Slip Op. 10-126
UNITED STAT ES COURT OF INTERNATIONAL TRADE

__________________________________________ : QI NGDAO TAI FA G ROUP CO., L TD., : : Plaintiff, : : v. : Be fore : J ane A . Restani, J udg e : UNI TED STATES, : Court No. 08-00245 : Def endant, : : and : : GL EASON I

NDUSTRIAL

PRODUCTS, I

NC. : and PRECI SI ON PRODUCTS, I NC., :

: Def endant- Interve nors. : __________________________________________: OP INION [Department of Commerc e’s se cond re mand re sults in antidum ping duty matter re manded f

or rec onsideration or e x planation of a pplication of China country-wide r ate.] Dated: Nove mber 12, 2010 Adduci, Mastria

ni & Scha umberg , L L P (L ouis S. Mastriani and Wil liam C. Sjoberg ) for

the plaintiff. Tony West, Assist ant Attorney Gene ral; Jeanne E. Da

vidson, Director , Patricia M. McCarthy , Assistant Director , Commercial L itigation B ranc h, Civil Division, U.S. Department of Jus tice (Stephe n C. Tosini); Thomas M. Beline, Of fice of the Chief Counsel for Import Administration, U.S. Department of Commerc e, of c ounsel, for the defe ndant.

Crowell & MoringL L P (Matthew P. J aff e and A lexander H. Scha efe r) f or the defe ndant-interve nors.

Restani, J udg e: This matter c omes befor e the c ourt followingits decision in Qing dao Ta ifa Gr

p. Co. v. United States, 710 F. Supp. 2d 1352 (CI T 2010) (“ Taifa I I ”), in whic hCourt No. 08-00245 Page 2

the court remanded the Final Results of Redetermination Pursuant to Court Remand (Dep’t Commerce Jan. 22, 2010) (Docket No. 100) (“First Remand Results”) on Hand Trucks and Certain Parts Thereof from the People’s Republic of China; Final Results of 2005-2006 Administrative Review, 73 Fed. Reg. 43,684 (Dep’t Commerce July 28, 2008) to the United States Department of Commerce (“Commerce”).
BACKGROUND The facts and procedural history of this case are fully explained in the court’s two prior opinions in this matter. See Taifa II, 710 F. Supp. 2d at 1353 55; Qingdao Taifa Grp. Co. v. United States, 637 F. Supp. 2d 1231, 1234 36 (CIT 2009) (“Taifa I”).

In Taifa II, the court instructed Commerce “to determine, after proper investigation and analysis, whether a government entity exercised nonmarket control over” plaintiff Qingdao Taifa Group Co., Ltd. (“Taifa”) sufficient to link the People’s Republic of China (“PRC”) entity-wide rate to Taifa. Taifa II, 710 F. Supp. 2d at 1357. The court gave Commerce three options: First, if Commerce determines that Taifa is not independent of the PRC government’s control based on . . . documents indicating town government ownership, Commerce must explain, based on PRC law, prevailing practices in the PRC, or other relevant information, why these particular documents are significant to the issue of government control, how the documents ultimately link Taifa to central PRC government control and a rate relating thereto, and why the fact that . . . documents indicating the transfer of the town government’s interest were not properly registered in the PRC is significant to the issue of government control. Alternatively, if Commerce finds that the evidence does not indicate that a government entity controlled Taifa’s prices, export activities, or operations and no ultimate link between Taifa and the rates applicable to central PRC government-controlled entities, then Commerce should conclude that Taifa has established its independence from government control sufficient to reject a country-wide rate. Finally, if, after thorough investigation and analysis,Court No. 08-00245 Page 3

Commerce finds the evidence regarding government control of pricing, export activities, or operations and regarding Taifa’s relationship to the central PRC government in equipoise, Commerce may apply a well-supported and explained presumption based on current conditions that Taifa is government-controlled and apply the appropriate rate. Id. at 1358 (footnote call numbers omitted).

