Court Opinion

ID: 818724
Source: CourtListenerOpinion
Date Created: 2013-02-03 08:27:43.347921+00
Date Added: 2024-06-11T09:10:05.348935
License: Public Domain

Slip Op. 04 - 103

            UNITED STATES COURT OF INTERNATIONAL TRADE

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CARPENTER TECHNOLOGY CORPORATION,            :

                                Plaintiff,   :

                      v.                     :

UNITED STATES,                               :   Court No. 02-00448

                                Defendant,   :
                 -and-
                                             :
VIRAJ GROUP,
                                             :
                 Intervenor-Defendant.
                                      :
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                                Memorandum & Order

[Plaintiff's motion for judgment on
 agency record granted; remanded to
 International Trade Administration.]

                                                 Decided:   August 16, 2004

     Collier Shannon Scott, PLLC (Robin H. Gilbert) for the
plaintiff.

     Peter D. Keisler, Assistant Attorney General; David M. Cohen,
Director, and Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, U.S. Department of Justice
(Elizabeth G. Candler); and Office of Chief Counsel for Import
Administration, U.S. Department of Commerce (Christine J. Sohar),
of counsel, for the defendant.

          AQUILINO, Judge:         This is another case contesting a

determination    of    the   International   Trade   Administration,   U.S.

Department of Commerce ("ITA") to group (or not to group) together

Indian enterprises for purposes of enforcement of its Antidumping

Duty Order: Certain Stainless Steel Wire Rods from India, 58 Fed.
Court No. 02-00448                                                 Page 2

Reg. 63,335 (Dec. 1, 1993).       In Stainless Steel Wire Rod From In-

dia; Final Results of Antidumping Duty Administrative Review, 65

Fed.Reg. 31,302 (May 17, 2000), for example, the ITA determined not

to group together (or "collapse") Viraj Alloys, Ltd. ("VAL") and

Viraj Impoexpo, Ltd. ("VIL") for the period of review ("POR"),

December 1, 1997 to November 30, 1998.            That determination was

affirmed on appeal sub nom. Viraj Group, Ltd. v. United States, 25

CIT 1017, 1031, 162 F.Supp.2d 656, 670 (2001)[hereinafter referred

to as "Viraj I"]:

     . . . Commerce determined that VAL produces steel billets
     and that VIL manufactures both stainless steel bright bar
     and stainless steel wire rod. . . . Commerce concluded
     that the production facilities necessary to manufacture
     these diverse products were sufficiently different as to
     require substantial retooling of either facility in order
     to restructure manufacturing priorities. . . . Because
     Viraj failed to meet the first collapsing requirement of
     19 C.F.R. § 351.401(f)(1), Commerce stated the issue of
     price manipulation was moot.     . . . As Plaintiff was
     unable to comply with the requirements for collapsing set
     forth in . . . § 351.401(f), this Court . . . finds that
     Commerce properly chose not to collapse VAL and VIL for
     purposes of calculating the value of steel billet.

Citations omitted.

                                     I

            The   next   such   period   of   administrative   review   was

December 1, 1999 through November 30, 2000 and resulted in the

ITA's Stainless Steel Wire Rod From India; Final Results of Anti-

dumping Duty Administrative Review, 67 Fed.Reg. 37,391 (May 29,

2002), which is at issue in this action based upon the following

analysis:
Court No. 02-00448                                          Page 3

     Collapsing

          The Viraj Group is composed of . . . four companies:
     Viraj Forgings, Ltd. ("VFL"); . . . VAL[]; . . . VIL[];
     and Viraj USA, Inc. . . . , which was incorporated during
     the POR on May 22, 2000.            The Department has
     preliminarily determined that these four companies are
     affiliated for the purposes of this administrative
     review, and that the three producing companies, VAL, VIL,
     and VFL, should be collapsed and considered one entity
     pursuant to section 771(33) of the Act and section
     351.401(f) of the Department's regulations. See [ITA]
     . . . Collapsing Memorandum of the Viraj Group, Limited,
     dated December 31, 2001.

