Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-15-01864/USCOURTS-ca13-15-01864-0/pdf.json

Parties Involved:
Tianjin Magnesium International Co., Ltd.
Appellee
US Magnesium LLC
Appellant
United States
Appellee

Document Text:

United States Court of Appeals 

for the Federal Circuit ______________________ 

US MAGNESIUM LLC,

Plaintiff-Appellant

v.

UNITED STATES, TIANJIN MAGNESIUM 

INTERNATIONAL CO., LTD., 

Defendants-Appellees

______________________ 

2015-1864

______________________ 

Appeal from the United States Court of International 

Trade in No. 12-cv-00006, Senior Judge Richard K. Eaton.

______________________ 

Decided: October 6, 2016

______________________ 

JEFFREY MARK TELEP, King & Spalding LLP, Washington, DC, argued for plaintiff-appellant. Also represented by STEPHEN A. JONES. 

ERIC LAUFGRABEN, Commercial Litigation Branch, 

Civil Division, United States Department of Justice, 

Washington, DC, argued for defendant-appellee United 

States. Also represented by BENJAMIN C. MIZER, JEANNE 

DAVIDSON, PATRICIA M. MCCARTHY; LYDIA CAPRICE 

PARDINI, Office of the Chief Counsel for Trade Enforcement and Compliance, United States Department of 

Commerce, Washington, DC. 

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 2 US MAGNESIUM LLC v. US

DAVID ANDREW RIGGLE, Riggle & Craven, Chicago, IL, 

argued for defendant-appellee Tianjin Magnesium International Co., Ltd. Also represented by DAVID J. CRAVEN,

SAICHANG XU. 

______________________ 

Before PROST, Chief Judge, NEWMAN and BRYSON, Circuit Judges.

Opinion for the court filed by Circuit Judge BRYSON. 

Dissenting opinion filed by Circuit Judge NEWMAN. 

BRYSON, Circuit Judge.

U.S. Magnesium LLC appeals from a judgment of the 

United States Court of International Trade (“the Trade 

Court”) in this antidumping duty case. The Trade Court 

sustained the Department of Commerce’s final determination in an administrative review of the antidumping duty 

order on pure magnesium from the People’s Republic of 

China for the period of review May 1, 2009, to April 30, 

2010. We affirm.

I 

A 

The United States imposes duties on foreign goods 

sold in the U.S. at less than fair value. 19 U.S.C. § 1673. 

To determine whether goods are being sold for less than 

fair value, Commerce compares the export price, i.e., the 

price of the goods sold in the U.S., to the “normal value” of 

the goods, which is ordinarily the price at which such 

goods are sold in the exporting country. Id. § 1677b. 

When merchandise is exported from a nonmarket economy country, the normal value is constructed from “the 

value of the factors of production utilized in producing the 

merchandise and to which shall be added an amount for 

general expenses and profit plus the cost of containers, 

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US MAGNESIUM LLC v. US 3

coverings, and other expenses.” Id. § 1677b(c)(1)(B). 

Costs are generally “calculated based on the records of the 

exporter or producer of the merchandise, if such records 

are kept in accordance with the generally accepted accounting principles of the exporting country (or the producing country, where appropriate) and reasonably reflect 

the costs associated with the production and sale of the 

merchandise.” Id. § 1677b(f)(1)(A).

B 

This case concerns the importation of magnesium 

metal from the People’s Republic of China. The imported 

magnesium is produced using a manufacturing process 

known as the Pidgeon process. That process begins by 

crushing dolomite, a mineral containing magnesium, into 

granules. The dolomite granules are then calcinated by 

roasting them to remove carbon. The calcinated dolomite 

is then mixed with ferrosilicon and fluorite, and the

mixture is pressed into individual briquettes. The briquettes are then loaded into stainless steel reaction 

vessels known as retorts. The retorts are placed under 

vacuum and heated, resulting in the separation and 

vaporization of the magnesium. The magnesium vapor 

condenses into crowns of solid magnesium metal. The 

crowns of magnesium metal are then removed from the 

retorts, melted down, purified, and cast into ingots for 

sale.