Commerce asserts it chose the third option on remand. Final Results of Redetermination Pursuant to Court Remand 4, 23 (Dep’t Commerce July 27, 2010) (Docket No. 118) (“Second Remand Results”). Commerce found that “Taifa failed verification with respect to its separate rate status,” id. at 19, because Commerce found documents indicating that the Yinzhu Town Government owned a majority interest in Taifa, contrary to representations in Taifa’s separate rate questionnaire responses, and because Taifa failed to register with the proper authorities documents indicating the transfer of the majority interest to certain individuals, six of whom were also members of Taifa’s board of directors, which controls and manages the company, id. at 5 19. Commerce concluded that it could not determine whether those directors “actually operate under their own legitimate independent direction as Taifa claims, or whether the absence of proper documentation reflects an undisclosed continuation of governmental control over Taifa.” Id. at 13. Commerce found that Taifa had not established a legitimate separation from the town government and applied a “presumption” that a respondent in a nonmarket economy (“NME”) country such as the PRC is state-controlled. Id. at 13 19.

Following the remand determination, the court met with the parties in an attempt to learn how Commerce addresses these issues and the basis for its presumption of state control in this industry or for this company, which contrary to the court’s order did not appear to beCourt No. 08-00245 Page 4

explained adequately. The parties were forthcoming about their views of these matters, but their approaches understandably differ. The court must address these underlying methodological issues in order for it to resolve the basic dispute of whether plaintiff should receive its own rate or the 383.60% PRC-entity rate. 1

JURISDICTION AND STANDARD OF REVIEW The court has jurisdiction pursuant to 28 U.S.C. § 1581(c). The court will not uphold Commerce’s final determination in an antidumping review if it is “unsupported by substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i).
DISCUSSION

The essence of Commerce’s reasoning is that Taifa’s assertion that it is controlled by an independent board of directors is not credible because Taifa impeded Commerce’s review by withholding information relating to its town government ownership and provided information that could not be verified in records outside the company. See Second Remand Results at 15 19. Although in assigning an antidumping duty rate Commerce may draw an adverse inference against a respondent that withholds information, significantly impedes a proceeding, or provides

Commerce believes that the 383.60% rate could be applied as an Adverse Facts 1 Available (“AFA”) rate even if Taifa is a separate entity, but there would still have to be substantial evidence supporting application of such a rate to Taifa, whether one calls it corroboration of secondary data or something else. Compare Gallant Ocean (Thai.) Co., Ltd. v. United States, 602 F.3d 1319 (Fed. Cir. 2010) (“Gallant”), with KYD, Inc. v. United States, 607 F.3d 760 (Fed. Cir. 2010) (“KYD”). How such a rate is sufficiently linked to Taifa, which had a rate of less than 30% in the original investigation, and where the actually calculated rates of competitors has been less than that, in fact, down to zero, has never been adequately explained in these proceedings.Court No. 08-00245 Page 5

information that cannot be verified if Commerce finds that the respondent “failed to cooperate by not acting to the best of its ability to comply with a request for information,” 19 U.S.C. § 1677e(b); see id. § 1677e(a)(2), such an adverse rate should “be a reasonably accurate estimateof the respondent’s actual rate, albeit with some built-in increase intended as a deterrent to noncompliance,” not a punitive or unreasonably high rate “with no relationship to the respondent’s actual dumping margin,” F.Lli de Cecco di Filippo Fara S. Martino S.p.A. v. United States, 216 F.3d 1027, 1032 (Fed. Cir. 2000) (“De Cecco”). Accordingly, Commerce may not apply the PRC-wide rate if substantial evidence does not support the finding that a government entity exercised nonmarket control over the respondent, and if there is no ultimate link between the respondent and the central PRC government. See Taifa II, 710 F. Supp. 2d at 1356 57; Taifa I, 2 637 F. Supp. 2d at 1240 44; see also Gerber Food (Yunnan) Co. v. United States, 387 F. Supp. 2d 1270, 1287 88 (CIT 2005); Shandong Huarong Gen. Grp. Corp. v. United States, 27 CIT 1568, 1594 95 (2003).

