CP Kelco US, Inc. v. United States

2020 CIT 62

Opinion

Slip Op. 20-

UNITED STATES COURT OF INTERNATIONAL TRADE

CP KELCO US, INC.,

Plaintiff,

v.

UNITED STATES,

Defendant, Before: Richard W. Goldberg, Senior Judge and Court No. 13-00288 NEIMENGGU FUFENG BIOTECHNOLOGIES CO., LTD., and SHANDONG FUFENG FERMENTATION, CO., LTD.,

Defendant-Intervenors.

OPINION [In compliance with the mandate issued by the Court of Appeals for the Federal Circuit, affirming the third redetermination of Commerce on an antidumping duty investigation on xanthan gum from the People’s Republic of China.]

         Dated: 0D\

Matthew L. Kanna, Nancy A. Noonan and Leah N. Scarpelly, Arent Fox LLP, of Washington, DC, for plaintiff.

Alexander O. Canizares, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, for defendant. With him on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, Patricia M. McCarthy, Assistant Director. Of counsel on the brief was Brandon J. Custard, Office of the Chief Counsel for Trade Enforcement & Compliance, U.S. Department of Commerce, Washington, DC.

Ned H. Marshak, Jordan C. Kahn, and Brandon Petelin, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, of Washington, DC for defendant-intervenors. Consol. Court No. 13-00288 Page 2

Goldberg, Senior Judge: Before the court is the mandate issued by the United States

Court of Appeals for the Federal Circuit (“Court of Appeals”) in CP Kelco U.S., Inc. v. United

States, 949 F.3d 1348 (Fed. Cir. 2020) (“Kelco”). CAFC Mandate in Appeal No. 2019-1207

(Apr. 2, 2020), ECF No. 184. Kelco affirmed in part and reversed in part the judgments entered

by this Court in CP Kelco U.S., Inc. v. United States, 39 CIT __, 2015 WL 1544714 (2015)

(“Kelco I”) and CP Kelco U.S., Inc. v. United States, 42 CIT __, 2018 WL 4469912 (2018)

(“Kelco V”). In Kelco, the Court of Appeals affirmed this Court’s decision in Kelco I to uphold

the decision of the International Trade Administration, U.S. Department of Commerce (“the

Department” or “Commerce) to treat Xanthomonas campestris (“X. campestris”) as an asset and

reversed this Court’s decision in Kelco V regarding the Department’s use of certain financial

statements to calculate the surrogate financial ratios. Kelco, 949 F.3d at 1359. The Court of

Appeals held that this Court must “reinstate Commerce’s determination to use the Thai

Ajinomoto financial statements to calculate the surrogate financial ratios.” Id. The court issues

this opinion to explain how it will comply with the mandate and enter judgment accordingly.

I. BACKGROUND

The court’s prior opinions in this action provide a detailed procedural background for this

case, summarized briefly herein where relevant. See Kelco I, 39 CIT at __, 2015 WL 1544714,

at *2; CP Kelco U.S., Inc. v. United States, 40 CIT __, __, 2016 WL 1403657, at *1–4 (2016)

(“Kelco II”); CP Kelco U.S., Inc. v. United States, 41 CIT __, __, 211 F. Supp. 3d 1338, 1339–41

(2017) (“Kelco III”); CP Kelco U.S., Inc. v. United States, 42 CIT __, __, 2018 WL 1703143, at

*1–2 (2018) (“Kelco IV”); Kelco V, 42 CIT at __, 2018 WL 4469912, at *1–2. In this litigation,

plaintiff CP Kelco U.S. Inc. (“CP Kelco”), a domestic manufacturer of xanthan gum, contested

the final determination (“Final Determination”) of Commerce concluding an investigation of Consol. Court No. 13-00288 Page 3

xanthan gum from the People’s Republic of China (“China”). See Compl. 1–2 (Sept. 18, 2013),

ECF No. 10; Xanthan Gum from the People’s Republic of China: Final Determination of Sales

at Less Than Fair Value, 78 Fed. Reg. 33,351 (Dep’t Commerce June 4, 2013) (“Final

