Zhejiang Zhaofeng Mechanical and Electronic Co. v. United States

2019 CIT 167

• Court: United States Court of International Trade
• Decided: December 18, 2019
• Docket: 18-00004
• Status: Published

Opinion

Slip Op 19-167 UNITED STATES COURT OF INTERNATIONAL TRADE

ZHEJIANG ZHAOFENG MECHANICAL AND ELECTRONIC CO., LTD.,

Plaintiff,

v. Before: Jennifer Choe-Groves, Judge UNITED STATES, Court No. 18-00004 Defendant,

and

THE TIMKEN COMPANY,

Defendant-Intervenor.

OPINION [Sustaining the U.S. Department of Commerce’s Remand Results.] Dated: December 18, 2019

Adams C. Lee, Harris Bricken McVay Sliwoski, LLP, of Seattle, WA, for Plaintiff Zhejiang Zhaofeng Mechanical and Electronic Co., Ltd.

Kelly A. Krystyniak, Trial Counsel, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C., for Defendant United States. With her on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and L. Misha Preheim, Assistant Director. Of counsel was James H. Ahrens, II, Attorney, Office of the Chief Counsel for Trade Enforcement and Compliance, U.S. Department of Commerce, of Washington, D.C.

Geert M. De Prest, Schagrin Associates, of Washington, D.C., and William A. Fennell, Stewart and Stewart, of Washington, D.C., for Defendant-Intervenor The Timken Company. With them on the briefs were Terence P. Stewart, Patrick J. McDonough, Lane S. Hurewitz, and Shahrzad Noorbaloochi. Nicholas J. Birch also appeared. Consol. Court No. 18-00004 Page 2

Choe-Groves, Judge: This action arises from the U.S. Department of Commerce’s

(“Commerce”) administrative review of the antidumping order on tapered roller bearings from

the People’s Republic of China. Tapered Roller Bearings and Parts Thereof, Finished and

Unfinished, from the People’s Republic of China, 83 Fed. Reg. 1,238 (Dep’t Commerce Jan. 10,

2018) (final results of antidumping duty administrative review and rescission of new shipper

review; 2015–2016) (“Final Results”). Before the court are the Final Results of Redetermination

Pursuant to Court Remand, April 25, 2019, ECF No. 58 (“Remand Results”). For the following

reasons, the court sustains the Remand Results.

ISSUES PRESENTED

The court reviews the following issues:

1. Whether Commerce’s determination to grant Zhaofeng a separate rate is

supported by substantial evidence; and

2. Whether Commerce’s decision to use an inference adverse to the interests of

Zhaofeng in selecting from facts otherwise available is supported by substantial

evidence and is in accordance with the law.

BACKGROUND

The court presumes familiarity with the facts and procedural history and discusses only

those facts relevant to the review of the Remand Results. Zhejiang Zhaofeng Mech. and Elec.

Co., Ltd., v. United States, 42 CIT __, 355 F. Supp. 3d 1329 (2018) (“Zhaofeng I”).

In the underlying administrative proceeding, Commerce became aware of irregularities in

Zhaofeng’s submissions when The Timken Company (“Timken” or “Defendant-Intervenor”)

submitted comments identifying discrepancies in a verification exhibit. Pet’r’s Pre-Preliminary

Cmts. 1–3, PD 181, bar code 3576832-01 (May 31, 2019). Zhaofeng acknowledged the Consol. Court No. 18-00004 Page 3

discrepancies, but averred that they were the result of clerical errors and that a review of

Zhaofeng’s U.S. sales invoice would resolve the discrepancies. Remand Results at 3 & nn.6–7

(citing Zhaofeng’s Case Br. 3–4, PD 184, bar code 3604752-01 (Aug. 17, 2017)); see also

Zhaofeng Cmts. at 4. Commerce obtained the corresponding entry documentation from U.S.

Customs and Border Protection (“CBP”) and set a schedule for submitting rebuttal factual

information. Remand Results at 3; see also Entry Documents Placed on the Record, Opportunity

to Submit Rebuttal Factual Information and Final Date for Rebuttal Br., bar code 3617066-01

(Sept. 7, 2017). When Commerce compared the entry documents to Zhaofeng’s verification

exhibit, Commerce identified several differences, including that “the number of line items, all

product codes, and most individual quantities did not match,” although “the invoice number,

customer name, and total sales value were the same for each set of records.” Remand Results at

3–4 & n.8; see also Final Analysis Mem., bar code 3659982-01 (Jan. 2, 2018) (“Final Analysis

Mem.”) (comparing Zhaofeng’s verification exhibit with the invoice filed by the importer).

