Eregli Demir ve Celik Fabrikalari T.A.S. v. United States

Slip Op. 18-27
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Mark A. Barnett, Judge
Consol. Court No. 16-00218
PUBLIC VERSION
OPINION AND ORDER
[Granting in Part and Denying in Part Plaintiff’s and Consolidated Plaintiffs’ Rule 56.2
Motions for Judgment on the Agency Record.]
Dated: March 22, 2018
David L. Simon, Law Office of David L. Simon, of Washington, DC, argued for Plaintiff
Ereğli Demir ve Çelik Fabrikalari T.A.Ş. With him on the brief was Mark B. Lehnardt,
Mark B. Lehnardt, Esq., of Washington, DC.
Matthew M. Nolan, Arent Fox LLP, of Washington, DC, argued for Consolidated
Plaintiffs Çolakoğlu Metalurji A.S. and Çolakoğlu Dis Ticaret A.S. With him on the brief
was Nancy A. Noonan.
Renée A. Burbank, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, DC, argued for Defendant United States. With
her on the brief were Chad A. Readler, Acting Assistant Attorney General, Jeanne E.
EREGLI DEMIR VE CELIK
FABRIKALARI T.A.S, et al.,
Plaintiffs,
v.
UNITED STATES,
Defendant,
and
STEEL DYNAMICS, INC., et al.,
Defendant-Intervenors.
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Davidson, Director, and Patricia M. McCarthy, Assistant Director. Of counsel on the
brief was Brandon J. Custard, Attorney, Office of the Chief Counsel for Trade
Enforcement and Compliance, U.S. Department of Commerce.
David C. Smith, Jr. and Joshua R. Morey, Kelley Drye & Warren, LLP, of Washington,
DC, argued for Defendant-Intervenor ArcelorMittal USA LLC. With them on the brief
were Paul C. Rosenthal and R. Alan Luberda.
Roger B. Schagrin and Christopher T. Cloutier, Schagrin Associates, of Washington,
DC, for Defendant-Intervenors Steel Dynamics, Inc. and SSAB Enterprises LLC.
Stephen A. Jones and Daniel L. Schneiderman, King & Spalding LLP, of Washington,
DC, for Defendant-Intervenor AK Steel Corporation.
Jeffrey D. Gerrish and Luke A. Meisner, Skadden Arps Slate Meagher & Flom, LLP, of
Washington, DC, for Defendant-Intervenor United States Steel Corporation.
Alan H. Price and Christopher B. Weld, Wiley Rein LLP, of Washington, DC, for
Defendant-Intervenor Nucor Corporation.
Barnett, Judge: Plaintiff Ereğli Demir ve Çelik Fabrikalari T.A.Ş. (“Erdemir”) and
Consolidated Plaintiffs Çolakoğlu Metalurji A.S. and Çolakoğlu Dis Ticaret A.S.
(together, “Çolakoğlu”) (collectively, “Plaintiffs”), move, pursuant to United States Court
of International Trade (“USCIT” or “CIT”) Rule 56.2, for judgment on the agency record,
challenging the United States Department of Commerce’s (“Commerce” or the
“agency”) final results in the sales at less than fair value investigation of certain hot-
rolled steel flat products from the Republic of Turkey.1 See Certain Hot-Rolled Steel
1 The administrative record is divided into a Public Administrative Record (“PR”), ECF
No. 41-4, and a Confidential Administrative Record (“CR”), ECF No. 41-5. Parties
submitted joint appendices containing all record documents cited in their briefs. See
Public Joint App. (“PJA”), ECF No. 70; Confidential Joint App. (“CJA”), ECF No. 69;
Confidential Suppl. App. of Pl. Erdemir, ECF No. 80; Public Suppl. App. of Pl. Erdemir,
ECF No. 81; Çolakoğlu’s Confidential Suppl. App. (“Çolakoğlu Suppl. CJA”), ECF No.
82; Çolakoğlu’s Non-Confidential Suppl. App. (“Çolakoğlu Suppl. PJA”), ECF No. 83;
Çolakoğlu’s Confidential Second Suppl. App. (“Çolakoğlu 2nd Suppl. CJA”), ECF No.
85; Çolakoğlu’s Non-Confidential Second Suppl. App. (“Çolakoğlu 2nd Suppl. PJA”),
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Flat Products from the Republic of Turkey, 81 Fed. Reg. 53,428 (Dep’t Commerce Aug.
12, 2016) (final determination of sales at less than fair value; 2014-2015) (“Final
Determination”), ECF No. 41-1, and accompanying Issues and Decision Mem., A-489-
826 (Aug. 4, 2016) (“I&D Mem.”), ECF No. 41-3, as amended by Certain Hot-Rolled
Steel Flat Products from Australia, Brazil, Japan, the Republic of Korea, the
Netherlands, the Republic of Turkey, and the United Kingdom, 81 Fed. Reg. 67,962
(Dep’t Commerce Oct. 3, 2016) (am. final affirmative antidumping determinations for
Australia, the Republic of Korea, and the Republic of Turkey and antidumping duty
orders), ECF No. 41-2.
Erdemir challenges Commerce’s determinations regarding its home market and
U.S. dates of sale. See Pl.’s Rule 56.2 Mot. for J. on the Agency R., ECF No. 52, and
Mem. in Supp. of Mot. of Pl. Ereğli Demir ve Çelik Fabrikalari T.A.Ş., for J. Upon the
Agency R. Pursuant to Rule 56.2 (“Erdemir Mem.”), ECF No. 52-1. Çolakoğlu
challenges Commerce’s determinations regarding duty drawback, indirect selling
expenses, corrections to international ocean freight expenses, cost-averaging
methodology, and treatment of excess heat as a co-product. See Confidential Pls.’ Mot.
for J. on the Agency R., ECF No. 53, and Confidential Pls. Çolakoğlu Metalurji A.S. and
Çolakoğlu Dis Ticaret A.S. Mem. of Law in Supp. of Mot. for J. on the Agency R.
Pursuant to Rule 56.2 (“Çolakoğlu Mem.”), ECF No. 53-1. Defendant United States (the
“Government”) and Defendant-Intervenors urge the court to sustain Commerce’s
ECF No. 86. The court references the confidential versions of the relevant record
documents and briefs, if applicable, throughout this opinion.
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determinations. See Confidential Def.’s Mem. in Opp’n to Rule 56.2 Mots. for J. on the
Agency R. (“Gov. Resp.”), ECF No. 59; Confidential Def.-Ints.’ Resp. in Opp’n to Pls.’
Mots. for J. on the Agency R. (“Def.-Ints. Resp.”), ECF No. 61. For the following
reasons, the court grants Erdemir’s motion as to its home market date of sale. The
court further grants Çolakoğlu’s motion as to duty drawback and corrections to
international ocean freight expenses. Plaintiffs’ motions are denied in all other respects.
The issues upon which the court has granted Plaintiffs’ respective motions are
remanded to the agency for reconsideration or further explanation.
B ACKGROUND
Commerce initiated this anti-dumping duty investigation of hot-rolled steel flat
products (“hot-rolled steel”) on August 31, 2015 in response to petitions filed by
domestic producers of hot-rolled steel. See Certain Hot-Rolled Steel Flat Products from
Australia, Brazil, Japan, the Republic of Korea, the Netherlands, the Republic of Turkey,
and the United Kingdom, 80 Fed. Reg. 54,261 (Dep’t Commerce Sept. 9, 2015)
(initiation of less-than-fair-value investigations; 2014-2015). Commerce selected
Çolakoğlu and Erdemir as mandatory respondents in the investigation. See
Respondent Selection Mem. at 5-6, CJA Tab 1.2 The period of investigation (“POI”) ran
from July 1, 2014 to June 30, 2015. Final Determination, 81 Fed. Reg. at 53,428.
2 The Respondent Selection Memorandum identifies Çolakoğlu and “Iskenderun Demir
Ve Celik” (“Iskenderun”) as the mandatory respondents. Respondent Selection Mem. at
5. Iskenderun is Erdemir’s subsidiary. See, e.g., Gov. Resp. at 4.
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On March 22, 2016, Commerce issued its Preliminary Determination. See
Certain Hot-Rolled Steel Flat Products From the Republic of Turkey, 81 Fed. Reg.
15,231 (Dep’t Commerce March 22, 2016) (aff. prelim. determination of sales at less
than fair value; 2014-2015), and accompanying Preliminary Decision Mem., A-489-826
(“Prelim. Mem.”), CJA Tab 19, PJA Tab 19, PR 252, ECF No. 69-1.
Commerce conducted sales verifications of Çolakoğlu and Erdemir in Istanbul,
Turkey from March 28 through April 8, 2016, and of Çolakoğlu in Houston, Texas, from
May 5 through May 7, 2016. I&D Mem. at 2. Commerce conducted cost verifications of
Erdemir in Eregli, Turkey, from April 18 to April 22, 2016, and of Çolakoğlu in Istanbul,
Turkey, from April 25 to April 29, 2016. Id. at 2.
On August 4, 2016, Commerce issued its Final Determination. See Final
Determination, 81 Fed. Reg. at 53,428. In the Final Determination, Commerce
calculated a weighted-average dumping margin of 3.66 percent for Erdemir and 7.15
percent for Çolakoğlu. 81 Fed. Reg. at 53,429.
On October 14, 2016, Erdemir timely instituted this action. See Summons, ECF
No. 1. On October 28, 2016, Çolakoğlu also filed suit challenging the Final
Determination. See Summons, ECF No. 1 (Court No. 16-232). On January 18, 2017,
the court consolidated the two actions. See Order (Jan. 18, 2017), ECF No. 45. 3
3 Additional factual and procedural background is contained in the relevant section
when helpful to the analysis.
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J URISDICTION AND S TANDARD OF REVIEW
The court has jurisdiction pursuant to § 516A(a)(2)(B)(i) of the Tariff Act of 1930,
as amended, 19 U.S.C. § 1516a(a)(2)(B)(i) (2012), 4 and 28 U.S.C. § 1581(c) (2012).
The court will uphold an agency determination that is supported by substantial
evidence and otherwise in accordance with law. 19 U.S.C. § 1516a(b)(1)(B)(i).
“Substantial evidence is ‘such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.’” Huaiyin Foreign Trade Corp. (30) v. United States,
322 F.3d 1369, 1374 (Fed. Cir. 2003) (quoting Consol. Edison Co. v. NLRB., 305 U.S.
197, 229 (1938)). It “requires more than a mere scintilla,” but “less than the weight of
the evidence.” Nucor Corp. v. United States, 34 CIT 70, 72, 675 F. Supp. 2d 1340,
1345 (2010) (quoting Altx, Inc. v. United States, 370 F.3d 1108, 1116 (Fed. Cir. 2004)).
In determining whether substantial evidence supports Commerce’s determination, the
court must consider “the record as a whole, including evidence that supports as well as
evidence that ‘fairly detracts from the substantiality of the evidence.’” Nippon Steel
Corp. v. United States, 337 F.3d 1373, 1379 (Fed. Cir. 2003) (quoting Atl. Sugar, Ltd. v.
United States, 744 F.2d 1556, 1562 (Fed. Cir. 1984)). However, that a plaintiff can
point to evidence that detracts from the agency’s conclusion or the possibility of drawing
two inconsistent conclusions from the evidence does not preclude the agency’s finding
from being supported by substantial evidence. Matsushita Elec. Indus. Co. v. United
States, 750 F.2d 927, 933 (Fed. Cir. 1984) (citing Consolo v. Fed. Mar. Comm’n, 383
4 All citations to the Tariff Act of 1930, as amended, are to Title 19 of the U.S. Code,
2012 edition.
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U.S. 607, 619-20 (1966)). The court may not “reweigh the evidence or . . . reconsider
questions of fact anew.” Downhole Pipe & Equip., L.P. v. United States, 776 F.3d 1369,
1377 (Fed. Cir. 2015) (quoting Trent Tube Div., Crucible Materials Corp. v. Avesta
Sandvik Tube AB, 975 F.2d 807, 815 (Fed. Cir. 1992)).
DISCUSSION
I. 	Erdemir’s Rule 56.2 Motion
A. Legal Framework for Date of Sale Determinations
To determine whether the subject merchandise is being sold at less than fair
value, Commerce compares the export price or, as is the case here, the constructed
export price 5 of the subject merchandise to its normal value. 6 See generally 19 U.S.C.