The retorts used in the Pidgeon process must be replaced over time in a commercial operation, as the intense 

heat and the chemical reactions gradually degrade the 

interior of the retorts. After approximately 60 days of use

in multiple cycles of the manufacturing process, the 

retorts become unsuitable for the production of magnesium. The retorts are then recycled, and the recycled steel 

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is used to produce new retorts.1 This appeal focuses on 

how to classify the costs of the retorts in constructing the 

normal value of the exported product. 

C 

In 1995, the Commerce Department entered an antidumping order on magnesium metal from the People’s 

Republic of China. Pure Magnesium from the People’s 

Republic of China, 60 Fed. Reg. 25,691 (Dep’t of Commerce May 12, 1995). On May 3, 2010, Commerce provided notice of an opportunity for the parties to seek review 

of the antidumping order. Tianjin Magnesium International (“TMI”), a foreign exporter of magnesium produced 

in China, and U.S. Magnesium (“USM”), a domestic 

producer of magnesium, requested that Commerce review

TMI’s sales. From June 30, 2010, to May 30, 2011, Commerce solicited comments and information from the 

parties, including TMI’s business records, surrogate value 

and country selection, and freight rates.

On June 8, 2011, Commerce released its preliminary 

results for the 2009-2010 review. Pure Magnesium from 

the People’s Republic of China: Preliminary Results of the 

2009-2010 Antidumping Duty Administrative Review, 76 

Fed. Reg. 33,194 (Dep’t of Commerce June 8, 2011). As 

part of its nonmarket economy review, Commerce constructed a normal value for magnesium by creating surrogate values for the raw materials used in the 

manufacturing process. It considered ferrosilicon, fluorite 

powder, dolomite, flux, and coal to be direct materials, 

and it included them directly in the calculation of normal 

 

1 Evidence in the administrative record showed 

that the Pidgeon process takes approximately 12 hours to 

complete. Based on the time required for each production 

cycle and the lifespan of the retort, a single retort can be 

used for many cycles before being replaced. 

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value. However, it did not include a surrogate value for 

steel retorts, because it did not regard the retorts as 

direct materials. Instead, it treated the retorts as indirect 

materials and accounted for the cost of the retorts as 

manufacturing overhead. 

In a memorandum accompanying the preliminary results, Commerce explained why it classified retorts as 

indirect inputs and accounted for them as a component of 

overhead rather than as direct materials.2 Pure Magnesium from the People’s Republic of China, 76 Fed. Reg. 

76,945, 76 ITADOC 76,945, Issues & Decision Memorandum, at Comment 4 (Dep’t of Commerce December 9, 

2011). First, Commerce explained that “retorts are not 

physically incorporated into the final product.” While 

noting that retorts are necessary to the production process, Commerce stated that “they are more similar to a 

kiln or furnace,” the costs of which Commerce generally 

treats as manufacturing overhead. Commerce also found 

that retorts are reusable and “are not replaced so regularly as to represent a direct factor rather than overhead.” 

Finally, Commerce found that it was “unclear how retorts 

are typically treated in the industry.”

Following the preliminary results, USM continued to 

argue that retorts should be classified as direct materials 

rather than as overhead. In the final results, however, 

Commerce stood by its classification, explaining that the 

retorts are best classified as overhead “because they are 

not physically incorporated into the final product and are 

replaced too infrequently to be a direct material.” Commerce concluded that “retorts are not an input added into 

 

2 In addition to indirect materials, Commerce treats 

overhead as including expenses such as building or 

equipment rental, depreciation, supervisory labor, plant 

property taxes, factory administration, and other like 

costs. 

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the production process; rather, they are manufacturing 

equipment, like an oven or crucible, all of which are 

necessary components of the production line to produce 

pure magnesium.” Consequently, Commerce declined to 

treat retorts as a direct material. 

D 

After the closing of the administrative record in the 

review, USM sought to submit new evidence contradicting 

one of the answers TMI provided to Commerce. USM 

contended that the new evidence was indicative of fraud

on TMI’s part. Commerce rejected USM’s submission as 

untimely. The Trade Court, however, remanded the case 

to Commerce for consideration of the new evidence.

On remand, Commerce found that USM’s newly submitted evidence did not constitute prima facie evidence of 

fraud. Commerce also found that the new evidence did 

not call into question its finding that retorts are properly 

treated as factory overhead. 

The Trade Court affirmed Commerce’s remand results. U.S. Magnesium LLC v. United States, 72 F. Supp. 

