Aristocraft of America LLC v. United States

Slip Op 19-48
UNITED STATES COURT OF INTERNATIONAL TRADE
PUBLIC VERSION
Before: Leo M. Gordon, Judge
Consol. Court No. 15-00307
OPINION
[Commerce’s Second Remand Results sustained.]
Dated: April 17, 2019
Jonathan M. Freed, Trade Pacific PLLC of Washington, DC for Consolidated
Plaintiffs Shanghai Wells Hanger Co., Ltd., Hong Kong Wells Ltd., Hong Kong Wells Ltd.
(USA), Best For Less Dry Cleaners Supply LLC, Ideal Chemical & Supply Company,
Laundry & Cleaners Supply Inc., Rocky Mountain Hanger MFG Co., Rosenberg Supply
Co., Ltd., and ZTN Management Company, LLC.
Ashley 	Akers, 	Trial 	Attorney, 	Commercial 	Litigation 	Branch, 	Civil 	Division,
U.S. Department of Justice of Washington, DC for Defendant United States. With her on
the briefs were Joseph H. Hunt, Assistant Attorney General, Robert E. Kirschman, Jr.,
Director, and Reginald T. Blades, Assistant Director. Of counsel was Jessica DiPietro,
Attorney, 	U.S. 	Department 	of 	Commerce, 	Office 	of 	the 	Chief 	Counsel 	for 	Trade
Enforcement and Compliance of Washington, DC.
Gordon, Judge: This action involves the sixth administrative review conducted by
the U.S. Department of Commerce (“Commerce”) of the antidumping duty order covering
steel wire garment hangers from the People’s Republic of China (“PRC”). See Steel Wire
Garment 	Hangers 	from 	the 	PRC, 	80 	Fed. 	Reg. 	69,942 	(Dep’t 	of 	Commerce
Nov. 12, 2015) (final results admin. rev.) (“Final Results”); see also Issues & Decision
ARISTOCRAFT OF AMERICA, LLC,
Plaintiffs,
v.
UNITED STATES,
Defendant.
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Memorandum for Steel Wire Garment Hangers from the PRC, A–570–918 (Dep’t of
Commerce 	Mar. 	6, 	2015), 	available 	at
http://enforcement.trade.gov/frn/2015/1511frn/2015-28757.txt 	(last 	visited 	this 	date)
(“Decision Memorandum”).
Before the court is Commerce’s Final Results of Redetermination Pursuant to
Court Remand (“Second Remand Results”), ECF No. 87-1, 1 filed pursuant to the court’s
remand order in Aristocraft of America, LLC v. United States, 42 CIT ___, 331 F. Supp.
3d 1372 (2018) (“Aristocraft II”). Plaintiffs Shanghai Wells Hanger Co., Ltd., Hong Kong
Wells Ltd., Hong Kong Wells Ltd. (USA), Best For Less Dry Cleaners Supply LLC, Ideal
Chemical & Supply Company, Laundry & Cleaners Supply Inc., Rocky Mountain Hanger
Mfg. 	Co., 	Rosenberg 	Supply 	Co., 	Ltd., 	and 	ZTN 	Management 	Company, 	LLC
(collectively, “Plaintiffs”) challenge Commerce’s calculation of irrecoverable value-added
tax (“VAT”) based on the application of the standard VAT levy to the free on board (FOB)
export 	value 	of 	finished 	wire 	hangers. 	See Pls.’ 	Cmts. 	on 	Final 	Results 	of
Redetermination Pursuant to Court Remand, ECF No. 92 (“Pls.’ Cmts.”); see also Def.’s
Response to Pls.’ Cmts. on Commerce’s Remand Results, ECF No. 97 (“Def.’s Resp.”).
Familiarity with the court’s decisions in Aristocraft II, and Aristocraft of America, LLC v.
United States, 41 CIT ___, 269 F. Supp. 3d 1316 (2017), is presumed. The court has
jurisdiction pursuant to Section 516A(a)(2)(B)(iii) of the Tariff Act of 1930, as amended,
1 All citations to the remand results, the agency record, and the parties’ briefs are to their
confidential versions unless otherwise noted.
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19 U.S.C. § 1516a(a)(2)(B)(iii) (2012), 2 and 28 U.S.C. § 1581(c) (2012). For the reasons
set forth below, the court sustains Commerce’s Second Remand Results.
I. Standard of Review
For 	administrative 	reviews 	of 	antidumping 	duty 	orders, 	the 	court 	sustains
Commerce’s “determinations, findings, or conclusions” unless they are “unsupported by
substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C.
