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Trade Court Sustains Shrimp Exporter's Inclusion in AD Review Despite Section 129 Case Exclusion

The Court of International Trade recently upheld the Commerce Department's finding that exporter Shantou Red Garden Food Processing Co. (Shantou Processing) was not the successor-in-interest to Red Garden Food Processing Co. (Red Garden), which subjected the exporter to antidumping duties on frozen warmwater shrimp from China.

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In a May 12 opinion made public May 19, Judge Richard Eaton said that while Red Garden was exempted from the antidumping duties and changed its name to Shantou Processing, Commerce said that the company underwent changes to its business operations precluding it from the exemption. The court added that the U.S. properly deducted certain refunded freight costs from Shantou Processing's U.S. price.

Eaton evaluated Shantou Processing's arguments against Commerce's successor-in-interest finding, including against the agency's consideration of the exporter's management, production facilities, suppliers, customer base and other factors, and found them to be lacking merit. The result saddled the company with a 58.69% dumping rate as part of the 2018-19 administrative review of the AD order.

The company in question was originally founded in 2003 as a joint venture between U.S. firm Red Chamber Co. and Chinese company Shantou Red Garden Foodstuff Co. -- an affiliated exporter of Shantou Processing and plaintiff in the case -- named Shantou Red Garden Food Processing Co. The company underwent a name change to Shantou Jin Cheng Food Co. (Shantou JCF during 2003-07, then another name change in 2013, back to Shantou Processing. In 2013, a Section 129 proceeding under the Uruguay Round Agreement Act partially revoked the order for Shantou Processing.

The present issue arose when the Section 129 proceeding marked "Red Garden Food Processing Co." as the recipient of the order's revocation. Shantou Processing said that it was the same company as the one listed in the proceeding, but Commerce, after conducting a successor-in-interest proceeding, found otherwise. In the AD review, the agency hit Shantou Processing with the duties, prompting the challenge at the trade court. As part of the review, Commerce looked to many different factors to ultimately find that Shantou Processing had gone through significant changes and had to pay.

Successor-in-Interest Challenge

Looking to the company's changes in management, Commerce saw that in 2003, management of the company was left to a board of directors, general manager and vice general manager. In 2013, the company's name was not the only thing to change, as the firm's structure, ownership and control shifted, leaving two individuals in charge and the board of directors dissolved. Shantou Processing argued, among other things, that Commerce failed to consider how the company was actually managed and focused too closely on the ownership structure.

Eaton found this argument unpersuasive. "This claim both fails to recognize Commerce’s authority for conducting the successor-in-interest analysis and demonstrates a misunderstanding of the test itself," the opinion said. "Management means not only how the business is conducted day-to-day but also the overall direction of a business and its operations." The judge ruled that the record shows that ownership and structure issues "influenced and indeed affected the existence of a board of directors at all." The real disagreement here is the way in which Commerce weighed the evidence, but this is not enough to toss the analysis, Eaton said.

Considering the companies' suppliers, Shantou Processing said its suppliers changed many times over the past 15 years, leading the agency to say there was no evidence with respect to this factor. The exporter argued that given its own failure to identify its exact suppliers over the past 15 years, it is mere speculation to say that the company changed suppliers too much to be the same company. Eaton found that this misstates Commerce's finding since the agency said that given the thin record, there was no evidence with regards to this factor.

Shantou Processing further claimed that it changed names to "avoid harassment by its former landlord's creditors." Commerce did not buy this explanation since the debts were resolved and approved by a local Chinese court before the name changes and that Shantou Processing did not substantiate its claim that despite this resolution, the harassment continued for six more years. "Plaintiffs again do not argue that the evidence Commerce relied upon is flawed, but rather ask the court to accept their interpretation of the evidence instead of Commerce’s," the opinion said. "Plaintiffs do not, however, identify a reason for the court to conclude that Commerce’s interpretation of the evidence was unreasonable."

Ab Initio Claim

Shantou Processing also argued that the underlying AD review was void ab initio since Commerce had no authority to review the company given the results of the Section 129 proceeding. Shantou Processing put a letter to Commerce on the record of the Section 129 proceeding arguing that the agency erred when it excluded Red Garden Food Processing Co. and not Shantou Red Garden Food Processing Co. Since the letter was on the Section 129 record, it is not on the record in the present case. The exporter asked the court to add all of the Section 129 proceeding documents onto the record in the present action.

Eaton found that the ab initio claim "fails for several reasons," the first of which is that Shantou Processing has the burden to establish the record. The judge added that the review was adequately started pursuant to the applicable statute and regulations, precluding it from being void.

The exporter also argued that the review was improperly started since Shantou Foodstuff and Shantou Processing were collapsed into a single entity during the original AD investigation and thus the agency "implicitly excluded" the company's merchandise when it excluded Shantou Foodstuff's exports in the Section 129 proceeding. Eaton said the exporter is seemingly arguing that the collapsing decisions mean that the two companies are to be treated as one collapsed entity across all proceedings. "Plaintiffs do not cite any legal authority to support this proposition," the judge said.

Eaton added that Commerce legally undertook a successor-in-interest analysis in an administrative review context. "The Department was not required to take Plaintiffs’ word for it that Shantou Processing and Red Garden Food Processing Co., Ltd. were sufficiently the same company such that Shantou Processing could take advantage of the exclusion in the Revocation Notice," the judge said. "Rather, once Plaintiffs made the 'same company' claim, Commerce was entitled to find out."

U.S. Price Adjustment

Lastly, Shantou Processing claimed that Commerce illegally adjusted its U.S. price by subtracting refunded freight costs from the invoice price. The agency justified the deduction by saying that for some U.S. sales where it was not provided with trucking services, the exporter deducted the cost of the trucking expenses to the cold storage facility from the invoiced price. Shantou Processing said that since the ocean carrier gave it a refund for services it failed to provide, the agency should have treated the refund as income, adding that by subtracting the trucking costs, Commerce is double counting.

"Both of these arguments seem to be failures of arithmetic," Eaton said. "Shantou Processing was paid by its U.S. customer only for the product and services it received. That is, Shantou Processing’s income was an amount for the shrimp and an amount for shipping the shrimp from China to the United States. This latter amount did not contain anything for shipping the shrimp to the customer’s cold storage facility. These two amounts (1) for the shrimp, and (2) for shipping were booked as income." The judge said the result "was a wash."

(Shantou Red Garden Food Processing Co. v. United States, Slip Op. 23-72, CIT # 20-03947, dated 05/12/23; Judge: Richard Eaton; Attorneys: John Kenkel of deKieffer & Horgan for plaintiffs led by Shantou Red Garden Food Processing; Kara Westercamp for defendant U.S. government; and Sophia Lin of Pickard Kentz for defendant-intervenor Ad Hoc Shrimp Trade Action Committee)