Echjay Forgings Private Ltd. v. United States

475 F.Supp.3d 1350

ECHJAY FORGINGS PRIVATE LIMITED, Plaintiff,

v. The UNITED STATES, Defendant,andCoalition of American Flange Producers, Defendant-Intervenor.

Slip Op. 20-140

Court No. 18-00230

United States Court of International Trade.

October 8, 2020

Peter J. Koenig, Squire Patton Boggs (US) LLP, of Washington, DC, argued for plaintiff. With him on the brief was Wojciech Maciejewski.

Geoffrey M. Long, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, DC, argued for defendant. With him on the brief were Joseph H. Hunt, Assistant Attorney General, Jeanne E. Davidson, Director, and Tara K. Hogan, Assistant Director. Of Counsel Daniel J. Calhoun, Assistant Chief Counsel, Office of Chief Counsel for Trade Enforcement & Compliance, U.S. Department of Commerce.

Cynthia C. Galvez, Wiley Rein LLP, of Washington, DC, argued for defendant-intervenor. With her on the brief were Daniel B. Pickard and Stephanie M. Bell.

OPINION

Katzmann, Judge:

"All happy families are alike; each unhappy family is unhappy in its own way," so opens the classic, intense novel, Anna Karenina.¹ What can be said of the Doshi family? Their saga is central to the case now before the court.

In assessing antidumping ("AD") duties on foreign producers who sell goods in the American market at below reasonable fair market value in violation of domestic trade laws, where appropriate, the United States Department of Commerce ("Commerce") is authorized by statute and regulation to "collapse" multiple entities into a single entity to reflect their market relationship. This case involves issues of collapsing affiliated entities exclusively owned by members of the same, albeit estranged, family -- the Doshi family. All of the companies produce or have produced in the past merchandise subject to Commerce's AD investigation. Commerce collapsed the entities, concluding they were affiliated, would not require substantial retooling of their facilities to restructure production priorities, and had a significant potential to manipulate price or production.

Stainless Steel Flanges From India: Final Affirmative Determination of Sales at Less Than Fair Value and Final Affirmative Critical Circumstance Determination, 83 Fed. Reg. 40,745 (Dep't Commerce Aug. 16, 2018), P.R. 411 ("Final Determination").

Plaintiff Echjay Forgings Private Limited ("Echjay"), an India-based stainless steel flanges producer, brought an action against the United States ("Government") to challenge Commerce's decision to collapse Echjay with three other companies into a single entity for the purposes of its Final Determination. Defendant-Intervenor Coalition of American Flange Producers ("Coalition") joins the Government in support of Commerce's decision. Mot. to Intervene as Def.-Inter., Dec. 19, 2018, ECF No. 10; Ct. Order Granting Mot., Dec. 20, 2018, ECF No. 14. The court concludes that Commerce's collapsing determination was not adequately explained based on the record evidence. Accordingly, the case is remanded to Commerce for further proceedings consistent with this opinion.

BACKGROUND

I. Legal and Regulatory Framework

Dumping occurs when a foreign company sells goods in the United States at a lower price than the company charges for the same product in its home market. Sioux Honey Ass'n v. Hartford Fire Ins. Co., 672 F.3d 1041, 1046 (Fed. Cir. 2012). This practice constitutes unfair competition because it permits foreign producers to undercut domestic companies by selling products below reasonable fair market value. Id. at 1046–47. To address the harmful impact of such unfair competition, Congress enacted the Tariff Act of 1930, as amended,² which empowers Commerce to investigate potential dumping and, if necessary, to issue orders instituting duties on subject merchandise. Id. Pursuant to 19 U.S.C. § 1673, Commerce imposes AD duties on foreign goods if they are being or are likely to be sold in the United States at less than fair value and the International Trade Commission determines that the sale of the merchandise at less than fair value materially injures, threatens, or impedes the establishment of an industry in the United States. See also Diamond Sawblades Mfrs. Coal. v. United States, 866 F.3d 1304, 1306 (Fed. Cir. 2017) ; Shandong Rongxin Imp. & Exp. Co. v. United States, 42 CIT ––––, ––––, 331 F. Supp. 3d 1390, 1394 (2018). "Sales at less than fair value are those sales for which the ‘normal value’ (the price a producer charges in its home market) exceeds the ‘export price’ (the price of the product in the United States)." Apex Frozen Foods v. United States, 862 F.3d 1322, 1326 (Fed. Cir. 2017) (quoting Union Steel v. United States, 713 F.3d 1101, 1103 (Fed. Cir. 2013) ). The amount of the AD duty is "the amount by which the normal value exceeds the export price (or the constructed export price) for the merchandise." 19 U.S.C. § 1673 ; see also Shandong Rongxin, 331 F. Supp. 3d at 1394.

