CP KELCO US, INC., Plaintiff-Appellant v. UNITED STATES, NEIMENGGU FUFENG BIOTECHNOLOGIES CO., LTD., SHANDONG FUFENG FERMENTATION CO., LTD., Defendants-Appellees
2019-1207
United States Court of Appeals for the Federal Circuit
Decided: February 10, 2020
Appeal from the United States Court of International Trade in Nos. 1:13-cv-00288-RWG, 1:13-cv-00289-RWG, Senior Judge Richard W. Goldberg.
NANCY NOONAN, Arent Fox, LLP, Washington, DC, argued for plaintiff-appellant. Also represented by MATTHEW L. KANNA, FRIEDERIKE GOERGENS.
KELLY A. KRYSTYNIAK, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee United States. Also represented by JOSEPH H. HUNT, JEANNE DAVIDSON, PATRICIA M. MCCARTHY; BRANDON JERROLD CUSTARD, Office of the Chief Counsel for Trade Enforcement and Compliance, United States Department of Commerce, Washington, DC.
JORDAN CHARLES KAHN, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, Washington, DC, argued for defendants-appellees Neimenggu Fufeng Biotechnologies Co., Ltd., Shandong Fufeng Fermentation Co., Ltd. Also represented by DHARMENDRA NARAIN CHOUDHARY, BRANDON M. PETELIN, ANDREW THOMAS SCHUTZ; BRUCE M. MITCHELL, NED H. MARSHAK, New York, NY.
Before NEWMAN, MOORE, and CHEN, Circuit Judges.
CP Kelco U.S., Inc. appeals the decision of the United States Court of International Trade (Trade Court) upholding the Department of Commerce‘s treatment of Xanthomonas Campestris (X. Campestris) as an asset rather than a direct material input, and Commerce‘s decision to use the Thai Fermentation Industry Ltd. (Thai Fermentation) financial statements to calculate surrogate financial ratios. For the reasons described below, we affirm the Trade Court‘s decision to uphold Commerce‘s treatment of X. Campestris as an asset. We reverse its decision regarding Commerce‘s use of the Thai Fermentation financial statements to calculate surrogate financial ratios and reinstate Commerce‘s determination to use the Ajinomoto (Thailand) Co., Ltd. (Thai Ajinomoto) financial statements.
BACKGROUND
This appeal comes to us following a long and complicated procedural history, both at Commerce and the Trade Court. On June 5, 2012, CP Kelco filed a petition concerning imports of xanthan gum from the People‘s Republic of China (PRC). On July 2, 2012, Commerce initiated an antidumping duty investigation of xanthan gum from the PRC for the period of investigation of October 1, 2011 through March 31, 2012. Appellees Neimenggu Fufeng
A. Commerce‘s Determination
On January 3, 2013, Commerce preliminarily determined “that xanthan gum from the People‘s Republic of China (PRC) is being, or is likely to be, sold in the United States at less than fair value (LTFV).” Commerce considers the PRC to be a non-market economy (NME) country. For a NME country, Commerce must “determine the normal value of the subject merchandise on the basis of the value of the factors of production utilized in producing the merchandise . . . based on the best available information regarding the values of such factors in a market economy country. . . .”
Commerce used the audited financial statements of Thai Ajinomoto to value factory overhead, selling, general, and administrative expenses, and profit. Commerce preliminarily assessed an antidumping margin of 21.69 percent for Fufeng.