1673 et seq. Normal value is “the price [of the foreign like product] at a time reasonably
corresponding to the time of the sale used to determine the export price or constructed
export price.” Id. § 1677b(a)(1)(A).
The antidumping statute does not state a particular methodology for determining
the “time of sale” for purposes of that comparison. However, the Statement of
5 Constructed export price is defined as “the price at which the subject merchandise is
first sold (or agreed to be sold) in the United States before or after the date of
importation by or for the account of the producer or exporter of such merchandise or by
a seller affiliated with the producer or exporter, to a purchaser not affiliated with the
producer or exporter,” with applicable adjustments pursuant to § 1677a(c) and (d). 19
U.S.C. § 1677a(b).
6 When, as here, the subject merchandise is sold or offered for sale “for consumption in
the exporting country, in the usual commercial quantities and in the ordinary course of
trade and, to the extent practicable, at the same level of trade as the export price or
constructed export price,” normal value is determined on the basis of home market
sales. 19 U.S.C. § 1677b(a)(1)(B).
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Administrative Action (“SAA”) accompanying the Uruguay Round Agreements Act
defines “date of sale” for the purposes of currency conversion as the “date when the
material terms of sale are established.” Uruguay Round Agreements Act, Statement of
Administrative Action, H.R. Doc. No. 103-316, vol. 1, at 810 (1994), reprinted in 1994
U.S.C.C.A.N. 4040, 4153.7 Consistent with the SAA, Commerce’s regulations prescribe
that “[i]n identifying the date of sale of the subject merchandise . . ., the [agency]
normally will use the date of invoice, as recorded in the exporter or producer's records
kept in the ordinary course of business.” 19 C.F.R. § 351.401(i) (2015). The regulation
further prescribes, however, that “the [agency] may use a date other than the date of
invoice if [it] is satisfied that a different date better reflects the date on which the
exporter or producer establishes the material terms of sale.” Id.; see also Antidumping
Duties; Countervailing Duties, 62 Fed. Reg. 27,296, 27,349 (Dep’t Commerce May 19,
1997) (“Preamble”) (“If [Commerce] is presented with satisfactory evidence that the
material terms of sale are finally established on a date other than the date of invoice,
[Commerce] will use that alternative date as the date of sale”). 8 In other words,
7 The SAA “shall be regarded as an authoritative expression by the United States
concerning the interpretation and application of the Uruguay Round Agreements and
this Act in any judicial proceeding in which a question arises concerning such
interpretation or application.” 19 U.S.C. § 3512(d).
8 In the Preamble, Commerce further explains that
as a matter of commercial reality, the date on which the terms of a sale
are first agreed is not necessarily the date on which those terms are finally
established. In [Commerce’s] experience, price and quantity are often
subject to continued negotiation between the buyer and the seller until a
sale is invoiced. The existence of an enforceable sales agreement
between the buyer and the seller does not alter the fact that, as a practical
matter, customers frequently change their minds and sellers are
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Commerce’s date of sale regulation establishes a “rebuttable presumption” in favor of
the invoice date unless the proponent of a different date produces satisfactory evidence
that the material terms of sale were established on that alternate date. Colakoglu
Metalurji A.S. v. United States, 29 CIT 1238, 1240, 394 F. Supp. 2d 1379, 1380-81
(2005); see also Toscelik Profil ve Sac Endustrisi A.S. v. United States, 41 CIT 	,
, 256 F. Supp. 3d 1260, 1263 (2017) (“Commerce's date of sale regulation . . .
squarely plac[es] the burden on interested parties challenging the presumptive invoice
date[] to remove any doubt about when material terms are firmly and finally set . . . .”)
(citation omitted).
Material terms of sale may include price, quantity, and delivery and payment
terms. See, e.g., Sahaviriya Steel Industries Public Co. Ltd. v. United States, 34 CIT
709, 727, 714 F. Supp. 2d 1263, 1280 (2010), aff’d, 649 F.3d 1371 (Fed. Cir. 2011)
(citations omitted). 9 Commerce also has viewed the specification of an aggregate
responsive to those changes. [Commerce] also has found that in many
industries, even though a buyer and seller may initially agree on the terms
of a sale, those terms remain negotiable and are not finally established
until the sale is invoiced.
62 Fed. Reg. at 27,348-49.
9 The Government contends this court and the U.S. Court of Appeals for the Federal
Circuit (“Federal Circuit”) have affirmed Commerce’s consideration of payment terms as
material terms in the date of sale analysis. Gov. Resp. at 39 (citing, inter alia,
Sahaviriya Steel, 34 CIT 709, 714 F. Supp. 2d 1263, which the Federal Circuit affirmed,
649 F.3d 1371). In Sahaviriya Steel, the CIT favorably referenced Nakornthai III, noting
that price, quantity, delivery terms and payment terms were among the terms of sale
regarded as “material” by Commerce. 34 CIT at 727, 714 F. Supp. 2d at 1280; see also
Nakornthai Strip Mill Public Co. Ltd. v. United States (“Nakornthai III”), 33 CIT 326, 614
F. Supp. 2d 1323 (2009). On appeal to the Federal Circuit, however, the only issues
challenged were whether Commerce properly conducted a changed circumstances
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quantity tolerance level as a material term because of its potential to effect quantity.
See Nakornthai Strip Mill Public Co. Ltd. v. United States, 32 CIT 553, 561, 558 F.
Supp. 2d 1319, 1327 (2008); Sahaviriya Steel, 34 CIT at 727, 714 F. Supp. 2d at 1280.
“[E]vidence that material terms of sale changed after the contract date is relevant to
determining the date on which the parties had a real meeting of the minds.” Nucor
Corp. v. United States, 33 CIT 207, 264, 612 F. Supp. 2d 1264, 1312 (2009) (internal
quotation marks omitted). “In choosing a date of sale, Commerce weighs the evidence
presented and determines the significance of any changes to the terms of sale
involved.” Sahaviriya Steel, 34 CIT at 728, 714 F. Supp. 2d at 1263; see also
Nakornthai III, 33 CIT at 336, 614 F. Supp. 2d at 1333 (because Commerce typically
disregards insignificant changes to material terms, the record supporting a finding that
material terms were not set until invoicing must also “support the finding that []
change[s] to the material terms represented in the contract [were] significant”).
B. Commerce’s Reliance on the Invoice Date as the Date of Sale for
Erdemir’s Home Market Sales
1. 	Factual Background
For home market sales, Erdemir uses an online portal called “ErdemirOnline” to
interact with its customers. See Sect. A Questionnaire Resp. of Ereğli Demir ve Çelik
Fabrikalari T.A.Ş. and Iskenderun Demir ve Çelik A.Ş (“Erdemir § A QR”) at 19, CJA
Tab 3, CR 25-58, PJA Tab 3, PR 107-113, ECF No. 69. Erdemir described the sales
review and exercised its authority pursuant to a partial revocation. See Sahaviriya
Steel, 649 F.3d at 1372-73.
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process as: (1) the customer places an order via email or fax stating certain
requirements (including quantity, dimension, thickness, and quality); (2) Erdemir
contacts the customer to review the order; (3) if the order is deemed suitable, Erdemir
transmits to the customer a pro forma invoice via ErdemirOnline, email, or fax, stating
the “order details, delivery details, price information and quotation with sale price and
further information related to time of giving of order guarantee (option time)”; (4) the
customer accepts the order via ErdemirOnline (the “click” date) within a given timeframe
(referred to as “option time”). Erdemir § A QR, Ex. A-08 (“Domestic Terms &
Conditions”) ¶¶ 5.1-5.4; see also Erdemir § A QR, Ex. A-10 at 4 (screen shot of
customer’s acceptance through ErdemirOnline); Erdemir § A QR, Ex. A-10 at 5 (sample
pro forma invoice for a home market sale).
When the order is ready to ship, the customer is notified through ErdemirOnline.
Domestic Terms & Conditions ¶ 9.1. The actual quantity sold is subject to a leeway or
tolerance based on the ordered quantity. Id. ¶ 9.4. The tolerances for homes market
sales are: (1) +/-50 percent for orders less than 100 metric tons (“MT”); (2) +/-20
percent for orders 100-150MT; and (3) +/-10 percent for orders above 150MT. Id.10
The unit price is stated (in USD/ton) on the pro forma invoice, deviations from which are
not permitted. Id. ¶ 9.2. The final payable amount constitutes the unit price from the
pro forma invoice, multiplied by the actual tonnage, plus value added tax. Id. ¶ 9.3.
When making payment, the customer may elect to pay in cash or via credited (term)
10 Each coil weighs around 25 tons. See Erdemir § A QR, Ex. A-10 at 1 (sample home
market sales invoice).
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payment. Id. ¶ 9.4(a)-(b). If the customer selects a credited payment, it must make a
pre-determined down payment before the payment deadline. Id. ¶ 9.4(b).
2. 	Parties’ Contentions
Erdemir contends that Commerce erred in rejecting the “click date” as the date of
sale. Erdemir Mem. at 17-20. Commerce reasoned that the payment term (cash or
credited payment) is not fixed until the merchandise is ready to be picked up and the
customer elects a cash or credited payment. See id. at 17-18. Erdemir contends that
this election is included in the Domestic Terms & Conditions and, therefore, does not
constitute a change. Id. at 18-20; see also Confidential Reply Br. in Supp. of Mot. of Pl.
Ereğli Demir ve Çelik Fabrikalari T.A.Ş., for J. Upon the Agency R. Pursuant to Rule
56.2 (“Erdemir Reply”) at 1-4, ECF No, 65. Erdemir further contends that, to the extent
the election of cash or credited payment is considered a “change” to a contract term,
“the change is immaterial because Erdemir receives the same net value [from] the sale
in either event.” Erdemir Mem. at 19; Erdemir Reply at 2. 11
The Government contends that Erdemir failed to produce sufficient evidence that
the material terms of sale were established upon the “click date.” Gov. Resp. at 36.
The Government further contends that the flexibility afforded by Erdemir’s Domestic
Terms & Conditions do not overcome Commerce’s regulatory presumption for the
11 Erdemir explains that, for example, receiving “100 dollars today is equivalent to, say,
102.5 dollars at 90 days assuming the term-payment interest rate is 10 percent
(100*10%*90/360=2.5).” Erdemir Mem. at 19 (citing Hr’g Tr. (June 23, 2016) (“Hr’g Tr.”)
at 79-80, CJA Tab 36, PJA Tab 36, PR 319, ECF No. 69-2). Thus, according to
Erdemir, “whether the customer elects to pay $100 today or $102.50 in 90 days is
immaterial.” Id.
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invoice date as the date of sale. Gov. Resp. at 36; see also id. at 37 (“Despite
Erdemir’s arguments, the fact remains that payment terms are a material term . . . .”).
Defendant-Intervenors contend that Erdemir’s argument regarding the
immateriality of the customer’s selection of cash or credited payment term
“misunderstands [Commerce’s] date of sale analysis.” Def.-Ints. Resp. at 23. Pointing
to Commerce’s date of sale regulation, Defendant-Intervenors argue that “it is the date
the material terms of sale relied on by [Commerce] are firmly and finally established that
determines the date of sale, regardless of whether Erdemir views the specific terms as
having any ‘consequences.’” Id. at 24.
3. 	Analysis
In the underlying proceeding, Commerce pointed to Erdemir’s fixing of the “total
credit extension amount and per unit amount . . . in the home market sales invoices” to
support its determination that “differences in the material terms of sale between order
and sales invoice [dates]” merited selection of the invoice date as the home market date
of sale. I&D Mem. at 26 & nn.132-33 (internal quotations and footnote citations
omitted). Commerce also pointed to its “normal practice” of considering delivery and
payment terms as material terms of sale. I&D Mem. at 26. Commerce’s conclusory
analysis fails to demonstrate a reasoned decision supported by substantial evidence.
