CIT Remands Xanthan Gum AD Review for Reconsideration of Coal Classification, Direct Energy Valuation

In particular, Katzmann remanded the department's decision to directly value respondent Neimenggu Fufeng Biotechnologies Co.’s energy factors of production, rather than to use a surrogate’s energy costs in a selling, administrative and general expenses ratio, and its classification of the respondent’s coal during that direct valuation. He sustained Commerce’s deduction of Section 301 duties from Fufeng’s value, and he dismissed Fufeng’s Cohen’s d test challenge for lack of standing.

Exhaustion of Coal Classification Argument

Katzmann waived the exhaustion requirement for Fufgeng’s challenge to the Commerce Department’s classification of its coal, saying that Fufeng had raised the issue as soon as it reasonably could. He remanded the issue to the department for first consideration.

The U.S. pushed back on Fufeng’s challenge to Commerce’s direct valuation of its coal under Harmonized Tariff Schedule subheading 2701.12 by pointing out that Fufeng had technically not raised the challenge in time (see 2402280072). The exporter filed a couple of rebuttal briefs contesting the chosen heading, but Commerce rejected them all, saying Fufeng should have attempted to raise the HTS heading assignment in its opening administrative brief.

Normally, CIT “takes a strict view of the requirement that parties exhaust their administrative remedies,” Katzmann said. But he found that requirement inappropriate in the present case.

He pointed out that Fufeng’s first administrative case brief was due prior to Commerce’s choice to directly value its coal, and, “[a]t that point, only the farthest-gazing of auguries could have supported an expectation that Commerce would directly value ... Fufeng’s coal under HTS 2701.”

Katzmann rejected the U.S. argument that notice was implicitly provided by Commerce’s choice to list “‘270116900’ as the ‘Malaysia HTS Number’ for ‘Coal’ on row 31 of a list of 106 factors of production” instead of taking the “Coal” HTS number proposed by Fufeng, 2701.19. The government claimed that this meant “Fufeng was therefore aware that Commerce desired information on its coal inputs and also that Commerce had selected an HTS number for coal that Fufeng had not proposed.”

This wasn’t reasonable, Katzmann said. He said that HTS number “does not even propose to value Fufeng’s coal under that subheading” -- it only describes the “abstract category of ‘coal’” used in a Malaysian import prices database. And there was no way Fufeng could have anticipated that, instead of including the surrogate’s energy expenses under an SG&A calculation, as usual, Commerce would have instead chosen to use Malaysia's HTS subheading to value Fufeng’s coal directly, he said.

Fufeng, in fact, didn’t have reason to expect Commerce would value its coal directly at all, he pointed out. The first time this possibility was indicated came in a petitioner’s filing, at which point Fufeng had responded -- but the brief had been rejected, he said.

He said he was unable to reach a decision on the merits because Commerce had never explained its reasoning for selecting the HTS heading it did. He remanded the issue for first consideration by the agency.

Direct Valuation of Energy Costs

Katzmann also remanded Commerce’s explanation as to why it had chosen to directly value Fufeng’s costs instead of sticking to its practice in prior reviews -- using the selected surrogate company’s energy expenses in an SG&A ratio calculation.

Commerce’s calculation of energy costs includes “two separate junctures” at which energy costs may be included in a value calculation, Katzmann explained. The first, he said, is the department’s “direct calculation of the subject producer’s ‘energy and other utilities consumed’ factor of production”; the second is its SG&A ratio calculation, he said. He noted that including energy expenses in the latter increases an exporter’s normal value.

“This introduces a possibility that Commerce will ‘double-count’ energy in its normal value calculation -- first by ‘directly’ valuing the respondent’s ‘energy and other utilities consumed’ factor of production, and then by including energy costs in the numerator of the surrogate SG&A ratio,” he said. “This outcome is disfavored.”

In order to avoid double-counting, the department has a “stated policy” of only valuing energy costs directly if it is sure it can remove those costs from the SG&A ratio, he said. This is what Commerce usually did in its reviews of Chinese-origin xanthan gum.

But Commerce adjusted its practice in this review. The department claimed it did so because the usual surrogate, Ajinomoto, had changed up how it reported its energy costs, splitting a former “other operating expenses” line item in its financial statements into “selling and distribution expenses” and “administration and other expenses.” Commerce decided that Ajinomoto’s energy costs were only covered by the latter category, and held that this was direct enough that removing the line would remove Ajinomoto’s energy costs from an SG&A ratio calculations altogether, allowing for direct valuation without double-counting.

Fufeng, in turn, said this line item wasn’t “an isolatable stand-in for energy,” as no evidence indicated as such.

“Fufeng’s concerns make intuitive sense,” Katzmann said.

He called it “odd” that Ajinomoto would have used “such a generic-seeming line item” name for “an expense category as specific as energy.” Commerce hadn’t provided enough evidence indicating otherwise, he said, so he remanded the issue for further explanation or reversal.

Section 301 Duties and Cohen’s d Test

Katzmann ruled that Commerce’s reduction of the exporter’s U.S. price by the Section 301 duty on its gum was valid because a Section 301 duty is a “United States import dut[y]” under U.S.C. 1677a(c)(2)(a).

Wheatland Tube doesn’t apply in this instance because another recent U.S. Court of Appeals for the Federal Circuit case, Borusan, should be read broadly enough to include Section 301 duties in its determination that such tariffs don’t “compel a uniform conclusion regarding the deductibility of all duties imposed under” them, he said.

He also granted in part the U.S. motion to dismiss Fufeng’s Cohen’s d test claim. The exporter challenged Commerce’s finding that the test could have been used to calculate Fufeng’s U.S. price. But the exporter lacked standing because ultimately Commerce didn’t use the test, as even it acknowledged, Katzmann said. Fufeng has already gotten what it wants, the judge said.

(Neimenggu Fufeng Biotechnologies Co. v. U.S., Slip Op. 24-139, CIT Consol. # 23-00068, dated 12/16/2024; Judge: Gary Katzmann; Attorneys: Dharmendra N. Choudhary of Grunfeld Desiderio for plaintiffs led by Fufeng; Daniel Bertoni for defendant U.S. government)