          The Department has found the four companies
     affiliated based on the evidence on the record . . .
     that Mr. Chhatwal and Mr. Kochhar are the directors for
     all four companies, and they jointly run all four
     companies, and their decisions are made for the interest
     of the group as a whole. Furthermore, the stock of VAL,
     VFL and VIL is mainly held by Mr. Chhatwal, Mr. Kochhar,
     and their relatives. Collectively, this group holds more
     than 40% of the shares in VIL, VAL, and VFL. Also, VFL
     owns 100% of Viraj USA.

          We find that the three producing companies (VAL,
     VIL, and VFL) should be collapsed because the evidence on
     the record indicates that VAL, VFL and VIL each use
     production   facilities    for   similar   or   identical
     merchandise that would not require substantial retooling
     of any facility in order to restructure manufacturing
     priorities.   For sales to the home market, VAL makes
     billets and then sends them to an unaffiliated
     subcontractor for rolling into wire rod.        The sub-
     contractor returns the black wire rod to VAL who sells it
     in the home market as subject merchandise. For sales to
     the U.S. market, VIL and VFL purchase the billets from
     VAL and send them to the same sub-contractor that VAL
     uses for rolling into wire rod. The subcontractor re-
     turns the black wire rod which is then annealed at VFL's
     facilities, pickled at VIL's facilities, packed and then
     exported. Consequently, VAL, VFL and VIL are all con-
     sidered "producers" of this wire rod for purposes of this
     review. Given that VAL, VIL and VFL all produced wire
     rod during the POR, no substantial retooling would be
     needed to restructure priorities among the three
     companies. Moreover, the companies are under common con-
Court No. 02-00448                                          Page 4

     trol and ownership, they use the same production facili-
     ties for producing wire rod, and the operations of the
     companies are intertwined. Therefore, the companies are
     capable, through their sales and production operations,
     of manipulating prices or affecting production deci-
     sions.1

Section 771(33) of the Trade Agreements Act of 1979, as amended,

referred to above, 19 U.S.C. §1677(33), defines "affiliated" or

"affiliated persons", among others, to be:

          (B) Any officer or director of an organization and
     such organization.

          (C)   Partners.

          (D)   Employer and employee.

          (E) Any person directly or indirectly owning,
     controlling, or holding with power to vote, 5 percent or
     more of the outstanding voting stock or shares of any
     organization and such organization.

          (F) Two or more persons directly or indirectly
     controlling, controlled by, or under common control with,
     any person.

          (G) Any person who controls any other person and
     such other person.

     For purposes of this paragraph, a person shall be
     considered to control another person if the person is
     legally or operationally in a position to exercise
     restraint or direction over the other person.

The ITA regulation cited, 19 C.F.R. §351.401(f) (2002), provides:

     1
       Stainless Steel Wire Rod From India; Preliminary Results of
Antidumping Duty Administrative Review, 67 Fed.Reg. 865, 866-67
(Jan. 8, 2002). The ITA's subsequent Final Results, which the
plaintiff contests herein, adopted this analysis, as well as that
set forth in the agency's Issues and Decision Memorandum ("Dec-
Memo") dated May 21, 2002, a copy of which is at tab 4 in
Plaintiff's Appendix. See 67 Fed.Reg. at 37,392.
Court No. 02-00448                                            Page 5

          Treatment of affiliated producers in antidumping
     proceedings--

          (1) In general. In an antidumping proceeding under
     this part, the Secretary will treat two or more
     affiliated producers as a single entity where those
     producers have production facilities for similar or
     identical products that would not require substantial
     retooling of either facility in order to restructure
     manufacturing priorities and the Secretary concludes that
     there is a significant potential for the manipulation of
     price or production.

          (2) Significant potential for manipulation.      In
     identifying a significant potential for the manipulation
     of price or production, the factors the Secretary may
     consider include:

               (i)     The level of common ownership;

               (ii) The extent to which managerial
          employees or board members of one firm sit on
          the board of directors of an affiliated firm;
          and

               (iii) Whether operations are intertwined,
          such   as  through   the   sharing  of   sales
          information, involvement in production and
          pricing decisions, the sharing of facilities
          or employees, or significant transactions
          between the affiliated producers.

