Inmax Sdn. Bhd. et al v. United States

Slip Op. 17-158
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Leo M. Gordon, Judge
Court No. 17-00205
OPINION and ORDER
[Changed Circumstances Review Remanded.]
Dated: December 4, 2017
Gregory S. Menegaz, J. Kevin Horgan, Alexandra H. Salzman, and Judith L.
Holdsworth, deKieffer & Horgan, PLLC of Washington, DC for Plaintiffs Inmax Sdn. Bhd.
and Inmax Industries Sdn. Bhd.
Stephen C. Tosini, Trial Attorney, Commercial Litigation Branch, Civil Division,
U.S. Department of Justice of Washington, DC, for Defendant United States. With him on
the brief were Chad A. Readler, Acting Assistant Attorney General, Jeanne E. Davidson,
Director, Patricia M. McCarthy, Assistant Director, and Eric J. Singley, Trial Attorney.
Of counsel on the brief was David W. Richardson, Senior Counsel, U.S. Department of
Commerce, Office of the Chief Counsel for Trade and Enforcement and Compliance of
Washington, D.C.
Adam H. Gordon and Ping Gong, The Bristol Group PLLC, of Washington, DC for
Defendant-Intervenor Mid Continent Steel & Wire, Inc.
Gordon, Judge: Plaintiffs challenge the initiation of a changed circumstances
review by the U.S. Department of Commerce (“Commerce”) less than 24 months after
publication of the notice of the underlying final less than fair value determination.
See Certain Steel Nails from Malaysia, 82 Fed. Reg. 34,476 (Dep’t of Commerce July 25,
INMAX SDN. BHD. and INMAX
INDUSTRIES SDN. BHD.,
Plaintiffs,
v.
UNITED STATES,
Defendant.
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2017) (“Final Results”), and accompanying Issues and Decision Memorandum for the
Final Results of the Antidumping Duty Changed Circumstances Review of Certain Steel
Nails 	from 	Malaysia 	(Dep’t 	of 	Commerce 	July 	14, 	2017), 	available 	at
http://enforcement.trade.gov/frn/summary/malaysia/2017-15518-1.pdf 	(last 	visited 	this
date) (“Decision Memorandum”); Plaintiffs’ Rule 56.2 Mem. Supp. Mot. for J. upon the
Agency R., ECF No. 36 (“Pls.’ Br.”); Def.’s Resp. to Pls.’ Rule 56.2 Mot. for J. on the
Agency R., ECF No. 37 (“Def.’s Resp.”); Pls.’ Reply Br., ECF No. 39. The court has
jurisdiction pursuant to Section 516A(a)(2)(B)(iii) of the Tariff Act of 1930, as amended,
19 U.S.C. § 1516(a)(2)(B)(iii) (2012),1 and 28 U.S.C. § 1581(c) (2012).
I. Background
Plaintiff Inmax Sdn. Bhd. (“Inmax”) was a mandatory respondent in the less-than-
fair-value investigation of certain steel nails from Malaysia (“subject merchandise”) and
was assigned a total adverse facts available (“AFA”) rate of 39.35%. Certain Steel Nails
from Malaysia, 80 Fed. Reg. 28,969 (Dep’t of Commerce May 20, 2015) (“Final LTFV
Determination”). Prior to the preliminary determination, Inmax requested that it be
collapsed with its affiliated company Inmax Industries Sdn. Bhd. (“Inmax Industries”).
Both companies shared the same parent, Inmax Holding Co. Ltd. (“Inmax Holding”).
Commerce in its preliminary determination did not collapse Inmax and Inmax Industries.
No party challenged that decision, and Commerce did not collapse the companies in the
final determination. This proved fortunate for Inmax Industries (and its parent Inmax
1 Further citations to the Tariff Act of 1930, as amended, are to the relevant provisions of
Title 19 of the U.S. Code, 2012 edition.
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Holding) because Inmax was assigned a total adverse facts available rate of 39.35%,
whereas Inmax Industries was assigned the all others rate of 2.66%.
