Commerce Failed to Justify Use of Surrogate's Data in Light of CAFC Opinion, CIT Says

The case, originally brought by Mid Continent Steel & Wire, concerns an administrative review review on steel nails from Oman. In the review, Commerce sought to calculate constructed value -- a process for which it has four options. Picking one of the alternative options, the agency decided to use the financial statements from Thai steel screw manufacturer Hitech to compute calculated value, as suggested by Mid Continent. Also in the running for surrogate was another Thai company, L.S. Industry Co., for which respondent Oman Fasteners submitted partially translated financial statements.

Oman Fasteners challenged in court Commerce's choice of Hitech's financial statements "despite potential evidence of a subsidy" and the agency's refusal to consider LSI's partially translated financial statements and the rejection of LSI's fully translated statements. On appeal, the Federal Circuit affirmed Commerce's decision not to rely on the partial translation of LSI's financial statement, but said Commerce had to address the subsidy allegations for Hitech.

In its second remand results back at CIT, Commerce largely reiterated its prior conclusions about Hitech's subsidy situation. The agency said that there was nothing on the record to back the conclusion that Hitech received a countervailable subsidy. Oman Fasteners argued that finding ran counter to the Federal Circuit's remand and provided an "insufficient explanation" for its continued use of Hitech's data. The Oman company also argued that, since Commerce found evidence of a subsidy in a countervailing duty review on steel wire garment hangers from China, Commerce should exclude Hitech's financial statements.

Barnett sided with Oman Fasteners on this count, finding that Commerce "failed to justify its reliance on Hitech's financial statements to determine constructed value profit." Specifically, the agency did not differentiate enough between the AD and CVD reviews on the subsidy question, with Commerce's only distinguishing feature being that each case has its own record. "This assertion, however, does not explain or identify any difference between the two cases that would lead to such different treatment," the judge said. "... Commerce did not find that any evidence of a subsidy was so insignificant as to permit the evidence to be completely ignored; instead, Commerce found only that the subsidy is not quantifiable."

The Federal Circuit also held that Commerce may need to complete a comparative analysis of the deficiencies of multiple other financial statements to find if Hitech truly is the best one. While Commerce did do this, in a limited capacity, its comparison is not sufficient, Barnett held. The analysis it did do was "largely conclusory," the judge said. Commerce found that another Thai company, Sundram, makes comparable merchandise but that a large portion of its production is made of automobile parts and fasteners that aren't comparable to nails. "While that comparison took account of the differing production foci of the two companies, and also identified a concern about the impact of the non-comparable production on the profit ratio, Commerce ignored the possible deficiencies in Hitech’s financial data -- namely, the unknown impact of possible subsidies on Hitech’s profit ratio," the opinion said. Commerce gave no reason as to why Sundram's non-comparable merchandise is a bigger problem than Hitech's unquantifiable evidence of subsidies, it said.

(Mid Continent Steel & Wire v. U.S., Slip Op. 21-172, CIT Consol. #15-00124, dated 12/22/21, Chief Judge Mark Barnett. Attorneys: Adam Gordon of The Bristol Group for plaintiff/defendant-intervenor Mid Continent; Mikki Cottet for defendant U.S. government; Michael House of Perkins Coie for defendant-intervenor/consolidated plaintiff Oman Fasteners)