The payment terms provided in Erdemir’s Domestic Terms & Conditions
expressly permit Erdemir’s customers to pay by cash or credited payment when the
goods are ready to ship. See Domestic Terms & Conditions ¶ 9.4. The payment term
does not change in that the option to pay by cash or credited payment is withdrawn or
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otherwise modified; instead, Erdemir’s customers exercise that option at the appropriate
time. See id.; Erdemir Mem. at 18 (Commerce failed to consider evidence that the
payment option “is embedded in the contract itself”); Erdemir Reply at 1 (“Commerce
fails to identify any payment term that ever changed . . . .”). Commerce does not
explain why the selection of the payment option at the so-called “ready date,” when the
cash or credit terms have been pre-established and are alleged to be economically
equivalent, 12 represents a change to a material term. See I&D Mem. at 26. Cf.
Nakornthai III, 33 CIT at 334-36, 614 F. Supp. 2d at 1332-33 (rejecting Commerce’s
assertion that the elimination of a line item tolerance level materially alters the contract
merely because tolerance is considered material because it fails to address the
significance of the change). 13
12 Erdemir discusses economic equivalence in the context of a hypothetical 100 USD
sale, which it supports by way of reference to a general discussion at Commerce’s
hearing in the underlying administrative proceeding. See Erdemir Mem. at 19 (citing
Hr’g Tr. at 79-80); supra note 11. Commerce did not reject Erdemir’s proposed date of
sale on the basis of non-equivalence. See I&D Mem. at 26. Because it is unclear
whether the record contains actual evidence establishing the economic equivalence of
the cash and credit payment terms, the degree to which this principle supports
Erdemir’s proposed date of sale is also unclear.
13 The Nakornthai III court nonetheless sustained Commerce’s date of sale
determination on the basis of its factual findings regarding the significance of changes
to payment and delivery terms, which were supported by substantial evidence. 33 CIT
at 338, 614 F. Supp. 2d at 1334. Specifically, a change to a payment term permitted
Nakornthai to receive a large portion of its payment earlier than the date set in the
contract, while changes to the letter of credit’s expiration date and last shipment dates
gave Nakornthai additional time to ship the subject merchandise “while still being
entitled to full payment.” Id. (citations omitted). The court noted, however, that it was
not affirming “Commerce’s finding [] merely because these material contractual terms
were amended,” but on the basis of Commerce’s “requisite factual findings of
significance with regard to the change in payment and delivery terms.” Id. In contrast,
here, the optional payment term is not changed or renegotiated, and Commerce has not
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The Government’s attempt to distinguish Habas Sinai ve Tibbi Gazlar Istihsal
Endustrisi A.S. v. United States, 33 CIT 695, 735-36, 625 F. Supp. 2d 1339, 1372-73
(2009) is unpersuasive. Gov. Resp. at 38; see also Erdemir Mem. at 19-20 (analogizing
Habas). In Habas, following a remand, Commerce reversed its prior determination and
relied on the contract date as the date of sale despite a post-contract billing adjustment
because the adjustment was a late delivery fee to which parties had contractually
agreed. 33 CIT at 735-36, 625 F. Supp. 2d at 1373. The Government asserts that
Habas is distinguishable because the record in that case reflected a billing adjustment
to one sale, whereas here, credit terms for several sales were finalized at the time of
invoicing. Gov. Resp. at 38 (citation omitted). Habas, however, did not rely on the
number of sales to which the billing adjustment applied; rather, the court sustained
Commerce’s determination because the contractual nature of the late delivery fee
meant that material terms of sale had not changed. 33 CIT at 735-76, 625 F. Supp. 2d
at 1373. Additionally, to the extent the Government seeks to rely on the number of
sales for which credit terms were selected at the “ready date,” the Issues and Decision
Memorandum lacks any such analysis or reliance. See I&D Mem. at 26; Burlington
Truck Lines, Inc. v. United States, 371 U.S. 156, 168-69 (1962) (the court may not
accept “post hoc rationalizations for agency action,” and may only sustain the agency’s
decision “on the same basis articulated in the order by the agency itself”).
made any factual findings regarding significance. See Domestic Terms & Conditions
¶ 9.4; I&D Mem. at 26; Erdemir Mem. at 18 (the Domestic Terms & Conditions do not
“leav[e] room for renegotiating or changing the payment terms”).
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Defendant-Intervenors’ reliance on the Preamble to Commerce’s date of sale
regulation is also unavailing. Defendant-Intervenors quote a passage stating that
certain terms may remain negotiable even after the initial agreement between buyer and
seller. Def.-Ints. Resp. at 23-24 (quoting Preamble, 62 Fed. Reg. at 27,348-49). Here,
however, there is no evidence that terms remained negotiable, or that Erdemir’s
customers changed their minds and were accommodated by Erdemir. Cf. SeAH Steel
Corp., Ltd. v. United States, 25 CIT 133, 136 &n.7 (2001) (sustaining Commerce’s
reliance on the invoice date when the record demonstrated that SeAH permitted a
customer to request a different payment term between the contract date and invoice
date). Accordingly, the court will remand Commerce’s date of sale determination for
Erdemir’s home market sales for reconsideration or further explanation.
C. Commerce’s Reliance on the Invoice Date as the Date of Sale for
Erdemir’s U.S. Sales
1. 	Factual Background
For sales to the United States, customers initiate the sales process through a
written or oral inquiry, to which Erdemir responds with a written offer. Erdemir § A QR
at 19. Erdemir subsequently issues a more detailed sales agreement, pro forma
invoice, and technical data sheet specifying price, grade, size, shipping conditions, and
quantity, which is then signed by both parties. Id. The general terms and conditions for
U.S. sales accompanying the sales agreement state that it “shall come into force when
signed by both parties . . . .” Erdemir § A QR, Ex. A-09 (sample U.S. sales agreement)
(“U.S. Terms & Conditions”) ¶ 6.1. The pro forma invoice more specifically states that,
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“[u]pon receipt of the Pro-forma Invoice signed by the Buyer, it is at the ultimate
discretion of the Seller to give final confirmation to the Pro-forma Invoice by the signing
the same.” Erdemir § A QR, Ex. A-9 (pro forma invoice) (“Pro Forma”) Misc. ¶ 1.
Thereafter, Erdemir’s customer issues a letter of credit. Erdemir § A QR at 19. If the
letter of credit is untimely, Erdemir has the option to accept or reject the letter of credit;
extending the letter of credit opening term is at Erdemir’s sole discretion. U.S. Terms &
Conditions, Annex 3 ¶ 2.2. U.S. sales are subject to quantity tolerances in the following
amounts: (1) +/-10 percent for line items over 200MT; (2) +/-10 percent for each lot; and
(3) +/-10 percent for each sale (grand total). Erdemir § A QR, Ex. A-9 (technical
specifications) (“Tech. Specs.”) ¶ 3.2. For sizes/items equal to or less than 200MT, the
tolerance may exceed +/- 10 percent. Id.
2. 	Parties’ Contentions
Erdemir contends that Commerce erred in rejecting the date upon which it signed
the pro forma invoice as the date of sale on the basis of volume differences, multiple
signature dates, and delays in opening letters of credit because (1) any differences
between the quantities ordered and shipped were immaterial; 14 (2) in accordance with
the U.S. Terms & Conditions and the pro forma invoice, “the only relevant [signature]
14 Erdemir also points to the overall 0.06 percent quantity leeway for all U.S. sales as
demonstrating the “insignifican[ce]” of any quantity variance. See, e.g., Erdemir Mem.
at 23. Because the pertinent inquiry focuses on when the contracting parties had a
meeting of the minds as to their respective contracts, volume differences calculated on
the basis of all U.S. sales are irrelevant, and the court has—correctly—rejected a similar
argument in the past on the basis that it “would render meaningless the quantity
tolerance levels negotiated by the contracting parties.” See Sahaviriya Steel, 34 CIT at
729, 714 F. Supp. 2d at 1281.
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Court No. 16-00218 	Page 18
date is the last date—that of Erdemir’s signature”; and (3) the U.S. Terms & Conditions
permit Erdemir to determine the consequences of an untimely letter of credit, which
includes extending the opening term. Erdemir Mem. at 21-26; Erdemir Reply at 5-12.15
The Government contends that “Erdemir’s relatively small number of U.S. sales”
in conjunction with inconsistencies between the quantities ordered and shipped favored
selecting the invoice date. 	Gov. Resp. at 41. The Government further contends that
Commerce reasonably determined that the presence of “multiple document dates on the
pro forma invoice” meant “that either the material terms changed at the last minute, or
were not yet finalized when the document was signed.” Gov. Resp. at 41-42
(“Commerce made a reasonable assumption that the printed date on the pro forma
invoice was crossed out because the material terms changed at the last minute, or were
not yet finalized when the document was signed.”) . The Government also contends
that the failure to timely open the letter of credit “supported the finding that the payment
terms set forth in the pro forma invoices not only have the potential to change, but do
change.” Gov. Resp. at 39-40; see also Def.-Ints. Resp. at 18-19, 21-23 (advancing
similar arguments).16
15 At oral argument, Erdemir abandoned its argument that the contract provisions
permitting partial shipments resolved any quantity differences. See Erdemir Mem. at
22; Oral Arg. at 43:40-45:42.
16 Defendant-Intervenors also contend that Erdemir used inconsistent language to
describe the triggering event giving rise to the date of sale. See Def.-Ints. Resp. at 19-
20. Commerce did not rely on any inconsistent language to support its determination.
See I&D Mem. at 27. Additionally, Erdemir defined the date of sale for U.S. sales as the
“contract date,” and “reported its pro[ ]forma invoice date as the date of contract” in the
“CONDATEU” field. Sect. C Questionnaire Resp. of Ereğli Demir ve Çelik Fabrikalari
T.A.Ş. and Iskenderun Demir ve Çelik A.Ş at 17, CJA Tab 4, CR 78-79, PJA Tab 4, PR
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3. 	Analysis
Commerce articulated three reasons for rejecting the pro forma signature date as
the date of sale. As discussed below, the court sustains Commerce’s determination on
the basis of each of these reasons.
a. 	Volume Differences
Commerce asserted that for “small shipments, U.S. customers are bound to
accept the quantity shipped regardless of the quantity they ordered,” and the record
showed differences between the quantities ordered and shipped. I&D Mem. at 26.
Commerce further explained that “some of Erdemir’s larger U.S. sales failed to meet the
tolerance threshold set forth in the terms of sale.” Id. at 26 & n.136 (citation omitted).
Commerce noted that, in Circular Welded Pipe from Taiwan, differences in the material
terms of just 2 out of 62 sales merited basing the date of sale on the invoice date. Id. at
26-27 (citing Circular Welded Carbon Steel Pipes and Tubes from Taiwan, 76 Fed. Reg.
63,902 (Dep’t Commerce Oct. 14, 2011) (final results of antidumping duty admin.
review) (“Circular Welded Pipe from Taiwan”), and accompanying Issues and Decision
Mem., A-583-008 (Oct. 6, 2011) at Cmt. 1). Commerce explained that, by that standard,
there were sufficient changes here such that Erdemir failed to establish a date
of sale other than invoice date. Id. at 27.
141, ECF No. 69; see also Erdemir § A QR at 19. The “CONDATEU” field in each of
Erdemir’s sales verification exhibits correspond to Erdemir’s final signature date on the
pro forma invoice. See Sales Verification Exs. (“SVE”) 11-14, CJA Tab 28, CR 336,
343-55, PJA Tab 28, PR 273, ECF No. 69-1. Accordingly, Defendant-Intervenors’
argument lacks merit.
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Commerce’s reliance on quantity differences for small shipments is unsupported
by record evidence. First, Commerce’s reference to “small shipments” is unclear. The
absence of a tolerance applies only to line items below 200MT. See Tech. Specs.
¶ 3.2. None of Erdemir’s sales were this small. 	See Suppl. § B-C Questionnaire Resp.
of Ereğli Demir ve Çelik Fabrikalari T.A.Ş. and Iskenderun Demir ve Çelik A.Ş (“Erdemir
2nd Suppl. § BC QR”), Ex. SBC-21, CJA Tab 11, CR 193-246, PJA Tab 11, PR 214,
ECF No. 69 (Erdemir Invoice/Contract Sales Comparison). Moreover, the tolerances
applicable to lot and grand totals mean that Erdemir’s customers are not “bound to
accept the quantity shipped regardless of the quantity they ordered,” see I&D Mem. at
26, because these aggregate tolerances would still be applicable.