§ 1516a(b)(1)(B)(i). More specifically, when reviewing agency determinations, findings,
or conclusions for substantial evidence, the court assesses whether the agency action is
reasonable given the record as a whole. Nippon Steel Corp. v. United States, 458 F.3d
1345, 1350–51 (Fed. Cir. 2006); see also Universal Camera Corp. v. NLRB, 340 U.S.
474, 488 (1951) (“The substantiality of evidence must take into account whatever in the
record fairly detracts from its weight.”). Substantial evidence has been described as
“such relevant evidence as a reasonable mind might accept as adequate to support a
conclusion.” DuPont Teijin Films USA v. United States, 407 F.3d 1211, 1215 (Fed. Cir.
2005) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)). Substantial
evidence has also been described as “something less than the weight of the evidence,
and the possibility of drawing two inconsistent conclusions from the evidence does not
prevent an administrative agency’s finding from being supported by substantial evidence.”
Consolo v. Fed. Mar. Comm’n, 383 U.S. 607, 620 (1966). Fundamentally, though,
“substantial evidence” is best understood as a word formula connoting reasonableness
2 Further citations to the Tariff Act of 1930, as amended, are to the relevant provisions of
Title 19 of the U.S. Code, 2012 edition.
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review. 3 Charles H. Koch, Jr., Administrative Law and Practice § 9.24[1] (3d ed. 2019).
Therefore, when addressing a substantial evidence issue raised by a party, the court
analyzes whether the challenged agency action “was reasonable given the circumstances
presented by the whole record.” 8A West’s Fed. Forms, National Courts § 3.6 (5th ed.
2018).
Separately, the two-step framework provided in Chevron, U.S.A., Inc. v. Natural
Res. Def. Council, Inc., 467 U.S. 837, 842–45 (1984), governs judicial review of
Commerce’s interpretation of the Tariff Act. See United States v. Eurodif S.A., 555 U.S.
305, 316 (2009) (An agency's “interpretation governs in the absence of unambiguous
statutory language to the contrary or unreasonable resolution of language that is
ambiguous.”); see generally Harry T. Edwards & Linda A. Elliott, Federal Standards of
Review 273–280 (3d ed. 2018).
II. Discussion
Value Added Tax
Plaintiffs argue that Commerce’s Second Remand Results are unreasonable
(unsupported by substantial evidence) and cannot be sustained. Based on the following,
the court is not persuaded that Plaintiffs establish that Commerce’s eight percent
irrecoverable VAT adjustment to Shanghai Wells’ export price (“EP”) and constructed
export price (“CEP”) is unreasonable.
Aristocraft 	II 	highlighted 	the 	court’s 	concerns 	with 	certain 	aspects 	of 	how
Commerce calculated the irrecoverable VAT adjustment to Shanghai Wells’ EP and CEP
without reference to the amount of input VAT paid. The court noted that it had “doubts
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about the overall reasonableness of Commerce’s calculation of irrecoverable VAT” due
to Commerce’s failure to reconcile the relevance of the admitted “link between the input
VAT paid and [the aggregate] tax paid or refunded.” Aristocraft II, 42 CIT at ___, 331 F.
Supp. 3d at 1378.
When the court reviewed Commerce’s policy for adjusting for irrecoverable VAT,
it appeared that Commerce’s straightforward irrecoverable VAT adjustment of eight
percent may have oversimplified a calculation that involved various aspects of Shanghai
Wells’ tax liability under China’s VAT scheme. Id. For instance, Commerce noted that the
record indicates that [[
]]. See Second Remand Results at 12–13.
Without accounting for Shanghai Wells’ input VAT paid, the court was concerned that, in
those 	circumstances, 	Commerce’s 	irrecoverable 	VAT 	adjustment 	would 	risk
overestimating the impact of the irrecoverable VAT offset on Shanghai Wells’ overall VAT
liability 	(and 	thus, 	result 	in 	an 	over-adjustment 	to 	the 	EP 	and 	CEP 	of 	subject
merchandise). See Aristocraft II, 42 CIT at ___, 331 F. Supp. 3d at 1378 (noting the
court’s uncertainty as to the “overall reasonableness of Commerce’s calculation of
irrecoverable VAT” given Commerce’s refusal to consider input VAT paid). On remand,
Commerce addressed these concerns, explaining how the Chinese VAT regulations
direct the calculation of an amount of irrecoverable VAT that is to be added to the price
of the subject merchandise exports, without reference to the exporter’s input VAT paid.