3d 1341 (Ct. Int’l Trade 2015). After reviewing the financial records of TMI’s supplier, the court sustained Commerce’s conclusion that the supplier did not treat retorts 

as a direct material. The court also upheld Commerce’s 

finding that the evidence was inconclusive as to whether 

the industry as a whole treated retorts as a direct material input. And the court held that Commerce was “right in 

its claim that treating the retorts as an indirect material 

is consistent with its past practice of characterizing 

materials as overhead when ‘they are not physically 

incorporated into the final product and are replaced too 

infrequently to be a direct material.’”

USM appealed to this court from the Trade Court’s 

judgment. 

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II

Commerce’s determinations in an antidumping duty 

case must be upheld 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 means “such relevant evidence as a 

reasonable mind might accept as adequate to support a 

conclusion.” Consol. Edison Co. v. NLRB, 305 U.S. 197, 

229 (1938).

In conducting substantial evidence review of Commerce’s determinations, we apply the same standard of 

review that the Trade Court used in reviewing the administrative record. Downhole Pipe & Equip., L.P. v. United 

States, 776 F.3d 1369, 1373 (Fed. Cir. 2015). As we have 

explained, however, we “will not ignore the informed 

opinion of the Court of International Trade.” Diamond 

Sawblades Mfrs. Coalition v. United States, 612 F.3d 

1348, 1356 (Fed. Cir. 2010) (quoting Suramerica de 

Aleaciones Laminadas, C.A. v. United States, 44 F.3d 978, 

983 (Fed. Cir. 1994)).

A 

USM argues that substantial evidence does not support Commerce’s decision to classify the retorts as overhead rather than as direct materials. USM contends, 

first, that TMI’s supplier characterized retorts as a direct 

cost, as shown by its books and records, and that Commerce should have based its determination on that data 

from TMI’s supplier. In support of its argument, USM 

points to three documents of TMI’s supplier, all from 

December 2009: the supplier cost sheet, the material out 

specification sheet, and the cost of production subledger.

The supplier cost sheet is a one-page document detailing the expenditures of TMI’s supplier. It includes both 

total and unit costs of a variety of different materials 

essential to the production of magnesium. In the category 

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of “raw material,” the chart shows cost breakdowns for

FeSi (ferrosilicon), dolomite, flux, fluorite powder, sulfur 

powder, and sulfuric acid. Retorts are not included within 

the category of “raw material,” but are listed separately.

Like the supplier cost sheet, the material out specification sheet details the supplier’s expenditures. The 

material out specification sheet separately lists the costs 

for retorts along with the costs for the common ingredients, materials, and equipment used in processing magnesium. 

The cost of production subledger, which contains financial information, includes entries for a number of 

items that it describes as “materials consumption,” a 

category that includes raw materials, retorts, certain 

equipment used in the manufacturing process, and certain other itemized expenses.

USM argues that these documents show that the internal accounting records of TMI’s magnesium supplier 

characterized retorts as a direct input. It argues that the 

retorts were not characterized as “accessory expenses,” 

i.e., indirect materials, and were not characterized as 

“manufacturing expenses,” i.e., equipment. Therefore, 

USM argues, TMI’s supplier necessarily treated retorts as 

direct material inputs, not as overhead. 

Commerce rejected that interpretation of the documents. Instead, Commerce noted that TMI’s supplier 

grouped other expenses together with retorts, even 

though those other items are not considered material 

inputs. Accordingly, Commerce concluded that “the fact 

that TMI’s supplier lists retorts [in the cost of production 

subledger] does not indicate that they are a direct material, but rather part of the cost of production.” 

The Trade Court agreed with Commerce’s interpretation of the supplier’s documents. The court noted that “at 

first blush, the description ‘materials consumption’ [in the 

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US MAGNESIUM LLC v. US 9

cost of production subledger] might indicate that the 

listed items were direct inputs, [but] an examination of 

the nature of the entries shows that they are not.” Thus, 

although the subledger lists retorts among the items 

classified as “materials consumption,” it also includes 

other items under that category that are clearly not direct 

materials, such as “crucible,” “packing,” and “accessory 

expense.”3 Likewise, the cost sheet does not include 

retorts under the category of “raw material.” In light of 

that evidence, the Trade Court concluded that Commerce 

permissibly found that TMI’s supplier did not treat retorts as a direct material.

