Hitachi Energy USA Inc. v. United States

Slip Op. 18-156
UNITED STATES COURT OF INTERNATIONAL TRADE
ABB INC.,
Plaintiff,
v.
UNITED STATES,
Defendant,
and
HYUNDAI HEAVY INDUSTRIES CO.,
LTD., HYUNDAI CORPORATION USA,
AND HYOSUNG CORPORATION,
Defendant-Intervenors.
Before: Mark A. Barnett, Judge
Consol. Court No. 16-00054
PUBLIC VERSION
OPINION AND ORDER
[Sustaining, in part, and remanding, in part, the U.S. Department of Commerce’s
Remand Redetermination in the second administrative review of the antidumping duty
order on large power transformers from the Republic of Korea.]
Dated: November 13, 2018
R. Alan Luberda and Melissa M. Brewer, Kelley Drye & Warren LLP, of Washington,
DC, argued for Plaintiff. With them on the brief was David C. Smith, Jr.
John J. Todor, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, DC, argued for Defendant. With him on the brief
were Chad A. Readler, Acting Assistant Attorney General, Jeanne E. Davidson,
Director, and Franklin E. White, Jr., Assistant Director. Of Counsel on the brief was
Christopher Hyner, Attorney, Office of the Chief Counsel for Trade Enforcement and
Compliance, U.S. Department of Commerce, of Washington, DC.
J. David Park, Arnold & Porter Kaye Scholer LLP, of Washington, DC, argued for
Consolidated Plaintiff and Defendant-Intervenor Hyosung Corporation. With him on the
brief were Andrew M. Treaster, Henry D. Almond, Daniel R. Wilson, and Sylvia Y. Chen.
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David E. Bond, White & Case LLP, of Washington, DC, argued for Defendant-
Intervenors Hyundai Heavy Industries, Co., Ltd. 1 and Hyundai Corporation USA. With
him on the brief were William J. Moran and Ron Kendler.
Barnett, Judge: This matter comes before the court following the U.S.
Department of Commerce’s (“Commerce” or the “agency”) redetermination upon
remand. See Confidential Final Results of Redetermination Pursuant to Court Remand
(“Remand Results”), ECF No. 96. 2 ABB Inc. (“ABB”) and Hyosung Corporation
(“Hyosung”) initiated this action, challenging certain aspects of Commerce’s final results
in the second administrative review (“AR 2”) of the antidumping duty order on large
power transformers (“LPT”) from the Republic of Korea for the period of review August
1, 2013, through July 31, 2014. See Large Power Transformers from the Republic of
Korea, 81 Fed. Reg. 14,087 (Dep’t Commerce March 16, 2016) (final results of
antidumping duty admin. review; 2013–2014) (“Final Results”), and accompanying
Issues and Decision Mem., A–580–867 (Mar. 8, 2016) (“I&D Mem.”), ECF No. 27-2; see
also Consent Mot. to Consolidate, ECF No. 33; Order (Jun. 14, 2016), ECF No. 36.
1 Hyundai Electric & Energy Systems Co., Ltd. is the successor-in-interest to Hyundai
Heavy Industries, Co., Ltd. See Letter from David E. Bond, Attorney, White & Case
LLP, to the Court (Sept. 12, 2018), ECF No. 120.
2 The administrative record for this case is divided into a Public Administrative Record
(“PR”), ECF No. 27-3, and a Confidential Administrative Record (“CR”), ECF No. 27-4.
Parties submitted joint appendices containing record documents cited in their U.S. Court
of International Trade Rule 56.2 briefs. See Confidential J.A. (“CJA”), ECF No. 73;
Public J.A. (“PJA”), ECF No. 74. The administrative record associated with the Remand
Results is contained in a Confidential Remand Administrative Record (“CRR”), ECF No.
100-2, and a Public Remand Administrative Record (“PRR”), ECF No. 100-3. Parties
further submitted joint appendices containing record documents cited in their Remand
briefs. See Confidential Remand Proceeding J.A. (“CRJA”), ECF No. 113; Public
Remand Proceeding J.A. (“PRJA”), ECF No. 114. Citations are to the confidential joint
appendices unless stated otherwise.
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ABB challenged Commerce’s treatment of U.S. commissions of Hyosung, Hyundai
Heavy Industries Co., Ltd. (“HHI”), and Hyundai Corporation USA (“Hyundai USA,”
collectively with HHI, “Hyundai”), arguing that Commerce improperly added commission
expenses to normal value when it should have deducted them from the constructed
export price, and improperly granted commission offsets to normal value for
commissions on U.S. sales incurred in the United States. See Confidential Pl.’s Mem.
of Law in Supp. of Mot. for J. on the Agency R. at 13-31, ECF No. 41-2. ABB further
argued that Commerce failed to cap Hyundai’s service-related revenue included in the
gross unit price of the LPTs by the amount of the related expenses. Id. at 31-44.
Hyosung challenged Commerce’s decision to cap Hyosung’s reported inland freight
revenue by Hyosung’s reported domestic (i.e., within Korea) inland freight expense.
See Confidential Mem. in Supp. of Consol. Pl. Hyosung's Rule 56.2 Mot. for J. Upon the
Agency R. at 11-22, ECF No. 40-2.
The United States (“Defendant” or the “Government”) requested a remand to
address the issues that ABB raised; the court granted that request on October 10, 2017.
See ABB, Inc. v. United States (“AR 2 Remand Opinion”), 41 CIT ___, ___, 273 F.
Supp. 3d 1200, 1205-06 (2017). 3 The court directed Commerce to reconsider its
treatment of Hyundai’s and Hyosung’s U.S. commissions and to “evaluate its revenue
capping practice and ensure that its application of this practice is consistent with respect
to [Hyundai and Hyosung].” Id. at 1212. With respect to the issues Hyosung raised, the
3 AR 2 Remand Opinion presents further background information on this case,
familiarity with which is presumed.
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court sustained Commerce’s determination to cap Hyosung’s reported freight revenue
by its reported domestic inland freight expense. Id.
Commerce filed its Remand Results on February 9, 2018. See Remand Results.
Therein, Commerce declined to grant home market commission offsets to Hyundai and
Hyosung for U.S. commissions incurred in the United States. See id. at 28-31.