In order to understand how this case arrived in its current posture and how it may be resolved, it is necessary to explain the development of the case, one hopes, in plain terms. First, what are no longer open issues before the court are 1) that plaintiffs may challenge, without the bar of failure to exhaust claims, its designation as part of China’s state-owned enterprise structure, 2) that plaintiff may not challenge the calculation of the dumping rate applied to that

As the court stated in Taifa I, “Commerce could not apply the PRC-wide rate to Taifa 2 based on Taifa’s failures to report [production] data for wheels or attempts to avoid producing requested documents regarding sales and production at verification alone.” 637 F. Supp. 2d at 1241. These are separate matters, although this may influence the weight Commerce gives to Taifa’s internal documents.Court No. 08-00245 Pag e 6

structure , the PRC-wide entity rate , havingwaived that issue, and 3) that if plaintiff is to re ceive

a rate sepa

rate from the PRC-wide entity rate , it will s till be a rate based on f acts available a

nd an adver se infer ence (“A FA r ate” ), bec ause of acts c ommitt ed duringCommerce’ s verific ation visit to its factory

. What remains at issue ar e the f ollowing: 1) I s plaintiff entitled to a sepa rate AFArate . 2) I f so, is the separ ate AF A rate ca lculated by Commerce in its first re mand deter mination supported by

substantial evidence . The a lternative PRC-wide entity rate plaintiff seeks to avoid is 383.60%. The re is little likelihood that in any rea l world this could be an approximation of an actua l rate. I t is nearly four times the pric e of the subject merc handise, i.e., hand truc ks and ce rtain par ts thereof

. As the cour

t understands it, such rates derive from Commerce ’s dec ision that the
PRC g overnme nt, as the pre sumed owner of ente rprises in a pa

rticular industry , which as a

sovere ign doe s not respond to questionnaire s and does not coope rate in the investigation,

rec eives a very high A FA r ate ba sed on information normally provided by

the domestic industry in its petit ion. Furthe rmore, a ny entity which does not e stablish its status as separ ate f rom the
PRC g overnme nt rec eives this rate

. 3

In the pre liminary

deter mination, Com merc e found that Taifa w as suffic iently
separ ate f rom PRC g overnme nt-owner ship and control, that it would rec eive its own ra te. See Taifa I , 637 F. Supp. 2d at 1235. Eve nts intervened, nota bly the fa iled verific ation of Taif a’s

Why one pre sumes that the PRC gover nment owns some companie s in this particular 3 industry has not bee n explored in the case , and the c ourt ac cepts that for this case that limited presumption is true. See, infr a p. 9 discussion.Court No. 08-00245 Pag e 7

sales and pr oduction data, a nd, as desc ribed e arlier , information also g ather ed at ve rifica tion that cast doubt on Taif

a’s c laim that a majority

of its shares w ere reg istered in the name of independe nt private individuals or entities. See id.

All sides to this dispute emphasize that actua l control of business dec ision-making is the key . Nonethele ss, the briefing focuse d on the share reg istration issue and the somewhat conflictingviews of Commerc e, also re flec ted in the less than cle ar c ase la w, as to the importance of de jure owner ship. As, normally , who owns a c ompany might tell one something 4
about who contr ols its bus iness decisions, one c annot fa ult the parties for

at least c onsideringthe issue of de jure owner ship. There is recor d evidenc e, howe ver, that this company makes its own decisions, and ther e is no evidenc e of outside c ontrol of the re levant dec isions. To be sure, Ta ifa has bee n shown to be less than hone st, and Commerce is entitled to treat interna l documents about who is runningTaifa with skepticism. Skepticism , howeve r, does not mea n total disreg ard.
In any case , the cour

t, in its revie w of Commerc e’s initial final dete rmination, failed to see the conne ction betwee n a PRC-wide entity rate and the wa

y Taifa did business, so it direc ted Commerce to describe the evidenc e which w ould ge t the court fr om A to B to C on the issue or else g ive Taifa

its own rate, a dverse though it would be. Commerc e, in its first remand results retur

ned a de termination to the court objec ting to re jection of its “pre sumption” of state-

Although some case s state that the showingof both de jure and de f acto indepe ndence is 4 require d, Sigma Corp. v. United States, 117 F .3d 1401, 1405 (F ed. Cir. 1997), the standa rd is actua lly more fle x ible than this stark formulation may indicate, se e Ta ifa I , 637 F. Supp. 2d at 1243 (statingthat “Commerce previously has applied se parate ra

tes, rathe r than PRC-wide rates, in instances whe re a

g overnme nt entity

has an ownership intere st in the respondent but does not exercise de fac to control over the responde nt’s price s or export activities” (c iting var ious ag ency deter minations)).Court No. 08-00245 Page 8