Commerce’s findings as to the supplier’s treatment of 

retorts are supported by substantial evidence. The documents are not definitive, and Commerce’s reading of them 

is plausible. 

The documents that USM highlights contain line 

items that range from items that are plainly direct materials to others that are plainly not. Given that retorts are 

not listed as raw materials, and that retorts are grouped 

together with other expenses that are plainly not direct 

materials, it was reasonable for Commerce to conclude 

that the records do not show that TMI’s supplier treated 

retorts as direct inputs. We will not second-guess the

agency’s choice between plausible interpretations of 

record evidence, particularly in light of the Trade Court’s 

 

3 USM argues that Commerce misread the cost-ofproduction subledger because the “kiln accrued expenses” 

and “wage accrued” expenses are not listed in the “materials consumption” section of the document. But Commerce’s point was that the “materials consumption” 

expenses include items that are not regarded as direct 

materials, so the inclusion of retort costs in the list of 

“materials consumption” expenses does not show that the 

supplier treated retorts as direct materials.

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conclusion that Commerce’s analysis of the record materials was reasonable. In re Jolley, 308 F.3d 1317, 1326 

(Fed. Cir. 2002).

B 

USM next argues that in classifying the retorts as indirect materials, Commerce unjustifiably departed from 

its prior practice in similar cases. In USM’s view, Commerce abandoned its prior reliance on a four-part test for 

distinguishing between indirect materials, which are 

accounted for as overhead, and direct materials: “1) 

whether the input is physically incorporated into the final 

product; 2) the input’s contribution to the production 

process and finished product; 3) the relative cost of the 

input; and, 4) the way the cost of the input is typically 

treated in the industry.” Certain Steel Nails from the 

People’s Republic of China, 78 Fed. Reg. 16651, 78 

ITADOC 16651, Issues & Decision Memorandum, at 

Comment 4 (Dep’t of Commerce Mar. 5, 2013). The 

government responds that Commerce has never followed 

such a strict four-factor test, but instead has characterized materials as direct or indirect depending on a variety 

of relevant factors.

We agree with the government. In distinguishing between direct materials and overhead, Commerce has not 

confined the inquiry to particular defined factors, but 

instead has employed a “totality of the circumstances” 

test. For example, in the Certain Steel Nails case, after 

summarizing the factors considered in previous determinations, Commerce cautioned that:

As demonstrated by the variety of considerations, there is no conclusive test for reaching the 

appropriate classification of inputs that are not 

easily distinguished on their face as direct materials or [overhead]. Further, contrary to Petitioner’s assertion that meeting any one of these 

factors demonstrates that an input is a direct maCase: 15-1864 Document: 70-2 Page: 10 Filed: 10/06/2016
US MAGNESIUM LLC v. US 11

terial, the Department instead finds that it is the 

totality of the evidence that must guide its decision in each case.

Certain Steel Nails, Issues & Decision Memorandum, at

Comment 4. 

In some investigations, such as Citric Acid and Certain Citrate Salts, Commerce has made findings with 

regard to all of the four factors that USM cites. 76 Fed. 

Reg. 77,772, 78 ITADOC 77,772, Issues & Decision Memorandum, at Comment 18 (Dep’t of Commerce Dec. 7, 

2011). In others, Commerce has focused on individual 

factors that appeared significant in the particular investigation. For example, in Certain Steel Nails, Commerce 

based its classification of dies as indirect materials on the 

fact that “dies are not consumed on a directly proportional 

basis,” but are reused until they have worn out and can 

no longer be used. Issues & Decision Memorandum, at 

Comment 4. In another case, Diamond Sawblades and 

Parts Thereof from the People’s Republic of China, Commerce relied on the lifespan of molds in determining 

whether they were properly classified as indirect materials, as well as the fact that graphite molds were partially 

incorporated into the final product. 71 Fed. Reg. 29,303, 

71 ITADOC 29,303, Issues & Decision Memorandum, at 

Comment 2 (Dep’t of Commerce May 15, 2006),

In this case, Commerce relied primarily on two factors: the fact that the retorts were not physically incorporated into the final product, and the fact that the retorts 

were not replaced frequently. Commerce’s focus on those 

factors was neither inconsistent with its past practices in 

analogous cases nor unreasonable as a way of distinguishing between direct and indirect materials. As long as its 

analysis was reasonable, as it was here, Commerce was 

not required to examine and rely on every factor that it 

has used in the past. See Bridgestone Ams., Inc. v. United 

States, 710 F. Supp. 2d 1359, 1364 (Ct. Int’l Trade 2010) 

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(Commerce is not bound by the four-factor test and has 

discretion “to rely on various criteria to value factors of 

production.”).