After release of the Final LTFV Determination, Inmax Holding filed a letter with the
Taiwan Stock Exchange in which it explained, in pertinent part:
The [United States] initiated antidumping and countervailing duty
investigations on Certain Steel Nails from Malaysia . . . . We have been
notified that the U.S. Department of Commerce (DOC) made an affirmative
final determination that assigned a final antidumping duty rate of 39.95% to
[Inmax]. We are very concerned about DOC’s determination, and have
asked our counsel to find out the details.
Our subsidiary, [Inmax Industries] have not been investigated by the
DOC in the antidumping and countervailing duty investigations. According
to the U.S. official information, our subsidiary [Inmax Industries] final duty
rate is 2.61%. Because of the tax variation factor, our subsidiary [Inmax] will
make sales to the U.S. market through new factory Inmax Indust[ries]’
production line and will have some temporary changes because of the
business adjustment in the near future. After the temporary adjustment, we
expect that it will stabilize its production line and its U.S. market.
Joint Appendix 5.
Four months after the Final LTFV Determination (in September 2015), Mid
Continent Steel & Wire, Inc. (“Petitioner”) requested that Commerce initiate a changed
circumstances review, alleging that U.S. import data demonstrated a sharp decline in
imports of subject merchandise for Inmax and a corresponding increase in imports of
subject merchandise for Inmax Industries. Petitioner alleged that Inmax was potentially
evading the antidumping duty order by shipping production through Inmax Industries and
its lower “all others” rate. Petitioner highlighted the quoted language above from Inmax
Holding’s Taiwan Stock Exchange notice. Commerce, in turn, determined that the
requisite statutory “good cause” existed to conduct a changed circumstances review
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within 24 months of the investigation, 19 U.S.C. § 1675(b)(4), emphasizing “new trading
patterns” among the Inmax companies and “possible evasion of the Order.” Certain Steel
Nails from Malaysia, 80 Fed. Reg. 71,772 (Nov. 17, 2015) (notice of initiation). Commerce
ultimately collapsed Inmax and Inmax Industries, a decision no party disputes. Decision
Memorandum at 4. Plaintiffs instead focus on the changed circumstances review itself,
arguing that Commerce lacked the requisite good cause. Id. at 4-14. During the course
of the changed circumstances review, Plaintiffs and Petitioner requested a periodic
review, and Commerce initiated the first administrative review (“AR”) in September 2016.
Pls.’ Br. at 12. The cash deposit rates assigned in the investigation to the Inmax
companies will therefore not ripen into assessed antidumping duties, but instead be
superseded by actual calculated rates for the covered entries, with any difference
between 	the 	cash 	deposits 	and 	actual 	assessment 	trued 	up 	at 	liquidation
(any underpayment payable plus interest, any overpayment refunded plus interest).
See 19 C.F.R. § 351.212.
II. Standard of Review
The court sustains Commerce’s “determinations, findings, or conclusions” unless
they are “unsupported by substantial evidence on the record, or otherwise not in
accordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i). More specifically, when reviewing
agency determinations, findings, or conclusions for substantial evidence, the court
assesses whether the agency action is reasonable given the record as a whole. Nippon
Steel Corp. v. United States, 458 F.3d 1345, 1350–51 (Fed. Cir. 2006). Substantial
evidence has been described as “such relevant evidence as a reasonable mind might
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accept as adequate to support a conclusion.” DuPont Teijin Films USA v. United States,
407 F.3d 1211, 1215 (Fed. Cir. 2005) (quoting Consol. Edison Co. v. NLRB, 305 U.S.
197, 229 (1938)). Substantial evidence has also been described as “something less than
the weight of the evidence, and the possibility of drawing two inconsistent conclusions
from the evidence does not prevent an administrative agency’s finding from being
supported by substantial evidence.” Consolo v. Fed. Mar. Comm’n, 383 U.S. 607, 620
(1966). Fundamentally, though, “substantial evidence” is best understood as a word
formula connoting reasonableness review. 3 Charles H. Koch, Jr. Administrative Law and
Practice § 9.24[1] (3d ed. 2017). Therefore, when addressing a substantial evidence issue
raised 	by 	a 	party, 	the 	court 	analyzes 	whether 	the 	challenged 	agency 	action
“was reasonable given the circumstances presented by the whole record.” 8A West’s Fed.
Forms, National Courts § 3.6 (5th ed. 2017).