ownership and the 383.60% rate. In that determination, Commerce stated that it has no choice under the court’s decision but to assign Taifa a separate (and different) rate. It decided upon a rate of 227.73%. This rate is from data in the latest review in which Taifa was a mandatory respondent (and where its data was not rejected). It is from a less than fair value margin calculation for a group of sales representing 12% of Taifa’s U.S. sales. First Remand Results at 3, 21. The court did not reach the issue of the validity of this rate but remanded the matter again because it viewed its decision, not as directing a result, but as requiring Commerce to explain a methodology that would link Taifa to the PRC-wide rate or make clear why it was not linked. See Taifa II, 710 F. Supp. 2d at 1357 58. In its second remand results, Commerce abandoned the 227.73% rate and returned to the 383.60% PRC-wide rate. It explained the methodology essentially as follows: 1) There is a “presumption” that Taifa is state-owned. 2) Taifa may rebut the presumption. 3) Taifa lied. Thus, it is not in a position to rebut the presumption. 4) If Commerce, pursuant to the court’s orders, must consider Taifa’s information, despite 3 above, Commerce finds there is evidence of equal weight (basically as to ownership) that contradicts evidence favorable to Taifa so that the presumption is not rebutted. See Second Remand Results at 19. The second remand results, however, did more. Commerce finally came to grips with the fact that its “presumption” of state-control was a factual one, subject to change over time and based on Chinese laws and policies in effect in 1993, but apparently no longer in effect. See Second Remand Results at 28 31. Thus, Commerce looked at an updated assessment of state-control of Chinese businesses. Id. It did not supply theCourt No. 08-00245 Page 9

document or even a web citation to it, but the parties seem to know what it is. See id.; Antidumping Duty Investigation of Certain Lined Paper Products from the People’s Republic of China (“China”) - China’s status as a non-market economy (“NME”), A-570-901 (Aug. 30,2006) (“Certain Lined Paper”), available at http://ia.ita.doc.gov/download/prc-nme-status/prclined-paper-memo-08302006.pdf (last visited Oct. 29, 2010). Therefore the court will address it, even though technically it is not in the record. Whatever data underlie this document, however, are clearly not in the record and Commerce did not cite to any particular part of the document as explaining why companies such as Taifa must be presumed to be state-owned or controlled by the state in such a way that a separate rate is not warranted. See Second Remand Results at
28 31. The court, however, has examined the document, particularly the portion relatingto the manufacturing sector, beginning at page 36. It describes a movement over time from statecontrol to private ownership and control, particularly as to smaller businesses, or non-core industries. Certain Lined Paper at 36 40. It is unclear to the court what kind of private ownership exists in China, but it does appear from Commerce’s document that private ownership exists in this section of the economy, so that businesses keep their profits and even foreign investment is permitted. Commerce seems to recognize this by allowing companies to demonstrate separate status. There is no indication that Taifa has foreign investors, but the court could not find the support Commerce alleges is in this document for a presumption that Taifa is state-owned or controlled to a degree that warrants application of the country-wide rate. That Commerce may make a judicially unreviewable decision that China is overall still a non-marketCourt No. 08-00245 Page 10

economy, does not seem to answer the question of whether Commerce has supported a

5 presumption that a manufacturing company such as Taifa is likely to be state-owned. Thus, to date there is no link to a rate other than Taifa’s own rate.

If this were a case between the government and Taifa alone, the court would say “enough.” After two remands and a failure to provide the information sought by the court to support Commerce’s determination, the court might leave the government to litigate this when, presumably in another case, it is ready to support its view. In which case, the court would order that Taifa receive a separate rate, especially in view of Commerce’s choice not to take the opportunity to reopen the record. There is no requirement in the statute that a PRC-wide rate be imposed when other adverse rates are available or may be constructed. This case, however, involves other parties, the domestic competitors. They remain entitled to a well-explained decision, as much as Taifa does.

So, we continue. While not a model of clarity, the second remand determination finding that the evidence of town ownership is at least in equipoise is supported. See Second Remand Results at 8 15. Share documents, which would indicate that a majority of stock is privately held, are not properly registered. Id. Certain stamps on “chops” are missing from other documents which might establish separation from town ownership. Id. at 9. Documents in Chinese government records did not match Taifa claims. Id. at 10. Thus, a finding of de jure town-ownership may stand.

Despite this, Commerce could find that an independent board of directors made

See 19 U.S.C. § 1677 (18)(D). 5Court No. 08-00245 Pag e 11

Taifa ’s business dec isions withoutcontamination by g overnme nt resourc e allocation or other non-marke t controls. Howeve r, some explanation of how a nd by whom the dec ision-making of
town-owne d manufa cturingbusinesses g ener ally is controlled in China is mis sing f rom the second r emand r esults.