In the Final Determination, Commerce concluded Fufeng was selling xanthan gum in the United States at less than fair value and assessed Fufeng a 12.90 percent dumping margin. Xanthan Gum from the People‘s Republic of China, 78 Fed. Reg. 33,351 (Dep‘t of Commerce June 4, 2013) (final determ.), as amended, 78 Fed. Reg. 43,143 (July 19, 2013) (amend. final determ.). As part of its determination, Commerce considered whether X. Campestris is (1) a direct material that should be valued as a factor of production or (2) was accounted for in the surrogate financial ratios and therefore did not need to be valued separately as a direct material input. Commerce did not value X. Campestris as a factor of production, or a direct material input, because Fufeng‘s costs associated with the maintenance and use of X. Campestris bacteria are similar to those of Thai Ajinomoto‘s costs associated with maintaining the bacteria used to produce comparable merchandise (i.e. MSG and l-lysine). Commerce found that evidence on the record of the present investigation shows that (1) Fufeng and Deosen “acquired [their] [X. C]ampestris strain for payment-in-full long before the [period of investigation],” (2) “the acquisitions included the right to further grow and exploit the resulting bacteria for the production of xanthan gum,” and (3) Fufeng and Deosen continually regenerate the bacteria for use in their xanthan gum production. Due to their “ownership and regenerative use of
In calculating the surrogate financial ratios, Commerce used the Thai Ajinomoto financial statements. The financial statements of Thai Fermentation were also on the record, however, Commerce determined them to be incomplete and that it would not have been able to fully evaluate the financial information contained therein. The parties disagreed as to which financial statements were appropriate for use. CP Kelco supported the use of Thai Ajinomoto‘s financial statements, arguing that all other available statements are incomplete, not fully translated, or from companies that do not produce comparable merchandise. Fufeng argued that Thai Ajinomoto‘s financial statements are distorted by countervailable subsidies and supported the use of Thai Fermentation‘s financial statements. Commerce determined that the Thai Fermentation financial statements are incomplete because they lack complete English translations, precluding Commerce from fully evaluating the financial information contained therein, and noted its practice to exclude such statements. J.A. 8154. Specifically, two complete paragraphs at the bottom of Accounting note twelve, concerning depreciation of assets, are untranslated. Id. at n.70; compare J.A. 6280–81 with J.A. 6305–06. Although Commerce agreed with Fufeng that the Thai Ajinomoto statements show evidence of the receipt of countervailable subsidies, it noted that its general practice to exclude such statements presupposes the existence of other sufficiently reliable data. Having no such data, it found Thai Ajinomoto‘s statements to “represent the only complete and fully translated financial statements on the record” and therefore “the best available information within the meaning of the statute.” J.A. 8152, 8154–55.
B. First Trade Court Remand Order and Resulting First Redetermination
CP Kelco appealed Commerce‘s final determination to the Trade Court, as relevant here, with respect to Commerce‘s decision to treat X. Campestris as an asset, rather than as a direct material input, and Fufeng appealed Commerce‘s selection of the Thai Ajinomoto financial statements over the Thai Fermentation statements for calculating surrogate financial ratios. CP Kelco U.S., Inc. v. United States, 2015 WL 1544714, at *1 (Ct. Int‘l Trade Mar. 31, 2015) (CP Kelco I). The Trade Court upheld Commerce‘s decision to treat X. Campestris as an asset rather than as a direct material input determining it was supported by substantial evidence and was otherwise in accordance with law. Id. at *4. The Trade Court determined it was “reasonable for Commerce to use the time that Fufeng paid for the X. Campestris as evidence that the bacteria was an asset: Fufeng‘s one-time purchase and the bacteria‘s self-regenerating properties made it look like an asset.” Id. It further determined that it was proper for Commerce to conclude that the bacteria was an asset based on grounds that the “bacteria self-regenerated, such that Fufeng only needed to pay for the bacteria once,” rendering it “unlike direct material inputs used up in the production process.” Id.
The Trade Court remanded Commerce‘s decision to use the Thai Ajinomoto financial statements to calculate surrogate financial ratios for further explanation, stating that “Commerce never addressed why the weakness of the Thai Fermentation statements—incompleteness—was worse than the weakness of the Thai Ajinomoto statements: evidence of subsidies.” Id. at *6. The Trade Court explained that Commerce created its own conundrum by preemptively rejecting the Thai Fermentation statements, which then required it to
In its first remand redetermination, on July 24, 2015, Commerce compared Thai Fermentation‘s financial statements with Thai Ajinomoto‘s financial statements and again found that Thai Ajinomoto‘s statements constituted “the best available information on the record.” Commerce noted that both companies’ statements “are flawed in different ways” and that it must “decide which is the more serious flaw.” J.A. 8242. It further noted its “well-established practice of excluding incomplete financial statements from consideration, whether due to missing information or a lack of full translation.” Id. After considering the weaknesses of each financial statement, Commerce found the possibility that the Thai Fermentation statements are missing vital information to be the greater flaw. It found that Thai Ajinomoto‘s statements, although containing evidence of countervailable subsidies, are “complete and reliable” and the “parties . . . had an opportunity to comment on the complete financial statements.” J.A. 8244–45. In rejecting the Thai Fermentation statements once again, Commerce explained that missing information in a financial statement could have a significant impact on the antidumping calculations and “parties cannot be allowed to selectively decide which portions of a financial statement to . . . leave untranslated,” depriving other parties the opportunity to comment on potentially important information. J.A. 8244. Finally, it noted that “Fufeng had every opportunity to provide a full translation of Thai Fermentation‘s financial statements but that it failed to do so.” Id.