Separately, the two-step framework provided in Chevron, U.S.A., Inc. v. Natural
Res. Def. Council, Inc., 467 U.S. 837, 842–45 (1984), governs judicial review of
Commerce's interpretation of the antidumping statute. See United States v. Eurodif
S.A., 555 U.S. 305, 316 (2009) (Commerce's “interpretation governs in the absence of
unambiguous statutory language to the contrary or unreasonable resolution of language
that is ambiguous.”).
III. Discussion
The 	antidumping 	statute 	requires 	“good 	cause” 	for 	Commerce 	to 	conduct
a changed circumstances review within 24 months after an investigation. 19 U.S.C.
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§ 1675(b)(4).2 “Good cause” is a term of art (most common in the labor and employment
law context) that translates simply to a “legally sufficient reason.” CAUSE, Black's Law
Dictionary (10th ed. 2014). The “good cause” standard is “higher than the regular
standard” for initiating a changed circumstances review. Decision Memorandum at 11.
If a typical changed circumstances review requires changed circumstances, then logic
dictates that Commerce’s “higher” standard requires something more than just changed
circumstances, or more simply, changed circumstances “plus.”
As noted above, Petitioner identified evidence of potential evasion by Inmax, and
Commerce reasoned, “if preventing evasion of an order is not ‘good cause,’ then it is
difficult to imagine what would be ‘good cause.’ . . . it is difficult to imagine a better cause
for initiating a [changed circumstances review] than preventing evasion of an order by
one company through the use of an affiliated company.” Id. This strikes the court as
a reasonable response to the facts before Commerce at the time of initiation of the review.
Inmax, a mandatory respondent that participated in the investigation received a total AFA
rate of 39.35%. Its affiliate Inmax Industries, also an interested party that participated in
the investigation, received the all others rate of 2.66%. Shortly after the investigation,
Inmax dramatically reduced its exportation of subject merchandise, while affiliate Inmax
Industries 	increased 	its 	exportation 	of 	subject 	merchandise. 	Those 	changed
2 There is also a “parroting regulation,” 19 C.F.R. § 351.216(c), that “does little more than
restate the terms of the statute itself,” Gonzales v. Oregon, 546 U.S. 243, 257 (2006),
which means the issue here does not involve Commerce's interpretation of its regulation,
but 	Commerce’s 	application 	and 	interpretation 	of 	the 	statutory 	provisions
themselves. See id. (“the existence of a parroting regulation does not change the fact that
the question ... is not the meaning of the regulation but the meaning of the statute.”).
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circumstances 	plus 	the 	public 	statement 	from 	Inmax 	Holdings 	that 	Inmax 	would
“make sales to the U.S. market through new factory Inmax Indust[ries]’ production line”
was 	sufficient 	to 	warrant 	a 	closer 	look 	from 	Commerce. 	There 	were 	changed
circumstances—the change in trading patterns—plus the potential evasion by Inmax
shipping its subject merchandise through Inmax Industries.
Interestingly, though, when Commerce took that closer look in the changed
circumstances review, it found that Inmax was not shipping any of its merchandise
through Inmax Industries. According to Commerce, “the evidence does not show that
[Inmax] is producing merchandise at its facility and then exporting that merchandise
through Inmax Industries.” Id. at n.26. Instead, Inmax apparently ceased production of
subject merchandise in response to the 39.35% rate. Inmax Industries, on the other hand,
developed its own production lines and has been exporting its own subject merchandise
pursuant to its duly assigned all-others rate. It is important, therefore, to note that there
was no actual “evasion” of the antidumping order, at least as the court understands that
term. Evasion connotes illegality in the entry of subject merchandise. See 19 U.S.C.
§ 1517(a)(5) 	(defining 	“evasion”). 	Had 	Inmax 	shipped 	its 	merchandise 	(subject 	to
a 39.35% rate) through Inmax Industries (and its 2.66% rate), that would have been an
illegal evasion of the order, id., and may have engendered a referral from Commerce to
U.S. Customs and Border Protection pursuant to 19 U.S.C. § 1517(b)(3) for further
investigation under 19 U.S.C. § 1517 (“Procedures for investigating claims of evasion of
antidumping and countervailing duty orders”). But that’s not what happened. Parent
Inmax Holding’s letter to the Taiwan Stock Exchange was not a pronouncement of an
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impending fraudulent export scheme among its subsidiary companies, but a simple
misstatement of otherwise lawful activity under an antidumping duty order. To recap,
Commerce did not collapse the Inmax companies, assigning each company its own rate
(both of which were derivative, with one based on the petition rate, and the other based
on the all others rate). Inmax Industries therefore received its own rate, and lawfully
produced subject merchandise for exportation at that rate (rather than unlawfully export
subject merchandise produced by its affiliate Inmax).