In Zhaofeng I, the court concluded that Commerce could not disregard a respondent’s

separate rate information as “tainted” just because there were deficiencies in the respondent’s

sales or factors of production data. 42 CIT at __, 355 F. Supp. 3d at 1333–34. The court

remanded to Commerce for reconsideration of Zhaofeng’s separate rate status. Id. at 1335.

On remand, Commerce granted Zhaofeng a separate rate. Remand Results at 5. In

determining Zhaofeng’s dumping margin, Commerce reassessed the discrepancies between

Zhaofeng’s reconciliation worksheet and the invoice in the entry documents. See id. at 2–4, 6–

22. In addition to the differences in the identification of goods as subject merchandise or non-

subject merchandise, Commerce noted that the invoice in the entry documents contained a

greater number of product codes and pieces, but the invoice reflected the same total value that Consol. Court No. 18-00004 Page 4

was reported in the corresponding verification exhibit. Id. at 7. Commerce recognized that the

discrepancies involved a single sale, but assessed that the sale represented a significant quantity

and value relative to Zhaofeng’s reported sales of subject merchandise. Id. at 2–4, 7, n. 20. As a

result, Commerce found that “Zhaofeng withheld information from Commerce, . . . failed to

provide information in the form and manner requested, by failing to report a significant quantity

of its U.S. sales, . . . that Zhaofeng significantly impeded the proceeding by withholding sales

information and misleading Commerce at verification, and then by providing additional false

information to dismiss the inconsistencies found subsequent to verification.” Id. at 8. Because

Commerce determined that Zhaofeng failed to cooperate to the best of its ability, Commerce

calculated a rate using an adverse inference to facts otherwise available (“adverse facts

available” or “AFA”). Id. at 9; 19 U.S.C. § 1677e. Commerce assigned Zhaofeng a dumping

margin of 92.84 percent, which was the AFA rate previously assigned in the June 1, 2006

through May 31, 2007 review of this proceeding. Remand Results at 10; see Tapered Roller

Bearings and Parts Thereof, Finished and Unfinished, from the People’s Republic of China, 74

F.R. 3,987, 3,988–89 (Dep’t Commerce Jan. 22, 2009) (final results of antidumping duty

administrative review).

Timken filed comments in support of the Remand Results. Timken’s Cmts. on Final

Results of Redetermination Pursuant to Court Remand, May 13, 2019, ECF No. 62 (“Timken

Cmts.”). Zhaofeng filed comments in opposition. Pl.’s Reply Cmts. on DOC Remand

Redetermination, June 10, 2019, ECF No. 63 (“Zhaofeng Cmts.”). Defendant and Timken filed

reply comments. Def.’s Resp. to Pl.’s Cmts. on Remand Redetermination, Aug. 5, 2019, ECF

No. 79 (“Def.’s Resp.”); Reply Br. of Def.-Intervenor Timken, Aug. 5, 2019, ECF No. 80. The

Parties filed a joint appendix. J.A., Aug. 19, 2019, ECF No. 84. Consol. Court No. 18-00004 Page 5

JURISDICTION AND STANDARD OF REVIEW

The court has jurisdiction pursuant to 19 U.S.C. § 1516a(a)(2)(B)(iii) (2012) and 28

U.S.C. § 1581(c). The court shall hold unlawful any determination, finding, or conclusion found

to be unsupported by substantial evidence on the record, or otherwise not in accordance with the

law. 19 U.S.C. § 1516a(b)(1)(B)(i).

ANALYSIS

I. Commerce’s Decision to Grant Zhaofeng Separate Rate Status

On remand, Commerce granted Zhaofeng a separate rate. See Remand Results at 5. The

Parties do not contest Commerce’s grant of a separate rate to Zhaofeng. Zhaofeng Cmts. at 2;

Def.’s Resp. at 3; Timken Cmts. at 2. Because Commerce examined Zhaofeng’s information and

determined that it satisfied the de jure and de facto criteria to obtain a separate rate, the court

sustains the Remand Results as to Zhaofeng’s separate rate status. See Remand Results at 5.

II. Commerce’s Application of Adverse Facts Available to Zhaofeng

If an interested party: (1) “withholds information that has been requested,” (2) “fails to

provide such information by the deadlines for submission of the information or in the form and

manner requested,” (3) “significantly impedes a proceeding,” or (4) “provides such information

but the information cannot be verified,” then Commerce may rely on facts otherwise available.

