Court Opinion

ID: 820096
Source: CourtListenerOpinion
Date Created: 2013-02-10 19:36:02.013623+00
Date Added: 2024-06-11T15:37:38.791271
License: Public Domain

Slip Op. 12-114

                   UNITED STATES COURT OF INTERNATIONAL TRADE

GLOBE METALLURGICAL INC.,

                            Plaintiff,
                                                      Before: Leo M. Gordon, Judge
              v.
                                                      Consol. Court No. 10-00032
UNITED STATES,

                            Defendant.

                                           OPINION

[Results of remand of administrative review sustained.]
                                                                 Dated: September 5, 2012

        William D. Kramer, Martin Schaefermeier, DLA Piper LLP (US), of Washington, DC,
for Plaintiff Globe Metallurgical Inc.

       L. Misha Preheim, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, DC, for the Defendant United States. With him on the
brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and
Reginald T. Blades, Jr., Assistant Director. Joanna V. Theiss, Of Counsel, Office of the Chief
Counsel for Import Administration U.S. Department of Commerce.

       Duane W. Layton, Sydney H. Mintzer, Margaret-Rose Sales, Mayer Brown LLP, of
Washington, DC, for Defendant-Intervenors Shanghai Jinneng International Trade Co.,
Ltd. and Jiangxi Gangyuan Silicon Industry Co., Ltd.

       Gordon, Judge:      This consolidated action involves an administrative review

conducted by the United States Department of Commerce (“Commerce”) of the

antidumping duty order covering silicon metal from the People’s Republic of China

(“China”). See Silicon Metal from the People’s Republic of China, 75 Fed. Reg. 1,592

(Dep’t of Commerce Jan. 12, 2010) (final admin. review) (“Final Results”); see also

Issues and Decision Memorandum, A-570-806 (Dep’t of Commerce Jan. 5, 2010)
Consol. Court No. 10-00032                                                          Page 2

available   at   http://ia.ita.doc.gov/frn/summary/PRC/2010-378-1.pdf       (last   visited

September 5, 2012)1 (“Decision Memorandum”). Before the court are the Final Results

of Redetermination, Sept. 6, 2011, ECF No. 76, (“Remand Results”), filed by Commerce

pursuant to Globe Metallurgical Inc. v. United States, 35 CIT ___, 781 F. Supp. 2d 1340

(2011). The court has jurisdiction pursuant to Section 516A(a)(2)(B)(iii) of the Tariff Act

of 1930, as amended, 19 U.S.C. § 1516a(a)(2)(B)(iii) (2006),2 and 28 U.S.C. § 1581(c)

(2006). For the reasons set forth below, the Remand Results are sustained.

                                 I. Standard of Review

      For administrative reviews of antidumping duty orders, the court sustains

Commerce’s determinations, findings, or conclusions unless they are “unsupported by

substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C.

§ 1516a(b)(1)(B)(i). More specifically, when reviewing agency determinations, findings,

or conclusions for substantial evidence, the court assesses whether the agency action

is reasonable given the record as a whole. Nippon Steel Corp. v. United States, 458

F.3d 1345, 1350-51 (Fed. Cir. 2006). Substantial evidence has been described as

“such relevant evidence as a reasonable mind might accept as adequate to support a

conclusion.” Dupont Teijin Films USA v. United States, 407 F.3d 1211, 1215 (Fed. Cir.

2005) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). Substantial

evidence has also been described as “something less than the weight of the evidence,

1
  All Commerce unpublished decision memoranda were last visited the date of this
opinion.
2
  Further citations to the Tariff Act of 1930, as amended, are to the relevant provisions
of Title 19 of the U.S. Code, 2006 edition.
Consol. Court No. 10-00032                                                     Page 3

and the possibility of drawing two inconsistent conclusions from the evidence does not

prevent an administrative agency's finding from being supported by substantial

evidence.” Consolo v. Fed. Mar. Comm'n, 383 U.S. 607, 620 (1966). Fundamentally,

though, “substantial evidence” is best understood as a word formula connoting

reasonableness review. 3 Charles H. Koch, Jr., Administrative Law and Practice §

9.24[1] (3d. ed. 2012). Therefore, when addressing a substantial evidence issue raised

by a party, the court analyzes whether the challenged agency action “was reasonable

given the circumstances presented by the whole record.” Edward D. Re, Bernard J.

