Commerce Properly Picked Mexico as Surrogate in AD Case, Adjusted for Freight Costs, CIT Says

The Commerce Department properly selected Mexico over Malaysia as the surrogate nation in an antidumping duty review, the Court of International Trade held in an Aug. 5 opinion. Ruling that Mexico served as a significant producer of identical merchandise and that the selection of the Mexican financial statements was backed by reasonable evidence, Judge Timothy Reif upheld Commerce's determination.

The case involved an administrative review of the antidumping duty order on chlorinated isocyanurates from China. Plaintiffs Heze Huayi Chemical and Juancheng Kangtai Chemical launched a challenge of the Commerce determination on three principal aspects: the selection of Mexico over Malaysia as a surrogate nation for calculating the AD duty, to find that Mexico sources the highest quality information, and to adjust the Mexican freight-on-board (FOB) values to a cost of insurance and freight (CIF) basis. Reif sided with the government on all three grounds, ultimately sustaining Commerce's final determination.

The first part of the fight involved Commerce's selection of Mexico over Malaysia -- an uphill battle, seeing as Commerce had picked Mexico for use of its surrogate in the previous three administrative reviews of the AD duty order on chlorinated isocyanurates. Commerce also determined that Mexico was the only possible surrogate nation that produced identical merchandise rather than comparable merchandise.

The plaintiffs sought to challenge Commerce's standard for defining a “significant producer,” as a country “whose domestic production could influence or affect world trade.” Siding with Commerce, which found the definition to be too narrow, Reif said “the ability to influence world trade is not a standard required by the statute,” and “Plaintiffs here have failed to show that Mexico’s production of comparable merchandise was either 'miniscule' [sic] or only marginally more than 'non-zero production.'” Reif also ruled that Commerce properly considered record evidence in finding that Malaysia produces comparable merchandise and also properly explained the deficiencies of this information. This justified the agency's choosing Mexico over Malaysia, Reif said.

In the review, Commerce also adjusted the Mexican FOB data to include international freight costs on a CIF basis because the surrogate financial statements, from Mexican conglomerate CYDSA, did not include the freight costs. The plaintiffs argued these values were “unreasonably inflated,” saying that the 2010 marine insurance price data used by Commerce was outdated and not specific to costs of shipping from Mexico to the U.S., and that the long-distance freight costs were inappropriately applied. Mexican isocyanurates producers use land routes to send the goods to the U.S., so using long-distance shipping routes was not a fair comparison, it said.

Commerce provided three reasons for its decision, with which Reif concurred. First, Commerce “reasonably” picked Mexico and its import data, which are reported on an FOB basis, therefore justifying the reliance on the data. Second, Commerce “adhered to existing stated practice.” Citing the Jiangsu Zhongji Lamination Materials Co., (HK) v. U.S. decision in 2019, Reif said, “[W]hen the import statistics of the surrogate country do not include [CIF] costs, [Commerce] has added surrogate values for international freight and foreign brokerage and handling charges to the calculation of normal value.” Last, Commerce's adjustment allowed its goal of “not limiting the potential pool of possible surrogate countries,” to continue unabated. By making the adjustment, the agency could pick its preferred surrogate country in Mexico.

The plaintiffs also failed to back their assertion that the CIF adjustment doubled their margins, thereby distorting their values. “However, plaintiffs have provided no evidence to support their assertion that 'no reasonable commercial producer would pay as much or more for the transportation of a raw material than for the raw material itself,'” Reif ruled.

(Heze Huayi Chemical Co., Ltd. et al. v. United States, Slip Op. 21-97, CIT # 20-00058, dated 08/05/21, Judge Reif. Attorneys: Gregory Menegaz of deKieffer & Horgan for plaintiffs Heze Huayi and Juancheng Kangtai; Sonia Orfield for defendant U.S. government)