CIT Says Commerce Can Use Third-Country Data for Finding Major Input COP From NME-Based Supplier

Ruling on a number of first-impression claims in a Feb. 17 opinion made public Feb. 24, Judge Gary Katzmann also held that Commerce's interpretation of the phrase "market under consideration" as part of its Transactions Disregarded Rule to only mean the country under investigation is "unreasonably inflexible and inconsistent with prior pracitce." Likewise, the judge ruled that the agency's inclusion of NME and export-subsidizing countries in the surrogate data was not in step with other reasoning Commerce laid out in its final determiantion. Katzmann also dismissed a claim against the use of the Cohen's d test as part of Commerce's attempt to root out "masked" dumping for lack of standing since the outcome of the test would not have impacted the dumping margin at issue.

The case concerns the antidumping duty investigation on mattresses from Cambodia in which Best Mattresses and Rose Lion served as mandatory respondents. Commerce preliminarily calculated a 252.74% dumping margin for Best Mattresses. The agency said that the exporter had no viable home market or third-country market sales, so it used constructed value to calculate normal value. Commerce invoked the Transactions Disregarded and Major Input Rules because Best Mattresses bought certain major inputs from affiliated companies located in an unnamed NME country.

Under the Major Inputs Rule, Commerce normally sets the value of a major input which is bought from an affiliate by picking the higher of (1) the price paid by the exporter to its affiliate, (2) the market price or (3) the cost to the affiliate of making the input. For the surrogate cost of production data of major and minor inputs in the investigation, Commerce averaged Global Trade Atlas (GTA) numbers from six countries -- Brazil, Malaysia, Mexico, Romania, Russia and Turkey. While it originally excluded imports from NMEs and countries with widely available export subsidies, the agency did not do so in its final determination.

The plaintiffs, led by Best Mattresses, took issue with the use of the six countries' data to value the major inputs in the market economy investigation, claiming that nothing in the law or Commerce's regulations lets it use third-country surrogate data to construct the input cost of production (COP) as it did here.

Katzmann, however, upheld Commerce's right to use the GTA data, and said that the agency properly used the GTA data to call into question the validity of Best Mattresses' data from its affiliated supplier over the major inputs. The judge added that nothing in the plain text prevents Commerce from constructing the COP from third party data so long as the use of this data is reasonable. Congress has not clearly spoken on the issue, leaving the matter up to Commerce under step two of Chevron deference.

"Put simply, Commerce’s decision to use surrogate data was reasonably sourced in its authority to determine the 'information available regarding such cost of production.' 19 U.S.C. § 1677b(f)(3)," the opinion said. "... [n]othing in the Major Input Rule obligates Commerce to proceed with an empty input COP value -- considering the high percentage of affiliated suppliers based in an NME country, Commerce decision to calculate an estimate based on surrogate values was justified."

Katzmann also upheld Commerce's decision not to use its full NME procedures since it used data from six countries and not just one, among other reasons. "The agency neither formally invoked, nor functionally replicated, its NME surrogate value methodology in this case," the judge said. Citing the record, Katzmann also upheld Commerce's inclusion of certain Romanian data and exclusion of certain Mexican data as reasonable, despite the challenge from the plaintiffs.

However, Katzmann remanded Commerce's interpretation of the Transactions Disregarded Rule. In the investigation, the agency used Cambodian Trademap data, rather than the six-country GTA date, to determine the market price for minor inputs, citing the Transactions Disregarded Rule. That rule says that a transaction between affiliated parties may be disregarded if, "in the case of any element of value required to be considered," the amount representing that element of value does not fairly "reflect the amount usually reflected in sales of merchandise under consideration in the market under consideration." Commerce took this phrase to mean it could rely on sales only in Cambodia.

The judge found the phrase "market under consideration" to be ambiguous under both steps of the Chevron deference analysis. Katzmann ruled that the phrase is "purposefully broad to ensure that" Commerce can pick a market that allows for a reasonable source for market value. Commerce's interpretation is "unreasonably restrictive," the judge said. Katzmann clarified, though, that the holding does not stop Commerce from picking Cambodia as the market under consideration on remand, only that the agency's rationale did not pass inspection.

The judge added that Commerce also failed to justify why its presumption of NME unrealiability applies in the affiliated supplier context but not in the unaffiliated supplier context. "If the presumption does not apply with equal force in the unaffiliated supplier versus affiliated supplier contexts, then the agency must provide affirmative reasons to explain why that is so," the opinion said.

Katzmann also sent back the agency's reliance on financial statements from Indian company Emirates Sleep to calculate profit ratios, on the grounds that Commerce did not justify whether the statements were publicly available or complete. Commerce said the statements were publicly available via a "fee-based subscription service," though the only evidence of this claim seems to come from a legal argument from the petitioners saying that a financial statement need not be free of charge. This was not enough for Katzmann. The judge added that the statements were not complete since they were missing a key annexure about the "existence of government subsidies recorded as assets."

(Best Mattresses International Co. v. United States, Slip Op. 23-19, CIT Consol. # 21-00281, date 02/17/23, Judge Gary Katzmann; Attorneys: Jeffrey Grimson of Mowry & Grimson for plaintiffs Best Mattresses and Rose Lion; Kara Westercamp for defendant U.S. government; Yohai Baisburd of Cassidy Levy for defendant-intervenors led by Brooklyn Bedding)