COP Adjustments in AD Cases Need Not Satisfy Both Conditions for Adjustment, CIT Says

The Commerce Department properly calculated antidumping duty review mandatory respondent LG Chem's cost of production (COP) when calculating constructed price, the Court of International Trade said in an Aug. 13 opinion. In a case over the antidumping duty investigation into acetone from South Korea, Judge M. Miller Baker held that Commerce's decision to spurn LG Chem's method for calculating the cost of the materials for making acetone in favor of the method used by the other mandatory respondent, Kumho P&B Chemical, was legal. This decision led to a higher antidumping rate for LG Chem in the investigation's final determination, sticking the exporter with a 25.05% rate. Baker also found that Commerce's rejection of certain of LG Chem's factual submissions was "harmless" and therefore permitted.

Baker explained the process of creating acetone in the decision, to provide the proper background for his decision. Retold here, the judge said how the creation of acetone requires two inputs: benzene and propylene. These two chemicals together form cumene, which then breaks down into phenol and the chemical of the hour, acetone. In essence, benzene becomes phenol and propylene becomes acetone.

When calculating the cost of the materials for the acetone, Kumho uses the "direct-assignment methodology." The company says that the cost of acetone equals the cost of its main input, propylene, that is within the acetone. LG Chem, on the other hand, allocates its cost of materials and processing using the "value-based methodology," in which it allocates the joint costs for the benzene and the propylene inputs for acetone and phenol based on the "net realizable value" of the acetone and phenol outputs. "That is, LG Chem first determines the relative value of the acetone and phenol outputs, and then applies the ratio of those respective values to allocate the joint input costs of propylene and benzene between the acetone and phenol outputs," Baker explained.

This difference in methodology led, in part, to a higher initial dumping rate for Kumho in the investigation's preliminary determination. Commerce then took exception to LG Chem's use of the value-based methodology, holding that the method's reliance on Chinese non-market economy prices was improper. In response, Commerce swapped out the Chinese prices for Southeast Asian pricing data. However, the agency said it remained "distortive and unreasonable to rely on the value-based allocation methodology" even with the new Southeast Asian data since the agency could have used the direct-assignment method for an "accurate tracing of input raw materials."

This swap to the direct-assignment methodology prompted LG Chem's challenge at CIT, where the company argued that the law holds a presumption for using a respondent's own records when finding the costs of production. Commerce may only ditch the records if they "are not kept in accordance with the exporting country’s generally accepted accounting principles, or if they do not reasonably reflect a respondent’s cost of production."

Baker then interpreted this statutory standard as imposing "two binary yes/no conditions." Either both standards are met, or they aren't, the judge said. The law does not require, as LG Chem suggests, that Commerce can only make cost of production adjustments when a respondent's records don't satisfy both conditions. "The statute’s text does not qualify the two conditions with 'insofar,' 'to the extent,' or similar language that in effect would operate as a severability clause, requiring Commerce to apply whatever portion of a producer’s cost calculations that might be salvaged," Baker said. "Instead, the statute uses binary yes/no conditions, presumably as a matter of administrative convenience. Diluting the force of those binary conditions with qualifiers violates the omitted-case canon, the principle that an 'absent provision cannot be supplied by the courts.'"

LG Chem also challenged Commerce's rejection of certain factual submissions given to the agency after the preliminary determination in the case as untimely. Since the two issues that LG Chem was seeking to provide information for were no longer in dispute, the submissions need not have been made, Baker said. "Curiously, the parties do not describe the actual substance of the factual information rejected by Commerce, but pulling the curtain back reveals that any error by the Department was harmless," the decision said.

(LG Chem, Ltd. et al. v. United States, Slip Op. 21-99, CIT # 20-00096, dated 08/13/21, Judge Baker. Attorneys: Daniel Porter of Curtis Mallet-Prevost for plaintiff LG Chem; Kyle Beckrich for defendant U.S. government)