Babb, and Susan M. Koplin, 8 West's Fed. Forms, National Courts § 13342 (2d ed.

2012).

                                   II. Discussion

         Defendant-Intervenors, Shanghai Jinneng International Trade Co., Ltd. and

Jiangxi Gangyuan Silicon Industry Co., Ltd. (“Respondents”), challenge Commerce’s

treatment in the Remand Results of a surrogate financial statement of FACOR Alloys

Limited (“FACOR”), a ferroalloy producer in India, which was used by Commerce to

calculate Respondents’ selling, general and administrative expenses (“SG&A”) for the

margin calculation. Specifically, Respondents challenge as unreasonable Commerce’s

exclusion of FACOR’s sale of a captive power plant as a non-routine transaction. See

Def.-Intervenors’ Comments on Final Results of Redetermination Pursuant to Remand,

Oct. 14, 2011, ECF No. 80.

         When calculating SG&A, Commerce includes “gains or losses incurred on the

routine disposition of fixed assets . . . because it is expected that a producer will
Consol. Court No. 10-00032                                                         Page 4

periodically replace production equipment and, in doing so, will incur miscellaneous

gains or losses. Replacing production equipment is a normal and necessary part of

doing business.” Stainless Steel Sheet and Strip in Coils from Mexico, 75 Fed. Reg.

6,627 (Dep’t of Commerce Feb. 10, 2010); Issues and Decision Memorandum, A-201-

822 (Feb. 3, 2010) cmt. 8 at 44, available at http://ia.ita.doc.gov/frn/summary/mexico/

2010-2987-1.pdf (“SSSS in Coils from Mexico”). Commerce excludes from its SG&A

calculation any resulting gains and losses from non-routine sales of fixed assets

because they “do not relate to the general operations of a company.” Id. In determining

whether to include or exclude a fixed asset sale from SG&A, Commerce considers the

nature and significance of the sale, and the relationship of the transaction to the general

operations of the company. Id.

      Commerce has applied this framework many times to various transactions,

including: the sale of a pulp mill by a lumber producer (non-routine, excluded), Certain

Softwood Lumber Products from Canada, 69 Fed. Reg. 75,921 (Dep’t of Commerce

Dec. 20, 2004), Issues and Decision Memorandum, A-122-838 (Dec. 13, 2004) cmt. 9

at 56, available at http://ia.ita.doc.gov/frn/summary/canada/E4-3751-1.pdf; the sale of a

shipping vessel by a rebar producer (non-routine, excluded), Certain Concrete

Reinforcing Bars from Turkey, 70 Fed. Reg. 67,665 (Dep’t of Commerce Nov. 8, 2005),

Issues and Decision Memorandum, A-489-807 (Nov. 2, 2005) cmt. 25 at 83, available at

http://ia.ita.doc.gov/frn/summary/turkey/05-22242-1.pdf; the sale of a sawmill by a

lumber   producer    (non-routine,   excluded),   Issues   and   Decision   Memorandum

accompanying Certain Softwood Lumber Products from Canada, 70 Fed. Reg. 73,437
Consol. Court No. 10-00032                                                         Page 5

(Dep’t of Commerce Dec. 12, 2005), Issues and Decision Memorandum, A-122-838

(Dec. 5, 2005), cmt. 8 at 38, available at http://ia.ita.doc.gov/frn/summary/canada/05-

23932-1.pdf (“Softwood Lumber Products from Canada 2003-04”); the sale of a

warehouse by a stainless steel producer (non-routine, excluded), SSSS in Coils from

Mexico, cmt. 8 at 45; the sale of land for corporate headquarters by a PET film producer

(non-routine, excluded), Polyethylene Terephthalate Film, Sheet, and Strip from the

Republic of Korea, 75 Fed. Reg. 70,901 (Dep’t of Commerce Nov. 19, 2010), Issues

and Decision Memorandum, A-580-807 (undated), cmt. 3 at 6, available at

http://ia.ita.doc.gov/frn/summary/korea-south/2010-29271-1.pdf; the sale of timber tracts

by a lumber producer (routine, included), Softwood Lumber Products from Canada

2003-04, cmt. 40 at 111; and the sale of certain production equipment by an orange

juice producer (routine, included), Certain Orange Juice from Brazil, 76 Fed. Reg.