Commerce’s reliance on volume differences and Erdemir’s purported failure to
meet the tolerance thresholds for “larger U.S. sales” supports Commerce’s date of sale
decision. While each lot and sale conformed to leeway allowances, two line items in
one lot of one sale exceeded the 10 percent tolerance limit for line items above 200MT.
See Erdemir 2nd Suppl. § BC QR, Ex. SBC-21. Circular Welded Pipe from Taiwan is,
thus, analogous to this case because the record evidences Erdemir’s ability to ship
items not in conformity with the quantity ordered or the tolerance limits established in
the signed pro forma invoice. See I&D Mem. at 26. This evidence supports
Commerce’s finding that Erdemir failed to establish that the material terms of sale were
set on a date other than invoice date.
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b. Letter of Credit Opening Dates
Erdemir’s U.S. Terms & Conditions require letters of credit to be opened within a
particular timeframe. U.S. Terms & Conditions, Annex 3 ¶ 2.1. According to
Commerce, the failure of several customers to timely open the letters of credit means
that payment terms are not final when the pro forma invoice is signed. I&D Mem. at 27
& n.142 (citing Welded Line Pipe from the Republic of Turkey, 80 Fed. Reg. 61,362
(Dep’t Commerce Oct. 13, 2015) (final determination of sales at less than fair value),
and accompanying Issues and Decision Mem., A-489-822 (Oct. 5, 2015) (“Welded Line
Pipe from Turkey, I&D Mem.”) at Cmt. 9). 17
In Welded Line Pipe from Turkey, Commerce declined to rely on the contract
date as the date of sale when the customer’s failure to timely establish a letter of credit
required amending the contract to “change the letter of credit expiry date and latest date
of shipment.” Welded Line Pipe from Turkey, I&D Mem. at 24. Here, while Erdemir’s
U.S. Terms & Conditions allow Erdemir to accept or reject untimely letters of credit, see
U.S. Terms & Conditions, Annex 3 ¶ 2.2, the frequency with which customers were
untimely in opening the letters of credit and with which Erdemir waived the deadline
supports Commerce’s decision that Erdemir did not adequately demonstrate that
17 In Erdemir’s Final Analysis Memorandum, Commerce explained that [[ ]] out of [[ ]]
pro forma invoices failed to reflect letters of credit that were opened within the requisite
[[ ]] days, covering [[ ]] out of [[ ]] sales to the United States. Final Analysis Mem. for
Ereğli Demir ve Çelik Fabrikalari T.A.Ş. and its Affiliates (“Erdemir Final Analysis
Mem.”) at 3, CJA Tab 39, CR 478, PJA Tab 39, PR 323, ECF No. 69-2 (citing, inter alia,
Erdemir 2nd Suppl. § BC QR, Ex. SBC-21).
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material terms were set on a date other than invoice date, see Erdemir Final Analysis
Mem. at 3.
c. 	Pro Forma Signature Dates
Commerce also identified a pro forma invoice with different signature dates,
which prevented it “from determining which date should be considered the signature
date for those sales.” I&D Mem. at 27; 18 see also Erdemir Final Analysis Mem. at 3 &
n.3. 19 Substantial evidence supports Commerce’s determination. Specifically, Erdemir
signed the pro forma invoice associated with SVE 11 on two different signature dates:
November 12, 2014 and November 17, 2014. See SVE 11. The pro forma invoice
states that Erdemir’s signature “give[s] final confirmation” for the sale. Pro Forma, Misc.
¶ 1. It is, therefore, unclear whether the pro forma invoice associated with SVE 11
became “final” on November 12 or November 17. While Erdemir asserts that its “final
signature binds the parties,” this is not the only reasonable interpretation of the
18 Commerce’s reliance on different document dates, however, lacks merit. Commerce
opined that a handwritten date replacing a printed date on one of the pro forma invoices
“indicates that either the material terms changed at the last minute, or were not yet
finalized when the document was signed.” I&D Mem. at 27 & n.139 (citing SVE 11).
The pro forma invoice associated with SVE 11 shows an original printed date of
11/6/2014, which was crossed out and replaced with a handwritten date of 11/7/2014.
See SVE 11. However, Commerce does not explain why the amended document date
suggests that the material terms changed or were not final when the pro forma was
signed on the later date. See id.; Pro Forma, Misc. ¶ 1 (stating that the sale is
confirmed when the pro forma invoice is signed by Erdemir).
19 Commerce identified pro forma invoice number [[ 	]] as the invoice at issue, Erdemir
Final Analysis Mem. at 3 & n.3, which corresponds to the pro forma invoice associated
with SVE 11, see SVE 11. Commerce’s reference to the “[two] pro forma invoices in
this exhibit” is, however, mistaken. Erdemir Final Analysis Mem. at 3 & n.3. SVE 11
contains one pro forma invoice numbered [[ 	]], with content spanning two pages. See
SVE 11.
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evidence. See Matsushita, 750 F.2d at 933 (the possibility of drawing two inconsistent
conclusions from the evidence does not preclude the agency’s finding from being
supported by substantial evidence). 20 The lack of clarity regarding when the pro forma
invoice associated with SVE 11 became final provides substantial evidence supporting
Commerce’s rejection of Erdemir’s signature date as the date of sale. 21 Commerce’s
three reasons for its determination to reject Erdemir’s proposed date of sale for U.S.
sales are each supported by substantial evidence.
II. 	Çolakoğlu’s Rule 56.2 Motion
A. Commerce’s Denial of Çolakoğlu’s Duty Drawback Adjustment
1. 	Legal Framework
Pursuant to 19 U.S.C. § 1677a(c)(1)(B), Commerce will increase constructed
export price (“CEP”) by “the amount of any import duties imposed by the country of
exportation which have been rebated, or which have not been collected, by reason of
the exportation of the subject merchandise to the United States.” This statutory duty
20 At oral argument, Erdemir asserted that the first of Erdemir’s signatures represents
the date on which Erdemir made the offer, which was then sent to the customer, who
then signed and returned the pro forma invoice for Erdemir’s final, and confirmatory,
signature. Oral Arg. at 51:00-52:09. Even if true, this explanation is not supported by
the record evidence that was before Commerce. Had the customer dated its signature
sometime between November 12 and 17, the date of Erdemir’s “final confirmation” may
have been self-evident. Because the customer does not appear to have dated the
document, Commerce had no way of knowing that Erdemir signed the pro forma before
sending it to the customer and upon its return. See SVE 11.
21 Erdemir signed the other pro forma invoices on a single date. See SVE 12-14.
However, it would be impractical to expect Commerce to arrive at different date of sale
determinations for different sales, particularly when each review may encompass
multiple sales. See Toscelik, 256 F. Supp. 3d at 1263.
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drawback adjustment is intended to prevent the dumping margin from being distorted by
import taxes that are imposed on raw materials used to produce exported subject
merchandise. See Wheatland Tube Co. v. United States, 30 CIT 42, 60, 414 F. Supp.
2d 1271, 1286 (2006), rev'd on other grounds, 495 F.3d 1355 (Fed. Cir. 2007); Allied
Tube & Conduit Corp. v. United States, 29 CIT 502, 506, 374 F. Supp. 2d 1257, 1261
(2005) (citations omitted).
Commerce has developed a two-prong test to determine whether a respondent is
entitled to a duty drawback adjustment. First, the import duty and rebate or exemption
must be “directly linked to, and dependent upon, one another”; and, second, the
respondent “must demonstrate that there were sufficient imports of the imported
material to account for the duty drawback or exemption granted for the export of the
manufactured product.” I&D Mem. at 5; see also Saha Thai Steel Pipe (Public) Co. Ltd.
v. United States, 635 F.3d 1335, 1340-41 (Fed. Cir. 2011) (affirming the lawfulness of
Commerce’s two-prong test).
“[T]he first prong enables Commerce to verify that the home country allows
rebates or exemptions only for those imported inputs used to produce exported
merchandise,” Wheatland Tube, 30 CIT at 60, 414 F. Supp. 2d at 1286. The second
prong “requires the foreign producer to demonstrate that it has imported a sufficient
amount of raw materials to account for the drawback received upon export of the
finished product.” Id. (citation omitted). The respondent bears the burden of proving its
eligibility for the duty drawback adjustment. See, e.g., Allied Tube, 29 CIT at 506-07,
374 F. Supp. 2d at 1261.
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2. 	Procedural Background
Çolakoğlu first responded to Commerce’s questions regarding duty drawback in
its initial questionnaire response filed on December 9, 2015. See Questionnaire Resp.
of Çolakoğlu Metalurgi, A. Ş, and its Affiliates to Sect. C of the U.S. Dep’t of Commerce
Antidumping Duty Questionnaire (“Çolakoğlu § C QR”) at C-32 - C-34, CJA Tab 6, CR
125-26, PJA Tab 6, PR 158-60, ECF No. 69. On January 21, 2016, Commerce issued
a third supplemental questionnaire, and for the first time, asked for additional
information about Çolakoğlu’s duty drawback calculation. See Third Suppl.
Questionnaire (“Çolakoğlu Third Suppl. § BC Questionnaire”) at 6, CJA Tab 8, CR 162,
PJA Tab 8, PR 190, ECF No. 69. 22 Çolakoğlu responded to Commerce’s supplemental
questionnaire attaching, inter alia, three exhibits supporting its duty drawback request.
See Part II of Questionnaire Resp. of Çolakoğlu Metalurgi, A.S, and its Affiliates to Third
Suppl. Sects. B and C of the U.S. Dep’t of Commerce Antidumping Duty Questionnaire
(“Çolakoğlu Third Suppl. § BC QR Part II”), Ex. SBC-13a (copies of IPRs), CJA Tab 15,
CR 275-79, PJA Tab 15, PR 223-25, ECF No. 69; id., Ex. SBC-13c (revised duty
22 Commerce specifically asked Çolakoğlu to provide (1) copies of the relevant Turkish
IPRs (“Inward Processing Regime”); (2) an excerpt from the Turkish Customs code
describing a particular HS (“Harmonized System”) code supporting “the amount of the
import duty rate”; (3) a detailed explanation of Çolakoğlu’s calculation with supporting
documentation; (4) an explanation of Çolakoğlu’s linkage of its total exports included in
the calculation to each “specific IPR number”; (5) documentation “link[ing] the duty
drawback and the exempted duties directly to specific U.S. sales”; and (6) further
explanation regarding the total export quantity “reported in Çolakoğlu’s Section C U.S.
sales database.” Çolakoğlu Third Suppl. § BC Questionnaire at 6. Commerce also
asked Çolakoğlu to clarify whether it procures slab from Turkish or foreign sources (or
both). Id.
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drawback calculation); id., Ex. SBC-13d (a copy of an extract obtained from the Turkish
Ministry of Economy online system covering U.S. sales).
Commerce preliminarily determined not to grant Çolakoğlu a duty drawback
adjustment on the basis that certain documents were illegible or insufficiently translated,
and “failed to establish a link between the imported inputs and the duties exempted
upon export because there was no evidence that the inputs subject to the IPR were
used in exported subject merchandise.” Prelim. Mem. at 13 & n.58 (explaining that
“Çolakoğlu’s documents could not be tied to an official Turkish government source”).
Commerce, therefore, concluded that Çolakoğlu had failed to satisfy the first of its two-
prong test. Id. at 13.
Çolakoğlu “offer[ed] to provide better quality copies of certain documents” on the
first day of verification, Çolakoğlu Protest Regarding Dep’t Refusal to Verify Duty
Drawback (April 4, 2016) (“Çolakoğlu April 4 Protest”) at 1-2, CJA Tab 25, PJA Tab 25,
PR 267, ECF No. 69-1, but Commerce declined the documents and refused to verify
Çolakoğlu’s request for the duty drawback adjustment, I&D Mem. at 7. Çolakoğlu
protested Commerce’s refusal. See, e.g., Çolakoğlu April 4 Protest.
3. 	Parties’ Contentions
Çolakoğlu contends (1) that substantial evidence demonstrates that it has met
both requirements of Commerce’s two-prong test; (2) Commerce should have informed
it that certain submissions related to its duty drawback request were deficient and
provided an opportunity to remedy or explain the deficiency; and (3) Commerce should
nonetheless have verified the adjustment. Çolakoğlu Mem. at 12-23; Confidential Reply
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Br. of Consolidated-Pls. Çolakoğlu Metalurji A.S. and Çolakoğlu Dis Ticaret A.S.
