Court Opinion

ID: 2713670
Source: CourtListenerOpinion
Date Created: 2014-08-05 20:52:19.980275+00
Date Added: 2024-06-11T10:01:34.849408
License: Public Domain

Slip Op. 14-42

                 UNITED STATES COURT OF INTERNATIONAL TRADE

 CP KELCO OY and CP KELCO US, INC.,

                              Plaintiffs,            Before: Richard W. Goldberg, Senior Judge
                                                     Court No. 13-00079
                       v.
                                                     PUBLIC VERSION
 UNITED STATES,

                              Defendant,

                       and

 ASHLAND SPECIALTY INGREDIENTS,
 G.P.,

                       Defendant-Intervenor.

                                  OPINION AND ORDER

        Nancy A. Noonan, Arent Fox LLP, of Washington, DC, argued for plaintiff. With her on
the brief were Matthew J. Clark and Matthew L. Kanna.

        Stephen C. Tosini, Commercial Litigation Branch, Civil Division, U.S. Department of
Justice, of Washington, DC, argued for defendant. On the brief were Stuart F. Delery, Assistant
Attorney General, Jeanne E. Davidson, Director, and Reginald T. Blades, Jr., Assistant Director,
and L. Misha Preheim, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice. Of counsel on the brief was Joanna V. Theiss, Attorney, Office of the
Chief Counsel for Import Administration, U.S. Department of Commerce, of Washington, DC.

       Edward M. Lebow, Haynes and Boone, LLP, of Washington, DC, argued for defendant-
intervenor Ashland Specialty Ingredients, G.P. With him on the brief was Nora L. Whitehead.

       Goldberg, Senior Judge: This is a trade case brought under Section 201 of the Customs

Courts Act of 1980, 28 U.S.C. § 1581(c) (2006). Plaintiffs CP Kelco Oy and CP Kelco US, Inc.

(collectively “Kelco”) challenge the dumping margin the U.S. Department of Commerce

(“Commerce” or “the agency”) assigned their goods during the 2010 2011 administrative review
Case No. 13-00079                                                                                              Page 2

of an antidumping order on carboxymethylcellulose. Specifically, Kelco claims that the targeted

dumping inquiry Commerce conducted before calculating the margin was neither in accordance

with law nor based in substantial evidence.

         The court holds that Commerce was permitted by law to conduct a targeted dumping

inquiry during the contested review. The court also finds that Commerce’s method for

discovering targeted dumping and the application of that methodology to Kelco generally

accorded with law and the evidence. Nevertheless, the court concludes that an element of the

agency’s targeted dumping analysis—the de minimis test—was neither grounded in substantial

evidence nor in accordance with law. The court remands to Commerce to conduct the targeted

dumping inquiry afresh and to recalculate Kelco’s dumping margins consistent with that inquiry.

                                     PROCEDURAL BACKGROUND

         In August 2011, Commerce initiated an administrative review of an antidumping order on

carboxymethylcellulose from Finland. Initiation of Antidumping and Countervailing Duty

Administrative Reviews, 76 Fed. Reg. 53,404, 53,405 (Dep’t Commerce Aug. 26, 2011).1 The

next year, the Aqualon Company, a petitioner, alleged Kelco had sold its goods for less-than-fair

value at prices that differed “significantly among purchasers, regions, and periods of time.”

Letter from Haynes & Boone LLC to Hon. John Bryson, PD 56 at bar-code 3077453-01 (May

25, 2012), ECF No. 30 (July 2, 2013) (“Pet’r’s Allegation”). This practice is known as “targeted

dumping.” In view of its allegation, Aqualon asked Commerce to compute Kelco’s margins

using a methodology that accounts for targeted dumping among an exporter’s sales. Id. at 1 2.2

         1
           Carboxymethylcellulose is “an acid ether derivative of cellulose that in the form of its sodium salt is used
as a thickening, emulsifying, and stabilizing agent and as a bulk laxative in medicine.” Merriam-Webster’s
Collegiate Dictionary 172 (10th ed. 1993).
         2
        Defendant-Intervenor Ashland Specialty Ingredients, G.P. (“Ashland”) was previously known as Aqualon
Company. See Order Granting Consent Mot. to Amend Caption, ECF No. 36 (Sept. 10, 2013).
Case No. 13-00079                                                                          Page 3

       Commerce initially declined to conduct a targeted dumping inquiry when calculating

Kelco’s margins. Instead, the agency followed standard procedure and assigned Kelco a 5.86%

dumping margin in the preliminary results. See Purified Carboxymethylcellulose from Finland,

77 Fed. Reg. 47,036, 47,038, 47,042 (Dep’t Commerce Aug. 7, 2012) (“Preliminary Results”).

Later, however, Commerce inquired whether Kelco had engaged in targeted dumping and

discovered targeted dumping by time period. Commerce then reassessed Kelco’s margins using

an alternative methodology and assigned an 11.62% rate. Post-Prelim. Targeted Dumping

Analysis Mem. at 3 4, PD 68 at bar-code 3112119-01 (Dec. 21, 2012), ECF No. 30 (July 2,

2013) (“Post-Preliminary Analysis”). The agency confirmed its findings from the targeted

dumping inquiry in the final results, settling on a 12.06% dumping margin. Purified

Carboxymethylcellulose from Finland, 78 Fed. Reg. 11,817, 11,817 (Dep’t Commerce Feb. 20,

2013) (“Final Results”).

       Kelco filed a summons with this court to challenge the margin. Summons, ECF No. 1.

In the accompanying complaint, Kelco alleges Commerce’s targeted dumping inquiry was

neither in accordance with the law nor grounded in substantial evidence. Compl. ¶¶ 19–27, ECF

No. 4. Kelco implies that Commerce should use its normal methodology to calculate the

dumping margin on remand. See id. at 7 (prayer for relief).

