SLIP OP. 99 - 118 

UNITED STATES COURT OF INTERNATIONAL TRADE

 

MANNESMANNROHREN-WERKE AG AND : 

MANNESMANN PIPE & STEEL CORP., :

:

Plaintiffs, :

: BEFORE: Wallach, Judge

v. : Court No.: 98-04-00886

:

THE UNITED STATES, : PUBLIC VERSION

:

Defendant, :

:

and :

:

GULF STATE TUBE DIVISION OF :

VISION METALS, :

:

Defendant-Intervenor. :

 :

[Remanded in part]

Decided: October 29, 1999

Sutherland Asbill & Brennan LLP (Mark D. Herlach, Mary Patricia Michel and Christer L.

Mossberg) for Plaintiffs.

David Ogden, Acting Assistant Attorney General; David M. Cohen, Director; U.S. Department

of Justice, Civil Division, Commercial Litigation Branch, (Velta A. Melnbrencis); Brian Peck,

Office of the Chief Counsel for Import Administration, U.S. Department of Commerce, Of

Counsel, for Defendant.

Schagrin Associates (Roger B. Schagrin) for Defendant-Intervenor.
Court No. 98-04-00886 Page 2

OPINION

I

INTRODUCTION

At issue in this case are various determinations made by the U.S. Department of

Commerce, International Trade Administration ("Commerce") in Small Diameter Circular

Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe From Germany: Final Results

of Antidumping Duty Administrative Review ("Final Results"), 63 Fed. Reg. 13,217 (1998). 

Plaintiffs, Mannesmannrohren-Werke AG And Mannesmann Pipe & Steel Corp. ("Mannesmann"),

through a motion for judgment on the agency record and an accompanying memorandum

(collectively, "Mannesmann's Motion"), argue that Commerce erred (a) in its interpretation of 19

U.S.C. § 1677b(f)(2) and (3) (1994); (b) in its use of adverse facts available to value

Mannesmann's purchases of steel billets from a related supplier; and (c) in its use of adverse facts

available to value the customs duties Mannesmann paid on its U.S. sales. 

For the reasons set forth below, the Court finds that while Commerce reasonably

interpreted 19 U.S.C. § 1677b(f)(2) and (3) (1994), what Commerce has identified as substantial

record evidence does not support its decisions to use adverse facts available. This determination

is remanded to Commerce for further proceedings consistent with this opinion. 

II 

BACKGROUND

On March 18, 1998, Commerce issued its first administrative review of antidumping duties

on certain small diameter seamless carbon and alloy steel pipes from Germany. This review

covered one manufacturer/exporter of the subject merchandise, Mannesmannrohren-Werke AG

and Mannesmann Pipe & Steel Corporation, for the period January 27, 1995, through 
Court No. 98-04-00886 Page 3

July 31, 1996. Final Results, 63 Fed. Reg. at 13,217. Two aspects of this review are relevant for

present purposes.

Commerce's Affiliated Party Input Adjustment:

As in any antidumping investigation, in this instance Commerce was required to compare

the U.S. prices of the subject merchandise to the prices ("normal value") for the same or similar

merchandise in the home market. See 19 U.S.C. § 1677a (1994) ("Export price and constructed

export price") and 19 U.S.C. § 1677b (1994) ("Normal value"). In the course of calculating the

normal value of the subject merchandise in this case, Gulf State Tube Division of Vision Metals, a

domestic interested party and Defendant-Intervenor in the current action, alleged that

Mannesmann was selling the foreign like product in its home market (Germany) at prices below

Mannesmann's cost of production. Pursuant to 19 U.S.C. § 1677b(b) (1994), such below cost

sales, if shown to exist, may be disregarded by Commerce in its calculation of normal value. On

January 31, 1997, Commerce determined that this allegation of below-cost sales was adequately

supported, initiated a sales-below-cost investigation, and requested that Mannesmann respond to

Section D of Commerce's Antidumping Duty Questionnaire, covering "Cost of Production and

Constructed Value." See Letter from Linda Ludwig to Mark Herlach of 01/31/97, Appendix of

Record Documents Accompanying The Memorandum In Support Of The Motion Of Plaintiffs

[Mannesmann] For Judgment On The Agency Record "Mannesmann Appendix"), App. 3. 

Mannesmann does not contest initiation of the below-cost sales investigation.

Although the Section D Questionnaire requested substantial information concerning

Mannesmann's cost-of-production, the question here most pertinent was Question II.A.6.b. In

relevant part, Question II.A.6. provided as follows:

6. List the major inputs received from affiliated parties and used to produce

the merchandise under review during the cost calculation period. . . . For

each major input identified, provide the following information: 
Court No. 98-04-00886 Page 4

a. the total volume and value of the input purchased from all sources

by your company during the cost calculation period, and the total

volume and value purchased from each affiliated party during the

same period;

b. the per-unit transfer price charged for the input by the affiliated

party (if the affiliated party sells the identical input to other,

unaffiliated purchasers, provide documentation showing the price

paid for the input by the unaffiliated purchaser; if your company

purchases the identical input from unaffiliated suppliers, provide

documentation showing the unaffiliated party's sales price for the

input); and 

c. if you are responding to this section of the questionnaire in

connection with an investigation of sales below cost, provide the

per-unit cost of production incurred by the affiliated party in

producing the major input. 

In addition, specify the basis used by your company to value each major

input for purposes of computing the submitted COP and CV amounts (e.g.

transfer price, cost of production). 

Defendant's Memorandum In Opposition To Plaintiffs' Motion For Judgment On The Agency

Record ("Defendant's Response"), Public Ex. 1, at 91-92.

Mannesmann responded to subpart (a) of the question by stating, inter alia, that it had not

"sourced billets used in producing subject merchandise from unrelated parties." Response Of

[Mannesmann] To Section D Of The Antidumping Questionnaire, Mannesmann Appendix, App.

4, at 8. This answer was not fully responsive, since the question asked for information on input

purchases related to the "merchandise under review" and not "subject merchandise." As defined

in a footnote to Section A of Commerce's Antidumping Questionnaire, "products under review"

and "merchandise under investigation" referred generally to "all products within the scope of the

order that your company sold during the period of review in any market," while "subject

merchandise" referred only to "products sold to the United States." See Commerce's

Antidumping Questionnaire, Defendant's Response, Public Ex. 1, at 15 n.6.
Court No. 98-04-00886 Page 5

In response to subpart (b) of Question II.A.6., Mannesmann provided a substantial

amount of information concerning its relationship with Huttenwerke Krupp Mannesmann GmbH

("HKM"), an affiliated party from whom it purchases the vast majority of the steel it uses to

produce seamless and welded tubes. See Response Of [Mannesmann] To Section D Of The

Antidumping Questionnaire, Mannesmann Appendix, App. 4, at 9-13. Mannesmann's response,

however, did not provide any information in regard to the last part of subpart (b), which

requested that "if your company purchases the identical input from unaffiliated suppliers, provide

documentation showing the unaffiliated party's sales price for the input." Commerce's

Antidumping Questionnaire, Defendant's Response, Public Ex. 1, at 91.

Finally, responding to subpart (c) of Question 6, Mannesmann stated that it utilized

transfer price from its affiliated supplier, HKM, to value steel billets, and that "this transfer price

exceeded HKM's cost of production." Response Of [Mannesmann] To Section D Of The

Antidumping Questionnaire, Mannesmann Appendix, App. 4, at 14. As discussed below, this

statement was of considerable importance, since Commerce found that reliance on transfer price

from an affiliated party makes 19 U.S.C. §1677b(f)(2) (1994) applicable to its analysis and

findings. 

Subsequently, Commerce provided Mannesmann with a supplemental questionnaire

("Supplemental Section D Questionnaire"), which asked Mannesmann two further questions that

are relevant here. First, Question 11 of the Supplemental Section D Questionnaire asked

Mannesmann:

As requested in the original Section D questionnaire, please provide a complete,

translated listing of all inputs used to produce the merchandise under review. For

each input received from an affiliated party, provide the name of the affiliated party

and state the nature of the affiliation. Also, report the total volume and value of

the purchases and the percentage of the COM of the subject merchandise

represented by the value of the purchases.
Court No. 98-04-00886 Page 6

Response Of [Mannesmann] To Supplemental Section D Of The Antidumping Questionnaire,

Mannesmann Appendix, App. 5, at 7 (emphasis in original). Answering this question,

Mannesmann provided the short response that "[s]teel billets are the only input from affiliated

suppliers for the subject merchandise. All of the steel billets purchased for producing the subject

merchandise were produced at HKM." Id. Once again, this response was limited to "subject

merchandise," although the question asked for information on the broader category of

"merchandise under review."