50,176 (Aug. 12, 2011), Issues and Decision Memorandum, A-351-840 (Aug. 5, 2011),

cmt. 7 at 21, available at http://ia.ita.doc.gov/frn/summary/brazil/2011-20563-1.pdf.

        In Softwood Lumber Products from Canada 2003-04 Commerce explained the

difference between the routine disposition of a fixed asset and the disposition of an

entire facility:

        It is the Department’s practice to include gains or losses incurred on the
        routine disposition of fixed assets in the G&A expense ratio calculation.
        The Department follows this practice because it is expected that a
        producer will periodically replace production equipment and, in doing so,
        will incur miscellaneous gains or losses. Replacing production equipment
        is a normal and necessary part of doing business. The costs associated
        with assets currently being used in production are recognized, and
        become part of the product cost, through depreciation expenses. The
        Department includes such gains and losses from the routine disposal of
Consol. Court No. 10-00032                                                        Page 6

      assets in G&A expense rather than as a manufacturing expense, because
      the equipment, having been removed from the production process prior to
      the sale or disposal, is not an element of production when the disposal or
      sale takes place. It rather is simply a miscellaneous asset awaiting
      disposal. The gains or losses on the routine disposal or sale of assets of
      this type relate to the general operations of the company as a whole
      because they result from activities that occurred to support on-going
      production operations. In short, it is a cost of doing business. The
      Department’s approach for these types of gains and losses is to allocate
      them over the entire operations of the producer.

      We disagree with Abitibi that the question is whether the closed or sold
      facility pertains to the merchandise under review. Once a facility is sold or
      shut-down, by definition it no longer relates to the ongoing or remaining
      production, and it becomes either an asset owned by another party or an
      asset awaiting sale or disposal. Prior to the sale or shut-down, the cost of
      the facility would be allocated to the products produced at that facility in
      the form of depreciation expenses. Post shutdown or sale, the associated
      cost no longer is a direct or indirect production cost. The question is
      whether such costs are appropriate for inclusion in G&A expenses and
      relate to the company as a whole. The policy of not basing our decision
      on whether the facility in question produced the merchandise under review
      or merchandise not under review is consistent with our treatment of such
      costs in past cases.

      As discussed above, these respondents either sold or shut down entire
      production facilities during the POR. These respondents are in the
      business of producing and selling commercial goods to customers: they
      are not the business of manufacturing and selling entire production
      facilities. From a cost perspective, it would not be reasonable to assign
      the gain or loss on the disposition of a facility to the per-unit cost of
      manufacturing of the products that are still being produced at the
      respondent’s other facilities, because the facility in question now has
      nothing to do with producing the respondent’s products. The question,
      again, is whether the shut-down and sale, or the outright sale, of a
      production facility supports the general operations of the company. The
      reason for including financial and G&A expenses in COP or CV is that
      companies incur various costs and expenses, apart from those associated
      with production operations, to maintain and generally support the
      company. . . .

      Moreover, we disagree with the petitioner that the permanent closure or
      sale of a production operation is routine and the type of transaction that
Consol. Court No. 10-00032                                                         Page 7

      should be picked up as part of G&A expense. The sale of an entire
      production facility is a significant transaction, both in form and value, and
      the resulting gain or loss generates non-recurring income or losses that
      are not part of a company’s normal business operations, and are
      unrelated to the general operation of the company. The sale of an entire
      production facility does not support a company’s general operations,
      rather it is a sale or removal of certain production facilities themselves. It
      represents a strategic decision on the part of management to no longer
      employ the company’s capital in a particular production activity. These
      are transactions that significantly change the operations of the company.
      If the task before the Department is to determine a particular producer’s
      cost to manufacture a given product (including the costs associated with
      financing and supporting the producer’s general operations) it is not
      reasonable to include gains or losses on the sale of an entire production
      facility as a product cost.

      While the Department has included such gains and losses in the past, in
      more recent cases, we have changed our practice and excluded the gains
      and losses associated with plant closures and sales. . . .