                                  LEGAL BACKGROUND

       To understand how Commerce’s targeted dumping inquiry shaped Kelco’s margins, some

legal table-setting is needed. In general, Commerce calculates dumping margins by comparing a

good’s “export price” to its “normal value.” See 19 U.S.C. § 1677(35). Commerce makes this

comparison using one of three methods: the average-to-average methodology (“A-A”), the

transaction-to-transaction methodology (“T-T”), or the average-to-transactional methodology
Case No. 13-00079                                                                                  Page 4

(“A-T”). Commerce’s preferred method in both investigations and administrative reviews is A-

A. 19 C.F.R. § 351.414(b)–(c) (2013). Under this approach, the agency adopts the good’s

weighted-average U.S. price as the export price. Id. § 351.414(d). It then subtracts the export

price from the good’s weighted-average price in the exporter’s home market (i.e., the normal

value), yielding a dumping margin. Id. Commerce used the A-A methodology to calculate

Kelco’s margins in the Preliminary Results. Preliminary Results, 77 Fed. Reg. at 47,042 n.39.3

        Commerce may also use the A-T methodology to set margins, but in limited

circumstances. In investigations, Commerce may apply A-T only if it finds a “pattern of export

prices . . . for comparable merchandise that differ significantly among purchasers, regions, or

periods of time,” and alternative methodologies inadequately explain the pattern. 19 U.S.C.

§ 1677f-1(d)(1)(B)(i)–(ii). If an exporter’s sales meet these criteria, that exporter engaged in

targeted dumping. Commerce may then use A-T to compute the exporter’s dumping margins,

comparing weighted-average normal values to export prices from individual sales. See 19 C.F.R.

§ 351.414(b)(3). Commerce does not offset non-dumped sales against dumped sales when using

the A-T method. See Issues & Decisions Mem. at Issue 1, PD 80 at bar-code 3118300-01 (Feb.

5, 2013), ECF No. 30 (July 2, 2013) (“I&D Mem.”). As a consequence, margins calculated

under A-T can be significantly higher than those computed under A-A.

        Hence Commerce’s method for discovering targeted dumping bears critically on an

exporter’s margins. The method, widely known as the “Nails test,” proceeds as follows. In the

first step, called the “standard deviation test,” Commerce determines “the volume of the

allegedly targeted group’s (i.e., purchaser, region, or time period) sales of subject merchandise

        3
          Commerce rarely uses T-T to compute dumping margins. See Calculation of Weighted Average Dumping
Margin and Assessment Rate, 77 Fed. Reg. 8101, 8102 (Dep’t Commerce Feb. 14, 2012) (final modification)
(discussing investigations).
Case No. 13-00079                                                                                        Page 5

that are at prices more than one standard deviation below the weighted-average price of all sales

under review, targeted and non-targeted.” Id. at Issue 2. Standard deviations are calculated on a

product-specific basis by control number (“CONNUM”). If more than thirty-three percent of

allegedly targeted sales are at least one standard deviation below the average price of all

reviewed sales in a given CONNUM, Commerce moves to step two. Id.

        In step two, the “gap test,” the agency considers by CONNUM the sales that passed the

standard deviation test. Commerce first calculates the difference between the weighted-average

price of allegedly targeted sales and the next higher weighted-average price of sales to a non-

targeted group (the “target gap”). Next, Commerce calculates the average difference, weighted

by sales volume, between prices to non-targeted groups (the “non-target gap”). Finally, the

agency compares the target gap to the non-target gap.4 If the target gap exceeds the non-target

gap for more than five percent of the exporter’s sales to the alleged target by volume, Commerce

finds that targeted dumping occurred. The agency may then use A-T to calculate the exporter’s

margins, but only if Commerce cannot account for observed price differences using A-A. Id.5

        Commerce takes a similar approach when it applies the A-T methodology in reviews. Id.

Unlike the law governing investigations, however, the law governing reviews does not specify

which comparative methodology Commerce must use to calculate margins. Instead, the statute

explains only how to compute normal values when using the A-T method in reviews. 19 U.S.C.

§ 1677f-1(d)(2). To fill this apparent gap in the statute, federal regulations require Commerce to

        4
          Commerce does not use the terms “target gap” and “non-target gap” in its analysis. These terms were
coined as shorthand for ease of explanation.
         5
           There is rulemaking underway concerning whether Commerce may apply A-T to all sales, both targeted
and untargeted, when Commerce finds targeted sales in an investigation. See Gold East Paper (Jiangsu) Co. v.
United States, 37 CIT __, __, 918 F. Supp. 2d 1317, 1325 28 (2013); Non-Application of Previously Withdrawn
Regulatory Provisions Governing Targeted Dumping in Antidumping Duty Investigations, 78 Fed. Reg. 60,240
(Dep’t Commerce Oct. 1, 2013). The court is unaware of any similar rulemaking for reviews.
Case No. 13-00079                                                                                      Page 6

apply A-A in reviews unless another method is deemed more appropriate. 19 C.F.R.

§ 351.414(c)(1); see also Calculation of Weighted Average Dumping Margin and Assessment

Rate, 77 Fed. Reg. 8101, 8102 04 (Dep’t Commerce Feb. 14, 2012) (“Final Modification”).

Commerce has used A-T instead of A-A in reviews if the Nails test reveals that an exporter

engaged in targeted dumping.6

        In this case, Commerce applied the Nails test to Kelco’s sales during an administrative

review. The agency concluded that some of Kelco’s sales constituted targeted dumping.

Commerce also found—though obliquely—that Kelco’s targeted sales comprised more than a de

minimis share of its total U.S. sales. I&D Mem. at Issue 2. After determining that the A-T

methodology yielded higher margins than the A-A approach, Commerce recalculated Kelco’s

margins using A-T. Commerce assigned Kelco a 12.06% margin in the Final Results, up from

5.86% in the Preliminary Results. See Public Mem. of Law in Supp. of Pls.’ 56.2 Mot. J. on

Agency R. 4 5, ECF No. 28 (“Pls.’ Br.”).