Second, Question 12 of the Supplemental Section D Questionnaire asked that

Mannesmann:

Use the following headings to provide a chart which reports purchases of billets

from unrelated suppliers, regardless of whether or not they are used in subject

merchandise. (Unrelated supplier, month during [the period of review], billet

grade, volume purchased, value of purchases. [sic] 

Id. (emphasis in original). Mannesmann responded to this question by providing an exhibit that

listed billet purchases from unrelated suppliers. See id. at 8; Chart Regarding Purchases of Billets,

id. at Ex. D-4. This exhibit, however, did not respond to Commerce's request for billet grade

information.

Seeking yet further information, Commerce thereafter requested that Mannesmann 

answer a third questionnaire (Commerce's "Second Supplemental Section D Questionnaire"). 

Question 4 of that questionnaire stated as follows:

In Exhibit D-4 of the Supplemental D questionnaire response, you provided a

breakdown of billet purchases from unaffiliated parties. When compared to the

billet prices provided in Exhibit E of the Section D response, it appears that the

average POR cost of billets purchased from unaffiliated parties significantly

exceeds the cost of billets purchased from HKM. Explain the reason for such

difference.
Court No. 98-04-00886 Page 7

Mannesmann Second Supplemental Section D Response, Mannesmann Appendix, App. 6, at 2.

Explaining this cost differential between billets from affiliated and unaffiliated suppliers,

Mannesmann responded, inter alia, that:

MWR and MWS only purchase from other suppliers billets that HKM does not

produce, such as billets comprised of special alloy grades or purities. The price of

these specialized billets with higher alloy content or higher purity is quite naturally

greater than the price for the standard grade billets manufactured by HKM. 

Id. at 3.

On September 9, 1997, Commerce published the preliminary results of its administrative

review in the Federal Register. See Small Diameter Circular Seamless Carbon and Alloy Steel

Standard, Line and Pressure Pipe From Germany: Preliminary Results of Antidumping Duty

Administrative Review ("Preliminary Results"), 62 Fed. Reg. 47,446 (1997). In the Preliminary

Results, Commerce calculated Mannesmann's cost of production by disregarding those billet sales

between Mannesmann and HKM that did not reflect market value for these inputs. See id. at

47,451. In those instances where Commerce found that the billet sales between Mannesmann and

HKM did not reflect market value, Commerce, pursuant to § 773(f)(2) and (3) of the Tariff Act

of 1930 [19 U.S.C. § 1677b(f)(2) and (3) (1994)], used market prices to value the inputs

purchased from HKM and, in turn, calculate Mannesmann's cost of production. See id.; see also

Department of Commerce Preliminary Results Analysis Memorandum of 09/02/97, Mannesmann

Appendix, App. 11 ("Preliminary Results Memo."), at 16.

To determine market value, Commerce compared the relative prices of one grade of billets

which Mannesmann had purchased from both affiliated and non-affiliated parties during the period

of review. See Preliminary Results, 62 Fed. Reg. at 47,451. Finding the price paid to the nonaffiliated party to be 30.9 % higher than the price paid to HKM, Commerce increased the transfer

prices reported for all HKM billet sales to Mannesmann by 30.9% to approximate 
Court No. 98-04-00886 Page 8

1

 By increasing the price of a party's inputs, Commerce increases the party's cost of production

for purposes of excluding below-cost sales. This, in term, leads the "normal value" of a party's

home market sales to be higher, since a larger percentage of a party's home market sales will be

excluded as having been made "below cost." See Raj Bhala, International Trade Law: Cases and

Materials 654 (1996) ("It is an arithmetic fact that the exclusion raises the average and, therefore,

increases the likelihood of finding, and size of, a dumping margin.")

 market value. See id.; Preliminary Results Memo. at 16. As 94.21% of Mannesmann's billet

purchases was from HKM, this resulted in an aggregate cost of steel billets 29.11 % higher than

originally reported by Mannesmann. See Preliminary Results Memo. at 16.1 

In response to this aspect of the Preliminary Results, Mannesmann argued, inter alia, that

Commerce "improperly invoked the special rule for major inputs in section 773(f)(3) of the Act

when it ignored Mannesmann's verified billet costs in calculating the company's cost of

production." Final Results, 63 Fed. Reg. at 13,218. Mannesmann also argued that Commerce

"had no reasonable basis for applying an across-the-board percentage price increase on all billets

based on one exceptional purchase of a steel grade that was not sold in the United States." Id. at

13,219. 

In the Final Results, Commerce dismissed both these criticisms. After first reaffirming its

position in the Preliminary Results, Commerce stated that "[w]e disagree with Mannesmann's

assertion that the Department improperly invoked the special rule for major inputs." Id.

According to Commerce, § 773(f)(2) and (3) of the Tariff Act of 1930 gave it the legal authority

to use the highest of transfer price, cost of production, or market value to value the billets

purchased from HKM. Id. at 13,219-20. 

Addressing Mannesmann's second complaint (that Commerce had no reasonable basis for

applying the market value adjustment to all purchases from affiliated suppliers), Commerce stated

that, because Mannesmann had not acted to the best of its ability to comply with its information

requests, it was applying this market value adjustment in the Final Results as adverse
Court No. 98-04-00886 Page 9

 facts available. Id. This decision to apply adverse facts available appears to have been based on

two events. First, Commerce observed that although it requested information on any purchases of

the identical input from unaffiliated suppliers in Question II.A.6.b of the Section D Questionnaire,

"Mannesmann did not respond to this portion of the questionnaire." Id.; see also Department of

Commerce Final Results Analysis Memorandum of 03/09/98, Mannesmann Appendix, App. 8

("Final Results Memo."), at 14. Second, and in regard to Question 4 of the Second Supplemental

Section D Questionnaire, Commerce pointed out that although Mannesmann stated that it "only

purchase[d] from other suppliers billets that HKM does not produce, such as billets comprised of

special alloy grades or purities," this assertion did not hold true at verification. See Final Results,

63 Fed. Reg. at 13,220; Final Results Memo. at 14. Sampling Mannesmann's purchases for one

month, Commerce discovered purchases by Mannesmann of the same grade of billets from both

HKM and an unaffiliated party. Final Results Memo. at 14. Commerce viewed this as "an

unexpected discovery, as Mannesmann had specifically denied that they purchase the same grade

of billets from HKM and unaffiliated parties." Id. 

Mannesmann's Reported U.S. Duties:

The second part of the Final Results at issue involves the customs duties that

Mannesmann, in answering Section C of the Commerce's Antidumping Questionnaire, reported

that it had paid on its U.S. sales.

During verification, Commerce examined over half of Mannesmann’s total U.S. sales in its

review of U.S. duty paid. See Mannesmann's Motion at 28 (noting that Commerce's observations

covered 52% of the subject merchandise (in terms of tonnage) sold in the United States). In

determining whether U.S. duty was properly reported, Commerce "summed total U.S. duty paid

on the entry [Commerce was] examining and compared it to total U.S. duty reported in the

applicable observations." Final Results, 63 Fed. Reg. at 13,222. For several entries, 
Court No. 98-04-00886 Page 10

2

 Specifically, Commerce applied the highest reported duty amount for carbon products

($86.35/ton) to all sales of carbon products, and it applied the highest reported duty amount for

alloy products ($119.07/ton) to all sales of alloy products. See Final Results, 63 Fed. Reg. at

13,222; Final Results Memo. at 12.

Commerce found that Mannesmann had underreported the total U.S. duty paid -- a fact which it

found "indicates that errors exist which are more pervasive than can be explained by rounding or

allocation methodologies." Id. Further, at verification Mannesmann was unable to recreate or

explain the allocation methodologies it used in its submission to Commerce. Id.

In light of these findings, Commerce again determined that the use of adverse facts

available was appropriate, since "[b]y not providing verifiable information for U.S. duties when

such information was available to Mannesmann . . . Mannesmann failed to cooperate by not acting

to the best of its ability to comply with a request for information." Id. at 13,222-23. Accordingly,

for the Final Results, Commerce used the duty rates reported by Mannesmann in the three

instances where it was able to confirm Mannesmann's figures. Id. at 13,222; Final Results Memo.

at 12. For all other sales, however, including those where Commerce otherwise calculated the

correct amount of duty paid, Commerce used the highest U.S. duty amounts reported by

Mannesmann. Final Results, 63 Fed. Reg. at 13,222.2 Generally, this resulted in duties

significantly higher than either those reported by Mannesmann or, where applicable, those

calculated by Commerce. See, e.g., Analysis of U.S. Duty Adjustment, Mannesmann's Motion,

Ex. A.
Court No. 98-04-00886 Page 11

III 

DISCUSSION

A

Standard Of Review

The Court “shall hold unlawful any determination, finding, or conclusion found . . . to be

unsupported by substantial evidence on the record, or otherwise not in accordance with law.” 19

U.S.C. § 1516a(b)(1)(B)(i) (1994). Substantial evidence is something more than a "mere

scintilla," and must be enough evidence to reasonably support a conclusion. Primary Steel, Inc. v.