Commerce re-examined the record with respect to Hyundai’s reporting of the gross U.S.
prices for the LPTs and determined that Hyundai had failed to report service-related
revenues separate from gross unit price. See id. at 17 & n.56 (citing Draft Results of
Redetermination Pursuant to Court Remand (Jan. 9, 2018) (“Draft Remand Results”),
CJRA Tab 1, CRR 1, PJA Tab 1, PRR 1, ECF No. 113). Commerce used facts
available with an adverse inference for certain U.S. sales of Hyundai. Draft Remand
Results at 14; Remand Results at 24 (cross-referencing the Draft Remand Results for
the agency’s methodological use of partial adverse facts available).
Hyundai now challenges Commerce’s Remand Results on both issues. See
Confidential Def.-Ints.’ Comments in Opp’n to the Final Results of Redetermination
Pursuant to Court Remand (“Hyundai’s Cmts.”), ECF No. 106. Hyosung challenges
Commerce’s Remand Results with respect to the commission offsets. See Hyosung’s
Comments on Remand Results (“Hyosung’s Cmts.”), ECF No. 104. ABB and the
Government urge the court to sustain the Remand Results in their entirety. See
generally Confidential Pl.’s Comments in Supp. of Remand (“ABB’s Cmts.”), ECF No.
108; Def.’s Resp. to Def.-Ints’ Comments on the Dep’t of Commerce’s Final Results of
Redetermination (“Gov.’s Cmts.”), ECF No. 110. For the reasons discussed below, the
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court sustains the Remand Results with respect to Commerce’s treatment of
respondents’ U.S. commissions and remands this matter to the agency with respect to
the service-related revenue issue.
J URISDICTION AND S TANDARD OF REVIEW
The court has jurisdiction pursuant to § 516A(a)(2)(B)(iii) of the Tariff Act of 1930,
as amended, 19 U.S.C. § 1516a(a)(2)(B)(iii) (2012), 4 and 28 U.S.C. § 1581(c). 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). “The results of a
redetermination pursuant to court remand are also reviewed for compliance with the
court’s remand order.” SolarWorld Ams, Inc. v. United States, 41 CIT ___, ___, 273 F.
Supp. 3d 1314, 1317 (2017) (internal citation omitted).
DISCUSSION
I. 	U.S. Commission Offsets
a. 	Commerce’s Determination in the Remand Results
In the Remand Results, Commerce explained that its practice is “to distinguish
two types of commissions paid on U.S. sales: (i) commissions incurred inside the United
States for which Commerce deducts the commission expenses and the related profit
from the price used to establish [constructed export price (or “CEP”) 5], and (ii)
4 All further citations to the Tariff Act of 1930, as amended, are to Title 19 of the U.S.
Code, 2012 edition, and all references to the United States Code are to the 2012
edition, unless otherwise stated.
5 “Constructed export price” is
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
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commissions incurred outside the United States, for which [Commerce] adds such
commission expenses to normal value[6] and offsets differences in home market
commission expenses and such U.S. commission expenses incurred outside the United
States, if any.” Remand Results at 9-10; see also id. at 28. When a commission
expense is incurred in the United States, Commerce, pursuant to 19 U.S.C.
§ 1677a(d)(1) and (3), makes an adjustment to the price used to establish CEP and for
profit allocated to that commission expense. See id. at 8-9. In such circumstances,
Commerce treats the commission expense as a CEP expense and “deducts the
expense[] and allocated profit from the price used to establish CEP without providing a
home market commission offset because such commissions are only associated with
economic activities in the United States.” Id. at 11. When a commission expense is
incurred outside the United States (on a sale to the United States), Commerce may
make an upward or downward adjustment to “normal value based on the circumstance
of sale provision in 19 U.S.C. § 1677b(a)(6)(C)(iii) and 19 C.F.R. § 351.410(e).” 7 Id. at
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, as adjusted under [19 U.S.C. §§ 1677a(c) and
(d)].
19 U.S.C. § 1677a(b).
6 “Normal value” typically is “the price at which the foreign like product is first sold . . . 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.” 19 U.S.C. § 1677b(a)(1)(B)(i).
7 19 C.F.R. § 351.410(e) provides:
The [agency] normally will make a reasonable allowance for other selling
expenses if the [agency] makes a reasonable allowance for commissions
in one of the markets under consideration[], and no commission is paid in
the other market under consideration. The [agency] will limit the amount of
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28-29. Commerce does not treat commissions outside the United States as CEP selling
expenses. Id. at 29; see also id. at 10. Instead, the agency “first adds U.S.
commissions incurred outside the United States to the normal value of the respective
home market sales and then grants home market commission offsets, if applicable, to
the normal value of such home market sales.” Id. at 10, 29.
Commerce determined that its approach is consistent with the intent of 19 U.S.C.
§§ 1677a(d) and 1677b(a)(6)(C)(iii), 19 C.F.R. § 351.402(b), 8 and the Uruguay Round
Agreements Act, Statement of Administrative Action (“SAA”), H.R. Doc. No. 103–316,
vol.1 (1994), reprinted in 1994 U.S.C.C.A.N. 4040. 9 Id. Commerce also noted that its
practice is consistent with that articulated in the remand redetermination in the first
administrative review of the antidumping duty order on LPT’s from Korea, which the
court sustained in ABB, Inc. v. United States (“AR 1 Opinion”), 41 CIT ___, 273 F. Supp.
3d 1186 (2017), appeal filed, No. 18-1300 (Fed. Cir. Dec. 14, 2017). See id. at 8 &
n.27.
such allowance to the amount of the other selling expenses incurred in the
one market or the commissions allowed in the other market, whichever is
less.
8 19 C.F.R. § 351.402(b) provides:
In establishing constructed export price under section [19 U.S.C. § 1677a],
the [agency] will make adjustments for expenses associated with
commercial activities in the United States that relate to the sale to an
unaffiliated purchaser, no matter where or when paid. The [agency] will
not make an adjustment for any expense that is related solely to the sale
to an affiliated importer in the United States, although the [agency] may
make an adjustment to normal value for such expenses under section [19
U.S.C. § 1677b(6)(C)(iii)].