                                   A

          Following publication of the above-quoted analysis in the

agency's Preliminary Results, the domestic petitioners, including

Carpenter Technology Corporation, objected to the collapsing of VAL

into VFL and VIL.    Among other things, they asserted that, "without

the use of independent unaffiliated sub-contractors, VAL, VFL and

VIL are unable to produce subject merchandise."    DecMemo, pp. 2-3.

The agency responded, in part, as follows:
Court No. 02-00448                                            Page 6

          Petitioners['] argument that the Department mis-
     interpreted the meaning of section 351.401(f)(1) . . . is
     incorrect. Petitioners state that the focus of [that]
     section . . . is on production facilities and not product
     lines. This distinction is not relevant in this case, as
     all three Indian companies use the production facilities
     of the same unrelated company to manufacture wire rod
     through a sub-contracting arrangement. It is irrelevant
     that only VAL has steel making capabilities. VIL and VFL
     do not need steel making capabilities in order to produce
     subject merchandise, as all three companies are currently
     producing wire rod, through the sub-contracting process.
     Thus, it is unnecessary for any substantial re-tooling to
     take place for this process to continue.

Id. at 4.

            This response precipitated the filing of Carpenter's com-

plaint herein and its motion for judgment upon the agency record

pursuant to USCIT Rule 56.2, which is governed by the standard of

judicial review that the ITA's determination not be "unsupported by

substantial evidence on the record, or otherwise not in accordance

with law".    19 U.S.C. §1516a(b)(1)(B)(i).

            The court's jurisdiction is based upon 28 U.S.C. §§

1581(c), 2631(c).

                                  B

            The court in Viraj I, supra, pointed out that "Commerce

may collapse companies only when the regulatory requirements are

satisfied".    25 CIT at 1030, 162 F.Supp.2d at 669.       Here, the

plaintiff parses 19 C.F.R. §351.401(f)(1), supra, into three con-

tingent conditions, namely:

          (1) each of the producers has production facilities
     for similar or identical products;
Court No. 02-00448                                            Page 7

            (2) those production facilities would not have to
       be substantially retooled for any of the companies to
       restructure manufacturing priorities; and

            (3) if the above conditions exist, the Secretary
       must also find that there is a significant potential for
       the manipulation of price or production between the
       companies.

Plaintiff's Reply Brief, p. 2.     The defendant does not disagree.

See Defendant's Memorandum, p. 10.     It considers the third to be

the "central question" of the regulation, but counsel seemingly

overlook the standard the ITA has set -- significant, not just some

or any, potential manipulation of price or production viz.:

       . . . The fact that the affiliated companies use tollers
       does not preclude the possibility of price manipulation
       -- the central question of the collapsing regulation.2
And:
       . . . Commerce properly collapsed the Viraj Group's
       affiliated companies because it determined that "[e]ach
       is able to produce subject merchandise without changing
       production facilities or product lines." . . . Based
       upon this determination, price manipulation is possible.

Id. at 14 (citations omitted).    The fact that the Viraj firms are

"capable, through their sales and production operations, of manipu-

lating prices or affecting production decisions"3 applies with

equal logic, of course, to any and all business enterprises.

       2
       Defendant's Memorandum, p. 12. This seemingly-quaint term,
toller, is found in subsection (h) of 19 C.F.R. §351.401:

            Treatment of subcontractors ("tolling" operations).
       The Secretary will not consider a toller or subcontractor
       to be a manufacturer or producer where the toller or
       subcontractor does not acquire ownership, and does not
       control the relevant sale, of the subject merchandise or
       foreign like product.
       3
           67 Fed.Reg. at 867.
Court No. 02-00448                                              Page 8

            The ITA's Preliminary Results, quoted hereinabove, cite

its Collapsing Memorandum dated December 31, 2001, wherein agency

staff find (at page 5) that VIL, VFL and VAL

     have a significant potential, through their sales and
     production operations, of manipulating prices or affect-
     ing production decisions, given that the companies are
     intertwined and share directors, facilities and informa-
     tion.