United States, 17 CIT 1080, 1085, 834 F. Supp. 1374, 1380 (1993); Ceramica Regiomontana,

S.A. v. United States, 10 CIT 399, 405, 636 F. Supp. 961, 966 (1986), aff'd, 810 F.2d 1137 (Fed.

Cir. 1987). "As long as the agency's methodology and procedures are reasonable means of

effectuating the statutory purpose, and there is substantial evidence in the record supporting the

agency's conclusions, the court will not impose its own views as to the sufficiency of the agency's

investigation or question the agency's methodology." Ceramica Regiomontana, S.A., 10 CIT at

404-5, 636 F. Supp. at 966.

In reviewing an agency’s construction of a statute that it administers, the Court's initial

inquiry is to determine “whether Congress has directly spoken to the precise question at issue." 

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842 (1984). "If

Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority

to the agency to elucidate a specific provision of the statute by regulation." Id. at 843-44. 

Consequently, “[t]he court will defer to the agency's construction of the statute as a permissible

construction if it ‘reflects a plausible construction of the plain language of the statute[s] and does

not otherwise conflict with Congress' express intent.’" Torrington Co. v. United States, 82 F.3d

1039, 1044 (Fed. Cir. 1996) (quoting Rust v. Sullivan, 500 U.S. 173, 184 (1991)).
Court No. 98-04-00886 Page 12

B

Commerce Correctly Interpreted The Statutory Framework For 

Valuing Mannesmann's Billet Costs.

As noted above, in the Final Results Commerce interpreted 19 U.S.C. § 1677b(f)(2) and

(3) (1994) as giving it the legal authority to use the highest of transfer price, cost of production,

or market value to value the billets Mannesmann purchased from HKM. Pursuant to this

interpretation, Commerce used constructed market values in valuing these billets, per §

1677b(f)(2), since it found that this value exceeded both the transfer price reported by

Mannesmann and HKM's cost of production. See Preliminary Results Memo. at 16.

Mannesmann challenges this result as an improper application of the "major input rule," 19

U.S.C. § 1677b(f)(3). Mannesmann argues that Commerce "should never have applied an

alternative valuation under § 1677b(f)(2) as a substitute for actual billet transfer prices because

the condition precedent contained in § 1677b(f)(3) (the use of a below cost input), which triggers

the ability of the agency to resort to § 1677b(f)(2), was not met." Plaintiffs' Reply To Defendant's

Memoranda In Opposition To Plaintiffs' Motion For Judgment On The Agency Record

("Mannesmann's Reply") at 2. According to Mannesmann, § 1677b(f)(3) would permit

Commerce to disregard the transfer prices for billets supplied by HKM, and use § 1677b(f)(2) to

value major inputs, only if the transfer prices were found to be below HKM's cost of production. 

See id. at 3 ("[W]hen major inputs are involved, resort to § 1677b(f)(2) is only permitted if the

transfer price of the major input is below cost."). This condition precedent, Mannesmann asserts,

was not met in this case, since Commerce fully examined HKM's cost data and verified that HKM

sold billets to Mannesmann at prices above its cost of production. See Mannesmann's Motion at

9-10.

In relevant part, 19 U.S.C. § 1677b(f)(2) and (3) (1994) provide as follows:
Court No. 98-04-00886 Page 13


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If, in the case of a transaction between affiliated persons involving the production by

one of such persons of a major input to the merchandise, the administering authority

has reasonable grounds to believe or suspect that an amount represented as the value

of such input is less than the cost of production of such input, then the administering

authority may determine the value of the major input on the basis of the information

available regarding such cost of production, if such cost is greater than the amount

that would be determined for such input under paragraph (2).

On its face, nothing in the language of these provisions supports Mannesmann's position 

that the "major input rule" serves as any sort of condition precedent to § 1677b(f)(2). First,

nothing in § 1677b(f)(2) either makes reference to § 1677b(f)(3) or otherwise indicates that,

before relying on market values in the case of a "major input," Commerce must show that the

transfer prices at issue are below the affiliated party's cost of production. Rather, by its plain

language, § 1677b(f)(2) simply sets forth a general rule for affiliated party transactions which

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Similarly, the plain language of § 1677b(f)(2) makes clear that Congress may substitute an armslength, or market, value ("what the amount would have been if the transaction had occurred

between persons who are not affiliated") for a reported transfer price when the transfer price

"does not fairly reflect" market value. Read together, these provisions appear to create a

statutory scheme in which Commerce is to use the highest of market price, actual transfer price,

or cost-of-production in valuing a major input supplied by an affiliated party. This, of course, is

exactly how Commerce interpreted these provisions and applied them to the case at bar. 

In addition to the statutory language, the legislative history of the major input rule further

supports Commerce's interpretation. In support of its position, Mannesmann cites a House

conference report for the proposition that "[c]learly, the conferees contemplated that the

Department would use 'best information' only if the related seller 'does not provide reliable data
Court No. 98-04-00886 Page 15

on its cost [sic] of production.'" Mannesmann's Motion at 12 (quoting H.R. Conf. Rep. No. 100-

576, at 595 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1628). Since Mannesmann supplied,

and Commerce verified, HKM's cost-of-production data, Mannesmann repeats its argument that

"[t]here was no basis to reject the actual cost data in favor of a manifestly less accurate figure

[arms-length values]." Id.

Mannesmann errs in trying to pick a selected aspect of the major input rule, § 1677b(f)(3),

and apply it to § 1677b(f)(2). In relevant part, Mannesmann cites to the following section of

House Conference Report No. 100-576:

The conferees expect that, if petitioner makes a bona fide allegation that the transfer

price for the major input or the arms-length price is less than the related party's cost

of production, then Commerce will investigate such claims and may request cost-ofproduction information from the related party seller of the input. If the related party

seller does not provide reliable data on its costs of production, and Commerce has

reasonable grounds to believe or suspect that the transfer price and also the armslength price would be less than the cost of production, then Commerce should use

best information to establish a reasonable estimate of the related party’s costs of

production for such input.

H.R. Conf. Rep. No. 100-576, at 595 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1628

(emphasis added). Contrary to what Mannesmann alleges, the "best information" referred to in

this language does not refer to arms-length prices used in accordance with § 1677b(f)(2), but

refers only to estimates of a related party's cost-of-production for purposes of § 1677b(f)(3). 

Commerce, however, did not rely on the major input rule as a basis for disregarding the transfer

prices reported by Mannesmann. Rather, after verifying that HKM's billets costs did not exceed

the transfer prices reported by Mannesmann, Commerce relied on § 1677b(f)(2) in using market

values to value the billet inputs. Accordingly, the legislative history concerning "best information"

for purposes of the major input rule simply had no relevance to Commerce's analysis. 
Court No. 98-04-00886 Page 16

Beyond simply not supporting Mannesmann's argument concerning "best information,"

however, the legislative history of the major import rule actually supports Commerce's

interpretation of § 1677b(f)(2) and (3). As stated in the quotation above, the conferees made

clear in H.R. Conf. Rep. No. 100-576 that Commerce should use best information to estimate a

related party’s cost of production only when it has "reasonable grounds to believe or suspect that

the transfer price and also the arms length price would be less than the cost of production." Id.

(emphasis added). Similarly, in making reference to the relationship of the "new" major input rule

to §773 of the Trade Act, the conference report explicitly says that valuation under this rule

would only take place "when such costs are greater than the price that would be used as a result

of the application of paragraph (2) ('arms-length price')." Id. Finally, a summary for the major

input rule provided in the conference report states:

The Senate recedes with a substitute amendment which provides . . . (2) authority

for the Commerce Department, when foreign market value is based on constructed

value, to base the value of a major input which has been provided by a related

party on its costs of production, rather than the price authorized under section

773(e)(2), when certain conditions exist. 

Id. at 594, reprinted in 1988 U.S.C.C.A.N. 1547, 1627 (emphasis added).

All three of these quotations demonstrate that, far from creating an independent rule to

govern affiliated party transactions involving "major inputs," Congress actually intended the major

input rule to be an exception to the general rule set out in § 773(e)(2) of the Trade Act [19

U.S.C. § 1677b(f)(2) (1994)]. Like the language of the major input rule itself, the conference

report makes clear that this exception only has relevance when Commerce has "reasonable

grounds to believe or suspect" that both the transfer price and the arms-length price would be less

than the affiliated party's cost of production. Consistent with this explanation, in this case

Commerce did not rely on the major input rule, since it found that HKM's cost-of-production did

not exceed either of these two prices. Accordingly, given the facts at hand, the legislative history

cited above indicates that Commerce acted reasonably in interpreting the provisions of §
Court No. 98-04-00886 Page 17

3

 Mannesmann also cites SKF USA Inc. and SKF GmbH v. United States, 19 CIT 625, 888 F.

Supp. 152 (1995), as supporting its position that the major input rule cannot be applied to the

case at bar. See Mannesmann's Motion at 10; Mannesmann's Reply at 4-5. While SKF is

distinguishable from this case in many ways, it is sufficient to say that nothing in SKF undermines

the reasonableness of Commerce's interpretation of § 1677b(f)(2) and (3). In fact, because of the

factual difference between the two cases, the Court's analysis in SKF is irrelevant to the question

at hand.

