CIT Upholds Direct Valuation of Intermediate Input in AD Case on Chinese Refrigerant

Judge Richard Eaton sustained Commerce's direct valuation of an intermediate input of R-125, rejecting exporter Zhejiang Sanmei Chemical Ind. Co.'s claim that the agency should have used a valuation of the upstream raw materials. The judge also upheld the agency's rejection of Sanmei's claimed by-product offsets for four products that are generated as part of the R-125 manufacturing process. Lastly, Eaton said Commerce adequately calculated a surrogate freight rate for Sanmei by taking a simple average of short- and long-haul Russian freight data as opposed to using a weighted average of the figures.

What hurt Sanmei's claims across multiple issues in the case was the failure of the exporter's affiliated toller, Fujiang Qingliu Dongying Chemical Co., to measure its water consumption and Sanmei's failure to report water as a direct input.

In the investigation, Commerce had to decide how to value anhydrous hydrofluoric acid (AHF) -- an intermediate input of R-125. The agency had the choice of using either its "intermediate-input method," which has the agency use the value of the input when constructing normal value, or selecting the value of the upstream raw materials that go into making the input. The agency has an established practice of using the direct valuation of the input when the exporter makes the input directly and uses it to make the subject merchandise.

The agency chose the direct valuation route, basing its decision on a finding that it couldn't accurately value the upstream raw materials since it didn't have information on how Sanmei and Qingliu accounted for yield loss or how much water the companies consumed. To fill the gap regarding water consumption, the agency used Sanmei's reported water consumption as an energy input as neutral facts available. Commerce ultimately "found Sanmei’s reported water consumption data usable as a direct input to construct the normal value of R-125, but not to value the upstream raw materials used to make AHF.”

Commerce also didn't use the value of the upstream raw materials, since the record was unclear on the extent to which different types of AHF were used in Sanmei's and Qingliu's workshops to make the subject and non-subject merchandise. Both companies reported that they self-made and bought AHF but had no record detailing the extent to which each type was used.

Eaton found Commerce's approach reasonable, first finding the agency to be justified in declining to use formula proposed by Sanmei to derive yield loss, given that the "formula itself requires information that is not found on the record -- the amount of water consumed as a direct input in the production of AHF." The judge added that he's not convinced that the amount of water Sanmei reported in its factors of production database "included the entirety of its water usage, including both water consumed as a raw material input and water consumed as an energy component."

In the investigation, Commerce also denied Sanmei's byproduct offset claims regarding four products, finding the evidence to be insufficient to establish the volume of by-products generated or show the extent to which the byproducts were made in the production of non-subject merchandise.

Regarding two of the byproducts -- fluosilicic acid and fluorine gypsum -- Commerce said the absence of the yield loss data meant Commerce couldn't accurately determine the volume of generated byproducts. Eaton said the "absence from the record of yield loss data provided reasonable grounds" for the agency to shirk the offset claim for the two products. Even taking into account formulas submitted by Sanmei to address the missing data, Commerce's decision was justified by the lack of data on how self-made and purchased AHF were differentiated and on water consumption, the court said.

A third product Sanmei sought an offset for, hydrochloric acid, was made during the production of both subject R-125 and non-subject merchandise. In denying the offset, the agency said Sanmei failed to adequately track the production and sales of the byproduct generated during Qingliu's R-125 production. Eaton said Commerce reasonably focused on Sanmei's failure to track the volume of the byproduct generated during production of subject and non-subject merchandise. The story was the same for the fourth product for which Sanmei sought an offset, R-134a, since the court said Commerce properly found that Sanmei failed to provide records for tracking production and sales of the byproduct.

Regarding the calculation of the surrogate freight rate, Commerce used data from a report titled Doing Business that detailed Russian freight data for both short- and long-distance hauls.

Eaton said that, contrary to Sanmei's claims, Commerce permissibly included short-distance export and import freight data and took a simple average of the short- and long-distance figures. The inclusion of the short-haul rates wasn't unreasonable, since the agency "reasonably found" that using both figures "more closely represents a broad market average than only using" the long-distance rates, the decision said. The issue with Sanmei's claim is that "its proposal of using only the long-haul rate would undoubtedly end up being aberrational," Eaton held.

The judge similarly backed a simple average of the short- and long-haul figures, finding that Commerce can't use a weighted average of the marks just because it would be better for the exporter. The agency said that "a methodology is not mathematically incorrect simply because it produces a larger or smaller result. Instead, it must be demonstrated to be incorrect on logical or mathematical principles, which Sanmei has not done." The judge found the explanation adequate.

"We were very disappointed in the judge's conclusions," counsel for Sanmei told Trade Law Daily in an email, while counsel for the petitioner, Honeywell International, said "we are pleased with the outcome and agree with the reasoning [of] the Court."

(Zhejiang Sanmei Chemical Ind. Co. v. United States, Slip Op. 24-137, CIT # 22-00103, dated 12/13/24; Judge: Richard Eaton; Attorneys: Lizbeth Levinson of Fox Rothschild for plaintiff Sanmei Chemical Ind. Co., Ltd.; Kelly Geddes for defendant U.S. government; Daniel Cannistra of Crowell & Moring for defendant-intervenor Honeywell International)