9 The SAA is the authoritative interpretation of the statute. 19 U.S.C. § 3512(d).
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Both Hyundai and Hyosung challenge Commerce’s determination as contrary to
law. Hyundai’s Cmts. at 15; Hyosung’s Cmts. at 1. Hyosung contends that “nothing in
the statute, regulations, legislative history, or other policy materials” supports a
geographic distinction between commissions incurred in the United States versus those
incurred in the home market on U.S. sales. Hyosung’s Cmts. at 2. According to
Hyosung, commissions incurred in the United States qualify for a commission offset
pursuant to 19 C.F.R. § 351.410(e), which expressly allows for a commission offset
when commissions are incurred in one market and not the other, without a geographical
distinction as to where the commission expenses must be incurred. Id. at 2-3. 10
Hyundai argues that Commerce unreasonably treats similar situations differently when it
“den[ies] a commission offset in one circumstance, while granting it in all others.”
Hyundai’s Cmts. at 15 (citing Dongbu Steel Co. v. United States, 635 F.3d 1363, 1371
(Fed. Cir. 2011)). According to Hyundai, there is no indication that Congress intended
for such disparate treatment. Id. at 16.
10 In a single sentence, Hyosung also makes the assertion that “Commerce’s Remand
Results are based on an impermissibly vague ‘scope of economic activities’ test, which
disregards Hyosung’s commercial reality and the record facts.” Hyosung’s Cmts. at 1
(emphasis removed). Hyosung did not further develop the argument in its brief, nor did
it elaborate its position during oral argument. See Oral Arg. Tr. at 5:2-22, ECF No. 119.
The court considers Hyosung’s failure to articulate any grounds for this assertion as an
implied waiver of this argument. See Home Prods. Int’l, Inc. v. United States, 36 CIT
___, ___, 837 F. Supp. 2d 1294, 1301 (2012) (quoting United States v. Zannino, 895
F.2d 1, 17 (1st Cir. 1990) (“[I]ssues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are deemed waived. It is
not enough merely to mention a possible argument in the most skeletal way, leaving the
court to do counsel's work, create the ossature for the argument, and put flesh on its
bones.”)).
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b. Commerce’s Determination is Sustained
At the outset, neither Hyosung nor Hyundai challenge Commerce’s findings that
both respondents’ U.S. commissions were incurred in the United States. Therefore, the
only issue for the court’s consideration is whether Commerce’s denial of a commission
offset for Hyosung and Hyundai is in accordance with law.
In requesting the remand, the Government acknowledged that Commerce had
recently reconsidered its practice with regard to U.S. commissions. See AR 2 Remand
Opinion, 273 F. Supp. 3d at 1205. Commerce articulated that methodology in the
remand redetermination in the first administrative review of the antidumping duty order
on LPT’s from Korea. See id. at 1205 & n.4; AR 1 Opinion. Commerce requested the
remand to ensure that the agency’s treatment of U.S. commissions in this case was
consistent with its methodology. AR 2 Remand Opinion, 273 F. Supp. 3d at 1205. In
the Remand Results, Commerce articulated its treatment of U.S. commissions incurred
in the United States on sales to the United States consistently with the methodology
expressed in the AR 1 Opinion. See Remand Results at 8-11 & n.27, 29-30 & nn.114-
115 (citations omitted); AR 1 Opinion, 273 F. Supp. 3d at 1192-93 (overview of
Commerce’s interpretation of the law).
In AR 1 Opinion, the court sustained Commerce’s treatment of U.S. commissions
and the accompanying legal analysis. See 273 F. Supp. 3d at 1193-1200. The court
held that Commerce’s methodology was in accordance with law because the statute,
regulations, and legislative history supported the geographic distinction Commerce
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made when it declined to grant a home market commission offset for U.S. commissions
incurred in the United States. Id.
As the court explained,
[w]hile many differences between U.S. price (whether based on export
price or constructed export price) and normal value are taken into account
when the price comparison is made, in the case of constructed export
price transactions, the statutory definition of that price requires certain
adjustments be made at the outset, in order to determine the constructed
export price, and without regard to the comparison with normal value.
Id. at 1194 (citing 19 U.S.C. § 1677a(b)). One of those statutory adjustments is a
deduction of “commissions for selling the subject merchandise in the United States.” Id.
(quoting 19 U.S.C. § 1677a(d)(1)(A)). “Although § 1677a(d)(1)(A) does not contain a
geographical distinction on where commissions must be incurred,” the implementing
regulation explains that Commerce “will make adjustments for expenses associated with
commercial activities in the United States that relate to the sale to an unaffiliated
purchaser, no matter where or when paid.” Id. (quoting 19 C.F.R. § 351.402(b)). 11
When Commerce adopted 19 C.F.R. § 351.402, it traced its rationale to the SAA,
stating “the SAA makes clear that only those expenses associated with economic
activities in the United States should be deducted from CEP.” Antidumping Duties;
Countervailing Duties, 62 Fed. Reg. 27,296, 27,351 (Dep’t Commerce May 19, 1997)
11 Furthermore, as noted, Commerce “will not make an adjustment for any expense that
is related solely to the sale to an affiliated importer in the United States, although [it]
may make an adjustment to normal value for such expenses under [U.S.C.
§ 1677b(6)(C)(iii)].” 19 C.F.R. § 351.402(b); see also supra note 8.
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(citing SAA at 823, reprinted in 1994 U.S.C.C.A.N. at 4164). 12 Indeed, the relevant
language in the SAA states that Commerce must deduct commissions from the CEP
pursuant to §1677a(d)(1), “but only to the extent that they are incurred in the United
States on sales of the subject merchandise.” SAA at 823, reprinted in 1994
U.S.C.C.A.N. at 4164.
Moreover, the SAA explains the differences between the commissions incurred
on U.S. sales in the United States and those incurred on U.S. sales outside the United
States:
In constructed export price situations Commerce will deduct direct
expenses incurred in the United States from the starting price in
calculating the constructed export price. However, direct expenses and
assumptions of expenses incurred in the foreign country on sales to the
affiliated importer will form a part of the circumstances of sale adjustment.