                                       STANDARD OF REVIEW

        The court must review Commerce’s determinations to ensure they are supported “by

substantial evidence on the record” and “in accordance with law.” 19 U.S.C.

§ 1516a(b)(1)(B)(i). An agency decision is based in substantial evidence if bolstered by “such

relevant evidence as a reasonable mind might accept as adequate to support a conclusion.”

Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938); Nippon Steel Corp. v. United States, 337

F.3d 1373, 1379 (Fed. Cir. 2003).

        6
           Before publishing the Final Modification in February 2012, Commerce used A-T without offsets as its
default comparative methodology in reviews. 77 Fed. Reg. at 8101. For a history of Commerce’s evolving method
for calculating margins in administrative reviews, see Timken Co. v. United States, Slip Op. 14-24, 2014 WL
763124, at *1 2 (CIT Feb. 27, 2014).
Case No. 13-00079                                                                               Page 7

       The agency’s interpretation of relevant statutes is “in accordance with law” if it passes

the two-step test announced in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,

467 U.S. 837 (1984). Under Chevron, the court first determines whether a statute “directly

[speaks] to the precise question at issue.” Id. at 842. The court employs “the traditional tools of

statutory construction” in this analysis, relying primarily on the statute’s plain meaning and

secondarily on the “statute’s structure, canons of statutory construction, and legislative history.”

Timex V.I., Inc. v. United States, 157 F.3d 879, 882 (Fed. Cir. 1998) (internal quotation marks

omitted). Then, if the court finds the statute’s meaning unclear, it scrutinizes the agency’s

interpretation of the statute to determine whether it is permissible. The court defers to the

agency if the interpretation is reasonable. See Chevron, 467 U.S. at 843–44.

       An agency action also fails to accord with law if it is arbitrary. See U.S. Steel Corp. v.

United States, 37 CIT __, __, 953 F. Supp. 2d 1332, 1336 (2013); Thai Plastic Bags Indus. Co. v.

United States, 37 CIT __, __, 949 F. Supp. 2d 1298, 1302 (2013). Under Motor Vehicle

Manufacturers Ass’n v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43 (1983),

an agency rule is arbitrary if “the agency . . . relied on factors which Congress has not intended it

to consider, entirely failed to consider an important aspect of the problem, . . . or is so

implausible that it could not be ascribed to . . . the product of agency expertise.” See also

Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 167 68 (1962) (invalidating

exercise of agency discretion where agency failed to explain basis of its action).

                                           DISCUSSION

       The court evaluates Kelco’s claims in light of these standards. First, the court considers

whether Commerce was authorized by statute to conduct a targeted dumping inquiry during the

administrative review. See Pls.’ Br. 1 2. The law shows that Commerce was so authorized.
Case No. 13-00079                                                                            Page 8

        Second, the court assesses whether the method Commerce used to discover targeted

dumping was based in substantial evidence and in accordance with law. See id. The court holds

that Commerce’s targeted dumping inquiry was valid in all respects but one: Commerce’s de

minimis test—which functioned either as an additional step of the Nails inquiry or as a guidepost

in the agency’s discretionary analysis—was arbitrary and contrary to law.

   I.      Commerce Acted in Accordance with Law When It Conducted a Targeted
           Dumping Inquiry During the Review

        Kelco first argues that Commerce was not permitted to conduct a targeted dumping

inquiry during the administrative review. Though not so phrased in its brief, Kelco relies almost

exclusively on the interpretive maxim expressio unius est exclusio alterius to support its claim.

See Pls.’ Br. 7 12; Pls.’ Reply Br. 1 9, ECF No. 45 (“Reply Br.”). Translated from Latin, the

maxim means “to express or include one thing implies the exclusion of the other,” suggesting

that if Congress grants a right or privilege in one situation, then Congress intentionally withholds

that right or privilege in other situations. Black’s Law Dictionary 620 (8th ed. 2004). In this

vein, Kelco asserts that while the statute expressly permits Commerce to conduct targeted

dumping inquiries in investigations, the law does not authorize such inquiries in administrative

reviews. Consequently, Congress must have intended to prohibit targeted dumping inquiries in

reviews, and Commerce acted contrary to law by applying its targeted dumping analysis to

Kelco. Pls.’ Br. 9 12; see also 19 U.S.C. § 1677f-1(d).

        A. The Targeted Dumping Statute Is Ambiguous

        The court cannot agree. Under Chevron, the court must invalidate agency actions that

contradict a statute’s unambiguous instructions. See 467 U.S. at 842 43. But the statute at issue

here does not clearly prohibit targeted dumping inquiries in reviews. The court notes first that 19

U.S.C. § 1675—the section that orders Commerce set dumping margins in reviews—says
Case No. 13-00079                                                                           Page 9

nothing about how those margins should be calculated. Instead, the section only requires

Commerce to determine “the normal value and export price . . . of each entry of the subject

merchandise, and . . . the dumping margin for each such entry.” 19 U.S.C. § 1675(a)(2)(A). The

provision governing Commerce’s margin calculation methodology in reviews also offers little

direction: 19 U.S.C. § 1677f-1(d)(2) tells Commerce how to average normal values when using

the A-T methodology in reviews, but nothing more. In sum, the statute lacks language to inform

the agency’s choice between the A-A, T-T, and A-T methodologies in reviews. Given this spare

guidance, Commerce was free to use the targeted dumping inquiry to help it choose between A-

A and A-T to calculate Kelco’s dumping margin. See Def.’s Opp. to Pls.’ M. for J. on Agency

R. 8–11, ECF No. 39 (“Resp. Br.”); U.S. Steel Grp. v. United States, 96 F.3d 1352, 1362 (Fed.

Cir. 1996) (“So long as the [agency’s] analysis does not violate any statute and is not otherwise

arbitrary and capricious, the [agency] may perform its duties in the way it believes most

suitable.”); Mid Continent Nail Corp. v. United States, 34 CIT __, __, 712 F. Supp. 2d 1370,

1376 77 (2010).