C. Second Trade Court Remand Order and Resulting Second Redetermination
Fufeng again appealed Commerce‘s selection of the Thai Ajinomoto statements to the Trade Court. This time, the Trade Court determined that Commerce did not “faithfully compare the financial statements side by side” and had not “plumbed the implications [of the Thai Ajinomoto statements’ countervailable subsidies] as it had plumbed the issues caused by incompleteness” affecting the Thai Fermentation statements. CP Kelco U.S., Inc. v. United States, 2016 WL 1403657, at *5 (Ct. Int‘l Trade Apr. 8, 2016) (CP Kelco II). It further determined that Commerce does not have a “well-established” practice of rejecting all incomplete financial statements that would justify rejecting the Thai Fermentation statements summarily. Id. Therefore, the Trade Court again remanded, instructing Commerce to comply with the “court‘s main remand instruction to compare the Thai Ajinomoto and Thai Fermentation financial statements side by side in an evenhanded manner, evaluating the relative strengths and weaknesses of each.” Id. Alternatively, the Trade Court offered that Commerce may find the Thai Fermentation statements to be missing “vital information,” which the Trade Court previously recognized as a past practice of Commerce. Id. at *5 n.5. As another alternative, the Trade Court offered that Commerce could explain a change in practice, “from rejecting statements when they are missing vital information . . . to invariably rejecting any incomplete statements.” Id.
On August 22, 2016, after adopting a practice of rejecting incomplete financial statements unless there are no other financial statements on the record, Commerce
D. Third Trade Court Remand Order and Resulting Third Redetermination
Fufeng again challenged Commerce‘s remand results before the Trade Court. Despite having given Commerce the opportunity to explain a change in its practice, CP Kelco II, 2016 WL 1403657, at *5 n.5, the Trade Court determined that Commerce‘s new policy is not consistent with its statutory mandate because it is “not reasonably aimed at identifying the best available information or calculating the antidumping margins as accurately as possible” and “leads to an unreasoned outcome not supported by the record in these proceedings.” CP Kelco U.S., Inc. v. United States, 211 F. Supp. 3d 1338, 1341–42 (Ct. Int‘l Trade 2017) (CP Kelco III). The Trade Court explained that Commerce has “yet to provide any discussion of the issues presented by the use of the Thai Ajinomoto statements or, more generally, by the use of financial statements that reflect countervailable subsidies.” Id. at 1344. It again remanded Commerce‘s redetermination explaining that “Commerce should not select the Thai Ajinomoto statements unless it first compares the Thai Ajinomoto and Thai Fermentation financial statements side by side in an evenhanded manner, evaluating the relative strengths and weaknesses of each.” Id. at 1345. Alternatively, it stated that “Commerce can reject the Thai Fermentation statements after making a reasoned finding that the two untranslated paragraphs in footnote twelve are ‘vital’ to the Department‘s analysis of the data.” Id. The Trade Court instructed that “Commerce must specifically discuss what is missing from the Thai Fermentation statements and how the fact of the missing information impedes [Commerce‘s] calculations.” Id. It gave Commerce the option of “either (1) explicitly exploring the relative impact of the imperfection in the Thai Ajinomoto statements (evidence of subsidies) and that in the Thai Fermentation statements (incompleteness) or (2) making a fact-sensitive finding that the Thai Fermentation statements are missing ‘vital’ information.” Id.