SAA at 828, reprinted in 1994 U.S.C.C.A.N. at 4167. Therefore, “the circumstances of
sale adjustment, including the home market commissions offset,” is limited to “direct
expenses and assumptions of expenses incurred in the foreign country on sales to the
affiliated importer (such as with export price sales).” AR 1 Opinion, 273 F. Supp. 3d at
1196.
Both Hyosung and Hyundai acknowledge that the court has sustained
Commerce’s treatment of the commission offset in the first administrative review, but
disagree with the court’s decision therein. See Hyosung’s Cmts. at 1; Hyundai’s Cmts.
12 This statement was made in response to comments that the agency should adjust for
all expenses incurred on CEP sales, including those incurred in the foreign market.
Antidumping Duties; Countervailing Duties, 62 Fed. Reg. at 27,351.
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at 15. Neither party, however, provides a compelling argument for why the court should
not follow its decision in AR 1 Opinion. Hyosung’s reliance on 19 C.F.R. § 351.410(e) is
misplaced because this regulation addresses the circumstances of sale adjustment to
normal value provided for in 19 U.S.C. § 1677b(a)(6)(C)(iii), which requires the agency
to make adjustments to normal value based on “other differences in the circumstances
of sale.” See Hyosung’s Cmts. at 1-3; AR 1 Opinion, 273 F. Supp. 3d at 1196 (rejecting
the same arguments that Hyosung raises in this review).
The case to which Hyundai cites, Dongbu Steel, concerns Commerce’s
inconsistent interpretation of the same statutory provision depending on the segment of
the antidumping proceeding (investigation or review). 635 F.3d at 1371. The court
concluded that Commence must provide a reasonable explanation for why the statutory
language supports an inconsistent interpretation. Id. at 1373. The court is not
confronted with the same situation here; Commerce articulated the same rationale for
its treatment of U.S. commissions incurred in the United States as it did in the previous
administrative review. Therefore, Hyundai’s argument is unavailing.
Because the Remand Results are consistent with the practice that the agency
articulated in the first administrative review, which the court upheld as reasonable and in
accordance with law, Commerce’s treatment of U.S. commissions in the Remand
Results will be sustained.
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II. 	Service-Related Revenue
a. 	Commerce’s Remand Results
In the Remand Results, Commerce stated that it re-examined the record and
analyzed whether there was a legal and factual basis for determining whether to cap
Hyundai’s service-related revenue with the associated expenses. See Remand Results
at 2, 5. After re-examining the record, Commerce found that Hyundai had failed to
provide information necessary for Commerce to apply its capping methodology. See id.
at 17 & n.56 (citing Draft Remand Results at 11-14). The information concerned
Hyundai’s service-related revenues that exceeded the associated expenses. Id. at 17.
Commerce explained that in response to a questionnaire and during verification,
the agency had received detailed sales documentation for certain U.S. sales. As part of
the remand proceeding, Commerce re-examined this sales documentation and
determined that for many of the transactions, record evidence indicated that the LPT
price charged to the final customer included revenues for various services, and those
revenues exceeded Hyundai’s expenses for the provision of those services. 13 Remand
Results at 23-24; Draft Remand Results at 12. Consequently, Commerce found
Hyundai’s gross unit prices for those sales were overstated. 14 Remand Results at 17
n.56; Draft Remand Results at 13.
13 At verification, Commerce examined five U.S. sales with U.S. sequence numbers
(“SEQU”) 1, 8, 11, 14, and 27. Draft Remand Results at 12-13. Of those sales,
Commerce verified U.S. SEQU 1. Id. at 12.
14 The sales in question are SEQUs 8, 11, 14, and 27. Id. at 12-13.
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Commerce also found that “Hyundai failed to cooperate to the best of its ability
by not providing the information requested.” Remand Results at 24. Therefore,
Commerce determined that an adverse inference was warranted when selecting among
the facts available. Id. As partial adverse facts available, Commerce reduced the gross
unit prices for most U.S. sales “by the highest percent rate difference identified in the
[U.S. sales documented at verification].” 15 Draft Remand Results at 13-14; Remand
Results at 24 (cross-referencing the Draft Remand Results for the agency’s
methodological use of facts available).
b. Parties’ Arguments
Hyundai argues that Commerce’s use of partial facts available with an adverse
inference was unsupported by substantial evidence and contrary to law. Hyundai’s
Cmts. at 2. Hyundai contends that the agency altered its standard for reporting service-
related revenue from one turning on whether “the service was performed to meet the
terms of sale” to “whether such service is provided.” Id. at 4-5. Hyundai further takes
issue with Commerce’s reliance on “mere notations on internal correspondence, rather
than documents exchanged with the unaffiliated customer” as evidence of service-
related revenue. See id. at 7. It argues that Hyundai provided complete responses to
the agency’s requests for information; its responses were reasonable and informed by
Commerce’s conclusion in the original investigation; and Commerce verified and
approved of Hyundai’s reporting in the Issues and Decision Memorandum. See id. at 8-
15 Commerce reduced the gross unit prices by [[ 	]] percent, which is the percentage
amount by which the revenue exceeded the expenses for U.S. SEQU 14. Id. at 14.
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12. Moreover, Hyundai argues that Commerce failed to comply with the statutory
requirements of 19 U.S.C. § 1677m(d) because it failed to notify Hyundai of any
deficiencies in its reporting or provide it an opportunity to cure those deficiencies. See
id. at 12-13. Additionally, Hyundai contends that Commerce failed to articulate the
manner in which Hyundai failed to act to the best of its ability, and failed to explain that
Hyundai had the ability to comply or acted in a manner contrary to any reasonable
respondent. See id. at 14-15.
The Government contends that the requirement for reporting service-related
revenue separately from the gross unit price has remained consistent since the
beginning of this proceeding, regardless of the types of documents on which those
service-related revenues appear. See Gov.’s Cmts. at 11-12. The Government further
argues that Commerce did not have an obligation to comply with § 1677m(d) because
the agency was not aware of the deficiencies in Hyundai’s reporting until it discovered
the underlying information evincing Hyundai’s misreporting for the first time at
verification. See id. at 17-18. According to the Government, despite Commerce’s
request to separately report service-related revenues, Hyundai “submitted no
information, much less deficient information, and stated it had no such information to
report.” Id. at 17. Moreover, the Government points out that Hyundai does not dispute
that it had access to the information Commerce initially requested and that it failed to
provide that information. Id. at 18. According to the Government, under these
circumstances, Commerce’s obligations pursuant to 1677m(d) were not triggered. Id. at
19. Lastly, the Government maintains that the agency adequately articulated how
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Hyundai failed to act to the best of its ability, and its decision is supported by substantial
evidence. Id. at 19-20.
