                                       Slip Op. 17-158

                  UNITED STATES COURT OF INTERNATIONAL TRADE



INMAX SDN. BHD. and INMAX
INDUSTRIES SDN. BHD.,

                       Plaintiffs,
                                                  Before: Leo M. Gordon, Judge
             v.
                                                  Court No. 17-00205
UNITED STATES,

                       Defendant.


                                     OPINION and ORDER

[Changed Circumstances Review Remanded.]

                                                              Dated: December 4, 2017

      Gregory S. Menegaz, J. Kevin Horgan, Alexandra H. Salzman, and Judith L.
Holdsworth, deKieffer & Horgan, PLLC of Washington, DC for Plaintiffs Inmax Sdn. Bhd.
and Inmax Industries Sdn. Bhd.

       Stephen C. Tosini, Trial Attorney, Commercial Litigation Branch, Civil Division,
U.S. Department of Justice of Washington, DC, for Defendant United States. With him on
the brief were Chad A. Readler, Acting Assistant Attorney General, Jeanne E. Davidson,
Director, Patricia M. McCarthy, Assistant Director, and Eric J. Singley, Trial Attorney.
Of counsel on the brief was David W. Richardson, Senior Counsel, U.S. Department of
Commerce, Office of the Chief Counsel for Trade and Enforcement and Compliance of
Washington, D.C.

      Adam H. Gordon and Ping Gong, The Bristol Group PLLC, of Washington, DC for
Defendant-Intervenor Mid Continent Steel & Wire, Inc.

      Gordon, Judge: Plaintiffs challenge the initiation of a changed circumstances

review by the U.S. Department of Commerce (“Commerce”) less than 24 months after

publication of the notice of the underlying final less than fair value determination.

See Certain Steel Nails from Malaysia, 82 Fed. Reg. 34,476 (Dep’t of Commerce July 25,
Court No. 17-00205                                                                Page 2


2017) (“Final Results”), and accompanying Issues and Decision Memorandum for the

Final Results of the Antidumping Duty Changed Circumstances Review of Certain Steel

Nails   from   Malaysia    (Dep’t   of   Commerce      July   14,   2017),   available   at

http://enforcement.trade.gov/frn/summary/malaysia/2017-15518-1.pdf (last visited this

date) (“Decision Memorandum”); Plaintiffs’ Rule 56.2 Mem. Supp. Mot. for J. upon the

Agency R., ECF No. 36 (“Pls.’ Br.”); Def.’s Resp. to Pls.’ Rule 56.2 Mot. for J. on the

Agency R., ECF No. 37 (“Def.’s Resp.”); Pls.’ Reply Br., ECF No. 39. The court has

jurisdiction pursuant to Section 516A(a)(2)(B)(iii) of the Tariff Act of 1930, as amended,

19 U.S.C. § 1516(a)(2)(B)(iii) (2012),1 and 28 U.S.C. § 1581(c) (2012).

                                     I. Background

        Plaintiff Inmax Sdn. Bhd. (“Inmax”) was a mandatory respondent in the less-than-

fair-value investigation of certain steel nails from Malaysia (“subject merchandise”) and

was assigned a total adverse facts available (“AFA”) rate of 39.35%. Certain Steel Nails

from Malaysia, 80 Fed. Reg. 28,969 (Dep’t of Commerce May 20, 2015) (“Final LTFV

Determination”). Prior to the preliminary determination, Inmax requested that it be

collapsed with its affiliated company Inmax Industries Sdn. Bhd. (“Inmax Industries”).

Both companies shared the same parent, Inmax Holding Co. Ltd. (“Inmax Holding”).

Commerce in its preliminary determination did not collapse Inmax and Inmax Industries.

No party challenged that decision, and Commerce did not collapse the companies in the

final determination. This proved fortunate for Inmax Industries (and its parent Inmax


1
 Further citations to the Tariff Act of 1930, as amended, are to the relevant provisions of
Title 19 of the U.S. Code, 2012 edition.
Court No. 17-00205                                                                 Page 3


Holding) because Inmax was assigned a total adverse facts available rate of 39.35%,

whereas Inmax Industries was assigned the all others rate of 2.66%.