On September 18, 2017, in its third remand redetermination, Commerce chose to reject the Thai Fermentation statements “after making a fact-sensitive finding that the Thai Fermentation statements are missing ‘vital’ information.” J.A. 8280. In
E. Fourth Trade Court Remand Order and Resulting Fourth Redetermination
After another appeal, the Trade Court again remanded to Commerce stating that “[u]nlike the prior proceedings cited by Commerce, here the Department has not identified a particular depreciation methodology, class of fixed assets, or statement by the auditor in the Thai Fermentation statements that is questionable or unreliable.” CP Kelco U.S., Inc. v. United States, 2018 WL 1703143, at *3 (Ct. Int‘l Trade Apr. 5, 2018) (CP Kelco IV). It explained that the “28-page Thai Fermentation financial statements provided to Commerce have full English translations with the exception of two paragraphs in a footnote concerning fixed assets,” which no one has alleged were intentionally omitted. Id. Although Commerce has stated that the statements might be more reliable if fully translated, “Commerce has not made the case that the statements are unreliable, warranting their wholesale rejection.” Id. The Thai Ajinomoto statements, on the other hand, “are in fact, as opposed to hypothetically, unreliable, due to evidence of countervailable subsidies.” Id. The Trade Court found that “Commerce‘s general discussion about depreciation does not comply with the [Trade Court‘s] instruction to make ‘a fact-sensitive finding that the Thai Fermentation statements are missing “vital” information.‘” Id. (quoting CP Kelco III, 211 F. Supp. 3d at 1345). Finding that the record does not support more than one reasonable result and does not contain substantial evidence supporting Commerce‘s decision to discard the Thai Fermentation statements, and that “any mystery surrounding the Thai Fermentation statements is essentially of [Commerce‘s] own making” where “Commerce is—and has always been—in possession of the ‘missing’ information” yet has failed to solicit a translation or translate the paragraphs itself, the Trade Court instructed that on remand, Commerce may “either translate the two paragraphs or leave them as is. Regardless, Commerce must use the Thai Fermentation statements to calculate surrogate financial ratios.” Id. at *3–4. The Trade Court made clear that “the court will not provide [Commerce] any further room to maneuver.” Id. at *4.
F. Fifth Trade Court Decision
In light of Commerce‘s use of the Thai Fermentation statements, the Trade Court found that the remand results were supported by substantial evidence and sustained the Fourth Redetermination. CP Kelco U.S., Inc. v. United States, 2018 WL 4469912 (Ct. Int‘l Trade Sept. 17, 2018) (CP Kelco V). CP Kelco appealed the Trade Court‘s decisions sustaining Commerce‘s: (1) treatment of X. Campestris as an asset rather than a direct material input (CP Kelco I); and (2) determination to use Thai Fermentation‘s financial statements to calculate surrogate financial ratios (CP Kelco V). We have jurisdiction under
DISCUSSION
We review Commerce‘s decision using the same standard of review applied by the Trade Court, while carefully considering that court‘s analysis. Diamond Sawblades Mfrs. Coal. v. United States, 866 F.3d 1304, 1310 (Fed. Cir. 2017). We decide legal issues de novo and uphold factual determinations if they are supported by substantial evidence.
Commerce must provide an explanation that is adequate to enable the court to determine whether its choices are actually reasonable. See CS Wind Vietnam Co. v. United States, 832 F.3d 1367, 1376–77 (Fed. Cir. 2016). It must “examine the record and articulate a satisfactory explanation for its action.” Yangzhou Bestpak Gifts & Crafts Co. v. United States, 716 F.3d 1370, 1378 (Fed. Cir. 2013). Although we uphold “a decision of less than ideal clarity if the agency‘s path may reasonably be discerned,” Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 286 (1974), the required explanation must reasonably tie the determination under review to the governing statutory standard and to the record evidence by indicating what statutory interpretations the agency is adopting and what facts the agency is finding. “[A]n agency‘s statement of what it ‘normally’ does or has done before . . . is not, by itself, an explanation of ‘why its methodology comports with the statute.’ Whether it does so in a particular agency decision or in a cited earlier decision, the agency must ground such a normal or past practice in the statutory standard.” CS Wind Vietnam, 832 F.3d at 1377 (quoting SKF USA Inc. v. United States, 263 F.3d 1369, 1383 (Fed. Cir. 2001)).
We begin with Commerce‘s decision to treat X. Campestris as an asset rather than a direct material input. CP Kelco contends that Commerce‘s decision not to treat the production strain of X. Campestris as a factor of production and assign it a surrogate value is unsupported by substantial evidence and is not in accordance with law. Appellant‘s Br. 31–32. It argues that the plain language of the statute instructs Commerce to value factors of production, such as raw materials, used in producing the subject merchandise, and X. Campestris is a factor of production necessary for the production of xanthan gum. Id.; Appellant‘s Reply Br. 19 (citing
Fufeng contends that substantial evidence supports Commerce‘s finding that Fufeng and Deosen “acquired [their] [X]. [C]ampestris strain for payment-in-full long before the POI, and that the acquisitions included the right to further grow and exploit the resulting bacteria for the production of xanthan gum.” Appellees’ Br. 55 (citing J.A. 8174). It argues that the Trade Court correctly held that the factors in Copper Pipe and Tube did not preclude Commerce‘s record-based finding that the bacteria was like an asset properly valued through the surrogate financial ratios. Id. at 55–56 (citing J.A. 10). The United States4 argues that the statute does not speak to what criteria to use to determine whether something is a factor of production, and Commerce properly exercised its discretion to determine that X. Campestris was already accounted for in the surrogate financial ratios such that it did not need to be separately valued as a raw material. United States’ Appellee Br. 12–14.