19 U.S.C. § 1677e(a)(2)(A)–(D). If a party fails to cooperate to the best of its ability, Commerce

may use an inference that is adverse to the interests of that party in selecting from among the

facts otherwise available. 19 U.S.C. § 1677e(b).

The U.S. Court of Appeals for the Federal Circuit has interpreted 19 U.S.C. § 1677e

subsections (a) and (b) to have different purposes. See Mueller Comercial de Mexico, S. de R.L.

De C.V. v. United States, 753 F.3d 1227, 1232 (Fed. Cir. 2014); 19 U.S.C. § 1677e(a)–(b). Consol. Court No. 18-00004 Page 6

Subsection (a) applies “whether or not any party has failed to cooperate fully with the agency in

its inquiry.” Mueller, 753 F.3d at 1232. Subsection (b) applies only when Commerce makes a

separate determination that the respondent failed to cooperate “by not acting to the best of its

ability.” Id. A party fails to cooperate to the best of its ability when it does not “conduct

prompt, careful, and comprehensive investigations of all relevant records that refer or relate to

the imports in question to the full extent of [its] ability to do so.” Nippon Steel Corp. v. United

States, 337 F.3d 1373, 1382 (Fed. Cir. 2003) (noting that “intentional conduct, such as deliberate

concealment or inaccurate reporting . . . evinces a failure to cooperate.”); see also Essar Steel

Ltd. v. United States, 678 F.3d 1268, 1276 (Fed. Cir. 2012). When making an adverse inference,

Commerce may rely on information derived from the petition, a final determination in the

investigation, a previous administrative review, or any other information placed on the record.

See 19 U.S.C. § 1677e(b)(2); 19 C.F.R. § 351.308(c).

A. Application of Facts Available

First, Zhaofeng argues that the record does not support application of facts available.

Zhaofeng contends, inter alia, that the sale involved non-subject merchandise, that Zhaofeng’s

information is consistent with Commerce’s verification, and that Commerce cannot identify

discrepancies in other transactions. 1 Zhaofeng’s Cmts. at 5–15. Second, Zhaofeng contends

that: (1) Commerce cannot show that Zhaofeng withheld any information, (2) Commerce did not

explain how Zhaofeng failed to provide timely information or in the form and manner requested,

1 Plaintiff’s reliance on Zhaofeng’s verification is misplaced, as the verification occurred before the discovery of the discrepancies. Micron Tech. v. United States, 117 F.3d 1386, 1396 (Fed. Cir. 1997) (“Verification is a spot check and is not intended to be an exhaustive examination of a respondent’s business.” (internal citation omitted)); 19 U.S.C. § 1677m(i); 19 C.F.R. § 351.307– 351.308. Consol. Court No. 18-00004 Page 7

(3) that Zhaofeng did not significantly impede the investigation, and (4) that Zhaofeng provided

verifiable information. Id. at 16–18.

Defendant counters that Zhaofeng’s verification and CBP entry documents contained

inconsistencies, that Zhaofeng did not adequately explain its discrepancies, and that Zhaofeng

did not supplement the record to show that issues raised by the transaction were an isolated

occurrence. Def.’s Resp. at 14–16. Timken adds that Zhaofeng’s transaction contained other

discrepancies beyond the reporting of subject and non-subject merchandise, including that the

quantity and line items in Zhaofeng’s CBP entry documents were inconsistent with Zhaofeng’s

sales reconciliation worksheet. Timken Cmts. at 5–6.

Plaintiff’s arguments are not persuasive. Commerce identified differences between

Zhaofeng’s sales verification worksheet and the corresponding CBP entry documents as to the

number of line items, product codes, and individual quantities identified in the respective

documents. Remand Results at 6–7 & nn. 18–20; see also Final Analysis Mem. at 4. Even if, as

Zhaofeng contends, “the sales verification worksheet correctly identified this sale as a non-

subject sale even though the line item product codes [were] incorrectly identified for this

transaction,” Zhaofeng’s explanation does not resolve how the sales totals between the

documents match despite differences in quantity and line items. See Zhaofeng’s Cmts. at 6.

Because the sales reconciliation was a critical link between Zhaofeng’s sales of subject

merchandise and Zhaofeng’s accounting records, Commerce could conclude reasonably that

Zhaofeng’s sales database was unreliable.

Based on the identified discrepancies in the record, Commerce found that Zhaofeng

withheld information and failed to provide information in the form and manner requested “by

failing to report a significant quantity of its U.S. sales,” and that “Zhaofeng significantly Consol. Court No. 18-00004 Page 8

impeded the proceeding by withholding sales information and misleading Commerce at

verification.” Remand Results at 8 (citing 19 U.S.C. § 1677e(a)(2)(A)–(C)). The court

concludes that Commerce’s findings under 19 U.S.C. § 1677e(a) were supported by substantial

evidence.