"In some instances, Commerce will treat related entities as a single entity for purposes of [AD] calculations." Prosperity Tieh Enter. Co. v. United States, 965 F.3d 1320, 1323 (Fed Cir. 2020) (citing Carpenter Tech. Corp. v. United States, 510 F.3d 1370, 1373 (Fed. Cir. 2007) ). "The purpose of collapsing multiple entities into a single entity is to prevent affiliated entities from circumventing [AD] duties by ‘channel[ing] production of subject merchandise through the affiliate with the lowest potential dumping margin.’ " Prosperity Tieh, 965 F.3d at 1323 (quoting Slater Steels Corp. v. United States, 27 C.I.T. 1255, 1261, 279 F. Supp. 2d 1370, 1376 (2003) (" Slater Steels I")). Although the AD duty statute does not directly address collapsing, "Commerce's collapsing practice is a permissible construction of the statute, and thus in accordance with the law." Koenig & Bauer-Albert AG v. United States, 24 C.I.T. 157, 159–60, 90 F. Supp. 2d 1284, 1287–88 (2000). See also id. at 1287–88 ; Hontex Enters., Inc. v. United States, 27 C.I.T. 272, 289–90, 248 F. Supp. 2d 1323, 1338 (2003) (" Hontex Enters. I") (noting that Commerce's collapsing practice, as specified in its regulations, has been upheld as a reasonable interpretation of the AD statute). The principal regulation promulgated by Commerce governing collapsing of companies, 19 C.F.R. § 351.401(f), provides:

(1) In general. In an antidumping proceeding under this part, the Secretary will treat two or more affiliated producers as a single entity where those producers have production facilities for similar or identical products that would not require substantial retooling of either facility in order to restructure manufacturing priorities and the Secretary concludes that there is a significant potential for the manipulation of price or production.

(2) Significant potential for manipulation. In identifying a significant potential for the manipulation of price or production, the factors the Secretary may consider include:

(i) The level of common ownership;

(ii) The extent to which managerial employees or board members of one firm sit on the board of directors of an affiliated firm; and

(iii) Whether operations are intertwined, such as through the sharing of sales information, involvement in production and pricing decisions, the sharing of facilities or employees, or significant transactions between the affiliated producers.

19 C.F.R. § 351.401(f) (2019). See also Prosperity Tieh, 965 F.3d at 1323 ("Commerce's practice of collapsing entities is governed by 19 C.F.R. § 351.401(f)").

Under Section 351.401(f), three requirements must be satisfied in order for Commerce to collapse entities: Commerce must determine that (1) the companies are affiliated, (2) they share "production facilities for similar or identical products that would not require substantial retooling of either facility in order to restructure manufacturing priorities," and (3) there is "a significant potential for the manipulation of price or production" between the affiliated companies. Carpenter Tech. Corp., 510 F.3d at 1373. See also Prosperity Tieh, 965 F.3d at 1323 ; Dongkuk Steel Mill Co. v. United States, 29 C.I.T. 724, 733, 27 ITRD 1890, 2005 WL 1692852 (2005). In determining whether to collapse entities, Commerce looks for "relatively unusual situations, where the type and degree of relationship is so significant that [it finds] there is a strong possibility of price manipulation." Koyo Seiko Co. v. United States, 31 C.I.T. 1512, 1535, 516 F. Supp. 2d 1323, 1346 (2007) aff'd, 551 F.3d 1286 (Fed. Cir. 2008) (" Koyo Seiko II") (quoting Nihon Cement Co. v. United States, 17 C.I.T. 400, 426–27, 15 ITRD 1558 (1993) ).

A. Affiliation

With respect to the first condition for collapsing, that the producers must be "affiliated," that term is set forth in 19 U.S.C § 1677(33), codifying the Tariff Act of 1930 as amended by the Uruguay Round Agreements Act ("URAA").³ Subsections (A), (F), and (G) of that statute are relevant to this dispute:

The following persons shall be considered to be "affiliated" or "affiliated persons":

(A) Members of a family, including brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants.

...

(F) Two or more persons directly or indirectly controlling, controlled by, or under common control with, any person.

(G) Any person who controls any other person and such other person.

For purposes of this paragraph, a person shall be considered to control another person if the person is legally or operationally in a position to exercise restraint or direction over the other person.

19 U.S.C § 1677(33) (2018).

The Statement of Administrative Action ("SAA") accompanying the URAA clarifies the purpose of affiliation as to family members.

The traditional focus on control through stock ownership fails to address adequately modern business arrangements, which often find one firm "operationally in a position to exercise restraint or direction" over another in the absence of an equity

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