4

 Formerly referred to as “best information available” or “BIA” under 19 U.S.C. § 1677e(c)

(1988).

1677b(f)(2), and not those of the major input rule, as applying to the valuation of Mannesmann's

billet purchases.3

In short, both the plain language of § 1677b(f)(2) and (3), as well as the legislative history

of the major input rule, support Commerce's decision to use the highest of transfer price, cost of

production, or market value to value the billets Mannesmann purchased from HKM. Contrary to

Mannesmann's claims, Commerce reasonably interpreted § 1677b(f)(2) and (3) in finding that §

1677b(f)(3) did not limit its ability to use market value information, notwithstanding the fact that

HKM's billet costs of production were verified as being below the transfer prices reported by

Mannesmann. Accordingly, the Court rejects Mannesmann's claims on this point. 

C

Commerce's Use Of Adverse Facts Otherwise Available To Value 

Mannesmann's Billet Purchases Was Neither In Accordance With Law 

Nor Supported By Substantial Record Evidence.

Pursuant to 19 U.S.C. § 1677e(a) (1994), Commerce is required to use facts otherwise

available4

 if necessary information is not available on the record, or:

(2) an interested party or any other person -

(A) withholds information that has been requested by [Commerce]

. . . under this subtitle,
Court No. 98-04-00886 Page 18

(B) fails to provide such information by the deadlines for 

submission of the information or in the form and manner

requested, subject to subsections (c)(1) and (e) of section 1677m of

this title,

(C) significantly impedes a proceeding under this subtitle, or

(D) provides such information but the information cannot be

verified as provided in section 1677m(i) of this title.

Section 1677e(a) provides, however, that the use of facts available shall be subject to the

limitations set forth in 19 U.S.C. § 1677m(d) (1994). Section 1677m, which were enacted as

part of the Uruguay Round Agreements Act ("URAA"), Pub. L. 103-465 § 231, is "designed to

prevent the unrestrained use of facts available as to a firm which makes its best effort to

cooperate with [Commerce]." Borden, Inc. v. United States, 4 F. Supp.2d 1221, 1245 (CIT

1998). Section 1677m(d), entitled "[de]ficient submissions," provides that: 

If [Commerce] . . . determines that a response to a request for information under

this subtitle does not comply with the request, [Commerce] . . . shall promptly

inform the person submitting the response of the nature of the deficiency and

shall, to the extent practicable, provide that person with an opportunity to remedy

or explain the deficiency in light of the time limits established for the completion

of investigations or reviews under this subtitle. If that person submits further

information in response to such deficiency and either -

(1) [Commerce] finds that such response is not satisfactory, or

(2) such response is not submitted within the applicable time

limits,

then [Commerce] . . . may, subject to subsection (e) of this section, disregard all

or part of the original and subsequent responses.

Subsection (e), in turn, provides that:

In reaching a determination . . . [Commerce] . . . shall not decline to consider

information that is submitted by an interested party and is necessary to the

determination but does not meet all the applicable requirements established by

[Commerce] . . . if -

(1) the information is submitted by the deadline established for its

submission,

(2) the information can be verified,

(3) the information is not so incomplete that it cannot serve as a reliable
Court No. 98-04-00886 Page 19

basis for reaching the applicable determination, 

(4) the interested party has demonstrated that it acted to the best of its

ability in providing the information and meeting the requirements

established by [Commerce] . . . with respect to the information, and 

(5) the information can be used without undue difficulties.

19 U.S.C. § 1677m(e) (1994).

In short, before Commerce may use facts available, 19 U.S.C. § 1677m(d) (1994)

requires that Commerce give a party an opportunity to remedy or explain deficiencies in its

submission. If the remedy or explanation provided by the party is found to be "not satisfactory"

or untimely, the information may be disregarded in favor of facts available, subject to the five

part test in Subsection (e). See Borden, 4 F. Supp.2d at 1245 ("Subsection (e) may require use

of the respondent's information notwithstanding that a remedy or explanation is unsatisfactory."). 

Once Commerce determines that use of facts available is warranted, 19 U.S.C. §

1677e(b) (1994) further permits Commerce to apply an adverse inference if it makes the

additional finding that "an interested party has failed to cooperate by not acting to the best of its

ability to comply with a request for information." As this Court has recently made clear, in

order to find that a party "has failed to cooperate by not acting to the best of its ability," it is not

sufficient for Commerce to simply assert this legal standard as its conclusion or repeat its finding

concerning the need for facts available. See Borden, 4 F. Supp.2d at 1246 ("Here, the

Department did not make the required additional finding that De Cecco had failed to act to the

best of its ability. In essence, it simply repeated its 19 U.S.C. § 1677e(a)(2)(B) finding, using

slightly different words . . . .") (citation omitted); Ferro Union, Inc. v. United States, 44 F.

Supp.2d 1310, 1329 (CIT 1999) ("Once Commerce has determined under 19 U.S.C. § 1677e(a)

that it may resort to facts available, it must make additional findings prior to applying 19 U.S.C. §

1677e(b) and drawing an adverse inference."). 

Rather, to be supported by substantial evidence, Commerce needs to articulate why it
Court No. 98-04-00886 Page 20

concluded that a party failed to act to the best of its ability, and explain why the absence of this

information is of significance to the progress of its investigation. See Ferro Union, 44 F. Supp.2d

at 1332 ("If overall the failure to identify these companies was of no significance to the progress

of the investigation, then Commerce cannot apply total adverse facts on the basis of the nonidentification of these companies."). As recently noted, "[u]nder the URAA, Commerce is now

required to make more subtle judgments than under the previous best information available ('BIA')

standard." Id. at 1329.

 

Applying these standards to the facts at hand, the Court finds that Commerce's decision to

use adverse facts available in this instance is neither in accordance with law nor supported by

substantial record evidence.

1

Commerce Has Not Adequately Identified How Mannesmann 

"Failed to Cooperate by Not Acting to the Best of its Ability."

In support of its Motion For Judgment On The Agency Record, Mannesmann essentially

argues that Commerce's use of adverse facts available to value its billet purchases from HKM was

inappropriate, since Mannesmann fully and timely complied with Commerce's requests for

information. See Mannesmann's Motion at 22-27; Mannesmann's Reply at 6-12. According to

Mannesmann, this Court's case law makes clear that Commerce's use of adverse information is 

limited to circumstances where a party has ignored Commerce's requests, "failed to provide

information key to a substantive determination, or otherwise behaved in ways that render the

Department's regulatory duties impossible to perform." Mannesmann's Motion at 24. At most,

Mannesmann argues, it reported information "with arguably minor errors," and that this "is not

the same as deliberately withholding information or deliberately misleading ITA with respect to

key information." Mannesmann's Reply at 8. In support of these points, Mannesmann also

alleges that Commerce misrepresents as inadequate, inconsistent and misleading its responses to
Court No. 98-04-00886 Page 21

Commerce's questions concerning input purchases from unaffiliated suppliers. See Mannesmann's

Motion at 14-21.

In response, Defendant argues that the fact that Mannesmann may have responded fully to

requests for other information is irrelevant to the issue of whether it was justified in using adverse

facts available. See Defendant's Response at 23. According to Defendant, Commerce clearly did

not fully reply to Question II.A.6.b of the first Section D Questionnaire, since Mannesmann, in

limiting its response to "subject merchandise," did not provide the market price information

requested concerning any purchases of the identical input from unaffiliated suppliers. See id. at

21-22. As Defendant notes, "question 6.b did not refer to 'subject merchandise' and the

introductory paragraph of question 6 clearly referred to major inputs used to produce [the broader

category] 'the merchandise under review.'" Id. at 22. In addition, Defendant also reiterates

Commerce's finding from the Final Results that Mannesmann's response to Question 4 of the

Second Supplemental Section D Questionnaire was "misleading information because, as

Commerce discovered at verification, Mannesmann had purchased during one sampled month the

same grade of steel billets from the affiliated as well as the unaffiliated supplier." Id. at 22-23. 

Adding these two instances together, Defendant argues, "Commerce properly found that

Mannesmann had failed to cooperate by not acting to the best of its ability . . . and drew an

inference adverse to Mannesmann." Id. at 23. 