ABB likewise disputes Hyundai’s assertion that Commerce changed the test for
reporting service-related revenue. See ABB’s Cmts. at 4-5. According to ABB, to
accept Hyundai’s claim that the agency improperly relied on internal company
documents in assessing the existence of service-related revenue would result in the
potential manipulation of the dumping margin. Id. at 10. It reasons, “if Commerce
considered only the service-related revenues reflected in certain sales documents
(purchase orders and invoices), rather than any sales documentation setting forth the
intent of the parties,” then “a party could easily manipulate the dumping calculation by
listing service-related revenues in a document other than a purchase order or invoice.”
Id. ABB argues that Commerce was not legally prohibited from applying its capping
methodology in the Remand Results after it requested the voluntary remand to
reconsider the incorrect approach the agency applied in the Final Results. See id. at 6.
ABB further contends that the agency’s treatment of Hyundai in the Remand Results is
consistent with its treatment of Hyosung under similar facts in the AR 2 Remand
Opinion. See id. at 5-6 & n.4, 7-8 (citing AR 2 Remand Opinion, 273 F. Supp. 3d at
1205-06, 2010). Overall, ABB maintains that the court should affirm Commerce’s
application of partial AFA. See id. at 11-17.
c. 	Analysis
When “necessary information is not available on the record,” or an interested
party “withholds information” requested by Commerce,” “fails to provide” requested
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information by the submission deadlines, “significantly impedes a proceeding,” or
provides information that cannot be verified pursuant to 19 U.S.C. § 1677m(i),
Commerce “shall . . . use the facts otherwise available.” 19 U.S.C. § 1677e(a).
Additionally, if Commerce determines that the party “has failed to cooperate by not
acting to the best of its ability to comply with a request for information,” it “may use an
inference that is adverse to the interests of that party in selecting from among the facts
otherwise available.” Id. § 1677e(b). “Compliance with the ‘best of its ability’ standard is
determined by assessing whether a respondent has put forth its maximum effort to
provide Commerce with full and complete answers to all inquiries in an investigation.”
Nippon Steel Corp. v. United States, 337 F.3d 1373, 1382 (Fed. Cir. 2003). Moreover,
“[a]n adverse inference may not be drawn merely from a failure to respond.” Id. at
1383. Rather, Commerce may apply an adverse inference “under circumstances in
which it is reasonable for Commerce to expect that more forthcoming responses should
have been made.” Id.
Here, Commerce found that Hyundai “refused to provide the necessary
information for Commerce to apply its capping methodology” and “failed to act to the
best of its ability by not providing the information requested.” Remand Results at 24.
Therefore, the court must consider (1) what information Commerce requested from
Hyundai and whether Hyundai failed to provide that requested information, (2) whether
Commerce informed Hyundai of any deficiencies in its reporting, and (3) whether
Hyundai put forth its maximum effort to provide Commerce with full and complete
answers to Commerce’s requests.
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i. 	Commerce’s Information Request and Hyundai’s Responses
Thereto
Substantial evidence supports Commerce’s finding that Hyundai did not provide
information responsive to the agency’s information requests. In its initial antidumping
questionnaire, Commerce instructed Hyundai to report “the sale price, discounts,
rebates and all other revenues and expenses in the currencies in which they were
earned or incurred.” Initial Antidumping Duty Questionnaire (Dec. 1, 2014) (“Initial AD
Questionnaire”) at C-20, CRJA Tab 4, PRJA Tab 4, PR 25, ECF No. 113. Commerce
further explained that:
the gross unit price less price adjustments should equal the net amount of
revenue received from the sale. If the invoice to your customer
includes separate charges for other services directly related to the
sale, such as a charge for shipping, create a separate field for
reporting each additional charge.
Id. at C-18 (emphasis added).
In its initial questionnaire response, Hyundai stated that it reported the gross unit
price as the total sales price of the LPT, and reported fields “ADDPOPRU,” which
included the “sales amount under a separate purchase order for services that were not
included in the purchase order for the transformer (e.g., supervision), but that are
related to the transformer,” and “ADDPOEXPU,” which included “the expense
associated with the additional services.” 16 Resp. to Secs. B and C Questionnaires (Jan.
26, 2015) (“Sec. B&C Resp.”) at C-28, CRJA Tab 5, CR 78-84, PRJA Tab 5, PR 62-64,
16 This explanation did not account for when separate line items for services were
included in the same purchase order as the LPT, nor did it address the instructions to
report separate charges for services included on the invoice.
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ECF No. 113. Hyundai stated that its reporting methodology was “[c]onsistent with prior
segments of this proceeding[.]” Id. at C-28.
In a supplemental questionnaire, Commerce requested clarification with respect
to those two fields created and reported by Hyundai. 17 See Suppl. Questionnaire for
Secs. B and C of Hyundai Heavy Industries and Hyundai Corp. USA’s Resps. to the
Antidumping Duty Questionnaire (May 22, 2015) (“Suppl. Sec. B&C Questionnaire”) at
7, CJA Tab 14, CR 171, PJA Tab 14, PR 126, ECF No. 73-2. In response, Hyundai
explained that it had separately reported only the value of, and expenses for, services
for which “the customer ha[d] issued a separate, additional purchase order for services
related to, but not included in the purchase order for the sale[.]” 18 Resp. to Suppl. Secs.
B and C Questionnaires (June 3, 2015) (“Suppl. Sec. B&C Resp.”) at 15, CRJA Tab 7,
CR 173-178, PRJA Tab 7, PR 132-133, ECF No. 113. Again, Hyundai cited
Commerce’s determination in the original investigation to justify its reporting
methodology. Id. at 14-15.