See Second Remand Results at 6–14. Commerce further explained in the Second
Remand Results that it did not need to account for input VAT paid in calculating
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an accurate irrecoverable VAT adjustment because:
on a POR-wide basis, Shanghai Wells’ total input VAT credit,
[[ 	]], was [[ 	]] by its total
irrecoverable VAT liability, [[ 	]], and the amount
[[
]] would be carried forward to continue to affect the
offsetting of its output VAT in future periods. This relationship
underscores another reason why the input VAT paid by
Shanghai Wells is not relevant to the irrecoverable VAT
calculation during the POR; not only is irrecoverable VAT
calculated on a different basis than input VAT, but the effect
of the irrecoverable VAT expense is not tied to input VAT paid
in any particular month. Thus, to the extent that Commerce
may not be able to link the input VAT to the deduction for
irrecoverable VAT on any given record, the input VAT paid is
not relevant to the calculation of irrecoverable VAT, which is
based in Chinese law. In addition, the amount of irrecoverable
VAT is not dependent on either the amount of output VAT or
the amount of net VAT liability.
Second Remand Results at 13. Contrary to Plaintiffs’ argument, Commerce directly
responded to the court’s request for additional detail as to how and why Commerce was
applying its irrecoverable VAT policy generally, as well as how its eight percent
irrecoverable VAT adjustment was supported by the record.
Plaintiffs ignore the Chinese laws cited by Commerce as the basis for the
irrecoverable VAT adjustment and calculations, focusing instead solely on Commerce’s
refusal to consider the relevance of Shanghai Wells’ input VAT or its overall VAT liability.
See generally Pls.’ Cmts. Plaintiffs correctly state that “[t]he fact of the matter is that
Shanghai Wells only pays the Chinese government the ‘net’ VAT amount, which is the
result of offset between output VAT and input VAT.” Pls.’ Cmts. at 3. However, in the
Second Remand Results, Commerce explained how Shanghai Wells’ “net” VAT liability
is directly increased due to irrecoverable VAT. See Second Remand Results at 4.
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Irrecoverable VAT, as calculated and adjusted for by Commerce, reduces the amount of
the input VAT offset that Shanghai Wells may use to reduce its overall VAT liability.
Commerce reasonably found that subject merchandise EP and CEP must be directly
reduced by the irrecoverable VAT because irrecoverable VAT, as set forth in Chinese
law, reduces the input VAT offset that serves to limit Shanghai Wells’ overall VAT liability.
Id.
Alternatively, Plaintiffs contend that Commerce’s explanation for its irrecoverable
VAT adjustment demonstrates that irrecoverable VAT is not “included in the price” and
is thus “not permitted by the statute.” Pls.’ Cmts. at 2. Plaintiffs’ challenges to Commerce’s
irrecoverable VAT adjustment, however, are undercut by the record. Plaintiffs highlight
that Shanghai Wells’ “Sales Trace” exhibit in its Section A Questionnaire response did
not specifically identify the inclusion of irrecoverable VAT in the export price of the subject
merchandise, and argues therefore that Commerce could not reasonably conclude that
irrecoverable VAT was “included in [the] price” of the subject merchandise. Id.
Commerce, however, identifies various instances in Shanghai Wells’ own VAT
documentation and financial records where Shanghai Wells appears to recognize
irrecoverable VAT as a distinct cost that is included in its cost of sales (and is thus
“included in such price” of export sales of subject merchandise). See Second Remand
Results at 18–19. The record presented Commerce with limited information from which
Commerce was required to make an inference of whether irrecoverable VAT was or was
not “included in such price” of Shanghai Wells’ export sales of subject merchandise.
Plaintiffs have failed to demonstrate Commerce had “one, and only one, reasonable
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conclusion” to be drawn from the whole of the record—that Shanghai Wells’ irrecoverable
VAT was not included in its export price of subject merchandise. See, e.g., Tianjin
Wanhua Co. v. United States, 40 CIT ___, ___ 179 F. Supp. 3d 1062, 1071 (2016);
US Magnesium LLC v. United States, 39 CIT ___, ___, 70 F. Supp. 3d 1321, 1325 (2015).
Accordingly, Commerce’s Second Remand Results address the court’s concerns
raised in Aristocraft II, and provide a reasoned explanation supported by substantial
evidence for Commerce’s irrecoverable VAT adjustment of eight percent to Shanghai
Wells’ EP and CEP for subject merchandise.
III. Conclusion
For the foregoing reasons, the Second Remand Results are sustained. Judgment
will enter accordingly.
/s/ Leo M. Gordon
Judge Leo M. Gordon
Dated: April 17, 2019
New York, New York
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