       Even so, Kelco contends the interpretive maxim expressio unius precludes using the

targeted dumping inquiry in reviews. 19 U.S.C. § 1677f-1(d)(1) explicitly permits the targeted

dumping inquiry in investigations. Section 1677f-1(d)(2), by contrast, does not mention the

inquiry in the context of reviews. Kelco points to this disparity as proof that “Congress

expressly withheld from [Commerce] the authority to use the targeted dumping exception in

administrative reviews. . . . When statutory language contains no ambiguity, [Commerce] cannot

create authority that has not been explicitly or implicitly granted.” Pls.’ Br. 9.

       The court does not see it that way. As the Supreme Court explained, expressio unius

arguments “ha[ve] force only when the items expressed are members of an associated group or
Case No. 13-00079                                                                                          Page 10

series, justifying the inference that items not mentioned were excluded by deliberate choice, not

inadvertence.” Barnhart v. Peabody Coal Co., 537 U.S. 149, 168 (2003) (internal quotation

marks omitted). Admittedly, the provisions here appear in a series. Section 1677f-1(d)(1)(B)

permits targeted dumping inquiries in investigations, but § 1677f-1(d)(2) provides no such

authority for reviews. Nevertheless, § 1677f-1(d)(2) mandates how Commerce must average

normal values when using the A-T method to calculate margins in reviews. This implies that the

legislature intended to allow A-T to be used in reviews. It thus makes little sense that Congress

would prohibit targeted dumping inquiries in reviews, because the inquiry’s sole purpose is to

help Commerce decide whether to apply the A-T methodology in a given case. The inference to

be drawn, if any, is that Congress would allow the targeted dumping inquiry in reviews, not the

opposite. See Barnhart, 537 U.S. at 168.

         FAG Italia S.p.A. v. United States, 291 F.3d 806 (Fed. Cir. 2002), does not mandate a

different result. See Pls.’ Br. 10 12. There, the statute in question authorized Commerce to

conduct duty absorption inquiries in administrative reviews, but only during the second and

fourth years after an antidumping order first issued.7 Commerce, however, attempted to conduct

duty absorption inquiries in the second and fourth years following a transition order. FAG Italia,

291 F.3d at 811.8 On appeal, the government argued the statute was silent regarding whether

Commerce could conduct absorption analyses in reviews following a transition order. This

silence, the government explained, served as tacit permission to carry out absorption inquiries

         7
           “Duty absorption” occurs when an exporter pays the cost of antidumping duties without passing those
costs to U.S. consumers. FAG Italia, 291 F.3d at 809. If Commerce finds an exporter has absorbed duties, it may
pass those findings to the International Trade Commission for use in assessing material injury. 19 U.S.C.
§ 1675(a)(4).
         8
           A transition order is an “antidumping duty order . . . which is in effect on the date the WTO Agreement
enters into force with respect to the United States.” FAG Italia, 291 F.3d at 811. Transition orders were deemed
issued on January 1, 1995, for the purposes of subsequent sunset reviews. Id.; 19 U.S.C. § 1675(c)(6)(D).
Case No. 13-00079                                                                           Page 11

following transition orders. Id. at 815 16. The Federal Circuit disagreed and held that the

statutory silence did not authorize Commerce to conduct the inquiries following transition

orders. “The fact that Commerce is empowered to take action in certain limited situations does

not mean that Commerce enjoys such power in other instances.” Id. at 817.

       In this vein, Kelco argues Commerce misinterpreted statutory silence in § 1677(d)(2) to

permit targeted dumping inquiries in reviews. The comparison to FAG Italia, however, is inapt.

In FAG Italia, the same provision that authorized duty absorption inquiries also limited those

inquiries to the second and fourth years following an order. See 19 U.S.C. § 1675(a)(4).

Congress endowed Commerce with an investigative power and cabined it in the same penstroke.

Here, by contrast, the provisions authorizing Commerce to calculate dumping margins in

investigations and reviews are separate from provisions describing how to perform those

calculations. 19 U.S.C. § 1673 empowers Commerce to calculate margins in investigations, and

§ 1677f-1(d)(1) channels Commerce’s exercise of that power. 19 U.S.C. § 1675(a) charges

Commerce to compute margins in reviews, and § 1677f-1(d)(2) provides limited mathematical

guidance regarding those computations. Paragraphs 1677f-1(d)(1) and (2), in short, were

designed to be read in light of their parent provisions and not as a unit. Given this statutory

scheme, one cannot easily infer that language authorizing targeted dumping inquiries in

investigations bars the agency from conducting similar inquiries in reviews. See NTN Bearing

Corp. v. United States, 368 F.3d 1369, 1373 (Fed. Cir. 2004) (holding expressio unius does not

apply when “its application would thwart the legislative intent made apparent by the entire act”)

(internal quotation marks omitted).

       Kelco’s case is more akin to NTN Bearing than to FAG Italia. In NTN Bearing,

Commerce used cost data from the respondents’ affiliates to calculate respondents’ inventory
Case No. 13-00079                                                                           Page 12

carrying costs and difference in merchandise (“difmer”) adjustment. Id. at 1371 72. The

statute, however, expressly authorized Commerce to use affiliate data for other purposes,

including to calculate a respondent’s production costs and constructed normal value. 19 U.S.C.

§ 1677b(f). The Federal Circuit nevertheless approved Commerce’s use of the affiliate data.

The court found that statutory language governing carrying costs and difmer adjustments did not

prohibit Commerce from using affiliate data to compute those values. 368 F.3d at 1373. And

although the statute expressly referenced affiliate data only in the context of production costs and

constructed normal value, the law did not preclude using affiliate data in other contexts. Id.