Despite Commerce’s initial instruction that when “the invoice to [the customer]
include[d] separate charges for other services directly related to the sale,” Hyundai was
17 Specifically, Commerce asked Hyundai to explain the difference between the two
fields: “For example, describe the factual circumstances that would cause different
amounts to be reported in these fields for the same sale. In addition, please clarify if you
consider a sales amount entered under ADDPOPRU to be part of the purchase price of
an LPT, even though the amount appeared on a separate purchase order.” Suppl. Sec.
B&C Questionnaire at 7.
18 In other instances, when the purchase order and invoice included separate line items
for services, such as freight, Hyundai included the separately listed revenue in the gross
unit price for the LPT and did not separately report it. Suppl. Sec. B&C Resp. at 14.
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to “create a separate field for reporting each additional charge,” Initial AD Questionnaire
at C-18, Hyundai failed to do so. Commerce pointed to record evidence to support its
finding that Hyundai failed to report properly service-related revenues, including multiple
invoices to U.S. customers containing separate line items for services that Hyundai did
not separately report. 19 	See Remand Results at 17 n.56; Draft Remand Results 12 &
n.51 (citing Verification Exhibits, SVE 12-15), 13 & n.60 (citations omitted). Those
invoices were directly responsive to the agency’s questionnaire and covered more than
half of the sales for which Commerce received detailed documentation. Compare
supra, note 13, with supra, note 19. These invoices constitute substantial evidence that
Hyundai failed to provide Commerce with requested information.
Nevertheless, there is additional information collected at verification upon which
Commerce seeks to rely. In particular, Commerce seeks to rely on certain internal
Hyundai communications, absent any evidence of communication with the unaffiliated
customer, to find that there were additional service-related revenues and expenses that
19 Specifically, the invoices provided for three of the five transactions received by
Commerce separately identified service-related charges. For SEQU 8, the purchase
order and the commercial invoice contained separate line items for ocean freight, inland
freight, and technical field supervision. Draft Remand Results at 13 n.60 (citing Hyundai
Heavy Industries Sales Verification Exhibits (“Verification Exhibits”), SVE 13 at 13-14
(JA 101136-37), 44-45 (JA 101167-68), CRJA Tab 9, CR 221-225, PRJA Tab 9, ECF
No. 113). For SEQU 11, the invoice to the U.S. customer contained separate line items
for customs and duties, supervision and delay delivery charges. Suppl. Sec. A
Questionnaire Resp. (May 13, 2015), Attach. SS-17 at JA 100814-17, CRJA Tab 6, CR
113-130, PRJA Tab 6, PR 104-113, ECF No. 113. For SEQU 14, the purchase order
and commercial invoice contained separate line-items for customs and duties,
supervision, and delay delivery fees. See SVE 14 at 17 (JA 101282), 25 (JA 101290),
43-45 (JA 101308-10); see also Draft Remand Results at 12 & nn.55-56.
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Hyundai failed to report. See Remand Results at 22-24. For one sale, Commerce
stated that although the purchase order between the unaffiliated customer and Hyundai
contained a lump-sum price, the contract between affiliates HHI and Hyundai USA
contained separate service-related revenue figures. 20 Id. at 23 & nn.83-84 (citing
Verification Exhibits, SVE 15 at 20 (JA 101396), 35 (JA 101409)). For another sale,
Commerce relied on an email exchange among Hyundai employees discussing the
costs for certain services, only some of which were separately identified on the
purchase order and invoice to the U.S. customer. 21 According to the agency, the fact
that some of the services mentioned in the email were omitted from the purchase order
and the invoice to the unaffiliated customer did “not negate the fact that these are
revenues.” Id. at 23-24.
In its Remand Results, Commerce stated that its capping methodology is not
dependent upon whether a respondent provides the services pursuant to the terms of
sale or whether the service-related expenses and revenues appear as separate line-
items on an invoice to the customer. Id. at 21. Rather, “[i]f a respondent collects, as a
20 With respect to this sale, SEQU 27, ABB argued at oral argument that the separately
listed services in the contract between HHI and Hyundai USA were in response to the
customer’s request for quote. Oral Arg. Tr. at 34:13-35:12 (citing Verification Exhibits,
SVE 15 at 6 ¶ 4 (JA 101380)). Commerce did not rely on this rationale or document in
the Remand Results.
21 For SEQU 14, the September 28, 2011, email correspondence discussed costs for
ocean freight, inland freight, customs and duties, and supervision, whereas the
purchase order and commercial invoice contained separate line-items only for customs
and duties, supervision, and delay delivery fees. See Verification Exhibits, SVE 14 at
12 (JA 101277), 17 (JA 101282), 25 (JA 101290), 43-45 (JA 101308-10). The record
does not contain evidence that the costs for ocean freight and inland freight were
discussed with the unaffiliated customer.
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portion of the final price to the customer, a portion of revenue[,] which is dedicated to
covering a service-related expense, and that service-related expense is less than the
revenue set aside to cover the expense, then this service-related revenue is part of the
material terms of sale and must be capped.” Id. at 22; see also id. at 21 (stating that the
capping methodology is dependent upon whether “such services were provided and
whether the revenue amounts collected for the provision of such services exceed the
cost of those services.”).
In AR 2 Remand Opinion, the court acknowledged that it has examined
Commerce’s revenue-capping practice and found it to be reasonable. See AR 2
Remand Opinion, 273 F. Supp. 3d at 1208-09 (citing Dongguan Sunrise Furniture Co.,
Ltd. v. United States, 36 CIT ___, ___, 865 F.Supp.2d 1216, 1248 (2012)). However,
that acknowledgement came in the context of Hyosung’s arguments as to whether
Commerce had applied the incorrect cap and which potential cap “reflected how
Hyosung negotiated freight with its customers.” Id. at 1209. There was no dispute that
the use of the cap was appropriate to reflect service revenues negotiated between
Hyosung and its customers. That is not the case with respect to certain of Hyundai’s
service-related revenues that are only reflected in internal documentation. Here, the
inquiry is whether Commerce may rely on internal company communications, rather
than documentation or communications shared with the unaffiliated customer, to
determine that there is separate service-related revenue to cap. The court concludes
that it may not.