(“Çolakoğlu Reply”) at 2-12, ECF No. 64.
The Government contends that Commerce correctly declined the adjustment
because Çolakoğlu failed to show “that its inputs . . . were used to manufacture
exported subject merchandise,” and the incomplete translations and illegibility of certain
record documents meant that “Commerce could not ascertain if the slabs imported by
Commerce were indeed the types of slab necessary to produce hot-rolled steel.” Gov.
Resp. at 12-13. The Government further contends that Commerce gave Çolakoğlu
several opportunities to submit documents demonstrating its entitlement to the
adjustment, Çolakoğlu “knew or should have known that it submitted [deficient
documents],” and Commerce’s statutory responsibility to inform respondents of deficient
submissions must be read in light of the respondent’s burden to “provide Commerce
with an accurate submission within the prescribed statutory deadline.” Id. at 16-18. The
Government also contends that Commerce correctly declined to verify the adjustment
because the information Çolakoğlu provided was “not capable of verification.” Id. at 19.
Defendant-Intervenors contend that Commerce correctly determined that
Çolakoğlu was not entitled to the duty drawback adjustment, and Commerce “was not
required to direct Çolakoğlu to submit documentation establishing the authenticity of the
information it submitted on the record.” Def.-Ints. Resp. at 29. Defendant-Intervenors
further contend that the submitted documents, even if accepted, did not establish the
necessary link, and Commerce correctly declined to verify the adjustment. Id. at 30, 31-
34.
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4. 	Analysis
Çolakoğlu contends that substantial evidence supports granting the duty
drawback adjustment. See Çolakoğlu Mem. at 12-18. The relevant inquiry for the
court’s review however, is whether Commerce’s decision to deny the adjustment is
supported by substantial evidence. See 19 U.S.C. § 1516a(b)(1)(B)(i). Commerce’s
decision rests on its determination that Çolakoğlu failed to meet the first prong of the
agency’s two-prong test. See I&D Mem. at 5 (“Çolakoğlu . . . fail[ed] to establish a link
between the imported inputs and the duties exempted upon export . . . .”). However,
Commerce has failed to articulate a clear standard by which it determines whether that
link has been met, and Commerce’s reasons for finding that Çolakoğlu failed to meet
the test are unsupported by substantial evidence.
As to the first prong, Commerce explained that it seeks only “a reasonable link
between the duties imposed and those rebated or exempted”; it does “not require that
the imported material be traced directly from importation through exportation.” Id. at 4.
Commerce goes on, however, to present different measures for substantiating its
“reasonable link,” somewhat interchangeably, without addressing the distinct evidentiary
burdens of each. Specifically, Commerce stated that Çolakoğlu failed to demonstrate
(1) that “the inputs [slab] subject to the IPR were used to manufacture the exported
subject merchandise,” (2) “that the particular export was made with the slab imported
under the same IPR,” (3) whether the “slabs . . . were indeed the types of slabs
necessary for the production of hot-rolled steel,” or (4) that “the imported slab can be
used and was used to make the final product.” Id. at 5-6 (emphasis added). Commerce
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further stated that “[i]n prior Turkish cases, [it] has required that there be evidence on
the record that the imported inputs can be used in the production of the final product.”
Id. at 5 & n.16 (citing Certain Oil Country Tubular Goods From the Republic of Turkey,
79 Fed. Reg. 41,971 (Dep’t Commerce July 18, 2014) (final determination of sales at
less than fair value and aff. final determination of critical circumstances, in part), and
accompanying Issues and Decision Mem., A-489-816 (July 10, 2014) (“OCTG from
Turkey, I&D Mem.”) at Cmt. 1); Steel Concrete Reinforcing Bar From Turkey, 79 Fed.
Reg. 54,965 (Dep’t Commerce Sept. 15, 2014) (final neg. determination of sales at less
than fair value and final determination of critical circumstances), and accompanying
Issues and Decision Mem., A-489-818 (Sept. 8, 2014) at Cmt. 1); cf. Gov. Resp. at 13-
14 (asserting that Çolakoğlu failed to show that the imported slabs and exported hot-
rolled steel shared “certain metallurgical characteristics, such as carbon content”).
There is a difference between demonstrating that specific imports of slab were
used to produce specific exports of hot-rolled steel, and demonstrating that the slab
imported under the Turkish IPR is suitable for producing hot-rolled steel. Commerce’s
citation to prior Turkish cases fails to clarify the applicable standard. In OCTG from
Turkey, for example, the agency granted the adjustment when “[e]ach respondent
demonstrated that when it opened the DIIBs,[23] it documented 1) projected quantities of
imports, which qualify based on an 8-digit level HTS [“Harmonized Tariff Schedule”]
number (which include API-5CT coil used for OCTG) . . . .” OCTG from Turkey, I&D
23 “DIIBs” is another term for Turkey’s Inward Processing Regime. Prelim. Mem. at 13.
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Mem. at Cmt. 1; I&D Mem. at 5 n.16. Commerce further justified the adjustment on the
basis that “each respondent ha[d] demonstrated that the Turkish Government approved
and maintained DIIBs through the IPR which documented exports of OCTG to the
United States.” OCTG from Turkey, I&D Mem. at Cmt. 1 (emphasis added). So too
here, Çolakoğlu provided information for each IPR documenting what appear to be HTS
codes (referred to as “GTIP” codes) for the imported slab and corresponding exports.
See, e.g., Çolakoğlu Third Suppl. § BC QR Part II, Ex. SBC-13a (IPR 2923, p.6).
Çolakoğlu also demonstrated the Turkish Government’s approval of each IPR on the
basis that the duty free imports were used to produce the exported material. See, e.g.,
id. (IPR 2923, p.1). Commerce’s explanation and conclusory citations to prior rulings
fail to apprise the court of the precise standard it seeks to apply in this case, and
whether that standard is consistent with—or departs from—its prior rulings. See RHP
Bearings Ltd. v. United States, 288 F.3d 1334, 1347 (Fed. Cir. 2002) (“[A]n agency
action is arbitrary when the agency offers insufficient reasons for treating similar
situations differently.”) (citation omitted).
At oral argument, the Government explained that obtaining the adjustment
requires more than demonstrating eligibility for the duty drawback pursuant to Turkish
law, but less than a direct tracing of an input from import to export. The Government
further stated that Çolakoğlu’s documentation failed to apprise Commerce of certain
metallurgical characteristics or otherwise indicate that the imported slabs were the types
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of slabs used to produce hot-rolled steel.24 Oral Arg. at 1:20:15-1:28:15. 25 The
Government’s oral presentation suggests that Commerce’s references to the actual use
of imported slab in exported hot-rolled steel were mistaken and should be understood
as speaking to the suitability of the imported slab. The court may not accept “post hoc
rationalizations for agency action,” and may only sustain the agency's decision “on the
same basis articulated in the order by the agency itself.” Burlington Truck Lines, 371
U.S. at 168–69. Commerce’s rationale is unclear and insufficiently moored to past
practice. For that reason alone, a remand is required for Commerce to clarify its
standard for determining eligibility for the duty drawback adjustment. However,
Commerce’s stated reasons for failing to find the first prong satisfied also lack merit.
Commerce first points to partial translations and the illegibility of certain
documents on the record. I&D Mem. at 5. Commerce explained that it was not required
to issue a supplemental questionnaire because Çolakoğlu bore the burden of
demonstrating eligibility for the adjustment, and it had “ample opportunity” to do so. I&D
Mem. at 6-7.26 It is true that respondents bear the burden of demonstrating eligibility for
24 As noted by the Government, the Federal Circuit has affirmed Commerce’s denial of
a duty drawback adjustment even though the Turkish Government granted certain
imports duty free status. See Maverick Tube Corp. v. Toscelik Profil ve Sac Endustrisi
A.S., 861 F.3d 1269 (Fed. Cir. 2017). In that case, however, the respondent’s imports
were incapable of use in the subject merchandise. Id. at 1271. Instead, the Turkish
Government granted duty free status on the basis of equivalency, “whereby similar
products may be substituted for each other for drawback purposes.” Id.at 1271-72.
25 Citations to the oral argument reflect time stamps from the recording.
26 Commerce also faults Çolakoğlu for failing to “request[] an opportunity to place new
factual information . . . on the record prior to the Preliminary Determination.” I&D Mem.
at 7. It was not until the Preliminary Determination, however, that Commerce alerted
Çolakoğlu to the deficiencies with regard to its documentation. See Prelim. Mem. at 13.
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a duty drawback adjustment, see Allied Tube, 29 CIT at 506-07, 374 F. Supp. 2d at
1261, and submitting accurate information, see 19 U.S.C. § 1677m(b). If, however,
Commerce
determines that a response to a request for information under this subtitle
does not comply with the request, [Commerce] shall promptly inform the
person submitting the response of the nature of the deficiency and shall,
to the extent practicable, provide that person with an opportunity to
remedy or explain the deficiency in light of the time limits established for
the completion of investigations or reviews.
19 U.S.C. § 1677m(d) (emphasis added). Commerce did not address the requirements
of § 1677m(d). See I&D Mem. at 6-7. Commerce’s assertion that Çolakoğlu had
several opportunities to submit factual information demonstrating eligibility for the
adjustment appears to overlook the procedural record of this case. Çolakoğlu provided
information regarding duty drawback in its initial questionnaire response, and it was not
until Commerce issued a third supplemental questionnaire to Çolakoğlu that it sought
any additional information regarding duty drawback. See Çolakoğlu § C QR at C-32 -
C-34; Çolakoğlu Third Suppl. § BC Questionnaire at 6. The Government’s suggestion
that Commerce’s statutory obligation is mitigated by the respondent’s burden to provide
accurate information runs counter to the mandatory nature of § 1677m(d). See Gov.
Resp. at 16. 27 Commerce erred in failing to inform Çolakoğlu that its supplemental
27 The Government cites NSK Ltd. v. United States, 17 CIT 590, 593, 825 F. Supp. 315,
319 (1993) and Chinsung Indus. Co. v. United States, 13 CIT 103, 106-07, 705 F. Supp.
598, 601 (1989) in support of the proposition that 19 U.S.C. § 1677m(d) “must be read
in the context of a respondent’s burden to prepare and provide Commerce with an
accurate submission within the prescribed statutory deadline.” Gov. Resp. at 16.
Neither case, however, addresses § 1677m(d) or otherwise recognizes any limitations
on the statute’s mandatory language. The Government also relies on Papierfabrik
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submission was deficient or make findings with regard to the practicability of providing
Çolakoğlu with an opportunity to remedy or explain the deficiencies. 28
Commerce also points to the lack of an official Turkish government seal, stamp,
or identifying marker on documents “showing the amount of imported slab and exported
finished hot-rolled steel.” I&D Mem. at 5. Commerce did not cite any request or past
practice requiring an official seal on a document appended to a questionnaire response,
or otherwise explain why it declined to inform Çolakoğlu of the deficiency pursuant to 19
U.S.C. § 1677m(d) or otherwise confirm the documents’ authenticity at verification. See
I&D Mem. at 5. 29 This particular basis is entirely conclusory and, thus, lacking in
reasoned explanation.
August Koehler SE v. United States, 843 F.3d 1373 (Fed. Cir. 2016), as support for the
proposition that Çolakoğlu “was, or should have been [aware]” of the deficiencies. Gov.
Resp. at 17. Papierfabrik, however, relied on the respondent’s actual awareness of
certain deficiencies caused by its intentionally fraudulent responses to affirm
Commerce’s decision not to issue a supplemental questionnaire pursuant to
§ 1677m(d). 843 F.3d at 1384. As the Government recognizes, the instant case does
not involve fraud, Gov. Resp. at 17, and Papierfabrik does not support a finding that
§ 1677m(d) is limited by what a respondent “should have” known. Finally, the
Government points to a respondent’s burden to provide complete translations pursuant
to 19 C.F.R. § 351.303(e). Gov. Resp. at 17. However, Commerce did not rely on
Çolakoğlu’s purported failure to comply with the regulation when it declined the
adjustment, and in fact, considered those portions of certain documents that were
legible as part of its decision to deny the adjustment. See I&D Mem. at 5-6.