Likewise, 19 U.S.C. § 1677f-1(d)(1)(B)—the provision authorizing targeted dumping inquiries

in investigations—does not bar Commerce from using targeted dumping inquiries in reviews.

Indeed, the statute did not preclude, whether expressly or implicitly, the targeted dumping

analysis in the review below.

       B. Commerce’s Decision to Conduct a Targeted Dumping Inquiry in the Review
          Was Reasonable

       Nor was the agency’s decision to conduct a targeted dumping inquiry an unreasonable

interpretation of the statute. See Chevron, 467 U.S. at 843–44. As discussed above, the statute

permits Commerce to use A-T in reviews. See 19 U.S.C. § 1677f-1(d)(2). The regulations

regarding reviews also allow Commerce, when appropriate, to apply A-T instead of A-A. See 19

C.F.R. § 351.414(c)(1). Because neither the statute nor the regulations dictate when using A-T

would be “appropriate” in reviews, it was reasonable for Commerce to use the targeted dumping

inquiry as a principled way of choosing between A-A and A-T to calculate Kelco’s margins.

       Kelco nevertheless argues that the agency’s interpretation was invalid because

antidumping investigations and reviews serve different purposes. See Reply Br. 7–8 (citing

Union Steel v. United States, 713 F.3d 1101, 1109 (Fed. Cir. 2013)). In investigations,
Case No. 13-00079                                                                           Page 13

Commerce examines overall pricing patterns to decide whether to impose antidumping duties.

Reviews, by contrast, exist to determine the amount of those duties. Because the targeted

dumping inquiry focuses on “overall pricing patterns,” Kelco argues the inquiries are appropriate

only in investigations. Id. at 8.

         Kelco’s own citation refutes this argument. In Union Steel—a case Kelco offers to

illustrate the difference between investigations and reviews—the Federal Circuit upheld

Commerce’s decision to use the A-A methodology in investigations and the A-T methodology

without offsets in reviews. 713 F.3d at 1108–09. But as discussed previously, the targeted

dumping inquiry is simply a threshold analysis Commerce conducts before applying A-T to

calculate dumping margins. It does not follow that Congress would prohibit targeted dumping

inquiries in reviews when the inquiry’s purpose is to help Commerce decide whether to apply A-

T in a given case. The policy differences between investigations and reviews do not render the

agency’s interpretation of the statute unreasonable.

         Because Commerce’s interpretation passes both steps of Chevron, the court holds that the

decision to conduct a targeted dumping inquiry during the review accorded with law.

   II.      Commerce’s Method for Discovering Targeted Dumping Was Not in
            Accordance with Law

         Kelco next claims that Commerce’s method for discovering targeted dumping was

neither grounded in substantial evidence nor in accordance with law. This argument breaks into

three subparts. First, Kelco argues the Nails test is itself arbitrary and unsupported by substantial

evidence. Second, Kelco alleges Commerce did not base in substantial evidence its decision to

apply the Nails test to Kelco. Third, Kelco claims Commerce acted arbitrarily by refusing to

excuse Kelco’s targeted sales from A-T treatment under the de minimis test. Of these arguments,

only the last persuades.
Case No. 13-00079                                                                             Page 14

   A. The Nails Test Itself Is Neither Arbitrary Nor Unsupported in Evidence

       Kelco argues the Nails test as applied in administrative reviews is arbitrary and

unsubstantiated in evidence. In particular, Kelco alleges Commerce failed to explain how the

Nails test’s standard deviation metric and thirty-three and five percent thresholds unmask

targeted dumping. Pls.’ Br. 13 14.

       These arguments do not advance Kelco’s case. Under State Farm, 463 U.S. at 43, an

agency rule is arbitrary if “the agency . . . relied on factors which Congress has not intended it to

consider, entirely failed to consider an important aspect of the problem, . . . or is so implausible

that it could not be ascribed to . . . the product of agency expertise.” The Nails test avoids these

pitfalls because it identifies targeted dumping as described by statute. Under § 1677f-

1(d)(1)(B)(i), targeted dumping exists if “there is a pattern of export prices . . . for comparable

merchandise that differ significantly among purchasers, regions, or periods of time.” As

explained in Mid Continent Nail in the context of investigations, the Nails test’s standard

deviation analysis pinpoints “pattern[s] of export prices” by measuring “the dispersion of values

in an exporter’s price data, to aid in identifying which of the exporter’s sales were relatively low

compared to others.” 34 CIT at __, 712 F. Supp. 2d at 1377. The court has upheld Commerce’s

standard deviation test as a statistically valid means of determining price dispersion. See id. at

__, 712 F. Supp. 2d at 1377 78. Kelco’s arguments give no occasion to abandon this holding in

the context of reviews.

       Commerce’s thirty-three and five percent thresholds are also valid. If thirty-three percent

of allegedly targeted prices fall one standard deviation below average prices by CONNUM, then

the agency concludes that a “pattern of export prices” existed. See I&D Mem. at Issue 2; Mid

Continent Nail, 34 CIT at __, 712 F. Supp. 2d at 1378. Next, Commerce takes the sales that pass
Case No. 13-00079                                                                                            Page 15

the standard deviation test and determines whether they pass the gap test. I&D Mem. at Issue 2.

If sales that pass the gap test comprise five percent of the exporter’s sales to the alleged target,

Commerce concludes that prices “differ[ed] significantly” among purchasers, regions, or periods

of time. Mid Continent Nail, 34 CIT at __, 712 F. Supp. 2d at 1378 79. The court has held that

these thirty-three and five percent thresholds together identify targeted dumping as defined in 19

U.S.C. § 1677f-1(d)(1)(B)(i). Id. Kelco furnished no arguments or record evidence

demonstrating the contrary.9 The court thus holds that the Nails test as applied in reviews is

based in substantial evidence and not arbitrary.