B. Application of Adverse Facts Available

Plaintiff argues that the record does not support the application of AFA 2 and that

Commerce’s application of AFA was not in accordance with the law because Commerce may not

apply total AFA if Zhaofeng would not have received a benefit by submitting an inaccurate

verifications sales reconciliation worksheet. 3 Zhaofeng’s Cmts. at 2, 18–20; see also Statement

of Administrative Action at 870, H.R. Rep. 103–316, reprinted in 1994 U.S.C.C.A.N. 4040, 4199

(“SAA”). Defendant avers that Commerce’s Remand Results are supported by substantial

evidence and are in accordance with the law. Defendant also responds that the benefit inquiry

focuses on the significance of the issues and whether a correction is available, not whether a

benefit would have been received. Def.’s Resp. at 18.

Plaintiff’s arguments lack merit. First, when applying AFA, Commerce assessed that the

discrepancies undermined the credibility of Zhaofeng’s U.S. sales database. Remand Results at

25–26; Final Analysis Mem. at 1–2. Because Commerce identified discrepancies in the sales

reconciliation, and the sales reconciliation was an important link between Zhaofeng’s sales of

subject merchandise and Zhaofeng’s accounting records, Commerce could reasonably draw an

inference that Zhaofeng’s U.S. sales database was not credible. See Ad Hoc Shrimp Trade

2 Zhaofeng also contends that the record does not support application of neutral or partial facts available. Zhaofeng’s Cmts. at 5. 3 Zhaofeng further argues that Commerce’s application of AFA was arbitrary. Plaintiff misapprehends the standard of review for this action. Compare 19 U.S.C. § 1516a(b)(1)(A) with 19 U.S.C. § 1516a(b)(1)(B)(i). Consol. Court No. 18-00004 Page 9

Action Comm. v. United States, 802 F.3d 1339, 1357 (Fed. Cir. 2015) (noting that

“misrepresentations may reasonably be inferred to pervade the data in the record beyond that

which Commerce has positively confirmed as misrepresented” (internal quotation marks

omitted)).

Second, as to benefit, Commerce may apply AFA if a respondent does not cooperate “to

the best of [its] ability, regardless of motivation or intent.” Nippon Steel Corp., 337 F.3d at

1383. This standard “does not require perfection and recognizes that mistakes sometimes

occur,” but “it does not condone inattentiveness, carelessness, or inadequate record keeping.”

Papierfabrik August Koehler SE v. United States, 843 F.3d 1373, 1379 (Fed. Cir. 2016) (quoting

Nippon Steel Corp., 337 F.3d at 1382). In this case, Commerce addressed the issue of benefit

and found that Zhaofeng sought to “mislead Commerce and conceal multiple sales of subject

merchandise.” Remand Results at 25; see also SAA at 4199. This finding was supported by the

discrepancies in the sales reconciliation, including the identification of a previously unnamed

U.S. customer and a different quantity of merchandise for sale at issue. Remand Results at

25–26.

On remand, Commerce assigned Zhaofeng a dumping margin of 92.84 percent. Id. at 10.

Under 19 U.S.C. § 1677e(d), if Commerce uses an inference that is adverse to the interests of a

party under 19 U.S.C. § 1677e(b)(1)(A) in selecting among the facts otherwise available, then

Commerce may use a dumping margin from any segment of the proceeding under the

antidumping order. 19 U.S.C. § 1677e(d)(1)(B). Because Commerce assigned Zhaofeng the

same AFA rate previously assigned in the June 1, 2006 through May 31, 2007 review of this

proceeding, Commerce’s determination of Zhaofeng’s dumping margin is in accordance with the Consol. Court No. 18-00004 Page 10

law. see id.; Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from the

People’s Republic of China, 74 F.R. at 3,988–89.

Because Commerce could conclude reasonably that Zhaofeng failed to act to the best of

its ability, Commerce could apply AFA in this action. See Papierfabrik August Koehler SE v.

United States, 843 F.3d at 1379. For these reasons, the court concludes that Commerce’s

decision to apply AFA was supported by substantial evidence and is in accordance with the law.

CONCLUSION

For the foregoing reasons, the court sustains Commerce’s Remand Results. Judgment

will be entered accordingly.

/s/ Jennifer Choe-Groves Jennifer Choe-Groves, Judge Dated: December 18, 2019 New York, New York