Federal Circuit Rejects Commerce's PMS, Differential Pricing Analysis Positions in South Korea AD Case
The U.S. Court of Appeals for the Federal Circuit ruled in a March 11 order that the Commerce Department did not properly support its position that a particular market situation existed affecting inputs to oil country tubular goods from South Korea. Finding that three of Commerce's five reasons for finding a PMS were not backed by enough evidence, the Federal Circuit upheld the Court of International Trade's identical ruling. The appellate court also remanded Commerce's differential pricing analysis -- used to uncover "masked" dumping -- for relying on a statistical test that did not fulfill certain conditions to properly run the test.
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The case concerns the second administrative review of the antidumping duty order on OCTG from South Korea in which plaintiff-appellant SeAH Steel Corp. served as a mandatory respondent. In the review, Commerce found that a PMS existed that distorted the cost of production for the OCTG products. The agency based this conclusion on five factors: subsidies from the South Korean government to hot-rolled coil (HRC) producers, strategic alliances between HRC and OCTG producers, Korean imports of Chinese HRC, the government involvement in the Korean electricity market and steel industry restricting efforts by the Korean government.
CIT remanded Commerce's PMS position twice, finding it to not be based on substantial evidence. Commerce eventually flipped its position, then it was again litigated at the Federal Circuit. Judges Kathleen O'Malley, William Bryson and Todd Hughes affirmed CIT's decision.
For the Korean government HRC subsidies, the court said that the record is "at best mixed" on whether the government subsidies existed during the period of review and that Commerce failed to establish certain requirements to be made when declaring a PMS for subsidies to a producer of a good's input. "Commerce made no finding that any subsidies were passed through to the prices of HRC or that they affected Korean OCTG producers any more than OCTG producers elsewhere," the opinion said.
Relating to the strategic alliances between HRC and OCTG producers, the only evidence that Commerce offered to show "entanglement" was a brochure that describes a SeAH processing center as being used by HRC producer POSCO. Hughes found this unconvincing. "Commerce merely speculated that strategic alliances affected the Korean HRC market as a whole," the judge said. "Its showing of some relationship between POSCO and SeAH is weak and contradicted by other record evidence."
As for the steel industry restructuring claims, the judge said that Commerce's evidence of announcement and other publications discussing restricting efforts "provide no evidence of actual government interference" during the POR. Hughes then discussed the remaining two PMS elements: Chinese HRC overcapacity and the Korean electricity market. Since Commerce did not take a clear position on whether these two circumstances by themselves could establish a PMS, Hughes said that the court cannot submit its own reasoning in place of the agency's as to whether this is the case.
In the review, Commerce also used its differential pricing analysis to uncover alleged masked dumping, relying on the Cohen's d test to do so. However, the Federal Circuit previously threw the legality of Commerce's use of this test into flux by saying that the agency could not use it because it had not fulfilled the statistical assumptions needed to use the test (see 2107150032). Hughes echoed the concerns of this opinion in rejecting the use of the Cohen's d test in this review.
The Federal Circuit then addressed the issues of Commerce's freight revenue cap and profit cap. The agency typically caps freight revenue at freight cost so that no adjustment in export price is made if revenue exceeds expenses for freight. SeAH argued that the practice is unreasonable since it treats profits and losses differently, only reducing export price when an exporter sees a loss but not increasing the price when the exporter turns a profit. "This result is perhaps counterintuitive, but SeAH gives no explanation of why it is unreasonable," the judge said. "Commerce is not required to show that its chosen methodology is superior to all others."
In the review, Commerce calculated SeAH's profit based on its Canadian OCTG sales. The agency said it had to do this since there was no profit information for Korean sales and products in the same general category on the record. SeAH said that is barred under the statute, but Hughes said the exporter misread the statute. "Part (iii) describes the quantity Commerce must calculate -- the profits normally realized by other exporters," the opinion said. "The language 'other than the exporter or producer described in clause (i)' clarifies whose profit Commerce must calculate but does not limit the data Commerce may rely on to calculate it. As with any other quantity, Commerce may rely on facts available."
(NEXTEEL Co. v. United States, Fed. Cir. #21-1334, dated 03/11/22, Judges O'Malley, Bryson and Hughes. Attorneys: Henry Almond of Arnold & Porter for plaintiff-appellee NEXTEEL; Jeffrey Winton of Winton & Chapman for plaintiff-cross-appellant SeAH; Hardeep Josan for defendant-appellee U.S. government; Gregory Spak of White & Case for defendants-appellees Maverick Tube Corp. and Tenaris Bay City; Thomas Beline of Cassidy Levy for defendant-appellant U.S. Steel Corporation)