Although the court believes Commerce had good cause to initiate the changed
circumstances 	review—there 	were 	changed 	circumstances 	plus 	the 	possibility 	of
evasion—the 	subsequent 	finding 	by 	Commerce 	that 	Inmax 	was 	not 	shipping 	its
merchandise through Inmax Industries, does alter the dynamics of the proceeding and
challenges the reasonableness of several aspects of Commerce’s subsequent decision.
The court therefore must remand this matter to Commerce for further explanation.
As noted, Commerce found that the Inmax companies did not illegally co-mingle
subject merchandise in their exports, and that their parent publicly, and transparently,
communicated a change in their export behavior due to the differing assigned rates.
Commerce 	does 	acknowledge 	that 	“this 	avoidance 	could 	be 	seen 	by 	some 	as
a reasonable corporate resources decision. . . .” Decision Memorandum at 5. The court
would go one step further and add that not just “some” but all would view such a
production change as a reasonable corporate resource decision. What were Inmax
Holding’s other options? Continue to export through Inmax at 39.95%? Commerce
concludes that the otherwise reasonable corporate resource decision “is a form of
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deliberate manipulation, via cash deposit avoidance, to undermine or evade the full effect
of the Order.” Id. For Commerce, “this activity purposefully undermines the Order
by seeking to avoid the application of [Inmax]’s AD cash deposit rate determined in the
investigation.” This conclusion implies that there is only one true cash deposit rate for the
Inmax companies, the total AFA petition rate assigned to Inmax, rather than the two rates
that Commerce actually assigned.
The court is surprised at Commerce’s sudden epiphany that Inmax and Inmax
Industries could shift production between them. Inmax and Inmax Industries actively
sought to be collapsed in the investigation, meaning that they implicitly conceded the
basis for collapsing—a potential for manipulation of price or production, 19 C.F.R.
§ 351.401(f). Commerce chose not to collapse them, and assigned a separate rate to
each company. The court therefore does not understand how production and exportation
by Inmax Industries under its validly assigned rate avoids “paying the investigation rate.”
Commerce found there was no co-mingling of subject merchandise between the Inmax
companies, which should have clarified for Commerce that the public disclosure of parent
Inmax Holding was not some bold pronouncement of fraudulent intent to “evade”
the order, but instead, a transparent explanation of production adjustments because
of the magnitude of the total AFA rate compared to the all-others rate.
Despite having assigned the all-others rate to Inmax Industries, Commerce
suggests that Inmax Industries should have exported under Inmax’s total AFA rate:
Inmax Industries began selling the subject merchandise to the United States
and entering it under the all-others rate, rather than [Inmax’s] rate, just as
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the companies announced they would do. . . . The issue here is whether the
proper AD cash deposit rate is being applied to entries.
Decision Memorandum at 11. Commerce again intimates there is one proper cash deposit
rate—the higher one. For Commerce, the cessation of exports from Inmax and increase
in imports from Inmax Industries “would and could” undermine “the efficacy and integrity
of the Order (and ultimately the integrity of the trade remedy laws) and unnecessarily
delay the application of the statutory remedy for a significantly long time (i.e., nearly two
years, or more) before the completion of the first [administrative review].” Id. at 10.
This is quite a flourish, but is too vague to have much meaning. The court is unsure
what “statutory remedy” Commerce is referencing. Is Commerce referring to collapsing
two 	affiliated 	companies 	via 	a 	changed 	circumstances 	review 	prior 	to 	the 	first
administrative review? If so, the court notes that the statute contemplates a two-year
(24 month) limitation on such a remedy, 19 U.S.C. § 1675(b)(4). Or is Commerce
referencing some other “statutory remedy”?
