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

______________________ 

MATTHEW R. NICELY, Hughes Hubbard & Reed LLP, 

of Washington, DC, argued for plaintiff-appellant. With 

him on the brief were LYNN G. KAMARCK and ALEXANDRA 

B. HESS. 

STEPHEN C. TOSINI, Senior Trial Counsel, Commercial 

Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendantappellee. With him on the brief were STUART F. DELERY, 

Assistant Attorney General, JEANNE E. DAVIDSON, Director, and PATRICIA M. MCCARTHY, Assistant Director. Of 

counsel on the brief was DANIEL J. CALHOUN, Senior 

Attorney, Office of the Chief Counsel for Trade Enforce-
2 MICHAELS STORES V. US 

ment and Compliance, United States Department of 

Commerce, of Washington, DC. 

______________________ 

Before PROST, Chief Judge, CLEVENGER and CHEN, Circuit 

Judges.

PROST, 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 

rates assigned to certain cased pencils manufactured and 

exported by businesses in the People’s Republic of China 

(“PRC”). Commerce assigned Michaels’ exporters a country-wide antidumping cash deposit rate, as opposed to 

lower rates obtained by the pencils’ producers. Michaels 

argues it is entitled 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 combination 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 establishes an initial

noncombination rate for all producers and exporters in 

nonmarket economy countries, we affirm. 

BACKGROUND

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., exporting goods far below typical market prices in order 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 producers and exporters of foreign goods, and it may also 

assign special rates for specific American importers. 
MICHAELS STORES V. US 3

Rates that apply to specific combinations of producers, 

exporters, and/or importers are referred to as “combination” rates. See 19 C.F.R. § 351.107(b)(1)(i). A noncombination 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 distinguishes between traditional market 

economies, where money is exchanged for goods and 

services, and “nonmarket economies” (NMEs), such as 

barter systems or state-controlled economies. See Final 

Determination of Sales at Less Than Fair Value: Sparklers From the People’s Republic of China, 56 Fed. Reg. 

20,588 (May 6, 1991) (“Sparklers”). The PRC has been

classified as an 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); see also 

Certain Cased Pencils from China: Preliminary Results, 

76 Fed. Reg. 2337, 2338–39 (Jan. 13, 2011). 

In NME proceedings, Commerce begins with a rebuttable 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 Fed. Reg. 4770, 4771 (Jan. 29, 2010). Commerce therefore applies a single country-wide antidumping 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 Antidumping and Countervailing Duty Administrative Reviews, 75 Fed. Reg. at 4771; Policy Bulletin 05.1 at 4 

(Dep’t of Commerce Apr. 5 2005), available at

http://enforcement.trade.gov/policy/bull05-1.pdf. 
4 MICHAELS STORES V. US 

In 1994, the International Trade Commission conducted 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 Antidumping Duty Order: Certain Cased Pencils from the 

People’s Republic of China, 59 Fed. Reg. 66,909 (Dec. 28, 

1994). Commerce accordingly imposed antidumping 

duties and later initiated administrative reviews for the 

2008-2009 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 sell 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 

2008-2009 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 include 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 did not. Michaels, 931 F. Supp. 2d at 1311. None of 

the Chinese firms responsible for exporting the pencils to 

Michaels participated in either administrative review 

process. Id. at 1317. 
MICHAELS STORES V. US 5

Michaels claims, and Commerce apparently does not 

dispute, that the producers’ rates were eventually established 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 exporters 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 United 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 Michaels appeals. 

We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5).

STANDARD OF REVIEW

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 Commerce.

 
6 MICHAELS STORES V. US 

plainly erroneous or inconsistent with the regulations. 

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)). 

DISCUSSION

This appeal hinges on two subsections of 19 C.F.R. 

§ 351.107: subsection (b)(2) and subsection (d). Michaels 

argues that it is entitled to use its producers’ rates under

§ 351.107(b)(2), which states:

In the case of subject merchandise that is exported 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 section 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. 

Michaels asserts that, because no previous combination or noncombination rate was established for its exporters, 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 “in 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) is irrelevant to the question 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, this provision is indeed relevant to an 
MICHAELS STORES V. US 7

antidumping proceeding such as this one.2 The discrepancy between the parties stems from an inherent ambiguity in § 351.107, specifically whether the “noncombination 

rate” referred to in subsection (b)(2) includes the NMEwide rate established by subsection (d). Keeping in mind 

that we give substantial deference to Commerce’s interpretations of its own regulations unless they are plainly 

erroneous or inconsistent with the regulation, see 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 structure of subsection (b)(2) as well as in preamble language 

published in the Federal Register. See Antidumping 

Duties; Countervailing Duties, 62 Fed. 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 compa2 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-argumentrecordings/2014-1051/all. This interpretation is inconsistent with Commerce’s longstanding practice of assigning separate rates to companies within an NME country 

that can demonstrate independence from state control. 

Policy Bulletin 05.1 at 4 (Dep’t of Commerce Apr. 5 2005), 

available at http://enforcement.trade.gov/policy/bull05-

1.pdf. 

 
8 MICHAELS STORES V. US 

nies.”). Commerce recognized that, compared to manufacturers, exporters are more likely to control prices for 

goods and are more likely to know which goods are destined for the United States. See Michaels, 931 F. Supp. 

2d at 1318. Commerce was also concerned that a producer not subject to state control might nonetheless use a 

state-controlled exporter in order to dump their goods in 

the United States. Id.

Indeed, it has been Commerce’s policy since 1991 to 

apply a country-wide rate to all exporters doing business 

in the PRC unless the exporter (not the manufacturer) 

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 endorsed 

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. Specifically, subsection (d) establishes 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 interpretations of the regulation in practice are plainly erroneous or inconsistent with the regulation. Because a 

noncombination rate for the exporter was established as 

the PRC-wide rate of 114.90%, 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 antidumping rate associated with its non-state controlled manufacturer. 
MICHAELS STORES V. US 9

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 Administrative Procedure Act

(APA). However, Michaels conceded at oral argument 

that if this court agrees that Commerce correctly interpreted § 51.107, as we have done, then we need not address its argument under the APA. Oral Arg. 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 liability.” Appellant’s Reply Br. 13. However, as discussed 

above, Commerce has utilized a default country-wide rate 

for NME exporters for decades. Neither the pencils’ 

producers nor Michaels itself initiated 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 manufacturer, 

producer, or exporter, or the United States importer, of

subject merchandise . . . .”). Michaels had ample notice of 

Commerce’s long-standing procedures and the opportunity to seek a separate exporter rate. Thus, we are not 

persuaded by Michaels’ unfairness argument.

CONCLUSION

For the aforementioned reasons, we affirm the judgment of the Court of International Trade. 

AFFIRMED