Determination”), amended by 78 Fed. Reg. 43,143 (Dep’t Commerce July 19, 2013) (“Am. Final

Determination”); see also Issues and Decision Memorandum for the Final Determination of the

Antidumping Duty Investigation of Xanthan Gum from the People’s Republic of China (Dep’t

Commerce May 28, 2013) (“Issues & Decision Mem.”). The investigation covered the period of

October 1, 2011 through March 31, 2012. Compl. 1; Final Determination, 78 Fed. Reg. at

33,352. As a result of this investigation, Commerce originally assigned an estimated weighted-

average dumping margin of 12.90% to Neimenggu Fufeng Biotechnologies Co., Ltd. and

Shandong Fufeng Fermentation Co., Ltd. (collectively, “Fufeng”), one of the selected mandatory

respondents. Compl. 3, 8; Am. Final Determination, 78 Fed. Reg. at 43,144.

In its first redetermination, Commerce reduced the margin to 8.69% for Fufeng because

Commerce changed the way it calculated energy allocation at a Fufeng production plant, a

change in calculation that has not been appealed and is not at issue. Final Results of

Redetermination Pursuant to Court Remand Order in Kelco I 20 (July 28, 2015), ECF No. 83

(“First Redetermination”). Commerce initially used financial statements from Ajinomoto

(Thailand) Co., Ltd. (“Thai Ajinomoto”) to calculate the surrogate financial ratios, see First

Redetermination 17–19; Final Results of Redetermination Pursuant to Court Remand Order in

Kelco II 18 (Aug. 22, 2016), ECF No. 109 (“Second Redetermination”); Final Results of Third

Redetermination Pursuant to Court Remand Order in Kelco III 11 (May 15, 2017), ECF No. 126

(“Third Redetermination”); Voluntary Redetermination Pursuant to Court Remand Order in

Kelco III 13 (Sept. 18, 2017), ECF No. 157, but used financial statements from Thai Consol. Court No. 13-00288 Page 4

Fermentation Industry Ltd. (“Thai Fermentation”) in its fourth redetermination, pursuant to this

Court’s order directing them to do so. Final Results of Fourth Redetermination Pursuant to

Court Remand Order in Kelco IV 12 (July 5, 2018), ECF No. 169 (“Fourth Redetermination”).

In Kelco V, this Court sustained Commerce’s use of the Thai Fermentation financials to

determine the appropriate surrogate margin, which resulted in a determination of a zero-percent

margin. Fourth Redetermination 12; Kelco V, 42 CIT at __, 2018 WL 4469912, at *2–3.

CP Kelco appealed the Department’s final determination regarding Commerce’s decision

to treat X. campestris as an asset, and appealed Commerce’s selection of the Thai Fermentation

financial statements for calculating its surrogate financial margin. The Court of Appeals

sustained the Department’s determination that X. campestris is an asset and reversed the court’s

rejection of the use of the Thai Ajinomoto financials to determine the surrogate ratios. Kelco,

949 F.3d at 1359.

A. The Court of Appeals sustained Commerce’s determination that X. Campestris was an asset, not a direct material input

Commerce determined that, due to its regenerative properties, bacteria used in xanthan

gum production, X. campestris, is an asset and not a direct material input. Issues & Decision

Mem. 35–37. In Kelco I, this Court sustained this finding of Commerce, stating it was supported

by substantial evidence on the record and was in accordance with law. Kelco I, 39 CIT at __,

2015 WL 1544714, at *2–5. This Court noted that Commerce uses surrogate financial ratios to

account for production inputs that cannot be wholly attributed to a finite batch of subject

merchandise, and that these surrogate ratios account for asset costs through depreciation or

amortization figures. Id. at __, 2015 WL 1544714, at *2–3. In the case of X. campestris,

because the bacterial colony self-regenerates and is therefore not “used up” in the production of

xanthan gum, and because respondents such as Fufeng acquired X. campestris via a one-time Consol. Court No. 13-00288 Page 5

payment before the period of investigation even began, the cost of the bacteria “was not

attributable to any discrete batch of xanthan gum” and therefore was best categorized as an asset

instead of as a factor of production. Id. at __, 2015 WL 1544714, at *3.