For its part, Defendant-Intervenor adds that, in addition to the failings identified by

Commerce, Mannesmann inappropriately limited its responses to Question 11 of the

Supplemental Section D Questionnaire and Question 4 of Second Supplemental Questionnaire to

"subject merchandise," and omitted important grade information requested by Commerce in the

Supplemental Section D Questionnaire. Memorandum of Gulf States Tube Division Of Vision

Metals In Opposition To Plaintiff's Motion For Judgment On The Agency Record ("DefendantIntervenor's Response") at 20-22.
Court No. 98-04-00886 Page 22

As discussed previously, in the Final Results and the Final Results Memorandum

Commerce identified two errors in support of its conclusion that Mannesmann failed to cooperate

by not acting to the best of its ability to comply with Commerce's information requests: (1)

Mannesmann's failure to fully respond to Question II.A.6.b of the first Section D Questionnaire;

and (2) Mannesmann's inaccurate response to Question 4 of the Second Supplemental Section D

Questionnaire. See Final Results, 63 Fed. Reg. at 13,220; Final Results Memo. at 14-15. In

discussing the first of these errors in the Final Results, Commerce stated simply that "[m]arket

price information was requested in the Section D questionnaire for any purchases of the identical

input from unaffiliated suppliers, but Mannesmann did not respond to this portion of the

questionnaire." Final Results, 63 Fed. Reg. at 13,220. In its Final Results Memorandum,

Commerce remarked on the significance of this omission, stating that Mannesmann "failed to

respond to the Department's request to an issue that has great importance and relevance to the

verification." Final Results Memo. at 14. 

In regard to the second alleged error, Mannesmann's statement that "MWR and MWS

only purchase from other suppliers billets that HKM does not produce," Commerce noted that:

At verification the Department attempted to verify this claim by examining

Mannesmann's purchases of billets in one sample month. We discovered one such

purchase in this month, and utilized this purchase price as market value. 

Final Results, 63 Fed. Reg. at 13,220. According to Commerce, "[i]t was reasonable to assume

that because Mannesmann's assertion was found to be untrue in one sample month, that there may

have been other instances in which Mannesmann's claim proved untrue and the same grade of

billets was purchased from both HKM and un unaffiliated party." Final Results Memo. at 14-15.

Through these statements and its decision to use adverse facts available, Commerce

appears to suggest that Mannesmann had evidence concerning its purchases of billets from
Court No. 98-04-00886 Page 23

unaffiliated suppliers that were of the same grade as those purchased from HKM, but willfully

tried to keep such information from Commerce. Commerce, however, does not explicitly state

such a conclusion, nor does it identify why these two errors were anything more than inadvertent

omissions. For instance, while Commerce observes that Mannesmann "failed to respond" to

Commerce's information request in Question II.A.6.b of the first Section D Questionnaire, Final

Results Memo. at 14, failure to respond is only a basis for using "facts available." See 19 U.S.C.

§ 1677e(a)(2)(A) (1994) (withholding requested information) and 19 U.S.C. § 1677e(a)(2)(B)

(1994) (failure to provide requested information by the appropriate deadlines or in the form and

manner requested). Without an additional finding that this failure to respond was because

Mannesmann "failed to cooperate by not acting to the best of its ability," however, 19 U.S.C. §

1677e(b) (1994) prohibits Commerce from applying an adverse inference.

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Court No. 98-04-00886 Page 24

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This explanation is equally applicable to Mannesmann's failure to fully respond to

Question II.A.6.b. Although failing to respond to an information request is a basis for using

"facts available," once the requirements of 19 U.S.C. § 1677m(d) and (e) (1994) have been met,

failing to respond does not have to be read negatively. A respondent can fail to respond because

it was not able to obtain the requested information, did not properly understand the question

asked, or simply overlooked a particular request. Thus, without further explanation by

Commerce, the Court will not infer that a respondent's failure to respond constitutes substantial

evidence that it HCKNGF VQ EQQRGTCVG VQ VJG DGUV QH KVU CDKNKV[ 6JKU KU GURGEKCNN[ VTWG YJGTG CU

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Concerning the second basis asserted by Commerce for using adverse facts available,

Mannesmann's alleged misrepresentation in response to Question 4 of the Second Supplemental

Section D Questionnaire, Commerce similarly fails to explain why it believes this

misrepresentation constitutes anything more than an inadvertent error. As noted above, in its

Final Results Memorandum, Commerce explains that Mannesmann's answer "was found to be

untrue during the course of sampling at verification," Final Results Memo. at 14, and that "[i]t

was reasonable to assume that because Mannesmann's assertion was found to be untrue in one

sample month, that there may have been other instances in which Mannesmann's claim proved

untrue and the same grade of billets was purchased from both HKM and an unaffiliated party," id.

at 14-15. 

Even taking Commerce's assumption concerning "other instances" to be true, nothing in

this conclusion addresses the issue of whether Mannesmann cooperated to the best of its ability. 

As Mannesmann points out in its Reply, the 80-ton billet purchase that Commerce discovered at

verification constituted only ".08 percent of Mannesmann's monthly purchase of tube rounds 
Court No. 98-04-00886 Page 25

from its affiliated supplier." Mannesmann's Reply at 8 n.4. Omission of one or more purchases of

such a relatively small quantity could just as easily have been an oversight by Mannesmann as a

deliberate evasion. As such, the Court will not uphold, without a more substantial showing,

Commerce's conclusion that Mannesmann's failure to mention this purchase was willful --

especially in the face of Mannesmann's firm assertion to the contrary. See id. at 8 ("At the time it

responded to ITA's questionnaire, the responsible company officials were not aware of any

purchases of the same grade of input billets that were purchased from both affiliated and

unaffiliated suppliers."); cf. Helmerich & Payne, Inc. v. United States, 24 F. Supp.2d 304, 309

n.16 (CIT 1998) ("Plaintiff here does not claim that it was providing information to the best of

its ability and that therefore Commerce erred in adopting adverse inferences. . . . Here, neither

Plaintiff nor NKK claimed that they could not submit the information. NKK simply did not

complete the questionnaire.").

In short, Commerce failed to identify any basis for its determination that Mannesmann

purposely failed to cooperate in this aspect of its investigation, as 19 U.S.C. § 1677e(b) (1994)

now requires. See Borden, 4 F. Supp.2d at 1247 ("Commerce has articulated no reason for

finding De Cecco's failure was an unwillingness, rather than simply an inability, to cooperate,

other than vague hints that De Cecco was 'cooking the books.'"); Ferro Union, 44 F. Supp.2d at

1331 ("Commerce is obliged to explain why it concluded that a party failed to comply to the best

of its ability prior to applying adverse facts, and it did not do so here."). Accordingly, this case

is remanded so that Commerce may make specific findings as to whether Mannesmann acted to

the best of its ability in providing information about input purchases from both affiliated and

non-affiliated parties. See Ferro Union, 44 F. Supp.2d at 1331 ("In order to apply adverse facts

available, Commerce must be explicit in its reasoning . . . ."). If Commerce cannot identify

substantial record evidence in support of such a conclusion, it may not continue to use adverse

facts available in valuing Mannesmann's billet purchases from HKM.

In remanding this determination, the Court is not holding that Commerce may not use
Court No. 98-04-00886 Page 26

Mannesmann's initial failure to provide information and its later, arguably misleading, assertion as

evidence of Mannesmann's failure to cooperate to the best of its ability. Rather, the Court simply

finds that, as it now stands, the evidence cited by Commerce in the Final Results, and the

explanations it provides in relation to this evidence in the Final Results and its Final Results

Memorandum, do not meet the substantial evidence requirement laid out in 19 U.S.C. § 1677e(b)

(1994). Accordingly, Commerce may use this evidence, as well as any other evidence it can

identify in the record, should it continue to believe that the use of adverse facts available is

warranted. See Borden, Inc. v. United States, 1998 WL 895890 (CIT 1998), at 1 (noting that, in

determining whether a party has cooperated to the best of its ability, "Commerce must necessarily

draw some inferences from a pattern of behavior"). Further, and if appropriate, Commerce may

(but need not) request further information from Mannesmann to determine whether the billet

purchase from the non-affiliated supplier, Vallourec, is evidence of an isolated oversight or a

deliberate effort to keep information on related party purchases from Commerce.

2

The Court May Not Consider Other Alleged Misstatements and 

Omissions by Mannesmann in Determining Whether 

Commerce's Use of Adverse Facts Available Is Justified.

As noted above, in its memorandum opposing Mannesmann's Motion For Summary

Judgment, Defendant-Intervenor cites three instances where it alleges that Mannesmann, in

response to Commerce questions seeking information on the "merchandise under review,"

deliberately tried to mislead Commerce by limiting its responses to "subject merchandise." See

Defendant-Intervenor's Response at 18-22 (discussing Mannesmann's responses to Question

II.A.6.b of the first Section D Questionnaire, Question 11 of the Supplemental Section D

Questionnaire, and Question 4 of Second Supplemental Questionnaire). In addition, DefendantIntervenor notes that, although Mannesmann did provide Commerce with an exhibit that

contained some of the information on billet purchases from unaffiliated parties that Commerce
Court No. 98-04-00886 Page 27

5

 As noted previously, in the Final Results Commerce cited two bases for its use of adverse facts

available: (1) Mannesmann's failure to fully respond to Question II.A.6.b of the first Section D

Questionnaire, and (2) Mannesmann's inaccurate response to Question 4 of the Second

Supplemental Section D Questionnaire. See Final Results, 63 Fed. Reg. at 13,220. Commerce

did not specifically criticize the fact that Mannesmann limited its response to "subject

merchandise" in regard to Question II.A.6.b or Question 4 of the Second Supplemental Section D

Questionnaire, and it did not mention any (alleged) errors made by Mannesmann in answering

Questions 11 or 12 of the Supplemental Section D Questionnaire. 

requested in Question 12 of the Supplemental Section D Questionnaire, "Mannesmann's

submission (Exhibit D-4) omitted the grade information requested by Commerce, which might

have permitted Commerce to discover that the purchases from unaffiliated parties were of the

same grade as those also produced by Mannesmann's affiliated party." Id. at 20.