    B. Commerce’s Application of the Nails Test to Kelco Was Neither Unsupported in
       Evidence nor Contrary to Law

           Next, Kelco argues that Commerce’s choice to deploy the Nails test in the review below

was contrary to law and unsupported in evidence. It notes that Commerce returned to “case-by-

case adjudication” to find targeted dumping after the agency withdrew a targeted dumping

regulation in 2008. Pls.’ Br. 14; see Withdrawal of Regulatory Provisions Governing Targeted

Dumping in Antidumping Duty Investigations, 73 Fed. Reg. 74,930, 74,931 (Dep’t Commerce

Dec. 10, 2008) (interim final rule) (the “Withdrawal”).10 Consequently, Commerce needed to

conduct “a specific analysis as to the facts of the present case in order to determine whether the

         9
           At oral argument, Kelco called the Nails test arbitrary in reviews because Commerce applies A-A using
month-to-month comparisons in reviews and twelve-month comparisons in investigations. Oral Argument at 16:18,
38:35. This distinction does not render the Nails test arbitrary in reviews, though. First, Kelco never made this
argument in its brief. See Pls.’ Br. 13 14. Second, even if month-to-month A-A comparisons reveal targeted
dumping better than annual A-A comparisons, this does not bar Commerce from using the targeted dumping inquiry
and the A-T methodology in reviews. See 19 C.F.R. § 351.414(c). As recognized in Union Steel, 713 F.3d at 1109,
Commerce does not average export prices at all under A-T, yielding transaction-specific margins that are likely
more accurate even than month-to-month A-A comparisons. Third, and most important of all, A-T is explicitly
permitted in reviews under the statute. See 19 U.S.C. § 1677f-1(d)(2).
           10
                The court invalidated the Withdrawal on procedural grounds in Gold East, 37 CIT at __, 918 F. Supp. 2d
at 1325.
Case No. 13-00079                                                                                       Page 16

Nails test was the most appropriate way to unmask any alleged . . . targeted dumping.” Pls.’ Br.

14. Kelco says Commerce never undertook this “specific analysis.”

        These arguments fail to persuade. Under the substantial evidence standard, the court

must uphold Commerce’s choice if it was based on “relevant evidence [that] a reasonable mind

might accept as adequate to support a conclusion.” Consol. Edison, 305 U.S. at 229.

Commerce’s decision to apply the Nails test to Kelco clears this hurdle. In the Preliminary

Results, Commerce noted that petitioner Aqualon based its allegation of targeted dumping on

record evidence. See Preliminary Results, 77 Fed. Reg. at 47,037 38; Pet’r’s Allegation 3 7.11

Even so, Commerce initially refused to administer the targeted dumping test to afford the

“parties an opportunity to meaningfully comment on the Department’s implementation of this

recently adopted methodology in the context of this administrative review.” Preliminary Results,

77 Fed. Reg. at 47,038.

        After receiving comments, Commerce decided to run the targeted dumping analysis as

Aqualon had petitioned. In the Post-Preliminary Analysis, the agency acknowledged its

authority to use A-T under 19 C.F.R. § 351.414(c)(1) and explained how it applied the Nails test

to Kelco’s sales. Post-Preliminary Analysis at 2–3. The Post-Preliminary Analysis further

concluded that Kelco engaged in targeted sales by time period. See id.

        11
             At oral argument, Kelco claimed Aqualon’s targeted dumping allegation was inadequate to trigger
Commerce’s Nails inquiry. Oral Argument at 16:58. The court disagrees. As an initial matter, Kelco never made
this argument in its brief. See Pls.’ Br. 14 15. Furthermore, neither the statute nor the regulations specify when
Commerce must investigate for targeted dumping or what form a petitioner’s targeted dumping allegations must
take. See 19 U.S.C. § 1677f-1(d)(1)(B); 19 C.F.R. § 351.414(c)(1). In this case, Aqualon based its targeted
dumping allegation on its preliminary application of the Nails test to Kelco’s sales. See Pet’r’s Allegation 3 7;
Comments of Pet’r Aqualon Company on Post-Prelim. Targeted Dumping Analysis Mem. at 1 2, PD 71 at bar-code
3112811-01 (Jan. 2, 2013), ECF No. 30 (July 2, 2013). Though it seems circular that Aqualon based its claim on the
results of the very test Commerce deploys to find targeted dumping, it was not unreasonable for Commerce to
launch its own, independent Nails inquiry in response to the allegation, however derived.
Case No. 13-00079                                                                          Page 17

       Commerce again explained how it applied the Nails test in the I&D Memo, adding that

the Court of International Trade had upheld the Nails test as reasonable. I&D Mem. at Issue 2.

The agency also noted that it used the Nails test in reviews of other antidumping orders. Id.; see

also Ball Bearings and Parts Thereof from France, Germany, and Italy, 77 Fed. Reg. 73,415

(Dep’t Commerce Dec. 10, 2012) and accompanying I&D Mem. at cmt. 1 (“Ball Bearings”);

Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from the People’s

Republic of China, 78 Fed. Reg. 3396 (Dep’t Commerce Jan. 16, 2013) and accompanying I&D

Mem. at cmt. 1. The court finds that this evidence—garnered from the review below and other

reviews where the Nails test was used—sufficed to support Commerce’s decision to apply the

Nails test to Kelco.

       Kelco, by contrast, does not identify any specific conclusions Commerce made that were

unsupported by evidence or logic. In its brief, Kelco faults Commerce for failing “to state what

facts it looked at and how those facts supported” the agency’s choice to employ the Nails test

during the review. Pls.’ Br. 15. Yet Kelco does not suggest what more Commerce could have

done to shore up its decision. It does not, for example, offer any factors independent of the Nails

inquiry that would corroborate whether Kelco had perpetrated targeted dumping. Nor did Kelco

propose anything better at oral argument, where it made a vague pitch for Commerce to issue

supplemental questionnaires before undertaking a Nails inquiry. Oral Argument at 17:43.

