a U.S. Department of Commerce (“Defendant” or “Commerce”) final determination in the less than fair value investigation of large residential washers from the Republic of Korea.   Large Residential Washers from the Republic of Korea, 77 Fed. Reg. 75,988 (Dep’t of Commerce Dec. 26, 2012) (final determination LTFV investigation) (“Final Results”).  Before the court were the motions for judgment on the agency record of Plaintiffs Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (collectively, “Samsung”), Consolidated Plaintiffs LG Electronics Inc. and LG Electronics USA, Inc. (collectively, “LG”), and Consolidated Plaintiff Whirlpool Corporation (“Whirlpool”). However, this opinion dealt with Whirlpool’s claims and the court denied Whirlpool’s motion for judgment on the agency record.  The court sustained the Final Results for each of the issues challenged by Whirlpool.

First, Whirlpool failed to exhaust administrative remedies as it had the opportunity during the proceeding to address a rejected submission and the affiliate’s past cooperation, but chose not to do so. By declining to argue or develop either issue in its administrative case brief, Whirlpool signaled that both issues no longer merited attention from Commerce. Whirlpool thereby undermined Commerce’s ability to analyze both issues in the Decision Memorandum and in turn deprived the court of a fully developed record on the contested issues. Samsung contended that Whirlpool made an argument in its confidential opening brief about Samsung’s invoicing that did not appear in Whirlpool’s administrative case brief. Samsung also argued that Whirlpool had therefore failed to exhaust its administrative remedies on this issue. The court sustained Commerce’s findings as to Whirlpool’s failure to exhaust the necessary administrative remedies.

Second as to affiliation, Whirlpool challenged Commerce’s finding that LG was not affiliated with certain input suppliers. The statute defines “affiliated persons” as persons that have at least one of a number of relationships, including “[a]ny person who controls any other person and such other person.” 19 U.S.C. § 1677(33)(G). The statute further provides that “a person shall be considered to control another person if the person is legally or operationally in a position to exercise restraint or direction over the other person.” 19 U.S.C. § 1677(33).  Despite the “high level of cooperation and convenience that LG and its suppliers employ in their commercial relationships,” Commerce found that “record evidence regarding the suppliers’ sales establishes that LG’s input suppliers looked to other unaffiliated buyers of their goods” Thus, there was no control where it came Commerce found that the supply agreements were short-term in nature, were renewable at either party’s option, and did not prohibit sellers from selling to other buyers. Commerce also found that no supplier sold exclusively to LG, and that the suppliers were all profitable. Commerce noted that LG does not assume any risk in extending credit to its suppliers because the agreements require the suppliers to post collateral in the form of credit guarantees from commercial banks.  Commerce concluded that LG’s suppliers were not reliant on LG, and that therefore, LG’s relationship with its suppliers is not a control relationship.  Finally, Whirlpool in its Reply Brief identified facts which Commerce supposedly ignored; however, Whirlpool may not introduce new arguments for the first time in its reply brief. Therefore, the court upheld Commerce’s conclusion that LG is not affiliated to its suppliers through a close supplier relationship.

Third, Whirlpool argued that Commerce failed to address its argument that LG’s cost of production may not reflect certain “costs related to specific sub-assemblies for washers supplied by certain suppliers.” Whirlpool cited record evidence showing that LG provided loans to its suppliers and that LG shared engineers, know-how, and equipment with its suppliers. Commerce responded to Whirlpool’s contention that LG’s cost of production did not include certain expenditures by explaining that it “verified that LG had accounted for all appropriate manufacturing, G&A, and financing expenses in its reported costs.” While Whirlpool harped on the lack of direct evidence, the court sustained Commerce’s findings.

Fourth, Whirlpool argued that Commerce unreasonably departed from its past practice in not applying partial adverse facts available (“AFA”) to LG for LG’s reporting of three rebate programs: REBATE1U, REBATE5H, and REBATE4U. However, because LG cooperated in this investigation as opposed to prior investigations, Commerce did not find the need to apply AFA.  The court sustained this finding.

