CAFC Affirms Commerce's Partial Post-Sale Adjustment in AD Case for Late Delivery Penalty
The U.S. Court of Appeals for the Federal Circuit on July 20 backed the Commerce Department's initial decision to adjust a Turkish pipe exporter's post-sale price by only one-third of a late delivery penalty, saying it was supported by substantial evidence. Reversing a ruling from the Court of International Trade, the appellate court held that CIT erred in backing Commerce into adjusting the post-sale price by the entirety of the penalty cost since the customer was not aware of the methodology by which the amount of the penalty was to be determined. The decision brought the antidumping margin for mandatory respondent Borusan Mannesmann Boru Sanayi ve Vicaret's above de minimis to 5.11%.
The case stems from an antidumping duty investigation into large diameter welded pipe from Turkey. Prior to the investigation, Borusan entered into a joint venture with two other Turkish manufacturers that won a bid for a gas pipeline project. In the joint venture agreement, each company agreed to reimburse the others for any damages resulting from a failure to fulfill contractual obligations. After adjustments were made to the sales contract, the mutual obligation clause of the JVA came into effect since the customer said it wanted to collect late delivery penalties.
When the antidumping investigation kicked off, Borusan argued for a post-sale price adjustment for the entire value of the penalty even though it had yet to make any penalty payments at the time. Subsequently, the JVA members negotiated the amount of the penalties and agreed to distribute the cost proportionately, with Borusan paying the largest share.
Commerce then rejected Borusan's request for a post-sale adjustment amounting to the entirety of the penalty paid. Under its regulations, the agency explained, Commerce “generally will not consider a price adjustment that reduces or eliminates dumping margins unless the party claiming such price adjustments demonstrates that the conditions of the adjustment were established and known to the customer at the time of sale.” Instead, the agency adjusted the post-sale price by only one-third of the penalty costs, finding that the client only knew of the JVA members' intent to use a one-third split of the penalty costs. Further, Commerce said that the JVA members didn't begin to negotiate the final penalty allocation until after the date of the sale.
CIT said that the terms of the JVA were incorporated into the sales contract, meaning the customer should be considered aware of the terms of splitting up any penalties. The court also said it's only necessary that the terms of such a penalty be expressed and not the actual amount paid. Commerce was also concerned that Borusan could've manipulated the post-sale price adjustment, but the court cast this concern aside, finding that the agency needed to show evidence of manipulation for the court to toss the post-sale adjustment out.
A group of domestic pipe producers then brought the case to the Federal Circuit. The majority at the court then agreed that Commerce's finding that the "timing of the agreement allocating the total penalty fee weighed against valuing the post-sale price adjustment based on the full amount of Borusan’s final penalty allocation. ... Commerce determined that the final allocation method was not established or known to the client 'because the parties negotiated their shares of the fee after the fee was imposed.'" Due to this, the one-third adjustment is backed by substantial evidence, the court said. Also, Commerce does not need to prove actual manipulation of post-sale price adjustment data to reject such an adjustment, the court ruled. "Commerce’s regulation speaks to potential, not actual, manipulation of data."
In a dissenting opinion, Judge Timothy Dyk backed CIT's ruling, holding that Commerce's decision to not adjust the sales price by the amount of the penalty that the exporter actually paid lacked substantial evidence. "Commerce failed to explain why there was any relevant difference between a sales agreement with a customer and a consortium agreement among suppliers," the judge said.
(Borusan Mannesmann Boru Sanayi ve Ticaret A.S. v. U.S., CAFC # 2020-2014, dated 07/20/21, Judges Moore, Dyk and Reyna. Attorneys: Julie Mendoza for plaintiff-appellees Borusan; Timothy Brightbill of Wiley Rein for defendants-appellant American Cast Iron Pipe Company et al.)