C 

USM next argues that Commerce erred in finding 

that retorts are replaced too infrequently to be treated as 

a direct input. Citing Commerce’s decision in Citric Acid, 

USM suggests that in the past Commerce has required an 

item to have at least one year of useful life in order to be

classified as overhead. In that investigation, however, 

Commerce noted that the resins at issue were used for 

more than one year; it concluded that they were therefore 

properly treated as indirect materials. Commerce did not 

create a rule of thumb that items replaced more often 

than once per year must be treated as direct materials. 

In fact, Commerce has found factory items having a useful 

life much shorter than the retorts in this case to be 

properly categorized as indirect materials whose costs 

should be treated as overhead. In Certain New Pneumatic 

Tires Off-the-Road Tires from the People’s Republic of 

China, Commerce characterized curing bladders used in 

tire manufacturing as overhead when the record evidence 

showed that they were replaced as frequently as once 

every two to eight days. 77 Fed. Reg. 14,495, 77 ITADOC 

14,495, Issues & Decision Memorandum, at Comment 3

(Dep’t of Commerce Mar. 5, 2012).

USM also criticizes Commerce’s comparison of the retorts with the steel molds at issue in Diamond Sawblades, 

because the public record does not reflect the lifespans of 

the graphite and steel molds that were at issue in that 

case. However, given Commerce’s obligation to maintain 

the confidentiality of investigation respondents’ business 

proprietary information, it is inevitable that the public 

records of investigations will not always disclose such

facts. It was not unreasonable for Commerce to conclude 

that the 60-day lifespan of the retorts was long enough to 

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US MAGNESIUM LLC v. US 13

justify its conclusion that the retorts should not be treated 

as direct materials in the manufacturing process.

As part of its argument about the replacement rate for 

the retorts, USM quarrels with Commerce’s conclusion 

that the record evidence did not show that the retorts 

were traceable to specific magnesium products. USM 

argues that Commerce improperly conflated “traceability” 

with “physical incorporation,” and that because the retorts were consumed in the course of the magnesium 

production process, they were traceable to specific magnesium products. Defined in that manner, however, the 

term “traceable” would apply even to items such as furnace components that have to be replaced as infrequently 

as once a year. 

By “traceable,” Commerce appears to refer to items 

that are continuously consumed during the production 

process and must continually be replaced. See, e.g., 

Silicomanganese From the People’s Republic of China, 65 

Fed. Reg. 31,514, 65 ITADOC 31,514, Issues & Decision 

Memorandum, at Part IV, Comment 1 (Dep’t of Commerce 

May 18, 2000) (electrode paste is a direct material because it is “burned-off during production and must continually be replaced”); Wooden Bedroom Furniture From 

the People’s Republic of China, 69 Fed. Reg. 67,313, 69 

ITADOC 67,313, Issues & Decision Memorandum, at 

Comment 6 (Dep’t of Commerce Nov. 17, 2004) (abrasives 

used in production of furniture are direct materials because they are “consumed in large quantities and their 

consumption is tied directly to the amount of subject 

merchandise each respondent produced”); Silicon Metal 

From the Russian Fed’n, 68 Fed. Reg. 6,885, 68 ITADOC 

6,885, Issues & Decision Memorandum, at Comment 25 

(Dep’t of Commerce Feb. 11, 2003) (electrodes were direct 

materials because they “were burned away each day and 

are continually replaced”). It was reasonable for Commerce to conclude that retorts, which last for many production cycles, are not traceable to specific magnesium 

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 14 US MAGNESIUM LLC v. US

products and are not required to be characterized as 

direct materials on that basis.

D 

USM argues that Commerce failed to take into account practices among other companies in the magnesium 

production industry with respect to the accounting treatment of retorts. USM contends that the industry practice 

is to treat retorts as a direct input.