Thus, this matter must be remande d to Comm erc e. I f Commerce cannot e x plain why substantial rec ord evide nce suppor ts a findingof ce ntral g overnme nt control that justifies imposit ion of the PRC-wide entity rate , Taifa

must ge t the rate its own lack of ve rifiable production evide nce w arr ants, without resort to an unc onnecte d country -wide r ate. Commerc e is permitted to reope n the re cord on the issue of the link to the country -wide r ate. The mere conclusions in the August 30, 2006, Memorandum, howe ver, do not support a link to a PR Cwide rate, as e x plained.

Finally to avoid y et another

rema nd, the cour

t will review the se lection of 227.73%, the sepa

rate rate from the f

irst remand r esults, and the only separ ate r ate Commerc e has selec ted, to the extent it i s able to do so on this recor d. Ba sed on the re sults of the investigation and revie ws cited by the par ties, the court doubts that this AFA r ate r efle cts rea lity

. The issue is, is the AF A rate so far from what has bee n demonstrated by actua l rates, that it must be re jected a s in Gallant, or is it an ade quately supported ra

te as in KYD . First of a ll, this is not

an ac tual rate . I t is not derived from a n overa ll rate c alculate d for a nyone by anyone. Unlike a petition rate, whic h althoug h it is notfrom re spondent’s own data, is an over all rate , this rate is for a portion of Taifa ’s sales. Commerc e sometimes uses a por tion of sales to corr oborate anCourt No. 08-00245 Page 12

overall rate based on facts available. It does not appear to have done that here. 6 7 The court does find support for Commerce’s rejection of Taifa’s 26.49% rate from the original investigation. See First Remand Results at 2 3. After receiving such a rate, Taifa failed to cooperate fully in a subsequent review. Commerce does not err by rejecting this rate. Thus, Commerce should calculate a supported rate, particularly one somehow grounded in the realities of this industry. Commerce is not necessarily confined to the rates of the investigation (up to 47%), but the rate must somehow be grounded in reality to avoid imposition of a punitive rate. See De Cecco, 216 F.3d at 1032.

The court does not presume to know how Chinese businesses in general, or Taifa in particular, operate. And the court appreciates that Commerce is sometimes stymied in trying to find answers to these questions. The court, however, can only review the record before it. The court does appreciate the assistance of the parties in explaining the applicable methodologies, but

Under 19 U.S.C. § 1677e(c), Commerce must “to the extent practicable” corroborate 6 secondary information, i.e., information not “obtained in the course of an investigation or review.” 19 U.S.C. § 1677e(c). The court has a problem with Commerce’s apparent view of corroboration. This 7 requirement was added to the antidumping law pursuant to international commitments to keep AFA rates grounded in reality and also to respond to criticisms of prior “Best Information Available” methodology. H.R. Rep. No. 103-826, at 105 (1994); Uruguay Round Table Agreements Act, Statement of Administrative Action, H.R. Doc. No. 103-316 at 869 (1994). Narrowing the concept of secondary information, as the court in KYD, as least in dicta, seemed to do, and simultaneously broadening the concept of corroboration (down to .50% of sales, see PAM S.p.A. v. United States, 582 F.3d 1336, 1340 (Fed. Cir. 2009)), would not seem to aid the control of punitive margins the statute intended. One must remember that under the particular facts of Ta Chen Stainless Steel Pipe, Inc. v. United States, 298 F.3d 1330 (Fed. Cir. 2002) and PAM, the rates that were corroborated by a very small portion of actual sales were 30.95% and 45.49% respectively. Ta Chen, 298 F.3d at 1339; PAM, 582 F.3d at 1340. When rates are in multiples of 100%, one might assume that a bit more corroboration or record support is warranted.Court No. 08-00245 Pag e 13

in the final ana ly sis, there must be substantial evidenc e supportinga dec ision. A presumption based on nothingis not evidence ; thin air is not evidence suppor ting a dumping mar g in, particula rly one of a lmost 400%.
REMANDED.

/s/ J ane A . Restani _ J ane A . Restani J udg e Dated: This 12th day

of Nove mber, 2010. New Y ork, Ne w York.