# United States Court of Appeals **for the Federal Circuit**

______________________ MICHAELS STORES, INC ., Plaintiff

- Appellant,

v.

UNITED STATES, Defendant

- Appellee.

______________________

2014

- 1051

______________________ Appeal from the United States Court of International Trade in No. 12

- CV

- 00146, Judge Jane A. Restani.

______________________
Decided: September 10, 2014

______________________

M ATTHEW R. N ICELY , Hughes Hubbard & Reed LLP, of Washington, DC, argued for plaintiff

- appellant. With him on the brief w ere L YNN G. K AMARCK and A LEXANDRA B. H ESS

.

S TEPHEN C. T OSINI , Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Depar tment of Justice, of Washington, DC, argued for defendant

appellee. With him on the brief were S TUART F. D ELERY , Assistant Attorney General, J EANNE E. D AVIDSON , Dire ctor, and P ATRICIA M. M C C ARTHY , Assistant Director. Of counsel on the brief was D ANIEL J. C ALHOUN , Senior Attorney, Office of the Chief Counsel for Trade Enforc e-M ICHAELS S TORES V

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ment and Compliance, United States Department of Commerce, of Washington, DC.

______________________
Before P ROST , Chief Judge

, C LEVENGER and C HEN , Circuit Judges.

P ROST , Chief Judge

. American arts and crafts supply retailer Michaels Stores, Inc. (“Michaels”) appeals from the decision of the United States Court of International Trade affirming the Department of Commerce’s (“Commerce”) antidumping
rate s assigned to certain cased pencil s manufactured and exported by businesses in the People’s Republic of China (“ PRC ”)

. Com merce as sign ed Michaels’ exporters a cou ntry

- wide antidumping cash dep osit rate, as opposed to lower rates obtained by the pencils’ producers. Michaels
argues it is e ntitled to the producer rate based on its reading of 19 C.F.R. § 351.107(b)(2 ) , which states that “ if the Secretary has not established previously a combin ation cash deposit rate

. . . for the exporter and producer in question or a noncombination rate for the exporter in question, the Secretary will apply the cash deposit rate established for the producer. ” Because § 351.107(b)(2) is informed by § 351.107(d) , which establi shes a n initial noncombination rate for all producers and exporters in nonmarket economy countries

, w e affirm

. B ACKGROUND Commerce has the general authority within certain parameters to set the cash deposit rates associated with imported goods in an effort to curb “dumping,” i.e., expor ting goods far below typical market prices in ord er to lower the profits of domestic competitors

. 19 U.S.C. § 1673e(a)(3)

. Upon a finding of material injury to a U .S. industry, Commerce sets antidumping rates for the pr oducers and exporters of foreign goods, and it may also assign special rates for spe cific American importer s.M ICHAELS S TORES V

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Rates that apply to specific combinations of producers, exporters, and/or importers are referred to as “combin ation” rates. See 19 C.F.R. § 351.107(b)(1)(i)

. A noncomb ination rate, in contrast, is a rate that applies to a producer or exporter and is not combined with the rate of another entity

. See id.

Commerce distinguishe s between traditional market economies, where money is exchanged for goods and services, and “ nonmarket econ omies” ( NME s) , such as barter systems or sta te

- controlled economies

. See Final Determination of Sales at Less Than Fair Value: Spa rklers From the People ’ s Republic of China , 56 F ed. Reg. 20
, 588 (May 6, 1991) (“ Sparklers ”)

. The PRC has been classified as a n NME country since as early as 1987

. Tapered Roller Bearings From the People ’ s Republic of China : Final Determination of Sales at Less Than Fair Value , 52 Fed. Reg. 19,7481 (May 27, 1987); s ee also Certain Cased Pencils from China: Preliminary Results

, 76 Fed. Reg. 2337, 2338

– 39 (Jan. 13, 201 1)

. In NME proceedings, Commerce begins with a rebu ttable presumption that a company operating within a NME is subject to state control

. See id ; accord Initiation of Antidumping and Countervailing Duty Administrative Reviews , 75 F ed. Reg. 4770, 4771 (Jan. 29, 2010)

. Co mmerce therefore applies a single country

- wide antidum ping deposit rate to all NME producers and exporters, unless the producer , exporter , or another interested party can prove through an administrative review process (established by 19 C .F.R. § 351. 213 (b)) that the exporter or producer at issue is not subject to government control and thus eligible for a lower rate. See Initiation of Ant idumping and Countervailing Duty Administrative R eviews , 75 Fed. Reg. at 4771 ; Policy Bulletin 05.1 at 4 (Dep’t of Comme r ce Apr. 5 2005), available at http://enforcement.trade.gov/policy/bull05

- 1.pdf.M ICHAELS S TORES V

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In 1994, the International Trade Commission co nducted an investigation in which it found that a U.S. industry was threatened with material injury by reason of imports of certain cased pencils from the PRC. See Ant idumping Duty Order: Certain Cased Pencils from the People’s Republic of China , 59 F ed. Reg. 66
, 909 ( Dec. 28, 1994). Commerce accordingly imposed antidumping duties and later initiated administrative reviews for the 2 008