Having considered these arguments and the record, the court finds Commerce’s decision to use

the Nails test below was based in substantial evidence and in accordance with law.

   C. Commerce’s Use of the De Minimis Test Was Arbitrary

       Finally, Kelco argues Commerce acted arbitrarily by applying an ill-defined de minimis

test to Kelco’s targeted sales. In reviews of other antidumping orders, Commerce declined to
Case No. 13-00079                                                                                            Page 18

apply the A-T methodology where targeted sales constituted a small fraction—or a de minimis

portion—of an exporter’s total U.S. sales. See Pls.’ Br. 15 16. Here, Commerce held Kelco’s

targeted sales were more than de minimis but did not explain what “de minimis sales” means.

The agency consequently applied the A-T methodology to compute Kelco’s margins. Kelco says

Commerce should have offered some definition of de minimis sales before finding that its sales

exceeded the de minimis threshold. See id. at 17 18.

         The court agrees with Kelco.12 As discussed above, agency decisions are arbitrary if they

cannot “be ascribed to . . . the product of agency expertise.” State Farm, 463 U.S. at 43.

Administrative decisions are similarly invalid if they fail to state “the basis on which the

[agency] exercised its expert discretion.” Burlington Truck Lines, Inc. v. United States, 371 U.S.

156, 167 (1962); see also Nat’l Org. of Veterans’ Advocates, Inc. v. Sec’y of Veterans Affairs,

314 F.3d 1373, 1380 81 (Fed. Cir. 2003) (remanding where agency did not articulate rationale

for statutory interpretation). Commerce’s de minimis test founders under either of these

standards.

         First, Commerce never explained what purpose the de minimis test serves in the statutory

scheme. Under 19 U.S.C. § 1677f-1(d)(1)(B)(i), Commerce may apply A-T in investigations if

an exporter’s sales constitute “a pattern of export prices” differing significantly among

purchasers, regions, or time periods. In this vein, the de minimis test could serve as part of the

Nails inquiry in investigations and reviews, signaling whether targeted sales are voluminous

         12
            In its brief, Defendant-Intervenor Ashland appeared to challenge whether Commerce is permitted to
conduct de minimis inquiries in reviews at all. The de minimis test, Ashland alleged, “would undermine
Commerce’s targeted dumping analysis by eliminating its ability to take action at the very first sign of the targeted
dumping behavior.” Def.-Intervenor’s Resp. Br. 14, ECF No. 37. Thus “a de minimis principle should not and
cannot be applied to targeted dumping.” Id. At oral argument, however, Ashland stated that it did not contest
Commerce’s decision to conduct a de minimis analysis during the review. Oral Argument at 24:12. The court thus
declines to consider whether the statute permitted the agency to conduct a de minimis inquiry.
Case No. 13-00079                                                                                    Page 19

enough to form a “pattern” of significantly differing prices as described in statute. Post-

Preliminary Analysis at 3 (suggesting pattern existed “based on the percentage of U.S. sales

found to have been targeted”); Oral Argument at 25:41 (arguing for Kelco that de minimis test is

third prong of Nails analysis). Alternatively, the de minimis test could guide the agency’s

discretion when deciding whether to apply A-T to an exporter’s targeted sales. The statute does

not compel Commerce to apply A-T to exporters who made targeted sales. Instead, it states that

Commerce “may determine” to use A-T when deciding whether such exporters made sales at

less-than-fair value. 19 U.S.C. § 1677f-1(d)(1)(B); see also Oral Argument at 27:27 (arguing for

government that de minimis test guides agency’s discretion to apply A-A or A-T). The agency

could use the de minimis test to serve this discretionary function, to identify a pattern of prices,

or both. Yet nothing in the record establishes which role the test played in the review below.

        Second, Commerce never explained the quantum of an exporter’s sales that must be

targeted to fall above or below the de minimis threshold. In the I&D Memo, Commerce said

only that “the percentage of sales by quantity which was found to be targeted in this case is far

too high to be considered de minimis, and so CP Kelco’s argument [regarding the de minimis

threshold] is not relevant in the context of this case.” I&D Mem. at Issue 2.13 Commerce’s Post-

Preliminary Analysis also mentioned that Commerce considered applying the A-T methodology

only after finding “sufficient sales . . . passed the Nails test.” Post-Preliminary Analysis at 3.

But the Analysis furnished neither a qualitative nor a quantitative explanation of what a

“sufficient” number of sales is.

        13
          With respect to alleged targeted dumping by customer, Commerce found [[ ]]% of sales by quantity
and [[ ]]% of sales by value were targeted. Respecting targeted dumping by time period, (footnote continued)
Commerce found [[ ]]% of sales by quantity and [[ ]]% of sales by value were targeted. Confidential Mem. of
Law in Supp. of Pls.’ 56.2 Mot. J. on Agency R. 17, ECF No. 27 (“Pls.’ Confid. Br.”).
Case No. 13-00079                                                                          Page 20

       Nor do administrative reviews under other antidumping orders define de minimis sales.

See Pls.’ Br. 16. Commerce applied the de minimis analysis in a number of proceedings other

than the review contested here. See Certain Frozen Warmwater Shrimp From India, 78 Fed.

Reg. 42,492 (Dep’t Commerce July 16, 2013) and accompanying I&D Mem. at cmt. 1 (applying

A-T to exporter with “sufficient volume of targeted sales” but A-A to exporter with “insufficient

volume of targeted sales”); Ball Bearings, 77 Fed. Reg. 73,415 (Dep’t Commerce Dec. 10, 2012)

(final admin. reviews) and accompanying I&D Mem. at cmt. 1; Circular Welded Carbon Steel

Pipes and Tubes from Turkey, 77 Fed. Reg. 72,818 (Dep’t Commerce Dec. 6, 2012) and

accompanying I&D Mem. at cmt. 1. None of these proceedings, however, furnished a useful

definition of de minimis sales.