      After release of the Final LTFV Determination, Inmax Holding filed a letter with the

Taiwan Stock Exchange in which it explained, in pertinent part:

              The [United States] initiated antidumping and countervailing duty
      investigations on Certain Steel Nails from Malaysia . . . . We have been
      notified that the U.S. Department of Commerce (DOC) made an affirmative
      final determination that assigned a final antidumping duty rate of 39.95% to
      [Inmax]. We are very concerned about DOC’s determination, and have
      asked our counsel to find out the details.

              Our subsidiary, [Inmax Industries] have not been investigated by the
      DOC in the antidumping and countervailing duty investigations. According
      to the U.S. official information, our subsidiary [Inmax Industries] final duty
      rate is 2.61%. Because of the tax variation factor, our subsidiary [Inmax] will
      make sales to the U.S. market through new factory Inmax Indust[ries]’
      production line and will have some temporary changes because of the
      business adjustment in the near future. After the temporary adjustment, we
      expect that it will stabilize its production line and its U.S. market.

Joint Appendix 5.

      Four months after the Final LTFV Determination (in September 2015), Mid

Continent Steel & Wire, Inc. (“Petitioner”) requested that Commerce initiate a changed

circumstances review, alleging that U.S. import data demonstrated a sharp decline in

imports of subject merchandise for Inmax and a corresponding increase in imports of

subject merchandise for Inmax Industries. Petitioner alleged that Inmax was potentially

evading the antidumping duty order by shipping production through Inmax Industries and

its lower “all others” rate. Petitioner highlighted the quoted language above from Inmax

Holding’s Taiwan Stock Exchange notice. Commerce, in turn, determined that the

requisite statutory “good cause” existed to conduct a changed circumstances review
Court No. 17-00205                                                              Page 4


within 24 months of the investigation, 19 U.S.C. § 1675(b)(4), emphasizing “new trading

patterns” among the Inmax companies and “possible evasion of the Order.” Certain Steel

Nails from Malaysia, 80 Fed. Reg. 71,772 (Nov. 17, 2015) (notice of initiation). Commerce

ultimately collapsed Inmax and Inmax Industries, a decision no party disputes. Decision

Memorandum at 4. Plaintiffs instead focus on the changed circumstances review itself,

arguing that Commerce lacked the requisite good cause. Id. at 4-14. During the course

of the changed circumstances review, Plaintiffs and Petitioner requested a periodic

review, and Commerce initiated the first administrative review (“AR”) in September 2016.

Pls.’ Br. at 12. The cash deposit rates assigned in the investigation to the Inmax

companies will therefore not ripen into assessed antidumping duties, but instead be

superseded by actual calculated rates for the covered entries, with any difference

between the cash deposits and actual assessment trued up at liquidation

(any underpayment payable plus interest, any overpayment refunded plus interest).

See 19 C.F.R. § 351.212.

                                II. Standard of Review

      The court sustains Commerce’s “determinations, findings, or conclusions” unless

they are “unsupported by substantial evidence on the record, or otherwise not in

accordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i). More specifically, when reviewing

agency determinations, findings, or conclusions for substantial evidence, the court

assesses whether the agency action is reasonable given the record as a whole. Nippon

Steel Corp. v. United States, 458 F.3d 1345, 1350–51 (Fed. Cir. 2006). Substantial

evidence has been described as “such relevant evidence as a reasonable mind might
Court No. 17-00205                                                              Page 5


accept as adequate to support a conclusion.” DuPont Teijin Films USA v. United States,

407 F.3d 1211, 1215 (Fed. Cir. 2005) (quoting Consol. Edison Co. v. NLRB, 305 U.S.

197, 229 (1938)). Substantial evidence has also been described as “something less than

the weight of the evidence, and the possibility of drawing two inconsistent conclusions

from the evidence does not prevent an administrative agency’s finding from being

supported by substantial evidence.” Consolo v. Fed. Mar. Comm’n, 383 U.S. 607, 620

(1966). Fundamentally, though, “substantial evidence” is best understood as a word

formula connoting reasonableness review. 3 Charles H. Koch, Jr. Administrative Law and

Practice § 9.24[1] (3d ed. 2017). Therefore, when addressing a substantial evidence issue

raised by a party, the court analyzes whether the challenged agency action

“was reasonable given the circumstances presented by the whole record.” 8A West’s Fed.