The relevant statute directs Commerce to “determine the normal value of the subject merchandise on the basis of the value of the factors of production utilized in producing the merchandise” and the “valuation of the factors of production shall be based on the best available information regarding the values of such factors in a market economy country or countries considered to be appropriate by the administering authority.”
Commerce‘s decision to treat X. Campestris as an asset rather than a direct material input is supported by substantial evidence and is in accordance with law. Commerce found that evidence on the record of the present investigation shows that Fufeng and Deosen “acquired [their] [X]. [C]ampestris strain for payment-in-full long before the [period of investigation], and that the acquisitions included the right to further grow and exploit the resulting bacteria for the production of xanthan gum,” and that Fufeng continually regenerates the bacteria for use in its xanthan gum production. J.A. 8174. Due to Fufeng‘s “ownership and regenerative use of the bacteria,” Commerce determined that it is more similar to an asset than a direct material input. Id. Because substantial evidence supports Commerce‘s findings, the Trade Court did not err in sustaining its decision.
B. Commerce‘s use of Thai Fermentation‘s financial statements to calculate surrogate financial ratios (CP Kelco V)
As an initial matter, Fufeng argues that CP Kelco failed to exhaust its administrative remedies and is precluded from challenging the Fourth Redetermination by failing to provide comments in response to the Draft Fourth Redetermination. CP Kelco responds that it filed comments before the Draft arguing Commerce should interpret the Trade Court‘s Fourth Remand Order to use an average of the financial ratios derived from the two companies’ financial statements, which Commerce addressed in its Fourth Remand Redetermination. It argues that even had it repeated comments that it made throughout the entire proceeding, its efforts would have been futile as the Fourth Remand Order compelled Commerce to use the Thai Fermentation statements. CP Kelco‘s efforts would have likely been futile given the Trade Court‘s directive, but regardless, CP Kelco is not precluded from challenging the Fourth Remand Redetermination because it raised the arguments before the Draft and Commerce briefly addressed them. See J.A. 8298.
CP Kelco argues that the Trade Court exceeded its authority by directing Commerce to use the Thai Fermentation statements to calculate surrogate financial ratios rather than review the determination for substantial evidence. Appellant‘s Br. 18. It contends that Commerce provided a reasoned explanation as to why the Thai Ajinomoto statement should be used, id. at 19, and that Commerce‘s reliance in its Fourth Remand Redetermination on Thai Fermentation‘s partially translated statements to calculate dumping margins is unreasonable, unsupported by substantial evidence, and is otherwise not in accordance with law, id. at 23–26. Fufeng responds that the Trade Court properly ordered Commerce to use Thai Fermentation data after it repeatedly failed to conduct the comparison required by the substantial evidence and best available information standards that would be required to use the Thai Ajinomoto data. Appellees’ Br. 49–50. It contends that Commerce, each time, gave short shrift to the Thai Fermentation statements, because they were missing two untranslated paragraphs, yet chose to use Thai Ajinomoto‘s subsidy-distorted data. Id. at 34–35.
At least as of this third redetermination by Commerce where it determined that the missing information in the untranslated financial statement was vital information and of “critical importance,” Commerce had adequately explained the reasoning underlying its decision to use the Thai Ajinomoto financial statements rather than the Thai Fermentation financial statements. To be clear, we do not decide today whether Commerce must accept or refuse a partial translation of financial statements in every case, or that it is required to do so. But we are satisfied that here, with its third redetermination, Commerce sufficiently explained its reason for choosing between two flawed financial statements. We therefore reinstate Commerce‘s decision to use the Thai Ajinomoto financial statements to calculate the surrogate financial ratios.
CONCLUSION
For the foregoing reasons, we affirm the Trade Court‘s decision sustaining Commerce‘s treatment of X. Campestris as an asset rather than a direct material input. We reverse its decision sustaining Commerce‘s use of the Thai Fermentation financial statements and reinstate Commerce‘s determination to use the Thai Ajinomoto financial statements to calculate the surrogate financial ratios. We have considered the parties’ remaining arguments and find them unpersuasive.
AFFIRMED-IN-PART AND REVERSED-IN-PART
Each party shall bear its own costs.