B. The Court of Appeals rejected the use of Thai Fermentation financials, and reinstated the Department’s use of the Thai Ajinomoto financials to determine the appropriate surrogate ratio for the antidumping duty calculation

In its Final Determination, Commerce decided to select Thailand as the surrogate

country, Issues & Decision Mem. 7–12, and reviewed the financial statements of different Thai

producers of MSG and/or lysine, including Thai Ajinomoto and Thai Fermentation, in order to

determine which set of financial statements should be used to calculate the appropriate surrogate

ratios. Id. at 12. Ultimately, Commerce selected Thai Ajinomoto’s financial statements to value

factory overhead, selling, general, and administrative expenses, as well as profit. Id. at 14–15.

Commerce did so because the Thai Ajinomoto financial statements, though they contained

evidence of subsidies, were the only ones that were complete; the Thai Fermentation financial

statements lacked complete English translations. Id. at 16. In Kelco I, this Court remanded the

Department’s decision to use the Thai Ajinomoto financial statements for further explanation

because Commerce did not address “why the weakness of the Thai Fermentation statements—

incompleteness—was worse than the weakness of the Thai Ajinomoto statements—evidence of

subsidies.” Id. at __, 2015 WL 1544714, at *6.

In its First Redetermination, Commerce once again decided to use Thai Ajinomoto’s

financial documents, explaining that although both financial documents had their flaws,

Commerce thought that incompletely translated financial statements were not a reliable source

with which to calculate financial ratios, and that in contrast, Thai Ajinomoto’s statements were

“complete and reliable, and all parties to this proceeding have been afforded the opportunity to Consol. Court No. 13-00288 Page 6

comment on their full content.” First Redetermination 11. In Kelco II, this Court once again

directed that Commerce reconsider the financial statements, noting that Commerce did not

“faithfully compare the financial statements side by side” and that Commerce now must

“compare the Thai Ajinomoto and Thai Fermentation financial statements side by side in an

evenhanded manner, evaluating the relative strengths and weaknesses of each . . . remanding will

also allow the agency to cure the evidentiary defect in its financial-statement selection.” Kelco

II, 40 CIT at __, 2016 WL 1403657, at *5. In the alternative, this Court noted that Commerce

might instead find that the Thai Fermentation statements were missing vital information, or

Commerce could “put its resources towards explaining a change in its practice, from rejecting

statements when they are missing vital information . . . to invariably rejecting any incomplete

statements.” Id. at __, 2016 WL 1403657, at *5 n.5.

In its Second Redetermination, Commerce once again decided that the Thai Ajinomoto

financial statements were the best documents from which to calculate the margin and maintained

its finding that the 8.69% margin was appropriate for Fufeng. Second Redetermination 9–18.

Specifically, Commerce noted that although it did not, in all cases, reject incomplete financial

statements in the past, it intended to do so as a matter of policy going forwards, unless there were

no other financial statements left on the record. Id. at 7. In Kelco III, the court found that this

new policy was not consistent with Commerce’s statutory mandate, and that it led to an

unreasonable outcome in this case. Kelco III, 41 CIT at __, 211 F. Supp. 3d at 1341. The court

remanded to allow Commerce to “compare[] the Thai Ajinomoto and Thai Fermentation

financial statements side by side” and noted that Commerce could alternatively reject the Thai

Fermentation statements after making a finding that the two untranslated paragraphs in the

footnote were “vital” to the Department’s analysis of the financial data. Id. at __, Consol. Court No. 13-00288 Page 7

211 F. Supp. 3d at 1345. Commerce was directed to specifically discuss what was missing from

the Thai Fermentation financials, and how this missing information impeded Commerce’s

calculations. Additionally, Commerce could either explore the effect subsidies had on the Thai

Ajinomoto statements or make a fact-sensitive finding that the Thai Fermentation financial

statements were missing vital information. Id.

