Federal Circuit Says No PMS Adjustment to COP in Sales-Below-Cost Test, Cementing CIT Rulings

The Commerce Department can no longer make a particular market situation adjustment to an antidumping respondent's cost of production in a sales-below-cost test, the U.S. Court of Appeals for the Federal Circuit held in a Dec. 10 opinion. Cementing what the Court of International Trade has repeatedly held, a three-judge panel at the appellate court said that the statute -- in particular, a section of the 2015 Trade Preferences Extension Act -- does not permit such a PMS adjustment. Rather, the statute only allows a PMS adjustment for constructed value, the Federal Circuit said.

The ruling will limit Commerce's cost-based PMS analysis to constructed value, Ned Marshak of Grunfeld Desiderio said. It will also not allow Commerce to ignore actual costs in its sales-below-cost of production analysis due to a PMS. "Litigation will now continue in many cases with respect to PMS and CV," he said. "Petitioners have submitted voluminous data in support of its CV claims, which Commerce has accepted. Many of these decisions have been successfully challenged in the CIT. One or more of these “substantial evidence” CV cases probably will end up at the Federal Circuit."

The case, originally brought by the mandatory respondents Hyundai Steel Co. and SeAH Steel Corp., concerns the 2015-2016 administrative review of the AD order on welded line pipe from South Korea. In the review, Commerce applied a sales-below-cost test to find which of Hyundai's home market sales and SeAH's third-country sales would be included in the normal value calculation. But, the agency found a particular market situation for two key inputs -- hot-rolled coil and electricity -- and tried to adjust the COP accordingly. When the case was in front of CIT, the trade court said that the statute does not permit Commerce to use a PMS as the basis for making an adjustment to the respondents' COP.

This decision was then appealed by the antidumping petitioner Welspun Tubular. Notably, the U.S. government did not participate in the appeal.

The debate over the PMS adjustment concerns an amendment to section 1677b(e) of the TPEA, Section 504, which allows for an adjustment to constructed value. Since the statute does not address the issue of a PMS adjustment for normal value, it is ambiguous on this question and should be left up to Commerce, Welspun said. But the appellate court did not see it that way, holding instead that Congress' inclusion of the PMS adjustment language for constructed value but not for normal value lays out exactly what it permitted.

"The structure of section 1677b, as amended by the TPEA, clearly indicates that Congress intended to limit PMS adjustments to calculations pursuant to the 'constructed value' subsection, 19 U.S.C. § 1677b(e), and not to authorize Commerce to make such adjustments pursuant to the 'cost of production' subsection," the opinion said. "... If Congress had intended to allow a PMS adjustment to be made when calculating the cost of production for purposes of applying the sales-below-cost test, it presumably would have amended the cost of production subsection as well as the constructed value subsection. But it did not."

While it is true that the antidumping statute does not explicitly prohibit adjusting the costs of production due to a PMS, this failure to expressly ban this action does not authorize Commerce to make such adjustments, the panel said. In this instance, Congress did not leave a gap for Commerce to fill. To counter this point, Welspun tapped the legislative history of the TPEA, citing three instances that would indicate Congress' intent to include such a PMS adjustment. However, the appellate court said that the cited instances were all very general and did not touch specifically on the issue at hand.

Welspun further argued that limiting the use of a PMS adjustment to constructed value would lead to "absurd" results, since certain sales that would have otherwise been scrapped would remain in the normal value calculation based on the unadjusted effect of PMS-distorted transactions. But the Federal Circuit pushed back, saying that this would not happen. "It is not the case that under the Trade Court’s construction of the statute Commerce is powerless to address home market sales that are affected by a PMS yet still pass the sales-below-cost test," the panel said. "To the contrary, section 1677b(a)(1) specifically gives Commerce the tools to ensure 'a proper comparison with the export price.'"

The petitioner tried one more argument for the use of a PMS adjustment in the sales-below-cost test, but the Federal Circuit did not consider it since the issue was not raised before CIT. Welspun sought cover for the adjustment under Section 1677b(f)(1)(A) which says that costs “shall normally be calculated based on the records of the exporter ... if such records are kept in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the merchandise.” It has yet to be seen if either the U.S. or another AD petitioner will try out this line of defense for the PMS adjustment in future appeals.

(Hyundai Steel Co., et al. v. United States, et al., Fed. Cir. #21-1748, dated 12/10/21, Judges Kathleen O'Malley, William Bryson and Todd Hughes. Attorneys: Henry Almond of Arnold & Porter for plaintiff-appellee Hundai; Jeffrey Winton of Winton & Chapman for plaintiff-appellee SeAH; Elizabeth Drake of Schagrin Associates for defendant-appellant Welspun)