EI DuPont De Nemours & Co., Inc. v. United StatesEI DuPont De Nemours & Co., Inc. v. United States
Background
On December 6,1993, the Court remanded to the International Trade Administration of the Department of Commerce (“ITA”) certain issues arising from the
Final Determination of Sales at Less Than Fair Value: Polyethylene Terephthalate Film, Sheet, and Strip From the Republic of Korea,
56 Fed. Reg. 16,305 (1991) and from the
Amended Final Determination of Sales at Less Than Fair Value: Polyethylene Terephthalate Film, Sheet, and Strip From the Republic of Korea,
56 Fed.Reg. 25,669 (1991) (jointly referred to as
“Final Determination”). E.I. DuPont de Nemours & Co. v. United States,
In remanding the case, the Court ordered the ITA to reconsider four aspects of the
Final Determination.
Three of those required reconsideration in light of the intervening decision by the United States Court of Appeals for the Federal Circuit (“CAFC”) in
IPSCO, Inc. v. United States,
10 Fed.Cir. (T) —,
The broad terms of section 1677b(e) sweep within constructed value all components of the actual production costs of merchandise____ The broad language of section 1677b(e) does not at any point expressly authorize adjustment of these production costs to account for products of a lower grade or less value. [Under the lower court’s analysis], the value of Ipsco’s products—their prices in the United States— became a factor in determining their cost of production. That cost of production, in turn, determined by Ipsco’s prices in the United States reflected fair value. Essentially, the trial court ordered an unreasonable circular methodology. The selling price of pipe became a basis for measuring the fairness of the selling price of pipe. This circular reasoning contravened the express requirements of the statute which set forth the cost of production as an independent standard for fair value.
10 Fed.Cir. (T) at —, —,
Recognizing the potential impact of IPSCO Appeal on certain calculations performed by the ITA in its Final Determination, the Court, in the ease here under consideration, remanded and issued the following mandates:
ORDERED that the ITA shall reexamine its choice of methodology for calculating the production costs incurred by [defendants intervenor] SKC and Cheil in producing off-grade PET [ (Polyethylene Terephthalate) ] films in light of the reversal of IPSCO, Inc. v. United States,13 CIT 402 ,714 F.Supp. 1211 (1989), rev’d,965 F.2d 1056 (1992); and it is further
ORDERED that the ITA shall reexamine its choice of cost accounting methodology for the calculation of Cheil’s recycled scrap film in light of Ipsco’s reversal; and it is further
ORDERED that the ITA shall reexamine or comment on the effect of Ipsco’s reversal upon its choice of SKC’s product specific cost accounting methodology; ...
ORDERED that the ITA shall recalculate the VAT adjustments to USP [ (United States Price)] in accordance with the requirements of 19 U.S.C.§ 1677a(d)(l)(C), not the general language of 19 U.S.C. § 1677b(a)(4)(B); ...
Id.
In its
Remand Determination,
the ITA recalculated the production costs incurred by SKC and Cheil in producing off-grade PET film. All parties concur that this altered approach for calculating off-grade PET film production costs should be upheld, although plaintiffs dispute the accuracy of some of the figures contained in the calculations. The ITA did not alter its accounting methodology for valuing Cheil’s recycled scrap film (“pellet”). Plaintiffs contest this methodology and argue that a similar flawed methodology infects the valuation of SKC’s pellet. Nor did the ITA swerve from its decision in the
Final Determination
to accept the product specific cost figures submitted by SKC, which decision plaintiffs also contest. The disputed VAT issue is controlled by the CAFC’s recent decision in
Federal Mogul v. United States,
13 Fed.Cir. —,
Standard of Review
The Court must find that antidumping determinations are unlawful when they are unsupported by substantial evidence on the administrative record or are otherwise not in accordance with law. 28 U.S.C. § 1581(c); Tariff Act of 1930, § 516A(b)(l)(B), as amended, 19 U.S.C. § 1516a(b)(l)(B) (1988). Substantial evidence “means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”
Universal Camera Corp. v. NLRB,
Discussion
1. Production Costs Incurred in Producing Off-Grade PET Film
The ITA’s recalculations of production costs incurred by SKC and Cheil in producing off-grade PET film properly respect the rule announced in IPSCO Appeal and are based on substantial evidence. In its Final Determination, the ITA had allocated the costs of producing off-grade PET film according to the film’s value. In its Remand Determination, the ITA rectified its methodology by conforming it to the logic of Ipsco Appeal:
[A]s directed by the Ipsco Appeal ..., we have recalculated SKC’s [cost of production (“COP”) ] and [constructed value (“CV”) ] of off-grade film to reflect actual costs by allocating production costs based on actual production quantities, rather than accounting for value. As a result, COP and CV for SKC have been calculated so as to take into account the actual costs of prime and non-prime production of the same product____ After further review we have determined that the record, in the case of Cheil, provides adequate information on which to base product specific cost calculations. Therefore, we have accepted Cheil’s submitted CV and COP costs, adjusted to reflect actual, product specific costs rather than product group costs.