       In an effort to reduce this ambiguity, the government tries to sketch the contours of the de

minimis threshold on appeal. In its brief, the government cites a de minimis provision from a

dumping margin regulation to show that Kelco’s sales were more than de minimis. Resp. Br.

18 19; see also 19 C.F.R. § 351.106(c) (treating dumping margins under 0.5% as de minimis).

As a general rule, however, agencies cannot rely on post hoc rationalizations to justify actions

taken during administrative proceedings: “[A]n administrative order cannot be upheld unless the

grounds upon which the agency acted in exercising its powers were those upon which its action

can be sustained.” SEC v. Chenery Corp., 318 U.S. 80, 95 (1943). Here, although the

government cites a potentially relevant de minimis provision in its brief, Commerce did not do so

anywhere in the record. The court is thus left without a basis to evaluate the de minimis test’s

substance and place in the statutory scheme. See Burlington, 371 U.S. at 167 68.

       And so the court must return the undercooked de minimis dish to the administrative

kitchen. On remand, Commerce must define the de minimis test’s function (i.e., does the test
Case No. 13-00079                                                                                          Page 21

identify a “pattern” of differing prices, does it guide the agency’s discretion to apply A-T, or

both?). Commerce must then outline the quantitative data, qualitative variables, or other

information it considers when determining whether an exporter’s targeted sales fall above or

below the de minimis threshold. Finally, Commerce must use this definition to find whether

Kelco’s targeted sales pass or fail the de minimis test. Conclusory explanations of the variety

found in the I&D Memo below will not be accepted.14

                                      CONCLUSION AND ORDER

        The law allowed Commerce to scrutinize Kelco’s sales for targeted dumping during the

review. The law also supported the agency’s choice to use the Nails test to discover targeted

sales. But Commerce could not deny Kelco a de minimis exception to its A-T margin calculation

methodology without saying what de minimis means. The agency must correct this error on

remand.

        14
            The court’s decision does not conflict with another recent targeted dumping case, Timken Co. v. United
States, 2014 WL 763124. There, Commerce found that respondents’ targeted sales were de minimis and hence
insufficient to justify using the A-T methodology to calculate dumping margins. Petitioner Timken alleged
Commerce erred by failing to define what de minimis targeted sales were. Id. at *8.

         Rejecting Timken’s claim, Judge Restani gave three reasons why Commerce did not need to define de
minimis sales: (1) Commerce was never presented with and did not consider petitions to specify and justify a de
minimis threshold; (2) Timken never argued that the targeted sales found were more than de minimis; and (3)
respondents’ targeted sales were small. Id. at *9. Judge Restani also noted the government’s argument that
“Commerce is not obligated to justify relying on” the default A-A methodology to calculate margins in reviews. Id.
at *8.

          Yet unlike the petitioner in Timken, Kelco clearly asked Commerce to find its sales were “minimal and
insufficient to meet the [de minimis] standard.” I&D Mem. at Issue 2. To make this finding, the agency needed to
have some principled definition of what de minimis sales are. See Pls.’ Br. 18. The record, however, sported no
such explanation. Furthermore, although Kelco’s targeted sales by time period were appreciable, they were not
obviously more than de minimis. See Pls.’ Confid. Br. 17. Finally, Commerce applied A-T to calculate Kelco’s
margins, departing from the methodology (A-A) the agency normally applies in reviews. See 19 C.F.R.
§ 351.414(c)(1) (mandating A-A in reviews unless “another method is appropriate in a particular case”).

          In short, because Commerce used an exceptional methodology to generate Kelco’s margins, because
Kelco’s sales were not clearly more or less than de minimis, and because Kelco specifically asked the agency to find
its targeted sales were de minimis, Kelco’s case differs from Timken’s. Commerce must provide a principled
definition of de minimis targeted sales on remand.
Case No. 13-00079                                                                        Page 22

       Upon consideration of all papers and proceedings herein, it is hereby:

         ORDERED that the final determination of the International Trade Administration,
United States Department of Commerce (“Commerce”), published as Purified
Carboxymethylcellulose from Finland, 78 Fed. Reg. 11,817 (Dep’t Commerce Feb. 20, 2013)
(final results), be, and hereby is, REMANDED to Commerce for redetermination; it is further

       ORDERED that Plaintiff’s Rule 56.2 Motion for Judgment on the Agency Record be,
and hereby is, GRANTED as provided in this Opinion and Order; it is further

       ORDERED that Commerce must issue a redetermination (“Remand Redetermination”)
in accordance with this Opinion and Order that is in all respects supported by substantial
evidence, in accordance with law, and supported by adequate reasoning; it is further

        ORDERED that Commerce must fully explain the purpose of the de minimis test and
provide a reasoned definition of the quantum of total sales of subject merchandise that must be
targeted for Kelco to fall above or below the de minimis threshold discussed in this Opinion and
Order; it is further

       ORDERED that Commerce must apply the de minimis test as defined in the Remand
Redetermination to Kelco’s targeted sales and recalculate Kelco’s dumping margins in
accordance with the results of that test; it is further

         ORDERED that Commerce shall have ninety (90) days from the date of this Opinion and
Order in which to file its Remand Redetermination, which shall comply with all directives in this
Opinion and Order; that the Plaintiff and Defendant-Intervenor shall have thirty (30) days from
the filing of the Remand Redetermination in which to file comments thereon; and that the
Defendant shall have thirty (30) days from the filing of Plaintiff and Defendant-Intervenor’s
comments to file comments.

                                                                        /s/ Richard W. Goldberg
                                                                            Richard W. Goldberg
                                                                                    Senior Judge

Dated: April 15, 2014
       New York, New York