28 The court’s finding is based on the particular facts of this case in which only one or
two pages of a multi-page exhibit were difficult to read and a substantial portion of each
document was translated. Defendant does not suggest that any asserted shortcomings
were intentional and this would appear to be a textbook case for why § 1677m(d)
exists—to ensure that respondents have an opportunity to address minor deficiencies in
the course of a proceeding.
29 The Government confirmed at oral argument that Commerce does not have such a
policy. Oral Arg. at 1:37:10-1:37:20. The Government also asserted that Commerce
had discretion to verify the document’s source at verification, but that the duty drawback
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Commerce further points to discrepancies in the quantities and values of the
imported material and the exported product in the legible and translated portions of the
IPR closing documents in Exhibit SBC-13a as compared to Çolakoğlu’s duty drawback
calculation worksheet contained in Exhibit SBC-13c. I&D Mem. at 5-6 & nn.17-18
(citing Çolakoğlu 3rd Suppl. § BC QR Part II, Exs. SBC-13a and SBC-13c). There are
slight discrepancies in the value of the imported inputs for two of the IPRs, compare
Çolakoğlu 3rd Suppl. § BC QR Part II, Ex. SBC-13a (IPR 484, p.1 and IPR 4246, p.1),
with id., Ex. SBC-13c (total purchases for each IPR),30 and discrepancies in the quantity
of imports and exports for each IPR. 31 Nowhere, however, does Commerce explain the
materiality of these discrepancies for the purpose of demonstrating whether the imports
can (or were) used to produce the subject merchandise. See I&D Mem. at 5-6. At oral
argument, the Government and Defendant-Intervenors both suggested that each basis
for Commerce’s determination should not be viewed in isolation, but as one of several
factors that, together, merited Commerce’s decision to deny the adjustment. See Oral
Arg. at 1:48:05-1:49:51, 1:49:58-1:50:08. Such an approach, however, obfuscates the
issue as a whole was not verified. Oral Arg. at 1:37:40-1:38:37. Commerce’s decision
not to verify duty drawback is discussed infra.
30 Commerce relied, in part, on a discrepancy in the values of imported slab for IPR
2923. I&D Mem. at 5 n.17. That “discrepancy,” however, appears to stem from
Çolakoğlu’s rounding of the value. Compare Çolakoğlu 3rd Suppl. § BC QR Part II, Ex.
SBC-13a (IPR 2923, p.1 (referring to an import value of $[[ 	]]), with id., Ex. SBC-
13c at p.7 (referring to an import value of $[[ 	]] for IPR 2923).
31 The import and export quantities contained in the IPR supporting documents (page 6
of each IPR) do not correspond to the import and export quantities stated in Çolakoğlu’s
duty drawback calculation worksheet. See Çolakoğlu 3rd Suppl. § BC QR Part II, Exs.
SBC-13a, SBC-13c at p.7.
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weakness of each basis that, individually and together, fail to support Commerce’s
determination.
Finally, Commerce refused to verify Çolakoğlu’s duty drawback request because
Çolakoğlu’s original submission was “too deficient to rely upon and thus not capable of
verification.” I&D Mem. at 7. 32 As discussed above, however, Commerce’s refusal to
verify the adjustment is predicated on faulty reasoning and a failure to adhere to its
statutory obligation concerning deficient submissions. The agency’s assertion that the
record information was “too deficient” for verification is unsupported by substantial
evidence because Commerce failed to inform Çolakoğlu of the deficiency or make
findings with regard to the practicability of providing Çolakoğlu with an opportunity to
remedy or otherwise address the deficiencies. See 19 U.S.C. § 1677m(d).
Commerce claimed that accepting Çolakoğlu’s documents at verification would
have constituted “the acceptance of a new questionnaire response . . . in a time period
32 By statute, Commerce
shall not decline to consider information that is submitted by an interested
party and is necessary to the determination but does not meet all the
applicable requirements . . . if--
(1) the information is submitted by the deadline established for its
submission,
(2) the information can be verified,
(3) the information is not so incomplete that it cannot serve as a reliable
basis for reaching the applicable determination,
(4) the interested party has demonstrated that it acted to the best of its
ability in providing the information and meeting the requirements
established by the administering authority or the Commission with respect
to the information, and
(5) the information can be used without undue difficulties.
19 U.S.C. § 1677m(e).
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[Çolakoğlu] established” rather than the agency’s deadlines, which would have
“precluded the [agency] from analyzing the information thoroughly and . . . denied other
parties . . . the opportunity to comment meaningfully.” I&D Mem. at 7. However,
“[r]emedying any deficiency in a questionnaire response typically will require submission
of new information.” China Kingdom Import & Export Co., Ltd. v. United States, 31 CIT
1329, 1350, 507 F. Supp. 2d 1337, 1356 (2007). Further, Çolakoğlu attempted to
submit the documents in response to Commerce’s initial identification of its inability to
read certain exhibits, and not at some arbitrary time Çolakoğlu unilaterally established.
See Prelim. Mem. at 13 (dated March 14, 2016); Çolakoğlu April 4 Protest at 1-2; cf.
China Kingdom, 31 CIT at 1350, 507 F. Supp. 2d at 1356–57 (“A mere finding that the
remedy would require Commerce to consider new information [presented at verification]
is not commensurate with a finding that allowing the interested party to effect the
remedy would be impracticable under the circumstances, given the statutory time
limits.”).
In sum, Commerce’s decision to deny Çolakoğlu’s request for a duty drawback
adjustment was based on its procedural missteps and inconsistent and conclusory
analysis that, as a whole, renders its determination lacking substantial evidence and
reasoned explanation. Accordingly, it will be remanded for reconsideration.
B. Commerce’s Denial of a Quarterly Cost-Averaging Methodology
1. 	Legal Framework
Commerce calculates the normal value of the subject merchandise on the basis
of home market sales that are made “in the ordinary course of trade.” 19 U.S.C.
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§ 1677b(a)(1)(B)(i). Commerce, therefore, disregards sales at prices that are less than
the cost of production, id. § 1677b(b)(1), because those sales are not made within the
ordinary course of trade, id. § 1677(15)(A). The cost of production “equal[s] of the sum
of . . . the cost of materials and of fabrication or other processing of any kind employed
in producing the foreign like product, during a period which would ordinarily permit the
production of that foreign like product in the ordinary course of business.” Id.
§ 1677b(b)(3)(A) (emphasis added). 33
The statute does not define the “period” to be used or the method by which
Commerce must calculate the costs of production. SeAH Steel Corp. v. United States,
34 CIT 605, 614, 704 F. Supp. 2d 1353, 1361 (2010). Commerce’s usual methodology
is to rely on “an annual weight-average cost” for the period of investigation. I&D Mem.
at 13. Commerce may depart from its usual methodology and rely on quarterly cost-
averages when “significant cost changes are evident [and] . . . sales can be accurately
linked with the concurrent quarterly costs.” Pastificio Lucio Garofalo, S.p.A. v. United
States, 783 F. Supp. 2d 1230, 1235–36 (CIT 2011), aff’d 469 F. App’x 901 (Fed. Cir.
33 Section 1677b defines the cost of production as an amount equal to
(A) the cost of materials and of fabrication or other processing of any kind
employed in producing the foreign like product, during a period which
would ordinarily permit the production of that foreign like product in the
ordinary course of business;
(B) an amount for selling, general, and administrative expenses based on
actual data pertaining to production and sales of the foreign like product
by the exporter in question; and
(C) the cost of all containers and coverings of whatever nature, and all
other expenses incidental to placing the foreign like product in condition
packed ready for shipment.
19 U.S.C. § 1677b(b)(3).
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2012); see also I&D Mem. at 13-14. The significance of any cost changes must be
demonstrated before Commerce analyzes the linkage between costs and sales. I&D
Mem. at 13. A significant cost change “is defined as a greater than 25 percent change
in [cost of manufacturing] between the high and low quarters during the POI . . . .” Id. at
14.34
2. 	Parties’ Contentions
Çolakoğlu contends that Commerce’s 25 percent threshold for relying on
quarterly cost-averages is “overly rigid” and fails to capture significant cost changes
arising through currency fluctuations. Çolakoğlu Mem. at 26. According to Çolakoğlu,
Commerce should have conducted its analysis in U.S. Dollars instead of Turkish Lira—
thereby accounting for “devaluations of the Turkish Lira in relation to the U.S. [Dollar]”—
because it purchased “[a]lmost all major inputs” in U.S. Dollars before converting the
costs to Lira in its accounting system. Çolakoğlu Mem. at 27, 31-32; see also Çolakoğlu
Reply at 18 (“[R]egardless of the currency in which Çolakoğlu keeps its books, the costs
of its material input purchases are incurred in USD.”). Had Commerce done so, “the 25
percent threshold test would have been met and would have triggered the use of
Commerce’s alternative cost methodology.” Çolakoğlu Mem. at 26, 32.
The Government contends that Commerce correctly applied its usual
methodology by conducting its cost change analysis in Turkish Lira because that is the
34 Commerce conducts this analysis “on a CONNUM-specific basis.” Gov. Resp. at 25;
see also I&D Mem. at 14. A “CONNUM” is a control number assigned to materially-
identical products to distinguish them from non-identical, i.e., similar, products. Gov.
Resp. at 25 n.2.
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currency in which Çolakoğlu maintains its books and records. Gov. Resp. at 27. The
Government further contends that Çolakoğlu’s argument that Commerce “should have
converted [its] normal accounting records, which are stated in Turkish Lira, to U.S.
[D]ollars, because it purchased inputs in dollars, . . . is just selective accounting for
Çolakoğlu’s desired outcome.” Gov. Resp. at 26.
Defendant-Intervenors contend that Çolakoğlu has “misconstrue[d] the standard
of review.” Def.-Ints. Resp. at 39 (“The [c]ourt must decide whether the administrative
record contains substantial evidence to support [Commerce’s] decision.”) (internal
quotation marks, alteration, emphasis, and citation omitted).
3. 	Analysis
Çolakoğlu essentially argues that Commerce’s methodology for determining
when to deviate from annual cost-averages and rely on quarterly cost-averages is
unreasonable because it fails to account for currency fluctuations. See Çolakoğlu Mem.
at 31 (“The 25 [percent] threshold is not statutory, and would be improved by
incorporating an exchange rate factor.”). Yet, as Çolakoğlu concedes, Commerce has
broad discretion to develop a suitable methodology for calculating the costs of
production. See Çolakoğlu Mem. at 28 (quoting SeAH Steel, 34 CIT at 617, 704 F.
Supp. 2d at 1363 (“Commerce is afforded considerable discretion in formulating its
practices in this regard.”)). Beyond asserting that the 25 percent threshold is “overly
rigid” and identifying an alternative (preferred) outcome had Commerce conducted its
analysis in U.S. Dollars, Çolakoğlu offers no persuasive reason why Commerce’s
methodology is unreasonable on its face or as applied in this case. Commerce rejected
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Çolakoğlu’s request to convert its accounting records from Turkish Lira to U.S. Dollars
before conducting its analysis because “[t]he analysis of significant cost change should
be performed in the same currency as contained in the cost database, which is Turkish
Lira.” I&D Mem. at 15. Commerce further explained that “Çolakoğlu’s reported costs
already take into account exchange rate differences because purchases in U.S. dollars
are converted to Turkish Lira in the month of the purchase in the normal course of
business.” Id. at 15. Commerce’s refusal was reasonable and consistent with the
statute that provides for cost calculations on the basis of the exporter’s books and
records. See 19 U.S.C. § 1677b(f)(1)(A).
Çolakoğlu also fails to explain why conducting the analysis in U.S. Dollars would
not distort Commerce’s calculations. Although “[a]lmost all major inputs” are purchased
in U.S. Dollars, some inputs are purchased in Turkish Lira. See Çolakoğlu Mem. at 27;
Çolakoğlu’s Request for Applying Quarterly Average Cost Data at 3, CJA Tab 17, CR
304, PJA Tab 17, PR 244, ECF No. 69-1. Additionally, the cost of production consists
of “the cost of materials and of fabrication or other processing,” among other things. 19
U.S.C. § 1677b(b)(3) (emphasis added). Although Çolakoğlu’s raw material costs
account for more than 60 percent of the cost of producing hot-rolled steel, Çolakoğlu’s
Case Br. (Rev.) at 22, CJA Tab 34, CR 473-45, PJA Tab 34, PR 312-16, ECF No. 69-2,
expenses for the remaining aspects of production (e.g., energy, labor, etc.) are,
presumably, incurred in Turkish Lira. These facts further support Commerce’s
determination to conduct its analysis in the currency in which Çolakoğlu keeps it books.