In support of its argument, USM relies on the records 

of three other producers. The first, a Malaysian producer, 

classified retorts as a direct input, which is undisputed by 

all parties in this case. As to the second, an Indian company that had ceased production 10 years before the 

review period, Commerce found that the company had 

classified retorts as a direct expense in one year, 1994-95, 

but not in any subsequent years. As to the third, a Chinese company, Commerce found that it was unclear 

whether that company classified retorts as a direct input.4

Based on the record before it, Commerce found that 

USM’s evidence with respect to industry practices in the 

accounting treatment of retorts was inconclusive. The 

Trade Court determined that “it is difficult to quarrel 

with the Department’s conclusion that USM has present-

 

4 USM argues that, in addition to the Malaysian, 

Indian, and Chinese companies, the evidence showed that 

two other producers treated retorts as direct materials: 

TMI’s supplier and Magpro, LLC, an American producer. 

We have already addressed TMI’s supplier in part II-A, 

above. As for Magpro, USM’s evidence in the form of a 

declaration from the managing member of Magpro 

showed that Magpro used a different process, in which 

retorts typically last three to five years. The declarant 

did not state that Magpro treated retorts as direct inputs. 

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US MAGNESIUM LLC v. US 15

ed little evidence that retorts are treated as a direct input 

by the magnesium industry.”

We agree with the Trade Court that substantial evidence supports Commerce’s conclusion that USM’s evidence on this point was inconclusive. USM quarrels with 

the inferences Commerce drew from the record evidence, 

but “the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency’s finding from being supported by substantial 

evidence.” Consolo v. Fed. Maritime Comm’n, 383 U.S. 

607, 620 (1966). Interpreting accounting documents and 

drawing conclusions from them are tasks within Commerce’s expertise. Fujitsu General Ltd. v. United States, 

88 F.3d 1034, 1039 (Fed. Cir. 1996). Commerce considered all of the submitted documents relating to the three 

foreign producers. Given that there was an evidentiary 

basis for Commerce to conclude that only one of the three 

treated retorts as a direct input, it was reasonable for 

Commerce to find that no industry-wide practice had been 

shown. 

E 

Next, USM argues that Commerce ignored the cost of 

the retorts relative to the final product. We disagree. 

Commerce did not ignore testimony about the cost of the 

retorts; instead, it explicitly discussed that issue in the 

memorandum accompanying the final results, but found 

other factors more persuasive. Commerce wrote:

Although the Department may consider the 

relative cost to determine whether certain items

should be attributed to overhead, this consideration is not determinative or considered alone. 

Further, in determinations where cost has played 

a large role, the cost has not been related to factory equipment. For example, in Urea/Russia AD 

Final (02/21/2003), the items were catalysts. In 

Silicomanganese /PRC AD Final (05/18/2000), the 

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 16 US MAGNESIUM LLC v. US

electrode paste was a “consumable” used up during production. In this review, retorts are not an 

input added into the production process; rather, 

they are manufacturing equipment, like an oven 

or crucible, all of which are necessary components 

of the production line to produce pure magnesium.

As Commerce pointed out, the relative cost of particular items has not been regarded as an important factor 

where the cost in question is related to factory equipment

or items that are not used up during production. The 

relative cost of the retorts therefore provides no reason to 

reject Commerce’s findings as unsupported by substantial 

evidence. 

F 

Finally, USM complained at oral argument that 

Commerce ignored a declaration by John Haack, a representative of an American company involved in magnesium 

production. USM infers that Commerce ignored Dr. 

Haack’s declaration because it did not refer to the declaration in its decision memorandums. 

First, to the extent USM argues that Commerce’s decision lacked substantial evidence support because of the 

failure to cite the declaration, it is wrong. We presume 

that a fact-finder reviews all of the evidence presented 

unless it states otherwise, even if its opinion does not 

“recite every piece of evidence.” Plant Genetic Sys., N.V. 

v. DeKalb Genetics Corp., 315 F.3d 1335, 1343 (Fed. Cir. 

2003). 