While these criticisms may be valid, in the Final Results Commerce did not cite these

alleged deficiencies as grounds for applying an adverse inference to Mannesmann.5 Thus, they

constitute post hoc rationalizations of Commerce's actions, which this Court may not consider in

this review. See Hoogovens Staal BV v. United States, 4 F. Supp. 2d 1213, 1219 (CIT 1998);

Al Tech Specialty Steel Corp. v. United States, 947 F. Supp. 510, 514 (CIT 1996); Shieldalloy

Metallurgical Corp. v. United States, 947 F. Supp. 525, 531 (CIT 1996). As this Court stated in

Shieldalloy Metallurgical, "[t]he grounds upon which an administrative order must be judged are

those upon which the record discloses that its action was based." Shieldalloy Metallurgical, 947

F. Supp. at 531.

Because these reasons were not identified by Commerce in the Final Results, the Court

will not evaluate whether they support Commerce's use of adverse facts available at this time. 

Upon remand, however, Commerce may consider this record evidence.
Court No. 98-04-00886 Page 28

3

Use of One Mannesmann Billet Purchase from an Unrelated 

Supplier Is Rationally Related to Establishing an Arm's-Length 

Value for All of Mannesmann's Billet Purchases from HKM.

In addition to arguing that Commerce's use of adverse information available was

inappropriate, Mannesmann also argues that "it would be unreasonable to permit the Department

to apply punitive information to the cost of all billets based on the price of a single transaction

that is not representative of Mannesmann's normal course of business." Mannesmann's Motion

at 14; see also id. at 21-22; Mannesmann's Reply at 7. According to Mannesmann, the billet

purchase that Commerce used to determine market prices was a small, exceptional purchase of a

grade of billets that was not used in producing seamless pipe for the U.S. market. See

Mannesmann's Motion at 22. Thus, Mannesmann claims, "it is inappropriate to use this grade of

steel from this single sale to value all of Mannesmann's billet costs." Id. According to

Mannesmann, if Commerce is permitted to adjust billet costs at all, this exceptional purchase

should only be used to adjust the price for the same grade of billet (SPEC2H 61 and 62), since

"[t]he price differential calculated by the Department for this steel grade is not reliable nor

appropriate evidence for a calculated price differential for any other grade." Id.

In response, Defendant-Intervenor argues that Mannesmann "misses the point of the

adjustment" when it argues that the price differential between the affiliated and non-affiliated

party transactions should not be used to adjust purchases of other steel grades from HKM. See

Defendant-Intervenor's Response at 31. Defendant-Intervenor argues:

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Court No. 98-04-00886 Page 29

6

 As discussed below in Section III.C.4, should Commerce determine that its use of adverse facts

available cannot be justified, the likelihood exists that Commerce may use data other than

Mannesmann's (SPEC2H 61 and 62) billet purchase from Vallourec as "facts available." Given

this reality, the Court does not currently address the issue of whether, outside the context of

using "adverse" facts available, Commerce's use of one billet purchase from Vallourec is

rationally related to the establishment of an arm's-length value for Mannesmann's billet

purchases from HKM.

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Id.

For its part, Defendant briefly adds that Commerce has broad discretion in choosing

adverse facts available and that, in this case, its choice of facts was reasonable because it was

based on actual market data for a sale to Mannesmann during the period of review. Defendant's

Response at 16-17.

On its face, it is clear that Mannesmann argues that there is not a rational relationship

between the data chosen (one, small-quantity billet purchase from an unrelated supplier) and the

valuation of its purchases from HKM. As this Court has repeatedly stated, even when the use of

facts available is appropriate, a rational relationship must exist between the data chosen and the

matter to which they are to apply. Cultivos Miramonte S.A. v. United States, 7 F. Supp.2d 989,

996 (CIT 1998); National Steel Corp. v. United States, 18 CIT 1126, 1132, 870 F. Supp. 1130,

1136 (CIT 1994); Manifattura Emmepi S.p.A. v. United States, 16 CIT 619, 623-24, 799 F.

Supp. 110, 115-16 (1992). 

In this case, substantial evidence shows that such a relationship does exist, at least for

purposes of using "adverse" facts available.

 As discussed in Section III.B., Commerce correctly

interpreted 19 U.S.C. § 1677b(f)(2) and (3) as giving it the authority to use the highest of transfer
Court No. 98-04-00886 Page 30

7

 The Court also notes that use of this value would be consistent with the purpose of adverse

facts available, which is to ensure that an uncooperative party "does not obtain a more favorable

result by failing to cooperate than if it had cooperated fully." Statement of Administrative Action

Accompanying the URAA ("SAA"), H.R. Doc. No. 103-316, at 870 (1994), reprinted in 1994

U.S.C.C.A.N. 4040, 4199.

price, cost of production, or market value in valuing Mannesmann's billet purchases from HKM. 

Because it determined that the major input rule (19 U.S.C. § 1677b(f)(3) (1994)) was not

applicable, since HKM's cost of production was below the transfer price reported by

Mannesmann, Commerce relied on § 1677b(f)(2) to value the inputs. Section 1677b(f)(2)

requires Commerce to determine whether the prices HKM charged Mannesmann for billets fairly

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the matter to which it applies since, GUUGPVKCNN[ %QOOGTEG FKF PQ OQTG VJCP WUG CXCKNCDNG

TGEQTF GXKFGPEG QH C OCTMGV RTKEG VQ JGNR KV CRRTQZKOCVG QVJGT OCTMGV RTKEGU

+P NKIJV QH VJKU EQPENWUKQP UJQWNF %QOOGTEG FGOQPUVTCVG QP TGOCPF VJCV VJG WUG QH

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substantial record evidence VJG TCVKQPCNKV[ QH WUKPI the billet purchase (SPEC2H 61 and 62)

from Vallourec as a means of determining market values for all of Mannesmann's billet

purchases from HKM. 
Court No. 98-04-00886 Page 31

4

The Court Will Not Consider Whether Commerce's Calculation 

of Market Value Is Sustainable as a Facts Available, As 

Opposed to an Adverse Facts Available, Determination.

In its memorandum opposing Mannesmann's Motion For Summary Judgment,

Defendant-Intervenor argues that:

Contrary to Mannesmann's claim, Commerce's valuation of the billets at issue

here not [sic] a punitive application of adverse facts available. Indeed,

Commerce's valuation finding need not have been characterized as adverse and is

sustainable as a facts available determination. 

Defendant-Intervenor's Response at 18. 

Regardless of the merit of this position, this Court should not, and will not, consider it at

this point in the litigation. For the Final Results, Commerce made clear that it was using data

from one purchase of billets from an unaffiliated supplier as "adverse facts available" in making

a 30.9% price adjustment to Mannesmann's purchases from HKM. See Final Results, 63 Fed.

Reg. at 13,220; Final Results Memo. at 15. Nowhere did Commerce indicate that it was also, or

alternatively, using this data on the basis of "facts available." For this reason, the Court

recognizes that, should Commerce conclude upon remand that it cannot continue to apply

adverse facts available, Commerce will not necessarily continue to apply the same data. Rather,

the likelihood exists that Commerce will choose other figures, or request further information,

that it may use as "facts available." In light of these possibilities, it would be inappropriate for

the Court to currently consider the issue of whether Commerce's reliance on one purchase of

billets from an unaffiliated supplier is sustainable on a "facts available," as opposed to an

"adverse facts available," basis. 
Court No. 98-04-00886 Page 32

D

Commerce's Use Of Adverse Facts Otherwise Available To Value Mannesmann's 

U.S. Duty Amounts Is Not Supported By Substantial Record Evidence.

The final point of contention between the parties concerns the customs duties that

Mannesmann, in response to Section C of Commerce's Antidumping Questionnaire, reported as

having paid on its U.S. sales. As discussed above, at verification Commerce discovered that

Mannesmann had underreported its U.S. duties paid on a number of entries, and that Mannesmann

could not recreate the allocation methodologies it used to derive its figures. See Final Results, 63

Fed. Reg. at 13,222. In light of these problems, Commerce used the highest U.S. duty amounts

reported by Mannesmann for those instances where it was unable to exactly verify Mannesmann's

figures. Id.

