Trade Court Says Commerce Didn't Support Use of Partial AFA on Cooperative Respondent, Remands 538% Rate

The Commerce Department must consider evidence on remand regarding the control antidumping duty respondent Shanghai Tainai could have exerted over its suppliers before the agency hits the company with partial adverse facts available, the Court of International Trade ruled. Issuing the Sept. 14 opinion in a case on the 2019-20 review of the AD order on tapered roller bearings from China, Judge Stephen Vaden said Commerce failed to consider the factors set by the U.S. Court of Appeals for the Federal Circuit in using AFA on a fully cooperative respondent that "lacks the ability to control its suppliers."

The judge added that the agency must "recognize that a deterrence rationale applied against" such a party "may be unfair to that party," adding that Commerce also must explain how its methodological choices in the review "comported with its duty to prioritize accuracy over deterrence when dealing with a cooperating respondent." Vaden remanded the use of partial AFA in the review, which resulted in an "eye-popping" 538.79% dumping rate for Shanghai Tainai -- a mark considerably higher than the 92.84% China-wide rate in the review.

The court also remanded Commerce's decision to cap price increases the respondent "masked by invoicing its customers for Secton 301 duty payments." Vaden noted that Shanghai Tainai's "winning streak" ended there, since the court then sustained Commerce's surrogate values selections, decision to deduct Section 301 duties from U.S. price and decision to reject the respondent's request for a byproduct offset.

Vaden first addressed the issue of partial AFA in the lengthiest section of the decision. When the agency uses AFA to incentivize non-cooperative suppliers, it must satisfy the Federal Circuit's criteria as laid out in Mueller Comercial De Mexico v. United States, the court ruled. These criteria tell Commerce to "make a case-specific determination that the respondent can influence its suppliers' decision to cooperate" and "explain any deterrence-based rationale that is used against the cooperating party." The trade court said the agency failed on both fronts.

If Commerce has failed to consider evidence that detracts from the conclusion that the respondent had enough control over its suppliers to force their cooperation by "declining to do business with them," or failed to account for the "predominant interest in accuracy," then Commerce cannot use AFA in this context. The agency "ignored" the question of whether the significant quantity of tapered roller bearings parts Shanghai Tainai bought from its suppliers as a collective group was significant "as to each supplier," Vaden said. Commerce's "one-sided analysis" here is barred by the requirements that the agency's decisions must be backed by substantial evidence and be "case specific."

The U.S. said the respondent failed to use its best efforts since it waited until after the review's preliminary determination to seek data from its suppliers. Vaden found that this defense is belied by the review itself, since Commerce clearly made no such determination and found Shanghai Tainai to be a cooperative respondent. The government's defense amounts to "post hoc rationalizations" contradicted by Commerce itself, the opinion noted.

However, Vaden said the court doesn't accept the respondent's claim that the triple-digit dumping margin defies commercial and economic reality. The judge cited Federal Circuit precedent to say there is no test for commercial or economic reality in dumping margin calculations. Vaden said that he "does not wish to tie the agency's hands given the breadth of the remand necessary to cure Commerce's errors."

Shanghai Tainai also challenged Commerce's surrogate value picks in the review. The agency used Romania as the surrogate country, which no party contested, though it used financial statements from Romanian firm Timken Romania, which the respondent did contest. Vaden sided with the government on this point, finding that the agency was right to pick Timken's statements given that all were bad. Commerce picked the "least bad" dog in an "ugly dog contest," the court said, adding that the court cannot reweigh Commerce's evidence.

The court next addressed Shanghai Tainai's two challenges involving the role of Section 301 duties in the U.S. price calculation -- the deduction of the tariffs from U.S. price and the cap set on amounts denominated as additional revenue for Section 301 duties. The court sustained Commerce's decision on the former but remanded the latter.

On the deduction of the China tariffs from U.S. price, the trade court cited the Federal Circuit's ruling in Borusan Mannesmann v. United States, which said Section 232 steel duties were deductible from the U.S. price. Vaden said this decision instructs that the text of the legal order levying the duties is "paramount" and overrules the need to apply the factors normally considered in the analysis when that text is clear. If the order says the duties are meant to be additional to existing duties, it is reasonable to deduct them from U.S. price, the judge said, noting that this was the case here.

The trade court sent back Commerce's cap on the amounts marked as additional Section 301 revenue. Shanghai Tainai was "direct" in telling the court that it hid the price increase by invoicing it as part of the Section 301 duty payment. It billed customers for more than the actual amount of the duties, increasing U.S. price. Commerce capped the overcharges, telling the court that its practice is not to attribute revenue from related expenses to the price of subject merchandise since the uncapped amount represents profit on the sale of service and not on the sale of the merchandise.

Vaden said he "struggles to see the reason in Commerce's determination" that the amounts the respondent charged were "'profit[s] on the sale of services, not profit[s] on the sale of the merchandise.'" The court ruled the costs to the customer linked with the duties "were invoiced as part of the cost of the merchandise, and Commerce did not explain what 'service' Shanghai Tainai provided its customers by passing along the padded cost of the Section 301 duties to them."

The court lastly addressed Shanghai Tainai's request for a byproduct offset, finding that it's on the respondent to give Commerce enough information to back its claim for an offset. The company fails this burden if it fails to document the quantity of scrap made during the review period and equating the total scrap sold during the review period with the total scrap made during it. Shanghai Tainai conceded the quantity of scrap it made isn't directly recorded, barring the offset.

(Shanghai Tainai Bearing Co. v. United States, Slip Op. 23-132, CIT Consol. # 22-00038, dated 09/14/23; Judge: Stephen Vaden; Attorneys: David Craven of Craven Trade Law for consolidated plaintiffs led by Shanghai Tainai; L. Misha Preheim for defendant U.S. government)