Remand Determination
at 6-8 (emphasis added). Plaintiffs agree with defendants that this altered approach is consistent with
IPSCO Appeal,
but they contest the ITA’s reliance on defendants’-intervenor reported pellet costs as well as SKC’s reported product specific costs. Subject to the controversy over the reported cost figures, plaintiffs urge the Court to uphold the methodology employed in the
Remand Determination
for evaluating off-grade PET film production costs. The Court finds that the valuation
As an ancillary issue, plaintiffs request a remand so that the ITA may explain why it believes that the IPSCO Appeal valuation methodology is relevant to the calculation of Cheil’s test film production costs. Cheil’s records denote the total volume of test film produced during any particular period without specifying the relative volumes by kind. In order to establish the relative volumes of different kinds of test film produced during the period in question, Cheil allocated total test film volume among PET film production in proportion to known production ratios of PET film. As a simplified example, if Cheil produced 10% of a certain type of film during the period of investigation, it allocated 10% of test film production to that type. In this manner, Cheil allocated the full quantity of test film to film types. Cheil then allocated cost pools for material, labor, and fabrication equally among test, prime grade, and off-grade film by type. The ITA accepted these figures in its COP and CV calculations.
Plaintiffs concede that with respect to prime grade and off-grade film, the equal allocation of cost pools was reasonable, conformed to the requirements of IPSCO Appeal, and to that extent the remand results should be affirmed. Nevertheless, plaintiffs question this methodology as applied to test film and request a remand so that the ITA may explain the relevance of the IPSCO Appeal valuation methodology to the costing of test film. Cheil represents that the production of test film is an ongoing research and development activity, and the Court discerns no evidence in the record suggesting that Cheil’s test film was disproportionately produced in connection with certain types or grades of film. In the absence of contrary evidence, the ITA employed a reasonable methodology when it allocated the total volume of test film in proportion to the known production ratios of PET film types. The relevance of IPSCO Appeal to the costing of test film is manifest because that opinion requires overall COP and CV calculations to reflect actual costs, and COP calculations for test film were parcel to the overall COP and CV calculations of the single class of subject merchandise identified by the ITA, ie. “PET film.” Final Determination at 16306. The production of test film, although purely a research and development activity, was a component cost of overall PET film production along with prime and off-grade production costs; accordingly, IPSCO Appeal requires that all of these components be valued pursuant to a method that fully comprehends production costs. The ITA was persuaded, as is the Court, that the reported costs provided credible and sufficient data for determining test film production costs in proper conformity with IPSCO Appeal (“[a]fter further review we have determined that the record, in the case of Cheil, provides adequate information on which to base product specific cost calculations. Therefore, we have accepted Cheil’s submitted CV and COP costs, adjusted to reflect actual, product specific costs.... ” (Remand Determination at 7-8)). The ITA’s costing of test film is based on substantial evidence in the record and is otherwise in accordance with law.
2. The Valuation of Cheil’s Pellet
The ITA revisited its cost accounting methodology for valuing Cheil’s pellet (recycled scrap film) in light of
IPSCO Appeal,
and its decision to retain the figures and methodology used in the
Final Determination
is based on substantial evidence and is in accordance with law. Cheil uses a “net realizable value” (“NRV’),
ie.,
the potential resale value, to account for the pellet utilized and produced in its film production process. Every production run of PET film utilizes both virgin material (“chip”) and pellets, and every run also produces scrap film. The scrap film is recycled into pellets, which in later runs are used like and are substitutable for virgin chip. In accounting for the costs of producing PET film, Cheil included both the cost of the virgin chip utilized as well as
Plaintiffs’ argument that a similar flawed methodology infects the valuation of SKC’s pellet is unconvincing and untimely. Plaintiffs argue that SKC’s method for valuing pellet is fatally flawed because SKC assigns a “zero value” to pellet. However, the reason for this “zero value” is that SKC did not subtract the value of pellets resulting from PET film production runs from the accounting cost of producing PET film; therefore, there was no basis for adding any pellet value back into the accounting cost of PET film manufactured with pellet material input. Yet it is not even necessary to discuss the substantive merits of this claim. The Court’s remand order did not direct the ITA to revisit SKC’s costing of pellet, and with good reason. Plaintiffs failed to raise this issue at the administrative level. The issue of
Cheil’s
costing of pellet was raised for purposes of the
Final Determination (Final Determination
at 16316), but nowhere in that determination was there any discussion of SKC’s costing of pellet. Nor is there any other indication that plaintiffs raised the issue at the administrative level in a fashion sufficient to give rise to specific claims that would put the ITA on notice that SKC’s methodology for costing pellet was squarely at issue. It is not sufficient merely to raise pellet costing as a general policy issue or attack a co-respondent’s methodology for such costing. Investigating accounting procedures is a fact and theory intensive process that cannot be adequately addressed after the ITA’s investigation has concluded. Plaintiffs’ desultory approach to this issue was also demonstrated at the hearing before the Court: it was the
government
who raised the issue of SKC’s pellet accounting methodology during the very last minutes of the lengthy hearing, to which counsel for plaintiffs replied, “/
had not expected those last few points to be raised and the government having done so
gives me an opportunity to say something that I’ve been holding back which was that this whole ease was an extraordinarily sloppy job from beginning to end.... ” (Tr. at 71-2) (emphasis added). The Court was convinced after the hearing, and upon consideration of all relevant documents before the Court, that SKC’s methodology for valuing pellet was not within the appropriate scope for remand, and therefore the Court ordered a remand on this issue only with respect to Cheil.