Fifth, Whirlpool argued that Commerce’s sales-below-cost test violated clear statutory language because it did not account for level of trade. The court, however did not agree, citing the statutory requirements. Under 19 U.S.C. § 1677b(b), Commerce may exclude home market sales made at less than the cost of production from its determination of normal value if such sales “have been made within an extended period of time and in substantial quantities.” 19 U.S.C. §1677b(b)(1). Commerce explained that it “has, over time, developed a consistent, predictable and reasonable practice in this regard to perform the sales-below-cost test and the ‘substantial quantities’ test on a model specific basis.” Whirlpool nevertheless challenged this longstanding, methodology, arguing that the statute requires Commerce to disaggregate home market sales by level of trade before determining whether below-cost sales represent 20 percent or more of the volume of sales of a specific model. However, Whirlpool’s methodology was not the only interpretation of the statute, and thus the court sustained the sales below cost test.  Moreover, because Commerce has explained its sales below cost test in previous precedent, the court sustained the test applying Chevron deference.

Sixth, Whirlpool contended that the shared family ownership between Samsung and its affiliated retailer positioned Samsung to compel its affiliate to cooperate. Commerce reasonably found that Samsung demonstrated it could not compel its affiliated retailer to cooperate, and more broadly that Samsung acted to the best of its ability. Moreover evidence suggested that the relationship with its affiliated retailer was rather soft. Samsung and its directors did not have any significant stock ownership in the affiliated retailer. Samsung and the affiliated retailer shared no corporate board members or managers. Commerce could not find any evidence of intertwined operations between the two companies. Commerce reasonably found that Samsung could not compel its retailer to cooperate.

Seventh, Commerce normally uses the date of invoice as the date of sale, but “may use a date other than the date of invoice if [Commerce] is satisfied that a different date better reflects the date on which the exporter or producer establishes the material terms of sale.”  Because of circumstances here, it was reasonable for Commerce to use date of shipment as the sale date.

Finally, Whirlpool alleged that “Commerce acted contrary to law by re-categorizing these expenses as warranty expenses,” believing that Commerce must categorize expenses in accordance with a respondent’s accounting system when that system complies with generally accepted accounting principles.  Whirlpool, however, again did not identify a clear statutory provision that prohibited Commerce from treating the event expenses as warranty expenses or evaluate the reasonableness of Commerce’s interpretation under Chevron step two.

For all these reasons, Commerce’s final determination was sustained.

 

In Same Case, Court Upheld Commerce’s Final Determination in Less than Fair Value Investigation as it Applied to Other Plaintiffs

In the same case, the court issued an opinion regarding Plaintiffs Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (collectively, “Samsung”) and Consolidated Plaintiffs LG Electronics Inc. and LG Electronics USA, Inc. (collectively, “LG”).  Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. v. United States, Slip Op. 15-58, Court No. 13-98 (June 12, 2015) involved a U.S. Department of Commerce (“Defendant” or “Commerce”) final determination in the less than fair value investigation of large residential washers from the Republic of Korea.   Large Residential Washers from the Republic of Korea, 77 Fed. Reg. 75,988 (Dep’t of Commerce Dec. 26, 2012) (final determination LTFV investigation) (“Final Results”); see also Issues and Decision Memorandum for the Antidumping Duty Investigation of Large Residential Washers from the Republic of Korea, A-580-868 (Dep’t of Commerce Dec. 26, 2012), available at http://enforcement.trade.gov/frn/summary/korea-south/2012-31104-1.pdf (last visited this date) (“Decision Memorandum”).  Before the court were the motions for judgment on the agency record of Plaintiffs Samsung Electronics Co., Ltd. and Samsung Electronics America, Inc. (collectively, “Samsung”), Consolidated Plaintiffs LG Electronics Inc. and LG Electronics USA, Inc. (collectively, “LG”), and Consolidated Plaintiff Whirlpool Corporation (“Whirlpool”). The court denied both LG’s and Samsung’s claims.

Specifically, Samsung argued that Commerce’s targeted dumping analysis violated the statute because Commerce’s established targeted dumping tests using weighted average prices instead of individual transaction prices and applied the average-to-transaction price comparison to all of Samsung’s sales. LG raised similar arguments and added that Commerce unlawfully excluded certain home market sales from its model-matching analysis. For the reasons set forth, the court sustained Commerce’s findings.