Second, the Haack declaration added very little by 

way of evidentiary support for USM’s position. The twopage declaration consists of undisputed facts about the 

Pidgeon process and a conclusory statement that “[t]o 

accurately account for the costs of producing magnesium 

using the Pidgeon process retorts should be treated as a 

direct material input, because they are central to the 

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US MAGNESIUM LLC v. US 17

production process, have a short useful life, are consumed 

by the process, and have a very high unit cost.” In light of 

the skimpy nature of the declaration, it is unsurprising 

that Commerce found that the declaration contributed 

little to its investigation and did not need to be separately 

addressed. 

III

We agree with the Trade Court that Commerce’s 

decision was supported by substantial evidence and not 

otherwise contrary to law. We therefore uphold the Trade 

Court’s judgment sustaining Commerce’s Final Results of 

Redetermination in this case. 

AFFIRMED

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United States Court of Appeals 

for the Federal Circuit ______________________ 

US MAGNESIUM LLC,

Plaintiff-Appellant

v.

UNITED STATES, TIANJIN MAGNESIUM 

INTERNATIONAL CO., LTD., 

Defendants-Appellees

______________________ 

2015-1864

______________________ 

Appeal from the United States Court of International 

Trade in No. 12-cv-00006, Senior Judge Richard K. Eaton.

______________________ 

NEWMAN, Circuit Judge, dissenting.

The question is whether the cost of retorts integral to

the Pidgeon magnesium production process should be 

treated for accounting purposes (and calculation of dumping margin) as a direct cost of production, or as factory 

overhead. The question arises because the retorts have a 

short effective life under the extreme heat and pressure of 

the Pidgeon process, and must be replaced about every 

sixty days. The Commerce Department treated the cost of 

the retorts as factory overhead; that determination is 

contrary to guidelines developed in precedent and contrary to the practice of every record producer of magnesium.

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2 US MAGNESIUM LLC v. US

The United States does not argue on appeal that the 

Commerce position is correct; the United States argues 

only that there is “substantial evidence” on the Commerce 

side. Substantial evidence is determined on the record 

considered “as a whole, including evidence that supports 

as well as evidence that ‘fairly detracts from the substantiality of the evidence.’” Atl. Sugar, Ltd. v. United States, 

744 F.2d 1556, 1562 (Fed. Cir. 1984). Considered on the 

entirety of the record, there is not substantial evidence to 

support the Commerce accounting position. I respectfully 

dissent from the court’s contrary ruling.

The cost of the retorts is “reasonably reflected” as a direct material input.

Commerce is charged with determining the “normal 

value” for this imported magnesium. In calculating this 

value, “[c]osts shall be allocated using a method that 

reasonably reflects and accurately captures all of the 

actual costs incurred in producing and selling the product 

under investigation or review.” Am. Silicon Techs. v. 

United States, 261 F.3d 1371, 1378 (Fed. Cir. 2001) (citing

Agreement on Implementation of Article VI of the GATT, 

834–35 (reprinted in 1994 U.S.C.C.A.N. at 4172)). The 

antidumping statute likewise instructs: 

(1)(A) Costs shall normally be calculated based on 

records of the exporter or producer of the merchandise, if such records are kept in accordance 

with the generally accepted accounting principles 

of the exporting country . . . and reasonably reflect 

the costs associated with the production and sale 

of the merchandise.

19 U.S.C. § 1677b(f)(1)(A). 

The facts are not in dispute. The only issue is whether the cost of the retorts is properly accounted as direct 

input to production, or as factory overhead or similar 

indirect cost. This is not a new question in antidumping 

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US MAGNESIUM LLC v. US 3

determinations, and Commerce and the courts have 

established general principles to guide in determining 

whether an input is a direct input or factory overhead. 

Commerce summarized these principles:

The Department has over time developed several 

factors for assessing whether inputs should be 

classified as direct materials or overhead (“OH”). 

These considerations include: 1) whether the input is physically incorporated into the final product; 2) the input’s contribution to the production 

process and finished product; 3) the relative cost 

of the input; and, 4) the way the cost of the input 

is typically treated in the industry.

The Department has also classified inputs as 

direct materials if they were found to be: 1) consumed continuously with each unit of production; 

2) required for a particular segment of the production process; 3) essential for production; 4) not

used for incidental purposes; or, 5) otherwise a 

significant input to the manufacturing process rather than a miscellaneous or occasionally used 

material. Also of consideration has been whether 

the input was so regularly replaced as to represent a direct material rather than an OH item. 

