Trade Court Upholds Commerce's Surrogate Value Picks in AD Review of Chinese Activated Carbon

Judge Mark Barnett also upheld the Commerce Department's valuation of ocean freight costs, calculation of surrogate financial ratios and acceptance of respondent Datong Juqiang Activated Carbon Co.'s (DJAC's) reporting of its bituminous coal consumption. The ruling came in a case that consolidated three challenges to the 13th review covering entries in 2019-20 -- one led by respondent Carbon Activated Tianjin Co., one by DJAC and one by petitioner Calgon Carbon Corp.

Barnett first addressed the challenges to the calculation of the surrogate financial ratios. In the review, after picking Malaysia as the primary surrogate from a list of six candidates, Commerce reviewed a record that had financial statements from four companies. Two of them were Malaysian manufacturers, Century Chemical Works and Bravo Green, while one was Russian and the other Romanian. Commerce said the financial ratios of Century and Bravo Green constituted the best available information. The respondents argued that Commerce illegally picked these ratios since agency practice bars it from applying fixed criteria such as whether a nation is a "net exporter" of the subject merchandise.

Commerce said in defending its pick that Malaysia was the only significant producer of the activated carbon and that it was the only one of the six countries that was a net exporter. Barnett said this was supported by Commerce's policy and "indicative of Malaysia having produced sufficient activated carbon to ensure that it exported more than it imported."

The respondents argued that in the 11th review of the AD order, the court invalidated the finding that Romania was not a significant producer. But Barnett distinguished that case from this one since in the 11th review, Commerce failed to explain its analysis and reference the value of any country's exports after finding that no country on the candidate list was a net exporter. "While Respondents would have preferred a different outcome to Commerce’s analysis, that is not a basis for the court to reject the agency’s conclusion," the opinion said.

On the valuation of carbonized material, Commerce valued the input using Malaysian data under HS subheading 4402.90.1000, which covers "coconut shell charcoal," while the respondents said Commerce should have used Turkish data under Harmonized Tariff Schedule subheading 4402.90, covering "Wood charcoal (Including Shell or Nut Charcoal), Excluding that of Bamboo." Barnett said that the court's rejection of Commerce's pick of Malaysian coconut shell charcoal import data in the 12th review doesn't mean the agency picked improperly this time around. Unlike the 12th review, Commerce now gave a "reasoned explanation" as to why coconut shell charcoal was a more appropriate proxy for the carbonized material used by the respondents, the judge said.

Looking to the valuation of coal tar, Barnett noted that Commerce used Malaysian data under HTS subheading 2706.00, covering reconstituted tars, while DJAC claimed that data under subheading 2708.10 should be used since that's the coal tar used by its supplier. Commerce disagreed with the respondents that the domestic price of coal tar was so much lower than the tar's import price that it would not make economic sense to import the tar. The agency said there could be many factors involved in pricing that affect a good's value that could cause a product with less value-added, like coal tar, to be more expensive than another good.

Barnett said the respondents failed to back up their claims with evidence. "With respect to the argument that the Malaysian data was aberrant because the [average-unit value] of the value-added product, pitch, was lower than that of coal tar, a raw material, Respondents did not provide evidence to support their inference that the higher value-added product necessarily should be priced higher on the same per weight basis," the opinion said. The judge echoed Commerce in saying that there could be multiple factors affecting the pricing of coal tar and pitch imports that would lead to these pricing trends.

Regarding the valuation of hydrochloric acid, Commerce used data from HTS subheading 2806.10, which covers "hydrogen chloride (hydrochloric acid)," which is a basket category covering both anhydrous hydrogen chloride and aqueous hycrochloric acid. Barnett ruled that Commerce supported its position that Carbon Activated failed to show the aqueous nature of all its hydrochloric acid inputs, noting that it's reasonable for Commerce to require parties to show the purity level for all purchased hydrochloric acid.

The judge again sided with the government on the valuation of steam, an issue where Commerce substituted liquefied natural gas for natural gas in the gaseous state. Barnett held that the court previously rejected the claim that Commerce cannot pick LNG as a surrogate since it's not specific to steam, noting that the energy source input need not be in the same phase as the steam the energy creates. For valuing ocean freight, Commerce picked between data sets from Maersk and Descartes, ultimately going with Maersk since the data covered the whole review period and the Descartes data only had approximations of the rates. Barnett said Carbon Activated did not support its position that the Descartes data was better.

On the valuation of bituminous coal, Commerce used data from subheading 2701.19, covering other coal. Since the bituminous coal used by DJAC had a Useful Heat Value of less than 5,833 kcal/kg, it didn't hit the heat value threshold needed to be classified under subheading 2701.12, as pushed by Calgon, which is defined by a calorific value limit equal to or greater than 5,833 kcal/kg. Commerce based this decision on the court's ruling in a suit on the 11th review of the AD order. Calgon claimed that Commerce's narrow focus on heat value is illegal since the agency failed to look at the meaning of the subheadings beyond heat value. Barnett said that in the 11th review, when the agency had the heat value information, "Commerce relied on that information in connection with the HTS descriptions to select the surrogate value for bituminous coal with a known heat value of less than 5,833 kcal/kg."

Lastly, Barnett ruled that Commerce properly accepted DJAC's reporting of bituminous coal consumption. The respondent reported both total consumption of bituminous coal used in the production of subject merchandise under consideration and the total consumption of bituminous coal irrespective of end-product. Commerce asked DJAC to reconcile the difference since the quantities did not match. Calgon railed against the agency's acceptance of DJAC's explanation of the difference, arguing that DJC should have excluded opening inventory of self-made carbonized material and included the closing inventory of self-made carbonized material. Barnett said this was without merit, finding that "DJAC’s treatment of opening and closing inventories of carbonized materials aligns with DJAC’s explanation of its calculations."

(Carbon Activated Tianjin Co. v. United States, Slip Op. 23-109, CIT Consol. #22-00017, dated 07/21/23; Judge: Mark Barnett; Attorneys: John Peterson of Neville Peterson for plaintiff Carbon Activated; Francis Sailer of Grunfeld Desiderio for consolidated plaintiffs/defendant-intervenors Datong Juqiang Activated Carbon Co., Ltd., et al.; John Herrmann of Kelley Drye for consolidated plaintiffs/defendant-intervenors led by Calgon Carbon Corporation; and Anonia Soares for defendant U.S. government)