As for targeted dumping, Commerce calculated a respondent’s dumping margin by determining the “amount by which the normal value exceeds the export price or constructed export price of the subject merchandise.” 19 U.S.C. § 1677(35)(A). The statute provides three methods for comparing normal value to export price or constructed export price to make this calculation: (1) average-to-average (“A-to-A”), (2) transaction-to-transaction (“T-to-T”), and (3) average-to-transaction (“A-to-T”). Id. § 1677f-1(d)(1). Under the A-to-A methodology, Commerce compares weighted-average normal values to weighted average export prices or constructed export prices, whereas under the A-to-T methodology, Commerce compares weighted average normal values to export prices or constructed export prices of individual transactions. 19 C.F.R. § 351.414(b)(1)-(2). Commerce may apply the A-to-T methodology “if (i) there is a pattern of export prices (or constructed export prices) for comparable merchandise that differ significantly among purchasers, regions, or period of time, and (ii) the administering authority explains why such differences cannot be taken into account using” the A-to-A or T-to-T methodologies. Id. § 1677f-1(d)(1)(B). Pricing that meets both conditions is known as “targeted dumping.” Commerce in Certain Steel Nails from the United Arab Emirates, 73 Fed. Reg. 33,985 (Dep’t of Commerce June 16, 2008) and Certain Steel Nails from the People’s Republic of China, 73 Fed. Reg. 33,977 (Dep’t of Commerce June 16, 2008) (collectively, “Nails”) adopted a practice for evaluating whether a respondent has engaged in targeted dumping. This so-called “Nails test” begins with two statistical analyses: the “standard deviation test” and the “price gap test.” If these two tests reveal a pattern of export prices or constructed export prices that differ significantly among purchasers, regions, or period of time, Commerce next considers whether the A-to-A methodology could take into account the observed price differences.

Commerce below concluded that LG and Samsung exhibited a pattern of export prices or constructed export prices that differed significantly over certain purchasers, regions, and time periods, and that those differences could not be taken into account using the A-to-A methodology. Commerce then applied the A-to-T methodology to all of LG and Samsung’s sales. LG and Samsung maintained, however, that the Nails test violated the statute, primarily because Commerce failed to use individual transaction prices rather than average prices in analyzing export prices. However, Congress did not specify “average export prices” or “transaction specific export prices” in Section 1677f-1(d)(1)(B) when it conditioned application of the A-to-T methodology on “a pattern of export prices (or constructed export prices) for comparable merchandise that differ significantly among purchasers, regions, or periods of time.” 19 U.S.C. § 1677f-1(d)(1)(B)(i). This construction shows that Congress remained silent on whether “a pattern of export prices” means more specifically “a pattern of weighted average export prices” or “a pattern of export prices of individual transactions.” Commerce’s decision to use weighted average prices therefore controls here so long as it is reasonable. Congress’ silence leaves Commerce with a measure of discretion to craft a targeted dumping analysis that considers average prices instead of transaction prices.

Thus, the court did not agree with LG and Samsung’s conclusions that averaging prices masked the true nature of underlying data or that averaging prices could exaggerate volume of targeted sales. The question before the court was whether Commerce’s interpretation of 19 U.S.C. § 1677f-1(d)(1)(B)(i) was reasonable, not whether some other approach might produce a different (or even a better) result.

Finally, LG and Samsung argued that Commerce failed to explain why the A-to-A methodology could not account for the observed price differences in violation of 19 U.S.C. § 1677f-1(d)(1)(B)(ii). Commerce below explained that “the A-to-A method does not take into account such price differences because there is a meaningful difference in the weighted average dumping margins when calculated using the A-to-A method and the A-to-T method for both respondents.” Decision Memorandum at 20. Specifically, Samsung’s margin increased from de minimis to 9.29% using A-to-T, and LG’s margin increased from a proprietary margin to 13.02% using A-to-T. The court found this explanation to be reasonable. In sum, LG and Samsung’s arguments amount to a request that the court order Commerce to redefine targeted dumping as something other than that defined by Commerce. While LG and Samsung would prefer that a finding of targeted dumping depend upon the level of variance between low-priced individual export or constructed export prices,  their preferred definition was not the only possible way to construe the statute as Commerce’s Nails test is a reasonable interpretation and was therefore sustained.