- 2009 and 2009

- 2010 time periods, which are at issue here

. During the 2008

- 2009 period of administrative review, Michaels imported cased pencils that were manufactured by three producers in the PRC : China First Pencil Co., Ltd . (“ China First ”), Shanghai Three Star Stationery Industry Co., Ltd . (“ Three Star ”), and Shandong Rongxin Import and Export Co., Ltd . (“ Rongxin ”)

. Michaels Stores, Inc. v. United States , 931 F. Supp. 2d 1308, 1309 (Ct. Int ’ l Trade 2013)

. These producers did not s ell to Michaels directly; rather, Michaels obtained the pencils through three different PRC exporters : DGI LLC, Ningbo Jinchao Plastic Products Co., Ltd., and Shanghai Changyang Industry Co. Ltd.
The pencil producers all participated in Commerce’s 2008

- 20 09 administrative review process; however, China First and Three Star withdrew their requests for review, Certain Cased Pencils from China: Preliminary Results

, 76 Fed. Reg. at 2,338, and Rongxin’s review did not i nclude pencils exported to Michaels

. Certain Cased Pencils from China: Final Results

, 76 Fed. Reg. 27,988, 27,989 (May 13, 2011) (“Rongxin did not report entered values for its U.S. sales.”). During the 2009

- 2010 period of review, Rongxin initiated a review, but China First and Three Star di d not. Michaels, 931 F. Supp. 2d at 1311

. None of the Chinese firms responsible for exporting the pencils to Michaels participate d in either administrative review

process

. Id. at 1317.M ICHAELS S TORES V

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Michaels claims, and Commerce apparently does not dispute

, that t he producers’ rates were eventually esta blished for the two administrative review periods as 26.32 and 10.41 % for China First

- manufactured pencils, 2 .66 % for Three Star

- manufactured pencils (for both periods)

, and 11.48 and 3.55 % for Rongxin

- manufactured pencils. Nonetheless, it is also undisputed that none of the expor ters selling the pencils to Michaels qualified for a separate
rate at any time during the periods of review at issue

. Id.
Upon importing the pencils into the Un ited States

, Michaels made its cash deposit to U.S. Customs and Border Protection (“Customs”) based on the cash rates then in place for the pencils’ producers

. Id. at 1310

. Customs responded by issuing additional bills to Michaels charging a PRC

- wide rate of 114.90 % ad valorem for both administrative review periods. Id. Michaels brought an action under 28 U.S.C. § 1581 to challenge the rates used by Customs

. Id

. 1 The Court of International Trade upheld Customs’ liquidation rates, and Mich aels appeals. We have jurisdiction pursu ant to 28 U.S.C. § 1295(a)(5)

. S TANDARD OF R EVIEW
We review decisions of the Court of International Trade without deference, applying the same substantial evidence standard of review that the court itself applies in reviewing Commerce ’ s determinations. Atar S.R.L. v. United States , 730 F.3d 1320, 1325 (Fed. Cir. 2013)

. In addition, we give substantial deference to an agency’s interpretations of its own regulations

, unless they are

1 A parallel proceeding is currently pending in the Court of International Trade

, Michaels Stores, Inc. v. United States , No. 12

- 00145, in which Michaels has separately challenged the manner in which Customs implemented the liquidation instructions issued by Co mmerce.M ICHAELS S TORES V

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plainly erroneous or inconsistent with the regulation s

. Torrington Co. v. United States , 156 F.3d 1361, 1364 (Fed. Cir. 1998) (citing Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994))

. D ISCUSSION This appeal hinges on two subse ctions of 19 C.F.R. § 351.107: subsect ion (b)(2) and subsection (d)

. Michaels argues that it is entitled to use its producers’ rate s under § 351.107(b)(2), which states: In the case of subject merchandise that is expor ted to the United States by a company that is not the producer of the merchandise, if the Secretary has not established previously a combination cash deposit rate under paragraph (b)(1)(i) of this se ction for the exporter and producer in question or a noncombination rate for the exporter in q uestion, the Secretary will apply the cash deposit rate e stablished for the producer.

Michaels asserts that

, because no previous combin ation or noncombination rate was established for its e xporters, the Secretary was required under subsection (b)(2) to apply the cash deposit rates established for the pencils’ producers instead

. Meanwhile, the United States relies on subsection (d) of the same regulation, which provides that “i n an antidumping proceeding involving imports from a nonmarket economy country

, ‘ rates ’ may consist of a single dumping margin applicable to all exporters and producers. ” § 351.107(d).