The court is also having trouble with the conclusion that Inmax Holding, Inmax,
and Inmax Industries have undermined the integrity of the order. Both Inmax and Inmax
Industries are being reviewed in the first administrative review in which they have been
collapsed. The final rate assigned in that proceeding will be the liquidation rate for
the entries subject to cash deposits set in the investigation. Any cross-border price
discrimination is therefore being mitigated at specific rates calculated in the first
administrative review (as opposed to less precise, derivative cash deposit rates set in
the investigation) and payment to the United States is secured by the cash deposits for
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any resulting duties owed. And here, rather than illegally ship Inmax’s merchandise
“through” Inmax Industries, Inmax Holding honored the dictates of the order by taking
the time and incurring the expense to retool Inmax Industries, observe corporate
formalities, and export Inmax Industries’ subject merchandise under the all-others rate.
Rather than undermine the integrity of the order, the Inmax companies appear to have
upheld it. If the goal of the antidumping statute and antidumping duty orders is to level
the playing 	field 	and 	mitigate 	cross-border 	price 	discrimination, 	see 	RZBC 	Grp.
Shareholding Co. v. United States, No. 15-00022, 40 CIT ___, ___, 2016 WL 3880773,
at *1 (June 30, 2016) (explaining that the purpose of antidumping duties is to level
the playing field and fight price discrimination), it is hard to conclude that those objectives
are being undermined here. If, however, the antidumping statute is being used for some
other purpose, for example, to effectively lock out or embargo subject merchandise
through aggressive assignment of high, petition-based, total AFA rates, then that
objective was, indeed, undermined by the Inmax companies.
The court agrees that upon initiation, the record suggested that Inmax may have
been evading the order by shipping its merchandise “through” Inmax Industries. During
the 	review, 	however, 	Commerce 	determined 	this 	was 	not 	happening. 	Commerce
maintains 	that 	the 	“good 	cause” 	standard 	is 	“higher” 	than 	a 	typical 	changed
circumstances review. This means there needs to be something more than mere changed
circumstances. With the absence of the original contemplated evasion (Inmax shipping
its merchandise through Inmax Industries), it appears we are dealing with an ordinary
changed circumstances review. And it is neither remarkable nor noteworthy that Inmax
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and 	Inmax 	Industries 	should 	be 	collapsed—they 	sought 	that 	treatment 	all 	along.
The more interesting question is what Commerce should have done when it discovered
that there was no actual evasion of the order by the Inmax companies. Did the good cause
justifying the review suddenly evaporate with the finding of no evasion? Posed another
way, having invested time and resources in the review, should Commerce have
completed it and collapsed the Inmax companies as it did, or should Commerce have
terminated the review once it discovered that Inmax was not exporting “through” Inmax
Industries?
The court will remand this matter to Commerce to address that question as well as
the following questions:
1. What specific “statutory remedy” is Commerce referencing on page 10 of
the Decision Memorandum?
2. How is the integrity of the order undermined if Inmax did not illegally ship its
merchandise 	through 	Inmax 	Industries, 	but 	rather, 	ceased 	production 	and 	Inmax
Industries exported its own subject merchandise? It seems the opposite conclusion
applies, that Inmax and Inmax Industries were upholding the integrity of the order and
observing the legal formalities required for their exports. Also, given that Inmax and Inmax
Industries have been collapsed in the first administrative review, and therefore actual,
specific, 	calculated 	rates 	will 	supersede 	the 	cash 	deposit 	rates 	assigned 	during
the investigation, won’t any cross-border price discrimination for the effected entries be
remedied as intended by the statute?
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3. Given the wide disparity in the assigned rates to the Inmax companies, and
given 	that 	both 	companies 	were 	fully 	cooperating 	in 	the 	contemporaneous 	first
administrative review in which the companies were collapsed, what specific statutory
purpose did Commerce achieve in consolidating the investigation rates at the higher total
AFA rate, rather than simply wait for completion of the first administrative review to both
set the liquidation rate for the first AR entries as well as the new cash deposit rate for
the Inmax companies?
Accordingly, it is hereby
ORDERED that the Final Results are remanded to Commerce for action in
accordance with this opinion.
/s/ Leo M. Gordon
Judge Leo M. Gordon
Dated: December 4, 2017
New York, New York
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