As to subjective considerations, Samsung argued that Commerce “refused to consider any of the numerous factual considerations” behind its pricing strategies, such as rebates and holiday discounts, that led Commerce to find targeted dumping. Samsung Br. at 7-9, 27-32. According to Samsung, “on any given day and in any given locality, Samsung would likely charge a wide variety of prices for the same [large residential washer] model. That is simply how the entire consumer electronics industry works.” Id. at 9.  Samsung effectively read an “intent” requirement into the statute, urging the court to remand because it had legitimate commercial justifications for differential pricing that Commerce refused to consider. However, the statute did not provide for such a subjective standard to evaluate pricing or targeted dumping. For this reason, the court again sustained Commerce’s decision not to consider Samsung’s pricing strategies.

The court then affirmed a finding of exhaustion for arguments not raised during the investigation.  Specifically, Samsung and LG argued that, in 2008, Commerce improperly withdrew 19 C.F.R. § 351.414(f)(2) (2007), which stated that Commerce “normally will limit the application of the [A-to-T] method to those sales that constitute the targeted dumping.”  This improper withdrawal was alleged to violate the APA. When it withdrew the regulation, Commerce explained that it “had never performed a targeted dumping analysis” and that it therefore promulgated the regulation “without the benefit of any departmental experience on the issue of targeted dumping.”  Yet, because Samsung and LG failed to raise this issue during the investigation, it may not raise it when challenging the final determination.

As for model matching for purposes of similar merchandise or like products, LG contended that it was violative to have in-scope merchandise be only considered. LG argued that Commerce’s exclusion of non-scope small top-load washer sales from its model-matching analysis violates clear statutory language. Here, the statute defines similar merchandise simply as “[m]erchandise” that meets the requirements contained in § 1677(16)(B)(i)-(iii). Congress did not clarify whether “[m]erchandise” must include in-scope merchandise, or both inscope and non-scope merchandise. See 19 U.S.C. § 1677(16)(B). Likewise, none of the requirements outlined in § 1677(16)(B)(i)-(iii) say or imply that similar merchandise must include non-scope merchandise. Because Commerce’s interpretation was reasonable, the court sustained its findings as to similar merchandise.

 

Bond Sufficiency Determination Sustained

In Kwo Lee, Inc.  v. United States, Slip Op. 15-56, Court No. 14-122 (June 12, 2015), Customs determined that Plaintiff must post a single transaction bond for each such entry so that Plaintiff’s total security is equal to Plaintiff’s potential antidumping (“AD”) duty liability as calculated at the PRC-wide rate (376.67 percent), rather than the substantially lower combination rate (32.78 percent) otherwise applicable to Plaintiff’s putative exporter and producer, Qingdao Tiantaixing Foods Co., Ltd. (“QTF”). Customs required the enhanced bond because Plaintiff’s entry documents displayed a pattern of omissions and possible discrepancies that made it impossible to verify the identity of the producer, and therefore impossible to verify Plaintiff’s eligibility for QTF’s special rate.  Plaintiff argued that Customs’ determination was invalid because it is not in accordance with law, was arbitrary and capricious, and was the result of inadequate process.

This action involved the 1994 AD duty order on fresh garlic from the PRC (A-570-831). Garlic AD Duty Order, 59 Fed. Reg. at 59,209. There, the U.S. Department of Commerce (“Commerce” or “the Department”) set the PRC-wide rate at 376.67 percent. Id. at 59,210. This rate is still in use today. In 2006, QTF began shipping fresh garlic to the United States. QTF requested and, following investigation, Commerce granted QTF a new shipper rate (“NSR”) of 32.78 percent. This NSR was a “combination rate,” in that it only applied where QTF was both the producer and exporter.  Thus, when QTF was only the exporter, the PRC-wide rate applied.

QTF did not ship garlic until after the twelfth NSR, and because of some complications with the entry documents, Customs could not verify whether QTF was both the producer and exporter for purposes of applying the combination rate.   Unable to ascertain the identity of the producer, Customs applied the AD duty rate for QTF as exporter with another or an unknown producer, that is, the PRC-wide rate.  Customs denied entry pending the posting of additional security, in the form of a series of single transaction bonds (“STBs”), equal to this potential AD duty liability.