As a general argument, plaintiffs contest the finding by the ITA that pellets are a byproduct rather than a co-product of PET film. The ITA reasoned,
We agree with respondents and did not adjust our methodology for calculatingcosts of Cheil’s pellets because we believe that the IPSCO Appeal dealt with the valuation of finished co-products'. Because we consider pellets not to be co-products of the PET film production process that later serve as raw material for the same process, the IPSCO Appeal does not apply to this issue. We note that the Court did not specifically instruct us in the remand order to examine the issue of why the Department considers pellets as co-products or by-products in light of the IPSCO Appeal and, therefore, we need not further address this issue.
Remand Determination at 10. If pellets were a co-product of PET film, then IPSCO Appeal would require the valuation of pellets to be based on actual production costs rather than on the NRV potential resale value. The ITA’s investigation revealed that pellets are produced from “edge trimmings and other scrap film” (Final Determination at 16316), not from off-grade PET film. The circumstances of this case are vastly different from the facts in IPSCO Appeal where two grades of pipe, both subject to the anti-dumping investigation, were produced during the same process and were sold as finished goods. Edge trimmings and other scrap pieces are neither finished goods nor merchandise subject to the instant antidumping investigation; rather, they are by-products of the PET film manufacturing process. Trimmings and scrap undergo substantial transformation in order to be reformulated into usable pellet, which itself is neither sold on the open market nor subject to the anti-dumping investigation. The recycling process does not disinvest the recycled material from its by-product character, regardless of whether the recycled product hypothetically could be sold on the open market. ITA’s determination that pellets are by-products and outside the co-product valuation rule of IPSCO Appeal is based on substantial evidence and is in accordance with law.
S. The Use of SKC’s Product Specific Cost Figures
The ITA properly responded to the Court’s order to “reexamine or comment on the effect of Ipsco’s reversal upon its choice of SKC’s product specific cost accounting methodology” (
We have accepted SKC’s submitted CV and COP costs, adjusted to reflect actual, product specific costs rather than value based costs. We determined that SKC’s verified cost accounting methodology, upon which reported product specific actual costs were based, was reasonable under, the IPSCO Appeal. The IPSCO Appeal held that production costs must be based on the actual costs of producing the merchandise. SKC’s methodology takes into account its actual costs by adequately ensuring that all raw material costs (including those attributable to pellets) were included in the COP calculation for the PET film product. The IPSCO Appeal does not indicate that the department should not accept a verified product specific cost accounting methodology which takes into account actual costs. Therefore, our acceptance of these costs was appropriate and requires no change.
Remand Determination
at 11 (emphasis added). Plaintiffs contend that the derived product specific costs and the proffered composite pellet to virgin chip usage ratios were not verified and did not reflect actual costs. However, the ITA performed an adequate investigation and verification, some of which was performed during a week-long on-site inspection in Korea: (1) the ITA verified that SKC’s reported usage rates were consistent with the amounts of inventory, material consumed and finished product; (2) the ITA verified that SKC had accurately calculated standard pellet usage rates for each type and thickness of film; and (3) the ITA verified SKC’s calculations against production documents that operated as business records both for accounting and inventory purposes. These steps,
inter alia,
operated both as a
A The Method Employed in Making VAT Adjustments to USP
The ITA’s recalculation of VAT adjustments to United States Price (“USP”) is not in accordance with law under
Federal Mogul v. United States,
13 Fed.Cir.-,
Conclusion
The ITA’s
Remand Determination
ordered by the Court in
E.I. DuPont de Nemours & Co. v. United States,
ORDER
This action having been submitted for decision, and the Court, after due deliberation, having rendered a decision herein; now, in conformity with said decision, it is hereby
ORDERED that the ITA’s
Final Remand Determination Pursuant to Court Order
(April 7, 1994), ordered by the Court in
E.I. DuPont de Nemours & Co. v. United States,
ORDERED that the ITA’s
Final Remand Determination Pursuant to Court Order
(April 7, 1994) be remanded with respect to the methodology employed for calculating
ORDERED that the remand results shall be filed with the Court within sixty (60) days; and it is further
ORDERED that any party contesting the remand results shall file comments within thirty (30) days of those results; and it is further
ORDERED that the ITA shall have fifteen (15) days after the final date for filing comments to file a response.