Forms, National Courts § 3.6 (5th ed. 2017).

      Separately, the two-step framework provided in Chevron, U.S.A., Inc. v. Natural

Res. Def. Council, Inc., 467 U.S. 837, 842–45 (1984), governs judicial review of

Commerce's interpretation of the antidumping statute. See United States v. Eurodif

S.A., 555 U.S. 305, 316 (2009) (Commerce's “interpretation governs in the absence of

unambiguous statutory language to the contrary or unreasonable resolution of language

that is ambiguous.”).

                                    III. Discussion

      The antidumping statute requires “good cause” for Commerce to conduct

a changed circumstances review within 24 months after an investigation. 19 U.S.C.
Court No. 17-00205                                                                     Page 6


§ 1675(b)(4).2 “Good cause” is a term of art (most common in the labor and employment

law context) that translates simply to a “legally sufficient reason.” CAUSE, Black's Law

Dictionary (10th ed. 2014). The “good cause” standard is “higher than the regular

standard” for initiating a changed circumstances review. Decision Memorandum at 11.

If a typical changed circumstances review requires changed circumstances, then logic

dictates that Commerce’s “higher” standard requires something more than just changed

circumstances, or more simply, changed circumstances “plus.”

       As noted above, Petitioner identified evidence of potential evasion by Inmax, and

Commerce reasoned, “if preventing evasion of an order is not ‘good cause,’ then it is

difficult to imagine what would be ‘good cause.’ . . . it is difficult to imagine a better cause

for initiating a [changed circumstances review] than preventing evasion of an order by

one company through the use of an affiliated company.” Id. This strikes the court as

a reasonable response to the facts before Commerce at the time of initiation of the review.

Inmax, a mandatory respondent that participated in the investigation received a total AFA

rate of 39.35%. Its affiliate Inmax Industries, also an interested party that participated in

the investigation, received the all others rate of 2.66%. Shortly after the investigation,

Inmax dramatically reduced its exportation of subject merchandise, while affiliate Inmax

Industries increased its exportation of subject merchandise. Those changed



2
  There is also a “parroting regulation,” 19 C.F.R. § 351.216(c), that “does little more than
restate the terms of the statute itself,” Gonzales v. Oregon, 546 U.S. 243, 257 (2006),
which means the issue here does not involve Commerce's interpretation of its regulation,
but Commerce’s application and interpretation of the statutory provisions
themselves. See id. (“the existence of a parroting regulation does not change the fact that
the question ... is not the meaning of the regulation but the meaning of the statute.”).
Court No. 17-00205                                                                  Page 7


circumstances plus the public statement from Inmax Holdings that Inmax would

“make sales to the U.S. market through new factory Inmax Indust[ries]’ production line”

was sufficient to warrant a closer look from Commerce. There were changed

circumstances—the change in trading patterns—plus the potential evasion by Inmax

shipping its subject merchandise through Inmax Industries.

       Interestingly, though, when Commerce took that closer look in the changed

circumstances review, it found that Inmax was not shipping any of its merchandise

through Inmax Industries. According to Commerce, “the evidence does not show that

[Inmax] is producing merchandise at its facility and then exporting that merchandise

through Inmax Industries.” Id. at n.26. Instead, Inmax apparently ceased production of

subject merchandise in response to the 39.35% rate. Inmax Industries, on the other hand,

developed its own production lines and has been exporting its own subject merchandise

pursuant to its duly assigned all-others rate. It is important, therefore, to note that there

was no actual “evasion” of the antidumping order, at least as the court understands that

term. Evasion connotes illegality in the entry of subject merchandise. See 19 U.S.C.

