Trade Court Upholds Commerce's Surrogate Value Picks in AD Review on Chinese Aluminum Foil

The Court of International Trade on June 7 upheld the Commerce Department's classification of the surrogate values for aluminum ash byproduct and rolling oil inputs in the first antidumping duty administrative review on aluminum foil from China, as well as the agency's decision to use Maersk data to calculate surrogate freight costs and its refusal to grant respondent Jiangsu Zhongji Lamination Materials Co. a double remedies adjustment for input subsidies the respondent said were countervailable.

Judge M. Miller Baker found that in all three surrogate value (SV) challenges, "imperfect data forced the Department to make compromises." For the aluminum ash byproduct, Commerce "reasonably selected a second-best category that emphasized ash rather than aluminum." For the rolling oil input, the agency "reasonably chose a broader code rather than a narrower code because the company’s data did not compel a narrower choice," and as for the freight data, Maersk was reasonably selected since "on at least some of the criteria outlined in Commerce’s Policy Bulletin the Maersk dataset was superior," Baker ruled.

Liquidation Instructions Claim

Zhongji also challenged the review in a bid to get Commerce to modify its liquidation instructions to include the phrase "resold or imported" since some of the company's customers re-invoiced sales before import, meaning the importer of record could be different from the final customer. The respondent was worried that the re-invoiced entries would not be given the company's 23.62% rate and would instead be saddled with the China-wide rate.

Baker said that it was "not entirely clear what argument Zhongji" was trying to make. While making some very general points on the purpose of AD laws being non-punitive, the company "seems to vacillate between arguing either (i) that some specific aspect of its business makes Commerce’s standard liquidation instructions problematic here, or (ii) that, based on the general points the company raised, those liquidation instructions are unlawful as a general matter." If arguing point one, the company needs a more thorough explanation on what those circumstances are, and if arguing point two, it needs "far more evidence," the judge said.

Surrogate Value Challenges

In all, Zhongji made three SV challenges, the first of which concerns the classification of aluminum ash byproduct, which the company argued should be classified under Harmonized Tariff Schedule subheading 7602.00.19. In the review, Commerce went with Bulgarian Global Trade Atlas data for HTS heading 2620. While the agency's heading describes ash, the respondent argued that its preferred subheading is also specific to ash but is ultimately better since it is also specific to aluminum.

Baker identified that the spat boiled down to a "technical judgment" by Commerce on whether to prioritize aluminum or ash in picking from "two imperfect categories." In the end, the judge said this type of decision is just one for Commerce to make. "Even if reasonable minds might differ, the substantial evidence standard is met," the opinion said.

The second SV spat was over the classification of rolling oil. Zhongji claimed that HTS subheading 2710.12.21, which provides for petroleum oil and oils obtained from bituminous minerals not elsewhere specified, while Commerce championed heading 3403.99 for rolling oil and 3811.90 for rolling oil additive. Chapter 34 covers soap while Chapter 38 covers "miscellaneous chemical products." While Zhongji argued that its heading is more specific since its oil is made from petroleum, Commerce said the respondent did not adequately describe its inputs on the record "to support selection of the eight-digit HTS categories rather than the six-digit categories" picked by Commerce.

"The government has the better of this argument," Baker said. "Zhongji raises legitimate points about why its HTS code was superior. But a reasonable mind could easily conclude that the agency was right about the technical details and right to privilege the original HTS code."

Zhongji also challenged the U.S.'s pick of Maersk data over Xeneta and Descartes numbers as part of the freight calculations. Commerce said it went with Maersk since the data was publicly available and did not incorporate non-market economy state-owned shipping data like Xeneta and Descartes. Zhongji claimed that the Maersk pick was unsupported since it failed to compare the competing data sources to find what information was actually best to value the factors of production, adding that the data was "fundamentally flawed" as it was based on mere quotes while the Xeneta data has hundreds of thousands of rates per month.

Baker ultimately found that the Maersk data was "not dominated by either the Xeneta or the Descartes." Looking to the criteria identified in Commerce's Policy Bulletin, including the completeness, quality of data, public availability and permissibility of data sources, "the Maersk database beat both the Xeneta source (on public availability and permissibility) and the Descartes source (on permissibility)," the opinion said. "Because weighting each aspect of the Policy Bulletin is within Commerce’s discretion, the Department met the burden required by the substantial evidence standard."

Double Remedies Adjustment

Zhongji claimed that Commerce committed another error by not granting a double remedies adjustment since there's a link between the subsidies it received and its cost of manufacturing and between its cost of manufacturing and its "selling price of aluminum foil." The government countered that it properly denied the adjustment since the respondent failed to show a "subsidy-to-cost link" and a "cost-to-price link."

The respondent claimed that it adequately showed how the pricing of each input was "incorporated directly into its cost-of-manufacturing ledgers" and how its input prices and cost of manufacturing both declined during the review period using London Metal Exchange data. Commerce instead found that Zhongji did not sufficiently explain how London Metal Exchange prices for primary aluminum ingot, a key input, establishes a monthly decline in the prices of aluminum foil. The agency also rejected Zhongji's bid to establish a "cost-to-price" link, finding that Zhongji's accounting records only shows how it tracks its usage of the three subsidized inputs and not a link between the cost of manufacture the merchandise's price.

In making his ruling, Baker keyed in on two admissions from Zhongji: that the company does not have a "formal threshold for changes in the cost of item that would lead ot adjustment of prices" since any price adjustments come from management discussions, and the price charged to customers changes based on a reference to the London Metal Exchange ingot price.

"The two admissions cited above are enough to support the Department’s conclusion," the opinion said. "... In other words, whether 'the average price of imports' to the United States was reduced is apparently a matter of whether Zhongji’s management decides to adjust prices. The Department’s conclusion that the company failed to demonstrate eligibility for a double remedies adjustment is therefore supported by substantial evidence."

(Jiangsu Zhongji Lamination Materials Co. v. United States, Slip Op. 23-84, CIT # 21-00138, dated 06/07/23; Judge: M. Miller Bake; Attorneys: Jeffrey Grimson of Mowry & Grimson for plaintiffs led by Zhongji; Brian Boynton for defendant U.S. government; and John Herrmann of Kelley Drye for defendant-intervenors led by Aluminum Association Trade Enforcement Working Group and Its Individual Members)