Though not specifically presented as such, Plaintiffs appear to challenge three aspects of

Commerce's calculation of Mannesmann's U.S. duty amounts: (1) Commerce's initial decision to

reject the U.S. duty amounts reported by Mannesmann in favor of facts available; (2) Commerce's

decision to use "adverse" facts available; and (3) Commerce's use of impermissibly punitive

figures as adverse facts available. For the reasons below, the Court remands this case to

Commerce on the grounds that its use of "adverse" facts available is not supported by substantial

record evidence.

1

Commerce's Use of Facts Available to Value Mannesmann's U.S. Duty 

Amounts Is Supported by Substantial Evidence.

Mannesmann first challenges Commerce's use of its highest reported U.S. duty amounts

on the grounds that "the discrepancies between reported and verified data were minimal and did

not justify rejection of actual information." Mannesmann's Motion at 27. According to
Court No. 98-04-00886 Page 33

Mannesmann, because subject and non-subject merchandise were generally present in the same

customs entry, it had to allocate duties paid for purposes of Commerce's investigation. Id. Also,

allocations had to be made for harbor maintenance and merchandise processing fees. Id.

Accordingly, Mannesmann argues, "[i]n performing these allocations, percentages had to be

calculated and applied, and rounding decisions had to be made. It is not surprising, therefore, that

minor discrepancies arose in Mannesmann's duty calculations compared with the Department's

calculations at verification." Id. 

In addition to explaining why it was reasonable that the figures it reported as U.S. duties

paid differed from those Commerce calculated, Mannesmann further argues that the discrepancies

identified by Commerce were de minimis. According to Mannesmann, for the 52 percent of

subject merchandise examined by Commerce, Commerce found discrepancies ranging from $.07

to $.98 cents per ton. Id. at 28. On a percentage basis, this underreporting ranged from a high of

1.6 % of duties paid (per ton) to a low of 0.1 % of duties paid, and the weighted average

discrepancy equaled only 0.22 % of duties paid. Analysis of U.S. Duty Adjustment, id., Ex. A. 

Because these errors were so minor, and because Commerce was able to tie Mannesmann's

reported data to its "financials," Mannesmann argues that "the Department's total rejection of the

reported duty due to minor discrepancies with the verified duty paid is unwarranted." Id. at 29.

In response, Defendant briefly asserts that Commerce was justified in using adverse facts

available pursuant to 19 U.S.C. § 1677e(a) because it was unable to verify the amounts of U.S.

duty reported by Mannesmann. According to Defendant, Commerce's finding that Mannesmann

failed to cooperate to the best of its ability "is clearly supported by the record because

Mannesmann possessed the source documentation, such as Customs entry forms and payment

records. It simply failed to report the accurate amounts of U.S. duty." Defendant's Response at
Court No. 98-04-00886 Page 34

8

 Defendant's comments on this part of the Final Results, like those of Defendant-Intervenor, deal

almost exclusively with the issue of why the use of "adverse" facts available was appropriate. 

28.8 Defendant also argues, in its supplemental brief, that as "[n]o statute or regulation authorizes

or requires Commerce to disregard de minimis errors . . . or specifies what constitutes de minimis

errors for determining whether a party has complied with an information request. . . . Commerce

. . . will make its determination of whether to apply facts available on a fact- and case- specific

basis." Defendant's Brief On The Issue Of What Constitutes A De Minimis Error For

Determining Whether A Party Has Complied With An Information Request From Commerce at 3. 

 

Pursuant to 19 U.S.C. § 1677e(a)(2)(D) and § 1677m(e)(2) (1994), Commerce may

disregard information submitted by a party that cannot be verified and substitute facts available. 

In this case, Commerce found that it was unable to exactly verify the U.S. duty amounts reported

by Mannesmann and, consequently, resorted to facts available. Although Commerce has

considerable discretion in deciding whether a party has sufficiently replied to an information

request, Helmerich, 24 F. Supp.2d at 308, this discretion is not unfettered. For instance, this

Court has found Commerce's use of best information available (now "facts otherwise available")

to be arbitrary and an abuse of discretion where a respondent failed to give information that did

not exist, or where Commerce did not adequately request the information at issue. See

Outokumpu Copper Rolled Products AB v. United States, 17 CIT 848, 867-68, 829 F. Supp.

1371, 1386-87 (1993). 

Against this background, the fact that Commerce, on the basis of what are essentially

minimal, non-consequential deviations, found that it was unable to verify Mannesmann's reported

duty rates -- and, on this grounds, disregarded them -- gives the Court pause. Such a rigid

verification process appears to be in conflict with Commerce's normal practice of ignoring de

minimis errors, see, e.g., Notice of Final Determination of Sales at Less Than Fair Value:
Court No. 98-04-00886 Page 35

 Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe

From Italy, 60 Fed. Reg. 31,981, 31987 (1995) (minor discrepancies between the respondent's

actual freight expenses and the reported freight expenses did not warrant the use of best

information available), and, without more, might constitute an abuse of discretion. Cf. NTN

Bearing Corp. v. United States, 74 F.3d 1204, 1208-09 (Fed. Cir. 1995) (noting, in regard to

Commerce's refusal to consider a request for correction of clerical errors, that "[w]hile the parties

must exercise care in their submissions, it is unreasonable to require perfection"). 

In this instance, however, not only did Mannesmann's figures slightly vary from those

calculated by Commerce, but Mannesmann was unable to recreate or explain at verification the

method by which it arrived at its results. As such, Commerce was unable to examine

Mannesmann's methodology, compare it to its own, and determine why Mannesmann's reported

duties were slightly lower than those calculated by Commerce in most instances. In light of this

inability to verify Mannesmann's calculation methods, the Court finds Commerce's decision to use

appropriate facts available to be supported by substantial record evidence, despite the relative

insignificance of the errors involved.

2

Commerce's Use of "Adverse" Facts Available Is Not 

Supported by Substantial Evidence.

While the discrepancies Commerce identified at verification are sufficient to support its

use of appropriate facts available, these errors do not provide substantial evidence to support

Commerce's use of "adverse" facts available. 

As discussed previously, once Commerce finds that it may resort to facts available, it may

apply an adverse interest in choosing among facts available if it can show that "an interested party

has failed to cooperate by not acting to the best of its ability to comply with a request for
Court No. 98-04-00886 Page 36

information." 19 U.S.C. § 1677e(b) (1994). In this instance, and in contrast to its finding

concerning the valuation of Mannesmann's billet purchases, Commerce appears to have

adequately laid out its reasons for concluding that Mannesmann failed to act to the best of its

ability. Commerce found that Mannesmann had repeatedly underreported its U.S. duties paid,

and that such a pattern of underreporting "indicates that errors exist which are more pervasive

than can be explained by rounding or allocation methodologies." Final Results, 63 Fed. Reg. at

13,222. In addition, Commerce noted that "the company could not recreate or explain the

allocation methodologies used in its submission." Id. While it could have been stated more

directly, it seems clear from these statements that, in Commerce's view, the discrepancies it

identified at verification were evidence that Mannesmann had willfully not reported correct

figures. See AK Steel Corp. v. United States, 988 F. Supp. 594, 607 (CIT 1997), aff'd 1999 WL

504236 (Fed. Cir. 1999) (quoting Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc.,

419 U.S. 281 (1974)) ("The Court will 'uphold a decision of less than ideal clarity if the agency's

path may reasonably be discerned.'"). 

Notwithstanding the adequacy of this explanation, however, the evidence identified by

Commerce does not provide substantial evidence that Mannesmann "failed to cooperate by not

acting to the best of its ability to comply with a request for information." See 19 U.S.C. §

1677e(b) (1994). In determining whether a party has acted to the best of its ability for purposes

of 19 U.S.C. § 1677e(b) (1994), Commerce, like this Court, must interpret this provision in light

of the principle that the law does not care for, or concern itself with, small or trifling errors. As

the Supreme Court made clear in Wisconsin Dep't of Revenue v. William Wrigley, Jr., Co., 505

U.S. 214, 231 (1992), "the venerable maxim de minimis non curat lex ('the law cares not for

trifles') is part of the established background of legal principles against which all enactments are

adopted, and which all enactments (absent contrary indication) are deemed to accept." This

maxim of statutory construction applies with equal force to the interpretation of customs and

trade laws. See Alcan Aluminum Corp. v. United States, 165 F.3d 898 (Fed. Cir. 1999) (applying

Wrigley to country-of-origin determination); Washington Red Raspberries Comm'n v. 
Court No. 98-04-00886 Page 37

9

 No specific statute or regulation defines what constitutes a de minimis error for purposes of

determining whether a party has complied with an information request or acted to the best of its

ability.

10 19 U.S.C. § 3512(d) (1994) provides that the SAA "shall be regarded as an authoritative

expression by the United States concerning the interpretation and application of the Uruguay

Round Agreements and [the URAA] in any judicial proceeding in which a question arises

concerning such interpretation or application." 