In its Third Redetermination, Commerce once again decided that the Thai Ajinomoto

financial statements were the best documents from which to calculate the surrogate ratios, basing

its decision on the finding that Thai Fermentation’s financial statements were missing vital

information. Third Redetermination 6. Specifically, Commerce stated that the two paragraphs

for which translations were missing described the property, plant and equipment, which were

fixed assets, and therefore Commerce was missing important information which was vital to

calculating depreciation expenses, expenses that generally have a significant impact on a

company’s total overhead expenses. Id. at 8–10. In Kelco IV, this Court remanded the

Department’s selection of the Thai Ajinomoto financial statements over the Thai Fermentation

statements and directed Commerce to use the Thai Fermentation financial statements to calculate

the surrogate financial ratios. Kelco IV, 42 CIT at __, 2018 WL 1703143, at *4–5.

In its Fourth Redetermination, under respectful protest, Commerce followed the court’s

order and used the Thai Fermentation financial statements to calculate the surrogate ratios.

Fourth Redetermination 9. This altered the weighted-average dumping margin from 8.69% to

0% for Fufeng. Id. at 12. In Kelco V, this Court sustained this redetermination as supported by

substantial evidence. Kelco V, 42 CIT at __, 2018 WL 4469912, at *2–3. Consol. Court No. 13-00288 Page 8

II. DISCUSSION

The only two questions before the Court of Appeals in Kelco were whether X. campestris

is an asset or a direct material input, and whether the determination that the Department should

use the Thai Fermentation financial statements to calculate the surrogate financial ratios was

supported by substantial evidence. Kelco, 949 F.3d at 1356. Regarding whether X. campestris is

an asset, the Court of Appeals conducted a similar analysis to that of this Court and Commerce

and sustained the Department’s use of X. campestris as an asset. Id. at 1358. However,

regarding whether Commerce should use the Thai Fermentation or the Thai Ajinomoto financial

statements for its surrogate calculations, the Court of Appeals determined that it was reasonable

for Commerce to rely on the Thai Ajinomoto data and reversed this Court’s decision on this

issue. Id. at 1359.

Specifically, the Court of Appeals stated that in Kelco III, the court gave Commerce the

option of either explicitly exploring the relative impact of the imperfection in the Thai

Ajinomoto statements (evidence of subsidies), compared to that of the deficiencies of the Thai

Fermentation financials (incompleteness), or that Commerce could make a fact-sensitive finding

that Thai Fermentation statements were missing vital information. The Court of Appeals found

that Commerce did the latter, making a fact-sensitive finding that the Thai Fermentation

financials were missing vital information, and thus the Department did not need to do the side-

by-side comparison. Id. Thus, “[a]t least as of this third redetermination by Commerce where it

determined that the missing information in the untranslated financial statement was vital

information and of ‘critical importance,’ Commerce had adequately explained the reasoning

underlying its decision to use the Thai Ajinomoto financial statements rather than the Thai

Fermentation financial statements.” Id. For this reason, the Court of Appeals decided to Consol. Court No. 13-00288 Page 9

“reinstate Commerce’s decision to use the Thai Ajinomoto financial statements to calculate the

surrogate financial ratios.” Id.

In its Third Redetermination, Commerce calculated a dumping margin of 8.69% for

Fufeng by treating X. campestris as an asset, and by using data found in the Thai Ajinomoto

financial statements. Therefore, this redetermination comports with the Court of Appeals

decision in its entirety.

III. CONCLUSION

In light of the decision of the Court of Appeals upholding the Department’s use of

X. campestris as an asset, rather than a direct material input, and the decision of the Court of

Appeals upholding the use of the Thai Ajinomoto financial statements to calculate surrogate

value, the court will sustain the Department’s Third Determination. Because there are no

remaining issues in this case, the court will enter judgment accordingly.

Accordingly, the court sustains the Final Results of Third Redetermination Pursuant to

Court Remand Order in Kelco III, (May 15, 2017), ECF No. 126.

___________________ V5LFKDUG:*ROGEHUJ Richard W. Goldberg Senior Judge

Dated: 0D\ New York, New York