§ 1517(a)(5) (defining “evasion”). Had Inmax shipped its merchandise (subject to

a 39.35% rate) through Inmax Industries (and its 2.66% rate), that would have been an

illegal evasion of the order, id., and may have engendered a referral from Commerce to

U.S. Customs and Border Protection pursuant to 19 U.S.C. § 1517(b)(3) for further

investigation under 19 U.S.C. § 1517 (“Procedures for investigating claims of evasion of

antidumping and countervailing duty orders”). But that’s not what happened. Parent

Inmax Holding’s letter to the Taiwan Stock Exchange was not a pronouncement of an
Court No. 17-00205                                                              Page 8


impending fraudulent export scheme among its subsidiary companies, but a simple

misstatement of otherwise lawful activity under an antidumping duty order. To recap,

Commerce did not collapse the Inmax companies, assigning each company its own rate

(both of which were derivative, with one based on the petition rate, and the other based

on the all others rate). Inmax Industries therefore received its own rate, and lawfully

produced subject merchandise for exportation at that rate (rather than unlawfully export

subject merchandise produced by its affiliate Inmax).

      Although the court believes Commerce had good cause to initiate the changed

circumstances review—there were changed circumstances plus the possibility of

evasion—the subsequent finding by Commerce that Inmax was not shipping its

merchandise through Inmax Industries, does alter the dynamics of the proceeding and

challenges the reasonableness of several aspects of Commerce’s subsequent decision.

The court therefore must remand this matter to Commerce for further explanation.

      As noted, Commerce found that the Inmax companies did not illegally co-mingle

subject merchandise in their exports, and that their parent publicly, and transparently,

communicated a change in their export behavior due to the differing assigned rates.

Commerce does acknowledge that “this avoidance could be seen by some as

a reasonable corporate resources decision. . . .” Decision Memorandum at 5. The court

would go one step further and add that not just “some” but all would view such a

production change as a reasonable corporate resource decision. What were Inmax

Holding’s other options? Continue to export through Inmax at 39.95%? Commerce

concludes that the otherwise reasonable corporate resource decision “is a form of
Court No. 17-00205                                                                  Page 9


deliberate manipulation, via cash deposit avoidance, to undermine or evade the full effect

of the Order.” Id. For Commerce, “this activity purposefully undermines the Order

by seeking to avoid the application of [Inmax]’s AD cash deposit rate determined in the

investigation.” This conclusion implies that there is only one true cash deposit rate for the

Inmax companies, the total AFA petition rate assigned to Inmax, rather than the two rates

that Commerce actually assigned.

       The court is surprised at Commerce’s sudden epiphany that Inmax and Inmax

Industries could shift production between them. Inmax and Inmax Industries actively

sought to be collapsed in the investigation, meaning that they implicitly conceded the

basis for collapsing—a potential for manipulation of price or production, 19 C.F.R.

§ 351.401(f). Commerce chose not to collapse them, and assigned a separate rate to

each company. The court therefore does not understand how production and exportation

by Inmax Industries under its validly assigned rate avoids “paying the investigation rate.”

Commerce found there was no co-mingling of subject merchandise between the Inmax

companies, which should have clarified for Commerce that the public disclosure of parent

Inmax Holding was not some bold pronouncement of fraudulent intent to “evade”

the order, but instead, a transparent explanation of production adjustments because

of the magnitude of the total AFA rate compared to the all-others rate.

       Despite having assigned the all-others rate to Inmax Industries, Commerce

suggests that Inmax Industries should have exported under Inmax’s total AFA rate:

       Inmax Industries began selling the subject merchandise to the United States
       and entering it under the all-others rate, rather than [Inmax’s] rate, just as
Court No. 17-00205                                                                 Page 10


       the companies announced they would do. . . . The issue here is whether the
       proper AD cash deposit rate is being applied to entries.

Decision Memorandum at 11. Commerce again intimates there is one proper cash deposit

rate—the higher one. For Commerce, the cessation of exports from Inmax and increase

in imports from Inmax Industries “would and could” undermine “the efficacy and integrity

of the Order (and ultimately the integrity of the trade remedy laws) and unnecessarily

delay the application of the statutory remedy for a significantly long time (i.e., nearly two

years, or more) before the completion of the first [administrative review].” Id. at 10.

       This is quite a flourish, but is too vague to have much meaning. The court is unsure

what “statutory remedy” Commerce is referencing. Is Commerce referring to collapsing

two affiliated companies via a changed circumstances review prior to the first

administrative review? If so, the court notes that the statute contemplates a two-year

(24 month) limitation on such a remedy, 19 U.S.C. § 1675(b)(4). Or is Commerce

referencing some other “statutory remedy”?