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Commerce’s finding that Çolakoğlu’s cost changes did not exceed the 25 percent
threshold is supported by substantial evidence 35 and will be sustained.
C. Commerce’s Treatment of Excess Heat as a Co-Product Instead of a By-
Product
1. 	Legal Framework
“The antidumping statute does not mention the treatment of by-products, and
Commerce has not filled the statutory gap with a regulation.” Arch Chemicals, Inc. v.
United States, Slip Op. 11-41, 2011 WL 1449034, at *2 (CIT Apr. 15, 2011) (internal
quotation marks and citation omitted). However, Commerce’s “practice has been to
grant an offset to normal value, for sales of by-products generated during the production
of subject merchandise, if the respondent can demonstrate that the by-product is either
resold or has commercial value and re-enters the respondent's production process.” Id.
35 Commerce compared the cost of production for the highest and lowest cost quarters
for 10 CONNUMs representing Çolakoğlu’s five “most frequently sold home and U.S.
market CONNUMs during the POI.” Cost of Production and Constructed Value
Calculation Adjustments for the Final Determination – Çolakoğlu Metalurgi A.Ş and its
Affiliates (“Çolakoğlu Final Cost Calc. Mem.”) at 2 & Attach. 1, CJA Tab 40, CR 497,
PJA Tab 40, PR 327, ECF No. 69-2. That analysis shows that none of the 10
CONNUMs “exceeded the 25 [percent] significance threshold.” Id. at 2, Attach. 1.
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(emphasis omitted).36 Commerce considers several factors to determine whether joint
products37 are co-products or by-products:
1) how the company records and allocates costs in the ordinary course of
business, in accordance with its home country [generally accepted
accounting principles (“GAAP”)]; 2) the significance of each product
relative to the other joint products; 3) whether the product is an
unavoidable consequence of producing another product; 4) whether
management intentionally controls production of the product; and, 5)
whether the product requires significant further processing after the split-
off point.
I&D Mem. at 17 (citations omitted).
36 In other words, Commerce generally subtracts the revenue derived from the sale of
by-products from the costs of production, thereby lowering the normal value and,
potentially, lowering the antidumping margin that is derived from the difference between
normal value and CEP. See Arch Chemicals, 2011 WL 1449034, at *2; Magnesium
Corp. of America v. United States, 20 CIT 1092, 1106, 938 F. Supp. 885, 899 (1996);
Çolakoğlu Mem. at 32 (distinguishing the consequences of Commerce’s treatment of
by-products and co-products). If, however, a joint product is considered a co-product,
costs are allocated to the sales revenue from the sale of the co-product, which
decreases the offset to normal value. See Çolakoğlu Mem. at 32.
37 In the Issues and Decision Memorandum, Commerce used the National Association
of Accountants’ (“NAA”) definition of joint product “as two or more products so related
that one cannot be produced without producing the other(s), each having relatively
substantial value and being produced simultaneously by the same process up to a split-
off point.” I&D Mem. at 16 (citations omitted). Joint products include “major products,
by-products, and co-products.” Id. “The NAA defines a by-product as a secondary
product recovered in the course of manufacturing a primary product, whose total sales
value is relatively minor in comparison with the sales value of the primary product(s).”
Id. In contrast, “[w]hen two or more major products appear in the same group, they are
called co-products.” Id. “Products of greater importance are termed major products and
products of minor importance are termed by-products.” Id.; see also IPSCO, Inc. v.
United States, 12 CIT 384, 388, 687 F. Supp. 633, 636 (1988) (noting Commerce’s
reliance on “the importance of a product to the overall economic activity of its producer
and the product's value in relationship to the value of the primary product” to distinguish
by-products from co-products).
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No one factor is dispositive, and Commerce “consider[s] each factor in light of all
of the facts and circumstances surrounding each case.” I&D Mem. at 17. Çolakoğlu
bears the burden of substantiating its entitlement to a by-product offset. See 19 C.F.R.
§ 351.401(b)(1).
2. 	Parties’ Contentions
Çolakoğlu contends that Commerce erroneously found that Çolakoğlu “tracks the
production of excess heat and assigns a cost to it.” Çolakoğlu Mem. at 34; Çolakoğlu
Reply at 19 (“Commerce’s factual premise for its conclusion is simply wrong.”).
Çolakoğlu further contends that its recordation of revenue from the sale of excess heat
is consistent with Turkish GAAP, and Commerce’s conclusion that the separate
recording of revenue supports treatment of the excess heat as a co-product calls into
question the relevance of Commerce’s joint product distinction to Turkish GAAP.
Çolakoğlu Mem. at 34-35. The Government contends that a respondent’s recording of
costs “is just one factor in Commerce’s well-established analysis of whether [a joint
product] is a co-product or a by-product,” and Commerce’s decision is consistent with
prior proceedings involving Çolakoğlu. Gov. Resp. at 30-31 (citation omitted); see also
Def.-Ints. Resp. at 39-40.
3. 	Analysis
Çolakoğlu operates a gas turbine (“GT1”), which generates power for its steel
production as well as electricity and excess heat. I&D Mem. at 16. Çolakoğlu’s affiliate,
Ova Elektrik, A.S. (“OVA”), owns a steam turbine. Id. Çolakoğlu sells the excess heat
generated by GT1 to OVA for use in its steam turbine. I&D Mem. at 16; see also
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Verification of the Cost Resp. of Çolakoğlu Metalurgi A.Ş. and its Affiliates at 22,
Çolakoğlu Suppl. CJA Tab 4, CR 464, Çolakoğlu Suppl. PJA Tab 4, PR 293, ECF No.
82 (describing the process by which excess heat is sold to OVA). Çolakoğlu reported
the “revenues generated from the sale of excess heat to its affiliate OVA as a by-
product offset to the electricity costs used in its steel production.” I&D Mem. at 16
(citations omitted). Commerce, however, disagreed, finding that Çolakoğlu’s excess
heat should instead be treated as a co-product, thereby disallowing a “full revenue
offset to Çolakoğlu’s production of electricity.” Id. at 16.
Commerce’s determination rested on the first and second of the above-listed
factors. See id. at 17-18.38 As to the first factor, Commerce found that Çolakoğlu tracks
the production of excess heat, assigns a cost to it, and “records sales of excess heat as
a main income.” I&D Mem. at 17. However, Commerce did not identify record evidence
38 Commerce found that the facts relevant to the third through fifth factors were not
indicative of either treatment. I&D Mem. at 17-18. As to the third factor, Commerce
found no evidence indicating whether excess heat production is unavoidable. Id. at 17.
Çolakoğlu asserts that excess heat production is inevitable, but it cites no record
evidence. Çolakoğlu Reply at 20. Commerce concluded that the fourth factor was
neutral because there was no record evidence demonstrating that Çolakoğlu’s
management intentionally controlled the amount of excess heat produced. I&D Mem. at
18. Çolakoğlu misconstrues Commerce’s finding on this issue. See Çolakoğlu Reply at
20. Commerce also concluded that the fifth factor was neutral because “both the
electricity and the excess heat . . . required minimal to no additional processing . . . after
the split-off point.” I&D Mem. at 18. Çolakoğlu contends that “excess heat requires
significant further processing to generate electricity.” Çolakoğlu Reply at 21. Çolakoğlu
acknowledges, however, that excess heat “is not a product but a fuel source for a steam
turbine.” Id. Thus, although it may take “significant further processing” to produce
electricity from excess heat, the excess heat itself is not further processed before
becoming a source of value. See I&D Mem. at 18 (describing the implications of further
processing after the split-off point).
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to support its finding that Çolakoğlu assigns a cost to excess heat. See id. Although
Çolakoğlu records the cost of electricity sold to OVA, it does not appear to assign a cost
for excess heat. See Questionnaire Resp. of Çolakoğlu Metalurgi A.Ş and its Affiliates
to Sect. D of the U.S. Dep’t of [C]ommerce Antidumping Duty Questionnaire (“Çolakoğlu
§ D QR”), Ex. D-18, Çolakoğlu Suppl. CJA Tab 7, CR 102, 112, 114, Çolakoğlu Suppl.
PJA Tab 7, PR 148-50, 152-53, ECF No. 82; Çolakoğlu Reply at 19-20. At oral
argument, the Government did not dispute the absence of Çolakoğlu’s recording of
costs associated with excess heat,39 and instead emphasized the treatment of the sale
of excess heat as revenue rather than as an offset to electricity costs. Oral Arg. at
2:38:45-2:40:43.
The record shows that Çolakoğlu records the sale of excess heat as a separate
line item. See Çolakoğlu’s Sales Verification Ex. 3, Çolakoğlu 2nd Suppl. CJA Tab 1,
CR 367-68, Çolakoğlu 2nd Suppl. PJA Tab 1, ECF No. 85 (listing income from OVA as
revenue).40 Commerce’s interpretation of the evidence—that recording of the sale of
excess heat as revenue rather than an offset supports treatment as a co-product—is
reasonable. Çolakoğlu simply draws the opposite conclusion from the available
39 To the extent the Issues and Decision Memorandum states otherwise, the
Government concedes that it is incorrect. Oral Arg. at 2:38:45-2:39:09.
40 Çolakoğlu asserts that it “books the excess heat as an offset to its electricity costs.”
Çolakoğlu Reply at 19 (citing Çolakoğlu § D QR at D-21). The cited document contains
Çolakoğlu’s narrative response, which further references Exhibit D-12 appended to the
questionnaire response for Çolakoğlu’s “calculation of the excess heat offset.”
Çolakoğlu § D QR at D-21. Exhibit D-12 is precisely that—Çolakoğlu’s own calculation
of the offset for the POI—and is not, in fact, a representation of the manner in which
Çolakoğlu maintains its books and records. See Çolakoğlu § D QR, Ex. D-12.
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evidence. See Çolakoğlu Mem. at 34 (“Çolakoğlu does not assign costs to excess heat
and separately records the revenue from excess heat, all of which underscores the fact
[that] excess heat should be treated as a by-product.”). Çolakoğlu asserts that its
treatment of excess heat “is not conditioned on whether excess heat is considered a by-
product or a co-product,” and questions the relevance of Commerce’s joint product
distinction to the treatment of excess heat under Turkish GAAP. Id. at 35. Regardless
of Çolakoğlu’s reasons for treating the sale of excess heat as revenue, however, the
court must uphold an agency determination that is supported by substantial evidence,
which is “such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.” Huaiyin Foreign Trade Corp. (30), 322 F.3d at 1374 (citation
omitted). Çolakoğlu’s separate recording of the sale of excess heat is “such relevant
evidence” that reasonably, and adequately, supports Commerce’s conclusion that the
first factor favors treatment as a co-product. 41
As to the second factor, Commerce found that “the value of the excess heat is
significant relative to the value of electricity.” I&D Mem. at 17 (citation omitted).
Çolakoğlu questions the standard by which Commerce measured significance, and
asserts that Commerce “never evaluated the relative value of electricity to excess heat.”
Çolakoğlu Reply at 20. As Çolakoğlu recognizes, however, it does not assign a market
41 That Çolakoğlu does not assign costs to excess heat does not change the outcome.
Even assuming, arguendo, that one would expect to find costs associated with a co-
product, the possibility of drawing two inconsistent conclusions from the evidence does
not preclude the agency’s finding from being supported by substantial evidence. See
Matsushita, 750 F.2d at 933.
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value to electricity because it is consumed by Çolakoğlu. Id. Thus, Commerce
examined the value of the excess heat relative to the cost of producing electricity. Oral
Arg. at 2:41:25-2:43:10; see also Çolakoğlu § D QR, Ex. D-12. Although revenue and
cost are not equivalent measures, this factor does not require a precise comparison.
See I&D Mem. at 17 (considering “the significance of each product relative to the other
joint product[],” which does not demand an examination of the relative significance each
product’s value). The value of excess heat is roughly half the amount of the cost of
electricity produced by GT1.42 A reasonable mind could conclude that the value of the
excess heat revenue is sufficiently significant so as to support its treatment as a co-
product. See Huaiyin Foreign Trade Corp. (30), 322 F.3d at 1374. Although
Commerce’s explanation could have been clearer, the path of its decision is discernible.