Michaels claims that subsection (b)(2) is unambiguous and controls the outcome of this case, and even goes so far
as to argue that “subsection (d) i s irrelevant to the que stion posed in this appeal. ” Appellant’s Reply Br. 7.
We disagree. Given the language of subsection (d) and its applicability to both exporters and producers in NME countries, th is provision is indeed relevant to anM ICHAELS S TORES V

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antidumping proceeding such as this one

. 2 The discre pancy between the parties stems from an inherent ambig uity in § 351.107, specifically whether the “noncombination rate” referred to in subsection (b)(2) includes the NME

wide rate established by subsection (d). Kee ping in mind that we give substantial deference to Commerce ’s inte rpretation s of its own regulations unless they are plainly erroneous or inconsistent with the regulation

, s ee Torrington Co. , 156 F.3d at 1364 , we turn now to the proper interpretation of the regulation. In crafting § 351.107, Commerce designed a hierarchy in which the exporter rate is to be used, if it exists, prior to the producer’s rate. This preference for the exporter
rate over the producer rate is reflected both in the stru cture of s ubsection (b)(2) as well as in preamble language published in the Federal Register

. See Antidumping Duties; Countervailing Duties , 62 F ed. Reg. 27 ,296, 27,305 (May 19, 1997) (“[W]e intend to continue calculating [antidumping] rates for NME export trading companies, and not the manufacturers supplying the trading comp a2 When pressed at oral argument to reconcile the two subsections, Michaels maintained that subsection (d) could be read to allow Commerce to adopt a single rate for all exporters and producers within a NME country, but that the subsection would not apply unless every exporter and producer within a country were assigned the same
rate. See Oral Arg. 10:54

– 11:50
, available at http://www.cafc.uscourts.gov/oral

- argument

recordings/2014

- 1051/all

. This interpretation is inco nsistent with Commerce’s longstanding practice of assig ning separate rates to companies within an NME country that can demonstrate independence from state control. Policy Bulletin 05.1 at 4 (Dep’t of Comme r ce Apr. 5 2005), available at http://enforcement.trade.gov/policy/bull05

- 1.pdf.M ICHAELS S TORES V

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nies.”). Commerce recognized that

, compared to manufa cturers, exporters are more likely to control prices for goods and are more likely to know which goods are de stined for the United States. See Michaels

, 931 F. Supp. 2d at 1318. Commerce was also concerned that a produ cer not subject to state control might none theless use a
state

- controlled exporter in order to dump the ir goods in the U nited States

. Id.
Indeed, it has been Commerce’s policy since 1991 to apply a country

- wide rate to all exporters doing bus i ness in the PRC unless the exporter (not the manufactu r er) establishes de jure and de facto independence from state control in an administrative review proceeding. Sparklers

, 56 Fed

. Reg. at 20,589

. This court has e n dorsed this presumption on multiple occasions. See , e.g., Transcom, Inc. v. United States , 294 F.3d 1371, 1373 (Fed. Cir. 2002) ; Sigma Corp. v. United States , 117 F.3d 1401 , 1405

- 06 (Fed. Cir. 1997).
We agree with the Court of International Trade that subsection (d) sheds light on the meaning of subsection (b)(2) when the provisions are read in conjunction

. See Michaels

, 931 F. Supp. 2d at 1316 . S pecifically, subse ction (d) establishe s a default country

- wide rate for all NME exporters and producers; this rate also serves as the “noncombination rate” referred to in subsection (b) (2)

. Michaels has not demonstrated that Commerce’s inte rpretations of the regulation in practice are plainly erron eous or inconsistent with th e regulation. Because a noncombination rate for the exporter was established as the PRC

- wide rate of 1 14.90 %, Michaels could not rely on its producer rates as a substitute

. Were we to conclude otherwise, Michaels could circumvent its antidumping obligations by buying pencils from a state

- controlled exporter at a discounted price and then use the antidum ping rate associated with its non

- state controlled manufa cturer.M ICHAELS S TORES V

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Michaels raises two additional arguments on appeal

. First, Michaels argues that by changing its procedures without allowing for notice and comment, Commerce failed to comply with the A dministrative P rocedure A ct (APA)

. However, Michaels conceded at oral argument that if this court agrees that Commerce correctly inte rpreted § 51.107, as we have done, then we need not a ddress its argument under the APA. O ral A rg. 6:20

. Michaels also argues that Commerce’s interpretation of the regulation is “unfair to importers such as Michaels who appropriately relied on the plain language of the applicable regulation in assessing its antidumping liabi lity.” Appellant’s Reply Br. 13. However, a s discussed above

, Com merce has utilized a default country

- wide rate for NME exporters for decades

. Neither the pencils’ producers nor Michaels itself ini tiated an administrative review on the exporters’ behalf, even though either could have qualified as an “interested party” for the purposes of 19 C .F.R. § 351.213(b). See 19 U.S.C. § 1677(9)(A) (“The term ‘interested party’ means . . . a foreign manufactu rer, producer, or exporter, or the United States importer, of subject merchandise . . . .”)

. Michaels had ample notice of Commerce’s long

- standing procedures and the opportun ity t o seek a separate exporter rate. T hus, we are not persuaded by M ichaels’ un fairness argument.

C ONCLUSION For the aforementioned reasons, we affirm the jud gment of the Court of International Trade

. AFFIRMED