As demonstrated by the variety of considerations, there is no conclusive test for reaching the 

appropriate classification of inputs that are not 

easily distinguished on their face as direct materials or OH.

Certain Steel Nails From the People’s Republic of China, 

78 Fed. Reg. 16,651 (Dep’t of Commerce Mar. 18, 2013), 

I&D Memo at Cmt. 4. 

These factors have seen litigation in a variety of situations. Physical incorporation into the final product is not 

dispositive of whether a material is accounted as a direct 

input, as illustrated by precedent treating materials such 

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4 US MAGNESIUM LLC v. US

as catalysts, electrodes, and other production materials as 

direct inputs. See, e.g., Silicon Metal from the Russian 

Federation, 68 Fed. Reg. 6,885 (Dep’t of Commerce Feb. 

11, 2013), I&D Memo at Cmt. 25 (electrodes treated as 

direct materials despite lack of physical incorporation). 

Commerce itself has rejected “the argument that incorporation is the determinative factor when deciding whether 

to treat an input as direct material or an overhead expense.” Wooden Bedroom Furniture from the People’s 

Republic of China, 69 Fed. Reg. 67,313 (Dep’t of Commerce Nov. 17, 2004), I&D Memo at Cmt. 6.

Applying these principles, the Pidgeon retorts are a 

direct input material. An explanation of why these retorts have such a short life was provided in the declaration of John Haack, an official of Magpro, LLC, a United 

States producer of magnesium. Mr. Haack explained that 

in the Pidgeon process the retorts

are deformed due to external pressure on the retorts, and lose steel mass through scaling as a result of high temperature oxidation during use. At 

a certain point, the retort becomes ineffective for 

the production of magnesium and thus has been 

“consumed.” 

Haack Decl. at ¶ 3, J.A. 101407. Mr. Haack further 

explained that the retorts “are central to the production 

process, have a short useful life, are consumed by the 

process, and have a very high unit cost.” Id. All evidence 

of record, including Mr. Haack’s declaration, characterized the retorts as consumable, expensive, and “essential 

for production” in the Pidgeon process. Commerce adopted an accounting protocol contrary to this evidence, a 

position unsupported by substantial evidence.

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US MAGNESIUM LLC v. US 5

No producer of record treated the retorts as 

factory overhead. 

The record also contains evidence of industry treatment of retorts by producers of magnesium in Malaysia 

and in India, as well as a second producer in China. The 

record shows that no producer used the accounting method adopted by Commerce (and now by this court), whereby 

the retorts are treated as factory overhead or as indirect 

materials. Nor is the evidence “equivocal,” as my colleagues propose.

The Malaysian producer, CMV Minerals Ltd., described the retorts as a “major raw material,” consumed 

in the process. See J.A. 100584. My colleagues agree that 

the “Malaysian producer[] classified retorts as a direct 

input, which is undisputed by all parties in this case.” 

Maj. Op. at 14. 

The Indian company that was consulted by Commerce, Southern Magnesium & Chemicals Ltd., had 

ceased magnesium production. This company’s accounting records specifically call out retorts as a direct expense

for one year, and report only broader categories of “other” 

direct materials and general overhead, without itemization, for the other available years. At most, the nonitemized treatment is inconclusive as to whether retorts 

were classified as direct materials or factory overhead. 

Commerce did not, however, explain how “inconclusive” 

broad categorization in some years rendered the specific 

treatment of retorts as a direct material irrelevant.

Commerce also consulted another Chinese producer, 

China Magnesium Corporation (CMC). Although the 

majority states that “Commerce found that it was unclear 

whether [CMC] classified retorts as a direct input,” Maj. 

Op. at 14, CMC describes the retorts as its fourth largest 

reoccurring, variable cost and specifically separates 

retorts from overhead “fixed costs.” J.A. 100575.

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6 US MAGNESIUM LLC v. US

It is not disputed that the retorts are consumed in use

and that not only are they a major production cost, but a

significant unit cost. The only conclusive evidence of 

industry treatment is the evidence showing classification 

of the retorts as a direct input. Direct input was shown to 

be the most reasonable, objective, and fair method of 

accounting for the cost of retort consumption in the Pidgeon process. There was not substantial contrary evidence. 

I respectfully dissent.

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