LG Chem, Ltd. v. United States

534 F.Supp.3d 1386

LG CHEM, LTD., et ano., Plaintiffs,

v. UNITED STATES, Defendant,andCoalition for Acetone Fair Trade, Defendant-Intervenor.

Slip Op. 21-99

Court No. 20-00096

United States Court of International Trade.

August 13, 2021

Daniel L. Porter and James P. Durling, Curtis, Mallet-Prevost, Colt & Mosle LLP of Washington, DC, argued for Plaintiffs. With them on the reply brief was James C. Beaty.

Kyle S. Beckrich, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S. Department of Justice of Washington, DC, argued for Defendant. With him on the brief were Brian M. Boynton, Acting Assistant Attorney General; Jeanne E. Davidson, Director; and Tara K. Hogan, Assistant Director. Of counsel on the brief was Hendricks Valenzuela, Office of the Chief Counsel for Trade Enforcement & Compliance, U.S. Department of Commerce of Washington, DC.

Daniel L. Schneiderman, King & Spalding, LLP, of Washington, DC, argued for Defendant-Intervenor. With him on the brief was Stephen J. Orava.

OPINION

Baker, Judge:

In this case, a Korean acetone producer challenges its antidumping duties, arguing that the Department of Commerce improperly calculated its cost of production and impermissibly rejected certain factual submissions. The court concludes that the producer's challenge to Commerce's cost calculation fails, and that any error in rejecting the producer's factual submissions was harmless. The court therefore sustains the Department's decision imposing antidumping duties.

Statutory Background

The Tariff Act of 1930, as amended, provides a mechanism to combat dumping, that is, the sale of imported merchandise in the United States at "less than its fair value." 19 U.S.C. § 1673(1). Under the statute, domestic producers and other affected entities can petition Commerce and the International Trade Commission to investigate alleged dumping and its effects on U.S. industry. If Commerce determines that dumping is occurring, and the ITC determines that such dumping is injuring domestic industry, the former can impose antidumping duties.

To determine whether dumping is occurring, the statute requires Commerce to make "a fair comparison" between the price charged by the foreign producer-exporter to U.S. customers "and normal value." 19 U.S.C. § 1677b(a). "Normal value" is generally "the price a producer charges in its home market." U.S. Steel Corp. v. United States , 621 F.3d 1351, 1353 (Fed. Cir. 2010) ; see also 19 U.S.C. § 1677b(a)(1)(B)(i) (defining normal value by reference to home market sales "in the ordinary course of trade"). Commerce calculates an antidumping margin based on the difference between the U.S. customer price and the normal value. Uttam Galva Steels Ltd. v. United States , 997 F.3d 1192, 1194 (Fed. Cir. 2021).

In determining "normal value" based on the home market sales price, Commerce may disregard sales made for "less than the cost of production." 19 U.S.C. § 1677b(b)(1). The statute defines the cost of production as "the sum of" three distinct categories of costs, id. § 1677b(b)(3), two of which (as relevant here) are "the cost of materials and of fabrication or other processing of any kind," id. § 1677b(b)(3)(A), and overhead costs described as "selling, general, and administrative expenses," id. § 1677b(b)(3)(B).

If, after disregarding home country sales made at less than the cost of production, "no sales made in the ordinary course of trade remain," id. § 1677b(b)(1), then Commerce must base "normal value ... on the constructed value of the merchandise," id. The statute also allows Commerce to base normal value on "constructed value" if for any reason the Department cannot determine the normal value of the imported goods using the sales price in the home country pursuant to § 1677b(a)(1)(B)(i). See id. § 1677b(a)(4).

Constructed value, defined in 19 U.S.C. § 1677b(e), and the cost of production, defined in § 1677b(b)(3), "are closely related." Saha Thai Steel Pipe (Pub.) Co. v. United States , 635 F.3d 1335, 1338 (Fed. Cir. 2011). Constructed value under § 1677b(e) "generally includes the same or similar elements as [cost of production defined in § 1677b(b)(3) ], but with the additional component of profit." Id. (citing § 1677b(e) ); see also Uttam Galva , 997 F.3d at 1194 ("Constructed value is essentially the cost of production plus profit." (citing § 1677b(e) )).

Whether Commerce calculates the cost of production pursuant to § 1677b(b)(3) for determining normal value, or instead pursuant to § 1677b(e) for determining constructed value, "[f]or purposes of" both provisions

[c]osts shall normally be calculated based on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the generally accepted accounting principles of the exporting country (or the producing country, where appropriate) and reasonably reflect the costs associated with the production and sale of the merchandise.