Softwood Lumber Products from Canada 2003-04, cmt. 8 at 33-35. Commerce echoed

this explanation in SSSS in Coils from Mexico:

      The sale of an entire warehouse does not support a company’s general
      operations. Rather, it represents a strategic decision on the part of
      management to no longer employ the company’s capital in a particular
      production activity. These are transactions that significantly change the
      operations of the company and are non-routine in nature. From a cost
      perspective, it would not be reasonable to assign the gain or loss on the
      disposition of an entire facility to the per-unit cost of manufacturing of the
      products that are still being produced at the respondent’s other facilities,
      because the facility in question now has nothing to do with producing the
      respondent’s products. . . .

      ...

      Mexinox is in the business of manufacturing and selling stainless steel
      products and not in the business of selling warehouses.

SSSS in Coils from Mexico, cmt. 8 at 45.
Consol. Court No. 10-00032                                                       Page 8

       In the Remand Results Commerce reasoned that FACOR’s sale of its captive

power plant was not a routine disposition of production equipment, but a non-routine

disposition of a complete production facility:

               A functioning power plant is a type of production facility, and
       therefore, its sale is more similar to the sale of an ongoing business line
       (such as the Kraft pulp mill in Softwood Lumber from Canada 2002-2003
       or the shipping line in Concrete Reinforcing Bar from Turkey) than the
       routine disposition of equipment or machinery. Since FACOR's primary
       business activity is the production and sale of ferrochrome, its sale of a
       power-producing facility is non-routine in nature, and unrelated to its
       general operations. This is consistent with the determinations cited by
       Respondents. In SSSS from Mexico, the Department excluded profits on
       the sale of an entire warehouse from SG&A, stating that the sale of its
       warehouse "does not support a company's general operations." Likewise,
       in PET Film from Korea, the Department excluded profits on the sale of
       land, because selling land was not part of its normal business operations.
       As noted above, FACOR is in the business of producing and selling
       ferroalloys, not power plants. The Department's treatment of the sale of
       the power plant as non-routine is consistent with past practice.

              Further, in its Draft Remand Results, the Department cited to the
       large change in profit on the sale of the fixed asset between the prior and
       current period merely as supporting evidence that FACOR's sale of a
       power plant was an unusual, non-routine transaction. Slight fluctuations in
       the profits and losses realized by companies from year to year are to be
       expected, however, in this case, FACOR's profits on the sales of fixed
       assets increased over 1000% year-over-year (from the 2006-2007
       accounting period to the 2007-2008 accounting period). This sizeable
       increase in profits on the sale of fixed assets is indicative of an unusual
       transaction, and FACOR's financial statements show that the unusual
       transaction accounting for this change is the company's sale of an entire
       power plant in the current period. Contrary to the Respondents' argument,
       the consideration of the change in profit was but one part of the evidence
       which the Department considered in its determination that the sale of the
       power plant is non-routine.

               Second, with respect to the significance of FACOR's sale of its
       power plant, we continue to find that FACOR's sale of a power plant was a
       significant transaction in both form and value.        We disagree with
       Respondents' interpretation of Softwood Lumber from Canada 2003-2004
Consol. Court No. 10-00032                                                          Page 9

      as requiring that only the sale of a production facility can be categorized
      as non-routine. For instance, in Reinforcing Bars from Turkey, the
      Department excluded the profit from the sale of shipping vessels from
      SG&A, and in SSSS from Mexico, the Department excluded the profit from
      the sale of a warehouse, which are not production facilities. Moreover, an
      entire power plant is a type of production facility. The Department does
      not require a demonstrable change in the operations of the company to
      consider the sale of a plant or facility to be significant in form. The primary
      business lines of respondents whose asset sales were determined to be
      non-routine in Softwood Lumber from Canada 2002-2003, Softwood
      Lumber from Canada 2003-2004, and Concrete Reinforcing Bars from
      Turkey all continued with no minor changes after the non-routine sales of
      fixed assets, as is the case of FACOR.