In re Stainless Steel Bar from India, 67 Fed.Reg. 45,956 (July 11,

2002), amended, 67 Fed.Reg. 53,336 (Aug. 15, 2002), however, the

nature and affiliation of these same three Viraj firms

     highlight[] the degree of confusion pertaining to the
     interpretation of the collapsing regulation, and the
     incongruity manifested in applying the regulation to the
     facts at hand.

Slater Steels Corp. v. United States, 28 CIT       ,      , 316 F.Supp.

2d 1368, 1372 (2004).      Indeed, in this case before the court, the

Collapsing Memorandum presents a seeming mix-up of the factors of

19 C.F.R. §351.401(f)(1) with those set forth in subsection (f)(2).

And this    kind   of   "totality-of-the-circumstances"   approach   has

caused the court in Slater Steels to order and to re-order the ITA

to explain why it did not analyze the "prongs" of subsection (f)(1)

separately from the issue of manipulation per (f)(2).       See 28 CIT

at       , 316 F.Supp.2d at 1372-74.      Cf. Slater Steels Corp. v.

United States, 27 CIT        , 279 F.Supp.2d 1370 (2003).

                                   (1)

            The court in Viraj I deemed potential manipulation a

"moot"4 matter in the light of the agency conclusion that the VAL

     4
         25 CIT at 1031, 162 F.Supp.2d at 670.
Court No. 02-00448                                           Page 9

and VIL production facilities were sufficiently different as to

require substantial retooling of either facility in order to re-

structure manufacturing priorities.     Apparently, that difference

remains the case now.

          The record reflects that in Viraj I VAL produced stain-

less steel billets that were transferred to a subcontractor for

rolling into wire rod and then sold to VIL for processing into the

subject merchandise.      During the instant POR, VAL continued to

produce billets and then send them to a subcontractor for rolling

into such merchandise -- for sale in the home market.   On its part,

VIL received billets from VAL which it sent to that same subcon-

tractor for rolling.

          As for VFL, it did not produce or export subject mer-

chandise during the Viraj I POR, but this time, like VIL, it pur-

chased VAL billets that it also transferred to the subcontractor of

choice for processing5.    Both VIL and VFL exported the rolled wire

rod to the United States via Viraj USA, Inc.

          The ITA's Collapsing Memorandum explains that the fore-

going reveals but two changes from the previous review in Viraj I,

namely, VAL did not produce subject merchandise, and VFL neither

produced nor exported at that time.    If this is all that actually

     5
       As recited above, VIL pickled both its wire rod and,
pursuant to contract, that of VFL, while the latter annealed both
its product and, pursuant to contract, that of VIL.
Court No. 02-00448                                                     Page 10

changed, the court cannot conclude that Viraj I should not be fol-

lowed herein.    In the absence of evidence to the contrary, the

court assumes the subcontracts for rolling to have been arm's-

length and lawfully-binding that made any price or production

manipulation by and between VAL and VIL and/or VFL during the

period of    review    less   likely   than    if   those   three   affiliated

enterprises were involved in the manufacture and sale of the

subject merchandise exclusively with their own facilities.                Cf. 19

C.F.R. 351.401(h), supra n. 2.

                                       II

            In the absence of any agency showing herein that dispels

this logic based upon substantial evidence on the record, plain-

tiff's motion for judgment thereon must be granted to the extent of

remand to the ITA for calculation and imposition of individual

antidumping-duty      margins   upon   Viraj   Impoexpo,     Ltd.   and   Viraj

Forgings, Ltd. in the manner of the approach taken by the agency,

and affirmed by the court, in Viraj Group, Ltd. v. United States,

25 CIT 1017, 162 F.Supp.2d 656 (2001).

            The defendant shall have until October 18, 2004 to carry

out this remand, whereupon the plaintiff may have until November 1,

2004 to serve and file any comments on the results thereof.

            So ordered.

Decided:    New York, New York
            August 16, 2004

                                            Thomas J. Aquilino, Jr.
                                                     Judge