       The court is also having trouble with the conclusion that Inmax Holding, Inmax,

and Inmax Industries have undermined the integrity of the order. Both Inmax and Inmax

Industries are being reviewed in the first administrative review in which they have been

collapsed. The final rate assigned in that proceeding will be the liquidation rate for

the entries subject to cash deposits set in the investigation. Any cross-border price

discrimination is therefore being mitigated at specific rates calculated in the first

administrative review (as opposed to less precise, derivative cash deposit rates set in

the investigation) and payment to the United States is secured by the cash deposits for
Court No. 17-00205                                                                   Page 11


any resulting duties owed. And here, rather than illegally ship Inmax’s merchandise

“through” Inmax Industries, Inmax Holding honored the dictates of the order by taking

the time and incurring the expense to retool Inmax Industries, observe corporate

formalities, and export Inmax Industries’ subject merchandise under the all-others rate.

Rather than undermine the integrity of the order, the Inmax companies appear to have

upheld it. If the goal of the antidumping statute and antidumping duty orders is to level

the playing field and mitigate cross-border price discrimination, see RZBC Grp.

Shareholding Co. v. United States, No. 15-00022, 40 CIT ___, ___, 2016 WL 3880773,

at *1 (June 30, 2016) (explaining that the purpose of antidumping duties is to level

the playing field and fight price discrimination), it is hard to conclude that those objectives

are being undermined here. If, however, the antidumping statute is being used for some

other purpose, for example, to effectively lock out or embargo subject merchandise

through aggressive assignment of high, petition-based, total AFA rates, then that

objective was, indeed, undermined by the Inmax companies.

       The court agrees that upon initiation, the record suggested that Inmax may have

been evading the order by shipping its merchandise “through” Inmax Industries. During

the review, however, Commerce determined this was not happening. Commerce

maintains that the “good cause” standard is “higher” than a typical changed

circumstances review. This means there needs to be something more than mere changed

circumstances. With the absence of the original contemplated evasion (Inmax shipping

its merchandise through Inmax Industries), it appears we are dealing with an ordinary

changed circumstances review. And it is neither remarkable nor noteworthy that Inmax
Court No. 17-00205                                                                Page 12


and Inmax Industries should be collapsed—they sought that treatment all along.

The more interesting question is what Commerce should have done when it discovered

that there was no actual evasion of the order by the Inmax companies. Did the good cause

justifying the review suddenly evaporate with the finding of no evasion? Posed another

way, having invested time and resources in the review, should Commerce have

completed it and collapsed the Inmax companies as it did, or should Commerce have

terminated the review once it discovered that Inmax was not exporting “through” Inmax

Industries?

       The court will remand this matter to Commerce to address that question as well as

the following questions:

       1. What specific “statutory remedy” is Commerce referencing on page 10 of

the Decision Memorandum?

       2. How is the integrity of the order undermined if Inmax did not illegally ship its

merchandise through Inmax Industries, but rather, ceased production and Inmax

Industries exported its own subject merchandise? It seems the opposite conclusion

applies, that Inmax and Inmax Industries were upholding the integrity of the order and

observing the legal formalities required for their exports. Also, given that Inmax and Inmax

Industries have been collapsed in the first administrative review, and therefore actual,

specific, calculated rates will supersede the cash deposit rates assigned during

the investigation, won’t any cross-border price discrimination for the effected entries be

remedied as intended by the statute?
Court No. 17-00205                                                               Page 13


       3. Given the wide disparity in the assigned rates to the Inmax companies, and

given that both companies were fully cooperating in the contemporaneous first

administrative review in which the companies were collapsed, what specific statutory

purpose did Commerce achieve in consolidating the investigation rates at the higher total

AFA rate, rather than simply wait for completion of the first administrative review to both

set the liquidation rate for the first AR entries as well as the new cash deposit rate for

the Inmax companies?

       Accordingly, it is hereby

       ORDERED that the Final Results are remanded to Commerce for action in

   accordance with this opinion.



                                                              /s/ Leo M. Gordon
                                                            Judge Leo M. Gordon


Dated: December 4, 2017
       New York, New York