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In the third administrative review of LPTs from Korea, also under review by this
court, Commerce relied on purchase orders and invoices exchanged with the
unaffiliated customer to conclude that the separate line items in those documents
demonstrated that the services were negotiable. Hyundai Heavy Indus., Co. Ltd. v.
United States, Slip Op. 18-101, 2018 WL 4043236, at *5 (CIT Aug. 14, 2018). As the
court stated therein, “[w]hen Commerce finds that a service is separately negotiable, its
practice has been to cap the service-related revenue by the associated expenses when
determining the U.S. price.” Id. at *6. This is consistent with the position articulated by
the agency in the Remand Results here — that it “decline[s] to treat service-related
revenue as an addition to U.S. price under [19 U.S.C. §] 1677a(c)(1) . . . or as a price
adjustment under 19 [C.F.R. §] 351.102(b)(38).” Remand Results at 21.
While the agency is correct that 19 U.S.C. § 1677a(c)(1) does not provide for an
addition to export price or CEP for service-related profits (when the service-related
revenues exceed the service-related expenses), § 1677a(c)(2) likewise does not
provide for a reduction to export price or CEP to account for any service-related profit
that may inure to the producer or exporter in the course of the transaction. Thus, the
agency has correctly (at times) identified the issue as whether record documentation
establishes that the cost of the services (and thus any profit garnered from the provision
of those services) was separately negotiable and, therefore, may be excluded from the
export price or CEP and whether substantial evidence supports that exclusion. When
substantial evidence does not support a finding that the cost of the services was
separately negotiable from the price of the subject merchandise, the agency is without
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legal authority to reduce export price or CEP except by the amount of the expense in
question. See 19 U.S.C. § 1677a(c)(2)(A).
As noted above, in the case of certain U.S. sales, Commerce relied on Hyundai’s
internal corporate communications and transactions with its affiliate to apply its capping
methodology (and fault Hyundai for failing to report this information, which Commerce
deemed “necessary” to apply its capping methodology). Remand Results at 22-24.
Such internal communications, however, do not provide substantial evidence to support
a finding that Hyundai’s provision of the services in question was separately negotiable
with the unaffiliated customer. In the absence of such evidence, the Government has
not articulated any legal basis for Commerce to reduce Hyundai’s gross unit price. 22
Thus, the court finds that substantial evidence supports Commerce’s application
of its capping methodology with respect to those transactions for which Commerce
identified communications (e.g., purchase orders and invoices) between Hyundai and its
unaffiliated customers indicating that the provision of those services may reasonably
have been separately negotiable. Relatedly, substantial evidence supports
Commerce’s finding that Hyundai failed to provide information necessary for Commerce
22 The court notes that Commerce relied on the data from one of these transactions,
SEQU 14, to determine the percentage amount—[[ 	]] percent—by which it would
reduce the gross unit prices for the other sales in question as an adverse inference.
See Draft Remand Results at 13 & n.59 (citing Pet’r’s Case Br. (Oct. 16, 2015) at 13,
n.28, CJA 29, CR 260, PJA 29, PR 185, ECF No. 73-3) (relying, in part, on Verification
Exhibits, SVE 14 at 12 (JA 101277) (9/28/2011 email)); id. at 14. Because substantial
evidence does not support Commerce’s finding that ocean freight and inland freight
were separately negotiable for SEQU 14, on remand, Commerce must revisit its
selection of the facts available.
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to apply its capping methodology with respect to those same transactions. Substantial
evidence does not support Commerce’s application of its capping methodology to those
transactions or services for which Commerce relied only on internal communications
among Hyundai employees or affiliates. 23
Hyundai’s arguments challenging Commerce’s findings that are supported by
substantial evidence are unavailing. In particular, Hyundai’s claims that it responded to
the agency’s request based on its reasonable understanding of the request, and that its
understanding was informed by Commerce’s treatment of service-related revenues in
the original investigation, are unpersuasive. See Hyundai’s Cmts. at 4, 9-11.
Commerce’s conclusion in the original investigation was based on the record of that
segment of the proceeding. See Issues and Decision Mem., A-580-867 (Jul. 2, 2012) at
29, accompanying Large Power Transformers from the Republic of Korea, 77 Fed. Reg.
40,857 (Dep't Commerce July 11, 2012) (final determination of sales at less than fair
value) (stating, “based on our review of the record evidence at verification,” to wit,
“invoices and [purchase orders],” Commerce found “no evidence . . . that Hyundai has
separate revenues which it has failed to report”). Each review is separate and based on
the record developed by the agency in that review. See, e.g., Jiaxing Bro. Fastener
Co., Ltd. v. United States, 822 F.3d 1289, 1299 (Fed. Cir. 2014). 	Moreover, the reason
for the failure to provide requested information is of no moment. “The mere failure of a
respondent to furnish requested information—for any reason—requires Commerce to
23 Specifically, this refers to SEQU 27 and to ocean and inland freight with respect to
SEQU 14.
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resort to other sources of information to complete the factual record on which it makes
its determination.” Nippon Steel, 337 F.3d at 1381. As discussed below, Commerce’s
authority to use other sources of information, however—including its authority to use an
adverse inference—is subject to 19 U.S.C. § 1677m(d). See 19 U.S.C. § 1677e(a),(b).
ii. 	Relevance of 19 U.S.C. § 1677m(d)
Hyundai argues that Commerce failed to comply with the requirements of 19
U.S.C. § 1677m(d) because Commerce did not timely notify Hyundai of any deficiencies
in its reporting or provide Hyundai an opportunity to cure those deficiencies. Hyundai’s
Cmts. at 12-14. The Government argues that Commerce did not have an obligation to
comply with § 1677m(d) because the agency was not aware of the deficiencies in
Hyundai’s reporting until the underlying information was provided at verification. See
Gov.’s Cmts. at 17 (citing Branco Peres Citrus, S.A. v. United States, 25 CIT 1169 n.5,
173 F. Supp. 2d 1363, 1368 n.5 (2001)). Despite Commerce’s request to separately
report service-related revenues, the Government explains that Hyundai “submitted no
information, much less deficient information, and stated it had no such information to
report.” Id. at 18. ABB argues that the provisions of § 1677m(d) only apply when the
requirements of § 1677m(e) have been satisfied and, in this case, the information in
Hyundai’s questionnaire responses did not satisfy the conditions of § 1677m(e). ABB’s
Cmts. 14.
