CAFC Sends Back Commerce's Use of AFA Over Change in Methodology for Valuing Service Revenue

The U.S. Court of Appeals for the Federal Circuit said in a May 24 opinion that the Commerce Department improperly hit respondent Hyundai Heavy Industries Co. with adverse facts available over its reporting of service-related revenue. Judges Pauline Newman, Alan Lourie and Timothy Dyk said Hyundai has the right to supplement the record and Commerce cannot claim Hyundai didn't act to the best of its ability in the review since it fully responded to Commerce's requests for further information.

The case concerns the administrative review of the antidumping duty order on large power transformers from South Korea and Commerce's methodology for valuing service-related revenue in determining normal value and sales price. The Court of International Trade remanded the case to the agency, which then changed its methodology. On remand, Hyundai asked Commerce to allow it to submit additional data, telling the agency that if it continues to use the new methodology, it must give the respondent a chance to put new relevant information on the record.

Commerce denied this request, ultimately finding Hyundai failed to respond to the best of its ability and hitting it with an AFA rate. The agency said that its capping methodology doesn't rely on whether a respondent provides the service under the terms of sale as Hyundai suggests but whether the services were provided and the revenue from those services exceeds the cost of the services. Commerce said Hyundai's bid to submit more data was an "avoidance" of the capping methodology, but on remand the agency requested service-related revenues to carry out its new methodology.

Commerce rejected Hyundai's response to this request. The trade court said that because Commerce found that Hyundai's sales documents were inconsistent with its reporting, the agency wasn't required to give Hyundai a second chance to remedy the deficiency. This led to Hyundai's appeal.

The Federal Circuit ruled that Commerce's rejection of Hyundai's submissions stand as an improper basis for AFA. "Commerce’s denial of Hyundai’s request to provide any necessary information was contrary to the statute, which states in relevant part that Commerce 'shall promptly inform the person submitting the response of the nature of the deficiency and shall, to the extent practicable, provide that person with an opportunity to remedy or explain the deficiency,'" the opinion said.

The judges also said Commerce "has no authority to apply adverse facts and inferences unless the respondent has failed to provide requested information when notified of the deficiency, and has not acted to the best of its ability in responding to such requests." The court said before making an adverse inference, Commerce must look at the extent of the respondent's efforts in cooperating with the review.

"Commerce made no such examination, and on this appeal, the only excuse offered for Commerce’s failure to provide Hyundai with a notice of deficiency and the opportunity for remedy, was that Commerce 'discovered' the deficiency only on 'verification.' This argument does not track Commerce’s prior position that the deficiency arose when Commerce changed its methodology to satisfy a prior remand from the Court of International Trade." The judges said no proper basis for AFA was articulated and as such, it is remanded.

(Hitachi Energy USA v. U.S., Fed. Cir. #20-2114, dated 05/24/22, Judges Pauline Newman, Alan Lourie and Timothy Dyk. Attorneys: Melissa Brewer of Kelley Drye for plaintiff-appellee Hitachi; John Todor for defendant U.S. government; Ron Kendler of White & Case for defendants-appellants Hyundai and Hyundai Corp. USA).