United States, 859 F.2d 898 (Fed. Cir. 1988) (finding dumping margins of less than 0.5% to be de

minimis); Industria de Fundicao Tupy v. United States, 20 CIT 870, 882-83, 936 F. Supp. 1009,

1019-20 (1996) (recognizing the doctrine of de minimis non curat lex in holding that "[b]ased on

Plaintiffs' assertion that its transactions are 'insignificant' . . . the Court also dismisses [Plaintiffs']

Complaint pursuant to the long stated proposition that it should not bother with trifles"). 

Unless a statute sets out specific guidelines,9

 the question of whether an activity is a de

minimis derivation from a prescribed standard must be determined in reference to the purpose of

the standard. Wrigley, 505 U.S. at 232. As stated in the Statement of Administrative Action that

accompanied the Uruguay Round Agreements Act, "Commerce's potential use of [facts available]

provides the only incentive to foreign exporters and producers to respond to Commerce

questionnaires." SAA, H.R. Doc. No.103-316, at 868, reprinted in 1994 U.S.C.C.A.N. at 4198.10

Consistent with this goal of ensuring compliance, the SAA states that, where a party has been

uncooperative, Commerce "may employ adverse inferences about the missing information to

ensure that the party does not obtain a more favorable result by failing to cooperate than if it had

cooperated fully." Id. at 870, reprinted in 1994 U.S.C.C.A.N. at 4199. The SAA further

provides that "[i]n employing adverse inferences, one factor the agencies will consider is the

extent to which a party may benefit from its own lack of cooperation." Id.

Viewing Mannesmann's errors in light of this "purpose" for applying adverse facts

available, the Court finds Mannesmann's errors to be de minimis. While it is true that the U.S.
Court No. 98-04-00886 Page 38

11 According to Mannesmann's exhibit ("Analysis of U.S. Duty Adjustment"), sales observations

1,5,6, and 8-11 were underreported by 0.1%. These observations accounted for [confidential #]

of the [confidential #] tons of product that Commerce found to have been underreported, or

approximately 89%. The Court notes, however, that because Commerce was able to verify

Mannesmann's reported duties for three sales, Final Results Memo. at 12, the frequency with

which the duties reported by Mannesmann either equaled, or were within 0.1%, of the figures

calculated by Commerce was likely at or above 90%. 

12 Sales observations 45, 46, 49-51, 53 and 54 (accounting for [confidential #] tons of product)

were underreported by 1.1%, while sales observations 84-91 ([confidential #] tons) were

underreported by 1.6%. These observations accounted for [confidential #] of the [confidential

#] tons of product that Commerce found to have been underreported, or approximately 11%.

duties reported by Mannesmann were lower than those calculated by Commerce in most

instances, the degree of these variances was generally trifling. As Mannesmann makes clear in its

brief, the weighted average discrepancy found by Commerce equaled only 0.22 % of duties paid. 

Analysis of U.S. Duty Adjustment, Mannesmann's Motion, Ex. A. Further, in 89% of those

instances where Commerce found that Mannesmann had underreported its duties paid, the

discrepancy from the numbers calculated by Commerce equaled 0.1% of the duty paid. See id.11

Only 11% of the discrepancies found equaled more than 1% of the duty paid, see id.,

12 and in

three instances Commerce found no discrepancies, see Final Results, 63 Fed. Reg. at 13,222;

Final Results Memo. at 12.

Given the limited nature of these errors, the Court does not find substantial evidence to

support Commerce's conclusion that "errors exist which are more pervasive than can be explained

by rounding or allocation methodologies" and its related decision to use adverse facts available. 

As noted above, the purpose of using an adverse inference is to "ensure that the party does not

obtain a more favorable result by failing to cooperate than if it had cooperated fully." SAA, H.R.

Doc. No.103-316, at 870, reprinted in 1994 U.S.C.C.A.N. at 4199. In this case, the limited

amounts by which Commerce found that Mannesmann had underreported its U.S. duties

presumably would not have had any substantive effects upon the calculation of the U.S. price for

Mannesmann's products, and Defendant has not identified any record evidence to indicate

otherwise. Accordingly, errors in the figures Mannesmann provided would have given it almost
Court No. 98-04-00886 Page 39

no advantage compared to the "correct" figures calculated by Commerce.

Further, although Commerce noted that Mannesmann could not recreate or explain the

allocation methodologies it used for its submission during verification, the record does not show

that Mannesmann kept any of the information underlying its conclusions from Commerce. 

Rather, Mannesmann provided Commerce with the relevant source documentation, and

Commerce was able to compute its own, nearly identical, figures for the U.S. duties paid by

Mannesmann. See U.S. Sales Verification Report, dated 09/02/97, Conf. AR-57, Mannesmann

Appendix, App. 10, at 21-26. Given Mannesmann's willingness to provide this information (and

given how close the figures provided by Mannesmann were to those calculated by Commerce),

this does not appear to be a situation where Mannesmann tried to obtain a more favorable result

by not providing relevant information. In fact, substantial record evidence supports an opposite

conclusion.

In light of the foregoing, the Court finds that Commerce's decision to apply an adverse

inference in this case is not supported by substantial record evidence. While the figures reported

by Mannesmann were generally lower than those calculated by Commerce, the differences

between the figures were so small that they could not reasonably be viewed as evidence of noncooperation by Mannesmann. See 0QVKEG QH (KPCN &GVGTOKPCVKQP QH 5CNGU CV .GUU 6JCP (CKT

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QP =TGURQPFGPV	U? RCTV Mannesmann also appears to have supplied Commerce with all its

relevant source data; a fact which undermines any idea that Mannesmann was purposefully

withholding data in order to obtain a more favorable outcome. 

Accordingly, this aspect of the Final Results is remanded so that Commerce may identify
Court No. 98-04-00886 Page 40

13 A reasonable choice of facts available may include use of the figures provided by Mannesmann

(subject to necessary adjustments), use of the figures calculated by Commerce (where available),

or the use of any other record evidence which bears a rational relationship to the calculations of

the U.S. duties paid by Mannesmann, see Koenig & Bauer-Albert AG v. United States, 15 F.

Supp.2d 834, 846 (CIT 1998), and is otherwise in accordance with law and supported by

substantial evidence. Similarly, Commerce may use record evidence to calculate U.S. duties for

those Mannesmann sales that it did not attempt to review at verification, if appropriate. That said,

however, the Court notes that these possible alternatives are only suggestions; the ultimate choice

of facts available is a matter largely reserved to Commerce's discretion. See Allied-Signal

Aerospace Co. v. United States, 996 F.2d 1185, 1191 (Fed. Cir. 1993) (recognizing that, as

Congress did not explicitly define what constitutes BIA (now facts otherwise available),

Commerce's "construction of the [BIA] statute must be accorded considerable deference"). 

14 Because substantial record evidence does not support Commerce's decision to apply adverse

facts available, the Court need not reach the question, raised by Plaintiffs, of whether the adverse

information chosen by Commerce was impermissibly punitive.

other record evidence to support its use of "adverse" facts available. In order to do this,

Commerce may, at its discretion, calculate the duties paid on the entries that it did not review at

verification and compare its figures to the duty amounts reported by Mannesmann. Should

Commerce be unable to, or choose not to, identify such substantial evidence, it may only use

reasonable, non-adverse facts available13 to value the U.S. duties paid by Mannesmann.14 

IV

CONCLUSION

For the foregoing reasons, the Court finds that although Commerce correctly interpreted

19 U.S.C. § 1677b(f)(2) and (3) (1994), its use of adverse facts available to value Mannesmann's

billet purchases from HKM was neither in accordance with law nor supported by substantial

record evidence. The evidence cited by Commerce in the Final Results, and the explanation it

provides in relation to this evidence, do not demonstrate that Mannesmann failed to cooperate to

the best of its ability in this aspect of the investigation, as required by 19 U.S.C. § 1677e(b)

(1994). Accordingly, this aspect of the Final Results is remanded so that Commerce may
reconsider its conclusion, or more specifically articulate why it concluded, that Mannesmann

failed to act to the best of its ability in providing information about input purchases from both

affiliated and non-affiliated parties. See Ferro Union, 44 F. Supp.2d at 1331 ("In order to apply

adverse facts available, Commerce must be explicit in its reasoning . . . ."). 

Similarly, and in light of the de minimis nature of the errors at issue, the Court also finds

that the record evidence identified by Commerce does not adequately support its conclusion that

Mannesmann failed to cooperate to the best of its ability (and, in turn, that the use of adverse facts

available was appropriate). Thus, this aspect of the Final Results is also remanded for further

consideration by Commerce. Upon remand, Commerce may seek to identify other record

evidence to support its use of "adverse" facts available, or, should it choose (or be unable) to do

so, it may use non-adverse record evidence to value the U.S. duties paid by Mannesmann. 

__________________________

 Evan J. Wallach, Judge

Date: October 29, 1999

New York, New York