See NMB Singapore Ltd. v. United States, 557 F.3d 1316, 1319 (Fed. Cir. 2009)
(“Commerce must explain the basis for its decisions; while its explanations do not have
to be perfect, the path of Commerce’s decision must be reasonably discernable to a
reviewing court.”) (quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 43 (1983) (“We will . . . uphold a decision of less than ideal clarity if
the agency’s path may reasonably be discerned.”) (internal quotation marks and citation
omitted)).
42 For the POI, Çolakoğlu earned [[ 	]] TL (Turkish Lira) in revenue for the sale
of excess heat, and incurred [[ 	]] TL in costs to produce electricity at 	GT1.
Çolakoğlu § D QR, Ex. D-12.
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In sum, Commerce’s consideration of the five factors, and its reliance on the first
and second factors in particular, provides substantial evidence to support Commerce’s
decision to treat excess heat as a co-product rather than a by-product. See 19 C.F.R.
§ 351.401(b)(1).43 	Accordingly, Commerce’s decision to treat excess heat as a co-
product will be sustained.
D. Commerce’s Calculation of Indirect Selling Expenses
Pursuant to 19 U.S.C. § 1677a(d)(1), Commerce shall reduce a respondent’s
constructed export price 44 by certain expenses incurred by an affiliated seller in the
United States. 45 The statute and the relevant regulation, 19 C.F.R. § 351.401(g), are
43 Commerce also points to “the [significant] amount of kilowatts of excess heat
generated in relation to the electricity generated at Çolakoğlu’s GT1.” I&D Mem. at 17
(citation omitted). The record before the court, however, does not clearly indicate the
measure of excess heat. Rather, the record only shows the amount of electricity
produced by OVA’s steam turbine from Çolakoğlu’s excess heat, measured in kilowatts.
See Çolakoğlu Final Cost Calc. Mem., Attach. 2. The significance of this value for
purposes of the issue under consideration is unclear; however, this lack of clarity is not
dispositive because the court finds Commerce’s determination as to the second factor
adequately supported by its finding with regard to the value of the excess heat.
44 Sales are made on a CEP basis when the “subject merchandise is first sold . . . in the
United States before or after the date of importation by or for the account of the
producer or exporter of such merchandise or by a seller affiliated with the producer or
exporter, to a purchaser not affiliated with the producer or exporter.” 19 U.S.C.
§ 1677a(b).
45 In full, § 1677a(d)(1) instructs Commerce to reduce CEP by the amounts incurred by
an affiliate for:
(A) commissions for selling the subject merchandise in the United States;
(B) expenses that result from, and bear a direct relationship to, the sale,
such as credit expenses, guarantees and warranties;
(C) ) any selling expenses that the seller pays on behalf of the
purchaser; and
(D) ) any selling expenses not deducted under subparagraph (A), (B),
or (C).
19 U.S.C. § 1677a(d)(1).
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silent as to how Commerce should calculate indirect selling expenses ; thus, Commerce
has discretion to fashion a reasonable methodology. See, e.g., NSK Ltd. v. United
States, 29 CIT 1, 17, 58 F. Supp. 2d 1276, 1291 (2005), aff'd, 162 F. App’x 982 (Fed.
Cir. 2006). “Commerce typically allocates indirect selling expenses based on sales
value.” Micron Tech., Inc. v. United States, 23 CIT 55, 62, 44 F. Supp. 2d 216, 223
(1999); see also Gov. Resp. at 22 (“Commerce generally uses a relative sales value
methodology to calculate a respondent’s indirect selling expenses.”). Pursuant to this
methodology, “Commerce calculates an allocation ratio” by dividing a respondent’s total
indirect selling expenses (the numerator in this equation) by its total sales value upon
which those expenses were incurred (the denominator). Gov. Resp. at 22; see also
U.S. Steel Corp. v. United States, 34 CIT 252, 257-58, 712 F. Supp. 2d 1330, 1337
(2010) (describing Commerce’s relative sales value methodology). Commerce then
applies that ratio to the subject merchandise’s gross unit price to allocate the indirect
sales expenses to each sale. Gov. Resp. at 22.
Here, Çolakoğlu’s affiliate, Medtrade, Inc. (“Medtrade”) assisted Çolakoğlu with
all of its sales in the United States and North America, and, thus, all of Çolakoğlu’s U.S.
sales were on a CEP basis. I&D Mem. at 8-9. Accordingly, Commerce calculated
Çolakoğlu’s indirect selling expense ratio on the basis of Medtrade’s POI sales and
expenses. Id. at 8-9; see also Verification of the U.S. Sales Responses of Çolakoğlu
Metalurgi A.S. (Metalurgi), Çolakoğlu Dis Ticaret A.S. (COTAS), and Medtrade Inc.
(Medtrade) (“Çolakoğlu CEP Sales Verification Report”) at 10-11, CJA Tab 30, CR 463,
PJA Tab 30, PR 294, ECF No. 69-1.
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Çolakoğlu contends that Commerce should instead have allocated Medtrade’s
indirect selling expenses over sales by Medtrade and COTAS, Çolakoğlu’s Turkey-
based affiliate responsible for direct sales to North America, because some of
Medtrade’s expenses pertained to Canadian sales. Çolakoğlu Mem. at 23-24 & n.5.
According to Çolakoğlu, its proposed ratio would more accurately reflect the indirect
selling expenses incurred on U.S. sales. Id. at 24. Defendant responds that Commerce
correctly declined to include COTAS sales in the indirect selling expense denominator
because “it would have created a falsely low ratio by including COTAS sales but not
COTAS expenses,” which were reported elsewhere.46 Gov. Resp. at 23; see also Def.-
Ints.’ Resp. at 39-40.
Commerce calculated an indirect selling expense ratio based upon Medtrade’s
POI sales and expenses encompassing all of North America. See Çolakoğlu CEP
Sales Verification Report at 10-11. The geographic consistency reflected in the
numerator and denominator thus produced a ratio that, when applied to unit price,
reasonably allocated the indirect selling expenses to each sale. Including COTAS’s
sales in the denominator while excluding its expenses from the numerator would, as the
Government contends, artificially lower the ratio. Accordingly, Çolakoğlu has not
46 COTAS expenses were reported in a separate field capturing “indirect selling
expenses incurred in the country of manufacture.” Çolakoğlu CEP Sales Verification
Report at 10.
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demonstrated that Commerce’s allocation of indirect selling expenses in this case is
unreasonable or unsupported by substantial evidence and it will be sustained. 47
E. Commerce’s Rejection of Corrections to Çolakoğlu’s International
Ocean Freight Expenses
Çolakoğlu challenges Commerce’s refusal to accept at verification certain “minor
corrections” to its reported international freight expenses that consisted of “small
discounts on international freight charges.” Çolakoğlu Mem. at 36. Commerce rejected
the corrections on the basis that they “were not minor” because they “affected most of
Çolakoğlu’s U.S. sales.” I&D Mem. at 10 & n.32 (citing Verification of the Sales
Response of Çolakoğlu Metalurji A.S. (Metalurji), Çolakoğlu Dis Ticaret A.S. (COTAS),
and Medtrade Inc. (Medtrade) (“Çolakoğlu Sales Verification Report”) at 2, Çolakoğlu
Suppl. CJA Tab 2, CR 462, Çolakoğlu Suppl. PJA Tab 2, PR 292, ECF No. 82).
Commerce therefore calculated Çolakoğlu’s ocean freight on the basis of its
questionnaire response. Id. at 10 & n.29 (citations omitted). The Government contends
that that Commerce’s refusal to accept corrections to Çolakoğlu’s reported international
freight expenses was supported by substantial evidence. Gov. Resp. at 31; see also
Def.-Ints. Resp. at 40. The Government is incorrect.
47 Çolakoğlu alternatively contends that Commerce should reset indirect selling
expenses for U.S. sales by COTAS to “zero” in order to “offset the distortive effect of not
including Çolakoğlu’s direct U.S. sales in the [indirect selling expense] ratio
denominator.” Çolakoğlu Mem. at 24 & nn.6-7. Because the court has not found any
distortion in Commerce’s indirect selling expense ratio, it need not address Çolakoğlu’s
proposed remedy.
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The Sales Verification Report relied on by Commerce to support its rejection of
Çolakoğlu’s corrections fails to substantiate the nature of the corrections. See
Çolakoğlu Sales Verification Report at 2. Rather, like the Issues and Decision
Memorandum, the Sales Verification Report merely reiterates Commerce’s basis for
rejecting the corrections. See id. At oral argument, the Government explained that
Commerce’s verifiers refused to accept the relevant document, so all the record
contains is Commerce’s explanation for the refusal. Oral Arg. at 2:16:00-2:16:28.
Although Commerce has “discretion to reject substantial new factual information
submitted after the deadline for submission of such information,” Reiner Brach GmbH &
Co.KG v. United States, 26 CIT 549, 560, 206 F. Supp. 2d 1323, 1334 (2002), the court
must have some basis upon which to review Commerce’s decision that the corrections
“were not minor.”48 The court cannot accept Commerce’s bare conclusion because it is
not supported by substantial evidence. 19 U.S.C. § 1516a(b)(1)(B)(i). 49 Commerce’s
determination will be remanded for reconsideration.
48 The purpose of verification is “to verify the accuracy and completeness of submitted
factual information.” Jinko Solar Co., Ltd. v. United States, 41 CIT 	, 	, 229 F.
Supp. 3d 1333, 1356 (2017) (quoting 19 C.F.R. § 351.307(d)). Commerce therefore
accepts new information at verification “only when: (1) the need for that information was
not evident previously; (2) the information makes minor corrections to information
already on the record; or (3) the information corroborates, supports, or clarifies
information already on the record.” Id. (citation omitted);
49 According to the Government, because Çolakoğlu does not dispute the factual basis
underlying Commerce’s decision (i.e., that the corrections affected most of Çolakoğlu’s
U.S. sales), and only challenges the conclusion Commerce drew from that factual basis,
the document’s absence from the record is not dispositive. Oral Arg. at 2:17:22-
2:18:03. The court disagrees. Even assuming, arguendo, that the corrections affected
the majority of Çolakoğlu’s U.S. sales, it does not necessarily follow that the corrections
were—or were not—minor. That determination is inherently fact-specific and raises
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CONCLUSION & O RDER
In accordance with the foregoing, Plaintiffs’ respective motions for judgment on
the agency record are granted, in part, and denied, in part, and it is hereby
ORDERED that Commerce’s Final Determination is remanded for
reconsideration or further explanation of Commerce’s treatment of Erdemir’s date of
sale for home market sales as discussed in Section I.B; it is further
ORDERED that Commerce’s Final Determination is remanded for
reconsideration of Çolakoğlu’s request for a duty drawback adjustment as discussed in
Section II.A; it is further
ORDERED that Commerce’s Final Determination is remanded for
reconsideration or further explanation of the agency’s rejection of Çolakoğlu’s
corrections to international ocean freight expenses, as discussed in Section II.E; it is
further
ORDERED that Commerce shall file its remand redetermination on or before
June 20, 2018; it is further
ORDERED that subsequent proceedings shall be governed by USCIT Rule
56.2(h); it is further
ORDERED that any comments or responsive comments must not exceed 5,000
words; it is further
questions, for example, about the precise nature of the discount and whether its
acceptance would have required a single recalculation of the freight applicable to each
sale or transaction-specific recalculations. Because the court is unable to address
those questions, Commerce’s decision must be remanded.
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ORDERED that Commerce’s Final Determination is sustained with respect to
Erdemir’s date of sale for U.S. sales, as discussed in Section I.C; and it is further
ORDERED that Commerce’s Final Determination is sustained with respect to
Commerce’s denial of a quarterly cost-averaging methodology for calculating
Çolakoğlu’s costs of production, Commerce’s treatment of excess heat as a by-product,
and Commerce’s calculation of Çolakoğlu’s indirect selling expenses, as discussed in
Sections II.B-D.
/s/ 	Mark A. Barnett
Mark A. Barnett, Judge
Dated: March 22, 2018
New York, New York
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