Id. § 1677b(f)(1)(A).

Factual and Procedural Background

In 2019, the Coalition for Acetone Fair Trade—a group of several domestic acetone producers—petitioned Commerce asserting that producers in Korea and several other countries were dumping acetone in the U.S. market. Appx1000. In response, Commerce commenced several antidumping investigations covering calendar year 2018. Acetone from Belgium, the Republic of Korea, the Kingdom of Saudi Arabia, Singapore, the Republic of South Africa, and Spain: Initiation of Less-Than-Fair-Value Investigations , 84 Fed. Reg. 9755, 9756 (Dep't Commerce Mar. 18, 2019).

As relevant here, Commerce selected two Korean producers, LG Chem, Ltd.,¹ and Kumho P&B Chemicals, Inc., as mandatory respondents. Appx1569; Appx1461.² Commerce then issued questionnaires to both companies requesting information on various topics, including—in accordance with the statutory requirement that "[c]osts shall normally be calculated based on the records of the exporter or producer," 19 U.S.C. § 1677b(f)(1)(A) —information on how they calculate their "cost[s] of materials and of fabrication or other processing of any kind," id. § 1677b(b)(3)(A).

LG Chem's and Kumho's questionnaire responses revealed that they calculate their costs of materials and processing using two different methodologies. ECF 36, at 8–9. To understand them, it is helpful to understand how both companies produce acetone using the "cumene process." Appx1576.

The cumene process requires two inputs, benzene and propylene. Appx1576. These inputs react to form a new molecule, cumene. Id. The cumene molecule has a part corresponding to each input: a benzene part and a propylene part. Id. The cumene molecule breaks down to create two outputs, phenol and acetone. Id. The benzene part of the cumene molecule becomes phenol, and the propylene part of the cumene molecule becomes acetone. Id. In sum, the benzene input becomes the phenol output, and the propylene input becomes the acetone output. The following diagram describes this process visually in material part:

Appx1576 (describing chemical process); ECF 36, at 8 (containing diagram).

Kumho allocates its cost of materials and processing based on what the parties call a "direct-assignment methodology," which essentially states that the cost of acetone equals the cost of the input , propylene, contained within the acetone. Appx1576.

By contrast, LG Chem allocates its cost of materials and processing based on what the parties call a "value-based" methodology, which allocates the joint costs for the benzene and propylene inputs between acetone and phenol based on the "net realizable value" of the acetone and phenol outputs. Id. That is, LG Chem first determines the relative value of the acetone and phenol outputs, and then applies the ratio of those respective values to allocate the joint input costs of propylene and benzene between the acetone and phenol outputs.³

To calculate the net realizable value of acetone and phenol, LG Chem's methodology relies on the prices of acetone and phenol in China. Appx1467; Appx1576.

After receiving this (and other) information, the Department preliminarily determined that acetone imported from Korea was being dumped in the United States at less than fair value and assigned LG Chem, the plaintiff in this case, a 7.67 percent estimated weight-averaged dumping margin. Acetone from the Republic of Korea: Preliminary Affirmative Determination of Sales at Less Than Fair Value, Postponement of Final Determination, and Extension of Provisional Measures , 84 Fed. Reg. 50,005, 50,005 –06 (Dep't Commerce Sept. 24, 2019); Appx1452. In contrast, the Department assigned a much steeper 47.70 percent dumping margin to Kumho. 84 Fed. Reg. at 50,006 ; Appx1452.

In assigning LG Chem's preliminary dumping margin, Commerce concluded that certain aspects of the company's cost of production of acetone were "not appropriately quantified or valued." Appx1467.⁴ As relevant here, the Department identified two specific problems.

First, LG Chem's value-based methodology relied on Chinese non-market economy prices to determine the net realizable value of the acetone and phenol outputs. Appx1467–1468. Commerce accordingly swapped out the Chinese pricing data for Southeast Asian pricing data from market economies, id. , while otherwise retaining the company's value-based methodology.

Second, LG Chem improperly excluded certain company-wide overhead costs from its calculation of "general and administrative expenses," 19 U.S.C. § 1677b(b)(3)(B). Appx1468. Commerce therefore included those expenses in its cost calculations. Id.

After issuing its preliminary determination, Commerce received full briefing from the parties and held a public hearing. Thereafter, the Department issued a final decision reaffirming its preliminary determination that Korean producers were dumping acetone in the United States. In so doing, however, Commerce assigned LG Chem a substantially higher 25.05 percent estimated weight-averaged dumping margin. Acetone from Belgium, the Republic of South...