Plaintiff sought to enjoin Customs from collecting the STBs, and the court issued a preliminary injunction pending the decision in this case. However, the court required the posting of security in an amount of $1,000,000.  Plaintiff then moved for judgment on the agency record pursuant to USCIT Rule 56.1

Pursuant to 19 U.S.C. §§ 66 and 1623, and their implementing regulations, Customs has broad statutory authority to protect the revenue of the United States through the imposition of bonding requirements on imports. Thus, the court sustained Customs’ authority to assert additional bonding requirements. Although, while Customs may consider potential AD duty liability in determining whether an entry is sufficiently bonded, it may not usurp Commerce’s authority and make a substantive AD duty determination, through a bond sufficiency determination.  Thus, according to the court, Customs’ requiring additional bonding was a ministerial act, where it could not determine whether QTF was a producer of the subject merchandise.  The lower combination rate only applied if QTF was both a producer and exporter; where Customs could not make that determination, it required additional bonding to cover the PRC wide rate.

Moreover, Customs’ decision was not arbitrary and capricious where there was no ability to verify QTF was the producer of the garlic in the subject entries.  Here, Customs reasonably determined that it could not verify that QTF was the producer because: (1) the phytosanitary certificates that Plaintiff submitted with his entries were all either incomplete or contained seemingly discrepant information; and (2) the supplemental documentation requested by Customs and provided by Plaintiff, in order to identify the producer, was not sufficient to establish that QTF was the producer.

Finally, Customs did not violate Plaintiff’s due process by requiring additional bonding. Because there is no protected interest in importing to the United States, an enhanced bonding determination did not trigger Constitutional due process concerns.  While Customs’ notice to Plaintiff requiring additional bonding was deficient by not stating reasons for the enhanced security, including discrepancies found in entry documentation, Customs cured the deficiency through several email communications with Plaintiff on the matter.  As such, Plaintiff was afforded its due process rights. For these reasons, the court sustained Customs’ bond sufficiency determination.

 

United States Court of Appeals for the Federal Circuit

Statutory Interest on Bond Recoveries Applies to Antidumping, Countervailing Duties 

A 1799 statute which provides for the assessment of 6% annual interest on bond recoveries applies to antidumping and countervailing duties, the Court of Appeals for the Federal Circuit has ruled, adding another headache to the already complex world of retrospective assessment of these duties. 

In United States v. American Home Assurance Company, No. 2014-1291 (June16, 2015), a Customs bond surety had written a $600,000 bond to secure the payment of various duties. The importer defaulted on bills assessing antidumping duties on crawfish meat from China, and Customs looked  to the surety for payment. The surety protested the first demand, and while that protest was pending, Customs mistakenly “reliquidated”  the subject entries. Thereafter, Customs denied the initial protest. 

The surety claimed that the reliquidation invalidated the earlier liquidation, and that the entries were “deemed liquidated” as entered, in accordance with 19 U.S.C. § 1504(d). The court disagreed, holding that  the initial liquidation remained protestable. When the surety failed to challenge the denial of its protest in court, the assessment of antidumping duties became final. 

Turning to the interest issue, the  Federal Circuit took up  the question of 19 U.S.C. §580, which provides that “Upon all bonds, on which suits are brought for the recovery of  duties, interest shall be allowed, at the rate of 6 per centum a  year, from the time when said bonds became due.  This 1799 statute lay unused for decades until the government sought interest against sureties for antidumping and countervailing duty claims. The Court of International Trade held that the statute did not apply to antidumping and countervailing duties, since such duties were not known at the  time the interest statute was  enacted, and were different from regular duties. 

The Federal Circuit disagreed, holding that upon a plain reading of the statute, the interest  provision applied  to all types of duties, including special duties.  It remanded the case to the CIT with instructions to award statutory damages, and to reconsider its discretionary award of prejudgment interest. As a result of the decision, the surety would appear to owe nearly twice the  $600,000 face value of the bond.  The decision is likely to have a significant effect on how sureties write  and secure bonds for special duties.