Pursuant to § 1677m(d), if Commerce determines that a respondent has not
complied with a request for information, it must promptly inform that respondent of the
nature of the deficiency and, to the extent practicable in light of statutory time-limits for
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completion of the administrative review, provide that respondent “an opportunity to
remedy or explain the deficiency.” 19 U.S.C. § 1677m(d). Inherent in the requirement of
§ 1677m(d) is a finding that Commerce was or should have been aware of the
deficiency in the questionnaire response. When a respondent provides seemingly
complete, albeit completely inaccurate, information, § 1677m(d) does not require
Commerce to issue a supplemental questionnaire seeking assurances that the initial
response was complete and accurate. In other words, Commerce is not obligated to
issue a supplemental questionnaire to the effect of, “Are you sure?” That is the case
here.
Hyundai provided a seemingly complete response to Commerce’s initial
questionnaire, and responded to Commerce’s supplemental questionnaire stating that it
separately reported service-related revenues and expenses consistent with the original
investigation. See Sec. B&C Resp. at C-28; Suppl. Sec. B&C Resp. at 14-15. In the
absence of all of Hyundai’s documentation, Commerce was not in a position to know
that Hyundai’s responses were incomplete and inaccurate. Commerce prepares its
questionnaires to elicit information that it deems necessary to conduct a review, and the
respondent bears the burden to respond with all of the requested information and create
an adequate record. See Nan Ya Plastics Corp. Ltd. v. United States, 810 F.3d 1333,
1337 (Fed. Cir. 2016); QVD Food Co. v. United States, 658 F.3d 1318, 1324 (Fed. Cir.
2011). 24 It was not until Commerce sorted through Hyundai’s sales documentation that
24 “It is Commerce, not the respondent, that determines what information is to be
provided for an administrative review.” Essar Steel Ltd. v. United States, 34 CIT 1057,
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the agency recognized that Hyundai’s documentation was inconsistent with its
reporting. 25 	See Draft Remand Results at 12-13 & nn.51,60 (citing sales
documentation exchanged with the customer, including invoices, containing separate
line items for services that Hyundai failed to separately report). Accordingly, under
these circumstances, Commerce was not statutorily mandated to provide Hyundai a
subsequent opportunity to remedy the deficiency.
iii. 	Use of an adverse inference
As previously stated, if Commerce determines that the party “has failed to
cooperate by not acting to the best of its ability to comply with a request for information,”
it “may use an inference that is adverse to the interests of that party in selecting from
among the facts otherwise available.” 19 U.S.C. § 1677e(b). Before using adverse facts
available, Commerce must show:
that a reasonable and responsible importer would have known that the
requested information was required to be kept and maintained under the
1073, 721 F. Supp. 2d 1285, 1299 (2010) (quoting Ansaldo Componenti, S.p.A. v.
United States, 10 CIT 28, 37, 628 F. Supp. 198, 205 (1986)). A respondent must
respond to the questionnaire as a whole; it may not choose what information to report
based on what it thinks is relevant. See, e.g., id. (“Regardless of whether [the
respondent] deemed the [] information relevant, it nonetheless should have produced it
[in] the event that Commerce reached a different conclusion.”).
25 Hyundai also argues that Commerce was informed prior to verification that Hyundai’s
gross unit price, as reported, included separate service-related revenue because
Hyundai explained in its supplemental questionnaire response that when its terms of
sale require a provision of services related to the sale of the LPT, the gross unit price
includes the value of the services required. Oral Arg. Tr. at 47:20-48:9 (quoting Suppl.
Sec. B&C Resp. at 14); see also supra, note 18. It also stated that documentation
pertaining to SEQU 11 was on the record prior to verification. Oral Arg. Tr. at 46:25-
47:8. While Hyundai explained its reporting methodology, it did not alert the agency to
the existence of the very information—to wit, invoices—that the agency had requested
but Hyundai was choosing not to provide in the manner requested by Commerce.
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applicable statutes, rules, and regulations . . . [and] that the respondent[’s]
. . . failure to fully respond is the result of the respondent's lack of
cooperation in either: (a) failing to keep and maintain all required records,
or (b) failing to put forth its maximum efforts to investigate and obtain the
requested information from its records.
Id. at 1382-83. Commerce may apply an adverse inference “under circumstances in
which it is reasonable for Commerce to expect that more forthcoming responses should
have been made.” Id. at 1383. “An adverse inference may not be drawn merely from a
failure to respond.” Id.
A finding that simply restates the statutory standard and is unsupported by any
discussion linking the applicable standard to the particular facts is inadequate. In its
Remand Results, Commerce merely stated that it “finds that Hyundai failed to cooperate
to the best of its ability by not providing the information requested.” Remand Results at
24. Commerce’s finding is unsupported by any discussion linking the applicable
standard to the particular facts regarding Hyundai. Such a discussion is particularly
relevant to the court’s ability to review the agency’s determination in a case such as
this, when the agency needed the second opportunity of a remand proceeding to
reconsider the existing record and alter its determination. Thus, Commerce’s decision
to use an adverse inference in selecting among the facts available must be remanded
for further consideration and/or explanation.
CONCLUSION
In accordance with the foregoing, it is hereby
ORDERED that Commerce’s Remand Results are remanded to Commerce with
instructions that the agency may not apply its capping methodology to those
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transactions or services for which Commerce relied only on internal communications
among Hyundai employees or affiliates (e.g., SEQU 27 and ocean and inland freight
services with respect to SEQU 14);
ORDERED that Commerce’s decision to use an adverse inference in selecting
among the facts available is remanded for further consideration or explanation
consistent with this opinion;
ORDERED that Commerce shall file its remand results on or before February 11,
2019; and it is further
ORDERED that subsequent proceedings shall be governed by USCIT Rule
56.2(h); and it is further
ORDERED that any comments or responsive comments must not exceed 5,000
words; and it is further
ORDERED that Commerce's Remand Results in all other respects are sustained.
/s/ 	Mark A. Barnett
Mark A. Barnett, Judge
Dated: 	November 13, 2018
New York, New York
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