              FACOR's sale of a power plant was also significant in value. As
      Petitioner has noted, FACOR's power plant accounted for over 50 percent
      of the book value of its fixed assets, and even when considering the
      accumulated depreciation of the power plant, the power plant in question
      still represented over 40 percent of the company's total fixed assets,
      calculated on the same basis. Moreover, the Department has not
      determined that the significance of a transaction must be determined by
      examining its proportion of total revenue, nor has the Department set a
      lower limit for the percentage of total revenue that an asset sale must
      reflect in order for the sale to be considered non-routine. Although
      Respondents rely on Chlorinated Isos Prelim in support of their argument
      that the Department should consider the sale to be not significant, in
      Chlorinated Isos Prelim, the Department did not explain why it determined
      to treat the profits from the sale of a fixed asset as an offset to SG&A.
      This issue was also not discussed in the final results. Therefore, this
      determination does not support Respondents' contention that, where a
      sale of a fixed asset results is a small percentage of total revenue, the
      Department must treat the sale as routine.

             The Department also continues to find that the sale of a surplus
      asset may also be significant. The simple fact of a company stating that it
      has excess capacity does not preclude a transaction from being
      considered significant. A surplus asset is one that is no longer needed by
      the company, not necessarily an asset that is insignificant to the company
      in terms of its productive capacity and value, or one that a company
      routinely sells.

              With respect to the relationship of FACOR's sale of its power plant
      to its general operations, we continue to find that the sale of the power
Consol. Court No. 10-00032                                                       Page 10

      plant was not related to the general operations of FACOR. Again, a power
      plant is a production facility, and whether or not the products and services
      produced by the production facility are used in the manufacture or sale of
      the company's primary product, the sale of a production facility remains
      outside the scope of the company's primary, general business. We
      continue to find that whether or not power plants are commonly owned by
      ferroalloy producers is not determinative of whether the sale of a power
      plant is routine or not.

             Many categories of businesses are likely to possess certain
      manufacturing facilities that are not directly related to their primary
      business line - whether the "side" line be the production of Kraft pulp or
      the provision of shipping. The commonality between these examples and
      a power plant is that each of these facilities generates output of a product
      or service - paper, transport, or power - that is outside the scope of the
      company's primary business line. These unrelated goods and services
      may be employed in the manufacture of the company's own products -
      such as the shipping services the respondent provided for its own inputs
      and outputs instead of contracting a shipping company in Concrete
      Reinforcing Bars from Turkey - or they may be sold for profit to customers.
      The way the outputs of a productive manufacturing facility are employed
      by a specific company are not determinative of whether the sale of the
      asset is routine.

Remand Results at 13-16.

       Respondents’ contend that if properly applied, Commerce’s practice governing

fixed asset sales should yield only one reasonable outcome: FACOR’s power plant sale

must be included as a routine transaction in the SG&A calculation. Respondents do a

creditable effort briefing their case, although it simply is too difficult a case to make.

Unlike in the market economy context where a respondent benefits from the wisdom

and insight of its own accountants analyzing its own fixed asset sales, here,

Respondents (along with Commerce and petitioner) are interpreting the power plant

sale through the limited information provided in surrogate financial statements. Against

such an administrative record (which does not specifically detail the frequency with
Consol. Court No. 10-00032                                                       Page 11

which Indian ferroalloy producers buy or sell entire power plants), and against the litany

of Commerce decisions excluding comparable fixed asset transactions, it is too tall an

order for the court to direct Commerce via affirmative injunction to include the power

plant sale within its SG&A calculation. Such an order would have to explain how the

sale of an entire power plant by ferroalloy producers, not in the business of selling

power plants, amounts to an insignificant, routine transaction, and further, why that

determination is the only outcome that the administrative record reasonably supports.

The standard of review contemplates that more than one reasonable outcome is

possible on a given administrative record, and Commerce’s decision here to exclude the

power plant sale from its SG&A calculation is consistent with its past practice and

certainly is as reasonable, if not more so, than Respondents’ proposed alternative. The

court must therefore sustain the Remand Results.

                                    IV. Conclusion

      For the foregoing reasons the court sustains Commerce’s Remand Results.

Judgment will be entered accordingly.

                                                             /s/ Leo M. Gordon
                                                           Judge Leo M. Gordon
Dated: September 5, 2012
       New York, New York